A new 2015 Silicon Valley Index shows a robust economy, but also an embarrassing amount of economic inequality because of a widening pay gap and a concentration of wealth. The disparity is mirrored by national and international indicators.
Those who think this is a governmental or social problem are wrong. It is a critical business problem. The business community needs to declare war on economic inequality.
Americans endure unequal outcomes as long as the playing field is fair and everyone enjoys equal opportunity.
Recently, Oxfam, the international nonprofit organization committed to alleviating poverty, hunger, and injustice, predicted that the richest 1% would own more than half the world’s wealth by 2016. Many economists say that our level of wealth concentration is unprecedented in the history of the U.S. — worse than during the Depression; worse than during the Gilded Age in the late 19th Century; worse than when slavery existed.
The impact of the concentration of wealth is not entirely clear and the policies that would reverse the trend are controversial. Arguments about the concentration of wealth involve some of our most dearly held American values — equal opportunity; the right to own property; and the right to enjoy the fruits of hard work, ingenuity, and of good fortune.
In fact, the old theory of “trickle-down economics,” first coined by Mark Twain and championed by President Ronald Reagan, is still embraced, and its proponents claim that redistributing wealth from the rich to the poor — a la Robin Hood — would lead to a slowdown in economic growth.
Economists, politicians, and sociologists are unlikely to reach a consensus on what to do, but while they dither, the business community should be concerned about this unhealthy trend for three reasons:
• The loss of faith in the fairness of our system of government. Few rational people dispute the connection between economic power and political power. As wealth becomes concentrated so does political power. Recently, the Koch Brothers announced that they would donate nearly $900 million to a right-wing political action committee to win the next presidential election. If their candidate wins, one might reasonably ask who the next president is really working for and who will be making the decisions.
We are squandering the most important resource of every business: young people.
Americans endure unequal outcomes as long as the playing field is fair and everyone enjoys equal opportunity. The most damaging instances of social upheaval in U.S. history occurred when the people lost faith in their government. Social upheaval and commercial opportunity rarely go hand-in-hand.
• A disturbing side effect of economic inequality is an unfair allocation of medical and educational resources. There is no argument that the wealthy have access to better educational options and better medical care than the poor do. The unfair allocation of the basic building blocks of economic opportunity perpetuates the chasm separating the haves and the have-nots. It is hard for children to lift themselves out of poverty when we send them to underfunded schools.
The Alliance for Education and Democracy at the University of Pennsylvania reports that, since 1970, the percentage of students completing college has increased from 6% to 9% for the lowest income families, and has increased from 44% to 77% for students from the highest income families. We are squandering the most important resource of every business: young people.
A concentration of economic and political power puts our governance and commercial structures in jeopardy.
• According to the U.S. Census, the business startup rate has been declining steadily since the 1970s. Even more disturbing, since 2008, businesses are dying faster than they are being born. The concentration of wealth is also a concentration of economic security: rich entrepreneurs can afford to fail, poor entrepreneurs cannot. Risk-taking is easier if you have a comfortable economic safety net. We will need middle-class entrepreneurs to help us grow through the rest of t