Financial and Monetary Systems

Of course Davos should talk about taxing the rich. But there's more to solving inequality

'Taxes, taxes, taxes. The rest is bulls**t,' historian Rutger Bregman told participants at Davos. Image: Sikarin Fon Thanachaiary

Oliver Cann
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This article is part of: World Economic Forum Annual Meeting

Are we approaching an inflection point in the way we view inequality? Going by discussions in Davos last week, from historian Rutger Bregman’s passionate plea for the rich to pay more taxes to Prime Minister Jacinda Ardern’s promotion of New Zealand’s well-being budget, it’s hard not to get the impression that a consensus is building.

So how to bring about this change? Bregman’s answer, that the rich should pay more and avoid less, has merit. “Taxes, taxes, taxes," he said in a Davos panel debate. "All the rest is bulls**t in my opinion." In this, he was echoing comments made by the academic Erik Brynjolfsson a day or so earlier in the conference, who mentioned that America in the past taxed its rich more without doing much harm to growth. Both views chime with the World Economic Forum’s Future of Jobs Report, which says that “increased tax revenues provide scope to enhance social safety nets.

Taxes are important both in terms of addressing excess inequality and improving social cohesion. They also provide resources for investment in areas that promote inclusive growth. In this regard, they are a vital element of a fairer society. But is Bregman correct when he suggests all the rest is bulls**t? Our research tells us otherwise.

Take a look at fiscal transfers, for instance. It’s not just about taxes but the way those taxes are spent. Europe, for example, has a number of economies that operate high taxes, but some are more successful than others at addressing inequality. How progressive a tax system is, the degree to which it provides incentives for work, as well as the amount of money governments spend on public services – all influence the overall picture, as do other factors, such as coverage of old-age pensions, healthcare and unemployment benefit.

Then there’s education and skills. Access to education is a fundamental requirement of any inclusive society, but as technology continues to disrupt the way we live, a huge effort is required to help students and workers of all ages successfully manage the transition. Juan David Aristizabal, a social entrepreneur and one of the co-chairs of this year’s Annual Meeting, called for a revolution in education. Our own research found that, as yet, neither governments nor businesses are prepared for the task of re-skilling today’s workers for tomorrow’s jobs, even though providing new skills could be good for profits and good for tax revenue.

And what about our social safety nets? Just as digital technologies are causing us to rethink how we prepare for an unknowable future of work, they also require us to rethink how to provide for those whose livelihoods will be disrupted. How we'll protect workers’ rights as the gig economy becomes more commonplace, for example. As labour markets become fundamentally changed, a January paper by the World Economic Forum urged governments to "focus on managing the transition to a new economy" and find ways to "broaden safety nets and alternative means of delivering income or services".

On the topic of jobs and wages, income inequality will never be tackled without a comprehensive approach to work. This means not only tackling unemployment in the first place through comprehensive job creation but also fair compensation. This means gender diversity in the workforce, social mobility and the amount of temporary employment among other actions are all needed.

Entrepreneurship and asset-building are also important in the fight for equality. Entrepreneurship is the lifeblood of an inclusive economy, creating jobs, boosting wages and widening asset ownership. Likewise, employee stock ownership schemes are similarly effective for diversifying the distribution of wealth in an economy.

And lastly, corruption. Without measures to prevent graft and rent-seeking – the act of obtaining economic gain without any reciprocal gains for society – a level playing field can never be possible. Such imbalances can come in the form of "capturing" regulators or by lobbying to create favourable conditions in a given industry. Strong institutions are key here. Matthew Caruana Galicia, an investigative journalist who was part of the team that exposed the Panama Papers, says the creation of a worldwide network of transnational organized crime and corruption has been one of globalization’s most enduring success stories.

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The views expressed in this article are those of the author alone and not the World Economic Forum.

Related topics:
Financial and Monetary SystemsEconomic GrowthGlobal Cooperation
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