Competitiveness Meets Poverty and Inequality
On Monday, Ontarioâ€™s Institute for Competitiveness and Prosperity released a paper entitled, Prosperity, Inequality, and Poverty. As Andrew Sharpe pointed out in a review of Jack Mintzâ€™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 farÂ more important problem than inequality andÂ calls forÂ policies targeted to the specific riskÂ 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 Instituteâ€™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. SomeÂ may redistribute voluntarily through philanthropy, but that is not a consistent policy solution.