Creating shared prosperity will benefit everyone

Posted on December 28, 2012 in Debates – opinion/editorialopinion
December 27, 2012.   Jordan Brennan and Jim Stanford

Concern over the disparity between rich and poor has traditionally been concentrated on the left side of the political spectrum. Who cares about poverty and inequality? Social advocates, charities and others with a “caring, sharing” view of the world. They want us to show more compassion and solidarity for those suffering from poverty.

In recent years, however, a growing body of scientific evidence suggests that inequality is a major, costly problem for everyone — not just for poor people. This hard scientific research comes from many disciplines, including epidemiology, criminology, public health, psychology and education. The findings have been presented at academic conferences and published in peer-reviewed journals; this new knowledge is driven by hard science, not charity. An accessible summary of this new research was provided in Richard Wilkinson and Kate Pickett’s important 2009 book, The Spirit Level.

The scientific take-away from this new research is that inequality hurts all of us: economically, fiscally and socially. But there’s a political take-away, too: namely, that concern over inequality is breaking out of its traditional left-wing pigeonhole. Our growing awareness of the multi-dimensional economic and social costs of inequality means this topic will become increasingly relevant across the political spectrum.

Poverty is usually conceived in absolute terms: someone is poor if they don’t have adequate physical and material sustenance (housing, nutrition, education, and so on). But new evidence suggests that relative poverty — how an individual’s living standard compares to others in society — has an equally significant negative impact on health and well-being. In Canada, almost everyone has access to the basic requirements of survival. But relative inequality, or what is often termed “the growing gap,” is omnipresent and worsening. And we now understand that it has real, costly impacts.

For example, physiologists have documented that a sense of relative deprivation (feeling that you are inferior or shortchanged relative to your peers) produces chronic, measurable stress (experienced physically as well as emotionally), that in turn is systematically linked to negative health consequences. These documented side-effects include obesity, heart disease, diabetes and reduced life expectancy; these conditions are all strongly correlated with income levels. It turns out these health problems are not mostly caused by “bad habits” or lifestyle choices by poor people. The true cause is an economy and culture that produce and reproduce enormous social divisions, damaging the self-worth and social integration of poor people.

The concrete, measurable consequences of inequality are visible in many other indicators, too, including happiness, mental illness, infant mortality, children’s educational performance, teenage pregnancy, levels of trust, homicide, imprisonment and social mobility. Apart from the negative consequences experienced by those at the bottom of the ladder, the research also documents the enormous costs from inequality that are also imposed on society and government.

For instance, epidemiologists now know that inequality is bad for our health — and that means it’s also bad for our health budgets. The many billions spent each year to treat preventable, inequality-related illnesses must be paid by all of us, not just those who needlessly suffer the symptoms. The same goes for the immense public and private costs resulting from criminality and educational failure.

Moreover, it’s not just that we pay a big bill for the health and social problems caused by inequality. We also forego important positive opportunities and benefits that could be generated by a more inclusive and productive social structure. Economists can now actually measure the ways in which an absence of trust and social cohesion, endemic to poor neighbourhoods, interferes with the ability to do business, settle contracts, and build partnerships and networks. And they now empirically link both educational attainment and social health to an economy’s capacity to innovate and become more productive over time.

These findings, from multiple disciplines, indicate a strong, multi-dimensional relationship between income inequality and social pathology. And social pathology costs all of us. Economies with less inequality (places like Norway, Japan, Austria and Finland) demonstrate consistently superior outcomes in health, education, life expectancy and productivity growth — reaping the resulting economic and fiscal benefits. The obvious implication is that reducing inequality can deliver big dividends for our sluggish economy and battered government budgets. It is increasingly clear, in other words, that equality is good for growth.

The political implication, yet to fully register in our culture, is that inequality is no longer the exclusive terrain of liberals and social democrats. Like ecological sustainability, inequality is an issue that should transcend the simplistic left-right orientation of so many debates.

For example, fiscal conservatives concerned with swelling health-care costs and inflated spending on police and prisons should want to tame inequality, as a proven strategy for holding down government spending and taxes. Social conservatives alarmed by family breakdown should support equality in order to avoid the social, emotional and financial strain which families experience under conditions of relative deprivation. Even small-r republicans, who extol individual independence and civic virtue, should support greater equality. After all, a disenfranchised underclass depends far more on social supports, and is less likely to demonstrate self-reliance and community engagement.

Research also sheds light on the causes of the growing inequality we see around us. The erosion of income support programs that once underpinned the well-being of those at the bottom of the income ladder has been a key factor, as has the disappearance of decently paid working-class jobs in manufacturing.

recent report by one of us, Jordan Brennan, for the Canadian Centre for Policy Alternatives (“A Shrinking Universe”) also highlighted the powerful historical relationship between relative firm size (corporate concentration) and relative poverty (inequality). As the business sector becomes dominated by a shrinking number of large corporations, income distribution is polarized for several reasons: corporate profit margins thicken, the share of national income going to corporations increases, and income is redistributed from labour (in the form of wages) to capital (in the form of corporate profit).

The growing concentration of income and corporate power is also closely associated with the two-decade-long decline in union density. Unions give a voice to ordinary people in the workplace and historically have strengthened middle-class formation. The erosion of unions (helped along by increasingly aggressive anti-union government policies) is closely tied to the wage stagnation Canadians have experienced for decades.

In short, the growing gap in income distribution — and the myriad costs it imposes on society and our governments — is not inevitable. It reflects changes in economic and political power among the different stakeholders in society. Measures that limit the power and wealth of those at the top, and reinforce the structural bargaining position of those at the bottom, can ensure a broader distribution of incomes and wealth, and allow us to capture an important economic and fiscal “equality dividend.”

Inequality need not be a partisan, left-right issue. If we learn from the scientific evidence regarding the multi-dimensional costs of inequality, we will realize that creating a shared prosperity benefits all sectors of society (not just poor people). And then policy-makers from both ends of the political spectrum can join in building a more balanced and efficient society.

Jordan Brennan is a Ph.D. candidate at York University; his study “A Shrinking Universe” is available at www.policyalternatives.caJim Stanfordis an economist with the Canadian Auto Workers.

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