The Rich and the Rest

March/April 2011, Volume III, No. 2

This edition of Open Space looks at the growing gap between rich and poor and the damage this causes for everyone in all sectors of society. Open Space also pays tribute to Bishop Samuel Ruíz García, a great champion of the poor and the indigenous people, especially in Mexico, who died January 24 2011.

A man was standing beside a stream when he saw a baby struggling in the water. Without a thought he jumped in and saved the child. No sooner had he placed it gently on the shore than he saw another and jumped in to save it, then another and another. Totally focused on saving babies, he never thought to look upstream to answer the obvious question: Where were the babies coming from, and how did they get into the water? 

That classic little parable recommends a shift of attention that isn’t possible at every moment in a given society: most people are, much of the time, too busy with the emergency stuff.  But at certain moments a shift of perspective becomes obviously necessary. Thinking people start to “look upstream” to locate the not-always-obvious source of pressing social problems.

At this time in Canada, as in USA, there is a considerable amount of unfocussed anger, confusion and fear among people. Much of it seems to stem from the fact that our public institutions, including the economy and government, are in a state of disarray, not meeting the needs of significant sectors of the population, and not keeping some important promises. 

A striking example is how the so-called developed nations of the world are stumbling badly in meeting their commitments to the Millennium Development Goals, agreed to by over 170 countries through the United Nations as this century began, to rid the world of absolute poverty in the near future.  Even within their own countries, the “social safety net” seems, for increasing numbers of people, to be conspicuous by its absence. For example, OECD figures show Canada has dropped from sixth to twenty-fourth place in the world on infant mortality rate.

Poverty is a symptom of many other social ills. If we seriously want to reach the noble goal of reducing poverty and eliminating its most disabling aspects, we have to look upstream to its source in our flawed free market system. 

To look upstream is to recall some very important voices from the past. In the 1950s, Bernard Dempsey, a Jesuit economist at St Louis University, was asking: what will happen to our hopes of achieving social justice when economic growth fails us? In the 1960s Harvard economist Wassily Leontief was suggesting that we will all starve in paradise unless we introduce an effective theory of distribution into our economic thinking and practice. And his fellow economist at Harvard, John Kenneth Galbraith, warned then, and as recently as 2004 in his booklet  The  Economics of Fraud: Truth for our Time, that our society is fundamentally threatened by an over-concentration of economic power. 

Galbraith argues that influential monied groups and corporate management are shaping public and political opinion to their own interests and purposes through advertising, lobbying, and influence over research, etc.  One of the changes being promoted by this elite would enthrone economic control and amassing of unlimited amounts of money – not honest creative work – as the ideal measures of human achievement. 

And in the 1970s, Alexander King, one of the architects of the Limits to Growth movement, expressed grave concern that by adopting the short-term profit framework as the gold standard for decision-making, businesses at first and then also governments were avoiding, if not denying, the very real ecological limits to sustainable economic growth.

At least until recently, it had become unfashionable to suggest in public that income inequality, stemming from growing concentrations of wealth and power, is one of the causes of poverty. Critics who continued to point out that real democracy cannot long survive the practical kleptocracy of wealth concentration were accused of the politics of envy, or even of Marxism. 

And our political leaders don’t even dare to suggest higher taxes for the rich to help diminish our fiscal deficit. 

Karl Polanyi seems to have been right in seeing capitalism slowly succeeding in replacing the ideal of sharing with the glorification of acquisitiveness in modern society.

However, the prevailing silence on income inequality is presently being shattered.  When we see The Economist magazine (Jan 22-28/11) with a cover story “The rich and the rest,” the New York Times (Oct 16/10) blaring “Income Inequality: Too Big to Ignore;” a Toronto Star lead editorial (Jan 4/11) asking “What’s a CEO really worth?” and a Globe and Mail Report on Business headline (Jan 3/11) admitting “Rich earn 155 times more than average worker,” it’s pretty obvious that a pushback in public opinion is on the way. 

The Globe’s ROB article went on to cite this statistic from Canadian Centre for Policy Alternatives: “At current pay rates, Canada’s highest paid executive officers will earn the equivalent of the average Canadian wage by 2:30 pm ET Monday – the first working day of the year.” 

Changing times can be measured, roughly, by who gets shocked by what.  One Canadian bishop in 1995 was so shocked by an educational poster prepared by the Jesuit Centre for Social Faith and Justice that he prohibited it from being displayed in any church or building under his jurisdiction.  The sin of the poster was that it showed Canadian CEOs who earned 90 times as much as their average worker.  The bishop felt that it would destroy Christian peace and community if it were shown in parishes.  But increasingly, since the Wall Street-led crash of a couple of years ago, it is the behaviour and tactics of the drivers of high finance that are seen to be shocking, not the effort to disclose them.

Recent research by the Canadian Centre for Policy Alternatives and Canadian journalist Linda McQuaig’s recent book The Trouble with Billionaires appear to be important sources of raised consciousness on growing income inequality in Canada.  Linda McQuaig offers us a troubling reality check. She reports that the widening income gap between rich and poor in Canada, while not as extreme as in the gap in the USA,  has nevertheless doubled (from 25 to 55) the number of billionaires in Canada in just ten years (from 1999 to 2009). Meanwhile, the income of the fifty highest paid CEOs rose by 444 percent, while compensation for most Canadians stagnated.

McQuaig cites examples to show how the more unequal a society becomes the less it adopts policies that favour the poor and lower income groups. She pleads the case for a more just income distribution as an economic and a moral imperative. 

Canada, she writes, should return to a more progressive income tax and also adopt an inheritance tax – on the grounds that the persons at the top got there not by harder work but because they managed to have the rules changed in order to gain a much larger share of the economic spoils.  McQuaig believes that public education should challenge the present negative social attitudes toward taxation, and instead should demonstrate its high value as the price we pay for responsible membership in the community and for citizenship in a democracy.

Armine Yalnizyan is an economist whose prophetic and clear-minded work has added greatly to the influence of the Canadian Centre for Policy Alternatives.  In a recent article, “Income Inequality is not sustainable economically for any of us,” she argues that rising inequality, whether in good times or bad, is not healthy economically, ecologically or politically. 

She points out that by 2007 Canada’s top 100 CEOs were earning 270 times the average wage of Canadian full-time workers. And she also shows that the income gap in Canada kept widening in both good and bad economic times. She wonders whether the elite rich any longer see themselves in the same community, or indeed the same society, as the rest of us.

Like Galbraith,  Yalnizyan does not see any hard evidence that tax cuts for the rich and for corporations reliably stimulate the economy in times of recession.  She agrees with Galbraith that recession is cured only by a solid flow of demand with everyone having money to spend. Small government, reduced social services and tax cuts are a recipe for unemployment, shrinking demand and social unrest.

Yalnizyan favours a tax change, in particular a steeper progressive income tax, as the most rapid and effective way to redistribute income.  In her judgment, Canada was closer to economic wisdom in the post-war years when government, supported by organized workers and by some influential progressive thinkers, built the pillars of a welfare state. Those initiatives significantly narrowed the gap between rich and poor.

McQuaig and Yalnizyan research income inequality directly, and deal more indirectly with the issue of institutionalized power. 

Individuals and their courts of advisors

In his recent book “Power – Where is it?”, Donald J. Savoie, professor of public administration at Université de Moncton, deals directly with both economic and political power. From his rigorous detailed study he concludes that our traditional public institutions no longer shape people’s attitudes but now are themselves being shaped by powerful private financial leaders and their inner circle.

More and more we are not looking to institutions but rather to individuals who can get things done, because what really matters is what works.  And the most powerful politically and economically are the best positioned to decide what matters and to pursue what works. 

The focus is on the individual, whether the CEO or the prime minister or the retired president, who of course comes equipped with his court of advisors or friends. The result is that other individuals, yes, MPs ,  even members of  cabinet,  feel powerless. Increasingly, parliament no longer has the power to hold either business or government to account. 

Savoie sees lobbyists, pressure groups and the skillful use of public polling slowly replacing representative democracy. The elites know one another and are in easy private communication with each other. Powerful CEOs and wealthy individuals are able to change the tax laws and patterns of government in their own favour.

“First, get rid of Wall Street” (Korten)

A final author is David Korten, a former professor at Harvard’s Graduate School of Business, who has some very thoughtful books to his credit.  In his “Agenda for a New Economy: From Phantom Wealth to Real Wealth”, Korten proposes a more radical solution. First, get rid of Wall Street. It was the real villain in the recent recession. And it produces nothing real but only ‘phantom wealth,’ or money that has no intrinsic value but nevertheless creates powerful claims on the real production and wealth created by others.

His new economy sounds startlingly like the original free market economy proposed by Adam Smith, where businesses and banks are mostly small and local, with no monopolies or duopolies, and none big enough to be indispensable. The role of banks would be limited to facilitating business production and commerce. And like Galbraith, Korten would not accept GDP (Gross Domestic Product) as a reliable measure of human achievement.  GDP numbers measure only financial and economic growth – whether good or bad, sustainable or illusory. He challenges us to re-establish criteria that reflect genuine human well-being.

Growing gap as serious to economy as climate change

Even from this brief survey of the research and thinking of a few credible authors past and present, it is clear that income inequality, the widening gap between rich and poor in Canada, can and must be publicly challenged.  Armine Yalnizyan claims that this growing gap is as serious a threat to our economy and our society as is climate change.

And the thought of climate change brings us back to the very big picture. 

The wild excesses of weather have been presenting us in recent months with the planetary equivalent of seeing babies drowning in a river (sometimes literally) as the water rushes by. So it’s a very good time to look upstream and study some of the causes, both environmental and financial, of the problems that make headlines. 

We have been learning in recent years about the drastic institutional and behavioural changes that will be necessary as we strive to “green” our economy—to make it a sustainable, limited subsystem of the planet’s all-embracing ecological system.  How can we create such profound change unless we are able to think, imagine and act as a unified, co-responsible society?  And how far is the possibility of such unity receding as differences in the economic distance between people increase?  

There is a radical, constant interconnection that links environmental reform with economic and political reform—and with whole-hearted, clear-headed spiritual conversion.

 Bill Ryan sj

Sources for The Rich and the Rest

John Kenneth Galbraith: The Economics of Innocent Fraud: Truth for Our Times, 2009, Penquin Books.

David C. Korten: Agenda for a New Economy: From Phantom Wealth to Real Wealth. 2010. Berrett-Koehler Publishers Inc. San Francisco.

Linda McQuaig and Neil Brooks: The Trouble with Billionaires, 2010, Viking Canada

Donald J. Savoie:  Power: Where is It?  2010 McGill-Queen’s University Press.

Armine Yalnizyan:  Income inequality not sustainable economically for any of us. The CCPA Monitor, vol 16, #1, May 2009.

Richard Wilkinson & Kate Pickett, The Spirit Level: Why Greater Equality Makes Societies Stronger.  2009, Bloomsbury Press and Penguin