Inequalities the big issue?

In his ODT column today Colin James suggests “inequalities are the big political issue for 2012 and beyond”  (and to his credit he doesn’rt mention poverty at all).

That’s not because the Left is about to surge – the Left has yet to connect principle to modern conditions.

It is because the economic efficiency justifications are crumbling.

After detailing a bit of history of income inequality he comesa to the recent past:

Angst about this used to be the preserve of the political Left. But increasingly, over the past six months, it has been bothering the political Right.

The World Economic Forum of major companies:

last week rated “severe income disparity” its top global risk for the next 10 years.

Financial Times Lawrence Summers (a former banker and United States Treasury secretary):

“The extent of the change in income distribution is such that it is no longer true that the overall growth rate of the economy is the principal determinant of middle-class income growth.

How the growth pie is distributed is at least as important.”

Financial Times’ Martin Wolf:

…declared in his column that the “huge rewards” for those with “ultra-high incomes” were “both unjust and inefficient”.

He demanded “a huge agenda” of government intervention, a “divisive” debate which “cannot be avoided if Western democracies are to stay legitimate in the eyes of their peoples”.

James closes by throwing the problem at our own government:

If such people, and rafts of others, think addressing inequalities is a political imperative in the north Atlantic countries, expect inequalities to feature here, too.

How that plays out, and particularly how, or if, John Key comprehends and addresses it, will be this year’s most serious political show.

I’m sure our politicians can do something to try and address this – if they choose to.

I don’t think they need to do what Singapore (slash politician’s pay) because compared to private sector pay rates I don’t think they are exhorbitant.

They could surely come up with something to fiddle with to be seen to be trying something.

But I think this is one of our biggest mistakes that leads to much frustration – our habit of expecting our politicians to fix every problem.

Shouldn’t we the people be looking at what we can do about it ourselves? We are the market, we can use that power to demonstrate to company officials that we don’t find their huge self rewards acceptable and we can pressure them to be far more reasonable.

Or we can keep kicking down the road towards our politicians.

That is of course if we give a stuff what company high flyers earn and think it’s a problem.

 

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2 Comments

  1. Gosman

     /  17th January 2012

    The trouble is the answers to this are far to vague to be useful in debating the merits or otherwise of them.

    What exactly is being suggested here?

    Is it Shareholders applying pressure on their board of Directors in setting top executives pay? Admirable I would argue but unless it is done across a number of companies and across a number of countries you run the risk of top executives just moving to where they get the best pay and the companies having to put up with sub-standard management.

    Perhaps you would like to directly transfer wealth from the top to the bottom via taxation and welfare payments? That would be politically difficult to sell from the perspective of parties on the right of the political spectrum. There are issues around the size of the state as a proportion of total GDP and also the impact of massive transfers in terms of incentives for work.

    There are other options that might mean inequalities are less. For example you could subsidise and/or protect certain highly paid industries so that more of your population earns a higher wage. Of course that distorts your economy so that it eventually becomes inefficient like that of Eastern Europe in the Soviet era.

    In short there are no quick fixes to this issue and all policies come with drawbacks.

    Reply
    • I agree there are no quick fixes, there may not in fact be any fixes. We have an imperfect mix of capitalism and social policies and while we can try tweaking the balance and incentives and controls we will always end up with some degree of inequality (certainly) and unfairness.

      Reply

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