Increasing Inequality and Winner-Take-All Economics
One of the mildly worrying economic trends of the last thirty years has been the increasing gap between rich and poor in the US. Many policy analysts conclude that this is the clear result of not following whatever policies they advocate, and thus demand quick action. However, as a recent OECD study shows, most countries have seen increases in inequality since 1980:
Given that countries as varied as Israel, Germany, New Zealand, Sweden and Finland have all seen increases in inequality of similar or greater scale (though not to the same absolute level, since they started lower) to that of the US over the last 30 years, it seems hard to imagine that it is simply a matter of US tax or social safety net policy which is the cause of the trend.
A more likely cause, to my mind, would be that the combination of transportation and technology with decreasing trade barriers have made it possible for there to be “winners” on a larger scale than was possible in the past. A blockbuster movie in 2011 has literally billions more potential paying viewer than a blockbuster in 1970, due to technology, the economic growth the developing world, and the global marketplace for arts and culture. The web allows single sites/services such as Google and Facebook to dominate not just one country or region but the entire world, thus allowing the founders and owners to become richer than they could have if infrastructure and other barriers. And if it seems odd that Finland is among the countries in which inequality has grown a good deal, check to see if you’re carrying a Nokia phone. In a whole range of products and services, it’s possible for a small number of winners to win bigger than was possible thirty years ago. For ordinary workers, on the other hand, the number of customers their work reaches has not necessarily increased. Thus the growth in inequality.
And on a minor side note, it’s interesting that one of the highest levels of inequality on the chart is in Mexico — a country which has a tendency to increase its own inequality and that of it’s neighbor to the north at the same time by exporting many of its lowest earners across the border. Given that this benefits those who cross the border a good deal, I don’t really see this source of inequality as a problem. Poor immigrants from Mexico are generally better off in the US than they would have been at home, even if, in large numbers, their presence can make the US look like it’s inequality is increasing (since the population is not held constant.)