This Tuesday, President Obama will make economic inequality central to his State of the Union, building on his 2013 description of economic mobility as “the defining challenge of our time … a fundamental threat to the American Dream, our way of life, and what we stand for around the globe.”
Our nation was uniquely founded on the proposition that everyone should have the right to enjoy equal rights, opportunity, and protection under the law. We have always thought of ourselves as a meritocracy — where anyone can fulfill the promise of his innate abilities. The reality of America has, of course, been different. Inequality has been a central challenge in American history, beginning with slavery, and continuing through the bloody battles of the Gilded Age, to the economic hardships of the Great Depression.
Nonetheless, previous generations met these challenges to create a society of greater opportunity for a greater number of Americans. The reforms of the Civil War, Progressive Era, New Deal, Civil Rights Era, and Great Society should leave no doubt that today’s challenges can be overcome if we continue to aspire to the ideals of honesty, fairness, and meritocracy.
Since the beginning of the Great Recession, discussion of economic issues in the U.S. has lacked honesty about the scale of our nation’s challenge. Our economy is no longer producing jobs in the new century. The first decade of the 21stcentury was the first to see an actual decline in American employment, a dramatic change from the 20 million jobs created in the1990s. Even our vaunted entrepreneurial sector has lost its vitality. Since 2009, the startup jobs rate has fallen 30 percent below normal levels. Today, four-and-a-half years after the recession has technically ended, long-term unemployment remains higher than it was at the peak of the brutal 1980-81 recession.
In the recovery from the current recession, 95 percent of the income gains across the entire economy have gone to the wealthiest 1 percent of Americans. For even longer, the economic benefits of increased productivity and technological advancements haven’t been shared equally. Since 1979, the poorest 20 percent has seen real household incomes fall by 12 percent — while household incomes for the wealthiest 5 percent rose by 75 percent.
The most troubling consequence of economic inequality is its impact on economic mobility. The more economically unequal a country is, the harder it becomes for children of the poor to escape the economic fate of their parents. The gap in U.S. test scores between rich and poor children has grown 30 to 40 percent larger than it was 25 years ago. Surely this change doesn’t reflect a real and growing disparity in our children’s inherent intelligence. Instead, it is a stark warning of how sustained inequality will have a real impact on our children’s productivity, self-esteem, and optimism.
A lasting solution to economic inequality can’t come simply from the redistribution of income. Historically, our nation has successfully confronted inequality by expanding opportunity for all Americans to fully utilize their talents. From the first public school in 1643 to the G.I. Bill of 1944, the U.S. has been a leader in creating institutions that expand opportunities and bring us closer to achieving a goal of meritocracy. I have no doubt that we can create similar institutions for the new century.
After a decade of economic stagnation, the time to act is now. In 1933, when unemployment reached a staggering 25 percent, President Roosevelt stated at his inauguration, “…it can be helped, but it can never be helped merely by talking about it. We must act and act quickly.” First, we need leaders, both government and business, to acknowledge the severity of the challenges. From newly elected Mayor De Blasio to Pope Francis, a new generation of leaders is speaking out about inequality. An honest national debate about the stark economic facts that face our society today will enable all of us to know that we can change our course together. Second, we need to return the core principles of honesty and fairness that drove our great historical achievements. Our business leaders need to renew their responsibility to the cities and nation where their companies are based. Our political leaders have to move past polarization and make public investments in education and infrastructure that will enable our country to compete in the global economy. Smart investments in education and infrastructure can help millions of Americans that have suffered the consequences of rising inequality. Harnessing their talents can expand our stagnant economy and make us all better off.
The State of Union is expected to remind us that we can’t just look to Washington to solve our problems. Economic inequality is too critical an issue to wait for our federal government – business leaders, mayors, and citizens across the country need to respond. The great changes in our history have been the result of an energized citizenry, animated by our core ideals and the knowledge that the time for change has come.d.
Donald P. Cogsville is the founder and CEO of The Cogsville Group, a New York City-based private equity real estate firm.