True Progressivism: Inequality and the world economy

Economist: True Progressivism: Inequality and the world economy

A new form of radical centrist politics is needed to tackle inequality without hurting economic growth

… Does inequality really need to be tackled? The twin forces of
globalisation and technical innovation have actually narrowed inequality
globally, as poorer countries catch up with richer ones. But within
many countries income gaps have widened. More than two-thirds of the
world’s people live in countries where income disparities have risen
since 1980, often to a startling degree. In America the share of
national income going to the top 0.01% (some 16,000 families) has risen
from just over 1% in 1980 to almost 5% now—an even bigger slice than the
top 0.01% got in the Gilded Age.

It is also true that some measure of inequality is good for an
economy. It sharpens incentives to work hard and take risks; it rewards
the talented innovators who drive economic progress. Free-traders have
always accepted that the more global a market, the greater the rewards
will be for the winners. But as our special report this week argues, inequality has reached a stage where it can be inefficient and bad for growth.

That is most obvious in the emerging world. In China credit is
siphoned to state-owned enterprises and well-connected insiders; the
elite also gain from a string of monopolies. In Russia the oligarchs’
wealth has even less to do with entrepreneurialism. In India, too often,
the same is true.

In the rich world the cronyism is better-hidden. One reason why Wall
Street accounts for a disproportionate share of the wealthy is the
implicit subsidy given to too-big-to-fail banks. From doctors to
lawyers, many high-paying professions are full of unnecessary
restrictive practices. And then there is the most unfair transfer of
all—misdirected welfare spending. Social spending is often less about
helping the poor than giving goodies to the relatively wealthy. In
America the housing subsidy to the richest fifth (through
mortgage-interest relief) is four times the amount spent on public
housing for the poorest fifth.

Even the sort of inequality produced by meritocracy can hurt growth.
If income gaps get wide enough, they can lead to less equality of
opportunity, especially in education. Social mobility in America,
contrary to conventional wisdom, is lower than in most European
countries. The gap in test scores between rich and poor American
children is roughly 30-40% wider than it was 25 years ago. And by some
measures class mobility is even stickier in China than in America.

Some of those at the top of the pile will remain sceptical that
inequality is a problem in itself. But even they have an interest in
mitigating it, for if it continues to rise, momentum for change will
build and may lead to a political outcome that serves nobody’s
interests. Communism may be past reviving, but there are plenty of other
bad ideas out there.

Hence the need for a True Progressive agenda. Here is our suggestion,
which steals ideas from both left and right to tackle inequality in
three ways that do not harm growth. …

Suggested remedies include attacking monopolies and vested interests (whether on Wall Street or state-owned enterprises), school reform that offers more choices, reforming labor laws and residency restrictions in some countries, refocusing social welfare toward the young and poor instead of the old and rich, and reform the tax system, particularly by eliminating subsidies and deductions that go to the wealthy. As the adage goes, the devil is in the details, but I think the general thrust of ideas is correct.