Inequality & Economic Growth
This week on Facebook: While listening to a lecture by John Maynard Keynes the famed economist, Peter Drucker realised that Keynes and all the brilliant economics students in the room were interested in the behaviour of commodities while he was interested in the behaviour of people. An epiphany that would eventually lead to his career as a management consultant. Nevertheless, both sought an approach to economic growth that addressed income inequality without advocating that income be distributed equally.
The bottom line of every social sector organisation is “changed lives.” That is possibly why Peter Drucker said, “It is the social sector that may yet save the society.” But only in collaboration with our partners in the private and public sectors can we move beyond the walls and build this essential, cohesive community. How Did Peter Drucker See Corporate Responsibility?
Google’s Ngram Viewer that I wrote about last Sunday, showed a symmetry when it came to ‘social responsibility’, probably because it is mostly written about in terms of ‘corporate social responsibility’. Drucker and Keynes may have chosen different roads to travel through life on but they held many views in common, perhaps encapsulated in Keynes’ remarks quoted below. While they may both have had similar objectives in mind when writing about economic efficiency, social justice and individual liberty, they would have written about each subject quite differently.
The political problem of mankind is to combine three things: economic efficiency, social justice and individual liberty. John Maynard Keynes
Peter Drucker argued that in times of real social need corporations were best mobilised not by traditional philanthropy — business as rich man giving alms to the poor — but by doing well by doing good. Innovating to convert social needs into business opportunities, making the proper social responsibility of business that of turning a social problem into an economic opportunity. An economic benefit that creates a productive capacity with human competence becoming well-paid jobs that increases wealth. Compared with philanthropy, this massively amplifies its potential.
With regard to the writings of Drucker and Keynes they both regarded social responsibility as a societal responsibility (one that their respective writings would encourage). Both Drucker and Keynes would no doubt have agreed with the eudaemonia of Thomas Jefferson when he had ‘The Pursuit of Happiness’ written into the Constitution of the United States of America.
Properly understood, therefore, when John Locke, Samuel Johnson, and Thomas Jefferson wrote of “the pursuit of happiness,” they were invoking the Greek and Roman philosophical tradition in which happiness is bound up with the civic virtues of courage, moderation, and justice. Because they are virtues, not just personal attributes, they implicate the social aspect of eudaimonia. The pursuit of happiness, therefore, is not merely a matter of achieving individual pleasure. That is why Alexander Hamilton and other founders referred to “social happiness.” The Pursuit of Happiness
The Right Question About Inequality and Growth — (): The fact is, economic policies in the real world are nuanced and site-specific, making the search for a single answer to the question of how – and how much – inequality affects growth a Sisyphean task. Rather than concerning themselves with how to balance growth and inequality, policymakers would do better to focus on how policies impact average incomes and other welfare indicators.
How Does Inequality Affect Economic Growth? — (January 2017): By way of conclusion, it should be noted that, although inequality is, to some extent, an inevitable phenomenon in modern economies, the latest empirical evidence suggests that, if inequality is reduced, particularly among the lowest income groups, this has a positive effect not only in terms of social justice but also in terms of economic growth.
How Inequality Affects Growth — (June 2015): While most economists continue to hold that view, the recent rise in inequality has prompted a new look at its economic costs. Inequality could impair growth if those with low incomes suffer poor health and low productivity as a result, or if, as evidence suggests, the poor struggle to finance investments in education.
Is income inequality always a bad thing? — (December 2016): For their part, researchers from the IMF believe that income inequality is bad for the economy, and published a series of papers to prove it. But these regressions don’t include factors that could have caused the increase in inequality; the exclusion of these factors makes it hard to establish causality between inequality and growth. There just isn’t any conclusive evidence on what inequality means for long-term growth.
Growth, Not Equality — (Winter 2018): Equality campaigns don’t lead automatically to prosperity; instead, prosperity leads to a higher standard of living and, eventually, in democracies, to greater equality. Prioritising equality over markets and growth hurts markets and growth and, most important, the low earners for whom social-justice advocates claim to fight. Government debt matters as well. Those who ring the equality theme so loudly deprive their own constituents, whose goals are usually much more concrete: educational opportunity, homes, better electronics, and, most of all, jobs. Translated into policy, the equality impulse takes our future hostage.
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