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Dieter Dettke and Malcolm Lovell, Jr.

Growing income disparity is a reality in today's advanced industrial societies. While few today argue that income equality among all people is either a practical or desirable goal, there is mounting concern about falling incomes in the lower decile of the populations in our developed economies. The critical question is how the problem should be addressed within an economic structure that maximizes wealth creation and low unemployment.

Although average incomes increased over the past twenty years, this increase has not been shared by all elements of the population. One-parent families and the unskilled are not benefiting by the higher living standards enjoyed by people in the upper quintiles. Can modern industrialized market economies deal constructively with this phenomenon without seriously impairing the gains being enjoyed by the majority of our populations? The members of our seminar believe that there are steps modern societies can take to improve the opportunities for the less fortunate. You will find their analysis informative and provocative.

In terms of the seriousness of the problem, a range of views were presented with former Secretary of labor Robert Reich opining that social peace and democracy could be at risk if income inequality to grow unchecked.

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In post-war Europe, the tradition has been that public policy should discourage inequality in income distribution. Until quite recently Europe's social benefits were a measure of that commitment to income equality. Outside the continent, though, the message from the US and Margaret Thatcher's Great Britain has been that the welfare state and social benefits were too generous, thereby increasing employment costs and resulting in higher unemployment and reduced productivity.

Europe, from the US/Great Britain perspective, went too far in its efforts to provide equality, and as a result was confronted with high structural unemployment and a lack of international competitiveness. How such an analysis can be weighed against the high degree of political stability enjoyed by most European nations is a challenge confronting today's policy makers.

Massive social, economic and political transformation is already taking place. This is not only true for Eastern Europe after the collapse of communism, but is also a reality for Scandinavia, Germany, the Netherlands, and other typically Western European countries.

It should not be a surprise that as a result of these reforms, income inequality is again increasing, for instance in Germany, one of the wealthiest nations in Western Europe. According to EU statistics, in Germany:

  • 2.7 million people need some kind of social support.

  • 1 million children are considered to be poor.

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  • 7 million Germans, a little less than 10% of the population, are poor.

  • 1 million Germans belong to the so-called "working poor".

The question persists as to what should be done about these disappointing developments. Not too long ago, the World's Social Summit in Copenhagen asked for a "poverty report" for each individual country. Such reports could be quite helpful in understanding the dimensions of the dangerous trend toward income inequality. Proactive measures, however, must be considered as well. Certainly, massive income re-distribution is not the best answer. A dynamic economy and private sector jobs are clearly most effective in providing for the majority of families. Governments in Europe could, however, adopt concepts that support jobs rather than support the unemployed. In the US, the earned income tax credit serves as an instrument to subsidize jobs, and extensive retraining is helpful in making workers more mobile. These strategies and policies that encourage job creation will help to create a much improved environment in a growing service sector.

The following papers provide a valuable analysis as to how our societies can be strong economically and still be sensitive to the human values which we all honor.

© Friedrich Ebert Stiftung | technical support | net edition fes-library | Juli 2000

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