The Problem of Inequality
Inequality is a very prevalent problem in today’s society not just here in the U.S. but also in many countries all around the world. For example, Israel has seen a large increase in the distribution of the standard of living over the past 20 years. When looking at the empirical statistics, such as the Gini coefficient, which is a measure of inequality of wealth in a nation, Professor Francois Bourguignon, a global expert on inequality, affirms that, “rich people [are] probably becoming richer and poorer people probably becoming poorer.”
Recently, in an attempt to combat the increasing inequality, salary caps have been introduced in Israel. Salary caps have been used in the past, by various other countries, with limited success. In France in the late 1970s, salary caps were introduced in reaction to increase in inequality. The problem was in enforcement. In general, companies would always find ways of bypassing these limitations. For example, instead of paying executives of large companies higher salaries, executives would be provided better facilities or better travel conditions. In a way, companies would be “subsidizing their consumption rather than paying them higher salaries,” remarks Professor Bourguignon. However, he believes that salary caps are not the solution to the problem, but rather a simple quick fix.
According to Professor Bourguignon, “the only way we can bring in something effective is through taxation.” He believes that there needs to be a taxation system in place that regulates the finance industry as well as a united globalized approach to solving this problem. The issue, he claims is that “if you increase the taxation too much in a country, then people will leave to another country.” He claims that part of the problem is globalization, which is facilitating the mobility of people and capital. For example, the top executives in the finacial sector in Europe are all residents of London in the UK because the taxation system is more attractive than that of France or Germany.
“Coordination is a necessity.” Professor Bourguignon argues that in order for taxation to work, there needs to be a global initiative so that top executives simply can’t flee to the various tax havens.
Amiram Barkat. “Israel’s rich getting richer, poor getting poorer” Globes Online. Globes, 13 November 2016.