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Livio Di Matteo: The real victims of wealth inequality? It’s not the middle class

Commentary

Economic inequality is a dominant public policy issue given that along with its effects on economic welfare, it is also a factor in health outcomes such as COVID-19.

Research is showing that countries with higher income inequality experienced more COVID-19 cases and deaths. Inequality is even considered a factor in hampering the post pandemic economic recovery. Needless to say, it is important to understand exactly what inequality is.

Inequality is a multi-dimensional problem affecting not only income, but consumption, wealth and access to opportunity.

Nevertheless, much of the current policy debate focuses on the income shares of the top one percent of earners when wealth inequality is likely the bigger problem. Wealth provides greater long-term economic security and can be a better long-term indicator of social status and economic and political power.

Wealth inequality is complex and the outcome of economic change as well as institutional forces. It can be a transitory part of the economic life cycle, given that wealth and income rise with age.

It can also become ossified, persisting across generations and reinforced via cycles of poverty and discrimination. Wealth inequality can be pushed up by economic growth and industrialization but mitigating factors can pull it back down, such as during the 20th century which saw increased unionization rates, estate taxation, mass public education, social welfare interventions and the fostering of home ownership.

While housing prices are considered a factor in driving inequality at present, it was not always the case. One often unacknowledged past example towards more equitable wealth distribution was the United Kingdom’s Housing Act of 1980 which provided incentives to public housing or council house tenants helping them to buy their homes at a discount. As a result, the British home ownership rate increased 15 percentage points — from 55 percent in 1979 to over 70 percent by the early 2000s which certainly fostered more broad-based wealth holding.

While taxes on wealth are levied in 24 of the 36 OECD countries, they have played limited roles in tax revenues

At the same time, a reduction in union strength as well as the end of estate taxation and less progressive tax systems may also be factors raising overall economic inequality since the 1970s.

There have been calls for increased wealth taxes as a solution to growing wealth inequality as well as meeting the expenditure demands of the COVID-19 pandemic.

But a recent OECD review finds that while taxes on wealth — like inheritance, estate and gift taxes — are levied in 24 of the 36 OECD countries, they have played limited roles in tax revenues. In 2018, only 0.5 percent of total tax revenues were sourced from these taxes on average across the countries that levied them.

In the case of Canada, which abolished estate taxation in the 1970s, it has been suggested that wealth taxes add relatively little to the taxes on capital and capital income that are already in place and come with substantial administrative challenges.

Wealth inequality has been high and persistent, though some eras have seen lower wealth inequality than others. The industrial growth and development of the 19th century saw immense surges in wealth inequality. The evidence for Canada, the United States, and the United Kingdom shows reduced wealth inequality starting in the 20th century after the increases of industrialization.

The period since the 1970s has seen some rebound in wealth inequality in these three countries but it has been most striking in the United States. In the case of Canada, more recent estimates put the current wealth share of the top 1 percent at closer to 30 percent.

Wealth inequality everywhere is ultimately driven by complex interacting forces and not necessarily by simple inexorable laws relating rates of return and accumulation. Wealth inequality is an outcome of economic change. Economic change via war, globalization, technological change, and property booms creates winners and losers with the shifting balance driving changes in inequality. Economic change and disruption benefit those who are able to take advantage of new opportunities, resulting in more inequality. In a sense, some inequality is inevitable if one has robust economic growth.

Of course, these trends based on the top one percent obscure changes within the wealth distribution. For example, as the 20th century progressed, Canada saw a shift that saw the wealth share of the top 10 percent decline while that of the next 40 percent has increased. However, what is truly remarkable is how poorly the bottom 50 percent have done over time with their share remaining practically constant at under 10 percent. The chief beneficiaries in Canada of a more equitable 20th century wealth distribution have been the ‘‘middle’’ wealth holding classes as represented by the next 40 percent of the distribution after the top 10 percent.

This on its own represents a substantial historical achievement in terms of increasing economic security and creating broader wealth holding but it comes with issues.

The high inequality of the 19th century is attributed to the effects of raw capitalism without a social safety net, but the present is also disconcerting. After all, by the third quarter of the 20th century Canada had adopted a reasonably comprehensive redistributive state with income security programs, child support payments and credits, subsidized university education, public health care, and other assorted public goods and infrastructure.

One might expect that, over time, human capital would rise, earnings rise, and wealth flow down to those at the lower end of the wealth distribution. While everyone is richer in absolute terms because of rising real income and wealth, the relative shares of the bottom 50 percent have not improved. It appears that the poor are still with us.

The persistence of low asset holding among the bottom 50 percent of the wealth distribution is a serious issue that public discourse has largely neglected, preferring instead focusing on the relative shares of the top one percent and “middle class” hardship.

The 20th century expansion of the redistributive role of government was accompanied by an expansion of middle-class wealth holding but not increased wealth shares of the bottom half of the distribution. It is unclear what the factors driving this persistence of inequality are.

Intergenerational growth of inequality via intergenerational transmission of values and attitudes toward human capital, saving and wealth may be factors. And all of this is probably going to be compounded in coming years by the educational disruption of COVID-19 and its effects on human capital acquisition particularly in lower income and more marginalized communities.

Acknowledging these realities is a start in addressing what has been a long-standing and persistent problem in inequality.

Sean Speer: There is no room for nuance in the shameful legacy of residential schools

Commentary

Last week ended with the sad and tragic news that the Tk’emlups te Secwépemc First Nation in British Columbia had located the buried remains of 215 children who were students at the Kamloops Indian Residential School.

The school, which operated from 1890 to 1969, was one of the country’s largest, with peak enrolment of 500 students in 1950. The on-site discovery of children’s remains, some of whom are believed to have been as young as three years old, is a stark reminder of the appalling legacy of residential schools which often resulted in abuse, violence and even death.

But even if these schools hadn’t been home to such emotional, physical and sexual abuse, they would have still been wrong as an intellectual and moral matter. The basic idea to remove and isolate children from the influence of their families in order to “get rid of the Indian problem” was wicked and bad.

One can nevertheless occasionally find efforts on social media and elsewhere to rationalize or bring nuance to discussions of the residential school system. There are of course instances where students weren’t subjected to abuse or violence or even individual students who may have conflicted views about their own experiences. It’s often striking, for instance, that a lot of former students continue to live out their religious faith, notwithstanding the extent to which religious institutions were culpable in some of the most egregious cases of systemic abuse.

Yet, while one might understand the impulse to bring nuance to our historical understanding, these efforts overlook the original sin of the whole residential school system: there was a systematic, race-based government policy to remove children from their families and educate them in some form of universalized conception of identity and citizenship.

For any cases where the experience might have been somewhat positive for individual students, they cannot make up for the fact that the basic idea was inherently illiberal and a statist attack on individual rights and the institution of the family. Any historical discussion or debate that doesn’t start from this fundamental basis is missing the point.

Former Prime Minister Stephen Harper’s formal apology to residential school students, which was delivered thirteen years ago next month, was predicated on this basic insight. It came from two core parts of his own identity: first, as a philosophical conservative who believes in the inviolability of individuals and families from the overreach of state action; and second, as a father who was understandably moved by accounts of children forcibly separated from their parents in the name of assimilationist ends. As he said in his apology: “the Government of Canada now recognizes that it was wrong to forcibly remove children from their homes and we apologize for having done this.”

There’s nothing conservative about the residential school system.

It’s particularly odd, then, when one hears conservatives attempting to explain away aspects of residential schools. Let me be clear: there’s nothing conservative about the residential school system. There’s nothing conservative about a systematic policy to use the coercive powers of the state to break up families and force children into state-mandated schools along racialized lines.

In fact, one could argue that, to the extent it finds any intellectual basis, it would be more in the zeal of late nineteenth/early twentieth century progressivism which was marked by a utopian scientism that often combined faith in technocracy with forms of genetic racism. Residential schools were, in effect, a tragic expression of the worst excesses of big government collectivism run amuck.

Conservatives should therefore be the most vocal opponents of the residential school system and the underlying ideas that led to its existence. This includes, by the way, reckoning with the role of churches in perpetuating the system.

Progressives must similarly grapple with how their ideas and impulses could manifest themselves in such a wicked and bad system. If I may say in the spirit of sincerity and goodwill, it seems like there can be a lack of introspection on the Canadian Left about these questions. Changing building names or removing statues or even being an ally to Indigenous peoples doesn’t quite address the role that collectivist ideas played in undergirding the whole tragic episode.

As importantly, though, both sides of our political divide need to recommit themselves to helping Indigenous families rebuild from the lost generation of this illiberal experiment. Census data tells us its legacy persists in the form of less stable families, more childhood trauma, and broader community and household challenges.

Consider, for instance, that Indigenous adults are less likely to be married than non-Indigenous Canadians, belong to much higher rates of lone-parent families and are much more likely to be part of complex stepfamily arrangements. Similarly Indigenous children are more likely to live with grandparents without parents present, much more likely to be part of the foster care system and generally live in far higher rates of poverty.

These troubling statistics reflect the recognition in Harper’s apology that “[residential schools] undermined the ability of many to adequately parent their own children and sowed the seeds for generations to follow.” The risk, of course, is that we condemn yet another generation of Indigenous children to lives of diminished expectations and opportunity. That would be tragic for them and represent what has been described as “an ongoing stain on our country.”

Last week’s awful news from British Columbia is a reminder of the shameful origins of these present-day challenges for Indigenous families and the work that must be done to reckon with the past and chart a better future.