THE BLOG

Fixing Income Inequality Demands New Thinking

03/20/2014 12:58 pm ET | Updated May 20, 2014

Income inequality in the U.S. is now the worst it's been since 1978. The situation is serious enough that the International Monetary Fund -- not exactly a gang of wild-eyed lefties -- recently issued a warning that income inequality threatens overall economic growth in nations that fail to address it.

I get a close-up view of this every day, living in the San Francisco Bay Area. Unless you've been living under a rock for the last couple of years, you've heard that this region has become Ground Zero for battles over income inequality, gentrification, and economic stratification. Piles of tech money and well-paid tech workers have swept into the area, leaving long-time residents not only feeling insecure, but often in real danger of losing their homes as buildings housing rent-controlled apartments are sold out from under them. Community nonprofits are struggling, too, as office rents skyrocket.

The Bay Area may be a particularly dramatic example, but similar changes are happening around the U.S. economic mobility -- the ability to move up the economic ladder if you're born into a low-income household -- has not budged in 50 years, according to a recent study. That prompted Harvard economist Lawrence F. Katz to tell the Washington Post, "Because there's so much inequality, people born near the bottom tend to stay near the bottom, and that's much more consequential than it was 50 years ago."

As I've noted before, the gap is not just about income, it's about wealth -- the savings and assets that make it possible to get through a job loss or having to suddenly relocate because the building where you rent is being sold. And that gap has a disturbing racial component: According to the U.S. Census, for every dollar of wealth a white family has, the median Asian family has about 81 cents, the median Latino family has 7 cents and the median black family has less than 6 cents.

This is untenable -- not just for those on the wrong end of the wealth and income gaps, but for American society as a whole. And it won't be fixed without new thinking.

The problem is not that some people and companies are making lots of money, or even that those people and companies are moving into communities where they haven't had a big presence. The problem is that for those who aren't wealthy, it feels like doorways are closing rather than opening. We need to start opening those doorways to opportunity, and soon.

Some steps are no-brainers: Of course we should raise the minimum wage. The very existence of the phrase "working poor" in this wealthy nation is obscene. And we should fix a broken tax system that gives special advantages to hedge fund managers and which taxes income made by moving money around at a lower rate than income earned by teaching kids, caring for the sick, or building homes or cars. And governments tempted to hand out big tax breaks to attract businesses should "just say no" unless they get firm, enforceable commitments of real benefit to their communities.

These things may not be politically easy -- after all, we got to this point because wealthy interests wanted it this way, and those interests still have disproportionate influence -- but the path is at least clear. But these fixes, important as they are, won't be enough. From both government and the private sector, we need creative thinking and willingness to bust out of old habits.

What kind of new thinking? The sort of thinking you might hear about from someone like Billy Parish, cofounder of Solar Mosaic, which connects investors to small- and medium-sized solar energy projects in need of financing. Thanks to this unique model, schools, nonprofits and affordable housing complexes, among others, get clean solar energy they otherwise wouldn't be able to finance, and workers get good jobs installing the solar projects.

Parish will be speaking April 4 at The Greenlining Institute's annual Economic Summit, which brings together leaders from government, business and community groups to showcase and brainstorm just such thinking.

We'll also hear from the global head of supplier diversity for JPMorgan Chase. That's a job title you may not have heard of, but it's about broadening the base of companies from whom Chase buys goods and services, ensuring that firms owned by people of color, women and other disadvantaged groups get a fair shot at these contracts. You won't see this on the news, but it's hugely important. Entrepreneurship is a one of the best ways to close that wealth gap, and one way to help that happen is for large companies to break out of their traditional "old-boy network" of suppliers and open the doors to diverse businesses that haven't had enough access in the past.

Government has a role to play as well. We know from California's experience with large utility companies that simply bringing transparency to such diverse contracting helps increase it.

The growing economic stratification of our society, so visible in San Francisco and surrounding areas, is not inevitable. It's a problem we can fix, but we will only fix it if business and government are willing to change old habits, think creatively and get to work.