Anyone for a business case for inequality reduction?

Nothing like a snappy blog post title.

But this excellent Vanity Fair article: “Of the 1%, by the 1%, for the 1%” from legendary economist Joesph Stiglitz, makes that case very well.

He writes:

“First, growing inequality is the flip side of something else: shrinking opportunity. Whenever we diminish equality of opportunity, it means that we are not using some of our most valuable assets—our people—in the most productive way possible.

Second, many of the distortions that lead to inequality—such as those associated with monopoly power and preferential tax treatment for special interests—undermine the efficiency of the economy.

This new inequality goes on to create new distortions, undermining efficiency even further. To give just one example, far too many of our most talented young people, seeing the astronomical rewards, have gone into finance rather than into fields that would lead to a more productive and healthy economy.”

And points out that:

“Virtually all U.S. senators, and most of the representatives in the House, are members of the top 1 percent when they arrive, are kept in office by money from the top 1 percent, and know that if they serve the top 1 percent well they will be rewarded by the top 1 percent when they leave office.

By and large, the key executive-branch policymakers on trade and economic policy also come from the top 1 percent. When pharmaceutical companies receive a trillion-dollar gift—through legislation prohibiting the government, the largest buyer of drugs, from bargaining over price—it should not come as cause for wonder.

It should not make jaws drop that a tax bill cannot emerge from Congress unless big tax cuts are put in place for the wealthy. Given the power of the top 1 percent, this is the way you would expect the system to work.”

So what’s a large, powerful yet (publicly) apolitical large company to do about all this?

CEOs at Davos say income inequality worries them (it should, many have read some history) but what about action on a practical level?

Here’s a few suggestions:

1) Stop pretending your company is apolitical on important issues (this is the hardest one) and take stand on income inequality via industry groups by public, collective lobbying around job creation without stagnant real term wages.

Create such a group if there isn’t one in your sector.

2) Don’t ‘donate’ to rich politicians or parties financially. Instead, support practical job creation schemes and partnerships that offer a proven path to increased average earnings post initial success.

(too many povery alleviation partnerships lack ambition to scale and grow, the living wage is just that, no more)

3) Keep making noise. Not just via your industry groups or Davos forums, but talk loud and publicly, give interviews based on facts in interviews and at industry forums and events.

(as long as your CEO/owner is not hugely over-paid. If he/she is, you have a fundamental governance problem)

4) Work out how your supplier relationships might help close the gap if you had long(er) term contracts (or some at all).

5) Support with money (or help create), credible independent institutions who produce accepted research on the topic. Stay at arms length but make sure the facts and research get heard. Income inequality and elitism matters.

Inaction may one day mean the French Revolution or modern Russia, without change that’s potentially the choice.

Stigliz goes on to argue that throughout history the elite have become disconnected from inequality and eventually deposed:

“Alexis de Tocqueville once described what he saw as a chief part of the peculiar genius of American society—something he called “self-interest properly understood.”

The last two words were the key. Everyone possesses self-interest in a narrow sense: I want what’s good for me right now!

Self-interest “properly understood” is different. It means appreciating that paying attention to everyone else’s self-interest—in other words, the common welfare—is in fact a precondition for one’s own ultimate well-being.

Tocqueville was not suggesting that there was anything noble or idealistic about this outlook—in fact, he was suggesting the opposite. It was a mark of American pragmatism.

Those canny Americans understood a basic fact: looking out for the other guy isn’t just good for the soul—it’s good for business.

The top 1 percent have the best houses, the best educations, the best doctors, and the best lifestyles, but there is one thing that money doesn’t seem to have bought: an understanding that their fate is bound up with how the other 99 percent live. Throughout history, this is something that the top 1 percent eventually do learn. Too late.”

1 Comment

  1. Toby, in this regard it would be worth adding reference to the work of the Equality Trust http://www.equalitytrust.org.uk/ and Richard Wilkinson's and Kate Picketts book 'The Spirit Level'http://www.equalitytrust.org.uk/resource/the-spirit-level . a compelling argument why we should be focusing on inequality – with lots of statistical evidence – if we want to tackle of whole range of societal ills. I know it made a impact on many in government when it was launched, but is deserved of greater profile in the business community.

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