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December 17, 1999
United for a Fair Economy Reports on a Decade of Disparity
by Phillip Johansson
A new report reveals the growing divide between the rich and poor in the 1990s.
SocialFunds.com --
The record-breaking economic boom of the 1990s has been a bust for many Americans, according to a
report from United for a Fair Economy (UFE), the national organization that advocates positive
solutions for shared prosperity. "Divided Decade: Economic Disparity at the Century's Turn" reveals
how the new prosperity has left behind many Americans, who have suffered from decades of falling
real wages and wealth.
 "This report takes a decade retrospective
look at income and wealth trends," said Chuck Collins, Co-Director of United for a Fair Economy.
"The good news is that wages are finally starting to climb out of a hole. The real weekly median
wage is almost back to what it was worth in 1973 when Richard Nixon was president. The bad news is
the disparity of wealth is at its greatest point since the 1920s."
The recent prosperity
has ironically left Americans more economically polarized. For example, according to the report, in
1989 the United States had a mere 66 billionaires and 31.5 million people living below the poverty
line. A decade later the U.S. has 268 billionaires, almost seven times as many, yet 34.5 million
people still live below the official poverty line: for a three-person family, that's about $13,000,
according to federal guidelines.
During the quarter-century after World War II, nearly
all Americans enjoyed a growing prosperity. Families in every fifth of income distribution saw
their incomes double between 1947 and 1979. But during the following quarter-century, incomes
changed course dramatically. Between 1979 and 1998, according to the UFE report, the top fifth
gained 38 percent, the top 5 percent gaining a colossal 64 percent, while the bottom fifth lost 5
percent of real income.
The UFE report finds that now, at the dawn of the 21st century,
the distribution of wealth has regressed to the perilous inequality of the 1920s. The top 1 percent
of households has more wealth than the entire bottom 95 percent combined, doubling its share of the
nation's wealth since 1977. Meanwhile, the inflation-adjusted net worth of the median household
fell from $54,600 in 1989 to $49,900 in 1997.
Together, the 400 richest Americans are
worth more than $1 trillion in assets--about one-ninth of the total gross domestic product (GDP) of
the United States, the world's largest economy. This prosperous minority could all stay at New
York's Plaza Hotel at the same time--yet they have about as much wealth as the 50 million
households in the bottom half of the population.
"Basically, the rules governing the
economy--global trade policy, tax policy, Federal Reserve policy, public spending, and
regulation--have all benefited asset-owners at the expense of wage earners," said Collins. "The
mechanisms that ensure shared prosperity--the minimum wage, progressive taxation, concern about
full employment--are being weakened or dismantled."
The report warns that the nation's
current prosperity is cruising precariously in a sea of red ink. Despite the appearance of growing
prosperity, total bankruptcies have more than doubled between 1989 and 1999. Total revolving
consumer credit, most of it credit card debt, has more than tripled from 1989 to 1999.
The debt problem is even more serious for consumers. The personal savings rate plummeted from 7
percent in 1993 to 2 percent in third quarter 1999. Nearly one out of five households has zero or
negative net worth (greater debts than assets), compared with one in ten in 1962. In other words,
many households have no savings to tide them over in case of a health crisis or unemployment, much
less save for college or retirement.
The booming stock market is just another example of
the widening economic inequality. The Standard & Poor's 500 Index generated a stunning cumulative
return of 574 percent between January 1, 1989 and December 13, 1999. But almost 90 percent of all
the stock and mutual fund value owned by households is held by the nation's richest 10 percent.
This lopsided economic boom is on the verge of becoming the longest in American history,
but is also in danger of toppling. Typical workers are still catching up with the wages their
counterparts made a quarter century ago. Although women have made progress in pay equity in the
past ten years, the pay gap between CEOs and workers is five times wider than it was at the start
of the decade, and ten times wider than it was two decades ago.
If worker wages had risen
at the pace of productivity, which rose 46.5 percent from 1973 to 1998, the median worker would be
earning $17.27 an hour, rather than $11.29, or $12,438 more a year for full-time workers. Without
actions to make the growing prosperity felt at every level of society, the very foundation of our
nation's economy will be challenged.
"If current trends continue, we will see more
polarization, more concentration of asset-power and influence in fewer and fewer hands," said
Collins. "This poses a threat not only to our democracy, but to our economy. The great depression
was triggered by over-speculation at the top of the economy, and collapsing buying power and loan
defaults by the masses."
The UFE report recommends that our nation make a renewed
commitment to asset-building policies--like the G.I. bill after World War II--that will strengthen
prosperity in the 21st Century. Elements include expanded tax exempt savings programs for low- and
middle-income Americans, a higher minimum wage, expanded Earned Income Credit, policies promoting
wider homeownership, and broadened employee ownership through Employee Stock Ownership Plans and
other means.
The importance of this economic disparity to social investors is two-fold.
Any investor should be concerned about a polarizing economy, because such precarious prosperity
built on consumer debt, stagnant wages, and worker insecurity will affect the long-term health of
our economy and its businesses. But investors with social concerns will find the growing inequity
even more disturbing, as it tears at the fabric of our society.
"As social investors, we
should be calling on company's we own to 'share the wealth,' broaden ownership, reduce pay ratios
within firms, and take a longer view on what's good for the economy," said Collins.
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