America’s Widening Wealth Gap: An Economy Doing Half its Job

A Harvard Business School study warns that America’s widening wealth gap is unsustainable, but is unlikely to improve.

A study by Harvard Business School (HBS) titled An Economy Doing Half its Job reports that the widening wealth gap in America is now unsustainable and unlikely to improve any time soon.

The study of 1,947 HBS alumni, the latest in a series for the US Competiveness Project, reports that since the financial crisis, American companies are showing signs of recovery whilst conversely household incomes in the lower and middle classes have become stagnant, private sector job growth rates are subdued, and workers are struggling to demand better pay and benefits.

Increasing Privately Held Wealth

America’s widening wealth gap is not a new theme. The 2013 Credit Suisse Global Wealth Databook, the world’s most thorough study of wealth-distribution, reported that the US has the most extreme wealth-gap of all the world’s twenty most developed nations. And with 75.4% of all US wealth owned by the richest 10% of the people, the country is now so unequal that it is more comparable to underdeveloped countries such as Chile, Indonesia and India.

Where typically in the wake of a financial crash we would see a rise in economic equality, under Barack Obama, for the first time in US history, the country has instead seen an increased concentration of privately held wealth. The dollar is up, and this year has seen record corporate profits and US stock values set new highs.

But at the other end of the spectrum, wage gains, which have averaged only 4% in the past three years, have not kept up with the rise in inflation, andthe income of a typical family has dropped 5%. Unemployment, particularly in the young, also remains high. The official number stands at 6.1%, but does not account for the long-term unemployed (those out of work for more than 27 weeks) who currently number an additional 3.8 million.

Whilst a rebounding national economy is helping those at the top, it is not doing enough to help those at the bottom.

Business Prospers Whilst Citizens Struggle

Harvard’s Michael Porter comments: “Workers are captives of the weakest aspects of the US business environment, while firms are beneficiaries of America’s greatest strengths”. Indeed, just one example, in 2013 the American Government spent $76 billion on the Supplemental Nutrition Assistance Program (SNAP), but in the same period spent $83 billion on subsidising American banks.

Porter continues: “A truly competitive US economy would lift both firms and citizens. But our survey findings and other evidence reveal that that is not happening today in America. Instead, our recovering economy is doing just half its job: The typical large or midsized firm in America is rallying or even prospering, as are highly skilled individuals. But many middle- and working-class citizens and small businesses are struggling.”

Calling on Businesses to Act

The Harvard paper concludes by calling on business leaders to act, and help solve America’s wealth gap: “Short-sighted executives may be satisfied with an American economy where firms operating here are winning without lifting US living standards. But leaders with longer perspectives understand that companies can’t thrive for long while their workers and their communities struggle”.

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