Inequality: Solving for the pattern

Chandra's picture

Two different organizations have recently released helpful reports on economic equality and well-being that cast a somewhat dispiriting picture of the state of prevailing economic philosophies. On Tuesday, the Conference Board of Canada, a business-funded think tank, released its second report of the summer on income inequality, detailing how inequality has risen faster in Canada than in the United States.

The Conference Board report also notes that since the mid-1990s, Canada has had the fourth largest increase in inequality among its peer countries.

Also of great concern for those with a more global perspective, the Conference Board report observes that 71% of the world’s population lives in countries where income inequality is increasing.

Income inequality has been linked with greater incidence of health problems, with worse outcomes occurring at every income level of a more unequal society when compared with a more equal society. It may not be coincidental then that the World Health Organization announced Wednesday that chronic diseases such as cardiovascular diseases are now the world’s biggest killer, and such noncommunicable diseases are on the rise in low and middle income countries.

As Richard Wilkinson and Kate Pickett demonstrate in The Spirit Level: Why Equality is Better for Everyone, many chronic diseases such as heart problems and diabetes have a significant correlation with income levels and inequality. The reason is not that diet worsens with declining income (although that probably doesn’t help), it’s because stress kills and inequality and powerlessness are a major source of stress.

Health problems are just one of the many negative outcomes associated with economic disparity. Income inequality is linked to a range of significant negative consequences, including lower life expectancy, poorer health, higher rates of violence, higher rates of mental illness, worse educational outcomes, more illegal drug use, higher rates of teenage pregnancies, more crime, and less social trust.

In January the Risk Report of the World Economic Forum named economic disparity as one of the two most significant risks facing the world because, along with global governance, it “influence[s] the evolution of many other global risks and inhibit[s] our capacity to respond effectively to them.” 

This includes the risks created by economic instability, demonstrated so vividly in the past few years through the global recession and financial crisis. Two researchers with the International Monetary Fund published the results of their research on inequality and economic growth this month, arguing that higher inequality results in greater economic volatility, while lower inequality has led to longer, more sustained periods of economic growth.

Wendell Berry coined the phrase “solving for pattern” to define a solution that solves multiple problems in a way that takes into account the larger context of the problems. We have reached a point where our attempt to “solve” many of the problems that accompany growing inequality are futile, because we’re not looking at the larger pattern. Simply throwing more money at health care, locking more people up, and waging war on drugs are not going to solve the problems. We need to solve for the pattern and address inequality.

But why are we only now discovering, with some bafflement, that inequality has grown considerably despite the strong economic growth of the last few decades? The answer lies in how we think about economic growth and what constitutes our goals. “You are what you measure,” as the saying goes, and we have been relying exclusively on measures of Gross Domestic Product to define progress. GDP measures the market value of goods and services produced in a country. GDP per capita is often used to define standard of living.

But GDP per capita just divides the total GDP by the total population. It says nothing about how the income generated is being distributed. (It also says nothing about the social and environmental value of what is produced!) In other words, all of the additional income generated by economic growth can go to the top income tier, and yet a country’s standard of living will supposedly increase. In fact, this is what has happened in the United States in the past few decades, and increasingly in Canada as well.

In order to have a better picture of economic well-being, we need a better marker – one that takes into account more factors than simply economic growth as measured by GDP. The Centre for the Study of Living Standards has developed and refined one such alternative, the Index of Economic Well-Being. The IEWB includes four major economic areas including economic equality and economic security.

Last week Tuesday the Centre for the Study of Living Standards released two studies examining economic well-being among OECD countries and in Canada and the provinces over the past thirty years. In both studies, the IEWB growth rate was below the rate of GDP per capita growth which is commonly used to monitor the health of an economy.

In 2009, Canada ranked 9th out of 14 OECD countries for economic well-being. The Canadian study also notes that the IWEB declined following the recession.

Focusing on economic well-being rather than simple economic growth could provide a model for a much healthier approach to economic policy. Perhaps then instead of creating new problems as we attempt to solve existing ones, we will finally solve for the pattern.

Chandra Pasma is CPJ's former Public Justice Policy Analyst.

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