Long-Term Capitalism

We Need to Reframe Economic Inequality

November 28, 2017  • Tat'yana Berdan

In doing research for his new book, Peter Georgescu was shocked to discover that 60 percent of American homes have to borrow money to put food on the table at the end of every month.

“There’s an assumption that inequality has a lot to do with level of income, and that just didn’t satisfy me,” said Georgescu at a discussion session during the 2017 Aspen Institute Economic Security Summit.

The Aspen Institute Economic Security Summit is an annual convening of the nation’s top leaders in industry, academia, philanthropy, government and nonprofit organizations, convened to explore challenges facing American workers and families in today’s changing economy. This year’s Summit, co-hosted by the Aspen Institute Economic Opportunities Program and Financial Security Program, featured a conversation with Peter Georgescu, author and Chairman Emeritus of Young & Rebicam, Walter Isaacson, CEO of the Aspen Institute, and David Leonhardt of The New York Times.

The conversation explored the growing disparities between America’s top earners and those at the bottom, as well as the causes and some viable solutions to rising economic inequality.

Instead of only looking at income in his research on inequality, Georgescu focused on examining both the total income and the total expenses produced by a typical American household to figure out what American families were left with at the end of the year.

His research found that a typical upper middle-class family is left with $8,500 after accounting for all expenses at the end of the year.

In terms of factors that have contributed to rising economic inequality, Georgescu credits a change in the public mindset about the role of the American corporation, a shift that started in the 1980s with the corruption of, and a growing backlash against, the principle of free market capitalism.

“And then things piled on,” Georgescu said, including a decline in union participation and worker voice.

In speaking with company leaders, Georgescu found stricter shareholder demands, greater liability and stronger pressures on CEOs to deliver earnings make it difficult for corporations to commit to tackling inequality.

“[CEO]s all agree: This is a problem, this is a serious problem. Bad things may happen if we don’t fix it, but I can’t do anything myself.”

Georgescu suggests that one of the ways to incentivize CEOs to take up greater stakes in searching for a solution to inequality is by providing them with a financial cover: a group of equity holders who are willing to buy a company’s stock when that company is facing economic challenges.

He also points to data that shows companies who provide fair compensation and invest in themselves earn stronger returns.

Georgescu also argues it is important for the public and policymakers to consider larger questions about what role education and opportunity will play in helping close the widening wealth gap.

“It’s not income inequality, per se, that’s the problem – it’s when it creates the failure of opportunity, the failure of the American dream that I had, that’s when it becomes a problem.”

Increasing opportunity, which Georgescu says is key, requires effort from both the private and public sectors. He argues that the responsibility can’t fall solely on business – that the federal government will have to become a major player in creating opportunities and contributing toward closing the economic gap.

“We have to bring [economic inequality] to a larger scale and with a different sense of urgency.”

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