Monday, September 19, 2005

Inequality: A Sense of Perspective

There have been numerous claims about the growing inequality between rich and poor. There is no doubt statistically that the highest earners enjoy an income far higher than those at the bottom and has been growing more so for the past twenty five years. However fondly we remember the prosperous decade of the Nineties there is no denying that much of the wealth created found their way to the higher economic classes. Those who find this occurrence dispiriting believe in equality as a public good. Yet equality between men is not found in the natural order of things. It is an ideal created in the minds of men which is so strong as to drive us to change this regardless of our immediate needs of self-preservation (e.g. food, shelter and security).

Each person is born with distinct innate advantages: some are taller, others more coordinated, while some have better mental abilities. Some can be intellectually sophisticated while exhibiting extreme emotional or social immaturity. It's difficult enough to enforce equality among such a variety of differences, much less equality of opportunity. However, when one hears of "the richer getting richer and the poor getting poorer", what's being implied is the ideal of the equality of results. This latter goal not only discounts innate inequalities, it also ignores other psychological and cultural factors of success such as making smart choices, moral self-restraint, self-esteem, and cultural prejudices. What matters is that at the end of every person's efforts, regardless of their own bad choices or weak character, the result of their own achievements will be of limited difference from one another. This drive for equalization inherently requires large-scale intervention by forceful means to accomplish.

For the purpose of this discussion, there will be no consideration of whether equalizing results is important. I have totally accepted inequality as a default circumstance. The key is to live and thrive in a system that gives you the freedom to overcome your own faults. Not only is economic freedom important, but personal responsibility is also essential in achieving. This is especially the case in a time when human productivity is high, as each worker makes more decisions than before, and your value to a company depends on how much responsibility or risk you are willing to bear. Low-paying jobs usually are equal to low responsibility, as the decisions are made by their superiors. If low-skilled workers decide not to take on their meager responsibility of actually performing a job, they will be fired. Why shouldn't the superior be fired instead? Because the supply of other workers willing to do the job properly is far higher than the supply of managers. Managers have knowledge and experience, which testify to their trustworthiness and capability of organizing the work of those beneath them.

I have hinted a big prerequisite to a fair and prosperous capitalist society: trust. Managers trust the laborers to do the work in good faith, just as shareholders trust the executives to make decisions to the best of their ability. Without trust their is no initiative to start businesses or enter into any kind of contract. Nepotism becomes the only way to assure trust in an organization and business is conducted by mafias, since you can't trust the bank or government to provide the services these gangs can. I recommend the book "Trust" by Francis Fukuyama regarding how this virtue affects economic development in various cultures around the world.

One increasing measure of a person's worth in the work world is knowledge. It is at the basis of the 'Information Age'. The American economy has evolved from an industrial economy to a post-industrial one. As has been evident for the past 30 years, manufacturing has slowly abdicated its primacy in our economy and as jobs creator. Although the country's manufacturing sector is producing more goods than ever, there have neven been fewer employed to do it. Again, leaps in productivity through robotics and outsourcing are culpable for this change. The emergence of the service sector as the biggest employer is indicative of the country's growing affluence. People have more money to spend for more intangibles that would have never been considered a generation ago: financial planning, specialty boutiques, software applications, home entertainment, travel and leisure, etc. Many of the jobs involved require more personal contact and customer coddling. Some, though, do not require any contact with the customer and are not dependent on close coordination with different specialists. These jobs are most vulnerable to outsourcing or obsolescence, as it can be done cheaper by others or can be incorporated in a job with even more responsibilities. Computer programmers are especially vulnerable, since despite their advanced knowledge, they have been easily commodified when having to compete with workers worldwide. From my experience the more unique perspective, creativity, and human contact a job requires, the more secure it is in the long run.

Ever notice how at bookstores the computer programming guides overflow the shelves and comprise a sizeable area of the store? Most of them explain how to use a new program or teach a new programming language. It almost seems that you can become a programmer simply by reading all the manuals. There's no other high-paying job that provides such a wealth of textbook literature to anybody who is willing to read about it at a bookstore. What all this implies is that if what somebody knows can be quantified by the amount of guides in a bookstore, it's probably not too unique or inventive. It's definitely something a foreign country can do given the right resources to churn out a bunch of IT graduates.

Will my profession, architecture be at risk? It already is but it's not quite the same. For one thing, there are no books on sale that tell you all you need to know about being an architect. There are a couple of reference books you often have to special order, otherwise, it's just a bunch of pretty pictures of old masterpieces, or else pre-drawn house floorplans. Architecture firms have been outsourcing for a long time, as a way of becoming more profitable, and focusing more on the quality of its singular product, design. What we do is so custom, so particular to clients needs, to outsource such a responsibility will guarantee bad results. Nevertheless, much of what architects used to do has been lost to other industries and technological innovations. Architects are often seen as a luxury and most of the built environment has not been designed by an architect. Because the architectural service sector grows so slowly, with no room for high fees, the constant surplus of qualified architectural graduates depresses salaries and upward mobility. In many ways, the architecture profession has been been whittled away so much that it kind of serves as a preview to the future of some jobs-small in scope, tangential, and competing for a smaller niche in the market.

Back to why income disparity is so great in America. For one thing there's very little in our economy that regulates against this. Another reason is that the amount of capital floating in our economy has never been larger, especially as more Americans have become investors. Household wealth is no longer simply calculated by job income alone, but by the accumulated value of assets such as one's home and investments. Although wages have only increased incrementally over the years, capital value of savings have risen a drastically higher rate. The pressure to keep investment income high requires corporations, which are made of shareholders, to ensure that revenue grows. Therefore any CEO who has talent and a successful recommend can demand as high a salary as they want, with all sorts of perks. If there were a million people who could do the job of the CEO, then the job would pay very little.

What of the middle class? It's not necessarily the case that it's shrinking to poverty. I would argue the reverse: there has been a massive shift of people to the upper class. Not only have the numbers of millionaires and billionaires more than doubled in the past ten years, but many household who used to be middle class have left for bigger homes and cars. Working closely with the housing sector, I have not observed a jump in HUD home development. What I have witnessed is an unending surge of luxury condominiums, MacMansions, elite hotels and resorts, and many golf-clubs. Who is going fill up all these spaces? The failure to notice this demographic shift is partly due to a static perspective on social class. To believe that the poor today will stay poor five years from now, and that the middle class will remain so in the same span of time is to ignore the constant workings of upward mobility in this country. Most households experience a gradual rise in income over time, mainly due to the fact that the more experience on the job a person has, the higher the salary. Most of the poor are relatively young families, as the bread-winner has little experience and skills. This condition will not remain so long as the poor today gain job skills to become the middle class of tomorrow. The perpetually poor are definitely a concern, and some creative approach to getting them enjoy the success of their cohorts is warranted. In any case the average income and relative standard of living of the poor in the U.S. is not that bad, since it matches the level achieved by the middle classes of most industrial countries.

In conclusion, although there is a growing disparity in income, it is not true that the poorer are getting poorer. The rich are getting richer due to the nature in which capital is invested in our capitalistic system, but there are many more people who have achieved the status 'rich' than ever before. The poor have also improved their standard of living over time, and the threshold for 'poverty level' in the U.S. is artificially high compared to the international standard. The question on whether the new wealth created in the last fifteen years should be more equally distributed as it is another subject worthy of debate. Such a debate should also take into consideration how this inequality is redressed by our progressive taxation policies, since the statistics reveal a gross inequality between the contributions of the rich and poor. A further examination of this issue will come in due time.

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