Since the early 1980s there has been widening income and wealth inequality in many industrialised countries. Why has this happened? Is it a problem? And if it is, what should we do about it?
In this episode, joining podcast series host Michael Kitson, University Senior Lecturer in International Macroeconomics, are Cambridge Judge Business School’s Jennifer Howard-Grenville, Diageo Professor in Organisation Studies, Dr Kamal Munir, Reader in Strategy & Policy, as well as the Race & Inclusion Champion at the University of Cambridge, and Belinda Bell, Director of the Cambridge Social Ventures programme at CJBS’s Cambridge Centre for Social Innovation.
This is the second in a series of “Cambridge Judge Business Debate” podcasts featuring faculty and others associated with Cambridge Judge Business School and the broader Cambridge community.
This second podcast focuses on the topic of inequality. Here are some of the key issues raised in the podcast, and edited excerpts of the remarks made by the panellists:
Growth in inequality: how bad is it?
Michael Kitson: “For some the growth of inequality in the industrialised world is a natural outcome of the operation of market forces and economic growth. I have to say that is not an argument that I find convincing. Inequality is shaped by public policy, and the forces of deregulation and capitalism unleashed since the early 1980s have created widening divide in many advanced countries, particularly I should say the United States.”
Kamal Munir: “It varies, when we look across OECD countries. The level of inequality might be rising very slowly in Scandivaia and rising very fast in America, in fact now there’s a joke that says ‘if you want to live the American dream you should move to Denmark’ because it’s not going to happen in America and that speaks to lower class mobility. We thought that things might change after the financial crisis, but obviously they haven’t even when it comes to CEO versus worker remuneration. Any way we look at it, it obviously has been worsening.
Jennifer Howard Grenville: “Time and again it’s issues like CEOs failing to enable their company to perform at a high level or, worse, still getting into some kind of scandal and still being paid handsomely – those are the things that drive the sense that the deck is not stacked in ways that favour those at the bottom. So there’s both the actual structural issues of capitalism and the market system that drive this increase in income inequality, and also the fact that we as a society in some ways tolerate it and in some way reinforce it.”
Belinda Bell: “We should probably be explicit that inequality is bad for everybody: it’s not just bad for people at the bottom but also for people at the top as well. There’s more awareness that this is a bad thing all around, so we have to be clear that the structures of power that control the way these things work are not doing anyone any favours.”
The symptoms and nagging continuation of inequality
Kamal Munir: “Inequality produces a very small number of people who have most of the country’s wealth, and a large number of people who are not getting any part of that. And that poses large problems for democracy and the institutions of democracy, because the interests of the few are not aligned to the interests of the many. It leads to a dysfunctional society. It breeds mistrust.”
Jennifer Howard-Grenville: “This assertion that inequality actually drives those at the bottom to expend more energy, have more ambition to reach the top, is completely false. The driving wedge isn’t simply an economic driver – it’s also a social and cultural driver that works against the rhetoric of meritocracy. Of course there’s always some great success stories, we shouldn’t forget that, but the deck is stacked against that. It tends to feed on itself in a vicious cycle.”
The role of governments, particularly a proposed Tobin Tax (named after Nobel laureate James Tobin) on global financial transactions
Belinda Bell: “
My work is largely in working with social enterprises and social entrepreneurs, so people who are creating businesses that are based on trying to create social impact first and private profit either not at all or private profit later. The government actually over the last decade has done a lot to advance social enterprise by creating new legal structures and facilitating tax relief, but there’s a lot more we need to do.”
Kamal Munir: Government has helped in many areas of the world, with regard to equality of opportunity. But the trend seems to be that they have become hostage to the whims of global capitalism: firms can hold them hostage and say ‘reduce tax rates or we are moving.’ There is a bit of bluffing going on. There has to be some kind of global tax regime to rein in some of the excesses of global capitalism.”
Michael Kitson: “When a Tobin tax was first put forward, even Tobin said it was not feasible. Now it’s become centre stage and now it is feasible, new technology will allow you to impose a Tobin Tax. That wouldn’t do that much for inequality but would dampen volatility in financial markets, and it may mean that we can regulate much more effectively corporate taxes and stop this race to the bottom.”
Belinda Bell: “As we go through our careers we’re at risk of thinking things have got better, because we’re in more powerful positions ourselves and we’re not exposed to what young vulnerable women are still exposed to who are entering their careers, so we have to be conscious of that.”
Kamal Munir: “What research shows is that this is not just about CVs – this is about networks, which networks are you part of, this is about mentoring in organisations, who gets mentored by people at the top and who doesn’t.”
Jennifer Howard-Grenville: “There are pipeline issues: for at least 35 years we haven’t actually been moving the dial very much on those pipeline issues. I did an undergraduate degree in engineering. At the time I think I was about one in three women in the class. I was contacted about 20 years later and told by my alma mater that ‘there are now 35% women in engineering, what progress’ – and I said: ‘actually that doesn’t sound like progress to me.’”