The inequality trap

Bae Myung-bok

U.S. President Barack Obama’s 2014 State of the Union address didn’t get much attention in the Korean media. It coincided with the busy Lunar New Year holiday and didn’t touch on many issues Koreans are interested in. Obama focused on U.S. domestic issues and only briefly mentioned international concerns. He skipped the North Korea subject altogether.

Yet we still need to pay attention to Obama’s speech because he directly addressed one of the most important problems the world faces today.

Obama frankly disproved the belief that anyone who works hard will succeed in America today. The system of the American dream - that the opportunity to rise up the ladder is open to anyone - is broken.

“Those at the top have never done better. But average wages have barely budged,” Obama acknowledged. “Inequality has deepened. Upward mobility has stalled.”

While the U.S. economy actually shows signs of solid recovery from its near collapse in 2008, the lives of most Americans are not likely to improve. Obama pledged to “build new ladders of opportunities into the middle class” during the remainder of his presidency. If Congress doesn’t cooperate, he said, he will issue executive orders to resolve the inequality crisis in America.

In her book “Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else,” Canadian journalist and politician Chrystia Freeland compared the latest upturn in the U.S. economy to a class of students in which the average grade goes up thanks to a few outstanding kids. Between 2009 and 2010, the United States recorded an economic growth of 2.3 percent, but during that period, the incomes of 99 percent of Americans went up by 0.2 percent while the top 1 percent enjoyed an 11.6 percent increase.

The fruits of growth are concentrated in the top 1 percent of plutocrats who have money and power. The lives of the rest, the 99 percent of the population, remained the same or actually declined. As a result, the class structure in American society is unequally stratified between the 1 percent of the super-rich and all the rest.

Income inequality is not limited to America. It is a worldwide phenomenon. The world is faced with a radical transition that cannot be compared to the changes the first industrial revolution ushered in. In the first industrial revolution, machines replaced physical labor. Now, digital devices with artificial intelligence are replacing the mental labor of humans. An Oxford University research team forecasts that 47 percent of jobs existing today will be automated in 20 years.

In the waves of globalization, unskilled jobs in developed nations moved to emerging economies and developing countries. People who have failed to adapt to technological advancements have already lost their jobs or are about to lose them. Meanwhile, the few capitalists and innovators who lead globalization and the technological revolution get to accumulate astronomical wealth. The inequality as a result of the technology revolution was one of the main items for discussion at the World Economic Forum in Davos, Switzerland, this year.

Today, the income levels and jobs of parents not only determine the quality of life for their children but also the future of their grandchildren. This class differentiation is reinforced by marriages within the same class. A society with sluggish class mobility is bound to lose vitality. It also has a serious psychological impact on people. Societies with serious income disparities have higher rates of psychological disorders like depression and delusion

Seoul National University’s Survey Research Center surveyed 21,050 men and women, and the center concluded that the desirable salary difference between a CEO and an entry-level worker should be 12 times. The actual gap is far larger. Yet a tolerable difference cannot be defined by law. Each worker has to catch up with technological advancements and be qualified for higher wages. That’s why education and training are so important. The future of a society depends on how promptly workers can respond to technological changes through education or vocational training.

Economist Milton Friedman said, “A society that puts equality before freedom will get neither. A society that puts freedom before equality will get a high degree of both.” Until recently, his belief was correct. However, the inequalities have grown too deep.

At this rate, not just freedom but democracy itself may be jeopardized. The value that connects liberty and equality is fraternity. The tripartite motto of the French Revolution continues to shine after more than 200 years.

*The author is an editorial writer of the JoongAng Ilbo.

By Bae Myung-bok