The High Price of Rising Income Inequality
What will be the biggest challenge to capitalism in the next two decades—and what should be done about it?
DOMINIC BARTON: Rising and persistent income inequality. In 2012, the top 1% of earners in the U.S. collected 19.3% of the country’s total household income–an all-time high, according to work by Emmanuel Saez at the University of California at Berkeley. The disparity is growing rapidly as well. Incomes of the top 1% grew by 31.4% from 2009 to 2012, compared to just 0.4% for the remaining 99%. There is still considerable debate among economists on the impact of income inequality on economic growth and the short-term recovery from the recession. However, few would disagree that unchecked increases in inequality will be costly for capitalism in the long-run–due to the divisions that it creates within society and the strain that it puts on social safety nets.
I believe that the most important and sustainable way of tackling this issue is through thoughtful education reform and investment. While changes to the tax code and other forms of redistribution are helpful to alleviate the symptoms of inequality, they do little to address the root cause. Income inequality is self-reinforcing–as inequality gets worse, upward mobility decreases and contributes to more inequality.
Education, particularly programs geared toward vocational training, can help combat this problem–and is an area where the private sector can also play a role. For example, IBM helped develop the P-TECH school in Brooklyn, N.Y., which offers a six-year program integrating high-school and college curricula to train its graduates for careers in the technology industry. Similar schools are being developed across the country with other corporate partners.
Dominic Barton is the global managing director at McKinsey & Co.
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