You’ve probably heard the term “income inequality” thrown around on Twitter, cable news or talk radio at some point before. But unless you’ve taken some time to actually look into it, you may not really understand it.
Income inequality is probably bigger than you think. It’s both a symptom and a cause of many of the political conversations that dominate our culture. And it’s one of the most important social issues of our time, relevant to people of all walks of life.
I spoke to Jeremy Harbour, founder of Unity Group and The Harbour Club, to find out what he thought about this issue and how we can solve it. He’s been working to address income inequality for a while and has a unique perspective on what it takes to make this problem go away.
What Is Income Inequality?
At its root, income inequality is simple: it’s how unevenly income is distributed among a population. It has no relevance to how much money people make—a poor country where all residents make similar amounts of money will look similar to a rich country with the same distribution. All it measures is the difference between the top and bottom earning sectors.
The United States in particular has seen income inequality rise over the last several years. The top 10 percent of Americans average more than nine times the income of the bottom 90 percent. It gets even starker when you start breaking down the top earners, going up exponentially until you reach the top 0.1 percent, which is 188 times the income of the bottom 90 percent.
Living standards have risen, but inequality is significant and growing. It’s chalked up to a variety of different causes. The globalization of the economy has contributed as many traditionally high-paying jobs with low education requirements went overseas.
“Many of the lowest income earners have felt the squeeze,” says Harbour. “Globalization, technology and other unavoidable factors of our modern world have changed the entire economic landscape.”
There are plenty of other explanations given for income inequality as well, including deregulation, systemic racism and Federal interest rates affecting the housing market, and which is given the most credence usually depends on where people’s political views lie. Whatever the cause, though, one thing is clear: there’s work to be done to make sure we address it.
Why Does It Matter?
Though income inequality matters less if the overall standard of living is rising, it does have significant social effects. The natural human tendency to “keep up with the Joneses” becomes a lot more destructive when the standard is raised higher, often leading people of lower incomes into problems with debt to keep up their status.
Envy as a structural economic problem sounds a little funny, but it’s the cause of a lot of problems that have trickle-down effects to society as a whole. For example, individuals try to catch up by working so hard that they leave families bereft of parental influence.
Over time, the pressure of inequality forces political movements that work to redistribute wealth and intensifies ideological disagreement. Resentment and a lack of empathy becomes the norm when dealing with people of different economic statuses. Politicians seem to only have one answer to inequality: take money from people who are working and hand it to those who aren’t.
When an entire nation begins to try to live beyond its means, it has effects on savings as well. Lower savings rates often accompany higher income inequality. Real wages stagnate.
And a nation dealing with ballooning income inequality often focuses not on how to make the pie bigger, but how to split up the part that remains more evenly. Over the long term, that can cripple its productivity as people lose purpose in their lives.
“We’ve spent the last several decades laying the groundwork for the current blame that’s levied on business leaders,” says Harbour. “Business leaders are not the problem. The global economy has changed and left people behind, and they’re well aware of it.”
So much money is controlled by asset managers that it’s very easy to get VC funding for a lot of pie-in-the-sky ideas. But most of those ideas never come to fruition. There’s a huge chunk of every nation’s GDP that lies in small- to mid-sized businesses, and this is the sector that creates a lot of wealth. But it’s not a sexy investment, and it comes with different risks.
Getting ahead of income inequality means creating and empowering small business, not just the Amazons and Ubers of the world. It means putting money in the hands of people who are willing to work—the average Joes and Janes of the world that run car washes, build houses, provide childcare and disdain the buzzwords of get-rich-quick finance.
How Can We Solve It?
Harbour decided to take action himself, creating The Harbour Club as an initiative to address the inequality problem in a unique way: by giving people the tools and knowledge to create a better economic future.
“We want to show people how to create value, not just redistribute it,” he says. “Entrepreneurs and small business owners create a huge amount of value for mature economies. In most mature economies, 50 percent of the economy relies on small to medium-size businesses.”
Harbour’s solution is to train people how to build businesses, creating value that can be used as an engine for economic growth. “If these small and medium-size business owners are the lifeblood of the economy, why have they been mostly ignored?” he says. “We have to find a way to reconnect the money with the people that are using it well.”
There are plenty of people out there with decades of experience running profitable, debt-free, mature businesses. There are plenty more who could if given the capital to get off the ground.
And that’s how Harbour believes inequality can be solved.
“We’re on a mission to democratize wealth. We’re doing it not only through The Harbour Club, where we help entrepreneurs and business owners unlock the true capital potential of their businesses, but also through a unique financial model called AgglomerationTM.”
Continues Harbour, “This model allows mature, profitable and debt-free businesses to leverage liquidity and scale opportunities that are available in the public markets. Currently, the listed company to help make this happen is MBH Corp PLC. Those small businesses, when viewed as an investable asset, will take global capital that’s sitting unused and put it to work.”
The United States economy has long been built on a foundation of entrepreneurship and the pioneering, innovating spirit. Harbour and others like him aim to build on that foundation and help people find that value …
Time will tell if they succeed.