Reducing Economic Inequality Through Intersectionality – PART THREE

Read Time: 10 mins. 

Most of us have an awareness that socio-economic gaps need to be narrowed so that we can create a fairer system for all. In the last two articles, we looked at the relationship between some of the most pressing social issues of our time and their links to economic gaps. In the first part of this series we looked at some of the causes and challenges of economic equality. In the second part we explored intersectionality and its connection to the economic inequality. The third part of this article will share solutions from economists from around the world on how we might begin to fix things.

Joined by Economist, social activist and, tech entrepreneur, Mammad Mahmoodi, I wanted to understand how my clients—many of whom are social activists, social entrepreneurs, or social impact leaders—could better articulate the issues of economic inequality and intersectionality.

“Economic equality has three faces,” Mahmoodi shared, “and some of the biggest hurdles that we need to overcome lie in (i) the wealth of the top 1% increasing at a higher rate, (ii) the middle class stagnating, and (iii) the poverty rate of those on a lower income increasing.”

To show these three faces, Mahmoodi shared the consensus data from both 2000 and 2011. This data divided US society into five groups, starting with the ones who have the lowest net worth, all the way up to those with the highest. (Your net worth is defined as your assets, income, debts etc. combined.)

In 2000, the median net worth of the bottom 20% was -$905. (Meaning their debts outweighed their assets and income). However, this figure rose to a staggering -$6,029 by 2011. This means that not only did the debt increase, but their net worth was over 550 % LESS than in 2000.1,2

More statistics from census data shows that 60% of Americans have had a DECREASE in their net worth within that eleven year period.3,4 The US is among the very few developed countries where the average wealth of the bottom 40% is in the negative!5

In the same period, the net worth of the middle band (number 3 out of 5) stagnated and stayed at a similar place.6

In contrast, the net worth of the top 2 groups INCREASED by more than 10 %. Moreover, as of 2016, the top 1% owns 42% of all the wealth of the whole of the US. This number is 10% in Japan, 11% in Italy and 16% in Canada, showing just how great the gap is in the US compared to other countries.7 In summary, as Jeffrey D. Sachs highlighted in The Price of Civilization, “The American economy increasingly serves only a narrow part of society.”8

So, my (Sasha Allenby’s) father’s most repeated mantra while I was growing up in an industrial part of Northern England, was “The rich get richer while the poor get poorer.” And even though I heard this a thousand times as a child, I had no idea of the rate in which that mantra was increasing in reality in these current times until reviewing this data.

Mahmoodi and Allenby finalizing the article series.

Mahmoodi and Allenby finalizing the article series.

 

WHAT ARE THE SOLUTIONS?

If these figures are unsettling it can be a comfort to know that this hasn’t always been the picture in the US, and if we have seen fairer systems in the past, we have the capacity to create them once again.

In the period after World War II, between 1945 to 1979, all societal groups  were thriving. Both income and net worth were increasing across the board for both the wealthy and the economically disadvantaged.9

Although the ideal would be to recreate this scenario, some Economists have a bleak view, believing that the holistic growth of this time cannot be recreated. In his bestselling book, Capital, Thomas Piketty says that this period was an exception in American history. He believes that with the structure of the world as it is right now, we will not see such equality, unless we radically restructure the economic and financial structure of the world and implement systems such as a universal tax system10 (having a global bowl of money that every country contributes their fair share to).

“First of all, Piketty’s universal tax system is genius,” Mahmoodi shared, “But despite that, I don’t believe the world is ready to engage in such a global system.” However, he also highlighted, “Many people misunderstood Piketty’s message in Capital,  and took it to mean that if we do not implement those discussed radical world restructures, then we are all doomed.” However, Mahmoodi—along with other economists such as Stiglitz (who is a Noble Economy prize winner and has worked on economic inequality for over 50 years)—believe that there is a lot which can be done to have a profound impact in the already existing system. “None of the solutions offered below are a magic bullet, but if each one of them is combined, it can make a significant impact on the current situation,” he shared.  


Solutions can be divided into two main headings. The first are “paradigm shifts” where we create a whole new way of thinking about and seeing the economy. The second is policies and laws, which include how wealth gets generated in the first place and how it is redistributed through tax, and so on.


( I ) PARADIGM SHIFT

“A whole paradigm shift is needed in the way we talk about and address socio-economic gaps,” Mahmoodi shared, and it seems that much of it has to do with a misperception around equality being anti-capitalist. “We have to clear the air, because many people confuse ‘addressing inequality’ with being a socialist or even a communist,” he told me. In fact, when we shared part one of this article series, some of the most common comments were accusing us of taking a socialist stance. However, addressing inequality is still pro-capitalist.

As we shared in part one of the series, in order for capitalism to work successfully, it needs to exist within the context of equality. There are many studies showing the negative impact of radical economic inequality on growth.11,12,13 So the aim is not to abolish socio-economic gaps altogether, but to significantly impact them so they are healthy and all groups are thriving.

How We Talk About Economics

Often when we talk about economics it is too simplistic. For example, when a new project or venture is discussed, we focus on parameters such as “How many jobs this new venture creates,” or “How much money is the total income generated from that project,” etc. In addition to talking about the number of new jobs and wealth it generates, we should also talk about how each new venture impacts equality. In other words, we should have a holistic view of the economic discussions. For example, municipalities were fighting to get Amazon warehouses to boost jobs, but studies14,15 show that once a giant distribution facility opens in an area, the average salaries in that area are reduced. (We are referring to Amazon warehouses and not the recent Amazon HQ2, which is a different story.)

A part of taking a holistic look at economics involves not being mislead by single statistics. For example, you may have heard that the US unemployment rate is at its lowest level in recent history.16,17 The statistics that support this do not show the whole story. In the last 30 years, there has been a strong wave of automation and technology advances which resulted in nearly 4 million manufacturing jobs being lost (which were an essential breadwinner for the middle class family).18,19 Some who were let go changed to service jobs which brought them down to the lower income groups. Others pulled out of the job market altogether.20,21 When a substantial number of people pull out of the job market, it results in a fake reduction in unemployment while if we look deeper, the US has one of the lowest percentage of working adults among developed countries, and this percentage has declined heavily over the last 20 years. As of now, the percentage of adults in the US workforce is only 63% in comparison to 79% in UK.22,23


Also, the automation wave of unemployment was totally ignored by the government. 9 million jobs are expected to be lost in the next 10 years in the manufacturing sector. The trust has been put upon the market to address these issues, but so far they have been ignored. These examples, show the urgent need for a holistic look at the economy.Progressive presidential candidate Andrew Yang is addressing this as his core message for the 2020 election.24  


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( II ) POLICIES AND LAWS

“Gaps between the rich and the poor are partly the result of economic forces, but equally, or even more, they are the result of public policy choices, such as taxation, minimum wage, and the amount invested in healthcare and education.” — Stiglitz25

Unfair Taxing

The biggest issue with the tax system is that the more wealth is accumulated, the less taxes are paid.

Speculators (such as stock marketers and landlords) are taxed at a lower rate than those who work for a living, which means the system encourages them. For example, ever wondered why those with the ability gravitate towards finance? Well, it turns out that a plumber who earns $100,000 will pay more in taxes than an investment banker who earns the same amount.26

Billionaires pay less taxes as well. The top 400 income earners pay an average 20%, millionaires pay an average 25%, and those earning $200-$500k pay just over 25%. To show the extreme, 116 of the 400 richest billionaires in the United States pay less than 15% on their income as tax.27

According to economists Piketty and Saez, the share of income to the top 1 percent doubled between 1980 and 2012 while it tripled for top 0.1%, but they pay the lowest percentage of taxes.28 While unfair taxing is a major issue, as we discussed in part one of this series, it’s just the tip of the iceberg. All the examples we have highlighted are focused on income tax. However, as we discussed in Part 1 of this series, wealth increase and the accompanying unfair taxing systems are the main reasons for economic inequality.

Tax Loopholes and Corporate Tax Evasion

Tax loopholes and unfair tax breaks are another issue, costing $123 BILLION in the US.29 On top of that, a further $90  billion is lost in offshore taxing (where individuals or companies hold their money in different countries with more relaxed tax laws to avoid being taxed in the US).30 Other tax loopholes which make this system unfair include special features for vacation homes, race tracks, breweries, oil refineries and hedge funds (which means investing with borrowed money) who have unfair tax breaks.

There is also a massive issue of tax avoidance by corporations, an issue that is best described by this tweet below:

Redistribution is not the Only Solution

When we look to what the solutions are, the first thing you will hear many respectable social impact leaders and political advocates share is that the main solution is redistribution.

Redistribution involves making the taxing system fairer, so that the top 1% make a fair part of their contribution to society through the taxes that they pay.

“Don’t misunderstand me,” Mahmoodi told me, “Redistribution is crucial and the most important solution. You’ll find the top 0.1% arguing against it, and I’m not supporting their argument.” He highlighted how, if the top earners do not pay their fair share of tax, the burden on the rest is definitely increased. “However, there are other solutions, too. We can also work on how wealth is generated, so we reduce inequality in wealth generation and not just wealth redistribution. We need to look at the system as a whole, and the unfair tax system—although a significant part of it—is not the complete picture.” If we want to impact the whole picture, we need to look at other laws such as:

            • Bankruptcy Laws
            • Intellectual Property Laws
            • Campaign Financing Laws
            • Justice System
            • Inheritance Laws

Bankruptcy Laws

Being able to bounce back from personal bankruptcy is a deciding factor of the mobility of a society. For individuals, this has become harder to do in the US.31,32,33

In contrast, when a city or local government agency goes bankrupt the ‘unwritten law’ is to ensure that the welfare of citizens should take priority over financial institutions. However, in these cases, banks have been pushing to be prioritized over the welfare of citizens. They’ve insisted on getting their money back first over citizen welfare.34,35 When Detroit went bankrupt in 2013, it saw a very slow recovery for this reason and its citizens suffered.36,37

“Filing for bankruptcy has become harder”

Intellectual Property (IP) Laws

Intellectual property law is like a double edged sword. If implemented properly, it can support innovation and growth. If it is mishandled, it becomes a barrier to society. The best example is the super high price for pharmaceuticals in the US. Prices which, on average, are 2.5 times more expensive than France and Australia, and around 2 times more expensive than Canada.38,39,40 One of the parameters of these expenses is the patents involved in the pharmaceutical industry. One of the most extreme examples of this occurred in 2013, when a cancer research company wanted to patent a human gene so that they could be the only one to carry out tests in breast cancer cases where that gene was involved, to the costs of $4000 for a basic test.41 This is just one example of how IP laws impact the economy of a society.

Campaign Financing Laws

As we highlighted in part two of this article, the US political system is driven by a money loop. Choosing candidates without PAC funding is the only way to break the cycle!

Justice System

In part two of this series, we discussed the negative impact of the unfair justice system on those with lower incomes. There are two positive pieces of news for the justice system. One is that some states have started the procedure of cancelling cash bail outs42,43 (which keep people in prison before trial). Also, one of the largest justice reform bills in recent history is in its final stages of being passed.44 So while there are still major challenges for the justice system moving forward, steps are being made to move it in a positive direction.

Inheritance Laws

The best way to show the impact of inheritance laws is with an example from our previous landlord. Living in Manhattan, property value has skyrocketed. Our previous landlord bought the apartment building we lived in for $78K 30 years ago (which in today’s money is $155K).

As of last year, he was collecting $450K per year in rent, but due to legal tax loopholes (loss claimed from unrented store-fronts) he was paying less than $50K a year in combined taxes.

If a relative inherited this building from him today, and sold it right away, they would receive $10,000,000 because when they inherit, they don’t have to pay capital gain of the deceased. So we can start to see from laws such as this how economic inequality is increased when inheritance is not properly taxed.

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CONCLUSION

We discussed the paradigm shift that is needed in the way that we address inequality, as well as some of the policies and laws that need to be addressed if we want to create more economic equality. If you are questioning whether this is feasible, models from other countries would suggest that it is.

When we take advantage of a capitalist system, we also have to take responsibility for its shortcomings. When the system does not support the vulnerable members of our society, we have to choose to take it upon ourselves to step up and help. – Mammad Mahmoodi

As I highlighted in great detail in my recent book Catalyst, you can tell a lot about a society from how they take care of their sick, poor and elderly.45 Other developed countries with the highest growth rates such as Japan, Germany, and Scandinavian countries, have the lowest rates of inequality.46  One thing that these countries have in common is universal free healthcare and effective retirement plans.47 From these countries we can learn that vast socio-economic inequality does not have to be inevitable.


Finishing with a quote from economist Stiglitz,48 who shared:

“We do have a divided society but it is not divided between those who are freeloaders and the rest, even if some of those who are paying taxes are not paying their fair share and are free riding on those who do.

Rather it is divided between those who see America as a community and who recognize that the only way to have sustained prosperity is to have shared prosperity, and those who don’t.”

We all have a social responsibility to change the narrative around socio-economic disparity, and to keep challenging the laws that increase economic inequality so that we can contribute to making the US a fairer community for all.


 

ABOUT THE AUTHORS

 

Mammad Mahmoodi is an economist, community builder and tech entrepreneur. He has a passion for the social impact of technology, and how inequality impacts innovation and economic growth. He was co-founder of Ondamove (one of pioneering geo-tagging companies). Following that, he was a starter—and Executive Director—of Open Data Science Inc. (one of largest Artificial Intelligence communities in the world). He has taught entrepreneurship in a number of universities around the globe. Currently his main focus is supporting enterprises to create economic equality. 

For the past decade, Sasha Allenby has been a ghostwriter for some of the greatest thought-leaders of our time. Her journey started when she co-authored a bestselling book that was published in 12 languages worldwide by industry giants, Hay House. Since then, Sasha has written over 30 books for global change agents. Following the events of the last couple of years, she turned her skill set to crafting social messages. Her latest book Catalyst: Speaking, writing and leading for social evolution was a global number one bestseller in social sciences on its release in Jan 2019. It supports thought leaders to craft dynamic messages that contribute to change. 

 

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3. As Above

4. https://www.thebalance.com/american-net-worth-by-state-metropolitan-4135839

8. Sachs, Jeffrey D., The Price Of Civilization, Random House Publishing Group., New York, 2011, page 4.

9. https://eml.berkeley.edu/~saez/pikettyqje.pdf

10. Piketty, Thomas, Capital in the Twenty-First Century, First Harvard University Press, 2013, page 597.

11. Cingano, F. (2014), “Trends in Income Inequality and its Impact on Economic Growth”, OECD Social, Employment and Migration Working Papers, No. 163, OECD Publishing, Paris

14. https://www.economist.com/united-states/2018/01/20/what-amazon-does-to-wages

16. https://tradingeconomics.com/united-states/unemployment-rate

17. https://www.bls.gov/news.release/pdf/empsit.pdf

18. https://piie.com/sites/default/files/publications/pb/pb13-27.pdf

21. Yang, Andrew, The War on Normal People, Hachette Books, New York, 2018, p. 41-46.

23. https://tradingeconomics.com/country-list/labor-force-participation-rate

24. Yang, Andrew, The War on Normal People, Hachette Books, New York, 2018, page 165-185.

25. Stiglitz, Joseph E., Great Divide: Unequal Societies and What We Can Do About Them, W. W. Norton & Company Ltd., New York, 2013, P.288.

26. Stiglitz, Joseph E., Great Divide: Unequal Societies and What We Can Do About Them, W. W. Norton & Company Ltd., New York, 2013, P.189&191.

27. Stiglitz, Joseph E., Great Divide: Unequal Societies and What We Can Do About Them, W. W. Norton & Company Ltd., New York, 2013, P.196&197.

28. https://eml.berkeley.edu/~saez/PSZ2018QJE.pdf

30. https://www.ctj.org/pdf/offshoreextendersreport.pdf

32. https://news.illinois.edu/view/6367/198845

33. https://www.npr.org/templates/story/story.php?storyId=4654923

35. Stiglitz, Joseph E., Great Divide: Unequal Societies and What We Can Do About Them, W. W. Norton & Company Ltd., New York, 2013, P.196&197&214.

37. “It’s safe to come, we’ve got lattes”: Development disparities in Detroit. Laura A. Reese, Jeanette Eckert, Gary Sands, Igor Vojnovic. 24 June 2016, Elsevier.

39. https://www.cnn.com/2015/09/28/health/us-pays-more-for-drugs/index.html

41. Stiglitz, Joseph E., Great Divide: Unequal Societies and What We Can Do About Them, W. W. Norton & Company Ltd., New York, 2013, P. 274.

45. Allenby, Sasha, Catalyst, Equality Hive Publishing, New York, 2018, P. 99

46. http://datatopics.worldbank.org/gmr/palma-index.html

47. https://inequality.org/facts/inequality-and-health/

48. Stiglitz, Joseph E., Great Divide: Unequal Societies and What We Can Do About Them, W. W. Norton & Company Ltd., New York, 2013, page 209.