Competitiveness Meets Poverty and Inequality

On Monday, Ontario’s Institute for Competitiveness and Prosperity released a paper entitled, Prosperity, Inequality, and Poverty. As Andrew Sharpe pointed out in a review of Jack Mintz’s book, free-market “policy entrepreneurs” often completely ignore the distributional consequences of their recommendations. The Institute deserves credit for trying to grapple with distributional issues (and also for quoting Sharpe extensively).

The Institute observes that rising inequality is mainly driven by the rich getting richer and that poverty is concentrated in five “risk groups”: high-school drop-outs, recent immigrants, lone parents, unattached middle-aged individuals, and aboriginals. It judges poverty to be a far more important problem than inequality and calls for policies targeted to the specific risk groups as opposed to a general redistribution of wealth. Given that the left proposes across-the-board redistribution and targeted measures to increase investment, it is no surprise that the right advocates across-the-board tax cuts and targeted measures to reduce poverty.

I have a couple of quibbles with the Institute’s analysis. It notes that the risk groups encompass only 25% of people aged 25 to 64, but about 60% of those in poverty (page 30). Although poverty undoubtedly is concentrated in these groups, a substantial chunk of adult poverty (40%) occurs outside of them. While measures targeted to these risk groups are probably necessary, they are certainly not sufficient. Also, I wonder whether being an unattached individual between the ages of 45 and 64 really “causes” poverty or often results from it.

Inequality is a serious problem, not least because people necessarily evaluate their well-being relative to other people and allocate resources accordingly. Countering inequality driven by the super-rich getting even richer requires some sort of generalized redistribution, most likely through a more progressive personal tax system. Some may redistribute voluntarily through philanthropy, but that is not a consistent policy solution.

2 comments

  • «As Andrew Sharpe pointed out in a review of Jack Mintz’s book, free-market “policy entrepreneurs” often completely ignore the distributional consequences of their recommendations.»

    I doubt that very much — they distributional consequences of their recommendations are almost always in one direction only, and I doubt that is something they don’t notice or they don’t intend.

    My impression is that «free-market “policy entrepreneurs”» are animated by a profoundly moral zeal, of the sort expounded in “Atlas shrugged”, where the markets are the instrument that results in the moral outcome of the punishing of losers, and the reward of winners.

    «Countering inequality driven by the super-rich getting even richer requires some sort of generalized redistribution, most likely through a more progressive personal tax system.»

    This is a common prescription, but it is “ugly” politically, and most importantly it incorrectly results in celebrating the achievements of those super-rich: as if that immense wealth was justly earned, and the inconvenience were that the well deserved earnings were too unequal.

    Admittedly even if “earned” (whatever that means) inequality has some negative externalities as such, but before we get to that better arguments are possible.

    In particular that contrary to propaganda economics income is necessarily the same as productivity (whatever that is), but necessarily the fruit of leverage, and that far from being free or neutral markets are heavily rigged with rules that give disproportionately more leverage to some than to others.

    To a very large extent poverty, in particular working poverty, is the result of rules that give especially weak bargaining power to many groups of people. Most obviously in the USA where the wholesale purchase by the plutocracy of political favours and legislation that alter the balance of bargaining power in their favour, such as shareholder representation rules, or capital gains taxes, or non-enforcement of labour legislation and so on.

    The plutocrats have been so successful at this also because purchasing favourable rules is a lot less visible and adversarial than just redistributing income overtly — it makes unfariness almost invisible.

  • I also found this an intersting and fairly honest report analytically. Somewhat aginst the usual grain of their analysis, they even note that incomes at the lower end of the income distribution are higher in Ontario than the usual comparitor US states. What is disappointing is that the only real solution to rising inequality they can come up with is the usual chestnut of more education and training. Some business types – such as KPMG and TD Bank parcipants inn the Ontario Modernizing Income for Working Age Adults exercies – bought into wage supplements for the working poor (on which I have mixed throughts) and improved EI benefits, and were also a bit more open to higher minimum wages.

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