Collective Conscious

Har­vard Busi­ness Review:

The big rise in eco­nomic inequal­ity over the past four decades is partly the result of imper­sonal eco­nomic forces — tech­no­log­i­cal change, mostly — but polit­i­cal deci­sions have played a cru­cial role as well. Finan­cial mar­ket dereg­u­la­tion, tax-​​code changes, and all man­ner of other pol­icy choices in the have pro­moted inequal­ity in the U.S., as Jacob S. Hacker and Paul Pier­son demon­strated pretty con­vinc­ingly in their 2010 book Winner-​​Take-​​All Pol­i­tics. And sim­i­lar moves were made in much of the rest of the world.

Who pushed for these changes? Well, busi­ness­peo­ple, of course. Often for very good rea­son: to spur eco­nomic growth, to increase a par­tic­u­lar country’s eco­nomic com­pet­i­tive­ness, even to pro­mote per­sonal free­dom in the face of a sti­fling gov­ern­ment. But pen­du­lums always swing too far. Econ­o­mist Mark Thoma put it well ear­lier this month:

Busi­ness folks would seem to be stuck. They need a more equal dis­tri­b­u­tion of wealth and income to con­tinue thriv­ing. But it doesn’t seem to be in any businessperson’s imme­di­ate inter­est — and in many cases con­tra­dicts deeply held beliefs — to make the sort of deci­sions or sup­port the sorts of gov­ern­ment poli­cies that might halt the trend toward more inequality.

There is an equiv­a­lent of a Laf­fer curve for inequal­ity, but the vari­able of inter­est is eco­nomic growth rather than tax rev­enue. We know that a soci­ety with per­fect equal­ity does not grow at the fastest pos­si­ble rate. When every­one gets an equal share of income, peo­ple lose the incen­tive to try and get ahead of oth­ers. We also know that a soci­ety where one per­son has almost every­thing while every­one else strug­gles to sur­vive — the most unequal dis­tri­b­u­tion of income imag­in­able — will not grow at the fastest pos­si­ble rate either. Thus, the growth-​​maximizing level of inequal­ity must lie some­where between these two extremes.

Assum­ing we’re near or have passed that growth-​​maximizing level of inequal­ity, in the U.S. at least, the busi­ness com­mu­nity as a whole would be bet­ter off if the trend toward inequal­ity slowed or reversed. But busi­ness peo­ple are accus­tomed to push­ing for poli­cies that tend to increase inequal­ity, and are loathe to reverse their stances on tax rates, free trade, and free finan­cial mar­kets. As a result, busi­ness­peo­ple who worry about inequal­ity have over the years tended to focus on improv­ing edu­ca­tional oppor­tu­ni­ties. But you can’t say those efforts have made a notice­able dent in the inequal­ity trend.