By Fareed Zakaria
USA Today has a new poll out that shows that the American public is increasingly concerned about inequality and wants the government to do something about it. So what to do?
There’s little doubt that inequality has risen dramatically. The most eye catching number might be this one – the world’s 85 richest people own as much as do the poorest 3.5 billion put together. If you put this in American terms alone, the six heirs to the Wal-Mart fortune have a net worth that is larger than the poorest 48.8 million American families put together. These are staggering numbers and it does make for some envy. But envy is not a good basis for public policy.
As I have argued before, inequality is made up of three different factors: the rise of the super rich, the rise of a larger group of poor people, and the stagnation of the great middle class.
We're actually beginning to see a healthy discussion about the first two factors, especially about the poor. This is the area where we could make the biggest difference relatively easily. Smart government policies could easily and effectively reduce poverty in most countries. The Earned Income Tax Credit should be expanded, we should fund more early education and day care, and provide more and better nutrition for poor kids. Investing in poor children’s health and education will give them a better chance of escaping poverty. And there really are few perverse incentives in this area. Poor kids are not going to “slack off” because they get vitamin fortified cereal at school!
Less clear is what to do about the problem that gets the most attention – the super rich. Former Treasury Secretary Lawrence Summers has pointed out that if America had another twenty people like Steve Jobs – and another twenty companies like Apple – it would probably be a more dynamic and productive place, even though inequality would be worse as a result. If we could help the poor move up, in my own view it is less important whether the super rich move up even faster.
The biggest problem relating to inequality – the largest one involving the most people – is what could be called the great stagnation. Middle class people have seen their incomes stagnate for decades now. And with technology taking away work and globalization outsourcing jobs, these trends have actually intensified in recent years.
A new book, The Second Machine Age, argues that in the first machine age, around the Industrial Revolution and all through the information revolution, technology was used to create power systems to work with and enhance human muscle power and human control. Human control was a crucial process every step of the way. Think of a factory where thousands of workers, foreman and managers all played a large role in manufacturing a product.
In the second machine age, the authors argue, we are starting to automate cognitive tasks, control, judgment, calibration. The machines are replacing human control and cognition. They can make more consistent decisions than can humans. And the effect is massively compounded because of new information technologies like big data. The result: you don't need many people.
You can see it in the numbers.
General Motors, when it was one of the world's biggest companies, employed around 600,000 Americans. Apple today, one of the world's very largest companies in terms of revenue, employs around 50,000 Americans.
There is lots of technological progress and economic dynamism in the world today, and there is lots of good news about poverty alleviation and better health care. There just aren’t a lot of jobs for the great American – or Western – middle class.
And unfortunately, during my time in Davos for the World Economic Forum last week, I didn’t hear any new ideas about addressing that central issue.