Why inequality is bad for everyone

Chandra's picture

Yesterday we looked at the changing income distribution and how the rise in income inequality has fostered the illusion that there is not enough money any more to pay for the welfare state and support a vibrant charitable sector. Besides the obvious outcomes of government cutbacks and charitable retrenchment, this rising income inequality has a number of more insidious consequences.

Research by two British epidemiologists, Richard Wilkinson and Kate Pickett, reveals that countries with greater income inequality suffer from more health problems, lower life expectancy, higher rates of mental illness, more drug use, higher rates of teen pregnancy, higher rates of violence, more crime, and less social trust. Lest the wealthy think their income protects them from these social ills, the evidence suggests that these negative outcomes are higher at every income level of a less equal society when compared to a more equal society.

Countries with greater income inequality are also prone to more economic instability. Ellen Russell of the Canadian Centre for Policy Alternatives points out that “in a more egalitarian society, regular folks use their slice of the economic pie to do regular stuff like buy a car or repair the roof, which sets the stage for real economic activity (the production of goods and services). When the affluent get their hands on a greater piece of the economic pie, they don’t need the extra cash for daily living. They have a greater tendency to use these funds to fuel financial speculation.” As we saw in 2008-2009, financial speculation can have disastrous consequences for the global economy.

Not only that, but the general instability created by income inequality can be extremely harmful economic growth. On Wednesday the Conference Board of Canada, a business-funded think tank, released a report on inequality in Canada, noting that “high inequality can diminish economic growth if it means that the country is not fully using the skills and capabilities of all its citizens or if it undermines social cohesion, leading to increased social tensions.” In January, the World Economic Forum also highlighted rising inequality as “the most serious challenge in the world,” noting that economic disparity is at the heart of most of the other risks confronting the world today.

Senator Segal has pointed out the close connection between the fundamental freedoms from fear and want. “The absence of the second basic freedom, “Freedom from Want,” means an unavoidable attack on the first basic freedom, the “Freedom from Fear,” he argues. “And when those freedoms are in jeopardy, no other freedom is safe.” When people have nothing to lose, they have no reason to respect the social order they are prevented from contributing to and participating in. Grinding poverty and inequality is the soil in which crime, drugs, prostitution and substance abuse take hold at home and armed insurgency, chaos, and religious fundamentalism flourish abroad. If we wish to create a world of stability and order, then we need to invest in freeing people from poverty.

Imbalances in income also result in imbalances in political power. This is especially the case south of the border where money runs campaigns and no political aspirant can afford to tick off the wealthy. This is less so in Canada, where campaign contributions are capped for all donors, but imbalance nonetheless persists. The rich hire lobbyists and fund ideologically-affiliated think tanks that argue for policies that favour the wealthy. The poor are less likely to vote, and those who advocate on their behalf struggle to fundraise enough for their survival.

Another imbalance in power comes in the funding of not-for-profits. When you have to beg for your funding from corporations, foundations and other organizations, who are you really representing? Who really gets to drive the agenda of not-for-profits? What opinions are they allowed to voice? What research are they allowed to conduct? While many non-profits work hard to maintain their independence, these questions linger as long as the power to bestow funding remains imbalanced.

But as Senator Segal’s astute observations suggest, there is a danger inherent in rampant inequality – the downfall of the system itself. Why should the poor – and increasingly the middle-class – continue to support a system that has failed them? Why should they agree to endless sacrifices in the pursuit of economic growth that never trickles down? If rising inequality creates enough people who are excluded from the system and have no stake in its future, then global capitalism is at risk. The wealthy themselves are at risk.

As Senator Segal writes in Beyond Greed:

“In the end, those who have acquired, inherited or built wealth cannot hire enough police to protect themselves and their property from a permanent and hopeless (as in without any hope of personal progress) underclass. Sitting comfortably in one’s house in a gated or moated community in South Florida or Arizona, or in upstate New York, and, hearing of unrest among armies of regionally located perpetually unemployed and impoverished, leads one to contemplating, over martinis and canapés, whether the minimum-wage security guard at the gate would risk much to hold back an angry, hopeless, and dispossessed crowd. Not a pleasant contemplation. And even if one could do so in one’s own neighbourhood (the gated community) or country, which is unlikely, the global migratory patterns produced by joblessness are themselves uncontainable. And, even if they were containable, the interruptions to both the business cycle and financial system could cause those with assets meaningful losses. The importance of community is no luxury or Fabian prayer.”

So where do we go from here to build a system that creates greater equality and doesn’t treat caring for one another as an unaffordable luxury? More on that next week.

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

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