Few topics seem to have captured the imagination of professional thinkers in recent years as much as the growing gap between rich and poor. The hand-wringers include everyone from the left-leaning activists at the Canadian Centre for Policy Alternatives to the ascot-wearing 0.1 per centers who schlep to Davos each winter for the World Economic Forum.
For the second year in a row, and apparently with no appreciation of the irony of their act, the WEF's über elite identified severe income disparity as the biggest risk facing the planet over the next decade. Rising inequality, the WEF warned, will wreak havoc within and between nations.
The alarm has spread to Canada, which is now behind Slovenia on the United Nations Human Development Index when adjusting for inequality. What's great news for Slovenes, who endured communism, is a public-relations disaster for the Harper government. As incomes at the bottom seem to stagnate here, the latest must-have for Canada's 1 per cent is a home elevator.
The real story that emerges from the UN report and recent Statistics Canada data, however, is much more encouraging than the headlines or inequality industry would have you believe. Indeed, as the UN notes, "the world is becoming less unequal." Per capita economic output has doubled in China and India in under 20 years, lifting hundreds of millions out of poverty. Unprecedented investments in health and education are unleashing human potential as never before in history.
That the fruits of this extraordinary progress are not shared equally is hardly surprising. Poverty, ignorance and oppression are great equalizers. Freedom, opportunity and education enable those with the most skills, initiative and perseverance to rise.
And far more are rising than are being left behind. A recent Brookings Institution study predicts that the global middle class will number 3.2 billion people by 2020, up from from 1.8 billion in 2009. By 2030, almost five billion people will enjoy middle-class purchasing power.
Technology and trade are driving this progress, as they have every other economic leap forward. But those same forces also mean dislocation for thousands of workers in the developed world, as their inadequate or outdated skill sets render them hard to employ.
As Jerry Muller notes in the current issue of Foreign Affairs, the key to success in the postindustrial marketplace is marrying cognitive ability and social proficiency with 21st-century knowledge. Unfortunately, not everyone can do that. "The inequality that exists today," the Catholic University of America professor says, "derives less from the unequal availability of opportunity than it does from the unequal ability to exploit opportunity."
The appropriate response, in Canada at least, is not more redistribution. Even on a pre-tax basis – the measure most commonly used – income inequality is far less of a problem in Canada than in most developed countries. On an after-tax basis, adjusted for family size and age, the average income in the top 20 per cent of households was 5.6 times higher than that of the bottom 20 per cent in 2010. That's a low differential by international standards.
What's more, about 20 million Canadians received some form of government cash transfer in 2010. The median amount ranged from $3,300 per family in Alberta to $14,200 in Newfoundland. On the whole, Canadian governments appear to be doing enough to mitigate the worst effects of income inequality through the tax and welfare systems.
Canada's public education system, meanwhile, remains a powerful tool in promoting social mobility. Just last month, the Organization for Economic Co-operation and Development placed Canada among an elite group of countries that has found a sweet spot, showing the greatest equity in outcomes among socio-economic groups, while achieving top overall test scores.
In addition, the cost of basic necessities (with the exception of housing in big cities) has plummeted in recent decades. The poorest Canadians are now spending less of their income on food and clothing than at any time since everyone grew their own food and made their own clothes. Half of Canadian households in the bottom 20 per cent had a personal computer and home Internet connection in 2009, a figure that has likely risen since.
Opportunities that were once restricted to the rich are now only a mouse click away. Soon, massive open online courses will allow anyone to get an Ivy League education for free. And that promises to do more to lift the bottom 20 per cent higher than any government cheque.