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Gilded-Age wealth gap has returned

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NEWPORT, R.I. -- This symbol of America's Gilded Age with its 70-room "summer cottages" got hammered when the nation came up with a way to reduce the huge gap between rich and poor.

The solution: a brand new income tax in 1914; The First World War and the Great Depression.

It's not an answer many of us would support even though today the gap between the rich and poor in Canada is as big as it was in the 1920s, the last Gilded Age.

In 2008, Statistics Canada reported that from 1980 to 2005 the income of the richest one-fifth of Canadians grew 16.4 per cent while that of the poorest fifth declined 20.6 per cent. At the end of 2009, just 3.8 per cent of Canadian households controlled $1.75 trillion of financial wealth -- 67 per cent of the total.

Last year, while many Canadians were still feeling the effects of the recession, the executive pay of the CEOs of Canada's 100 largest companies benefited from a 13 per cent increase in compensation. The earnings champ: Frank Stronach, the former chairman of Magna International, who got $60 million, just before he left the firm. His daughter, Belinda, got $21 million from Magna.

The new rich are not as noticeable as their counterparts in the first Gilded Ages.

"Globalization has had a big impact," says a Newport high-end jeweller. "Instead of one massive house in Newport, the new Gilded Age rich have homes in four or five countries around the world. And they have yachts in the Mediterranean."

The jeweller is not happy with the new Gilded Agers: "They buy luxury goods where their houses are in foreign countries. America's workers don't get much benefit from them."

America's most recent attempt to narrow the income gap was a stupendous flop. Washington lowered interest rates and turned a blind eye to firms that gave mortgages to people who couldn't afford them. The result was a lot of sub-prime mortgages that triggered a world-wide financial recession in 2008 and 2009.

And here's the sticking point: many of the investments of the rich have revived.

Many of the poor and working poor, however, are still suffering in America from unemployment or under-employment. The housing market in America has yet to recover fully.

But there is some good news: Some left and right wing thinkers are beginning to explore a system that would get more money into the hands of the poor and working poor -- a system based, in part, on an experiment that took place in Manitoba in the 1970s.

A federal-provincial program was set up in a few communities to guarantee people an annual income. Evelyn Forget, a University of Manitoba professor who is now studying the program, says its results are striking.

The idea behind the program was simple. As The Economist magazine says, people in poverty don't have enough money. The answer is to get them more.

In other words, deal with the basic problem directly. Once people have enough money, education outcomes improve and more people stay out of jail and emergency rooms. The Spirit Level, a book that caused a stir in Britain, says countries that have a gulf between rich and poor fare worse in many social indicators such as murder rates and life expectancy.

The benefits of a basic annual income has brought together some of the political right and left. The left like it because the poor and working poor are not hassled by bureaucrats; the right like it because some social programs can be dropped because they are no longer necessary.

In addition, recipients can contribute more to the economy. That's crucial. Canada is heading towards financial problems because in the first three months of this year consumers were only able to contribute 0.1 per cent to the economy's advance.

There's a growing recognition that poverty hurts all Canadians. Tory Senator Hugh Segal says that "over time, we will begin to run out of the money that we need to deal with the demographic bulge because it will be consumed in the health care requirements of the poor, which will increase. It will be consumed in the costs of the illiteracy and unemployment that relate to poverty... And it will be unsustainable."

The poor need a tax break, some argue. Ed Clark, CEO of the Toronto Dominion Bank, told The Globe and Mail: "Why don't we cut the taxes of the most over-taxed people? It isn't Ed Clark. It's the people at the low end because they face the highest marginal tax rates."

Some unions are preparing to campaign for better incomes. This year, the Ontario Public Service Employees Union will join with student groups to communicate the problems of low-income groups such as university students and the working poor.

Finally, the living-wage movement, fostered by the Canadian Centre for Policy Alternatives, has made some progress. B.C.'s New Westminster this spring became the first Canadian city to pass a living-wage policy. The wage is in the $12 to $13 an hour range for a single person, compared to the approximately $10 minimum wage in many provinces. New Westminster's employees will not be affected because they are mostly unionized, but contractors wanting to do business with the city will.

A living wage would help solve Finance Minister Jim Flaherty's basic problem: poor markets for our products and services in Canada. But we're unlikely to see any mention of it in today's budget. The Harper government doesn't have much of a track record for long-range thinking.

Tom Ford is editor of The Issues Network.

Republished from the Winnipeg Free Press print edition June 6, 2011 A10

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