What to do about the wealth gap

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What to do about the wealth gap

As widening disparities of wealth bring the prospect of Arab Spring-like political upheaval in the West, Israel has solutions to offer.

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With all the coups, civil wars, general chaos and barbarism that has followed the so-called “Arab Spring”, it is easy to forget that the whole phenomenon began with the deterioration of the economic situation in the Arab countries involved initially; that is, Tunisia and Egypt. Afterwards, the demonstration effect of the success of the populace of those two countries in toppling long-term secular dictators inspired other similar movements in Libya, Yemen, Syria and Bahrain. We have seen how the deteriorating economic and financial situation in Europe has given rise to massive demonstrations (so far largely peaceful) and the formation of political parties of the far right and the far left as well as encouraging the growth of existing extremist parties.Recent studies by universities and research institutes in the United States have emphasized a phenomenon which has been developing for many years; namely the extreme and growing disparities in income among various social groups, arranged in order of level of income. This disparity is now more marked than any time since 1928 (those who know economic history will recognize the significance of that date). Excluding government transfer payments, the top ten percent of the population as a whole in 2012 received almost half the total income stream (48.2%), and the top one percent of the population received almost one-fifth (19.3%). ‘

A recent issue of The Economist, in a long analytical article, emphasized the huge and growing place that government transfer payments represent in providing all or most of the income of about half of the American people; as well as pointing out the extreme complexity and openness to fraud of the system, as well as the disparities of such payments among the various states, with Hawaii the most generous and Mississippi the least so. Ironically, the same issue of the magazine highlighted developments in such areas as 3-D printing and advanced robotization, largely responsible for the income picture, due to the relentless surge of the importance of capital in the productive process and the ever-decreasing role of labor.

If these trends continue, and there is every reason to assume that they will, the American polity can expect to suffer the political and social developments that are taking place in the rest of the world. Already groups such as the Tea Party and Occupy Wall Street have emerged and the political system has become more and more dysfunctional. After the financial crisis of 2008, the public at large through its taxes, and future generations, through exponentially-increasing debt, bailed out the one percent. This fact is becoming better known with every passing year, and the public cannot be expected to ignore it, but rather to demand, through its elected representatives, that the holders of productive capital be punished by government action to expropriate their earnings to feed the government’s redistribution machinery, with all its very high processing costs. Already, public officials make more than those in the private sector in comparable positions. Populists of whatever political label will have ever-increasing success, as the new helot class votes for those who promise to maintain and increase their governmental handouts.

In future, claimants to privately-generated income will be increasingly limited to two groups, not mutually exclusive: those with high-level technical educations, and the holders of productive capital. In this regard, Israel is in a significantly better position than either the US or Europe. Technical education is excellent and its graduates are remunerated well. Many, if not most, hi-tech companies include among their employee benefits, shares in their companies, thus spreading the ownership of productive capital. The new, strengthened, anti-trust legislation, if vigorously enforced, will also help in this regard. However, much more can and should be done, through such mechanisms as employee stock ownership plans and community investment trusts. Ever-larger portions of the Israeli population of all religions and ethnic background would then have access to the ownership of productive capital.

Israel leads the world in many ways–the eight million showing the way to the billions outside. It can and should do even better.

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