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June 3, 2011

Tackling inequality is everyone's business

The call to tackle inequality is coming from a new quarter -- one of Canada's largest banks.

Raise taxes on the rich and cut taxes for the most overtaxed -- the poor.

Sounds radical. But that is the prescription from one of Canada's top bakers, Toronto-Dominion Bank CEO Ed Clark, and from the Organization for Economic Cooperation and Development (OECD).
The Globe and Mail ran a long article -- How paying people's way out of poverty can help us all -- on the need for Canada to tackle inequality.

That report struck me as a sign of hope. I recently re-read The Worldly Philosophers by Robert Heilbronner. A history of economic thought I read in my first year undergraduate economics course -- oh so many years ago. The copy on my book shelf is the 1967 edition (which I picked up used a few years back, to replace my original copy, which somehow got lost.) Near the end, Heilbronner reflects on prospects for the future. This passage stuck my as quaintly naive given our current realities. Reflecting on the years of unprecedented economic growth in the 1950s and 1960s, Heilbronner looked forward to a bright future of greater equality.
Better yet. In that potential world of plenty, the gulf between rich and poor will likely have narrowed still further. For over the past thirty years, the income of less-well-off households has risen half again  as fast as the income of upper-income households. Partly this has been due to a great leap in the productivity of the working class; partly it has been due to a deliberate attempt to limit wealth at the top by policies of progressive taxation. As a result, according to the calculations of Dr.Simon Kuznets, the share of the nation's income going to the very apex of the economic pyramid -- the upper one per cent of income receivers -- has been nearly sliced in half since 1929. And while the concealing of top incomes via expense accounts, tax-exempt  interest, and capital gains has undoubtedly made the real decline a good deal less in fact than theses figures indicate, there can be no doubt that capitalism is handing out its rewards on a more egalitarian basis than ever before.
So if the trend of the past continues, then in the hopeful vistas of the future we can expect the lowest quarter of the nation  to have done better than merely ride with the current. It is not likely that the rich will be much further squeezed, for already tax avoidance has become a dangerous competitor of old-fashioned money-making. But the redistribution may yet be brought about by shunting more of the gains from growth toward the lower income brackets instead of sharing them with rich and poor alike. (p. 267) Robert Heilbroner, The Worldly Philosopher3rd Edition 1967

Fast forward to 2011 and things have changed dramatically. Inequality has been on the rise. Most of us are working longer, but not getting ahead. Alot of us are working longer and not even getting by. What happened?

Tom Zizys talks about a Labour Market "Perfect Storm": technological change, globalization, internationalization of finance, cultural shifts and a doubling of the labour market with the rise of the Chinese and Indian economies. Together these changes have eroded many good jobs. In significant ways, this was inequality by design.

The 1980s witnessed the demise of the social welfare consensus and the
emergence of a counter-­reaction, evidenced by the rise of conservative politicians(Thatcher, Reagan, Kohl, Mulroney), as well as the promotion of individual responsibility as opposed to collective solutions to common problems. The business sector became more organized and strategic in promoting its voice (partly in response to the growth of government legislation and regulation throughout the 1960s and 1970s). This political, social, and business sector counter-­reaction created the space for policy initiatives such as reducing the power of unions, freezing increases in the minimum wage, and making social assistance conditional on workfare. It was also the mood that facilitated a shift in corporate management practices, whereby managers were now celebrated for being “lean and mean” rather than for preserving jobs.
Add to this the successive cuts to personal and corporate incomes taxes that have flattened out the progressivenes of Canada's tax system and cutbacks to income security programs (Employment Insurance and Social Assistance).

There is a growing acknowledgement that inequality is a problem for all of us. It means that tackling inequality is everyone's business. I'm glad to see the Globe and Mail giving this attention -- and the CEO of TD Bank, too.

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