imc indymedia

Los Angeles Indymedia : Activist News

white themeblack themered themetheme help
About Us Contact Us Calendar Publish RSS
latest news
best of news




A-Infos Radio

Indymedia On Air

Dope-X-Resistance-LA List


IMC Network:

Original Cities africa: ambazonia canarias estrecho / madiaq kenya nigeria south africa canada: hamilton london, ontario maritimes montreal ontario ottawa quebec thunder bay vancouver victoria windsor winnipeg east asia: burma jakarta japan korea manila qc europe: abruzzo alacant andorra antwerpen armenia athens austria barcelona belarus belgium belgrade bristol brussels bulgaria calabria croatia cyprus emilia-romagna estrecho / madiaq euskal herria galiza germany grenoble hungary ireland istanbul italy la plana liege liguria lille linksunten lombardia london madrid malta marseille nantes napoli netherlands nice northern england norway oost-vlaanderen paris/Île-de-france patras piemonte poland portugal roma romania russia saint-petersburg scotland sverige switzerland thessaloniki torun toscana toulouse ukraine united kingdom valencia latin america: argentina bolivia chiapas chile chile sur cmi brasil colombia ecuador mexico peru puerto rico qollasuyu rosario santiago tijuana uruguay valparaiso venezuela venezuela oceania: adelaide aotearoa brisbane burma darwin jakarta manila melbourne perth qc sydney south asia: india mumbai united states: arizona arkansas asheville atlanta austin baltimore big muddy binghamton boston buffalo charlottesville chicago cleveland colorado columbus dc hawaii houston hudson mohawk kansas city la madison maine miami michigan milwaukee minneapolis/st. paul new hampshire new jersey new mexico new orleans north carolina north texas nyc oklahoma philadelphia pittsburgh portland richmond rochester rogue valley saint louis san diego san francisco san francisco bay area santa barbara santa cruz, ca sarasota seattle tampa bay tennessee urbana-champaign vermont western mass worcester west asia: armenia beirut israel palestine process: fbi/legal updates mailing lists process & imc docs tech volunteer projects: print radio satellite tv video regions: oceania united states topics: biotech

Surviving Cities africa: canada: quebec east asia: japan europe: athens barcelona belgium bristol brussels cyprus germany grenoble ireland istanbul lille linksunten nantes netherlands norway portugal united kingdom latin america: argentina cmi brasil rosario oceania: aotearoa united states: austin big muddy binghamton boston chicago columbus la michigan nyc portland rochester saint louis san diego san francisco bay area santa cruz, ca tennessee urbana-champaign worcester west asia: palestine process: fbi/legal updates process & imc docs projects: radio satellite tv
printable version - js reader version - view hidden posts - tags and related articles

The Price of Growth

by Wilfred Herz Friday, May. 05, 2006 at 1:44 AM

In "1984," George Orwell warned that war would become a domestic necessity to divert the people from economic contradictions. Inequality may promote productivity but also undermines public spirit and social ochesion


The economy cannot advance without distinctions between poor and rich. However the economy is endangered if the social tensions are too great.

By Wilfred Herz

[This article published in: DIE ZEIT 14, 3/30/2006 is translated from the German on the World Wide Web,]

Redistribution does not sound neoliberal. “Distribution policy,” the economist wrote, “is an eminently important part of economic policy.” The “interest of social justice,” he urgently appeals to politicians, cannot be “taken seriously enough.” Sometimes one only sees wealth on the TV screen.

Walter Eucken, a law-and-order liberal, wrote these sentences that could be expected in speeches by Oscar Lafontaine or metal union head Jurgen Peters six decades ago –. He was a founder of the Freiburg school that developed the social market economy. He was everything but a redistributor. Still he was convinced that the incomes realized in the competitive economy must be corrected by the state and the differences between poor and rich kept within reasonable limits to promote justice.

Distribution policy and redistribution have been on the index for most politicians and economists for many years. The abstinence has its reasons: the empty public treasuries and the guiding principle of many economists that “inequality is the prerequisite for economic prosperity,” as Hans-Werner Sinn, president of the ifo-Institute formulates.

How great must be the differences of incomes and assets so the German economy can grow more vigorously and employ more persons? Is renunciation on justice the inevitable price Germans must pay for more economic growth? Couldn’t the losers of tomorrow be created with the losers of today?

The trend is clear. Incomes in Germany have already drifted apart for three decades even if the gap is wider in other European countries. According to the sociologist Richard Hauser, the development to more inequality in old Germany started “right after the beginning of mass unemployment in 1974” and was “only interrupted in short-term economic recoveries joined with a decline of unemployment.”

The contrast in assets between poor and rich is much greater than with incomes. The lower half of the population on the income scale earns 30.8 percent of the total net income while only owning 3.8 percent of the assets. The richest tenth pockets 22 percent of the net income but has almost half of the total assets.

The changes since the reunification have been “mainly at the edges of distribution,” as the five economic experts concluded in their 2004 report. Fewer regular full-time jobs, more part-time work, more precarious employment, mini-jobs and spread of the wage structure are registered on the bottom edge. That the wage increases have not equaled the inflation rate is not considered. Real wages are lower today than in 1991.

The exact opposite happens at the top edge. The “advance of income millionaires” was staged there, scandalizing the union-friendly Hans-Bockler foundation. In 1995, eight German corporations had CEOs with salaries of over a million euros. In 2003 there were nearly ten times as many. The executives in the 30-Dax businesses, the heavyweights of the German economy, doubled their earnings within six years.

One contradiction in the argument is very strange. For the lower incomes, employers justify the pressure on wages with the competition intensified by globalization and European liberalization. The same argument is used with the top incomes in an opposite way. The enormous increases are justified – even though a functioning competition would force down all incomes including the incomes of the bosses.

German executives cite top earners in the US as a standard of comparison since they are paid far more extravagantly. Low wage competition from the East threatens the managers – like some of their subordinates. If a manager in Germany earns 247,000 euros, international corporations pay managers of their branches only 74,000 euros in Tschechnya and only 66,000 euros in Hungary. Thomas Straubhaar, president of the Hamburg World Economic Institute explains the development of manager salaries as follows. “Managers are a comparatively scarce asset.” Scarce goods, according to a basic rule of the economy, are now more expensive.

What does justice mean in income distribution? The announcement of executive salaries in the millions regularly sparks off a justice debate – particularly when employees are dismissed or wages of personnel are cut at the same time. “Self-confident citizens,” the sociologist Ralf Dahrendorf explains, regard it as “unbearable when the asses- and income gap diverges more and more. These are typical excesses of a dynamic period.”


Politicians claim to worry about their possibilities for justice but refuse a precise definition of the practical meaning of justice. “All definitions of justice,” the senior leftist SPD Erhard Eppler admits, “remain abstract” and therefore “can be interpreted and manipulated.” All those who proclaimed the motto “What creates work is social” often meant “creating work by offering optimal conditions for global capital: low taxes, no protection against unlawful termination, negligible social security contributions, weak unions and poor wages.” Practically this means: “What was long regarded as socially unjust is socially just.”

Since time immemorial, economists have shirked from exact statements about justice. For hem, justice is not a standard. Instead they measure equality and inequality by income distribution. “Pay in the market economy” occurs “according to the principle of scarcity, not according to the principle of justice,” ifo-head Sinn explains. Therefore economists have left the answer about what is just to sociologists and philosophers. The economy concentrates on becoming more efficient and thus rich, trusting that a “rising tide lifts all boats,” as the American Nobel Prize winner Paul A. Samuelson wrote.


Is increased inequality a bad sign for social cohesion but a good sign for the economy? “A great spread of incomes is connected almost invariably with rising economic growth,” said Thomas Straubhaar of the Hamburg World Economic Institute. However this says nothing about cause and effect as the economics professor Roland Schettkat explains. Does the economy grow because the income differences increase or do income distinctions becomes greater because economic growth increases?

“Incentive pay as stimulation” is undisputed as Eucken wrote. Whoever accomplishes more on the job should be paid more. According to the firm belief of economists , the person strives to accomplish more – and this benefits the whole economy. Whoever has a desired vocation – usually the better trained in a high-tech economy – can demand a higher pay. On the other hand, a harsh wage competition threatens the poorly trained, from t he host of German unemployed or from countries where employees are paid miserably – through immigration, production outsourcing or imports.

Whether a greater inequality in distribution of income makes an economy more efficient and more productive is very controversial today among economists. The economist Nicolas Kalder defended this thesis in the middle of the 20th century. According o his argument, the rich had a higher savings rate than the poor and higher savings rates led to greater total economic output and thus greater economic growth. At the same time the Nobel Prize winner Simon Kuznets developed the Kuznets curve: the inequality of incomes first increases when an economy develops but then decreases – upon reaching a high state of development. However the Kuznets curve is hardly true for industrial countries.

Twenty years later the American Arthur Okun in his book “The Big tradeoff” described the conflict of goals between economic efficiency and just income distribution. In 2002 the American economist Kristin J. Forbes after evaluating data from 45 countries concluded, “A short-term and medium-term increase of income inequality has a significant positive relation to subsequent economic growth.”

In the meantime, many research projects deny this connection or prove the opposite. At a meeting of the Austrian National Bank three years ago, the Swiss scholars Retio Yoelimi and Josef Zweimueller declared only “very slight empirical evidence indicates that greater inequality is favorable for long-term economic growth.” In a paper of the World Bank years before, the idea was defended that excessive distinctions between poor and rich could “hinder economic growth.”

Beatrice Weder di Mauro, one of the five economic experts and the Mainz economist Mathias Oschinski presented another variant. Income distribution is hardly revealing. However inequality in ownership of assets is “negatively correlated with economic growth.” This is not a good sign for Germany since assets are distributed far more unequally than income.

In the long run, intense inequality is a poor breeding ground for growth. The larger the group of the poor with little income or assets, the more serious become the risks:

· With little income, the means for defraying the costs for one’s own education or the children’s education are lacking. Inequality for the next generation is fixed as the Pisa study shows. With great dispersion of income, “little is invested in human capital” (Schettkat) because whether the spending will be later worth the effort is uncertain. From an economic perspective, the potential is not exhausted since talents remain unused.

· Whoever has only little cannot build his or her own firm. He cannot obtain any credit or only a credit at high interest. Thus the chances that more people could become independent and create jobs for others, not only for themselves remain unused.

· When the gap between poor and rich becomes too great, the threatening distribution conflicts could harm economic growth. These conflicts could be carried out in politics in that unaffordable demands are obsequiously fulfilled for election votes. The conflicts around wages could also become sharper in the businesses.

· The danger of protectionism grows when wages fall on account of cheaper foreign competition. Victims of liberalization could force politicians to screen off the economy – even though the economy altogether profits from open borders.

· A higher criminality as a result of polarization can lead to higher costs to secure one’s prosperity and personal protection. Some regions in the United States are already warnings.


In addition, Claus Schaefer from the union-friendly WSI points to short-term consequences of unequal income distribution: “Private incomes needed for consumption will be considerably weakened and incomes not needed for consumption will be strengthened.” In the last years, this had a negative effect on private demand and economic growth.

International experience proves that both ways are entirely possible. An economy can attain higher growth rates with greater inequality and with a more equal income distribution. Four economic models are practiced in Europe – with different success – according to a background paper written by the Belgian economist Andre Sapir for a meeting of European Union economics and finance ministers in the fall of 2005.

According to Sapir who also advises the EU commission, the Scandinavian and continental countries including Germany have more equality. More inequality prevails in the Anglo-Saxon and Mediterranean countries. However the Scandinavians are equal to the Anglo-Saxons in economic efficiency while the continental and Mediterranean countries are lower. The right mixture of taxes, social transfers, job protection, unemployment insurance and education policy is crucial, not the distribution of incomes. The Mediterranean states should orient themselves in the Anglo-Saxon model while Germany and its neighbors in the West should imitate the Nordic states, the economist recommended.

The social consensus, not only alleged economic pressures, decides whether the polarization of incomes in Germany should be promoted or curbed. Germans could avoid a deeper split in society and reduce the distance between poor and rich if they realized further reforms: a reorganization of the tax system including social security, stronger work incentives for the unemployed – at best through a negative income tax – and more money for education, for instance education vouchers for low-income persons as the economist Straubhaar emphasizes. Germans must become as innovative as Scandinavians if they want prosperity for everyone in the future.

Despite globalization, EU-expansion and technical progress, what John Stuart Mill, one of the classical authors, wrote in the middle of the 19th century is still true: Many economic laws could have “something of the character of physical truths. Nothing voluntary, spontaneous or arbitrary is found with them.” This is not true in distribution. “Distribution is the work of human arrangement alone.”

Report this post as:

Local News


lausd whistle blower A10 11:58PM

Website Upgrade A10 3:02AM

Help KCET and UCLA identify 60s-70s Chicano images A04 1:02PM

UCLA Luskin: Casting Youth Justice in a Different Light A02 11:58AM

Change Links April 2018 A01 11:27AM

Nuclear Shutdown News March 2018 M31 6:57PM

Join The Protest Rally in Glendale on April 10, 2018! M29 7:00PM

Join The Protest Rally in Glendale on April 10, 2018! M29 6:38PM

Spring 2018 National Immigrant Solidarity Network News Alert! M19 2:02PM

Anti-Eviction Mapping Project Shows Shocking Eviction Trends in L.A. M16 5:40PM

Steve Mnuchin video at UCLA released M15 12:34AM

Actress and Philanthropist Tanna Frederick Hosts Project Save Our Surf Beach Clean Ups M06 12:10PM

After Being Told He's 'Full of Sh*t' at School Event, Mnuchin Demands UCLA Suppress Video M02 11:44AM

Resolution of the Rent Strike in Boyle Heights M01 6:28PM

What Big Brother Knows About You and What You Can Do About It M01 3:30PM

Step Up As LAPD Chief Charlie Beck Steps Down F14 2:44PM

Our House Grief Support Center Hosts 9th Annual Run For Hope, April 29 F13 12:51PM

Don’t let this LA County Probation Department overhaul proposal sit on the shelf F13 11:04AM

Echo Park Residents Sue LA Over Controversial Development F12 8:51AM

Former Signal Hill police officer pleads guilty in road-rage incident in Irvine F09 10:25PM

Calif. Police Accused of 'Collusion' With Neo-Nazis After Release of Court Documents F09 7:14PM

Center for the Study of Political Graphics exhibit on Police Abuse posters F07 9:50AM

City Agrees to Settle Lawsuit Claiming Pasadena Police Officer Had His Sister Falsely Arre F04 3:17PM

Professor's Study Highlights Health Risks of Urban Oil Drilling F04 12:42PM

Claims paid involving Pasadena Police Department 2014 to present F04 10:52AM

Pasadenans - get your license plate reader records from police F03 11:11PM

LA Times Homicide Report F03 1:57PM

More Local News...

Other/Breaking News

Xyloglossie attitudinale A23 8:07AM

Shadowgun Legends Hack and Cheats A23 7:24AM

What does the Quran Say About Islamic Dress?? A21 4:15PM

Biodiversité ou la nature privatisée A20 11:22AM

The Market is a Universal Totalitarian Religion A20 7:14AM

Book Available about Hispanics and US Civil War by National Park Service A19 5:52PM

The Shortwave Report 04/20/18 Listen Globally! A19 4:01PM

The Republican 'Prolife' Party Is the Party of War, Execution, and Bear Cub Murder A19 11:48AM

Neurogenèse involutive A18 9:21AM

Paraphysique de la dictature étatique A16 10:13AM

Book Review: "The New Bonapartists" A16 3:45AM

The West Must Take the First Steps to Russia A14 12:25PM

Théorie générale de la révolution ou hommage à feu Mikhaïl Bakounine A14 3:30AM

The Shortwave Report 04/13/18 Listen Globally! A12 3:50PM

“Lost in a Dream” Singing Competition Winner to Be Chosen on April 15 for ,000 Prize! A12 3:48PM

The World Dependent on Central Banks A12 4:43AM

Ohio Governor Race: Dennis Kucinich & Richard Cordray Run Against Mike DeWine A11 9:40PM

March 2018 Honduras Coup Again Update A10 10:52PM

Apologie du zadisme insurrectionnel A10 3:33PM

ICE contract with license plate reader company A10 1:14PM

Palimpseste sisyphéen A09 11:23PM

Black Portraiture(S) IV: The Color of Silence...Cuba No...Cambridge Yes A09 5:32AM

Prohibiting Micro-Second Betting on the Exchanges A09 4:18AM

Prosecutors treat Muslims harsher than non-Muslims for the same crimes A08 10:33PM

Amy Goodman interview on cell phone safety A08 10:29PM

Mesa, Arizona police officer kills unarmed white man A08 9:50PM

Israeli leaders should be prosecuted for war crimes A08 9:48PM

Paraphysique de l'autorité A08 12:11AM

More Breaking News...
© 2000-2018 Los Angeles Independent Media Center. Unless otherwise stated by the author, all content is free for non-commercial reuse, reprint, and rebroadcast, on the net and elsewhere. Opinions are those of the contributors and are not necessarily endorsed by the Los Angeles Independent Media Center. Running sf-active v0.9.4 Disclaimer | Privacy