Friday, August 25, 2006

Growing income inequalitiy

What could be happening is that the WWII order was dismantled by Reagan and Thatcher in both the US and UK. By WWII order, I mean the tangle of regulation and large corporate entities that emerged out of the necessity of WWII, to have a concrete example, take AT&T. This deregulation created a fragmentation of firms that previously was impossible due to the necessity of size. Large size was necessary in order to bargain with government and influence regulation (the era of the man in the gray flannel suit). This fragmentation allows successes to be concentrated on smaller groups of individuals, whereas in a large corporate entity they would be reinvested diffused through the wage structure and dividends.

To summarize table A7 (pg. 81), we see the inexorable consumption of the small and medium business by the large corporate entity illustrated in the decline of entrepreneurial income and corresponding increase in wage income in lower percentiles from the fifties to the early eighties (these are still all in the top ten percentiles, so we are taking about shop owners or corporate franchise managers). In the very top percentiles we see the effects of the transfer of power away from corporate boards to corporate executives in the decline of dividend income and increase in wage income over a similar time period. However, by the late eighties there was some force that allowed a resurgence of entrepreneurial income that eventually reverses the trend towards corporatization in lower percentiles and produced an explosion of entrepreneurial income for the highest income earners (raising the level of entrepreneurial income for the top ten-thousandth to levels not seen since WWII).

Of course, it could also be that we reached some sort of technological slip point, where the stagnation that developed under corporate group think finally gave way to a spurt of pent up innovation, bursting through the relief valve of entrepreneurship. But that fails to explain the absence of similar trends in some European countries.


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