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The New Redistribution: 5 Radical Ideas For Reversing Income Inequality

Should everyone get a minimum inheritance at birth? How about a government-guaranteed income or job? In the face of a growing income gap, we may need to get revolutionary.

The New Redistribution: 5 Radical Ideas For Reversing Income Inequality
[Illustration: Thomas Pitilli for Fast Company]

If you’re going to talk about solutions to inequality in America and globally and don’t want to piss anyone off, one of the best things to talk about is skills and education. Workforce training and college affordability are popular topics partly because they work (sometimes) and partly because they go nowhere near the red/blue sore-points of the body politic. No wonder getting more skills and education to people–opening up opportunity–is the preferred thing for polite politicians, policy wonks, business people, and the great bipartisan middle of America to discuss.

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But it’s arguable if “skills and education” is really a sufficient response to the inequality problem, which has been growing. We’ve seen spiraling incomes at the top-end (the 1%) and, more importantly, long-term stagnation in many workers’ wages. Given the divergence, we need policies that go beyond ones tried before–and that continue to not solve the problem.

To economists, the focus on skills and education unnecessarily leaves a lot of other good ideas in the shade. There are many other things we could try, and, as the economist Tony Atkinson says in his new book, Inequality: What Can Be Done?, it might be taken for granted that we would invest in people’s skills and education anyway. “The standard response to the question ‘How can we fight rising inequality?’ is to advocate increased investment in education and skills,” he writes. “I would like to highlight more radical proposals—proposals that require us to rethink fundamental aspects of our modern society and to cast off political ideas that have dominated recent decades.”

Atkinson, a senior professor at the London School of Economics, has spent a lifetime investigating inequality. He first proposed the “Atkinson Index”–a way of measuring contributions to inequality within a society–back in 1970. His new book sets out 15 concrete proposals–five of which we discuss further below–for reducing inequality. They all fall in the camp of redistributing wealth in some way, Atkinson says, but not necessarily in the ways you might think. “I start from the pragmatic concern that current levels of inequality are too high, and that this outcome in part reflects the fact that the balance of power is weighted against consumers and workers,” Atkinson writes.

Pay codes

One idea Atkinson explores is pay codes, where executives are bound by mandatory or voluntary ratios of pay relative to workers. For example, the Swiss have voted to impose pay controls on managers, including the right for shareholders to veto pay proposals and bans on “golden parachutes” for departing executives. In the U.K., companies have come together under a decent-pay accreditation plan run by the Living Wage Foundation (both the Chelsea Football Club and Barclays are members).

These codes help start a conversation about the distribution of income and the wider question of who gains when the economy improves. In the last 20 years, we’ve seen steadily rising productivity but wages haven’t caught up. The question is who shares in a company’s prosperity when it’s making money. In America, it hasn’t been workers, of late.

In the U.S., securities regulators recently approved rules requiring companies to report how much executives make compared to workers, though it’s not exactly what you would call a code. Only 2% of U.S. companies have had shareholders go against them this year to vote down proposed executive pay packages. And most U.S. efforts to improve pay at the bottom involve minimum wages. Nationally, these have fallen well behind cost of living increases (in real terms, the wage actually peaked in 1968). Some 26 states have established their own minimum wages. But pay codes, either mandated or agreed among companies voluntarily, could apply pressure to make them pay more.

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Minimum inheritance

One the big advantages of having wealth is that you can pay it forward (most of it) to future generations. It’s one of the things that puts the children of richer families ahead. The idea of a minimum inheritance is to even the score, so that kids of poor families build “equity” as well. Also known as “capital endowment accounts,” these minimum inheritances are paid at birth into accounts, where they accrue until a child is 18. North Carolina, for example, runs a well-known Individual Development Account for its citizens.

The minimum inheritance can be financed from state coffers, or directly by way of a wealth tax, as proposed by Bruce Ackerman and Anne Alstott. Atkinson’s version would be financed from a “lifetime capital receipts tax,” with larger inheritance transfers and gifts taxed at higher rates (gifts within marriages and civil partnerships would be exempt). “The key element in the proposal is that people are taxed on the amount received rather than the amount left, as happens under the current system,” he says.

Unions and competition

In the 1960s, almost a third of U.S. workers were unionized. Today, it’s less than 10%. According to some economists, the decline of unions is a key reason for growing inequality.

“The single largest factor suppressing wage growth for middle-wage workers over the last few decades has been the erosion of collective bargaining, which can explain one-third of the rise of wage inequality among men, and one-fifth among women,” says Lawrence Mishel, president of the Economic Policy Institute in Washington, D.C. Indeed, union membership has gone down in most advanced countries, while inequality has increased. Atkinson calls for “a legal framework that allows trade unions to represent workers on level terms.” Currently, the U.S. is ranked lowly for an advanced economy for worker rights generally.

Full employment

Atkinson says governments could wipe out unemployment in a flash by promising to be an “employer of last resort.” They would pay anyone without employment a minimum wage for labor on public works. “Governments should adopt an explicit target for preventing and reducing unemployment and underpin this ambition by offering guaranteed public employment at the minimum wage to those who seek it,” he says. Public jobs programs have a long history, going back to the New Deal in the 1930s and as recently as the Carter administration. They were stopped by Reagan who was “adamantly opposed direct job creation efforts” and thought that the government shouldn’t compete with the private sector. Atkinson offers several ways around those concerns.

Basic Income

Finally, Atkinson gets behind the idea of a “basic income guarantee.” This would be a universal payment to all citizens, ensuring that nobody is completely poor. A basic income would set a financial floor below people’s feet so they have a safety net and can grow financially from there. The attraction is that this income would replace some or all existing social transfers (such as welfare or food stamps) and instead just involve one payment. The idea is popular on the left because it’s distributional, while on the right, it seems more straightforward and fair than complicated government programs. A single benefit payment, rather than lots of in-kind services, allows people to spend money as they want. Some local governments are even beginning to experiment with the idea.

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Atkinson’s basic income would be tied to participation. People would only receive money if they could prove they were making a contribution to society, including some kind of work, education, skills, training, home care or voluntary work. This gets around the main criticism of basic income, which is that encourages people to become lazy.

Many of the ideas above seem radical today, but they have plenty of precedent both in the U.S. and around the world. Even former Republican president Nixon once proposed a version of a guaranteed basic income. You might not find the current U.S. presidential candidates talking about these ideas on the campaign trail today, but if inequality continues to worsen in developed economies, look to see them surface more powerfully in political discussions.

About the author

Ben Schiller is a New York staff writer for Fast Company. Previously, he edited a European management magazine and was a reporter in San Francisco, Prague, and Brussels.

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