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A permanent underclass
Why are these two phenomena dark? First, we risk creating a permanent underclass who live together increasingly worse off than their neighbours, countrymen or human beings. Or, if people are able to migrate, we hollow out whole sections of cities, regions or countries. Greece lost nearly 1/20 of its entire population over the last ten years, and those who left were primarily the youngest and most employable. The country that gave much of the world its basis of culture and thought is being hollowed out by a dramatic regional disparity exacerbated by its relationship to the EU. Neither a permanent underclass nor ghost towns are attractive options for these regions. Second, as the middle class erodes, the wealthy risk eating their tail: without a middle class there are no customers to buy the products and services the wealthy create. Clearly more very expensive luxury goods will be purchased, but wealthy people do not spend anywhere near the proportion of their wealth as the middle class. And, since wealthy people keep significantly more of their wealth in the form of capital, they pay significantly less tax proportionate to their wealth, even in progressive tax systems. Without taxes, governments fail to provide the safety net essential for the increasingly worse-off.
Interdependencies
Inequality is a consequence of any economy and is arguably essential to motivate people to learn, work hard and take risks Dialogue Q4 2018
Distressingly, there are also a couple of factors that act to multiply the consequences of disparity: age and disruption. The world is generally getting older, but in two very different ways. Around half of the world – Europe, Russia, Japan, Canada, the US, and increasingly China – have a significant number of their population reaching the normal age of retirement. The rest of the world contains a massive number of people about to enter the workforce. As an example, consider India, which needs to find between 8 and 14 million new jobs a year for the next 15 years. These two aspects of age multiply the problems of disparity in quite different ways. For countries with massive disparities that are getting older, there is likely to be too much of a burden on those continuing to work, mixed with a significant number of people who are simply unable to support themselves in their older years. For those who are disadvantaged in countries that are significantly younger, the prospect of finding good work is very slim and the level of wealth in the country too little to provide sufficiently for those who cannot find work. Both circumstances are pretty miserable. The other major interdependency is disruption, or the dramatic reconfiguration of business. Inevitably, the advantage in disruption accrues to regions and people with resources and education. Technologically based companies require fewer, more skilled workers,
infrastructure and capital. Poor regions have none of those. Disruption also displaces workers. Those displaced first will be the ones who are just beginning to get out of disadvantaged circumstances, or those who have been at the same job for a long time.
The multiplier effect
Taken together, the two interdependencies are especially pernicious. Older countries are likely to have a set of people not yet at retirement age forced out of their jobs by disruption, but still deemed too old to retool or redeploy. Younger countries will not have similar access to the labour arbitrage that gave Japan, Korea, China and India their start. All of these countries began by providing lower-cost labour to outsource lower-end manufacturing and services. With the advent of technology, emergent labour in lower-age countries with massive job-creation requirements will be competing with robots that never sleep, do not get sick and get smarter and cheaper everyday.
Where should we start?
These outcomes seem dire – and they are – unless we change the way we think about the problem. Outlined below are a few ideas on where to begin, but just that: each of the ideas will require a real partnership between the public and private sectors and civil society.
1
Focus on local economies
If a significant portion of the challenge of disparities in wealth concerns disparities across regions or locations, then focusing efforts on enhancing local economic activity is critical. From farm to table, to ensuring a percentage of all expenditures are local, to creating a local microcurrency, to local entrepreneurial initiatives – we need to find a wide array of ways to drive local economic activity and trade. A major portion of the focus of national governments should be to find ways to help local economies thrive. And every firm should look at all the towns in which they operate as their local town.
2
Create conditions to facilitate many start-ups
Given that disruption will take jobs out, and it is essential for competitive survival for large firms to become increasingly efficient, the solution has to entail massive creation of new firms. In addition to creating work, it has the additional advantage of shifting more people from employee to owner, creating motivation to invest and grow. The key will be to adapt successful strategies to the starting conditions of an area. For example, it will not work to port the practices of Silicon Valley to start-ups in Uttar Pradesh. National policy, state policy and the