The World Economic Forum is happening this week, which means that a plurality of the world’s billionaires and major political leaders are in Davos, Switzerland, attending high-minded panels like “Disruptive Innovation Ahead” and getting drunk in their ski chalets.
One non-profit, Oxfam, used the opportunity of being among the world’s richest and most powerful people to release a new report about wealth inequality. Among its findings: The richest 85 people in the world control as much wealth as the poorest 3.5 billion people. The report is a valuable and devastating portrait of inequality, and its timing couldn’t be better. But the advice it has for solving the inequality problem misses the mark.
Most of Oxfam’s advice to the ultra-wealthy implies that they can help fix wealth inequality by making different choices. The group’s report [PDF] lists seven recommendations:
- Not dodge taxes in their own countries or in countries where they invest and operate, by using tax havens;
- Not use their economic wealth to seek political favors that undermine the democratic will of their fellow citizens;
- Make public all the investments in companies and trusts for which they are the ultimate beneficial owners;
- Support progressive taxation on wealth and income;
- Challenge governments to use their tax revenue to provide universal health-care, education, and social protection for citizens;
- Demand a living wage in all the companies they own or control;
- Challenge other economic elites to join them in these pledges
With due respect to Oxfam, this is not a very good list. For starters, tax avoidance and political cronyism are hardly the biggest drivers of wealth inequality, and fixing them wouldn’t do much to solve the problem. And many of the world’s richest people got that way through careers in finance and technology, not manufacturing or other low-wage sectors, making the issue of paying “a living wage in all the companies they own” a bit of a moot point.
The truth is that wealth inequality is mostly a policy problem. And there’s only so much even a well-intentioned billionaire can do to change laws in a gridlocked political environment. But they can take small steps. Here are some better tips for plutocrats who want to help reduce wealth inequality:
Hire the long-term unemployed: Companies are hiring more people these days. That’s good. But there are currently about 4 million people in the U.S. who have not had a job for 27 weeks or longer. Studies have shown that these people have a nearly impossible time finding work, in part because employers tend to discriminate against job applicants who have long gaps on their résumés. Without jobs, these people are stuck in a cycle of misfortune, and we risk having them become a permanent economic underclass. Davos billionaires could break the cycle by pledging to make a concerted effort to hire the long-term unemployed.
Stop obsessing over deficits: My colleague Jonathan Chait has a good column today about how a large group of serious-minded corporate executives exacerbated the unemployment crisis by constantly harping on the need for deficit reduction. Many, many of the people attending the World Economic Forum this week are among those most concerned about deficits and debt, and I wish Oxfam had told them all that their obsession is hurting the poor more than any single other choice they make. Short-term deficits are falling too quickly, and long-term deficits will mostly be ironed out by improvements in health-care. If billionaires really wanted to help reduce inequality, they’d put down their Fix the Debt badges and start worrying about unemployment instead.
Give up your patents: Many of the richest people in the world got that way by inventing something and putting a protective fence around it, in the form of copyrights or patents. Whether it’s drugs or computer software, patents foster inequality by making things more expensive for consumers, and allowing inventors to operate in monopoly-like conditions for years. Billionaires can’t force Congress to rewrite intellectual property laws, but they can willingly surrender their own patents, and open their inventions up to more and better competition in the marketplace. Reforming patents wouldn’t hurt innovation, and it would improve access to vital products for the people most in need.
Invest in B Corps: One problem with talking to CEOs about running their businesses more equitably is that most business executives think they are required by law to maximize their returns to their shareholders. “Shareholder value maximization,” as this concept is called in the business world, has been used as an excuse for poor corporate citizenship for decades. But it doesn’t have to be that way. There is a newish type of corporation, the B Corp, that allows companies to pursue both profits and social good. These companies are much more likely to cover health insurance costs for employees and donate corporate profits to charity than regular c-corps.
Most WEF-attending billionaires are aware that B Corps exist – in fact, there was a big discussion last year about them, sponsored by the WEF. And while it might be too late for, say, Richard Branson to re-incorporate his Virgin empire as a B Corp, Branson could make an effort to support as many growing B Corps as possible. There’s even a handy finder tool on the B Corp site.
Give your money away smartly, and don’t leave much to your kids: Rich people tend to be very, very good at making money, and much worse at giving it away. Many of the people in Davos this year have likely given big donations to Ivy League universities, well-funded parks, and fancy art museums, while ignoring much needier organizations that are saving lives and working to improve unequal conditions. Sites like Givewell can help rich people put their money to use where it’s most needed. And any billionaires who haven’t joined the Giving Pledge should take the opportunity to sign up.
Davosgoers should also resist the urge to pass their fortunes down to their children. Studies have shown that young people today are inheriting wealth at a greater rate than the two previous generations. And while inheritance may not be a direct cause of wealth inequality in the aggregate, it does tie up an extraordinary amount of money for decades on end. Every dollar set aside for a billionaire’s kids is one that can’t be put to work immediately solving our biggest economic problems.