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ARCHIVE: PRESIDENT'S MESSAGE

 


Why Income Inequality Matters

Anne Golden, President and CEO
The Conference Board of Canada
November 4, 2011

One of the reasons that I was attracted to The Conference Board of Canada more than 10 years ago is that it is an organization that measures a country’s progress by more than economic indicators. The Conference Board has always understood that economic and social performance are inextricably linked and, in effect, are two sides of the same coin. I am proud of our balanced, holistic approach to economic trends, public policy, and organizational performance.

We recently published two studies on income inequality—one giving the global picture and the other focusing on Canada. We found that over 70 per cent of the world’s people live in countries where income inequality has been increasing, including Canada. Since 1976, only the richest group of Canadians—the top 20 per cent—increased its share of national income. All other groups lost share. In fact, the richest 1 per cent of Canadians took home almost a third of all growth in incomes from 1998 to 2007. Furthermore, this inequality is growing faster in Canada than it is in most other peer countries, including the United States, although the actual gap between rich and poor is still far greater south of the border.

The rise in income inequality in Canada poses three important questions: First, what does it mean for the economy? Second, what does it mean for society? Third, what does it say about our values? In short, is it fair?

The richest 1 per cent of Canadians took home almost a third of all growth in incomes from 1998 to 2007.

Historically, the answer to the first question has been that income inequality promotes economic growth by creating a class of very rich people who provide the money for investment in required physical capital. New research by the International Monetary Fund demonstrates that, when economic growth is looked at over the longer term, the supposed trade-off between efficiency and equality may not exist. The main reason for this is the shift from physical capital to human capital as a global economic driver. When physical capital was the priority, economic growth was spurred by wealthy investors. But with the increasing emphasis on human capital, economic growth is deeply affected by factors that promote or limit access to widespread education and skills development. Broadly accessible education is harder to achieve in a highly unequal society.

Second, what does rising income inequality mean for society? It seems to me that when people feel excluded from opportunity—when they see their incomes stagnating, especially in this period of economic volatility—social cohesion is bound to be affected. The Occupy Wall Street movement is a case in point. Driving the protest is a sense of injustice about the extent of inequality—a belief that while millions are unemployed and the majority are falling behind, those who have caused the problems are cashing in. Although Canada has traditionally sought to mitigate the harsh edges of capitalism, we are not immune to the protests and the sentiments inspiring them.

We need to think deeply about the kind of Canada we envision for our future.

Finally, what does income inequality say about our values? In short, is it fair?

We need to think deeply about the kind of Canada we envision for our future. Do we want a society where the majority of the population falls further and further behind, and where a small group of Canadians enjoys most of the increase in national wealth? If, as I believe we agree, the answer is “no,” then our shared objective—for The Conference Board of Canada, and for each of us—must be to work together on developing a sustainable Canadian culture of opportunity, productivity, and personal worth.


Anne Golden Anne Golden
President and CEO
The Conference Board of Canada