Seven ways to reduce economic inequality  

Guy Dauncey’s Big Solutions: A high level of inequality weakens public trust, causes resentment and threatens democracy. How can we reduce it? 

income inequality solutions

The litany of inequality is stark: Canada’s 87 richest families own 4,448 times more wealth than the typical family, and while Canada’s top 1% own a quarter of the country’s wealth, the least-wealthy 40% own just 1.2%. 

 Meanwhile rising inflation is driving growing discontent, as a third of us are unable to pay our bills on time, and polls show that 39% are worried about the rising cost of living. The economic landscape is grim for young people who are locked out of the housing market. It is even grimmer for many people of colour and Indigenous people , one in four of whom live in poverty, including 40% of their children. Is it any wonder that many people have concluded that the world is stacked against them and democracy is failing them?  

To reduce this injustice, we need to address inequality’s root causes, which lie within traditional practices of money creation and land ownership. We need to implement ways to change the reality that when the return on capital outstrips the rate of growth, inherited wealth will always grow faster than earned wealth, as the French economist Thomas Piketty has been at pains to point out. And we need to do this now, while the windows of change are wide open: popular support for reducing inequality is at an all-time high of 82%.  

It may seem overly simple to whittle this immense issue down to a list of a few solutions, but hear me out. These are the distillation of complex steps to solve a complicated problem.  

 

1. Fair banking for all

How many businesses can create a new product for no cost at the simple click of a mouse?  

You might think this isn’t possible, and yet this is how banks operate. They create money as loans and charge interest on it. When the Bank of Canada raises interest rates and a homeowner with a mortgage sees their rate increase to 6% from 3%, the banks double their income with little additional effort.  

Those who have capital to invest or who own shares in a bank get richer, thanks to those who are now paying more on their mortgages. The solution is to make banking a community, cooperative or public service that can create money at very low interest, or at 0% with a fee to cover costs and losses. In Western Europe, public banks hold US$12 trillion in assets. In Germany, 40% of all banking assets are held by public or community banks. 

Central banks also create new money, adding it to the economy to head off a crisis without need for repayment. If that new money was distributed equally to everyone, or preferentially to people on low incomes, it would have the same effect of stimulating demand and reducing financial fear, but that’s not how it’s done.  

Since 2008, the world’s central banks have given US$33 trillion in newly created money to banks and corporations by buying risky assets off them; they have not given any of this money to the public. This has been the primary driver of the recent dramatic increase in inequality.  

It has caused stock markets and housing prices to soar and those who own such assets to get richer, while those on the borrowing side of the divide who don’t own property have continued to struggle. This has created a permanent distortion in the economy, favouring the wealthy. The solution is for the federal government to change the Bank of Canada’s mandate, requiring it to exercise its money-creating powers for the benefit of all Canadians, not just for those who are already rich. 

2. Universal basic services for all

Universal basic income sounds nice. The idea is that regardless of need or work status, every citizen is given a monthly sum from the government. But British authors Anna Coote and Andrew Percy have found no evidence that universal basic income can live up to the ambitious claims made for it. They argue that it makes more sense and is more affordable to invest in universal basic services, including affordable childcare and adult social care, affordable housing, affordable public transport and affordable broadband.  

 If the cost of rent can be held at $700 to $1,000 a month, rather than $1,500, that’s a basic income equivalent (BIE) of between $500 and $800 a month. If a community has affordable transit, great cycling and walking trails, as well as a car-share cooperative (so that you don’t need to own a car), that’s a BIE of between $300 and $500 a month.  

 Childcare costs $1,000 to $1,500 a month, so $10-a-day childcare becomes a BIE of $800 to $1,300 a month. All combined, excluding affordable adult social care, these measures come out to between $1,600 and $2,600 a month, which is a pretty good basic income. 

3. Social inheritance bonds for all 

 Most of the wealth we enjoy today stems not from our efforts, but from those of our ancestors. It is a social inheritance Inheritance laws, by contrast, assume that we earn it all, resulting in huge payments to the children of the rich. In Canada there is no inheritance tax, further widening the inequality divide.  

 The solution is to tax all inheritances above (for instance) $250,000, to invest the income in a Social Wealth Fund managed by the government, earning a typical 3% a year, and to use the income to establish social inheritance baby bonds. These bonds would give every newborn child a gift of $1,000, and up to $2,000 for babies in the lowest-income families, to be topped up by that much again on each birthday. When the child reaches its 18th birthday, these bonds could be withdrawn for a list of allowable uses such as studying, starting a business or buying a home. During that time, the nest egg for a child from a low-income family would grow to around $46,000, entirely transforming that person’s sense of opportunity.

4. Higher education for all  

When people don’t have equal opportunity to learn career skills through higher education, it makes the inequality divide ever wider

Around 62% of Canadians between the ages of 25 and 64 have some kind of higher education – the highest in the world – but that still leaves 38% who don’t. The solution is to make higher education free for all who can’t afford to pay, as it used to be in the 1970s and as it is in many European countries, and for full-time students who are residents of Quebec. Early childhood education is another way to increase equality of opportunity. In prosperous Canada, there are spaces for only 27% of our children. The solutions are quality training for early childhood educators, as in Finland, where they require a bachelor’s degree, and quality affordable $10-a-day childcare, as B.C. is introducing.  

5. Affordable housing for all  

On one side of the inequality divide, two-thirds of Canadians own a home. On the other side, a third of Canadians either pay an average monthly rent of $2,043 (15.4% more than last year), or they live with their parents, or have no home at all. Two earlier “Big Solutions” columns laid out the solutions, including transitioning rental properties to community ownership, so I won’t say more here.  

 Let me just pose a question. How many MPs, MLAs and MPPs own their homes? If our legislatures reserved a third of the seats for lower-income renters, think how different our housing policies might be. 

 6. Fair work for all

Those who are already wealthy get more income by investing it, as the French economist Thomas Piketty demonstrated in Capital in the Twenty-First Century. The rest of us need to work.  

 Canada’s average wage may be $36 per hour, but this means that many working Canadians earn much less. In 1998, 5.2% of Canadian workers earned only the minimum wage. By 2018, this had doubled to 10.4% (15% in Ontario), almost half of whom are over 25. The first essential solution is more participation by labour unions.  

 During the 1950s and ’60s, Canada’s CEOs earned 30 times more than their employees. In 2020, Canada’s 100 highest-paid CEOs were paid an average of $10.9 million a year, 191 times more than the average worker.  

 When employees play an active role on company boards through their unions, there is a smaller range of salary scales, greater investment by workers in their firms’ strategies, and higher productivity. In Germany, workers elect representatives to a third of the seats on the boards of companies with between 500 and 2,000 employees, and half the seats in companies with more than 2,000 employees.  

 The second essential solution is employee ownership, making it easy for an owner who wants to retire to sell to the employees. The way to achieve this is through an employee ownership trust, which Toronto-based Social Capital Partners is working to achieve, and which the federal government has said it will create.  

 An American study found that household wealth is 92% higher among employee owners than among employees in traditionally owned firms. In the U.K., 200 companies have been sold to their employees by this means, creating 20,000 new employee owners. 

7. Fair taxation for all

According to polling conducted by Abacus Data, 62% of Canadians feel that the country’s tax system is unfair, and 89% of us support the idea of an annual wealth tax on Canada’s richest people.  

 A 1% annual tax on wealth over $10 million, 2% over $100 million, and 3% over $1 billion would generate $26 billion a year, according to an analysis conducted by the Canadian Centre for Policy Alternatives. A 25% tax on the foreign profits of Canadian corporations would generate $20 billion a year.  

 Increasing corporate income tax from 15% to 20% would generate $11 billion a year. A tax on 100% of realized capital gains, instead of allowing 50% to be tax-free, would generate $20 billion a year. A similar tax on corporate capital gains would generate $19 billion a year 

 Along with other measures, these changes could generate $100 billion a year, which would go a long way toward funding free college education and universal basic services for all. If we could also end personal and corporate tax avoidance, this would generate an additional $13 billion to $30 billion a year. I could add declaring a debt jubilee, but that’s complicated, so I’ll leave it for another time. 

 Taken together, these solutions would lessen those feelings of injustice and build a Canada that is fair for all. What would it take to make them happen? Far greater coherence and a wider reach of imagination in policy debates about poverty and inequality. A willingness by politicians to show leadership in this realm. And far stronger demands from ordinary Canadians. The level of inequality that has crept up on us is hurtful, harmful and politically dangerous.  

 

Guy Dauncey is the author of Journey to the Future: A Better World Is Possible.  

 

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