Influence and Income Inequality (Blake Rutherford On Politics)

by Blake Rutherford  on Tuesday, May. 6, 2014 7:05 pm  

Blake Rutherford

One month ago, professors Martin Gilens of Princeton and Benjamin Page of Northwestern released a study that determined that "economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while mass-based interest groups and average citizens have little or no independent influence."

It was a dreary finding, and it comes on the back of troubling data about our country’s widening income gap, stagnant wages for middle-income earners, and abject poverty for many millions more than that.

In 2012, half of our country’s income was concentrated in the top ten percent of earners, the highest proportion on record. From 1979 to 2007 the income of the top 1 percent rose 275 percent compared to 65 percent of those in the 81st to 99th percentile. For middle income workers in the 21st to 80th percentile wages grew 37 percent. And those at the bottom experienced the least amount of growth: 18 percent. (1)

The root causes of income inequality are difficult to ascertain, but there are at least two significant factors that have affected America and Arkansas’ economies.

Globalization

Globalization has increased labor competition and put pressure on the American worker as jobs move overseas. Technology has challenged the skillsets of workers; modern machines have changed the workplace dynamic placing added pressure on the job market; and the Internet has dramatically transformed the global business landscape and opened global supply chains.

Manufacturing employment, for example, is on a long downward trend. In Arkansas, the agriculture industry, still vital to our state’s economy, has transformed as the industry gravitated toward large-scale production. Small family farms gave way to bigger ones, a national trend in which 7.2 percent of farms received 72.1 percent of the market value of agriculture products sold in 2012.   

Education

Education might be the biggest driver of inequality. And that makes sense. High wages generally are generated from highly skilled jobs, and those jobs require certain levels of education. We know that education is critical to driving productivity, and that is why it is important for states to foster innovations rather than impediments to that productivity.

But impediments continue to mount. Consider that the cost of college has soared in the United States and today outpaces even the rising cost of health care. Among schools in northwest Arkansas, including the University of Arkansas, the cost has increased an average of 6.5 percent each year for the past 10 years even though state spending on higher education increased by 3 percent from 2008 to 2013. Only six other states allocated more during that same time period.

Future Opportunities

Despite these challenges, globalization and education present substantial opportunities for Arkansas, particularly the next governor.

In 2009, Gov. Mike Beebe released his "Strategic Plan for Economic Development," in which he smartly called for Arkansas to, among other things, "compete more effectively in the global marketplace for new business and jobs." The Arkansas Economic Development Commission opened offices in Tokyo and Shanghai. Statewide, direct foreign investment from companies in Europe and Asia grew. Trade relations improved. Today, many Arkansas-based companies, public and private, thrive in the globalized marketplace.     

That is a good thing considering that last month the McKinsey Global Institute released a new study that demonstrated that globalization showed no sign of slowing down as the Internet and digital technologies continue to improve. "Now, one in three goods crosses national borders, and more than one-third of financial investments are international transactions," the study found. The measures Arkansas takes to advance its international pursuits could transform the state economy for the better and do a great deal to improve individual incomes.

In education, driving down the cost of college is only part of the answer. (2) Creating parity in educational opportunities at lower levels — especially for the poor — as a means of upward mobility is essential, which includes greater investment in technology. After all, the income gap among couples with high levels of education and low levels has widened substantially since the 1960s. At that time, a couple with a high school education earned 103 percent of the average household income. In 2005 they earned 20 percent less than the average while couples with higher levels of education earned 219 percent more than the average. (3)

Nearly three years ago a group of people gathered in Zuccotti Park in New York City to protest social and economic inequality standards. The thematic of Occupy Wall Street, which faded quickly as a protest movement, remains relevant, particularly in light of the repercussions of income disparity and the broader consequences it has to democracy. (4)  

The pressure from that inequality has long existed, of course, so our attention to it isn’t novel.

But it is necessary.   

______

(1) Wealth, it seems, is at its most uneven since the early part of the 20th century. The richest fifth of Americans now hold 88.9 percent of our country’s wealth.

(2) It is too much for this column, but reform of the student loan system is desperately needed. There was a terrific cartoon in the Philadelphia Inquirer last week of a student seated at a desk taking the SATs. The caption read, "Question 12: A high school student secures a student load for $80,000 at 8 percent interest. Assuming the economy is still in the tank after graduation, that only low-paying service sector jobs are available and factoring for inflation, can the loan be repaid before the student dies of old age?"

(3) Secondary to these efforts is the campaign to raise Arkansas’ minimum wage from $7.25 to $8.50. Arkansas, along with Mississippi, South Dakota and West Virginia, has the lowest median hourly wage in the United States. It appears politically popular for the Democrats to the point that Sen. Mark Pryor has offered his support for it. Nationally, President Barack Obama raised federal minimum wages for government contractors by executive order, but a bill to raise the federal minimum wage failed in the U.S. Senate. Several major cities followed Obama’s act with measures of their own. For example, on Tuesday Philadelphia Mayor Michael Nutter issued an executive order raising minimum wages to city contracts and subcontracts. A city-wide minimum wage hike is on the primary ballot in this month.

(4) This is also why, I think, there has been such an interest in French economist Thomas Piketty’s new book, "Capital in the Twenty-First Century," which attempts to tackle the issue of economic inequality worldwide.

______

(Blake Rutherford is vice president of The McLarty Companies and previously was chief of staff to the Arkansas attorney general. You can follow him on Twitter at BlakeRutherford. His column appears every other Wednesday in the weekly Government & Politics e-newsletter. You can subscribe for free here.)

 

 

Please read our comments policy before commenting.
Search

Latest Arkansas Business Poll

Should the alcohol amendment remain on the ballot?