Economic inequality: 10 reasons why we can't beat it

It almost feels like an old story. Ever since the economycrashed in 2008a growing chorus of voices haswarned that inequality was wiping out the middle class and damaging society.

This week the Organization for Economic Co-operation and Development, therich countries`think-tank, made headlines for declaring that growing inequality is not only bad for social cohesion, but is actually cutting points off economic growth.

• Precarious jobs holding back young workers, OECD finds
• Canadian cities unlikely to mimic L.A. on minimum wage

If we all agree, why is it such an intractable problem?The story is complex, but here are just a few reasons why inequality is so hard to fix.

1. Equality where?

While inequality withinrich countries has been getting worse, many point out that globalinequality has been shrinking.

Countries like the U.S. and Canada used toconsumea majority of the world's wealth. As the rich and middle class in places like China and India get a bigger piece of the action, some argue that morally, increasing global equalityoutweighs a relativedecline in wealth by some people in the rich world.

2. Free trade and globalization

The push to create open trade between countries means that the low- and unskilled workers of rich countries are increasinglycompeting directly with workers in China, Bangladesh, Vietnam and India. Even within North America,industrial jobs often move to where wages are lowest, meaning middle class industrial jobs disappear.

3.Automation

Even in developing countries, manufacturers are replacing jobs with robots and automation. Here in North America, computerized processes are already taking jobs done by factory workers, clerical workers and even professionals as clever software learns to search legal titles and write simple news stories.

Some warn that humans will never get those jobs back and that eventually rich societies will have to set up a guaranteed basic income.

4. Ideology

Letting markets set wages is a traditional cornerstone of free market ideology. In that economic model, government interferenceisseen as hurting economic growth.

The U.S. model, where high GDP growth has happenedin concert withhigh inequality, seems to recommend it. However, the relationship may not be cause-and-effect, as othercountries with high inequality, such as Portugal, have weak economies.

5. Chasing GDP

GDP is the most common measure of economic success, but economic commentator Edward Hadassays it may be a poormeasure for rich countries.

In the developingworldfast growth is directly correlated with overall welfare. But in rich countries, where most people already have the basics,maximizing GDP is inconflict with maximizing welfare, where higher value is placed onenvironment, job security, "and something GDP measures badly,quality of life."

6. Personal interests

While people may speak out against inequality in the abstract, at the personal levelthey are unwilling to give up the things that make them better off: the second car, the nice house, the summer cottage.

Attempts to integrate rich and poor in schools result in howls of protest.The rich often seekprivate alternatives.

Politicians who say they will raise taxes forpurposes of redistributionget few votes.And in the U.S. surveys have evenshown that people with incomes below the median object to losing the potential of one day being among the rich.

7. Peace and stability

Since peoplerarely give up their advantages voluntarily, radical changessuch as overthrowing the landowning aristocracy of Europeorraising taxes only arrive during times of upheaval.

The plague times that created labour shortages, the First and Second World Wars and the Great Depression were disruptive enough that governments had the licence to overturn inequality.

But even after the equalizing impact of revolutions in Russia and China, a long period of stability allowed a wealthy commissar class to emerge.

8. Capital flight

The open borders of globalfree trade deals mean that even governmentsthat wish tofightinequality may find their hands tied. One of the greatest fears of governments considering raising taxes is capital flight.

Companies and rich people move to places where taxes are low. Investors withdraw their funds to places where returns are high and wageslow.

9. Declineof organized labour

Until themid-1970swages were the leading component of inflation. But according to research by aCanadian political economist, since then, wages have fallen behindinflationbecause fewer private sector workers belong to trade unions.

However, another explanation might be thatshrinking demand for the unskilled due toglobalizationmeans they have less clout to enforce their demands.

10. Population pyramids

As the OECD notes, one of the reasons for inequality is the divide between the young, forced to take transient work,and older workersentrenched in long term jobs andsitting on nest eggs accumulated before asset prices began their meteoric rise.

However, the population pyramid is beginning to narrow at the bottom,putting a premium on young workers, especially those with skills.

To end on a relatively optimistic note,so long as job creationexceeds population growth, eventually those young people maybe back in demand with the clout to demand higher wages.

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