COLUMN: Focus on equality of opportunity, not outcomes: Summers

Mon Jul 16, 2012 8:45am IST

People wave flags for U.S. Republican presidential candidate Mitt Romney at a campaign rally in Le Claire Park & Bandshell in Davenport, Iowa, June 18, 2012. REUTERS/Larry Downing

People wave flags for U.S. Republican presidential candidate Mitt Romney at a campaign rally in Le Claire Park & Bandshell in Davenport, Iowa, June 18, 2012.

Credit: Reuters/Larry Downing

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(Lawrence H. Summers is the Charles W. Eliot University Professor at Harvard and a former U.S. Treasury Secretary. He speaks and consults widely on economic and financial issues. Any opinions expressed are his own.)

By Lawrence H. Summers

CAMBRIDGE, Massachusetts (Reuters) - Even if the process of economic recovery proves protracted, the American economy will eventually recover, and cyclical issues will cease to dominate the economic conversation. It is likely that issues relating to inequality will move to the forefront. There is no question that income is distributed substantially more unequally than it was a generation ago - with those at the very top gaining share as even the upper middle class loses ground in relative terms. Those with less skill, especially men who in an earlier era would have worked with their hands, are losing ground, not just in relative but in absolute terms.

These issues frame an important part of the economic debate in this election year. Progressives argue that widening inequality jeopardizes the legitimacy of our political and economic system. They contend that at a time when the market is generating more inequality, we should not be shifting tax burdens from those with the highest incomes to the middle class, as has taken place over the last dozen years. And while they recognize that Steve Jobs earned his billions providing great value to consumers and making a substantial contribution to the American and global economies, they also point out that the social value associated with the activities giving rise to many other fortunes, especially in the financial sector, is less apparent.

Conservatives argue that in a world where everything is increasingly mobile, high tax rates run more risk of driving businesses and jobs overseas than they once did. They point out the central role of entrepreneurship in advancing economic growth and note that since most new ventures fail, the returns of success have to be very large if entrepreneurship is going to flourish. They take umbrage at the suggestion implicit in some political rhetoric on inequality that there is something wrong with success on a grand scale. And they worry that policy measures taken to directly combat inequality will have perverse side effects.

Unfortunately, the points on both sides of the argument have considerable force. While I support moves to make the tax system more progressive, the reality is that inequality is likely to remain high and rising even in the face of all that can responsibly be done to increase tax burdens on those with high income and redistribute the proceeds. A variety of measures such as allowing unions to organize without undue reprisals and enhancing shareholders' role in setting executive pay are desirable. But they are unlikely even to hold at bay the trend toward increasing inequality.

Where does this leave the public policy agenda? The track record around the world of populist policies motivated by inequality concerns is hardly encouraging. Equally, passivity in the face of dramatic economic change is unlikely to be viable. Perhaps the focus of debate and policy needs to shift from a focus on inequality in outcomes, where attitudes divide sharply and there are limits to what can be done, to a focus on inequalities in opportunity. It is hard to see who could disagree with the aspiration to equalize opportunity or fail to recognize the manifest inequalities in opportunity today.

By definition, the number of children not born into the top 1 percent who move into the top 1 percent must equal the number of children born into the top 1 percent who move out of it over their lifetime. So a serious program to promote equal opportunity must both seek to enhance opportunity for those not in wealthy families and to address some of the advantages currently enjoyed by the children of the fortunate.

By far the most important step that can be taken to enhance opportunity is to strengthen public education. For the last decade we have focused on assuring that no child is left behind, and this effort must continue. But if we are to assure that everyone has a real chance for great success, we must also make certain that every child in public school can learn as much and go as far as his or her talent permits. This means judging schools on measures beyond simply the fraction of students who exceed some minimum. Over the last 40 years the nation's leading universities have, with the strong encouragement and support of the federal government, made a major effort to recruit, admit, support and graduate minority students. These efforts will and should continue. But as things stand, a minority youth with strong board scores is considerably more likely to apply and be admitted to a top school than a low-income student with the same scores. It is time the nation's leading institutions undertook the kind of focused commitment to economic diversity that they have long mounted for racial diversity.

What about the perpetuation of privilege? Parents always seek to help their children, and it is not realistic to think that privileged parents will do differently. But there is no reason why the estate tax should dwindle relative to the economy at the same time that great fortunes are increasingly dominant. Nor should tax planning techniques that are de facto tax cuts only for those with millions of dollars of income and tens of millions in wealth continue to be legal. It is not realistic to expect that schools and universities that depend on charitable contributions will not be attentive to offspring of their supporters. Perhaps, though, the custom could be established that for each "legacy slot" room would be made for one "opportunity slot".

These are some ideas for advancing equality of opportunity. There are many more. It is an aspiration that those of every political stripe should share. (Editing by James Ledbetter and Sandra Maler)

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