Credit. Cover art by Eoin McCaul.
Explore the need to address wealth inequality and forge a just society in this social commentary that rethinks capitalism.
Disclaimer: This article is a social commentary.
Preface
In recent decades, income and wealth inequality have grown substantially in many countries worldwide. As globalization and technological change have transformed our economies, those with wealth and high-level skills have prospered while many others have struggled.
The consequences of this rising inequality threaten society’s social fabric and stability. They also diminish faith in economic and political systems and people’s sense of opportunity and fairness. If left unaddressed, growing inequality risks undermining trust in institutions and could even influence democratic elections in profound ways.
It is important to acknowledge that some degree of inequality is inevitable in market-based economies that value competition, innovation, and reward for skills and effort. However, most experts agree that current levels of inequality in many nations have become excessive and are a policy failure that must be addressed.
As French economist Thomas Piketty revealed in his bestselling book “Capital in the 21st Century“, returns on capital and assets often dramatically outpace overall economic growth in the long run. This increases the concentration of wealth at the top while middle and working-class incomes struggle to keep pace.
While the root causes of rising inequality are complex, some contributing factors include globalization, technological change, top tax rate reductions, union membership declines, a declining minimum wage, and other policy and economic shifts over recent decades. Globalization has impacted developed nations by shifting manufacturing and other jobs to countries with lower production costs.
New technologies like robotics and artificial intelligence threaten to automate many jobs, especially lower-skilled work. Lower tax rates on top incomes and tax loopholes fail to generate sufficient revenue to reinvest in education, infrastructure, and social programs that can support workers.
The pandemic in 2020 has further exacerbated inequality by disproportionately impacting low-wage service sector jobs. At the same time, rising stock markets and buoyant housing prices have increased wealth for those already affluent.
Studies show that inequality slows overall economic growth by concentrating purchasing power among a small segment. It also undermines social cohesion and intergenerational mobility as opportunities become increasingly dependent on the circumstances of one’s birth. Addressing these concerns will require acknowledging the flaws in our current economic model and exploring innovative policy solutions.
Now, let’s dive into core topics in detail.
The Flaws of Capitalism
While capitalism has lifted living standards for many globally, its benefits are increasingly not shared by all. The disproportionate gains of elites have created strains threatening socio-economic and political stability if left unaddressed. Many experts argue that current versions of capitalism reward short-termism, risk-taking, and financial engineering over long-term investment in productivity, workers, and sustainability.
For example, corporate focus on quarterly returns and stock prices incentivizes cost-cutting and riskier behaviors rather than prudent planning. Executives are richly compensated based on share prices in the near term rather than long-term growth and equitable distribution of proceeds. Stock buybacks and dividend distributions shift money to wealthy shareholders while providing no real economic benefits.
According to reports, over 90% of income gains in the United States went to the top 1% of households.
Another flaw is the accumulation of monopoly power by a few behemoth companies in many industries like tech, media, and retail. Lack of competition allows markup of consumer prices and suppression of wages over the long run. Mega-conglomerates also pour money into lobbying that shapes rules and regulations to entrench their dominance rather than letting markets function freely. Labor ideals of fairness, dignity, and collective empowerment have also diminished as shareholders’ primacy reigns.
Experts argue that many shortcomings stem from the common treatment of unlimited growth as an economic end. But this discounts environmental finiteness and risks system crashes from overheating. Scientists say global consumption exceeds ecological means by over 50% each year. Effects like climate change also disproportionately hurt the disadvantaged, worsening inequality. Privatizing gains while socializing risks through bailouts damages market discipline and fairness.
A further failure is the separation of economics from other domains like politics, ethics, or community. But people’s well-being depends on things like healthcare, education, and environment – not just material wealth.
The narrow pursuit of efficiency and wealth concentration undermines social cohesion by leaving many disempowered and disposable. This deteriorates social capital on which stable economies also depend for creativity, trust, and coordination.
So, in various ways, capitalism’s current form is seen by critical economists as promoting suboptimal distribution of risks, rewards, and resources in societies over the long term. Urgent redesign is needed to correct its excesses and help foster more inclusive societies and sustainable prosperity for future generations.
Corporate Actions and Social Harm
While corporations are legally obligated to serve their shareholders, their actions can also negatively impact communities and the environment.
Corporations’ social and environmental costs are often externalized onto society when driven solely by maximizing profits. For example, many large companies pay low wages while expecting taxpayers to subsidize health insurance and other welfare benefits for their workers through public programs.
The pursuit of tax dodging through international profit-shifting further burdens individuals and small businesses disproportionately.
Multinational corporations are estimated to avoid over $500 billion per year globally using offshore tax havens and subsidiaries in low-tax countries merely to book profits. Such maneuvers deprive governments of critical resources for public services and infrastructure corporations depend on. They also undermine the integrity of tax systems by individuals perceived as unfair.
Critics argue that short-term profits are often pursued through unsustainable extraction and production practices with little regard for long-term environmental damage. Industrial accidents, oil spills, factory disasters, and other externalized costs are regularly borne by involuntary public victims rather than the corporations responsible. Contamination of water, soil, and air pollution from corporate activities disproportionately impacts public health in equitable ways.
Another problem is the lack of meaningful representation for workers and communities in corporate decision-making. Even as businesses rely upon public resources and captive consumer bases, their governance structures concentrate control among distant investors rather than local stakeholders. This denies democracy and consent at the very level where decisions impact people’s jobs and living environment daily.
To address such social harms, experts argue for stronger regulations, taxation reforms, and new corporate governance models that hold businesses properly accountable for their externalized costs. Options discussed include benefit corporations laws that broaden fiduciary duties beyond shareholder wealth, green taxes correlated to environmental damage, and worker representation on company boards.
Promoting corporate cultures with longer-term perspectives and more equitable treatment of stakeholders could help build public trust and remedy imbalances in today’s form of capitalism.
Public Policy and Regulation
While free markets promote innovation and growth when functioning efficiently, periods of crisis and prolonged inequality call for prudent oversight and corrective policy actions by governments. Experts argue that advantage must be taken of available policy tools to help address some structural flaws embedded within capitalism.
For instance, more progressive income and wealth taxation can curb growing concentration at the top while funding investments in public goods. Closing corporate tax loopholes could recoup hundreds of billions annually to strengthen infrastructure, healthcare, education, and social welfare programs that support a capable workforce. Coordinated action against tax havens would establish a fairer playing field while discouraging wasteful tax planning activities.
Policymakers could also set minimum corporate tax rates and prohibit stock buybacks unless workers receive fair wage increases and benefits. Antitrust enforcement may need renewal to preclude consolidation of outsized power in some sectors and protect open competition. Strategic investments and procurement practices can help emerging industries and disadvantaged regions. Well-designed industrial and environmental regulations could internalize costs presently borne by wider society.
Furthermore, governments play an important role in protecting laborers and ensuring worker protections are not steadily eroded. Options include increasing the minimum wage to liveable standards, universal healthcare coverage unlinked to jobs, portable benefit programs, family support services, and expanded collective bargaining rights. Paid sick and family leave, career training subsidies, and re-employment services can also help shift risks off individuals.
Financial regulation aims to curtail risk-taking, prevent crises, and rein in activities like complex derivatives that do little beyond excessive speculation. Pensions and social security floor protections must similarly adapt to longevity and mobility trends. Fairtrade and global tax cooperation could help boost developing world growth while curbing a “race to the bottom” on standards.
Reasonable and mandatory corporate governance reforms may also empower more balanced stakeholder representation. With open public discourse, consensus can form around pragmatic steps to modernize capitalism to foster broadly shared prosperity over the long run through inclusive markets, opportunity, and social equity.
The Role of Technology
While technology has historically boosted productivity and living standards, its effects profoundly disrupt jobs and exacerbate inequality.
Automation enabled by artificial intelligence, robotics, and other innovations threatens to significantly reduce future demand for human labor across many industries like manufacturing, transportation, retail, food services, and more. Some studies estimate around half of all occupations today have a high potential for partial or full automation within the next 10-20 years.
Workers displaced from routine roles face difficulties transitioning to new, emerging jobs that increasingly require advanced digital skills. Those with low educational attainment or only experience in disappearing occupations are most at risk. Entire communities heavily dependent on dwindling industries like coal mining, textiles, or automaking struggle with intergenerational unemployment and social problems as dominant employers downsize or close shop.
At the same time, technology also concentrates returns among those with highly specialized technical expertise, shareholdings in robotics companies, and other high-earning, urban professions exposed to network externalities. Network effects give disproportionate power to a handful of dominant online platforms. They also capture outsized profits from data extraction despite impacts on privacy, disinformation, local business disruption, and reduced consumer autonomy over their personal information.
To address these challenges, experts argue that governments must take a proactive role by implementing job retraining programs, subsidizing career transitions, investing in communities most dramatically disrupted, and supporting the emergence of new industries. Possibilities include expanded public works and caregiving jobs that leverage human interaction and skills that are not easily automated. Guaranteed work-share and income security between stints can underpin labor market fluidity.
Strategic technology policy targeting universal basic income, portable benefits, public digital infrastructure deployment, and tailored re-skilling initiatives can help technology bring more equitable growth. Tax Increment Financing mechanisms at local levels may fund community redevelopment from tax revenues garnered by new technologies. Competition policy may curb undue dominance within certain platform markets.
With coordinated efforts, governments, labor groups, non-profits, and leading firms can collectively help displaced workers and regions adjust in ways that spread technology’s benefits as widely as possible. Failing proactive management of these changes risks heightened populism, unrest, and social dislocation, threatening long-term stability and prosperity.
A Hybrid Economic Model
While free market capitalism has lifted living standards globally, its current excesses and failings have stimulated discussion around alternative hybrid economic models. Reform advocates argue that elements of social democracy and progressive policies could help address serious challenges like inequality, financial instability, and environmental degradation in a balanced, equitable way.
One such model gaining traction is social capitalism – a system that blends market mechanisms with safety nets and redistributive policies.
It balances efficiency, innovation, and individual choice, emphasizing fairness, shared opportunity, and communal well-being. Key features include universal healthcare, education, and child benefits funded through progressive revenue sources like carbon taxes and higher income/wealth levies on top brackets.
Comprehensive social insurance allows greater labor mobility and career switching without the risk of poverty. Safety programs also encourage entrepreneurship and innovation by cushioning inevitable business failures in a dynamic economy. Strong public investment in societal needs, from infrastructure to scientific research, creates spillovers, boosting private gains. Strategic industrial policies nurture emerging green/advanced sectors.
Other workable variations include stakeholder capitalism expanding corporate fiduciary obligations beyond profit maximization. German-style co-determination sees employee representation on company boards to embed societal perspectives into major decisions. Sovereign wealth funds owned by citizens could hold significant assets and return dividends directly into public services and UBI.
Denmark, for instance, with its flexicurity model pairing social protections with ease of hiring/firing, achieves top 10 global rankings in per capita income, income equality, and health/life satisfaction while maintaining innovation dynamism. Other high-tax nations like Finland and Norway also sustain high living standards, suggesting that well-designed taxation and equity policies need not inhibit growth.
As disruptions from climate change, technology, and globalization persist, experiments suggest hybrid approaches facilitate “good” change and diffuse risks in inequitable, communal ways. With open policy debates, nations worldwide may selectively craft bespoke capitalist evolutions, ensuring prosperity, fairness, and resilience for future generations.
Postscript
The growing challenges of inequality, unsustainability, and corporate misalignment have prompted calls to reformulate our economic models and policies to better serve societies over the long run. While debates will continue around appropriate solutions, there is agreement that course corrections are needed to once again make the system work equitably for all.
Failure to address mounting issues like inequitable wealth concentration, climate change, and lack of opportunity risks eroding social cohesion over time. Inaction also denies our leaders the ability to implement gradual, evidence-based improvements. But with open and results-focused discussions, building consensus around balanced steps to strengthen equity, resilience, and communities for future generations remains feasible.
Reforms need not comprise economic dynamism if thoughtfully modernizing the framework rather than abandoning free exchange. Hybrid models show that nations can sustain innovation through public investments, social insurance, and fair burden-sharing while achieving better outcomes than laissez-faire systems exacerbating instability and imbalances. Sensible tax codes and regulatory modernizations can align interests toward sustainability.
Our systems gain legitimacy and coordination benefits by reducing extremism and incorporating diverse stakeholder views into major decisions. Supporting workers’ skills development and empowerment helps facilitate inevitable changes from new technologies. Directing some profits recovered from misallocation towards communities in transition keeps prosperity widely shared.
Going forward, continued experimentation, review of pilot programs, and international engagement on challenges like tax abuse will be vital. Smart industrial planning transitioning carbon-intensive sectors offers well-paying jobs. But overall, a renewed commitment to balanced growth, opportunity, and shared benefits from our economic activity offers the surest path to stability and cohesion over the coming decades of uncertainty.
With open yet pragmatic governance, we can appreciably mitigate inequality and better address sustainability without ideological extremes. Together, by powering new economic forms and policies with broad-based prosperity, justice, and environmental responsibility as guideposts, nations may safeguard welfare, democracy, and social peace during ongoing disruption. Progress requires continued collective efforts to refine and improve our systems for future generations.