The Toronto Star has been running a series entitled War on Poverty. Although the focus of the series is on the local problem (as it should be), the issues and ideas are likely to be global. To the main question as to Why is the gap between rich and poor widening, the newspaper suggests:

Part of the explanation is that the share of corporate profits as a percentage of GDP has increased at the expense of wages. According to the Bank for International Settlements, wages as a share of national income in the United States, Japan, Germany, the United Kingdom, France, Italy, Canada, the Netherlands, Belgium, Sweden and Switzerland declined from 63 per cent in 1980 to less than 59 per cent last year. In the same period, corporate profits as a share of GDP in those countries increased from around 11 per cent to more than 15 per cent. That means a greater financial share wound up in the hands of corporate owners and less in the hands of workers.

In canadians & globalization I had posted about the reactions of the public to the theme, which represent well the situation reflected in some of the stats on human development trends. If you want to get frustrated, just consider these:

  • The top 300,000 Americans collectively made as much income as the bottom 150 million Americans
  • The top 1% received 21.8% of all reported income, a record only behind 1928 when they received 23.9%. A year before the Great Depression
  • The top 0.1% reported an average income of US$5.6 million, an increase of almost one million thanks to rising stock markets and business profits.

Critics will say that the people doing well are the ones moving the economy, therefore they need all kinds of incentives and protection to keep things in order, but one argument that I haven’t seen used too often is related to the hidden costs of their success. If a particular oil company has record profits at the expense of environment degradation, poor work conditions or bullish pricing of their end product we must calculate the cost of restoring nature and dealing with generations of unhealthy people. Or think about some huge global merchant deciding to compensate its shareholders at the expense of an aggressive salary policy which leaves thousands of families just above the poverty line. A poor diet resulting from these conditions will likely have a permanent effect on the ability of their children to learn, therefore to get better jobs when they grow. I’m sure if we were to compare the savings from not paying the proper salary versus the cost of opportunity lost as a result of a less productive individual, the problem would be a no-brainer to any economist. All those costs are diluted over millions of people and eventually paid in the form of sacrifices, hunger, medical bills & frustration. The fact that these costs are not passed to the corporations is a flaw of the system. In principle any resource taken in the creation of a product should be paid for.
The more I think about his, the more I realize there is nothing wrong with the economic model we use, except for the fact that our accounting has been careless to say the least and we’ve been hiding way too many costs in the form of poverty. Maybe it would be possible for people to determine what costs they are carrying on behalf of irresponsible corporations and organize class action lawsuits to recup part of those costs, or maybe convince the government to install the necessary taxes to make sure that money goes back to where it belongs. I’m sure the gap would stop widening then.