Many people believe the wealth gap in America is a terrible thing. They suggest it is something that punishes the poor and divides our nation. The reality is, the wealth gap doesn’t DO anything. It is the product of a free nation that encourages hard work, innovation and risk taking.
That behavior, in turn, creates a financial difference (gap if you will) between the more successful and the less successful.
A nation that has no wealth gap at all (everyone has the same income and possessions) takes away the incentive for its citizens to strive, invent and take chances. It is a nation of automatons destined for ruin. Interestingly, a nation with a huge wealth gap, where one person or a small group owns everything and everyone else has nothing, ends up in virtually the same place.
We as a country need to avoid these extremes and strive for a balance between free market inducements and government intervention and protection.
We must remember even as we attempt to strike that balance, we will never totally eliminate poverty and misery in America.
People will always make poor choices and suffer the consequences. If we can find that “sweet spot,” however, we will lift more people economically, morally and even spiritually than any other political system known to man.
So, is America’s wealth gap too large? A thorough review of the Gini Index would suggest it is. The Gini Index, named after the Italian statistician Corrado Gini, measures a country’s equality, or lack there of.
A score of zero would indicate perfect equality - everyone has the exact same thing. And a score of 100 would represent a country where one person has everything, and everyone else has nothing.
As you might expect, both of these extremes are bad.
South Africa has tremendous poverty and one of the world’s highest murder rates. It also has a very small group that controls most of the country’s money and resources. It may be the best example of an extreme wealth gap, and its score in the Gini Index is 62.
On the other end of the spectrum, Bulgaria has had a score in the low 20’s for the last 50 years, which would indicate extreme equality. However, that equality has led to the lowest quality of life in the European Union.
Remember, extreme scores in this index will lead to the same thing - low opportunity and broad scale poverty.
Today, the United States’ score is 45, but it has drifted to that point over the last 30 years from a post World War II index of about 37. From the late 1940s to about 1980, our index was in the mid-30s.
This was part of the postwar boom in America and many, including me, would suggest that prosperity during that time cut across all economic classes. So, if an index of 60 is too high and 20 is too low, was America’s post war index of about 37 “just right”? I would argue yes.
But, as a country, if we want to lower our Gini Index back to 37, how do we accomplish that? The easy answer is the government. We can just tax the wealthy and give that money to the poor, right? Wrong! Our government is incredibly inefficient and famous for waste, fraud and abuse. For every dollar we give to the government, we will be lucky if 50 cents actually gets to the poor.
If you want full value for your dollar, the free market is still your best bet. The private sector can deliver billions to working Americans through new jobs, wage increases, bonuses and other benefits for workers. So, how can we use the free market to deliver prosperity to the broadest slice of American citizenry and lower our Gini score as a result?
Certainly, we need to increase our manufacturing sector, because it will create millions of new jobs. Next, we need a new and improved organized labor system that works with management, not as an adversary to it. This will strengthen companies and improve the standard of living of their members.
Most importantly, we need leadership. We need governmental leaders who understand the power of the private sector and can create an environment to encourage it. And, we need business leaders like the legendary Henry Ford who rocked the world back in 1914 by doubling the pay of his workers vs. the going rate. He asked the question: How much can I afford to pay my workers, not how little!
Henry was not moved totally by altruism. He believed there were real benefits to this generosity like higher productivity, lower re-training costs and a vibrant middle class that could actually afford his products. It worked well for Henry, and it can still work for all of us almost 100 years later.
KEVIN CANFIELD, A SPRINGDALE RESIDENT, IS A PROCTER & GAMBLE RETIREE AND AUTHOR OF “MASTERING SALES.”
Opinion, Pages 13 on 05/05/2013