It didn't grab much attention or make headlines, but last week the OECD published one of the saddest reports written in recent years. One might have used the word "shocking" to describe the report's contents, were it not that the facts have been known for a long time, and only their collection in a single report makes them such hard reading.
The report in question was published in advance of the meeting of OECD ministers at the beginning of the month to discuss worsening inequality in the industrialized countries, and the connection between this and the substantial slowdown in productivity growth that characterizes many countries.
The inequality statistics are well known, but they also indicate a policy failure led by an economic theory that has caused huge damage everywhere. The income of the highest 10% in the OECD countries is twelve times that of the lowest 10%. Just 30 years ago, the figure was seven times. In assets, the inequality is even worse. The highest 10% control half the assets in the OECD member countries.
The picture is completed by an almost inescapable conclusion about what is liable to happen in the future: inequality will not only not narrow, it will even widen, because there are structural factors in present-day capitalism that tend towards increasing polarization between capital and labor, between rich and poor. On the one hand, productivity is growing mainly, almost exclusively, in advanced technology sectors, where the profits flow to a thin layer of owners, managers and employees. The rest of the workers in the economy suffer from low investment in physical capital, which severely limits the rise in productivity, and their share in the added value produced becomes smaller and smaller. Furthermore, the possibility that the picture for workers in the industrialized countries will change in the future recedes further and further into the distance as time goes on. The report points out that the wealthy, those with the income and the assets, can give their children a better education, and thus very much improve the prospects of the next generation in the marketplace, while the rest are forced to cope with diminishing accessibility in education, health and social services.
If the picture that emerges from the report is one of reversion to the socio-economic set-up that preceded the growth of the welfare state, this has happened because the welfare state is being eroded, and in many places has almost disappeared. The world has regressed decades, amid constant erosion of the economic power and security of social strata that for seventy years saw themselves as "middle class".
We can reasonably assume that, shocking as the description of the situation in the report may be, politicians in many places will see in it a kind of absolution for their failures. The argument will of course be that if everyone is in the same boat, little blame attaches to the policy adopted by each individual government. You don't have to be an expert on the behavior of the Israeli government to assume that that might be the line of defense taken by its ministers if anyone were to think of raising the OECD report for discussion.
Taking comfort in the "all in the same boat" argument is not only the comfort of fools, but also conceals the fact that, even if the phenomenon is widespread, there are considerable differences between its strength in different countries. It is worth pointing out, as the report itself does, that in four countries the changes are notably fast and powerful. Those countries are Britain, Israel, Mexico and the US.
As far as Israel is concerned, this is not just a matter of the degree of the social deterioration that has taken place in the past two decades. There is also the question of the possibility of implementing different policies that will deal with the results of the policies adopted by Israeli government throughout that period. The OECD report recommends introducing policies of including the whole population in the fruits of growth. Such a move is impossible when the government owes its own existence to the existence of "sectors" and to looking after the interests of some of them at the expense of others. Public policy in Israel is built on discrimination, on divide and rule, and on pitting one group against another.
What is more, there will be no change in the inequality trend without massive government intervention to ensure a different distribution of national product between capital and labor, without encouragement for organized labor, without ensuring, on the basis of the Basic Laws, essential social and economic rights, without re-examining the whole array of tax exemptions and the possibilities for tax planning.
There is no point in dreaming about productivity growth without providing a reasonable standard of education for each and every child, without fostering a system of social security, and without ensuring an appropriate level of social services. Anyone who thinks that any of this will happen in Israel any time soon is deluded. See you at the next report.
Published by Globes [online], Israel business news - www.globes-online.com - on June 6, 2016
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