Wed, Jan 29, 2014 - Page 9 News List

The decline of the upwardly mobile

Economic inequality is real, but it can be addressed effectively only with policies and programs that foster growth and meaningful opportunities to benefit from it

By Richard Haass

Illustration: Mountain People

Concern about economic inequality is in the air almost everywhere. The issue is not inequality between countries, which is actually down in recent decades, thanks in large part to higher growth rates and longer lifespans in many emerging countries (especially China and India), rather the focus nowadays is on inequality — sometimes called income disparity — within countries.

One reason is that the problem of inequality is real — and growing worse in many places.

In recent decades, wealth and income have become more concentrated at the top — the so-called 1 percent — while real incomes and standards of living for the poor and middle class in many developed countries have stagnated or declined.

This was true before the global financial crisis erupted in 2008, but the crisis and its aftermath (including prolonged high levels of unemployment) have made things worse, and despite a few notable exceptions in northern Europe and parts of Latin America, the rise in inequality has affected the developed and developing worlds alike.

Prominent people are calling attention to the problem as never before. Pope Francis exhorts the world to say “thou shalt not” to an economy of exclusion and inequality, because “such an economy kills.” US President Barack Obama speaks about a US economy that has become “profoundly unequal.” Recently elected New York City Mayor Bill de Blasio made the issue the centerpiece of his campaign, repeatedly referring to a “tale of two cities” and an “inequality crisis.”

The emphasis is understandable, but there is a real danger in framing the problem as one of inequality. What should matter is not inequality per se — to paraphrase the gospel according to Matthew, the rich will always be with us — but rather whether citizens have a genuine opportunity to become rich, or at least become substantially better off. It is the lack of upward mobility, not inequality, that is the core problem.

Seeing inequality as the problem can lead to all sorts of counterproductive “remedies” that in fact would make the situation worse. The most obvious temptation is to try to reduce inequality by taxing the rich. The flaw in the politics of redistribution is that it emphasizes shifting wealth rather than creating it. Making the rich poorer will not make the poor richer.

There are of course exceptions to this principle. For example, in cases of extreme corruption and crony capitalism, the state’s resources are hijacked by the few. Many energy-rich countries fall into this category, which is why many observers speak of energy and mineral endowments as a “curse” rather than a benefit.

Fortunately, such cases are exceptions. As a rule, smart policy consists not in bringing down the rich, but in raising up the poor and middle class. Reducing (or, better yet, eliminating) discrimination on the basis of race, religion, gender and sexual orientation is one way to accomplish this, as is ensuring property rights, in part so that people can borrow money against their homes to start businesses.

Education is also vital, but this does not imply the need to spend much more on education — here (and elsewhere), how money is used is more important than how much is spent.

The most critical variable affecting students’ performance is the quality of teaching. The resources that are required for additional teacher training and for paying more talented people to become and remain teachers can be offset by a willingness to shed those teachers who are not up to the task. Even if some costs were to rise, it would be worth it if the result were better-educated and more productive citizens.

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