When
the Bounty Isn’t Shared
(BusinessWeek, February 27, 2006)
Written By Congressman Barney Frank
Adlai
Stevenson, the story goes, was once congratulated after a speech by a woman
who told him it would get him the votes of all “thinking people.” “That’s
wonderful,” he is said to have replied, “but unfortunately I need to get a
majority.” It may have been Stevenson’s propensity for making such amusingly
deprecatory comments about voters that kept him from winning that majority
in his two 1950s Presidential bids. But Stevenson’s observation is relevant
today to those of us in the minority who believe the most serious problem
America faces is excessive economic inequality.
“Excessive” is the operative word here. Inequality is not a bad thing in a
free market economy; indeed, it’s essential if we’re to benefit from the
incentives and efficiencies that make the market so effective a producer of
wealth. But left entirely to its own devices, the free market will produce
more inequality than is necessary for efficiency or a healthy society.
That’s especially true in an economy marked by globalization, the increased
use of information technology, and the rapid flow of capital across borders.
Alan Greenspan said as much when he told Congress’ Joint Economic Committee
in 2004 that nearly all the benefits of recent productivity growth were
going to corporate profits, resulting in “a marked fall” in employees’ share
of the gains.
Nothing in the past two years has alleviated that problem. Real wages for
the average worker have eroded, and health and pension benefits have faded.
Meanwhile, corporate profits and pay for the top 2% of the population have
soared.
For many of us, this is morally objectionable because it means that a large
majority of people live at a lower standard of living than we think
Americans ought to. But the counterargument, supported by many in Corporate
America, is that focusing on inequality is a mistake, so long as the
absolute level at which the majority lives is acceptable. So any reduction
in inequality can only be won by a majority that includes people who do not
share my values-based objections.
That’s why business must understand that it too benefits by reducing
inequality. In testimony last summer, Greenspan lamented the “growing
evidence of antiglobalization sentiment and protectionist initiatives,”
which threatened economic flexibility. And he agreed when I suggested that
this is not simply a case of crankiness but a broad public reaction to the
perception of inequality he cited in 2004. Indeed, when people see their
real wages stagnating or falling, health benefits threatened, and pensions
insecure, they’re unlikely to support policies that help the economy at
their own expense.
Look overseas. In 2004, India’s ruling Bharatiya Janata Party (bjp) called
elections in a campaign based on overall economic growth that had exceeded
expectations with the slogan “India Shining.” But with hundreds of millions
of ordinary Indians feeling they had not shared in the benefits of economic
reform, voters’ response was essentially “shine this,” and the bjp lost.
More recently, Latin American voters have backed leaders hostile to
deregulation, globalization, and economic flexibility.
So it’s important for business leaders to understand that overall gross
domestic product growth is not enough to win political support for the tax
code changes and curbs on public spending they support. This was brought
home at a dinner I attended last month at the World Economic Forum in Davos,
where a leader of a large financial institution voiced frustration with the
average American’s lack of support for globalization. “After all,” he said,
“a recent study by the Institute for International Economics showed that
globalization adds a trillion dollars a year in value to the American
economy,” which, he noted, was worth $9,000 a year to the average American
family. The problem, of course, is that the average American hasn’t seen
that $9,000. Instead, many of them believe—resentfully—that corporate
executives have been keeping it all for themselves.
Therefore, it’s time to make a deal. I am prepared to help persuade my
fellow liberals that many of the public policies they have been resistant
to, or skeptical of, are in the national interest, if those in the business
community work with us to ensure that the bulk of Americans get a larger
share of our increased wealth. Our
nation has both the resources and the intellect to implement public policies
that diminish inequality so that it does not become socially corrosive,
without reaching the point where that diminution threatens the needs of the
capitalist system. Is Big Business ready to come to the table?
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