Here's how we tackle inequality

Increasing disparities in income and wealth threaten capitalism's sustainability. We as business leaders need to champion ways to improve equality of opportunity, or the nation risks losing support for its unique form of free-market enterprise.

Stephanie Phillips | Getty Images

Free-market economies always generate some inequality. Individuals differ in their abilities and endowments. Investors and innovators who take risks, bring successful ideas to fruition, and create jobs for others are and should be rewarded. Over the long run, free market capitalism has fueled unprecedented prosperity and growth in living standards, and it is the only known pathway to enduring growth.

But capitalism can endure only if its rewards accrue broadly to customers, employees, and the larger community — as well as to owners. Today, capitalism's indisputable benefits aren't being shared broadly enough. By our calculations, inequality has escalated to levels at or near those of 1930, which were the highest on record.

Some of the increased inequality we've experienced over the past few decades is the result of highly successful innovations and investments that yielded high returns for a small number of innovators and investors. However, some of today's inequality also comes from lagging income growth for working Americans. Many individuals and households have not recovered fully from the financial crisis of 2008. Lagging income growth raises questions about the fairness and, in some quarters, even the desirability of our capitalist system.

How do we best address this concern?

Certainly not by trying to enforce equality of outcomes. Economic systems that have tried to do this have failed. Trying to create equal outcomes by significantly curtailing returns for successful investments won't work either. It could lead to reduced innovation, or alternatively to investors pursuing their ideas and creating jobs outside the United States.

Society's primary objective should be equality of opportunity that reduces inequality of outcomes. We should measure our success by the extent to which Americans can support themselves through their own work or entrepreneurship, and we should strive to move people from dependency to self-sufficiency.

Our organization's new report, Tackling Economic Inequality, Boosting Opportunity, details several public policies that, if enacted, would better equalize opportunity. Five reforms are paramount: (1) improving public education to equalize future opportunity, (2) reforming the health care system, (3) reforming the U.S. tax system, (4) eliminating outdated and intrusive regulation, and (5) stopping "crony capitalism."

Improving educational outcomes is the surest path to equalizing opportunity, increasing economic growth, and raising incomes. As a nation, we should expand access to quality early childhood learning, especially for at-risk children. We need increased quality-focused accreditation, qualified teachers, performance measurement, and accountability for results. At the same time, greater availability of care and education will facilitate work for low-wage parents, thus easing inequality in the short-term. Enhancing K-12 performance through high educational standards will ready students for college and ultimately their careers. And on the post secondary front, less expensive, competency-based alternatives to the traditional "seat-time" approach to awarding college degrees and credit will broaden opportunities.

Education takes time to bear fruit. In the meantime, we must be sure that labor is sufficiently compensated. Part of the answer lies in reducing health care's drag on paychecks. Inflation in health care costs has translated into escalating health premiums, which contribute to income inequality by squeezing low-wage workers' paychecks: a standard health-insurance policy premium is a larger percentage of compensation for lower-wage workers than it is for those who make more. Injecting greater competition into our health care system will raise quality at the same time it lowers costs and increases take-home pay.

Our nation needs constructive public dialogue to reform the current tax system. Any reforms must cover the cost of operating the government without stifling economic growth and opportunity. Tax reform that eliminates special tax breaks and reduces tax rates for all can achieve both aims.

We also need to fix regulatory overload. Many U.S. firms, both small and large, face this overload from federal, state, and local governments. It stifles investment and innovation. Just last year, the federal regulatory code alone totaled a record 81,611 pages, which would span 14 miles if laid out page by page. New regulations should be subject to rigorous cost-benefit analysis, and existing regulations should be reviewed on a regular basis to ensure their continued value and relevance.

Business and government must end "crony capitalism," so that existing businesses compete with new and innovative entrants into the marketplace rather than using political connections to cut them off through regulation or legislation.

Equalizing opportunity and building a more dynamic and vibrant economy will raise all members of our society. The public debate over inequality should pull our nation together, not tear it apart. We call on business leaders and all Americans to unite in this challenge of seeking equality of opportunity and prosperity for all.

Commentary by Steve Odland, CEO of the Committee for Economic Development and former CEO of Office Depot and AutoZone. Follow him on Twitter @CEDUpdate and @SteveOdland.

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