Business World

Wednesday 17 September 2014

Focus on low earners at Davos is a key to economic growth

Simon Kennedy and Elisa Martinuzzi

Published 24/01/2014 | 02:30

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US Secretary of State John Kerry (C) arrives in Davos
US Secretary of State John Kerry (C) arrives in Davos
Greenpeace activists wearing polar bear costumes during a protest outside the World Economic Forum (WEF) in Davos
Greenpeace activists wearing polar bear costumes during a protest outside the World Economic Forum (WEF) in Davos

Reducing inequality is usually the business of protesters locked out of the World Economic Forum in Davos.

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This year, it's the buzzword for the business elite worried about their bottom lines.

As widening income disparity becomes a dominant theme at the annual meeting in the Swiss ski resort, business and financial leaders are making the case that a reversal of that trend is needed as much for business and economic interests as for social and moral reasons.

Failure to narrow the gap risks robbing economies of demand and threatens banks and big businesses with political and regulatory backlashes if voters rebel at squeezed wages.

A Bloomberg poll this week found 58pc view income disparity as a brake on growth, with 68pc urging governments to confront the problem.

"There's a growing recognition that it isn't just an issue you care about because it's an issue you should care about," John Veihmeyer, chairman and chief executive officer of accounting firm KPMG LLP, said in Davos. "It has a very big impact on economic recovery."

Others aren't persuaded that the talk of Davos Man and Woman amounts to more than that. "I don't sense yet a deep transformation on their part," said Jeffrey Sachs, an economist at Columbia University. "Unequal societies perform worse on many measures."

Failure to mitigate the income gap risks undermining economic demand and brewing more populist pressures on governments to protect voters, said Tim Adams, president of the Institute of International Finance, which represents more than 400 financial firms.

"The more wages become stagnant, the more pressure there is to find solutions to growth," said Adams, a former US treasury official. "If workers don't have sufficient income they cannot be consumers."

Inequality is emerging as a key topic of debate as signs advanced economies are accelerating help to ease the concerns of past meetings.

The discussion is refocusing on who may be left behind in the recovery.

The richest 10pc of Americans earned a larger share of income in 2012 than at any time since 1917, according to Emmanuel Saez, an economist at the University of California. Those in the top one-10th of income distribution earned at least $146,000 (€107,000) in 2012, almost 12 times what those in the bottom 10th made.

Irish Independent

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