WASHINGTON – In the course of a popular national radio show, an important journalist declared that “the Big Issue” that Americans will have to contend with in 2016 is how to reduce “inequality” through public policy measures. The respected quarterly journal Foreign Affairs agrees, and it goes one step further. The cover story of its current issue is “Inequality“. And inside one can read several articles focusing on inequality from every possible angle: global, regional and domestic.
This is really amazing. This is the triumph of ideological parochialism over reality. The very term “inequality” assumes that there is a preordained, presumably mandatory level of equality that we are all supposed to comply with. Veering away from the golden middle is unjust, unethical, and immoral. In fact it should probably be illegal.
This is profoundly wrong and terribly misleading. There is no such thing as a “proper balance” between rich and poor, between the income of those at the top and those at the bottom of any society. There is no formula that can correctly assess when someone has “enough” and when enough gets to be “too much”, or “too little” for that matter. These are all political notions, based on personal ideological preferences and biases. There is no healthy “natural equilibrium” that we should all strive for and then comply with.
And, more to the point, “inequality” is not a problem to be solved. It is instead a symptom: the result of complex dynamics that go well beyond the simplistic notion of an unfair allocation of national wealth.
Of course, we can talk ad nauseam about specific cases in which inequality was or is the direct result of a political set up. In the Soviet Union only party elites had access to education, good jobs and perks. In today’s China, notwithstanding a vibrant private sector, the Communist Party senior leaders enjoy immense advantages that cannot even be dreamed about by the average citizen. In apartheid South Africa only Whites could aspire to have anything. In other societies small elites by mixing force, intimidation and cunning (Cuba, Venezuela, Burma, Saudi Arabia are good examples) have managed to control almost everything, while the majority of the people is left with crumbs.
But these are extreme examples of politically or ideologically sanctioned inequality. This is not the rule in most Western countries, and certainly not in America. In the West laws apply to everybody, while discrimination is forbidden. We have open markets in which everybody can compete. Besides, there is accountability, transparency, an independent judiciary, and social mobility. Inequality does indeed exist; but in most cases not because someone gamed the system.
People feel squeezed
That said, I am not surprised that “inequality” is getting so much attention right now in America and in Europe. Most people in western countries are squeezed. While some segments of society, most of them made out of people working in the financial or high-tech sectors, are doing extremely well, most of the others are not. This builds resentments and a great deal of conspiracy theories in which many villains are featured.
The illusion of “social justice”
But here is the thing. While it is legitimate to question what value if any is added by people and companies who charge enormous fees for manipulating existing wealth without creating anything new, it is silly to believe that if their excessive wealth were taken away from them and redistributed through taxation, welfare programs, or other public policy mechanisms, we would all be better off. The fact is that this is a dangerous illusion. Redistribution is a social justice policy with temporary and very modest results. It is “feel good” stuff that will not even begin to attack the roots of inequality.
The point is that the growing inequality we are experiencing in America is largely the effect of other problems. It is the byproduct of systemic changes mostly beyond our control. Which is to say that it is wrong to believe that you are not doing so well only because someone else (more powerful and more influential) gamed the system and got all the goodies.
Millions of new Asian workers changed the global labor market dynamics
Here is the story. For the past 20 years, the American middle class (a broad definition that includes factory workers with generous union wages and other perks) has been hammered by the ill effects of globalization.
All of as sudden, (beginning circa 1990), an enormous addition to the global work force, mostly due to literally hundreds of millions of better educated Asians willing and able to perform many jobs at a fraction of what it costs in America, meant the loss of millions of manufacturing jobs in the US (we call this “outsourcing”) and the squeezing of wages for those lucky enough to retain their employment.
Technology eliminated jobs
At the same time, rapid technological progress also hurt the old middle and lower middle class. Robots replaced and will keep replacing people in factories, while most routine white-collar office functions are and will be increasingly performed by intelligent machines.
Those who do well
In very simple terms, this means that in this new world those who design, produce, manage and service the high-tech machines, the value chains and supply chains connected to them, and the software on which they run are doing well, while all the others are not. If you are a lead engineer at Boeing or Intel you are fine. You work for a market leader with state of the art technology and a global presence. If you work at the local small tool and die factory, you are on shaky ground. You do not make anything unique, and Chinese competitors are coming in with cheaper products.
The grim reality is that if today you are working in any sector that is challenged by better robotics or new IT applications your job is in jeopardy. You are probably only one step away from unemployment. This being the case, you have no bargaining power with your employer. You are lucky to have a job. Forget about wage increases or additional benefits.
And so you, along with millions of others, have the sinking feeling to be stuck in a dead end job, or falling behind; while few people at the top of market leaders are doing very well.
Some are doing well
Indeed, those who started or invested in high-tech companies that fuel this enormous technological and economic transformation make millions or even billions, while the shrinking old work force has only known jobs losses and wage stagnation for the past 20 or 30 years.
In addition, it is clear that only those who have a good or superior command of the new technologies and how they relate to the unfolding “knowledge economy” have an opportunity to do well, or very well. Their skills are in high demand.
At the opposite end, a factory floor worker is a small, fungible cog that can be replaced or eliminated at a moment’s notice. Same thing for an accountant who performs back office repetitive functions.
Negative global trends
While this is not the entire story, it is clear that increased inequality in advanced western countries is mostly due to the negative effects of globalization and rapid technological change that resulted in automation. There is unfortunately an overabundance of “old-fashioned” semi skilled or skilled labor, while robots reduced the number of necessary factory jobs. Furthermore, those who do not have the education to climb up to the next skills level in this more complex environment are stuck or, much worse, they fall behind.
This being the case, politicians who point at inequality as the big issue to be resolved by taxing the rich a lot more are deceiving themselves and the voters. Inequality is mostly the result of these global trends that cannot be stopped, let alone reversed.
Well, then what can we do? How can we reverse the impoverishment of the working class and what used to be a large and thriving middle class? There is no easy answer.
Focus on quality public education
Still, as a minimum, we must address the quality and focus of American public education. It is obvious that in a high-tech world only those who master the new technologies will thrive.
Leaving aside for the moment the adult population, let’s think of the next generation and its prospects. If you are an inner city minority kid attending today a mediocre or bad public school, your chances of “making it” in this ultra competitive economy are practically zero.
If you are not fully literate, let alone skilled in computers, and IT and therefore capable to manage sophisticated equipment, you cannot aspire to get any of the good jobs. You are condemned to compete –you and millions of others– for low skills, low pay jobs in basic services. Yes, you can become a janitor, a landscape worker, a store clerk, a bus boy or a waiter. But even assuming that you are lucky and get one of these jobs, there is no chance that they will become rungs on your upward mobility ladder. You have no ladder.
Since you have no higher education, no high-tech skills, and no chance to go to college in order to acquire engineering, business or management skills, you are stuck.
Better education, less inequality
So, at the very minimum our society should seriously work to drastically improve the quality of public education. Sadly, in this ultra-competitive global economy in which only the well-educated have a chance the seeds of future, stubborn inequality are planted in bad schools serving poor children.
Demanding a mandatory higher minimum wage is a silly feel-good remedy. Uneducated people are paid little because they add little value. By creating politically mandated higher wages we improve their conditions only by a little, while hurting some low margin businesses that can survive only because of low labor costs.
All right, is that all? No, for sure there is more. It is quite possible that new technologies will open up new sectors and possibly new employment opportunities. Which sectors? I have no idea. At some point politicians were talking about millions and millions of new jobs to be created by the green economy. Well, this has not happened, yet.
High-tech jobs only for skilled workers
Still, whatever the new economic sectors that will be generated by scientific and technological progress, it is obvious that only those who have the appropriate math and science education and the additional high-tech skills that will enable them to manage complex machinery and programs will have a seat at the table.
Yes, these highly competent individuals will have jobs and promotion opportunities. And they will make a lot more money.
But all the others will not.
Not a conspiracy
Politicians who argue today that growing inequality is a moral outrage and obviously the outcome of a rigged game are delusional. In truth, the game is occasionally rigged. Yes, some sectors of the economy get preferential treatment. Some corporations should not get subsidies and should pay more taxes.
But this global technological and workforce tsunami has not been concocted in Washington by a few clever lobbyists. This is the product of globalization and of the current direction of technological progress.
Instead of promising to fight inequality by taxing the rich, political leaders should work to give to as many people as possible, especially young people moving their first steps into society, the best intellectual tools to compete in this new world.
Good or excellent public education (including re-training for adults) will not provide a complete remedy against inequality. But for sure without it we shall make no progress. Uneducated people cannot compete. They will remain poor and marginalized.