Anthony B. Atkinson :
(From previous issue)
Although the idea may sound radical, it has found support in the past under the name “negative income tax”-a proposal made by no less a free-market economist than Milton Friedman, whereby citizens whose incomes fell below a certain threshold would receive government payments.
Governments interested in reducing inequality should reform the way they tax the transfer of wealth.
Reducing income inequality is not just about taxes and spending; governments also need to tackle unemployment. Here, the United States has performed better than many developed countries, with its unemployment rate now standing at five percent. But there was a time after World War II when unemployment in such countries as the United Kingdom had fallen to around one percent. Back then, people regarded with horror the prospect that the rate might rise to ?2.5 percent; today, the y-axis on the U.S. unemployment chart published by the Bureau of Labor Statistics begins at four percent.
Better is possible. To start, governments should establish an explicit target for unemployment, just as many do with inflation. This is not such a radical idea. The U.S. Federal Reserve, for example, is already mandated by Congress to promote “maximum employment.” Then, political leaders would have to radically reconsider the way they battle unemployment. Past efforts to make the labor market more flexible-the very reform advocated by such bodies as the Organization for Economic Cooperation and Development and the International Monetary Fund-have not succeeded in returning countries to the low unemployment rates of the postwar decades. In large part, that’s because they have focused almost exclusively on the supply side of the labor market. On the demand side, the government can act as an employer of last resort by offering guaranteed jobs. Again, the concept is nothing new: in 1978, the U.S. Congress passed the Full Employment and Balanced Growth Act, which authorized the president to form “reservoirs of public employment.” Jobs are only part of the story, of course, since many people who work remain poor-hence the need to raise the minimum wage. States wishing to fight inequality will also have to rethink their approach to capital and wealth. Although wealth is much more evenly spread than it was a century ago, there has not been a corresponding democratization of the economic decisions associated with capital. A person with a retirement fund, such as a 401(k) in the United States, indirectly benefits from the dividends paid on shares in a company owned by that fund yet has no say in the decisions made by that company. It is time to rebalance the power among stakeholders. That means taking inequality into consideration when making judgments about violations of antitrust law; after all, as the judge Learned Hand pointed out, Congress passed the Sherman Antitrust Act in 1890 “to put an end to great aggregations of capital because of the helplessness of the individual before them.” And it means ensuring that negotiations about trade deals involve not just businesses but workers and consumer representatives, too.
In terms of the ownership of wealth, plans to reduce inequality have fixated on taxing the rich, but as much attention should be paid to increasing the wealth of small savers. To that end, governments should introduce accounts for small savers that guarantee a positive return in excess of inflation. In the United Kingdom, for much of the past five years, small savers have experienced a negative return on investment, adjusting for inflation. Inflation-indexed savings vehicles would help people accumulate savings, and their use should find support across the political spectrum.
But governments need to look beyond individual wealth to national wealth, since inequality is also a function of the public’s share of state assets. Politicians around the globe obsess over public finances, yet they focus almost exclusively on national debt. Instead, they should look at the overall position of the state: both liabilities and assets. When considering what a state owns in addition to what it owes, things do not look good. The United Kingdom restored its wealth after World War II, and by 1979, its net worth equaled about three-quarters of national income. But after a wave of privatization in the 1980s, the country’s net worth fell sharply, and by 1997, it had nearly hit zero. In the United States, the government’s net worth peaked at around two-thirds of national income at the beginning of the 1980s, fell to a tenth in 1994, and is now negative.
Given this sorry state of affairs, the logical thing for a government to do is bring together its assets in a sovereign wealth fund and design its fiscal policy to build up state net worth. This would not be tantamount to nationalization, since the state would not acquire controlling interests in corporations. Rather, the state would purchase minority stakes in assets that yielded an income, which it could use to finance part of its spending. In the medium term, by acquiring shares in firms benefiting from increased automation, the state would reap some of the increased profits resulting from such macroeconomic developments. As the economist Laura Tyson has said, the implications of robotization depend on “who owns the robots.” If the state gets a significant chunk of the profits-and after all, it paid for much of the development-then the income will be spread far more widely.
The Nigerian writer Ben Okri began a recent poem with: “They say there is only one way for politics.” But, he concluded, “there’s always a new way.” In the fight against excessive inequality, there are alternative ways forward, yet they are not necessarily novel. U.S. Senator John Sherman, a Republican from Ohio, introduced his landmark 1890 Antitrust Act because he believed that among all the country’s problems, “none is more threatening than the inequality of condition, of wealth, and opportunity.” The philosopher Thomas Paine proposed a minimum inheritance as far back as 1797.
Nor do these various proposals need to reduce inequality at the expense of economic performance. To the contrary, if properly designed, the measures can in fact improve the performance of the economy. A minimum inheritance, for example, could help young people finance their education, start a business, or buy property. A higher minimum wage, meanwhile, could nudge employers to develop higher-wage, higher-productivity opportunities for their employees.
Even in today’s globalized world, there is room for national governments to take steps to reduce inequality. For too long, politicians concerned about inequality and poverty have portrayed the problems as regrettable but unfixable. Yet by and large, the solutions lie in their own hands.
(Concluded)
(Anthony B. Atkinson is Centennial Professor at the London School of Economics, Honorary Fellow of Nuffield College, Oxford, and the author of Inequality: What Can Be Done?)
