Strengthening the welfare state, access to education, progressive tax policies and overcoming entrenched power structures could mitigate inequality in society
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Economic inequality is a persistent and complex issue that has been the focus of scholars, policymakers and activists worldwide for decades.
Dr. Francisco Gonzalez is a professor in the Faculty of Arts and researches social conflict, poverty and inequality
Dr. Francisco Gonzalez, a professor in the Department of Economics at the University of Waterloo, brings a nuanced perspective to this problem. His insights, rooted in both historical context and contemporary analysis, highlight the variable nature of this issue and the interplay between economics and politics.
Gonzalez, an expert in economic development and public economics, attributes much of today's economic inequality to attitudes that prioritize individualism over collective advancement. His focus is rooted in broader macroeconomic issues like poverty, unemployment and social welfare.
“Economic inequality within developed countries today mirrors the levels seen before the Great Depression, a period characterized by significant social upheaval and the eventual development of the welfare state as a response to social conflict,” Gonzalez says. “Within these countries inequality was relatively low by the 1980s, but today, inequality is back to the 1920s levels.”
He argues that the welfare state played a crucial role in mitigating inequality in the mid-20th century, but today’s political climate shows a reluctance to embrace government intervention and taxation as solutions.
“I think a lot of people have a narrow view of inequality, focusing on income inequality, or wealth inequality, as outcomes that are unrelated to inequalities of luck and opportunities, and I think that misses the point,” Gonzalez explains. “Many people also seem to believe that inequality is simply the necessary price of economic growth. However, the problem with measuring wealth in terms of averages is that it gives a misleading picture. When inequality grows, average wealth appears to increase because the rich are getting richer.”
Economics refers to much more than average income itself, but rather how income is spent, distributed and valued.
“Markets create some inequality in order to incentivize effort. Of course, perfect equality of outcomes would undermine motivation to undertake costly tasks. However, I think that today’s levels of within-country inequality are excessive and reflect unequal opportunities instead.”
Unequal opportunities arise from various factors, including luck, education and family background. Countries with high levels of inequality tend to have lower social mobility, particularly intergenerational mobility. What people do with their opportunities is important and rapidly evolving with societal changes.
“Understanding the role of luck — both good and bad — and the impact of opportunities is essential. The distinction between inequality of opportunities and inequality of outcomes is crucial,” Gonzalez says. “By gaining a deeper understanding of the diverse experiences people have, we can create a fairer society.”
“If you’re born into a wealthy family, your opportunities and prospects are significantly better. This inherent advantage often leads to greater future wealth. Importantly, we see that countries with higher levels of inequality also tend to have lower social mobility.”
Gonzalez recognizes that addressing economic inequality is complex and challenging due to entrenched power structures resistant to change. “I think the greatest obstacle is that economics and politics are inextricably linked,” Gonzalez says and proposes several strategies to help mitigate the crisis.
Gonzalez argues that the welfare state remains a vital mechanism for addressing economic inequality. He believes that the welfare state is not only a measure of economic development but also a critical tool for ensuring social peace.
“Countries with a robust welfare state are more developed, regardless of their gross domestic product levels,” he says. Gonzalez points to the Scandinavian countries as examples of successful welfare states that balance economic growth with social equity.
“Canada also does quite well in this regard, relative to the United States, providing more equal opportunities through its welfare system, despite generally lower incomes.”
Education plays a strong role in promoting social mobility and reducing inequality. Gonzalez advocates for a broader understanding of education's public and social value beyond its private returns such as higher incomes and career advancement.
“I believe there is a narrow view of universities as factories of high-skilled workers,” he says. “Education should mitigate social conflict and foster sensible demands from governments. When your population and voters are educated, they should demand sensible things from their governments.”
Education not only equips individuals with technical skills but also cultivates critical thinking, empathy and civic engagement. These qualities are essential for fostering a more equitable and cohesive society. Moreover, education can break the cycle of poverty by providing individuals from disadvantaged backgrounds with the tools and opportunities to improve their circumstances.
Gonzalez highlights the need for progressive tax policies and wealth redistribution to address economic inequality. He references the success of policies like the child tax credit in the United States, which significantly reduced child poverty during the COVID-19 pandemic.
“Implementing these kinds of policies is very difficult. Political feasibility is the first constraint,” he says. “Those with political power often resist policies that would reduce their economic advantages.”
Gonzalez underscores the influence of the super-rich on political processes, which often skews policies in their favor.
“The super-rich have political power, and they have an incentive to use it for their own benefit, not for the benefit of society,” he says. “Government taxes and social transfers have done a good job at constraining the growth of inequality, but we need to think about how to do that going forward.”
Gonzalez's insights underscore the importance of addressing both the structural factors that perpetuate inequality and the social conflicts that arise from it. By strengthening the welfare state, promoting equitable access to education and implementing progressive tax policies, society can move towards greater economic justice and social cohesion. However, overcoming the entrenched power structures that resist these changes remains a formidable challenge.
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