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  (Curtis Lantinga)

 

(Curtis Lantinga)

MARGARET WENTE

Why income inequality is here to stay Add to ...

Chrystia Freeland (who used to work at The Globe and Mail) has spent the past few years embedded with the very rich. These are not the 1 per cent. The people we meet in her essential new book, Plutocrats: The Rise of the New Global Super Rich and the Fall of Everyone Else, dwell in far more rarefied income brackets. They’re the kind of people who have 350-foot yachts with helicopter pads and hire Rod Stewart to sing at their birthday parties. But some of them lead surprisingly modest personal lives. Like Warren Buffett, they dress down, work hard and believe personal ostentation is vulgar.

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Unlike the plutocrats of old, today’s plutocrats are self-made men (women don’t figure in this story, except as wives). They come from humble origins and made their billions in technology or finance. They now control a stunning portion of the world’s wealth. In the 1970s, writes Ms. Freeland, the top 1 per cent of the U.S. population controlled 10 per cent of the national income; today, they control 33 per cent. The combined net worth of Warren Buffett and Bill Gates, she says, roughly equals the net worth of the bottom 40 per cent of the U.S. population.

It wasn’t supposed to be this way. Progress was supposed to be the great leveller. As industrial economies became more sophisticated and productive, education levels would rise, inequality would fall and we’d all share in the gains. And that’s how it was, for about 30 years. But now the world economy is characterized by the so-called superstar effect – “the tendency of both technological change and globalization to create winner-take-all economic tournaments,” Ms. Freeland writes.

There are few outright villains in this piece. Ms. Freeland’s subjects are entrepreneurial, energetic and highly intelligent. Many of their innovations have made the world a better place. But they live in a transglobal bubble of privilege, and are often oblivious to the realities of middle-class ordinary life. They have a rock-hard belief that their success is due entirely to their own merit, and they vastly discount the role of luck, timing and fortuitous changes in public policy. Many of them used to support Barack Obama but now feel betrayed by his attacks on “the rich” (a word they hate). They argue that private philanthropy is much more beneficial to society than higher taxes.

Nothing (apart from a revolt of the masses) is likely to disrupt the rise of the new elites. Globalization means that the rewards for innovation and entrepreneurship – especially for those who can extract favourable rules from governments – are vastly greater than ever before. But for many people at the bottom of the heap, life isn’t likely to improve. They’re stuck there – and it’s not a lack of jobs that holds them back.

The good news about social mobility is that it’s still reasonably easy to achieve a middle-class life. You only need to do three things: Stay in school at least through high school; don’t have a child until you’re married and over 21; and work full-time. This formula works no matter who your parents are or where you started out in life. If you do these things, your chance of escaping poverty is 98 per cent.

“Personal responsibility matters,” writes Isabel Sawhill, an economist with the Brookings Institution, which conducts extensive research into inequality and social mobility. But that’s not the end of the story. The chance that an affluent child (one whose family is in the top 20 per cent by income) will accomplish these three things is 82 per cent, Dr. Sawhill writes; the chance that a poor child (the bottom 20 per cent) will is only 30 per cent.

The challenge for society is to figure out ways to level the playing field. But that’s harder than it sounds. The Brookings research says policies aimed at simply redistributing more income won’t help. More investment in early education might, but then again, it might not. Although U.S. education spending has exploded, achievement in many schools has scarcely budged. Meantime, the number of parents in a household – the single biggest influence on a child’s life outcomes – is in precipitous decline. In Chicago, which has one of the most dismal education records in America, 72 per cent of kids (according to a U.S. Census Bureau profile) live in single-parent households.

Canada is different, of course. We have fewer super rich, fewer single moms, less inequality and more social mobility. But the challenge faced by all advanced nations is the same. As a recent Brookings research paper asks, “Are we headed toward a permanently divided society?” I hate to say it, but my guess is yes.

 

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