Closing The Gap

January 1 st 1999

Inequality is generally considered to be a bad thing. We like to see people getting their fair share. As kids we look very carefully at a sibling's ice-cream dish and protest loudly if we perceive we've been shortchanged.

For some, this attention to fairness never matures to a more balanced understanding. A university professor recently related a story of a student who formally complained that she was getting lower marks than her peers. This just wasn't fair. She was convinced there was an injustice simply because she was not getting what the others were getting. The professor confirmed that the student's work deserved the grade it was receiving. For some, though, the very existence of a gap provides a prima facie case of injustice.

Lately, there has been much public policy debate about the distribution of society's "goods" especially focused on the equity of income distribution. Is the gap between rich and poor increasing? Are the measures used really an indication of poverty, or are they just relative measurements that have no correlation to actual hardship?

Clear distinctions

The current debate requires some clear distinctions. Proposed solutions need to go beyond the necessary legislative and policy responses and include the moral character of Canadians and the context of their most immediate community—their family. Income potential has many contributing factors and once earned, how it is distributed involves choices. Unfortunately, little attention is paid to either.

Bruce Little, the Globe and Mail's economics reporter, made an important distinction between earned income and total income in a recent article comparing Statistics Canada data. Evidence supports that there is a growing gap between rich and poor in earning power. But, reports Little, once you factor in taxation and the distributive effects of Canada's social safety net, the net distribution of income was the same for 1993 as it was in 1981.

Thus, there is an increasing earnings gap, but it is levelled through the redistributive effects of taxes, payroll deductions, and social programs. This distinction helps explain why we hear from the left that the income gap is growing while from the right we hear that it is not.

While the data suggests that the tax and social program system has been relatively successful in redistributing Canada's wealth, it also suggests deeper problems. Redistribution itself doesn't address the initial cause of the inequity. Neither does it answer how wealth is created in the first place. A growing earnings gap determines not only the size of the individual pieces but the size of the pie itself.

Before we consider the concerns that an increasing earned income gap creates, it should be clear that the existence of a gap is not the problem. It is obviously quite proper to pay a plumber more than an unskilled labourer. Eric Lindros should earn more than Tie Domi. We want to recognize skill, education, and initiative and reward them accordingly. The generation of new ideas, innovation, and higher quality are encouraged by compensation incentives. Poor ideas, obsolescence, less effort, and poor quality should not be rewarded as if it didn't matter. One needs to only look at the Russian industrial experience to concede this point.

At the same time we know that these differences, as determined in a relatively free and open market, can lead to distortions. The free-market is a mechanism, one that will not necessarily lead to appropriate levels of distribution. Is any professional athlete worth $10 million per year? Does the leadership of a very capable executive justify a $20 million annual compensation package?

The "market" has determined these amounts based on a number of factors, most notably supply and demand. There is nothing inherently right or wrong with this type of determination. Is it right that some work hard for more than eight hours per day and still have not enough to provide for their family? Are these distortions of consequence? So what if some people garner obscene amounts of resources as long as others are doing alright.

Doing just alright?

Is everyone else though, doing just alright? On the one hand, the Fraser Institute suggests that actual living conditions and standards are better than they were 30 years ago. Yet, on the other hand, unemployment still hovers around eight per cent, and we see more people living on the street and using food banks. The income gap for these people is not just about relative wealth but of an inability to participate in the very life of the community at large.

Those at the bottom of the income distribution scale are being left out of the active work community and are out of the loop. Since work is a vital part of our purpose as humans, the inability to be actively employed and to earn an income contributes to a sense of alienation and despair.

Another hazard that arises from earning inequality is that simply redistributing the wealth that is generated by fewer people eventually affects the overall productivity of a nation as a whole. In this regard, Canada's prognosis is not good. A recent OECD report forecasts Canada losing further ground relative to other developed nations in the next decade.

The growth of Western economies in the last 50 years was largely fuelled by the consumption of a rapidly expanding middle class. Is this engine losing steam? While there are drawbacks to mass consumerism, actual participation in the economy by as many as possible is essential, not only for Canada's social health but also its economic health. This requires we ensure that as many as possible have meaningful, well-paying jobs.

Controlling the built-in tendency of excess and disparity within our economic system requires a variety of restraints and controls and the proper placement of key incentives. Save for a few die-hard Marxists, most economists concur that a relatively free-market system is the most effective means to wealth generation. Most also agree, save a few die-hard libertarians, that such a system requires checks and balances. The question is largely defined by what mechanism and to what degree? Proper regulation, tax and income distribution, accessible education, skills training, and legislation in support for trade unions are all part of a network of provisions intended to assure a basic level of income for all.

Developing moral conscience</.p>

Assuming that certain restraints are necessary, we need to look beyond simply a mechanistic response and consider two other important factors: the development of a moral conscience and the promotion of stable families. These both play a more organic, substantive role than the list of more technical aspects cited above. They are part of the foundations on which the other responses can be built. They are more difficult to discuss in that they touch on the more fundamental questions of what ultimately motivates us and how we see ourselves in relation to our fellow man.

Os Guinness says that "unless capitalism has an ethical boundary, it will always create two problems. One is the problem of insatiability, never knowing when to stop, always wanting just a little more. The other problem—you see this very clearly in America today—is commodification. The good society draws a line between what is and what is not for sale, but, in modern America, almost everything is up for sale, including much that should not be. We need powerful faith with strong ethics and knowledge of what is legitimate to buy and sell—that's the market at its best—but certain things are not for buying and not for selling, and we should know why."

In much of the rhetoric about bank mergers, government policy, unions, and corporate agendas, we need to begin to find common ground rooted in a broad moral framework. While there will be a challenge in developing language that people of various backgrounds can feel comfortable with, it is imperative that we do so. Christians have the potential to provide leadership in this, but we will need to learn how to present the truths we glean from Scripture and weave them into the public debate in a way that seeks to provide a perspective that we believe is valid at the same time as respecting the rights of others to bring their deeply held convictions to the same table. Ignoring the bigger questions in the hope of not offending anyone will only lead to a further deterioration of a broader social conscience.

Building family foundations

Family is an equally important factor and is directly related to the development of conscience. For most of us, families are where we feel protected; they help us out in times of trouble and provide the foundation on which we can build prosperity. In fact, a recent study suggests that the manner in which children are raised is a greater indicator of future earning potential than the income levels of the family in which a child is raised. However, as we see the fabric of our communities pulling apart, we will likely continue to see the decreased earning potential.

John Richards, in his book Retooling the Welfare State, makes five propositions for dialogue on public policy. One of those five is the promotion of traditional families. Richards writes, "At this point, I want to be blunt: family structure matters, and two parents are preferable to one for successful child raising. Family structure is, of course, only one of several variables that matter. Poor single-parent families, for example, fare worse than wealthy single-parent families, for example, but after adjusting for other variables, something remains that is captured by varying family structure."

That "something" has much to do with the fact that parenting children is not easy, and that meeting this task is best accomplished through the diversification of roles through two parents. Through the institution of marriage, God has given a stable structure in which a man and a woman can meet that challenge and together image their maker in their complementary roles as male and female.

How does this relate to income earning gaps? The evidence is clear that children from homes where break-ups occur on average do not fare as well in school and tend to fall into lower-paying jobs. Furthermore, numerous studies have established links between educational achievement and future job stability as well as earning potential. Policies that help keep families together will help in the future employability of young Canadians.

Earning a living

While many of the gaps that are targeted may not deserve the attention they receive, the ability of Canadians to earn their livelihood and to provide for themselves and their loved ones is one that should be addressed. While looking at total available income is relevant, ensuring that Canadians are able to earn, on their own, a sustainable income is even more important. It's good for the individual, their family, and the country as a whole.

Alleviating the low income tax rates (and the stiff benefit reductions faced upon earning income) for low income earners is a start. Providing programs that help facilitate the employment and training of those who have a difficult time gaining work is important. But large-scale programs are in the end going to be less successful than changing the hearts and minds of people, which is needed to build the very fabric of our society. This is never easy. The right solutions seldom are.

 

Ed Pypker is a former editor of Comment. He currently serves as Director of HR at ATS (Automation Tooling Systems), and as chair of the board of the Paideia Centre for Public Theology.

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