The Inequality Debate: We must build prosperity for all

Posted on October 2, 2015 in Equality Debates – Opinion/Commentary – We are living in an age of undeniable progress but middle-class incomes are more strained than at any time in the postwar era, writes Liberal candidate Chrystia Freeland.
Oct 02 2015.   By: Chrystia Freeland

Branko Milanovic, one of the world’s leading experts on income inequality, first became interested in the issue in his native Yugoslavia in the 1980s, only to be told it was a “sensitive” subject — meaning one the regime didn’t want its scholars looking into too closely.

He wasn’t surprised. After all, the central ideological promise of socialism was to create a classless society, a pledge that mere facts couldn’t be allowed to challenge. But when Milanovic made his way to Washington, where he worked as an economist for the World Bank, he was astonished to find an unspoken parallel taboo.

“I was once told by the head of a prestigious think tank in Washington, D.C., that the think-tank’s board was very unlikely to fund any work that had income or wealth inequality in its title,” Milanovic explained. “Yes, they would finance anything to do with poverty alleviation, but inequality was an altogether different matter.”

Milanovic is right. In recent decades, as wealth at the very top soared and incomes and jobs in the middle were being hollowed out, to even talk about income inequality was to invite accusations of class war. We had a particular Canadian version of denialism — when Justin Trudeau first identified the stagnating incomes of the middle class as his central concern he was widely derided. Smug in our relative success in weathering the financial crisis, too many of us imagined that rising income inequality might be a problem in the United States or Britain, but not here.

But Trudeau’s focus was and remains exactly right. Over the past three decades, middle-class incomes in Canada have lagged the growth in GDP. Meanwhile, the share of the national income going to the top 1 per cent has surged from 7.5 per cent in 1982 to 10 per cent in 2012. The shift is even starker at the very top, where the share of the national income going to the top 0.1 per cent has doubled from 2.5 per cent to 5 per cent.

This is the central paradox of the 21st-century economy. Thanks to the technology revolution and globalization, we are living in an age of undeniable progress — the world’s information at our fingertips, abundant and inexpensive consumer goods, the sharing economy, the driverless car coming soon.

But at the same time, middle-class incomes are more strained and precarious than at any time in the postwar era. Our biggest challenge today — one we share with the other western industrialized democracies — is how to make the market economy deliver for us all, not just the 1 per cent.

We’ve been here before. The Industrial Revolution was a time of tremendous technological progress and globalization, but also of profound, and sometimes deadly, social upheaval.

The good news is that eventually — albeit after the Great Depression, two world wars, and Communist revolutions in Russia and China — we figured it out. We in the developed world are all healthier, richer, freer and even, with a few notable exceptions, taller than our early 19th-century ancestors.

There were two keys to our success then — and they will be the keys to our success now. The first is a fundamentally positive attitude to technological progress, even as we are realistic about its side-effects. Silicon Valley has hugely increased income inequality in the Bay Area. But the only thing worse than having a Silicon Valley in your city or your country is not having one — which is why I was so happy to read Omar El Akkad’s recent calculation that Canadian technology companies have a market capitalization equivalent to that of our mining sector.

The second is to understand the essential role of government in harnessing technological change so that it serves us all. The modern social welfare state was invented in response to the Industrial Revolution; that is how we turned those dark satanic mills into postwar middle class abundance. Today, another period of dramatic economic change, we need government to lean against rising income inequality and to invest in jobs and growth.

We aren’t doing that very well now. “Canada’s tax system is not as progressive as many might think and the transfer system is not as significant as in many other countries,” TD Bank, not known as a radical left-wing institution, argued last November in a report on income inequality.

We are living in an age of winner-take-all economic forces. But ultimately our communities will thrive and our overall economy will grow only if we can harness them and create inclusive prosperity.

Chrystia Freeland is the Liberal candidate in University-Rosedale riding and the party’s trade critic. She is the author of Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else (2012).

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