Skill Development: How CEOs Can Tackle Income Inequality

The rapid growth in income inequality in America over the past decade is alarming. It threatens our economic and social stability. The income disparity between the top rung and the bottom rung is stark and getting worse. The wealth disparity is even more pronounced. The plight of average Americans will erode trust in capitalism unless we adjust capitalism first. New rent control laws in New York are but one example of the tidal wave ahead.

Americans are struggling to make ends meet – honorable, willing-to-work Americans of all races and backgrounds who are operating at or below the poverty level. Teachers in California living in their cars who cannot afford rent. Former factory workers in small towns across the Midwest scrambling to sell their homes so they can move to cities, and children in blighted urban areas going to school each day more for the breakfast than the education. Those in the bottom ten percent of income earners are barely surviving, but if you think it’s a lot better for the working class and the middle class, you’re wrong. They have not witnessed any meaningful income gains for nearly two decades. The gains of recent years have nearly all accrued to the top 10 percent of income earners, and most specifically, the top 1 percent.

Moreover, intergenerational income mobility, which measures the possibility that a child will earn more than a parent, suggests that less than half of all Americans will outpace the income of their parents. That is different than a few decades ago when nearly all children could expect to earn more than their parents. To the poor, working class, and middle class – just about everyone other than the top 10 percent – this realization is disabling. After all, this is America.

Note that most Americans are not seeking equality – they understand that inequalities will always persist in our system. What scares them is that growing inequality of income and wealth are potential harbingers of a more repugnant condition – inequality of opportunity. Losing the right to improve – that is a real threat to the American dream.

Ray Dalio, CEO of Bridgewater Associates, recently highlighted this concern in his extensive letter to shareholders, as did Larry Fink of Blackrock. Both observed that capitalism is failing to help all members of society in an appropriate manner and might not be sustainable if it fails to become more inclusive. Dalio warns that ignoring this development will likely spark political change and a shift toward socialism.

Yet, we know that capitalism can easily run amok. We have all seen greed flair up across the spectrum, in examples ranging from the dotcom bubble a generation ago to last decade’s rampant credit expansion. The profit motive can become all-consuming, and we too readily characterize the markets as self-adjusting, skipping over the harsh treatment accorded those who lose their jobs and savings. Selective governance is clearly needed if we are to avoid flagrant excesses.

Furthermore, guiding our economic model to foster greater sensitivity to those on the margins will pay enormous dividends later. Increasing the earnings potential of each American will expand the wealth potential for all Americans as more breadwinners and contributors are brought into the economy and not simply relegated to the side of the road, watching as others stream past.

Most importantly, improvements can begin with business – with you. As CEOs, you have a mandate and the power to develop your business in relation to society in ways that are mutually helpful. Raising wage levels is certainly one possible action, but raising skill levels is even more important. Here are three ways to make a difference:

Ask more questions about human capital.

Are you helping employees achieve their full human potential? Are you investing enough in skill development? Do you need to broaden or deepen your model of work so that you provide the broadest set of opportunities possible? Are employees literally running to work every day, eager to demonstrate more of their talent to their customers and colleagues? Sound pie-in-the-sky? It shouldn’t because it actually happens in some companies – just not in the majority. What if we could all multiply the capacity of our businesses by activating more human creativity and energy? Not doing so seems foolish and irresponsible.

Partner with key contributors to your talent ecosystem.

Are you working with high school, community colleges, and universities to provide opportunities for training and familiarization? Are you connecting the learning space to the workplace so that graduates have a better chance at a productive start? Are you investing at scale? If not, ramp up the effort so that the investment really pays off for the company – and all of the participants.

Make your commitment to fairness and society your strategy.

As CEOs, you can guide your businesses to behave responsibly and generously vis-à-vis your communities. Making capitalism work well for all of your stakeholders customers, shareholders, employees, and community members – will attract support from a multitude of sources and enhance the sustainability of your business. Sharing success more widely with more stakeholders could be your most powerful business strategy.

Business leaders can and must play a much larger role in addressing society’s challenges. We control and influence critical levers in the economy, and our policies about jobs, educational opportunities, and health care bear a disproportionately large influence on the continuing development of our human capital as a nation. It is a tragedy to see such a vast proportion of our human capital go to waste. If we harness the full potential of our companies and re-imagine capitalism as a universal benefactor and all of our citizens as beneficiaries, we will open a huge reservoir of possibilities for all, rich and poor alike. The country needs our collective leadership – now.