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Jeffrey Simpson (Brigitte Bouvier For The Globe and Mail)

Jeffrey Simpson

(Brigitte Bouvier For The Globe and Mail)

JEFFREY SIMPSON

Should we really leave inequality to the policy elites? Add to ...

It is self-evidently true that the vast majority of Canadians are not marching in the streets, or even crying in their beer, over income inequality. Inequality has always been with us, so what’s the problem?

Politicians obviously don’t hear much about the situation on the doorstep, or if they do, it comes from people they don’t think will vote in large numbers. The politicians are all focused, even the New Democrats, on what Liberal Leader Justin Trudeau calls the “anxieties of the middle class.” Talk about inequality is for the eggheads, policy elites and readers of long books stuffed with long words and charts.

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That politicians don’t talk much about a situation and that the electorate is largely somnolent about it does not mean the situation shouldn’t be addressed. To assert that indifference and somnolence are understandable, even justifiable, is to encourage political leaders to be followers – which, come to think of it, is what most of them have become.

After all, situations often fester for a long time without much public attention. Eventually, they tend to deteriorate and cause worse problems. In the case of growing inequality, indifference can lead to societal tensions, weaker productivity, extra drain on social programs and slower overall economic growth.

Across the Western world, income inequalities have been rising for four decades. The gaps have been growing fastest in the English-speaking countries: the United States, Canada and Britain.

Nothing happens overnight. The gaps slowly widen. The rich get richer.

Yes, the mighty sometimes fall, and voyeurs among the rest of us are sometimes fixated by that, especially when hubris and arrogance are responsible. However, once someone is rich – that is, in the top 1 per cent of income earners – people tend to stay at the top or close to it, creating a self-perpetuating super-stratum in society.

Observations about rising inequality have been made recently by the Organization for Economic Co-operation and Development, hardly a hotbed of socialism. The bottom line: Pretax income inequalities have been generally rising for some decades, and governments have been unable or unwilling to curb them.

Among the wealthiest countries, inequality is most pronounced in the United States – a fact that produces some chest-beating in Canada, where putative virtue is often defined against the neighbour’s performance. But Canada is close behind the United States in this table.

From 1975 to the beginning of the financial meltdown in 2008, 37 per cent of total income growth in Canada went to the top 1 per cent of earners. During that same period, two-thirds of total income growth in Canada (compared to 80 per cent in the U.S.) went to the top 10 per cent of earners.

In recent years, Canada’s top 0.1 per cent – those the OECD calls the “richest of the rich” – took 4 to 5 per cent of pretax income. The first couple of years after the meltdown, pretax incomes of the very rich took a hit, but these incomes have largely recovered to prerecession levels.

Many are the reasons for this rising inequality, in Canada and elsewhere. Globalization has opened opportunities for international competition for very skilled jobs, thereby pushing up salaries, stock options and other financial inducements. The boom in capital investments has increased jobs and sent salaries soaring in the financial sector.

The structure of work – supply and demand for skills – has changed drastically, as have the locations for jobs with the growth in Asia. Technology has wiped out thousands of positions and created thousands of other jobs.

Governments, including in Canada, have reduced taxes for wealthier people – on their salaries, capital gains and property. Across the OECD, the top statutory personal tax rate dropped from an average of 66 per cent in 1981 to 41 per cent in 2008. The ability or willingness of governments to lean against income inequalities began to weaken in the 1980s as political and intellectual challenges to the welfare state and the role of government swept across Britain and North America.

With a few exceptions (see Ontario’s Liberals), politicians are bidding to see who can reduce taxes most – even if a knock-on effect might be more income inequality.

 

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