Former US Labour Secretary deplores income gap

Robert Reich, who was US Labour Secretary under President Bill Clinton, thinks the growing income gap is unhealthy for society. Market forces are increasing the income gap, but the market is a creation of public policy, he adds in his foreword to the book, The Spirit Level: Why Greater Equality Makes Societies Stronger.

Agreeing with the book’s British authors, Richard Wilkinson and Kate Pickett, he says in the foreword:

But if wide inequality is socially dysfunctional, then why are certain countries, such as the United States, becoming so unequal? Largely because of the increasing gains to be had by being just a bit better than other competitors in a system becoming ever more competitive.

Reich, professor of public policy at the University of California, Berkeley, shows the effect of globalization without using the word. He writes:

Forty years ago, everyone’s pay in a big company — even pay at the top — was affected by bargains struck among big business, big labour, and, indirectly, government. Big companies and their unions directly negotiated pay scales for hourly workers, while white-collar workers understood that their pay grades were indirectly affected. Large corporations resembled civil service bureaucracies. Top executives in these huge companies had to maintain the good will of organized labour. They also had to maintain good relations with public officials in order to be free to set wages and prices; to obtain regulatory permissions on fares, rates or licences; and to continue to secure government contracts. It would have been unseemly of them to draw very high salaries.

Since then, competition has intensified. With ever greater ease, companies can get access to similar low-cost suppliers from all over the world. They can streamline their operations with the same information technology their competitors use… They can just as readily outsource hourly jobs abroad. They can get capital for new investment on much the same terms…

The dilemma facing so many corporations is therefore how to beat rivals. Even a small advantage can make a huge difference to the bottom line. In economic terms, CEOs have become less like top bureaucrats and more like Hollywood celebrities or star athletes, who take a share of the house… Clark Gable earned $100,000 a picture in the 1940s, which translates roughly into $800,000 today. Tom Hanks, by contrast, makes closer to $20 million per film. Movie studios and baseball teams find it profitable to pay these breathtaking sums because they’re still relatively small compared to the money these stars bring in and the profits they generate.

Reich concludes:

In short, our nation’s wealth is becoming more concentrated at the top… Such inequality undermines the trust, solidarity and mutuality on which responsibilities of citizenship depend. It creates a new aristocracy whose privileges perpetuate themselves over generations…

This is not to say that the superrich are at fault. By and large, “the market” is generating these outlandish results. But the market is a creation of public policies. And public policies, as the authors (of The Spirit Level) make clear, can reorganize the market to reverse these trends. The Spirit Level shows why the effort to do so is vital for the health of our society.

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