The Economist on inequality

The Economist (20 January) has a comment and several related articles on the raging debate (at least in some quarters) on inequality and wage stagnation. It starts with the common observation that executive pay is growing rapidly while the real wages of American workers are growing much slower than productivity. In the rich world the share of GDP going to labour is at a record low while the share going to capital is soaring.

There are two schools of thought on the cause of this growing divide, according to the Economist. One blames globalisation: from this perspective the growth of trade and the entry of new developing country workers entering the labour market have widened inequality. The other places the responsibility on technology.

From the Economist’s perspective the two factors are inter-twined. But it rejects restrictions on executive pay, is against protectionism and is wary of giving aid to the victims of trade. Instead the magazine argues for greater social mobility. For example, making it easier to move jobs and improving education.

There are at least two important and related factors missing from this discussion. First, the political defeat of organised labour with the end of the Cold War has strengthened capital at the expense of workers. Second, the desire to raise the level of the mass of society as a way of achieving equality has become muted. Instead the dominant view is that consumption growth needs to be curbed.