Rising tides and drowning citizens

U.S. President Barack Obama calls rising inequality “the defining challenge of our time” and promised to make it the focus of his remaining three years in office. A survey of elites by the World Economic Forum identified “rising income disparities” as the second top global trend for 2014, with 64 percent of Asian respondents saying the economic system in their countries favors the wealthy.

Those pollees are more worried about rising inequality than the rise of China, and rightfully so.

Since the Great Recession began at the end of 2007, policymakers around the world have focused on jump-starting stalled economic engines, even though an influential minority continues to push austerity measures out of misplaced concern about debt. Increasingly, however, attention centers on how wealth is distributed, rather than its mere generation.

Indeed, substantial wealth has been produced since the global downturn, but those returns have been monopolized by a small and shrinking portion of the population.

In the United States, for example, research has shown that wealth inequality increased substantially over 2009-2011 as the richest 7 percent of U.S. households saw their aggregate share of overall national wealth climb from 56 percent to 63 percent.

One estimate has the wealthiest 1 percent of Americans capturing 95 percent of economic gains since 2007. That is excessive, but a recent report by the Organization for Economic Cooperation and Development, the club of developed countries, shows that income inequality among member countries increased more in the three years to the end of 2010 than in the previous 12. Moreover, 2011 analysis concluded that all emerging economies have levels of income inequality higher than the OECD average.

The conventional wisdom is that “a rising tide lifts all boats.” In other words, even if the rich get richer, the benefits trickle down to the less fortunate. And while income inequality may have widened, the number of people who have risen from poverty in absolute terms has reached historical heights.

Increasingly, however, that shibboleth is under attack. Concentration of wealth slows growth, weakens demand and contributes to financial crises.

The Asian Development Bank reckons that a more equitable distribution of wealth in “emerging Asia” — the region’s less developed economies — would have pulled an additional 240 million people out of poverty over the last two decades.

The most troubling effect of widening income disparities may be their threat to erode the legitimacy of government. A recent Pew Research Center survey showed that in 31 of 39 nations surveyed, at least half of those polled identified inequality as a big problem for their countries.

Just over a third of Japanese respondents say that inequality is a problem at home, while 58 percent believe the income gap has worsened. That belief is widespread: Half the respondents in 35 of the 39 countries believe that the gap between rich and poor is intensifying. In 35 countries, more than half the respondents said their economic system favors the wealthy.

Japan has one of the largest number of respondents among developed countries who say the system is fair — but that is just 34 percent. Sixty-one percent of Japanese think the system favors the wealthy.

When publics believe that the economic system itself favors a particular class, and that class is shrinking, then the political system is under assault. Democracies are intended to represent the interests of all citizens, and a healthy democracy must offer hope for those citizens, especially those at the bottom. If they have no hope, then the government itself is threatened.

The fact that 75 percent of Japanese believe that their children’s lives will be worse off than those of their parents is a damning indictment. Sadly this belief is increasingly widespread around the world.

Inequitableness in the distribution of wealth is not just evident in the consumption of luxury goods, leisure time or status. The failure to better spread economic gains means that fewer citizens have access to quality education, health care and, in some cases, nutritious food. All are critical determinants of success later in life. The sense that these essential components of daily life are beyond the grasp of increasing numbers of citizens feeds the belief that “the system” is unfair.

Solving these problems will be incredibly difficult. Forced redistribution of wealth to ensure equality of outcome is not a real answer. Plainly, however, more must be done to ensure equality of opportunity, and guaranteeing access to education, health care and healthy food is a starting point.

Clearly, too, the hands-off approach to opportunity is not sufficient. A rising tide does not raise all boats — or at least not significantly. Governments must be more engaged, doubling efforts to protect not only the most vulnerable in their societies but all the disadvantaged.

The most important thing would be to create a system in which all people could get decent and meaningful jobs that would enable them to maintain their dignity.

Taking inequality seriously is a starting point, one that is long overdue.