The Economics of Enough_ How to Run the Economy as if the Future Matters - Diane Coyle [63]
That the scandal of excessive corporate pay has played a part in the broad trends in inequality is confirmed by the Piketty and Saez figures. They looked at the composition of the income of the very well off. Whereas through the 1970s, the very rich made most of their income either from their investments or from running businesses, from the 1980s there was a large increase in the share derived from salaries. Although the contribution of business income also increased, supporting the idea that there was an increase in enterprise, by 2002 salaries formed the largest proportion of the incomes of the superrich.
Excessive executive pay has played a part in all the countries that saw increasing inequality. Chief executives of big companies are paid very well in many countries—typically more than 100 times the average pay in their corporation, and 183 times more in the United States. A big gap opens up at the next layer too, with the average senior executive in the United States receiving 112 times more than the average employee in the company, compared with 50–70 times more in the other countries investigated.29
The fact that these trends in inequality have been most pronounced in the United States—made worse there by the fact that in real terms the incomes of low earners have actually been declining—does not make them irrelevant to other countries. There have been significant increases in inequality elsewhere, particularly in the other “Anglo-Saxon” economies like Australia and the United Kingdom. The extent of the increase in inequality there has been the same as in the United States, and the timing has been the same too, although the picture is much less extreme.30 Some other countries—Sweden, for example—have also experienced large rises in income inequality since the 1990s.
In all cases these social and political forces have been interacting with underlying structural changes in the economy, which have created greater inequality of earnings potential in the first place. It is to the structural trends toward inequality that I turn now, because understanding the causes of growing unfairness in some of our societies, as well as why and how some have avoided the extreme outcomes seen in the United States, are important to thinking about how best to respond.
STRUCTURAL CAUSES OF INEQUALITY
Changes in the earnings of different people start from fundamental changes in the supply of and demand for certain kinds of labor. These underlying structural shifts are further shaped by the economic institutions, social norms, and political decisions of every society. The United States is more unequal, and has experienced a greater increase in inequality, than any other rich economy. But there are only a few countries that have not seen income inequality rise in the past two to three decades. The structural causes are therefore common to all the advanced economies, and they stem from the way technology has changed the skills needed at work, and the way it has shifted activity from rich to poorer countries in a globalizing economy.
Not since the late nineteenth century have we experienced the kind of upsurge in the inequality of incomes (before taking account of the impact of government policy via taxes and welfare benefits) seen in recent times. That was, of course, an era of tremendous capitalist and technological advance, and also tremendous moral and political outcry about the impact on the less well off. From novelists such as Charles Dickens, Mrs. Gaskell, or Victor Hugo to political thinkers such as Karl Marx or campaigners like Charles Booth or Jane Addams, there was a passionate response to the unfairness of an economic system that benefited only the few at the top of the social scale.
Now, as then,