An attack on inequality misses its target

As a longtime participant to the World Economic Forum, Peter Goodman is well placed to weigh in on the causes of and solutions to economic inequality. But in his new book, he shines more as reporter, relaying the testimonies of workers and small scale entrepreneurs anywhere from the American Midwest to Tuscan Italy. He highlights the link that exists all around the world, between rising economic hardship and political anger.

The author puts faces to the statistics long identified by leading global economists; namely that in the past decades of globalization, the gains of the emerging middle classes in Asia and other developing countries were partially and painfully offset by the relative losses of Western industrial workers.

The past link between the economic ideology of shareholder primacy, and the government policies that led to more economic inequality in the US, UK, and much of the Western world is also aptly described. For too long, the idea that wealth would trickle down from the top, that taxes were a burden on the innovative power of entrepreneurs, and that government was the problem, helped create destructive economic outcomes for many workers.

As long as economic growth was high, these outcomes weren’t as visible. But as our societies underwent several transformations in the past 15 years, the reckoning had to come. When only a small percentage of people benefit from the economic shifts; when profound environmental, social and technological transformations unsettle society; and when political leadership fails to provide answers, it is normal that people lose trust and revolt.

But there is a danger for observers too, to react in a polarized and emotional way, and Goodman falls victim to it. He juxtaposes the disillusioned working class with thriving billionaires. That works for contrast. But he takes the shortcut to its full conclusion, advancing the idea that the increased economic inequality and political and social polarization is due to a handful of individuals.

That is not right. Given their increased role and influence, business leaders of course should take a broader social responsibility. That starts by getting money out of politics, and following the medical adage of “primum non nocere” – first, do no harm. But to designate just a few business men as the culprit of all of society’s ills, is both false and harmful.

Combining contempt for a billionaire’s choice of clothing, with baseless allegations of profiteering at a not-for-profit, weakens this polemic’s attempt to stir outrage. It is a sign of the decay of discourse, that we undermine people of different opinion through personal vilification. It would be better to accept that different opinions exist, and that a serious intellectual dialogue could - in the best interpretation of Hegel - create a better vision for the future.

To the point, the challenges we face in the global economy are the result of seismic and systemic shifts. They include the lop-sided effects of the technologies of the Fourth Industrial Revolution, globalization, climate change, and social factors including demographic shifts, rising nationalism, protectionism, and social discord, as well as the malgoverno of institutions no longer fit for purpose.

What can we do about that? As often, it helps to look at the past for ideas.

Goodman briefly mentions a Davos conversation he had with economist Ian Goldin’s on the similarities between our current era and Europe’s Age of Discovery. Back then, new technologies and discoveries, from the printing press to the explosion of global trade, also led to market and wealth concentration, as well as social upheaval. The institutions and ideologies of the age could not keep up with the technological, economic and intellectual changes that were occurring.

Today, once more, we need to update our institutions and processes, and the way they relate to one another. That primarily includes business and government, the two leading institutions that have come out of the Industrial Revolution. It will mean, among other things, that business will need to take on a broader social and environmental responsibility, in line with its increased influence and power. Some business leaders have already understood that, some others not yet.

The book does not reflect on these systemic issues, however, and makes no discrimination between various business leaders. Instead there are easy answers. For The New York Times’ global economics correspondent, it’s all greed and selfishness that’s to blame. It goes directly against both the trend of “stakeholder capitalism” and the “Davos spirit” that has guided the World Economic Forum for more than 50 years, and that has inspired business leaders from around the world to reconsider their role.

Already in 1973, participants to the World Economic Forum endorsed the official “Davos Manifesto”. It is a code of ethics for business, approved by the real “Davos Man” of the time. Remarkably, he explicitly stated that “management has to serve society”, that profitability is a “means”, not an end, and that each enterprise “has to pay appropriate taxes” – precisely the solutions put forth by Goodman.

For the author, stakeholder capitalism is “just an elaborate PR exercise”. In his half dozen visits to the Annual Meeting, he acknowledges that many of his ideas have come from talking to other Davos participants, like economist Joseph Stiglitz, writer Anya Shiffrin and FT columnist Rana Foroohar. This is also the purpose of Davos – to create new ideas, not to crush them with a kind of reflexive cynicism. That this book is his response on the matter is perhaps most disappointing.

In shifting the blame for society’s ills to a narrow set of individuals, this book misses a chance to make a more substantive and credible contribution to the very important economic issues it raises in the first place. At a time when we need more facts-based, credible, and rigorous economic analyses to guide us to a better future.