miércoles, 18 de junio de 2014

New tools for fighting the growing inequality

This not the first post where I included a mention to "The second machine age", although in this case the reference could be switched with a reference to many other books. One of the topics inevitable in any book that analyse the current state of the economy from any perspective is the growing inequality, so the book written by McAffee and Brynjolfsson has the well-known data about the growing gap among the different classes. 

The growing inequality of our society could be sum up in three of the graphics included in the book, that could also be found in many other books. On one hand, productivity is experienced an spectacular growth in he last decade. On the other hand, while this productivity is having a positive impact in GDP is not having the same impact in wages, and even the distribution of the scarce positive impact on wages is not well balanced (see below).

There is a big concern about this growing inequality. And solutions are proposed in several places. One of this proposals is included in the report "The customer is always right", written by a British think-tank. Basically, the idea is to take advantage of the power-purchase of the public sector to establish some limits among the gap of salaries in the private sector in those companies which its main source of revenues is the public sector. The instruments proposed are two:
  • Setting pay caps
  • Imposition of a maximum pay ratio

But although establishing limits in the gap among different workers (from CEO to the less skilled worker) is part of the solution is not all the solution. This tool does not solve the problem that productivity is growing while wages are decreasing, mainly because it does not the issue of what Keynes calls technological unemployment. This new group of unemployed is probably one of the reasons for the decrease in the percentage of GDP dedicated to wages.  Because inequality could only be solved if we tackle the gap berween the share of GDP dedicated to wages and profits. 

Could be the power-purchase of the public sector an instrument to tackle the gap between the share of GDP dedicated to wages and profits? Well,  there is no reason for not exploring this path, and establishing taxes for redistribution an excess of profits coming from revenues obtaining from selling services to the public sector.

Growing inequality could destabilize our society and the world. The old tools are not probably the solution and exploring the power of new tools, like the power-purchase of public sector, not yet included in mainstream of policy making is a must.

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