Closing the Wealth Gap
The most important economic challenge of our time is the large, and growing, wealth gap. Increasing income disparities and declining opportunities have diminished America’s middle class. On Nov. 6-7, the Closing the Wealth Gap conference was held at UNC Kenan-Flagler Business School in Chapel Hill. The conference was hosted by CREATE, a Kenan Institute-affiliated economic development research center; the Institute for Innovation at the UNC School of Law; and Kenan-Flagler Business School’s Alliance of Minority Business Students.
Featured speakers for the event included Amy Goldstein, Washington Post journalist and author of Janesville: An American Story; Sandra Moore, chief impact officer with Advantage Capital; Winslow Sargeant, former SBA chief counsel for advocacy; and Duwain Pinder, engagement manager at McKinsey and Company and author of the recent Economic Impact of Closing the Racial Wealth Gap report. The conference covered a range of topics, including consequences of wealth inequities in America, the role of investors and financial institutions in closing the wealth gap, practices of other countries with lower income disparities, and place-based solutions to address the issue.
Here, we take a closer look at two of the conference sessions.
The Wealth Gap and the Influence of Demographics, Education, and Policy
In this session, Kenan Institute Executive Director Greg Brown presented a striking overview of the country’s wealth gap. The growth of real GDP across total households in the United States in the last four decades is disproportionately greater than the growth in income of the lowest and middle income quintiles. Meanwhile, the highest income quintile is experiencing sharp gains in wealth. Prosperity is not evenly shared, and market forces continue to crush working-class families. Innovative policy regulation across educational systems and state and federal policy is needed to combat the unnervingly radical wealth concentration at the top of the socioeconomic pyramid.
Dr. Matthieu Despard, associate professor in the Department of Social Work at UNC Greensboro, said that, in the U.S., a distracting and often disconnected set of observations measures the economic well-being of the country, such as interest rates and stock market activity. Despard recommended measuring economic well-being at the household level. He presented statistics showing that one in five low-income Americans say they’ve gone without healthcare because they could not afford it (The Balance, 2019), 59% of households lack emergency savings, and 57% of households say they have trouble covering everyday expenses.
Erika Wilson, Thomas Willis Lambeth Distinguished Chair in Public Policy at the UNC School of Law, focused on education disparities as a bellwether for the wealth gap. In North Carolina, said Wilson, the county-to-county wealth gap has resulted in a large discrepancy in per-student funding, with under-represented groups, such as racial minorities, more severely affected because of the county-to-county demographic distribution. For example, the lowest-spending county (Swain) in North Carolina pays $424 per student, whereas the highest-spending county (Orange) pays $5,025 per student. For more details, see full report here.
Gene Nichol, Boyd Tinsley Distinguished Professor at the UNC School of Law, focused on policy changes at the state level. Tinsley’s short list of changes include higher wages, the expansion of healthcare access, the reinstatement of childcare subsidies, increased access to affordable housing, and the equalization of school funding. Nichol also decried recent policy changes at the state level that he said have regressed any opportunity at closing the wealth gap, such as a refusal to expand Medicaid and the abolishment of the Earned Income Tax credit.
The panelists agreed that the wealth gap is a multi-dimensional fissure that needs to be addressed on a comprehensive spectrum across key policy gaps. Some of the proposals suggested include a universal child savings account, similar to the concept behind baby bonds, which provide a $1,000 nest egg at birth; increasing access to essential training, education, and healthcare; shifting the balance generational wealth transfer; and redrawing boundary lines to create more racially integrated schools.
Technology: The Linchpin of Future Development and how the Wealth Gap is Holding America Back
Technology and innovation are considered both solutions to mitigating the wealth gap and contributors to the issue. On one hand, when tech entrepreneurs found companies, they create jobs within their communities, and serve as a source of income and stability. On the other hand, some of the most shocking wealth disparity can be found in cities with high levels of successful tech startups, like San Francisco, Austin, and Seattle.
John Hardin, executive director of the North Carolina Board of Science, Technology & Innovation with the North Carolina Department of Commerce, kicked off the conversation with a presentation covering his organization’s biennial report that tracks the state’s progress in innovation. According to Hardin, between one-third to one-half of economic growth in the U.S. is attributed to innovation, which can have a two-to-five times multiplier effect across sectors and skill levels.
The report shows that, although North Carolina ranks 21st in innovation in the country, much work still needs to be done to make innovation opportunities more equitable throughout the state. This is supported by the fact that while North Carolina ranks third in the U.S. in terms of research and development spend as a percentage of GDP, it ranks 49th in terms of state appropriations as a percentage of GDP. This demonstrates that while North Carolina is doing an excellent job at supporting its higher education institutions, it is not investing enough in basic education across the state.
These macroeconomic trends were supported by the experience of Tobias Walter, a co-founder of Shoeboxed, which digitizes small business owners’ paper documents. When the company was founded in 2008, Walter said, it was consistently easy to hire on the operations side, but almost impossible to hire developers because of the low salaries associated with being a startup. By the time Shoeboxed was sold in 2018, developers were earning up to $100,000 per year. In stark contrast, operators were making $12 an hour.
Though Walter said he believes technology is a job creator and entrepreneurship and innovation will help close the wealth gap, he recognizes that a major impediment for individuals on the lower end of the economic spectrum is the lack of ability to “create assets that keep on giving.” Lower-income workers have little to no access to assets beyond their salaries.
Amit Singh, founder and CEO of Spectraforce, said he believes technology is an enabler, though he recognizes that technology does not always help distribute wealth equitably, and that with the advent of automation and AI, it can also eliminate jobs. However, Singh sees these new technologies as opportunities. He said the technology of tomorrow will create jobs we cannot imagine today, much as the iPhone spurred the app developer. Our ability to leverage these new technologies for employment, Singh said, “is based on education and how quickly we can train people to fill those gaps.”
While access and education were seen as necessary by the panelists, Hardin cautioned that creating innovative ecosystems in rural areas can be an “uphill battle,” as “global forces are extremely hard to counteract.” He stated that not every community in North Carolina has the opportunity thrive; however, “every community has the opportunity to benefit from those communities that are thriving.” Hardin said he sees government as an enabler that can enhance the free economy through strategic planning, workforce retraining and the offer of hope. “Hope,” Hardin said, “is giving people options they did not know existed, and can go a long way.”
To learn more about CREATE, visit their website.