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Global Income Distribution: From the Fall of the Berlin Wall to the Great Recession
Since 1988, rapid growth in Asia has lifted billions out of poverty. Incomes at the very top of the world income distribution have also grown rapidly, whereas median incomes in rich countries have grown much more slowly. This posting asks whether these developments, while reducing global income inequality overall, might undermine democracy in rich countries.
The period between the fall of the Berlin Wall and the Great Recession saw probably the most profound reshuffle of individual incomes on the global scale since the Industrial Revolution. This was driven by high growth rates of populous and formerly poor or very poor countries like China, Indonesia, and India; and, on the other hand, by the stagnation or decline of incomes in sub-Saharan Africa and post-communist countries as well as among poorer segments of the population in rich countries.
Anand and Segal (2008) offer a detailed review of the work on global income inequality. In Lakner and Milanovic (2013), we address some of the limitations of these earlier studies and present new results from detailed work on household survey data from about 120 countries over the period 1988–2008. Each country’s distribution is divided into ten deciles (each decile consists of 10% of the national population) according to their per capita disposable income (or consumption). In order to make incomes comparable across countries and time, they are corrected both for domestic inflation and differences in price levels between countries. It is then possible to observe not only how the position of different countries changes over time – as we usually do – but also how the position of various deciles within each country changes. For example, Japan’s top decile remained at the 99th (2nd highest from the top) world percentile, but Japan’s median decile dropped from the 91st to the 88th global percentile. Or, to take another example, the top Chinese urban decile moved from being in the 68th global percentile in 1988 to being in the 83rd global percentile in 2008, thus leapfrogging in the process some 15% of the world population – equivalent to almost a billion people.
When we line up all individuals in the world, from the poorest to the richest (going from left to right on the horizontal axis in Figure 1), and display on the vertical axis the percentage increase in the real income of the equivalent group over the period 1988–2008, we generate a global growth incidence curve – the first of its kind ever, because such data at the global level were not available before. The curve has an unusual supine S shape, indicating that the largest gains were realised by the groups around the global median (50th percentile) and among the global top 1%. But after the global median, the gains rapidly decrease, becoming almost negligible around the 85th–90th global percentiles and then shooting up for the global top 1%. As a result, growth in the income of the top ventile (top 5%) accounted for 44% of the increase in global income between 1988 and 2008.
Fortunes of income deciles in different countries over time
The curve in Figure 1 is drawn using a simple comparison of real income levels at given percentiles of the global income distribution in 1988 and 2008. It is ‘anonymous’ because it does not tell us what happened to the actual people who were at given global income percentiles in the initial year, 1988. In fact, the regional composition of the different global income groups changed radically over time because growth was uneven across regions. A ‘quasi non-anonymous’ growth incidence curve in Figure 2 adjusts for this – the growth rates are calculated for all individual country/deciles at the positions they held in the initial year (1988). The growth rate on the vertical axis (calculated from a non-parametric fit) thus shows how the country/deciles that were poor, middle-class, rich, etc. in 1988 performed over the next 20 years. The supine S shape still remains, although it is now slightly less dramatic.
People around the median almost doubled their real incomes. Not surprisingly, 9 out of 10 such ‘winners’ were from the ‘resurgent Asia’. For example, a person around the middle of the Chinese urban income distribution saw his or her 1988 real income multiplied by a factor of almost 3; someone in the middle of the Indonesian or Thai income distribution by a factor of 2, Indian by a factor of 1.4, etc.
It is perhaps less expected that people who gained the least were almost entirely from the ‘mature economies’ – OECD members that include also a number of former communist countries. But even when the latter are excluded, the overwhelming majority in that group of ‘losers’ are from the ‘old, conventional’ rich world. But not just anyone from the rich world. Rather, the ‘losers’ were predominantly the people who in their countries belong to the lower halves of national income distributions. Those around the median of the German income distribution have gained only 7% in real terms over 20 years; those in the US, 26%. Those in Japan lost out in real terms.
The particular supine S-shaped growth incidence curve (Figure 1) does not allow us to immediately tell whether global inequality might have gone up or down because the gains around the median (which tend to reduce inequality) may be offset by the gains of the global top 1% (which tend to increase inequality). On balance, however, it turns out that the first element dominates, and that global inequality – as measured by most conventional indicators – went down. The global Gini coefficient fell by almost 2 Gini points (from 72.2 to 70.5) during the past 20 years of globalisation. Was it then all for the better?
Probably yes, but not so simply. The striking association of large gains around the median of the global income distribution – received mostly by the Asian populations – and the stagnation of incomes among the poor or lower middle classes in rich countries, naturally opens the question of whether the two are associated. Does the growth of China and India take place on the back of the middle class in rich countries? There are many studies that, for particular types of workers, discuss the substitutability between rich countries’ low-skilled labour and Asian labour embodied in traded goods and services or outsourcing. Global income data do not allow us to establish or reject the causality. But they are quite suggestive that the two phenomena may be related.
A dramatic way to see the change brought by globalisation is to compare the evolution over time of the 2nd US income decile with (say) the Chinese urban 8th decile (Figure 3). Indeed we are comparing relatively poor people in the US with relatively rich people in China, but given the income differences between the two countries, and that the two groups may be thought to be in some kind of global competition, the comparison makes sense. Here we extend the analysis to 2011, using more recent and preliminary data. While the real income of the US 2nd decile has increased by some 20% in a quarter century, the income of China’s 8th decile has been multiplied by a factor of 6.5. The absolute income gap, still significant five years ago, before the onset of the Great Recession, has narrowed substantially.
Political Implications
And even if the causality cannot be established because of many technical difficulties and an inability to define credible counterfactuals, the association between the two cannot pass unnoticed. What, then, are its implications? First, will the bottom incomes of the rich countries continue to stagnate as the rest of China, or later Indonesia, Nigeria, India, etc. follow the upward movement of Chinese workers through the ranks of the global income distribution? Does this imply that the developments that are indeed profoundly positive from the global point of view may prove to be destabilising for individual rich countries?
Second, if we take a simplistic, but effective, view that democracy is correlated with a large and vibrant middle class, its continued hollowing-out in the rich world would, combined with growth of incomes at the top, imply a movement away from democracy and towards forms of plutocracy. Could then the developing countries, with their rising middle classes, become more democratic and the US, with its shrinking middle class, less?
Third, and probably the most difficult: What would such movements, if they continue for a couple of decades, imply for global stability? The formation of a global middle class, or the already perceptible ‘homogenisation’ of the global top 1%, regardless of their nationality, may be both deemed good for world stability and interdependency, and socially bad for individual countries as the rich get ‘delinked’ from their fellow citizens.
Conclusion
In a nutshell, the movements that we witness do not only lead to an economic rebalancing of the East and West – in which both may end up with global output shares close to what they had before the Industrial Revolution – but to a contradiction between the current world order, where political power is concentrated at the level of the nation-state, and the economic forces of globalization which have gone far beyond it.
References
Anand, Sudhir and Paul Segal (2008), “What Do We Know about Global Income Inequality?”, Journal of Economic Literature, 46(1): 57–94.
Lakner, Christoph and Branko Milanovic (2013), “Global income distribution: from the fall of the Berlin Wall to the Great Recession”, World Bank Working Paper No. 6719, December.
Can Democracy Help with Inequality?
Inequality is currently a prominent topic of debate in Western democracies. In democratic countries, we might expect rising inequality to be partially offset by an increase in political support for redistribution. This column argues that the relationship between democracy, redistribution, and inequality is more complicated than that. Elites in newly democratized countries may hold on to power in other ways, the liberalization of occupational choice may increase inequality among previously excluded groups, and the middle classes may redistribute income away from the poor as well as the rich.
There is a great deal of concern at the moment about the consequences of rising levels of inequality in North America and Western Europe. Will this lead to an oligarchisation of the political system, and imperil political and social stability? Many find such dynamics puzzling given that it is happening in democratic countries. In democratic societies, there ought to be political mechanisms that can inhibit or reverse large rises in inequality, most likely through the fiscal system. Indeed, one of the most central models in political economy, due originally to Meltzer and Richard (1981), suggests that high inequality in a democracy should lead the politically powerful (in their model the voter at the median of the income distribution) to vote for higher levels of taxes and redistribution, which would partially offset rising inequality.
But before asking about what happens in a democracy, we could start with some even more fundamental questions. Is it correct factually that democracies redistribute more income than dictatorships? When a country becomes democratic, does this tend to increase redistribution and reduce inequality? The existing scholarship on these questions, though vast, is quite contradictory. Historical studies, such as Acemoglu and Robinson (2000) and Lindert (2004), tend to suggest that democratization increases redistribution and reduces inequality. Using cross-national data, Gil et al. (2004) find no correlation between democracy as measured by the Polity score and any government spending or policy outcome. The evidence on the impact of democracy on inequality is similarly puzzling. An early survey by Sirowy and Inkeles (1990) concludes, “the existing evidence suggests that the level of political democracy as measured at one point in time tends not to be widely associated with lower levels of income inequality” (p. 151), though Rodrik (1999) finds that both the Freedom House and Polity III measures of democracy were positively correlated with average real wages in manufacturing and the share of wages in national income (in specifications that also control for productivity, GDP per capita, and a price index).
In a recent working paper (Acemoglu et al. 2013), we revisit these questions both theoretically and empirically.
Theoretical Nuances
Theoretically, we point out why the relationship between democracy, redistribution, and inequality may be more complex than the discussion above might suggest. First, democracy may be ‘captured’ or ‘constrained’. In particular, even though democracy clearly changes the distribution of de jure power in society, policy outcomes and inequality depend not just on the de jure but also the de facto distribution of power. Acemoglu and Robinson (2008) argue that, under certain circumstances, elites who see their de jure power eroded by democratization may sufficiently increase their investments in de facto power (e.g. via control of local law enforcement, mobilization of non-state armed actors, lobbying, and other means of capturing the party system) in order to continue to control the political process. If so, we would not see much impact of democratization on redistribution and inequality. Similarly, democracy may be constrained by other de jure institutions such as constitutions, conservative political parties, and judiciaries, or by de facto threats of coups, capital flight, or widespread tax evasion by the elite.
Democratization can also result in ‘inequality-increasing market opportunities’. Non-democracy may exclude a large fraction of the population from productive occupations (e.g. skilled occupations) and entrepreneurship (including lucrative contracts), as in Apartheid South Africa or the former Soviet Union. To the extent that there is significant heterogeneity within this population, the freedom to take part in economic activities on a more level playing field with the previous elite may actually increase inequality within the excluded or repressed group, and consequently the entire society.
Finally, consistent with Stigler’s ‘Director’s Law’ (1970), democracy may transfer political power to the middle class, rather than the poor. If so, redistribution may increase and inequality may be curtailed only if the middle class is in favour of such redistribution.
But what are the basic robust facts, and do they support any of these mechanisms?
Empirical Evidence
Cross-sectional (cross-national) regressions, or regressions that do not control for country fixed effects, will be heavily confounded with other factors likely to be simultaneously correlated with democracy and inequality. In our work we therefore focus on a consistent panel of countries, and investigate whether countries that become democratic redistribute more and reduce inequality relative to others. We also focus on a consistent definition of democratization based on Freedom House and Polity indices, building on the work by Papaioannou and Siourounis (2008).
One of the problems of these indices is the significant measurement error, which creates spurious movements in democracy. To minimize the influence of such measurement error, we create a dichotomous measure of democracy using information from both the Freedom House and Polity data sets, as well as other codings of democracies, to resolve ambiguous cases. This leads to a binary measure of democracy for 184 countries annually from 1960 (or post-1960 year of independence) to 2010. We also pay special attention to modeling the dynamics of our outcomes of interest – taxes as a percentage of GDP, and various measures of structural change and inequality.
Our empirical investigation uncovers a number of interesting patterns. First, we find a robust and quantitatively large effect of democracy on tax revenues as a percentage of GDP (and also on total government revenues as a percentage of GDP). The long-run effect of democracy in our preferred specification is about a 16% increase in tax revenues as a fraction of GDP. This pattern is robust to various different econometric techniques and to the inclusion of other potential determinants of taxes, such as unrest, war, and education.
Second, we find an effect of democracy on secondary school enrolment and the extent of structural transformation (e.g. an impact on the nonagricultural shares of employment and output).
Third, however, we find a much more limited effect of democracy on inequality. Even though some measures and some specifications indicate that inequality declines after democratization, there is no robust pattern in the data (certainly nothing comparable to the results on taxes and government revenue). This may reflect the poorer quality of inequality data. But we also suspect it may be related to the more complex, nuanced theoretical relationships between democracy and inequality pointed out above.
Fourth, we investigate whether there are heterogeneous effects of democracy on taxes and inequality consistent with these more nuanced theoretical relationships. The evidence here points to an inequality-increasing impact of democracy in societies with a high degree of land inequality, which we interpret as evidence of (partial) capture of democratic decision-making by landed elites. We also find that inequality increases following a democratisation in relatively nonagricultural societies, and also when the extent of disequalising economic activities is greater in the global economy as measured by US top income shares (though this effect is less robust). These correlations are consistent with the inequality-inducing effects of access to market opportunities created by democracy. We also find that democracy tends to increase inequality and taxation when the middle class are relatively richer compared to the rich and poor. These correlations are consistent with Director’s Law, which suggests that democracy allows the middle class to redistribute from both the rich and the poor to itself.
Conclusions
These results do suggest that some of our basic intuitions about democracy are right – democracy does represent a real shift in political power away from elites that has first-order consequences for redistribution and government policy. But the impact of democracy on inequality may be more limited than one might have expected.
This might be because recent increases in inequality are ‘market-induced’ in the sense of being caused by technological change. But at the same time, our work also suggests reasons why democracy may not counteract inequality. Most importantly, this may be because, as in the Director’s Law, the middle classes use democracy to redistribute to themselves. Nevertheless, since the increase in inequality in the US has been associated with a significant surge in the share of income accruing to the very rich, compared to both the middle class and the poor, Director’s Law-type mechanisms seem unlikely to be able to explain why policy has not changed to counteract this. Clearly other political mechanisms must be at work, the nature of which requires a great deal of research.
References
Acemoglu, Daron and James A Robinson (2000), “Why Did the West Extend the Franchise?”, Quarterly Journal of Economics, 115: 1167–1199.
Acemoglu, Daron and James A Robinson (2008), “Persistence of Power, Elites and Institutions”, The American Economic Review, 98: 267–291.
Daron Acemoglu, Suresh Naidu, Pascual Restrepo, and James A Robinson (2013), “Democracy, Redistribution and Inequality”, NBER Working Paper 19746.
Gil, Ricard, Casey B Mulligan, and Xavier Sala-i-Martin (2004), “Do Democracies have different Public Policies than Nondemocracies?”, Journal of Economic Perspectives, 18: 51–74.
Lindert, Peter H (2004), Growing Public: Social Spending and Economic Growth since the Eighteenth Century, New York: Cambridge University Press.
Meltzer, Allan M and Scott F Richard (1981), “A Rational Theory of the Size of Government”, Journal of Political Economy, 89: 914–927.
Papaioannou, Elias and Gregorios Siourounis (2008), “Democratisation and Growth”, Economic Journal, 118(532): 1520–1551.
Rodrik, Dani (1999), “Democracies Pay Higher Wages”, Quarterly Journal of Economics, 114: 707–738.
Sirowy, Larry and Alex Inkeles (1990), “The Effects of Democracy on Economic Growth and Inequality: A Review”, Studies in Comparative International Development, 25: 126–157.
Stigler, George J (1970), “Director’s Law of public income redistribution”, Journal of Law and Economics, 13: 1–10.
Economics Can’t Avoid Distributional Issues
Economics can’t avoid distributional issues—it must make room for insights from other disciplines
We live in an age of material abundance and social disquietude. A quarter millennium of industrial revolution has produced an awesome increase in prosperity: almost 8 billion people and enough wealth for every one of them to live lives of unprecedented comfort. The problem, of course, is in the distribution.
The rise of economic inequality in the developed world is weighing on growth and straining the fabric of liberal democracy. And economists, who exert a profound influence on public policymaking, have an important role to play in analyzing the inequities of distribution, exploring the consequences, and shaping remedies. The past half century has provided a mountain of data. And in the past decade, particularly among younger economists, there has been a clear surge of interest and engagement.
Just as economists learned to incorporate the growth of knowledge into their understanding of the world, just as they have—for the most part—accepted the need to wrestle with the imperfections of financial markets, so too they now are grappling in earnest with the complexities of distributional questions.
Yet as a careful observer of the discipline of economics—albeit as an outsider looking in through the windows—engagement with these questions seems to me still constrained by a number of factors. Many economists have enduring doubts about the importance of distributional issues. Many are reluctant to become engaged in what they see as normative questions. And intertwined with these doubts and misgivings is the discipline’s disregard for other forms of knowledge, and its lack of diversity.
The field’s long-standing indifference to the distribution of prosperity has come at the particular expense of minorities, and it is no great leap to suggest that a more diverse profession might reach different conclusions. To be sure, this is a premise that offends some economists. Milton Friedman famously insisted that the political views of good economists could not be discerned in their academic work. He lacked the self-awareness to see that his interests, methods, and conclusions were all informed by his life experience—and in this respect, Friedman was just like everyone else.
In some cases, greater diversity may yield greater clarity. In other cases, greater diversity may result in greater confusion, as new voices challenge old certitudes. But that is a kind of clarity too: it will tell us what we don’t know.
Equity vs Efficiency
Inequality is an economic issue. A growing body of research illuminates its importance. The distribution of wealth and income has a meaningful influence on the distribution of opportunity, on the mechanics of the business cycle, and on the pace of innovation. Inequality also distorts public policy, increasing the power of rent-collecting elites and of those seeking aid, while attenuating the sense of shared purpose necessary for public investment in education, infrastructure, and research.
For decades, mainstream economists argued that efforts to address inequality through redistributive policies would come at the expense of growth—what Arthur Okun called “The Big Tradeoff.” But one silver lining to the rise of inequality over the past half century has been the opportunity to study the real-world impact. A number of recent studies, including work by Jonathan D. Ostry and his colleagues at the IMF (Ostry, Loungani, and Berg 2019), find that high levels of inequality actually impede growth.
Yet even among economists who regard this evidence as compelling, one encounters hesitation about incorporating distributional considerations into the advice professors give to policymakers. Economists have long conceived of their role in public policy debates as being “the partisan advocate for efficiency,” in the words of Charles Schultze, an advisor to Presidents Lyndon B. Johnson and Jimmy Carter. One reason is that in championing efficiency, economists think of themselves as representing the interests of the common man and woman. “Without economists in the room, it’s like a free-for-all where everybody is going for their narrow self-interest and there is no voice for efficiency. And what ‘efficiency’ really means is ‘every American citizen,’” said Michael Greenstone, a University of Chicago economist who worked in the Obama administration. The evidence of the past half century strongly suggests that simply advocating for efficiency does not produce the best outcomes for those ordinary men and women. But there is real value in the role, there isn’t anyone else likely to perform it, and therefore it’s reasonable to have some hesitation about the consequences of a diluted focus.
The field’s long-standing indifference to the distribution of prosperity has come at the particular expense of minorities.
Furthermore, many economists profess a reluctance to meddle in what they regard as a political debate about the distribution of economic output. Quite often, the result is that economists finesse the question of distribution by noting that the benefits of more efficient policy could be distributed equitably, whatever that means, but the details should be worked out by the politicians. Paul Romer, a Nobel laureate in economics, argued in a recent essay (Romer 2020) that economists should just “say ‘No’ when government officials look to economists for an answer to a normative question.”
I recognize the appeal of Romer’s advice. Overconfidence is a common attribute in disciplines that reach for practical conclusions. Perhaps it is even a necessary one: after all, choices must be made. But there is an obvious attraction in limiting the scope of the potential damage.
The problem is that normative judgments can’t be avoided.
In the 1980s, for example, most mainstream economists favored the elimination of minimum wage laws. In 1987, my predecessors at the New York Times editorialized in favor of eliminating minimum wage laws, citing “a virtual consensus among economists that the minimum wage is an idea whose time has passed.” This was purely a judgment about economic efficiency. Economists did not pretend to weigh other arguments for minimum wages. But by advocating for a change in policy on the basis of efficiency, they implicitly devalued those arguments. (And, as it happened, even the efficiency argument was wrong. A few years later, two economists took the radical step of gathering evidence and reached a different conclusion. American workers are still suffering the consequences.)
Even economists who embrace in good faith the argument for avoiding distributional advice—especially economists who embrace this argument in good faith—must recognize that, in practice, they are facilitating the exclusion of distributional issues from public debate. A genuine concern about distributional issues requires distribution to be treated as a primary goal of policy, not as a by-product that requires remediation.
It is particularly problematic for economists to advocate for a policy as broadly beneficial if there is no mechanism for a broad distribution of benefits. Economists have often advocated for trade deals by calculating net benefits and deferring questions of distribution. But the second act seldom happens. “The argument was always that the winners could compensate the losers,” the economist Joseph Stiglitz, also a Nobel laureate, told me a few years ago. “But the winners never do.” Huffy, for example, built about 2 million bikes a year in the town of Celina, Ohio, until it moved production to China in 1998 to meet Walmart’s demand for cheaper bikes. There is now a Walmart where the Huffy workers once parked their cars, and everyone in Celina—and everyone in towns across the United States—can buy cheaper bicycles. But the workers lost their jobs, and promises of help went largely unkept. Advocacy for the interest of “the people,” in the abstract, often ends up looking a lot like cruel indifference to actual people.
Cross-pollination
The assertion here is not that economists should aspire to provide comprehensive guidance on the optimal distribution of economic output. They can’t. Cross-pollination with other disciplines has enriched economics, as in the incorporation of insights from psychology; from the work of demographers who look at the spatial dimension of economic activity; and from the examination of the evolution of economic ideas through time. But the goal ought not to be the creation of some hybrid super social science.
Rather, the need is to leave space for other perspectives. Economists can provide better guidance to policymakers by emphasizing the importance of distribution—and the importance of considering other kinds of knowledge.
Cross-pollination with other disciplines has enriched economics. But the goal ought not to be the creation of some hybrid super social science.
A disturbing body of psychological research, for example, documents that economic inequality mimics the effects of absolute poverty on physical and mental health. This isn’t an insight that fits easily into economic models, nor does it need to. The key question is how to make sure that information is incorporated into decision-making alongside economic analysis.
There’s an old saying that there are two kinds of scientists: those trying to understand the world and those trying to change it. The nature of economics places it solidly in the second category, but economists don’t always seem to recognize the implications. Treating distributional issues as segregable is politically naive and therefore tends to limit the beneficial influence of economic ideas. The development economist Gustav Ranis observed that economists struggled to influence policy in many developing nations because they had their priorities backward. Economists emphasized efficiency as the most important goal of public policy while regarding political stability and distributional equity as benefits of the resulting growth. Ranis argued that the list should be reversed. People must agree that policies are equitable and conducive to stability before they are likely to support measures to increase efficiency.
That’s a powerful truth: no matter how well you think you understand the world, you still need to persuade others to listen.
References:
Boushey, Heather. 2019. Unbound: How Inequality Constricts Our Economy and What We Can Do about It. Cambridge, MA: Harvard University Press.
Ostry, Jonathan D., Prakash Loungani, and Andrew Berg. 2019. Confronting Inequality: How Societies Can Choose Inclusive Growth. New York: Columbia University Press.
Payne, Keith B. 2017. The Broken Ladder: How Inequality Affects the Way We Think, Live, and Die. New York: Viking Penguin.
Romer, Paul. 2020. “The Dismal Kingdom: Do Economists Have Too Much Power?” Foreign Affairs (March/April).
Opinions expressed in articles and other materials are those of the authors; they do not necessarily represent the views of the IMF and its Executive Board, or IMF policy.
The Inequality Paradox: Rising Inequalities Nationally, Diminishing Inequality Worldwide
Workers in emerging economies benefitted from globalization and workers in rich countries, on balance, did not. Overturning globalization, however, will neither work nor bring a real improvement to the Western middle classes.
The reason why this article on inequality is being published and the reason why you are reading it is because income and wealth inequalities have risen, often dramatically, in most countries in the world over the past 40 years.
This is a well-known fact which is nevertheless worth emphasizing because the United States is often mistakenly singled out, and the impression is created that such increases were small or non-existent everywhere else. While US inequality did rise substantially—from 34 Gini points at the trough of inequality in 1979 to 41 Gini points in 20161—it was hardly unique.2 Out of seventeen OECD countries for which comparable data are available, fifteen saw an increased inequality in disposable income (that is, income that people receive after social transfers and direct taxes) between the mid-1980s and 2013-15.3
There are some unusual suspects in this group. Israel, which used to be a semi-socialist country, is now as unequal as the United States. Sweden, which some people still see as a paradise of welfare and equality, had the greatest increase of all countries. Denmark, held by Bernie Sanders as the model the United States should emulate, also registered an increase (3 Gini points). Germany, another powerhouse of worker codetermination and collective bargaining, experienced the same increase as Denmark.
And not only did disposable income inequality rise; inequality of market incomes, that is incomes before taxes and transfers, went up by even more. Since market income is composed of wages and property incomes unaffected by direct taxes and social transfers (such as public pensions and welfare), the rise in market income inequality shows that all rich countries were exposed to the same forces of globalization and technological change that tended to push inequality up. At the disposable income level, although inequality went up in all seventeen advanced countries considered here, in some countries it went up less than in others due to differences in economic policy.
A comparison between the United States and Germany is instructive in that regard. The top line in figure 1 shows inequality of market incomes. As can be seen, inequality increased steeply in both countries. Actually, it increased even more steeply in Germany and has recently been at the level of about 55 Gini points in both countries. The bottom line shows what happens to disposable income inequality once social transfers and direct taxes kick in. In both countries, disposable income inequality is less than market income inequality as transfers and taxes help the poor and the middle class.
But the inequality-reducing effect of transfers and taxes is much weaker in the United States. Moreover, until the mid-1990s, their effect was “accommodating” as inequality in both disposable and market incomes went up by about the same amount (shown in parallel upward movements of the two lines in figure 1). In Germany, however, taxes and transfers are more redistributionist, and inequality in disposable income increased significantly less than in market incomes (the bottom line in the figure went up by very little despite the steep rise in the top line).
Why did it happen? In the United States, economic policies until the late 1990s (tax rates, progressiveness of social transfers and the like) remained about the same as they had been when market income inequality was much lower (in the 1970s and 1980s). In other words, policy sometimes accommodated higher inequality rather than offset it. In the case of Germany, policies were deployed to partially curb the rise in market income inequality, and consequently, the bottom line rose much less than the top line.
Thus we come to our first conclusion: While all rich countries were exposed to the same forces of globalization and technological change that tended to push inequality up, and while almost all failed to offset these forces fully, there was still a role for policy. In some cases, policies continued as in the past when the underlying forces of inequality (“the winds of globalization”) were much more benign; in others, pro-poor policies were used to offset them. We shall come back to this conclusion regarding the role of domestic policies.
Rises in inequality were not limited to rich countries. China’s inequality at the beginning of Deng Xiaoping’s reforms in the late 1970s was very low; presently, it is higher than inequality in the United States. In other words, if increase in inequality in the United States is found worrying, so much more is the rise of inequality in China.
However, China has one big “attenuating” circumstance: Its inequality doubled while its real income per capita increased by more than 20 times. Obviously, it is much easier to find increases in inequality acceptable when everybody’s income goes up, and especially when it does so at a rate as high as it did in China.
That was not the case in Russia where, during the Yeltsin years, real income plummeted (even more than during the Great Depression in the United States), and yet inequality increased vertiginously. Russia became the country where the total combined wealth of billionaires was, measured in terms of country’s GDP, the highest in the world.4 Such an increase in inequality, combined with a much lower overall real income, meant impoverishment for many. The humiliation of the many along with huge wealth for the few is what has led to a rejection of the Yeltsin years and an acceptance of Putin’s form of oligarchy.
In India too, inequality increased after the liberalization reforms of 1991. However, similarly to China, higher inequality was accompanied by higher incomes and was thus socially more bearable. Even, and somewhat incredibly, in post-apartheid South Africa (which at the close of the apartheid era was among the most unequal countries in the world), income inequality increased even further. It is a big political issue, as shown by the weakening power of ANC and the increasing prominence of the extreme left-wing Economic Freedom Fighters.
It is thus not surprising that income inequality had become such an important political issue (Barack Obama called it “the defining issue of our times”). If income differences between people increase, if governments are not seen as able or willing to do much, if many high incomes are the product of monopoly rents or corruption, if the middle class is shrinking, one can hardly be surprised at the political salience of inequality.
But what is, at first sight, paradoxical is that such rising inequalities within nations are accompanied by decreasing global inequality—that is, if we look at inequality across all citizens of the world (more than 7 billion of them) and not merely at inequalities within each nation-state as we have done so far. There, using the same indicator of Gini coefficient, global inequality has gone down from more than 70 points in the mid-1980s to some 65 points today.5 It is still enormous, but it is lower than it used to be. Even the proverbially immensely rich global top 1 percent has seen its share of global income diminish after the global recession, from 22 percent in 2008 to 20.4 percent in 2013.6
How did it happen? The answer is simple: The reduction in global inequality was driven by high income growth in heretofore very poor countries like China, India, Vietnam, and Indonesia where almost everybody had seen their incomes increase at a fast clip—much faster than in the rich world. Thus a sort of “global middle class” has been created.
Figure 2 shows this phenomenon through the thickening of the distribution around the middle: There are simply more people in the world with incomes that are around the world median. These are indeed not the people that, in Western perception, would be considered a “middle class” since their incomes are much lower than typical Western middle class incomes, but from the global point of view they are indeed a (large) group sitting right in the middle of the global income distribution and, if the trends continue, likely to move upward. The slowdown of growth (and several years of negative growth) that affected the rich West in the wake of the global recession further helped the convergence of Asian incomes and reduced global income inequality.
Two things are remarkable in the current decline of global income inequality: For the first time in the past 200 years, inequality among world citizens has decreased; and this decrease has taken place while within-national inequalities almost everywhere have gone up. These two facts, translated in terms of winners and losers, mean that workers and the middle classes in emerging economies did well, and workers and the middle classes in the rich world did poorly. Simplifying things a bit, we can say that workers in emerging economies benefitted from globalization and workers in rich countries, on balance, did not. Is there a conflict of interest between the two groups?
The answer is “yes.” And the reason is, I think, obvious. So long as national economies were not fully integrated, and especially so long as several billion workers in China, India, Russia, and elsewhere were not fully part of a global capitalist economy, very different wages for the same kind of labor could be maintained. A French worker was not in direct competition with a Chinese worker. But with globalization, if these two workers produce the same product or have approximately the same skill, they now enter into competition. Whom, if he can choose, is the capitalist going to hire? The answer is obvious: a cheaper worker.
Now, not all workers are in mutual competition: Some are producing so-called non-tradables that cannot be exported or imported (domestic services, legal advice, many medical procedures, etc.), skills of some are complementary to the skills of porer workers (a cheaper Indian accountant would increase the income of a Western self-employed worker), and some are directly competing (Indian and Western accountant, or American and Chinese steelmakers).
What should countries do then? It does not seem that the emerging economies need to do much since, given their wage rates and the type of globalization that exists, things seem to be working to their advantage. This scenario, of course, will not continue forever. As China becomes richer, its wages will rise, and the cost advantage will gradually diminish. We already see the wages of unskilled workers in China rising faster than those of skilled workers, and the gap between Chinese and Western wages is now less than it used to be. But it is also true that China, while the largest country and in that sense the most important competitor of the West, will be followed by other populous and still relatively poor countries like India, Vietnam, Burma, and Ethiopia that could, down the road, present the same competition for Western labor that China does today.
So, the question of what to do poses itself much more forcefully for the rich countries. The knee-jerk answer is to shut down integration and globalization, since those developments are at the origin of the problem. But that intuitive reaction does not take into account that globalization is also at the origin of many income gains in rich countries, that it enables specialization in the areas where countries are more efficient, and that neither slamming of tariffs nor a ban on outsourcing will substantially help domestic workers or overturn the process of globalization that has gone too far. Even the most powerful countries like the United States become “small” when contrasted with the world: It might have been different in the 1950s when US Gross Domestic Product accounted for 40 percent of the world’s output, but today it is only 16 percent.7
Thus, overturning globalization will neither work nor bring a real improvement to the Western middle classes. What will? Only domestic policies whose objective is either direct compensation of those who have lost their jobs, or (much better) greater efforts in matching the new workers’ skills to the demand, and especially in improving the quality and accessibility of education for all. This has been realized to be a problem in the United States where the quality of public education, due to neglect and lack of funds, has deteriorated, and where what used to be probably the best system of public education in the world has slipped much in the rankings (as measured by students’ scores on math and sciences).
There are thus two types of domestic policies that are the remedies for the “ills” of globalization. One is the standard set of redistributionist policies, including higher taxation of the rich and greater benefits for those whose jobs are destroyed. Such policies will allow the bottom line in our figure 1 to remain more or less flat (that is, to register no increase in inequality) even if the underlying inequality (reflected in the top line) continues to go up. They are however merely reactive or palliative policies. The second set of policies that deal with education are more long-term in nature. They will help stop the increase in the top line of figure 1 (market income inequality) by improving skill levels and by better matching the supply and demand of skills. When the increase in the underlying inequality is less, the standard redistributionist policies can be more relaxed too.
But until that happens, both sets of policies should be used: greater direct help for those affected by globalization and longer-term improvements in skills.
Notes
- Calculated from Luxembourg Income Study data, based on US Current Population Survey.
- Gini index, a measure of inequality, ranges from the theoretical value of 0 when all individuals have the same income to an equally theoretical value of 100 when the entire income is received by one person. It is considered that relatively equal countries have Ginis around 30.
- See 2015 OECD report: In It Together: Why Less Inequality Benefits All.
- Calculated from Forbes data.
- Own calculations.
- World Inequality Report 2018.
- Calculated from World Bank data; in Purchasing Power Parity dollars.
Equality, Justice and Other Nonsense
There are different conceptions of “equality”, and “justice”, but only some of these conceptions are commensurate with the institutions of individual liberty, private property, consensual contractualism and personal accountability. This essay argues that classical-liberal thinkers like Adam Smith and John Locke offered superior conceptions of equality and justice than much of the contemporary discourse does. This essay claims that the contemporary use of equality and justice is nonsensical; whereby nonsense is the absence of meaningful denotation and the intentional hiding of subjective normativity.
Sound and Fury
“I have found that words that are loaded with pathos and create a seductive euphoria are most apt to promote nonsense” – The German novelist Günter Grass was not referring neither to equality nor justice in this interview to Der Spiegel on August 20th, 2010. But the warning stands. In the contemporary discourse, both concepts are loaded with pathos. Agents of different persuasion use the seductive euphoria of these terms to promote nonsense, or even worse.
Thomas Piketty, in his 2014 Capital in the Twenty-First Century, is one example. He studies wealth and income inequality in Europe and the US since the 18th century. Piketty claims that inequality is not an accident but rather a feature of capitalism that can be reversed only through state intervention. And further, unless capitalism is reformed, the very democratic order will be threatened. The recipe for capitalism’s reform is a global tax on wealth.
There have been many criticisms of Piketty (2014) for reasons of methodology and his treatment of data, which is rather generous to himself (Sutch 2017, Acemoglu & Robinson 2015). Carlos Góes, an economist with the International Monetary Fund, did not find any empirical confirmation of Piketty’s (2014) central empirical thesis. According to him, when the rate of return on capital (r) is greater than the rate of economic growth (g), over the long term, the result is concentration of wealth. in fact, Góes even identified an opposite trend in 75% of the countries that he studied (Goes 2016).
Nonsense is, in the meaning of this essay, the absence of meaningful denotation and the intentional hiding of subjective normativity. Piketty, in reducing all economic issues to one and not defining his independent variable (capital), puts himself outside the factual, or academic, discourse.
But the most problematic failure of Piketty’s work occurs on a conceptual level. He reduces all economic problems of the past 200 years to inequality. He makes readers think that nothing else matters. Furthermore, he does not define some of his most important concepts, such as capital. Not even the conception of inequality is duly explored: Piketty seems to reduce it to a comparison of results, namely the stocks of (some) capital held by different people. Finally, he does not explore different solutions and their possible impacts on capital itself, its allocation, or distribution. He only suggests one remedy and does not even offer an economic explanation for why or how the tax on wealth reforms capitalism or strengthens the democratic order. Piketty (2014) does also not discuss the impacts of such a tax on private property, contractualism, liberty, and on productivity. To his defense: he does not need to address these issues, because he disregards them. For him, only inequality matters – the rest does not.
Piketty is an example for the nonsensical use of a concept – in this case, equality. Nonsense is, in the meaning of this essay, the absence of meaningful denotation and the intentional hiding of subjective normativity. Piketty, in reducing all economic issues to one and not defining his independent variable (capital), puts himself outside the factual, or academic, discourse. If a model cannot be assessed by a third-party observer and if data can neither be replicated, proven false, nor made plausible, then an argument cannot be convincing by its validity, but only, if anything, by its normativity. Similarly, when Piketty (2014) proposes a wealth-tax without even examining its consequences or alternatives, it becomes clear that his work reflects a personal normative agenda. He uses the concept of equality to hide his normative intentions and to give academic pedigree to his argument.
A similar discourse occurs regarding justice, or its absence. For example, Buchanan & Mathieu (1986) said that “justice is usually said to exist when a person receives that to which he or she is entitled, namely, exactly those benefits and burdens that are due the individual because of his or her particular characteristics and circumstances”. John Rawls’ (1971) theory is that justice is fairness and fairness can be achieved by redistribution. But Rawls is not a crude redistributionist. He echoes Ricardo when he bases his Theory of Justice on two principles. First Principle: Each person is to have an equal right to the most extensive total system of equal basic liberties compatible with a similar system of liberty for all. Second Principle: Social and economic inequalities are to be arranged so that they are both: (a) to the greatest benefit of the least advantaged, consistent with the just savings principle, and (b) attached to offices and positions open to all under conditions of fair equality of opportunity.
However: What is suspicious of being result-oriented thinking in Rawls’ (1971) case, is clearly normative in Buchanan & Mathieu (1986). Neither seems interested in justice, per se, but in policy-prescription. They hide personal normative agendas behind the concept of justice; they create the impression of their own idea of justice as an objective one. And they rely on the moral intuition attached to that term as well as on its apparent objectivity to legitimize the policies they advocate. In both cases, policies are being suggested without alternatives being evaluated and without the consequences of such policies being studied – at least not the consequences for the individual. Note also that both policy prescriptions heavily rely on institutions – as bureaucratic entities with regulators privileged over the individual – administering these policies. At the same time, neither reviews how institutions in their organizational sense and their structures of incentives and power might contribute in making situations unjust.
Nonsensical Discourse
When this essay claims justice and equality to be nonsense, it understands much of the contemporary discourse about it as nonsensical. Instead of evaluating the conceptions of equality or justice, result-oriented thinking and masked normativity guide the contemporary use of these terms. This might be intellectually dishonest, but it is especially perilous to the institutions – in the sense of the rules of grammar of social interaction – that protect and empower the individual: individual liberty, private property, consensual contractualism, and personal accountability.
The interesting turn of events is that classical liberalism was at the vanguard of the advocacy for equality and justice in the 18th and 19th centuries. Both concepts are central to thinkers such as John Lock, David Hume, or Adam Smith. What happened? Why were these concepts, if anything, valid then, and are invalid, nonsensical, or even destructive now?
They hide personal normative agendas behind the concept of justice; they create the impression of their own idea of justice as an objective one. And they rely on the moral intuition attached to that term as well as on its apparent objectivity to legitimize the policies they advocate.
The problem is not the concept, but the conception, i.e. the set of ideas standing behind the terms. In the past 50 years, the framework of reference for both changed radically. These concepts were appropriated by a specific political normativity. Uncovering the change helps to understand why most contemporary talk about equality and justice is nonsensical in the understanding of this paper. But it also points at how to make sense of them. Looking back at the ideas of classic liberal thinkers proposes meaningful alternatives to understanding and using justice and equality – without result-oriented thinking, hidden normativity, and political appropriation.
McIntyre (1988) cautions that:
An analysis of the concepts of justice and rationality contends that unresolved fundamental conflicts exist in our society about what justice requires, because basic disagreement exists regarding what the rational justification is for acting one way rather than another. […] Thus, no such thing exists as a rationality that is not the rationality of some tradition. Aristotle, Augustine, Aquinas, and Hume are four major philosophers who represent rival traditions of inquiry. Each tradition developed within a particular historical context and sought to resolve particular conflicts. Allegiance to one tradition can allow for meaningful contact with other traditions in a way that can lead to understanding, vindication, or revision of that tradition in its continuing form. Thus, only by being grounded in the history of our own and opposing traditions will we be able to restore rationality and intelligibility to our moral attitudes and commitments today.
Going back to the conceptions of justice and equality of classical liberalism is an exercise to enrich and make contemporary discourse better. It offers an alternative view that is neither result-oriented nor particularistic. It is based on liberty, private property, and voluntarism, as well as and guided by the principle of proportionality – which can be summarized by the folksy-ism: “You must not use a steam hammer to crack a nut, if a nutcracker would do (for the reference, see common law case R v Goldstein [1983] 1 WLR 151, 155).”
On Justice
Defining justice is a difficult task. Theories of justice are abundant. It seems that conceptions of justice are bound by culture, historicity, and most importantly, ethical preferences. While some define justice as the pre-established harmony of a society (Plato, Aristotle), others understand it as the product of Divine Command (Bible) or of Nature (Ancient China) or of Natural Law (Scholastics). Yet others take justice to be a human creation, for example either through despotism (Chinese Legalism) or mutual agreement (Rousseau). Then, there are conceptions in which justice only plays the role of a subordinate value, for example in Mill’s utilitarianism. There, justice is just the by-product of social utility-maximization (Fay 1996).
Theories of justice usually focus on distributive, retributive, and pragmatic issues:
- Theories of distributive justice need to answer three questions:
- What goods are to be distributed – e.g. wealth, power, opportunities, etc.?
- Between what entities are they to be distributed – e.g. present people, future people, past people, sentient beings, members of groups, objects, etc.?
- What is the proper distribution – e.g. equal by input, equal by output, equal by process, meritocratic, by property, by status, by need, or can justice even be distributed?
Typical issues in distributive justice are social justice, fairness, property rights, and welfare-maximization. Generally, distributive justice theorists do not answer the question of who has the right to enforce a favored distribution. On the other hand, theories of distributive justice do not necessarily favor a type of distribution. Rather, many of them merely observe and describe distribution patterns according to some conceptions of justice. Other yet observe how distribution changes, as individuals interact. There is also a subset of this group of theories, focusing on the re-distribution of justice. This subset asks how to remedy unjust distributions. This group of theories first tries to identify what an unjust distribution is and then resort to institutions of redistribution – as organizations and/or as grammars of social interaction – tasked with redistribution.
- Theories of retributive justice are concerned with punishment for wrongdoing, and need to answer three questions:
- Why punish?
- Who should be punished?
- What punishment should wrongdoers receive?
Utilitarian theories look at the future consequences of punishment. Some often claim that strict punishment is just because it brings disincentives to wrongdoing. Others claim that lenient punishment is just because it reinforces inclusive social values. Then, there are retributive theories that look back to particular acts of wrongdoing, and attempt to balance them with deserved punishment. Some theories belonging to the redistributionist subgroup attempt arguing for redistribution based on retributive justice, i.e. if a good is unjustly distributed, the unjust distribution is a wrongdoing which must be retributed by redistribution.
- Pragmatic theories of justice are concerned with the application of justice.
For example, which institutions guarantee justice, who is in charge of observing what is unjust, what is the relationship between justice and law, or, which theories of sentencing are there? Pragmatic theories of justice are also interested in the evolution of the conception of justice.
The Complexity of Justice
The uses of the word “justice” criticized in this essay as well as the classic liberal theories discussed in its remainder belong to the first group, distributive justice. Note, again, that this does not by necessity entail a normative desideratum of how justice ought to be distributed – let alone a distribution of justice by organizations of distribution. It merely treats justice as a good and asks how this good is factually encountered or exchanged in a community or society. John Locke (1632 – 1704) claiming justice to be a propriety of the natural rights of humans and Buchanan & Mathieu postulating justice as an entitlement belong both to the group of distributive justice, even if they want justice to do different things.
The problem is not the concept, but the conception, i.e. the set of ideas standing behind the terms. In the past 50 years, the framework of reference for both changed radically. These concepts were appropriated by a specific political normativity.
Note furthermore that all conceptions of justice are based upon assumptions. Some assumptions seem relatively easy to accept, for example the existence of things, the reality of human behavior, or the group-orientation of this behavior. However, many other assumptions prove much more difficult to defend, for example, objective social desiderata, transitive valuation of desiderata and utility, context-independence of justice, or social independence of justice. The problem with most of the difficult and with some of the easy assumptions is that they fail at the individual. They fail to conceptualize justice as something that underlies subjective valuation. While most distributive theories of justice accept that justice is a good, not all of them do conceive this good as something that could have different values depending on its scarcity, context, or the preferences of the individuals involved in the distribution of the good. Instead, most theories of distributive justice imagine justice as a context-independent objective value – a value that can be asserted either by the community, by the society, by experts, or by organizations (Primeaux et al 2003, Sandel 1998).
What does justice being a matter of individual and subjective valuation mean? Firstly, it entails that justice is dependent on the individuals involved in the distribution and exchange of justice. Secondly, it says that the value judgement of those involved will vary from individual to individual, but also from context to context.
For example, Aðaldís is the owner of a bakery in Northern Iceland; without explaining or advertising for it, she lets everyone, customer or not, use the bakery’s toilet. Regina is a first-time customer. She wants to use the washroom but thinks it improper to do so without consuming, so she orders a cup of coffee. Ada is not a customer either; she enters the bakery and uses the toilet without buying anything. If there is no further exchange between them, everyone seems to accept the situation – tacitly – as just.
But imagine a different context: here Regina complains that she feels treated badly, because, to use the washrooms, she felt compelled at buying coffee. Also, Aðaldís might feel unjustly treated by Ada. And if any of them signal their feelings to Ada, even Ada might judge having been treated unjustly, because there were no signs of the obligation to consume in order to use the toilet prior to its use; or she might feel entitled to using the washroom and perceives therefore any attempt of preventing her from doing so as unjust. In this example, however, the three have possibilities of dealing with their individual judgements of justice. These possibilities entail exchange; for example, the exchange of money, the exchange of information, and the exchange of rules.
As far as the first is concerned, Aðaldís could set a fee for using the toilet. In the second case, she could put up a sign telling the rules of washroom-use. If she does not, she thinks that non-customers using the toilet is just, or she is just indifferent to it. But Ada and Regina alike could engage in the exchange of money and information. Ada could try to reason with either Aðaldís and / or Regina. If either makes a case and the others accept it, who is to say that the solution is unjust? In any case, there are different ways of dealing with the situation and the different, maybe divergent judgements of what is unjust. But what if no conclusion is reached? What if Ada, for example, still feels treated unjustly? What if Aðaldís wants to treat Ada and Regina differently, which leads Regina to feel unjustly treated?
While the appreciation of justice is dependent on context and individual valuation, the remedies against its distributions that are perceived as unjust are not. There are institutions – grammars of social interactions – that at the same time enable different valuations of justice and ward off incursions into an individual’s valuation, if that individual has an ultimately legitimate claim to ward off the incursion. The individual with the legitimate claim in the sense of the grammar of social interactions will be better equipped to implement its valuation of justice, trumping others while doing so.
While some define justice as the pre-established harmony of a society (Plato, Aristotle), others understand it as the product of Divine Command (Bible) or of Nature (Ancient China) or of Natural Law (Scholastics). Yet others take justice to be a human creation, for example either through despotism (Chinese Legalism) or mutual agreement (Rousseau). Then, there are conceptions in which justice only plays the role of a subordinate value, for example in Mill’s utilitarianism. There, justice is just the by-product of social utility-maximization.
In the example above: Aðaldís could resort to her property rights to impose her view on justice. It could either be letting everyone use the toilet or not, charging for the use of the washroom or not, differentiating between who can use, or even banning Regina from the bakery for complaining. Because of Aðaldís’ legitimate claim to private property, one of the main aspects of the grammar for social interaction, her subjective valuation of justice can prevail, albeit only in the context of her bakery. This does not mean that the other two individuals will accept Aðaldís’ decision as just. Perhaps they will do so; but due to the context they at least have to accept the hostess’ legitimate claim to the grammar of social interaction. Despite their individual valuation of the situation, they can react to the prevailing view, for example by seeking other bakeries or by turning into regulars. Finally, as context changes, valuations change. Maybe a massive inflow of tourists leads the baker to reconsider her position.
This example shows that the ensemble of individual valuation, discourse, exchange and claims basing on the grammar of social interaction makes the situation justice-apt. The valuation of justice is subjective, but the exchange of it is intersubjective. While the valuation is context dependent, the exchange relies on the grammar of social interaction, which, in turns, takes the context into account.
Virtues and Justice
Justice being a subjectively valued good does not entail absolute relativism, as far as classical liberalism is concerned. Instead of focusing on inputs, processes, and outputs – these being all a matter for subjective valuation and intersubjective transactionalism –, classical liberalism pivots on the moral character of the individual. After all, it is the individual that seeks justice and therefore wants to act justly, at least in a given context. Most importantly, this vision of justice captures an important intuition and institution: (Some) Individuals just want to do the “right thing”. The “right thing” depends on the individual’s circumstances, possibilities, and judgement. Since it will be the individual’s character guiding the person through these situations, according to many conceptions of classical liberalism, justice is a subjectively valued good but also a virtue of the individual.
There is no confusion in the double use of the same term. While justice, as a good, is the result of a context-sensitive subjective valuation by the individual, that individual can make that judgement on the basis of the virtue of justice. It is the strength of an individual’s character that allows for the subjective valuation of the justice of a given situation.
Virtues are the traits or strengths of character of individuals. (Vices, on the other hand, are the weaknesses of character). A virtue is a disposition, well entrenched in its possessor – something that “goes all the way down”, unlike a habit – to notice, expect, value, feel, desire, choose, act, and react in certain characteristic ways. To possess a virtue is to be a certain sort of person with a certain complex mindset. Possessing a virtue is a matter of degree. To possess such a disposition fully is to possess full or perfect virtue, which is rare, and there are several ways of falling short of this ideal. Most people who can be described as virtuous, and certainly markedly better than those who can truly be described as dishonest, self-centered and greedy, still have their blind spots – little areas where they do not act for the reasons one would expect. So, someone honest or kind in most situations, and notably so in demanding ones, may nevertheless be trivially tainted by snobbery, inclined to be disingenuous about their forebears and less than kind to strangers with the wrong accent.
Practical wisdom goes hand in hand with virtue. It is the individual’s capability of recognizing the context in which to act and which virtue to privilege. Generally, given that good intentions are intentions to act well or “do the right thing”, practical wisdom is the knowledge or understanding that enables its possessor to do just that, in a (or any) given situation (for a more complete discussion of virtue ethics, virtues, and practical wisdom, refer to Snow (2010) and (2015)).
Justice was already considered a virtue by Adam Smith (1723 – 1790). The author of The Wealth of Nations as well as The Theory of Moral Sentiments can be read as a virtue-ethicist (see Schneider (2018, forthcoming), McCloskey (2006), and Griswold (1999)). In fact, in both books and in the collection of essays and lectures later named The Theory of Jurisprudence, Smith stresses five virtues, which he understands as strengths of character: love, courage, temperance, justice, and self-interested prudence (which are different from the medieval set, the Cardinal and the Christian virtues: Prudence, Justice, Fortitude or Courage, Temperance, and Faith, Hope, Love).
In Smith’s work, justice is not a social desideratum neither is it an objective outcome. It is the capability of the individual to “do the right thing” in each context and under particular constraints. In fact, whether someone acts justly, or not, is something that can only be assessed in terms of introspection and of inter-subjective scrutiny. For Smith, there is no distribution, institution, institute, process, or outcome that is just or leads to justice (as an abstract term or theory). Justice is the strength of character of the individual and it is the individual that acts justly in given situations. Smith contends that there is a long-termed convergence of the individuals’ abstract notion of justice in The Theory of Moral Sentiments (1759). There, his theory of the impartial observer asserts some form of ethical convergence of virtues. But as the application of virtue to a specific circumstance is, as the observer is, too, a matter for the individual, there is only the long-term convergence because of actions by the individuals.
Adam Smith on Justice
In The Wealth of Nations, Smith defines natural liberty using justice (1776, 311):
“Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man”.
A not careful reading could suggest, here, that Smith is thinking about a justice rulebook. But in other passages of The Wealth of Nations, he makes it clear that justice is an infinite set of permissible actions that depend only on the agent. It does not mean that the induvial is free to do anything and rationalize actions as just. But it means that it is the individual that judges which virtue to apply, and how to apply it. It is the individual that values justice in a specific context and given the different courses of action to take. Justice, for Smith, is also the individual’s commitment to the negative of his proposition on injustice, which states that improperly motivated (that is, intentionally) hurtful actions alone deserve punishment because they are the objects of a widely shared sense of resentment.
By the way, The Wealth of Nations reserves a whole book to jurisprudence – which Adam Smith confusingly calls justice, or the administration of justice – in which the improperly motivated actions are treated. In this book, he makes it clear, again, that despite the individual valuation of justice – or the failure in doing so – there are instruments like the grammar of social exchanges, that lie outside the scope of virtue to give way to a person’s legitimate claims, especially private property.
Smith sees society as seeking human socio-economic betterment through the control of actions that common experience leads to judge as hurtful rather than through collective actions designed to achieve future conjectured benefits. The latter is uncertain and fraught with unintended consequences; moreover, to his appreciation, history is full of examples of grandiose failures in the name of objective desiderata disguised as justice. The former relies on natural impulses for individuals and assemblies to pursue betterment, risking only their own resources; this framework led him to oppose slavery, colonialism, empire, mercantilism, and taxation without representation at a time when such views were unpopular.
In Smith’s work, justice is not a social desideratum neither is it an objective outcome. It is the capability of the individual to “do the right thing” in each context and under particular constraints.
Also – and as every virtue-ethicist – in Smith’s thought, the individual never acts on one virtue alone. The virtuous individual knows how to combine all the strengths of character to address the specific situation. Smith’s analogy of writing, and his use of it to contrast justice with the rest of the virtues, is one of the most important parts of The Theory of Moral Sentiments. He considers how precision and vagueness, clear rules and ambiguous ideals, both have important roles to play in moral judgment (1759, 3, VI,11):
The rules of justice may be compared to the rules of grammar; the rules of the other virtues, to the rules which critics lay down for the attainment of what is sublime and elegant in composition. The one, are precise, accurate, and indispensable. The other, are loose, vague, and indeterminate, and present us rather with a general idea of the perfection we ought to aim at, than afford us any certain and infallible directions for acquiring it. A man may learn to write grammatically by rule, with the most absolute infallibility; and so, perhaps, he may be taught to act justly. But there are no rules whose observance will infallibly lead us to the attainment of elegance or sublimity in writing; though there are some which may help us, in some measure, to correct and ascertain the vague ideas which we might otherwise have entertained of those perfections. And there are no rules by the knowledge of which we can infallibly be taught to act upon all occasions with prudence, with just magnanimity, or proper beneficence: though there are some which may enable us to correct and ascertain, in several respects, the imperfect ideas which we might otherwise have entertained of those virtues.
Adam Smith’s and the classic-liberal approach to justice is in many ways less problematic than the contemporary discourse. It is less bound by unrealistic assumptions such as an ultimate objectivity of justice, or the organizational administration of the redistribution of justice. Considering justice as a good underlying subjective valuation and as a strength of character of the agent captures important notions of how individuals act without prejudging outcomes. On the other hand, it burdens individuals with responsibility. If justice is a strength of character, every individual becomes challenged by the own idea of justice in action and is therefore held accountable in every single action. In this view, justice cannot be outsourced to society, to organizations, or to government; justice is an immediate value and motivator of the individual in action.
On Equality
This second term employed with seductive euphoria in the contemporary discourse is no less of a problem than the first. Equality, too, underwent some changes in its meaning over time. While it long ago meant equal obligation to follow the social desiderata pre-determined by nature and unveiled by the Logos (Ancient Greece), it was also understood as an isonomy of power relations among chieftains (Scotland, Iceland), clans (Mongols), aristocrats (most European monarchies and city-states) or as an equal subordination under a monarch (Qin and Tang China). Equality could furthermore be understood as an equitable value of human life (Hebrew Bible) (Siedentop 2014).
At the latest in 16th century Europe, the idea that all people – at least all men – were created equal and therefore had equal claims to political rights became widespread. There was, however, considerable discussion about the implication of the claim. One of the most intrepid theorists of equality was the classical liberal John Locke. To his mind, equality is a property of the human being and the basis of the individual’s political and judiical rights – and namely it is not an adjective to outcomes, disparities, or processes (Waldron 2002).
Justice burdens individuals with responsibility. If justice is a strength of character, every individual becomes challenged by the own idea of justice in action and is therefore held accountable in every single action. In this view, justice cannot be outsourced to society, to organizations, or to government; justice is an immediate value and motivator of the individual in action.
Locke sponsors equality on the grounds that all people are created equal and therefore share the same liberty. As fellows in liberty, people should treat each other as equally free – namely not as subjects, subordinates, unfree, or slaves. As the basic condition of human life, equality enables people to deal with themselves and each other on a “level playing field”. It specially enables them to engage in the exchange of views and goods. This exchange being freely guided by valuations and merits and not by the supposed entitlements of a few in function of their birthright or state. In short, equality in Locke is a basic condition of life; all individuals have the same liberty, and property over themselves – this is equality. Locke’s problem is, then, how to maintain this absolute and equal liberty of the individual in a society? He solves his problem by examining the creation of society.
Locke begins with a thought experiment stipulating pure equality and liberty of all people in a “state of nature”. Equality, in his sense of the term, means that all people have equal individual liberties. It does not mean equal resources, or equal outcomes; it does not even mean that all have the same initial opportunities; it just means that all are equally free. Locke is quite outspoken about equality not being the absence of inequality of outcomes:
Though I have said above, Chap. II. that all men by nature are equal, I cannot be supposed to understand all sorts of equality: age or virtue may give men a just precedency: excellency of parts and merit may place others above the common level: birth may subject some, and alliance or benefits others, to pay an observance to those to whom nature, gratitude, or other respects, may have made it due: and yet all this consists with the equality, which all men are in, in respect of jurisdiction or dominion one over another; which was the equality I there spoke of, as proper to the business in hand, being that equal right, that every man hath, to his natural freedom, without being subjected to the will or authority of any other man (Locke, second Treatise, 54).
In the “state of nature”, equality empowers any individual to try anything as long as it does not interfere with any other individual. Equality also gives the individual the power to ward off incursions by others on their property, since no person can without consent be subordinated to another. Any attempt at curtailing someone’s property is, in Locke’s view, an aggravation against the person’s liberty, disrespecting equality. In this “state of nature”, Locke pictures people being guided the laws of nature as God intended them to be – the philosopher was, however, not too critical of his own reading of the Bible, which was quite literal. He begins his Second Treatise of Government establishing as truths of nature mainly that God is the creator and that he did not grant superiority to any individuals. “In races of mankind and families of the world, there remains not to one above another, the least pretence to be the eldest house” (Locke, Second Treatise, 1).
The Polity
Locke discards the notion of royal or noble superiority and sponsors, instead, the idea of equal liberties of all individuals. In the “state of nature” where all individuals are equal in their liberty, these individuals can find each other and voluntarily exchange goods, information, or even create groups. The freely created groups of equals develop, of course, their own version of a grammar for social interaction. If this set of rules becomes mandatory to the members of the group, it does so because the members freely opted into the group and can freely opt out. In these voluntaristic contracts forming groups – established by individuals dealing with each other on grounds of equality – Locke sees the beginnings of the polity. As it is the case with any contract, the basis of the social contract lies in mutual consent, and individuals, coming from a state of “perfect freedom” – i.e. the equal distribution of freedom in its absolute sense, would not be willing to settle for less when they leave this “state of nature” when they form groups and especially when they agree to create the polity through a social contract.
The Lockean meaning of equality entails equality before the law and the general rules of society and it necessarily excludes any claim by any member of the polity on results, entitlements, or even transactional chances – these types of claim, for Locke are profoundly unjust and lead to inequality.
The transition, from the “state of nature” to community, society, or polity fundamentally builds upon this idea that equality is the equal distribution of absolute liberty. In forming a polity, the parties of the contract transform their liberties into clauses of rights, more specifically, the rights to ward off non-agreed interventions of this polity on personal freedoms as well as any incursions by other individuals. Interventions and incursions are not only problematic per se, they also distort the equality of liberties:
Man being born, as has been proved, with a title to perfect freedom, and an uncontrolled enjoyment of all the rights and privileges of the law of nature, equally with any other man, or number of men in the world, hath by nature a power, not only to preserve his property, that is, his life, liberty and estate, against the injuries and attempts of other men; but to judge of, and punish the breaches of that law in others, as he is persuaded the offence deserves, even with death itself, in crimes where the heinousness of the fact, in his opinion, requires it. But because no political society can be, nor subsist, without having in itself the power to preserve the property, and in order thereunto, punish the offences of all those of that society; there, and there only is political society, where every one of the members hath quitted this natural power, resigned it up into the hands of the community in all cases that exclude him not from appealing for protection to the law established by it. And thus all private judgment of every particular member being excluded, the community comes to be umpire, by settled standing rules, indifferent, and the same to all parties; and by men having authority from the community, for the execution of those rules, decides all the differences that may happen between any members of that society concerning any matter of right; and punishes those offences which any member hath committed against the society, with such penalties as the law has established: whereby it is easy to discern, who are, and who are not, in political society together. Those who are united into one body, and have a common established law and judicature to appeal to, with authority to decide controversies between them, and punish offenders, are in civil society one with another: but those who have no such common appeal, I mean on earth, are still in the state of nature, each being, where there is no other, judge for himself, and executioner; which is, as I have before shewed it, the perfect state of nature (Locke, Second Treatise, 87).
Because the individual is free and equal in the “state of nature”, there must be an assurance of continuing freedom as the individual enters society. Thus, for Locke, the establishment of the polity occurs on the basis of assured equal liberties without which there would be no incentive to enter into society. This assurance occurs by making the individuals’ rights part of the social contract. Natural equality transitions as people leave the “state of nature” and form a society and a polity. Once the polity is established, equality becomes a constraint to the polity’s organizational design. Equality, in what later would be called status negativus, gives individuals the right to use institutional instruments – be them rules of the grammar of social interaction or the organization of the polity, or both – to which they have a legitimate claim to ward off intrusions by the polity and incursions by other individuals.
Equality is the driving force of Locke’s political theory because it is the basis for a consensual participation in society of equally free people, a prerequisite for the establishment of any polity. As such, equality is not just necessary in the establishment of government but also a protection of the citizen against this polity, once it is set up. The Lockean meaning of equality entails equality before the law and the general rules of society and it necessarily excludes any claim by any member of the polity on results, entitlements, or even transactional chances – these types of claim, for Locke are profoundly unjust and lead to inequality.
Locke’s idea stands in sharp contrast to more recent conceptualizations of equality, for example as ex-post or ex-ante states of affairs, results, social desiderata and so on. In fact, these more recent notions do contradict the Lockean view in many instances. Establishing equality ex post automatically disrespects the equality before the law of some; guaranteeing equality ex ante equally hurts the idea that every person has the same rights. Any intervention of the polity on the liberties of an individual hurts equality, unless the particular incursion has been explicitly agreed upon by the concerned individual. It hurts equality because it turns the individual into a subject, the very definition of inequality, according to Locke.
Locke’s ideas have been reviewed here because his conception of equality respects the principle of proportionality and does not hide its normative component. Granted, it is attached to normative presuppositions, but these are made transparent. To regard all people as free and equal is a normative assumption of classical liberalism. It is the operationalization of this conception of equality that remains free of normativity and respects a diversity of individuals as well as a plurality of outcomes. It is not prejudging the result; it respects the decisions made by equally free but differently-willed, capable, endowed, ingenuous, industrious, or lucky people. At the same time, it holds these individuals accountable to their decisions, even or especially in cases in which the decisions led to negative outcomes to the agent. Locke’s conception is undetermined and open textured and as such compatible with a free society.
Sense
The contemporary discourse on equality and justice is nonsensical: it uses these two concepts not to study them, but to hide normative preferences which lead to policy prescriptions. Since the contemporary conceptions of justice often generalize personal preferences by those putting them forward, they do injustice to individuals. Often, these generalized opinions about outcomes hurt liberties, property, and consensual contractualism. Additionally, these objectifications of personal values set aside the grammar of social interaction replacing it with the “rulebook” of an organization tasked with administering equality and justice. This move leads, per se, to the dehumanization of these conceptions.
When the terms “equality” and “justice” are just used as academic cover-ups for advancing particularistic agendas, they become nonsense, or mal-sense.
On the other hand, the classical liberal conception of justice as a good that is subjectively valued and dealt with according to individual virtues is much less normative. It is also less intrusive allowing for a plurality of outcomes mirroring the diversity of individuals. In addition, the classical liberal understanding of equality as the unconditional freedom which is equally distributed among all people is a proportionate way of committing to equality while allowing for individual development. This conception is made operational by the rights of individuals to ward off intrusions by the polity as well as incursions by other individuals, foremost on their private property.
Equality and justice are important concepts in the classic liberal discourse. They are important because they make sense in offering the individual an un-determined, open-textured, and level playing field in which each can act freely and be held fully accountable for the actions. A meaningful way of conceptualizing both terms maximizes individual liberty, private property, consensual contractualism and personal accountability. When, however, the terms “equality” and “justice” are just used as academic cover-ups for advancing particularistic agendas, they become nonsense, or mal-sense.
References
Acemoglu, D. & Robinson, J. (2015). The Rise and Decline of General Laws of Capitalism. Journal of Economic Perspectives, 29(1), 3–28.
Buchanan, A., & Mathieu, D. (1986). Philosophy and justice. In Justice (pp. 11-45). Springer US.
Fay, B. (1996).Contemporary philosophy of social science: A multicultural approach. Oxford: Blackwell.
Góes, C. (2016).Testing Piketty’s Hypothesis on the Drivers of Income Inequality: Evidence from Panel VARs with Heterogeneous Dynamics. International Monetary Fund working paper 16160.
Griswold, C. L. (1999). Adam Smith and the virtues of enlightenment. Cambridge University Press.
Locke, J. (1698, 1946). The second treatise of civil government: And a letter concerning toleration. B. Blackwell.
MacIntyre, A. C. (1988). Whose justice? Which rationality? University of Notre Dame Press.
McCloskey, D. N. (2006). Bourgeois Virtue. University of Chicago Press.
Piketty, T. (2014). Capital in the Twenty-First Century. Belknap Press.
Primeaux, P. S., Karri, R., & Caldwell, C. (2003). Cultural insights to justice: A theoretical perspective through a subjective lens. Journal of Business Ethics, 46(2), 187-199.
Rawls, J. (1971). A Theory of Justice. Belknap Press.
Sandel, M. J. (1998). Liberalism and the Limits of Justice. Cambridge University Press.
Schneider, H. (2018). Virtues Matter: The interested self in Adam Smith and Confucius. Dao, forthcoming.
Siedentop, L. (2014). Inventing the individual: The origins of Western liberalism. Harvard University Press.
Smith, A. (1759). The theory of moral sentiments. Raphael, D & MacFie, A. (eds.), Liberty Fund.
Smith, A. (1776). An Inquiry into the Nature and Causes of the Wealth of Nations. Longman.
Snow, N. (2010). Virtue as Social Intelligence: An Empirically Grounded Theory. Routledge.
Snow, N. (ed.) (2015). Cultivating Virtue. Oxford University Press.
Sutch, R. (2017). The One Percent across Two Centuries: A Replication of Thomas Piketty’s Data on the Concentration of Wealth in the United States. Social Science History, 41(4), 587-613.
Waldron, J. (2002). God, Locke, and equality: Christian foundations in Locke’s political thought. Cambridge University Press.
Asia’s Wealth Inequality Problem
Recent data illustrate a rising crisis of wealth inequality. In general, the West is politically apathetic to this challenge, with Scandinavian countries the notable exception. Asia’s strong economic position comes with the opportunity to exhibit global thought leadership in socioeconomic policy, particularly as the region’s inequality grows. Many in Asia have escaped poverty, but capital continues to flow disproportionately to the tiny elite. Systemic favoritism for the rich, along with the worsening plight of the poor, mandates immediate policy attention.
A recent Credit-Suisse study reveals some alarming statistics. Seventy-one percent of the world’s population hold wealth valued at less than $10,000, with the next 21 percent having between $10,000 and $100,000. Only 0.7 percent have more than $1,000,000, but these control 45.2 percent of total global wealth. The top 1 percent now own 50.4 percent of global wealth; that is, 1 percent of the world’s population owns more than the remaining 99 percent. Further, despite optimistic talk of a growing middle class, only 14 percent of the world’s population classify as such. Of greater curiosity is inequality in Asia, particularly China – the only country maintaining rapid economic growth well into its development process. For the first time, according to Credit-Suisse, China’s middle class (109 million) outnumbers that of the United States (92 million).
By some metrics, progress is evident. The absolute number of Asians living on less than $1.25 per day has decreased from 1.7 billion in 1981 to 700 million today. However, according to ADB Chief Economist Shang-Jin Wei, “$1.25 a day is not enough to maintain minimum welfare in many parts of our region.” Further, Asia’s dynamic economy has produced an elite class of super-rich investors with growing political influence. One commentator describes a rarefied but increasingly common lifestyle: “Asia’s ultra-rich and their offspring, with their private jets and platoons of servants, live in gated communities in a world prized by brands such as Cartier and Louis Vuitton, and educate their children overseas.” Images like this provide little excuse for complacency about the widening wealth gap.
Free-market purists are not concerned by such figures and stories of lavish excess; the system is supposedly “fair” and rewards the deserving. In the United States, the ideology of economic Darwinism has even “trickled down” to an aspirational lower and middle class that often supports policies favoring the super-rich, including lower taxes and lax regulations. Nevertheless, the idea that people can “bootstrap” themselves from poverty to wealth – within the current system – is largely unfounded and tragically naïve. Correcting inherent structural inequalities in opportunity, mobility, and justice is the most realistic strategy to address wealth inequality, but is politically possible only if critics win the marketplace of ideas. Publicizing statistics about the economic disbenefits of inequality (e.g., lower tax revenues) is a good start.
The new century’s most critical social pathologies – inequality, poverty, and ethnic tension – plague many Asian countries. With the exception of the “four tigers,” Asia has failed to achieve the per capita income levels of the West. China is tapping its budding middle class to support economic growth through domestic consumption, and also recently announced a $2 billion anti-poverty initiative. Nevertheless, the country’s elite continue to build massive stores of wealth, evident from their prominent role as global investors. Echoing arguments in Thomas Piketty’s highly discussed book, some commentators insist that growth in inherited wealth is shutting out economic opportunities for those less fortunate. In a recent speech at South Africa’s Nelson Mandela Foundation offices, Piketty remarked that “creating an annual wealth tax with a very low tax rate will be a way to create more transparency about who owns what.” Even the neoliberal Cato Institute (“dedicated to the principles of … free markets”) argues that policies targeting distributional inequity should focus more on wealth than on income.
In countries like Indonesia and Vietnam, the benefits of growth have predictably and disproportionately accrued to those with economic power and influence. The idea that market reforms materially improve the lifestyles of poor farmers relies on the oft-discredited notion of trickle-down economics; the latest wave of growth has clearly eluded such individuals. In a recent commentary, Kristijan Kotarski describes the “financialization” of the Chinese economy as “the rising leverage of financial and non-financial firms and the growing influence of financial elites.” He cites research indicating that as much as 86 percent of increases in inequality can be attributed to housing values. Debt and property are tools of wealth creation available primarily to those who can take investment risks. Hence, pro-wealth policies benefit only a narrow group.
Asia’s economic growth is an impressive accomplishment, but metrics such as global city rankings fail to account for the plight of the economically disenfranchised. According to Credit-Suisse, by 2020 the number of Chinese millionaires will increase by 74 percent, to 2.3 million – still only one tenth of 1 percent of China’s total projected population, but constituting an ever-growing share of the country’s wealth. The surprising fact that inequality has worsened since the 2008 financial crisis is actually no coincidence; the super-wealthy were protected by mitigating policies such as America’s $700 billion bank bailout. The inability to establish a political consensus on the extent of redistribution is a convenient excuse for ideological purists to abandon redistributive policies altogether. Improving conditions for the poor does not require absolute and universal re-distribution. However, there is a line beyond which inequality is too high; 1 percent owning more than the other 99 percent crosses that line. “Who decides how much inequality is unacceptable?” is no longer an excuse for inaction.
Read more
OECD (2011) Inequality in Emerging Economies
Brian Keeley (2015) Income Inequality: The Gap between Rich and Poor
Sonali Jain-Chandra et.al (2016) Sharing the Growth Dividend: Analysis of Inequality in Asia
S. Nazrul Islam & John Winkel (2017) Climate Change and Social Inequality
Juzhong Zhuang (2018) The Recent Trend of Income Inequality in Asia and How Policy Should Respond
Katsushi S. Imai & Bilal Malaeb (2018) Asia’s Rural-Urban Disparity in the Context of Growing Inequality
ESCAP (2018) Inequality in Asia and the Pacific in the Era of the 2030 Agenda for Sustainable Development
Bihong Huang et.al (2019) Demystifying Rising Inequality in Asia
Is Meritocracy Making Everyone Miserable?
Meritocracy’s winners think their success is all due to their brains and effort.Illustration by Robert Samuel Hanson
In a renewed debate over élite higher education, the question is whether the system is broken or the whole idea was a terrible mistake.
In recent years, we have been focussed on two problems, social mobility and income inequality, and the place these issues appear to meet is higher education. That’s because education in the United States is supposed to be meritocratic. If the educational system is reproducing existing class and status hierarchies—if most of the benefits are going to students who are privileged already—then either meritocracy isn’t working properly or it wasn’t the right approach in the first place. Paul Tough, in “The Years That Matter Most: How College Makes or Breaks Us” (Houghton Mifflin Harcourt), thinks that the problem is a broken system. Daniel Markovits, in “The Meritocracy Trap” (Penguin Press), thinks that the whole idea was a terrible mistake.
The term “meritocracy” was invented in the nineteen-fifties with a satirical intent that has now mostly been lost. “Merit” was originally defined as “I.Q. plus effort,” but it has evolved to stand for a somewhat ineffable combination of cognitive abilities, extracurricular talents, and socially valuable personal qualities, like leadership and civic-mindedness. Attributes extraneous to merit, such as gender, skin color, physical ableness, and family income, are not supposed to constrain the choice of educational pathways.
Educational sorting often begins very early in the United States, as when schoolchildren are selected for “gifted and talented” programs, and it continues in high school, where some students are pushed onto vocational tracks. But every American has the right to an elementary- and high-school education. You just need to show up. Until you are sixteen, you are required by law to show up.
College is different. College is a bottleneck. You usually have to apply, and you almost always have to pay, and college admissions is a straight-up sorting mechanism. You are either selected or rejected. And it matters where. Research shows that the more selective a college’s admissions process the greater the economic value of the degree. The narrower the entryway, the broader the range of opportunities on the other side. College, in turn, sorts by qualifying some students for graduate and professional education (law, dentistry, architecture). And graduate and professional education then sorts for the labor market. It’s little gold stars all the way up.
College is also a kind of dating service. You and your classmates have chosen and been chosen by the same school, which means that your classmates are typically people whose abilities and interests are comparable to your own. And, for many people, friendships with other students constitute the most valuable return on their investment in college education. One of the things they are buying is entrance into a network of classmates whose careers may intersect profitably with theirs, and alumni who can become references and open doors.
We find it unseemly when someone is hired because his or her mom or dad made a phone call. We think that’s unmeritocratic. But we are not, usually, taken aback when we learn that someone got a job interview through a college roommate or an alumni connection, even though that is also unmeritocratic. We accept that those connections, along with connections that students make with their professors, are among the things you “earn” by getting into a college. It’s one of the rewards for merit.
Education therefore plays an outsized role in people’s lives. It can vastly outweigh the effects of family and local community on people’s beliefs, values, tastes, and life paths. For the individual student, the investment in time and money, not to mention the stress, can be enormous. But, according to Steven Brint’s “Two Cheers for Higher Education” (Princeton), even though tuition and fees increased by more than four times the rate of inflation between 1980 and 2012, college and graduate-school enrollments grew every year. (There has been a dip in recent years.)
Almost every study concludes that getting a college degree is worth it. What is known as the college wage premium—the difference in lifetime earnings between someone with only a high-school diploma and someone with a college degree—is now, by one calculation, a hundred and sixty-eight per cent. For people with an advanced degree, the wage premium is two hundred and thirteen per cent. (Of course, the more people who get a college degree—about a third of the population now has a bachelor’s degree—the greater the penalty for not having one. The decrease in earnings for non-degree holders raises the premium.)
The investment is also substantial for society as a whole. Taxpayers spend a hundred and forty-eight billion dollars a year to support higher education through subsidies and grants. Total annual revenue at all colleges and universities—including public, private, and for-profit schools, from all sources, including tuition, grants, gifts, and endowment income—is more than six hundred and forty-nine billion dollars. The question of whether the system is working for everyone is therefore never an inappropriate one to ask.
Fifty years ago, the worry about meritocracy centered on race and gender. In 1965, the student population in American colleges and universities was ninety-four per cent white and sixty-one per cent male. By one measure, this problem appears to have been solved, despite tireless resistance to the methods that colleges have used to get there. Today, fifty-six per cent of students are classified as non-Hispanic whites and forty-two per cent of students are male.
A more fine-grained analysis suggests that this is not quite the victory for diversity that it seems. According to a report from the Georgetown University Center for Education and the Workforce, enrollment in the four hundred and sixty-eight best-funded and most selective four-year institutions is seventy-five per cent white, while enrollment in the thirty-two hundred and fifty lowest-funded community colleges and four-year universities is forty-three per cent black and Hispanic, a pattern of de-facto segregation which mirrors that of the country’s public schools.
Nor does racial diversity necessarily correlate with economic diversity. That a student is nonwhite obviously does not mean he or she is from a disadvantaged background. Highly selective colleges tend to select from the best-off underrepresented minorities. And this feeds into our current focus on class and income.
In the nineteen-fifties and sixties, the college wage premium was small or nonexistent. Americans did not have to go to college to enjoy a middle-class standard of living. And the income of Americans who did get a degree, even the most well-remunerated ones, was not exorbitantly greater than the income of the average worker. By 1980, though, it was clear that the economy was changing. The middle class was getting hollowed out, its less advantaged members taking service jobs that reduced their income relative to the top earners’. “The help-wanted ads are full of listings for executives and for dishwashers—but not much in between,” Walter Mondale said at the 1984 Democratic National Convention. Since then, the situation has grown worse. In a survey conducted in 2014, fifty-five per cent of Americans identified as lower class or working class. And, of the many differences between Trump and Clinton voters in 2016, the education gap seems to have been a key one.
“The Years That Matter Most” is a journalist’s book. Paul Tough interviewed students, teachers, researchers, and administrators, trying to figure out why the higher-education system fails some Americans and what people are doing to fix it. He has fascinating stories about efforts to remediate class disparities in higher education, some of which have succeeded and some of which may have made matters worse.What’s best about the book, a fruit of all the time Tough spent with his subjects, is that it humanizes the process of higher education. People have different situations and different aspirations. Not everyone wants to go to Harvard or Stanford. Not everyone wants a job on Wall Street. People should be able to lead flourishing lives without a prestigious college degree, or any college degree at all.
On the other hand, there are people who could go to Harvard or Stanford but don’t have the chance—because they are not given proper guidance in high school, because of family pressures and financial need, because their test scores do not accurately reflect their potential. Two standardized tests have been used nationally in college admissions since the fifties, the ACT and the SAT, and they are constantly duking it out for market share. Tough’s analysis focusses on the SAT, which is administered by the College Board.
The SAT was originally designed as an I.Q. test, based on the idea that people are born with a certain quantum of smarts (g, as psychologists used to call it). The purpose of the SAT was not to expand the college population. It was just to make sure that innately bright people got to go. A lot of the debate over the SAT, therefore, has had to do with whether there really is such a thing as g, whether it can be measured by a multiple-choice test, whether smarts in the brute I.Q. sense is what we mean by “merit,” and whether the tests contain cultural biases that cause some groups to underperform. But the real problem with the SAT is much simpler: SAT scores are not very good at predicting college grades. What is very good at predicting college grades? High-school grades, at least for American applicants. (For international students, whose secondary schools can have inconsistent or hard-to-parse grading systems, the SAT may be a useful way for admissions offices to pick out promising recruits.) Submitting high-school grades costs the applicant nothing.
Tough thinks that the College Board knows it has a problem and is trying to disguise it. In 2017, facing the fact that an increasing number of colleges were no longer requiring standardized-test scores, the company helped produce a report, “Grade Inflation and the Role of Standardized Testing,” which claimed that grade inflation favors well-off students. “Test-optional policies,” the report concluded, “may become unsustainable.”
The College Board promoted this finding by, among other things, running an online advertorial in The Atlantic called “When Grades Don’t Show the Whole Picture.” “Submitting SAT scores as part of a college application can open doors of opportunity not just for a privileged few, but for all students,” the article said. The SAT is the disadvantaged student’s friend. It takes a bite out of privilege.
The education press bought it. The trouble, Tough says, is that the report’s conclusion is contradicted by evidence contained in the report itself. Grade inflation has been consistent across racial and socioeconomic groups. What have not been consistent are SAT scores. Since 1998, the average score of students whose parents are well educated has increased by five points, while the average score of students whose parents have only an associate’s (two-year college) degree has dropped by twenty-seven points. It turns out that the SAT is, in fact, the friend of privilege. If you combine SAT scores with high-school G.P.A., you get a slightly better predictor of college grades than you do using G.P.A. alone. But the SAT, a highly stressful rite of passage for American teen-agers that has cost their parents, over the years, many millions of dollars in test-preparation schemes, is a largely worthless product.
College does enable social mobility, but it’s not happening at the most selective schools. According to the Harvard economist Raj Chetty, children whose parents are in the top one per cent of the income distribution—roughly 1.6 million households—are seventy-seven times more likely to attend an Ivy League college than children whose parents are in the bottom income quintile (about twenty-five million households). At what are called the Ivy Plus colleges—the eight Ivies plus schools such as the University of Chicago, M.I.T., and Stanford—more than two-thirds of the students are from the top quintile and less than four per cent are from the bottom. The most extreme case, according to Tough, is Princeton, where seventy-two per cent are from the top quintile and 2.2 per cent are from the bottom.
Such data suggest that higher education is not doing much to close the income gap, and that it may be helping to reproduce a class system that has grown dangerously fractured. This is the phenomenon that the man who coined the term “meritocracy,” Michael Young, predicted back in 1958, and it has been tracked by a number of writers since. In a classic history of meritocracy, “The Big Test,” published in 1999, Nicholas Lemann concluded, “You can’t undermine social rank by setting up an elaborate process of ranking.”
This inversion of what meritocratic education sought to achieve is the subject of “The Meritocracy Trap.” Daniel Markovits thinks that meritocracy is responsible not only for the widening gap between the very rich and everyone else but for basically everything else that has gone wrong in the United States in the past forty years. “The afflictions that dominate American life,” he says, “arise not because meritocracy is imperfectly realized, but rather on account of meritocracy itself.”
“The Meritocracy Trap” is an academic’s book. Markovits is a law professor at Yale. He draws his evidence from an impressive range of studies, by other researchers, of income inequality and its effects on the quality of American life. But the book completely lacks a human element. It is as though Markovits constructed simulacra of human beings out of his data: this is what the numbers tell you that people must be like. It is almost impossible to recognize anyone you actually know.
“My students at Yale—the poster children for meritocracy—are more nearly overwhelmed and confounded by their apparent blessings than complacent or even just self-assured,” he writes. “They seek meaning that eludes their accomplishments and regard the intense education that constitutes their elevated caste with a diffidence that approaches despair.” I happen to know some current students and recent graduates of Yale Law School, and they don’t seem diffident or despairing to me at all. In fact, they seem, understandably, rather pleased with themselves.
“The Meritocracy Trap” is an exhausting book—bombastic, repetitive, and single-minded to the point of obsession, a mixture of Cotton Mather, Karl Marx, and MAGA. Brimstone rains down from every sentence. Markovits thinks that meritocracy is making everyone miserable, not least the meritocrats themselves. “Meritocracy traps entire generations inside demeaning fears and inauthentic ambitions: always hungry, never finding, or even knowing, the right food,” he says. (Maybe not the most apt metaphor. One thing that high-income earners do seem to know about is food.) Meanwhile, middle-class Americans “are dying from indirect and even direct self-harm, as they—literally—somatize the insult of their meritocratically justified exclusion.”“Merit is a sham,” the preacher saith. “Merit itself is not a genuine excellence but rather—like the false virtues that aristocrats trumpeted in the ancien régime—a pretense, constructed to rationalize an unjust distribution of advantage.” The successful have sold their souls to Mammon: “Meritocrats gain their immense labor incomes at the cost of exploiting themselves and deforming their personalities.”
The MAGA part of the book is the complaint that the “élites” have rigged the system to benefit themselves at the expense of the middle class, whose tastes and values they sneer at. (This is Trumpian, but not Trump, who is the ultimate system rigger, the crony capitalist par excellence.) Meritocracy, Markovits says, throws élites and the middle class alike into “a maelstrom of recrimination, disrespect, and dysfunction.” Every social ill that afflicts working- and middle-class Americans—the opioid crisis, the decline in life expectancy, the incidence of out-of-wedlock births—is the consequence of what Markovits calls “meritocratic inequality” (a phrase he uses more than a hundred and forty times). The educated élite has become a self-perpetuating caste, drilling its children in the rituals of meritocratic advancement and walling itself off from the world of the average American.
Back in the fifties, Markovits says, we were all on the gravy train together, or, at least, white men were. The well-off ate the same food and drove the same cars as everyone else. You could make a good living as a middle manager or an assembly-line worker. Americans didn’t get high-handed about virtue issues like identity politics, racial bigotry, and gay marriage, issues that Markovits thinks the average worker rightly regards as irrelevant. We need to bring that America back.
Of course, in that America, almost a quarter of the population lived in poverty; ten per cent of the population, Americans of African descent, was effectively barred from social advancement; and fifty per cent of the population was mostly consigned to women-only jobs. Not great for everybody. The book’s model of a town that is decaying because of the scourge of meritocracy is St. Clair Shores, Michigan. St. Clair Shores is a virtually all-white exurb of Detroit that flourished at a time when most of the world’s cars were made in the United States. Many things besides college-admissions practices led to its decline.
The Marxist part of “The Meritocracy Trap” is the interesting part. Like Marx, Markovits sees society as constituted by the dynamic between two social classes, the élite (which he calls “the ruling class”) and the middle class. He uses a stereotype to represent each class: the partner at a Wall Street firm who takes home five million dollars a year versus the packager in an Amazon fulfillment center whose every movement is monitored and who has little or no job protection. Strangely, apart from the references to Amazon, the tech economy is almost completely missing from the analysis. Markovits’s focus is on C.E.O.s and élite-professional-service (E.P.S.) workers: corporate lawyers, management consultants, and investment bankers, people who get rich by helping other people get richer. This is possibly because those are careers pursued by law-school graduates, who do not train to do tech work.
For Markovits, both classes are the prisoners of meritocracy, just as Marx thought that both the capitalist and the worker he exploits were doing only what the system was making them do. That did not prevent Marx from calling capitalists greedy and cruel, and it does not prevent Markovits from calling élite workers selfish, corrupt, and immoral. But, like Marx, Markovits thinks that the whole system is a Frankenstein’s monster. We created the meritocracy with good intentions, and now we are its victims.
What would a post-meritocratic world look like? Markovits doesn’t know, and neither did Marx know what a post-capitalist world would be like. There will be less alienation and inauthenticity (as Marx believed, too); other than that, we can’t really imagine a post-meritocratic world, because the élite has made its own values everyone’s. “Present-day ideals concerning justice, entitlement, and even merit are all meritocracy’s offspring and carry its genes inside them,” as Markovits puts it. “Meritocracy has built a world that makes itself—in all its facets, including meritocratic inequality—seem practically and even morally necessary.” Meritocracy seems the natural way of running things, so that when you ask why meritocracy isn’t working people say it’s because it’s not meritocratic enough.
One obvious response to Markovits’s complaint is that, thanks to globalization and the digital revolution, the twenty-first-century economy is enormously complex and requires highly trained people to operate it, and so the returns to education have grown. Markovits’s answer is that the twenty-first-century economy was made complex by the élite in order to monopolize high-paying jobs for itself. He thinks that fancy financial instruments, like junk bonds and derivatives, were devised to reward the highly educated, since less educated people can’t manipulate them. “The appearance of super-skilled finance workers induced the innovations that then favored their elite skills,” he says. He goes so far as to suggest that computers were invented to raise the value of higher education.
Markovits is right that the concept of merit is now tied up with a certain idea of work, and the two are not easily separated. College-educated people believe that you are supposed to work hard. It is difficult for them to respect someone who treats his or her job as a paycheck, rather than as a source of achievement and fulfillment. Markovits presents a lot of evidence that élite workers are putting in crazier and crazier hours while middle-class workers have become victims of what he calls “enforced idleness.” They work less because there is less work for them to do.
He is also probably right that the top-earner work ethic reflects the fact that people are now socialized to think of themselves as human capital. He thinks that this alienates highly educated people from their own labor, since they are driven to maximize the return on the investment they have made in themselves. But artists and athletes are embodiments of human capital, too, and they are also driven, sometimes obsessively, to succeed. We would not say this makes them inauthentic.
“The Meritocracy Trap” does not offer much in the way of policy advice. In a brief conclusion, Markovits suggests eliminating the cap on Social Security taxes and giving the money to companies as wage subsidies to create more mid-skilled jobs. He mentions a program to create 4.4 million public-sector jobs. And he recommends depriving private schools and universities of their tax-exempt status unless they take at least half their students from the bottom two-thirds of the income distribution. To do this, he thinks that they should double their enrollments. He does not endorse a wealth tax, student-debt relief, or “college for all” free tuition, policies that progressive politicians have proposed to increase social mobility and reduce income inequality.
The weirdest claim in “The Meritocracy Trap” is that the American educational system is designed to produce super-skilled dealmakers and number crunchers. “Elite schooling is carefully calibrated to train students . . . to resist the urge to pursue their own peculiar authentic interests in favor of doggedly shaping themselves to serve ends set externally by the meritocratic system,” Markovits says. The suggestion that Yale professors are trying to get students to shape themselves “to serve ends set externally by the meritocratic system” is ridiculous. People who work at schools like Yale and Stanford and Chicago are devoted to exposing students to as wide an array of art, ideas, methods, and ways of being as possible. Curricula are constructed and classes are designed to get students to explore, non-instrumentally, the world of knowledge and to reflect on their goals and ambitions in an informed way.
“Populists who say that colleges and universities are bad for America may have narrowly political motives,” Markovits tells us, “but a clear-eyed understanding of meritocratic inequality shows that they are not wrong.” It is alarming when a Yale professor says that colleges and universities are “bad for America” (a Fox News phrase). It feeds the idea that the way to address inequality and discrimination is to reform college admissions at places like Harvard and Yale.
This idea rests on an error of scale. The most highly selective universities—the eight Ivies plus M.I.T., Stanford, Chicago, and Caltech—enroll less than one half of one per cent of all college students in the United States. You could swap out every legacy, donor offspring, and faculty child (not to mention, since almost nobody does, recruited athletes) in those schools for an underprivileged applicant and the inequality needle would hardly budge.
Colleges should always be asking themselves what they are trying to achieve with their admissions processes and whether they are working fairly and in everyone’s best interests. But the focus on private colleges’ admissions is a distraction from a development that affects far more people: the defunding of public higher education. Those are the schools in which seventy-three per cent of American college students—14.7 million people—are enrolled.
Steven Brint, in “Two Cheers for Higher Education,” says that the average appropriation per student in public institutions declined by twenty per cent between 1990 and 2015. Many flagship public universities, such as the University of Virginia, have basically been privatized, and charge tuitions that are unaffordable to low-income students. There are sixty thousand undergraduates in Ivy League colleges. There are four hundred and twenty-eight thousand students, seven times as many, in the Cal State system alone. Those students should be getting more resources.
Some of Markovits’s criticisms of college admissions don’t seem to have been thought through. He cites the increased competition for admission to top schools, referring to a time, not that long ago, when the Ivy League accepted thirty per cent of its applicants. The figure is now around five per cent. But low acceptance rates are a good thing. They mean that the pool is bigger. Applicants no longer need to have gone to Groton or be able to pay full freight to have a fair chance of getting in.
Commentators do not seem exercised about the admissions preference given to varsity athletes, but they are about the legacy preference. Eliminating that preference is a much less efficacious reform than it seems. Most American colleges are not highly selective. According to Brint, no more than five to seven per cent of college students attend a school that admits less than half its applicants. The average admissions rate at four-year colleges is sixty-six per cent. Legacy preferences at most of those schools do not significantly reduce the non-legacy’s chances. At any college, many legacies would be admitted without the preference. In the more selective colleges, the legacy preference is supposed to be used to tip the choice between equally qualified candidates, so eliminating it turns the decision into a coin toss, meaning that half the time the legacy still gets in. There is also, of course, no guarantee that the applicant taking the legacy’s spot is not also privileged. Some colleges rely on alumni loyalty in order to survive financially, and, in turn, to provide financial aid. Would they, too, be expected to eliminate legacy preferences? There is, finally, the question of whether we want the government to tell private universities whom they may and may not admit, beyond the stipulations of anti-discrimination law. That could be a very slippery slope.
The main significance of the legacy preference is symbolic. It represents, to many people, the perpetuation of privilege. Eliminating it would send a positive message about class. What it would not do is reduce income inequality. You would just be replacing one group of future high earners with a slightly different group. The social effect would be minuscule.
People also complain that college admissions is a black box. It is. But if the process were transparent, if everyone knew the recipe for the secret sauce, then applicants would game the system. (And privileged students have more resources to get good at the game.) They try to game it as it is, so the recipe changes from year to year, as admissions officers figure out what to discount or to ignore when they review applications. It can seem, from the outside, that every applicant is competing against every other applicant. In fact, colleges have many buckets to fill, and applicants are mainly competing inside their own buckets. There is no single definition of “qualified.”
Finally, it’s not the colleges that endow the degree from Princeton or Stanford with its outsized market value. Stanford and Princeton do not look for future hedge-fund managers or corporate lawyers when they put together a class. They look for people who, among other things, will take advantage of the educational experience they offer. It’s the businesses that recruit from those colleges which have fetishized the Ivy Plus credential. If we really want different kinds of people to get those jobs, maybe we should ask those firms to take half their new employees from the bottom quintiles.
Are universities “bad for America”? The main purpose of the Ivy Plus universities and schools like them is not to credential young people. It is to produce knowledge. That is what university endowments support and what professors are paid to do. Virtually every piece of data in Tough’s and Markovits’s books comes from research done by an academic or someone with academic training. Would we be better off with less of this knowledge?
Despite Markovits’s hyperbole and overwriting, his conception of meritocracy as a machine that runs itself is a powerful one. He and other critics could be right that meritocracy, like free-market capitalism, generates inequalities naturally. There is at least one purely meritocratic industry in the United States: professional sports. An athlete basically has to engage in illegal activity for attributes extraneous to ability to affect his or her career (and even then . . . ). Yet, since the seventies, the growth in income inequality in professional sports has mirrored the growth in society as a whole. Star athletes make millions, and below that level wages drop off very quickly. LeBron James is paid more than thirty million dollars a year by his team; the median annual wage for all professional athletes—people who make their living playing spectator sports—is $50,650.
At this point, whether meritocracy is responsible for the economy we have or whether the economy we have is subverting the aims of meritocracy doesn’t really matter. Even if we randomized college admissions, there would still be sorting, and only a tiny fraction of the population is going to get those C.E.O. and E.P.S. jobs. If social mobility means that a bigger bit of that tiny fraction is from disadvantaged backgrounds, the faces may change, but the level of income inequality will remain more or less the same.
“Merit is a sham.” What Markovits means is that merit is a self-justification in the same way that the divine right of kings was a self-justification. In a meritocracy, the winners, the people who benefit from the system, tend to believe that their success is due entirely to brains and hard work, not to the accident of birth. But merit as opposed to what? Teachers and employers evaluate people on some criteria, however defined, and people who rate better are given more opportunity. Should they not be? The problem is not that some citizens are lawyers and some work in Amazon fulfillment centers. It’s that the economy is structured to allow the former class of worker to soak up most of the national wealth.
The educational system is not working to everyone’s advantage, and it would be convenient if fixing that fixed the larger problem of wealth and income inequality. Tough’s book makes us feel that college can work better, and that progress in increasing access is possible. But we should not be afraid of the use of political power. As a polity, we are in a bizarre place where workers whose lives and prospects have been damaged by the increasingly skewed distribution of wealth and income have helped bring to power a government whose most significant legislative accomplishment is the passage of a tax law that effectively redistributes wealth upward. That government’s leaders love to pose as the enemies of the élites, but they are turning the federal government into an E.P.S. There is a good chance that they will be given another four years to help the rich get richer.
September 23, 2019
Mr. Rows Namoura Coffee 
How Inequality Undermines Democracy?
Inequality has been on the rise over the last three decades, and has been a pervasive issue in the recent U.S. national election. On one level, income inequality is a non-issue in a market economy where there will always be winners and losers. In a market where individuals are free to make choices and reap the rewards of the choices they make, it is a given that some will wind up with more than others. We cannot all be equal because we don’t all have the same natural endowments. Those with certain skills and abilities will often wind up with more than those without. And those who went to school to train for specific occupations that pay well will earn more than those who did not. In short, skilled workers will earn more than non-skilled workers. Consequently, in an increasingly global economy where there will be two classes — skilled and educated workers at the top earning high wages and unskilled and poorly educated workers at the bottom earning low wages — there is bound to be inequality. Moreover, as these trends continue, the gap between the top and the bottom is only bound to grow. On another level, however, income inequality is a seminal issue because of what it really speaks to: the disappearance of the middle class. Inequality per se may not be the problem; rather it is the rate of increase in inequality. In this essay, I argue that to the extent that inequality effectively speaks to a shrinking middle class it represents a threat to democracy.
Rising Inequality
Income inequality is an amorphous concept. When we talk about income inequality we are often talking about the gap between the top and the bottom. The extent to which it is a problem is contingent on just how it is measured. General income inequality, as measured by the ratio of the incomes of the top fifth of the population to those of the bottom fifth, for instance, includes in all income; not just income earned laboring. For those at the top this can include wages, interest and dividend income.[i] For those at the bottom this can include income supports, which are usually subsidies or in-kind assistance that has the effect of boosting the wages of those at the bottom or their effective purchasing power. Income at the bottom, then, often includes wages plus these supports, whether through public assistance transfer programs and/or disability programs. Therefore, wage income will not be the same as income inequality, and this gap between the top and bottom will tend to be less.
General income inequality has in recent decades been on the rise. Those at the top of the distribution have seen their incomes increase while those at the bottom have seen their incomes decrease in real terms. Prior to 1973, the incomes of families in the bottom fifth of the income distribution in the U.S. grew more rapidly than the income of families in other countries. After 1973 low-income families in the U.S. experienced a steady decline in real income, especially from the late 1970s through the middle of the 1990s. Between 1979 and 2007, the top one percent of families had 60 percent of the income gains while the bottom 90 percent only had about 9 percent of those income gains (Belman and Wolfson 2014). Income inequality, especially after 1980, exploded with the top decile share of the national income rising to between 45-50 percent in the 2000s. This may nonetheless understate the problem, which in recent years has been couched as the very top pulling away from the rest because a subclass of “supermanagers” — those at the top of the distribution with great ability and talent, who in some cases were viewed as “superstars” because they were able to make their companies profitable and return a high rate of return to shareholders — emerged who were earning extremely high compensation (Hacker and Pierson 2010; Piketty 2014).
The Threat to Democracy
Democratic theory assumes a society of free, equal, and autonomous individuals. Although democracy may have different meanings for different people, an ideal of democracy is that all individuals are supposed to have equal standing. This means that each individual is equal before the law, has the same vote as other individuals, the same right to express oneself in the political sphere, and perhaps most importantly the same potential to influence what government does, even if they opt not to exercise that potential. All citizens, then, have the same access to governing institutions. Within this theoretical construct, which may also characterize American democracy, money is supposed to be irrelevant to one’s standing. Both the rich and the poor are equal before government (Hacker and Pierson 2010). This conception of equality, otherwise known as procedural equality is not usually concerned with how resources, wealth and income are distributed, but with how individuals stand in relation to one another. Individuals can have more than others so long as they are equal in terms of their legal and political standing. Procedural equality is especially critical to democratic society because it serves to secure another essential condition: personal freedom, which is also a necessary condition for individuals to function autonomously. The greater their autonomy, the more likely they are to participate in the democratic process. Individuals are free to pursue their goals and objectives—i.e. self-interests—so long as their pursuit does not interfere with others’ ability to pursue their own goals and objectives. In a very basic sense, and certainly within the context of classical political thought, this is what it means to talk about personal independence or autonomy. But as Tocqueville observed there cannot be real political equality without some measure of economic equality as well, because a society with great concentrations of poor people can be dangerous (Zetterbaum 1987). Therefore, economic inequality could pose serious problems in a procedural democracy.
Why, then, might inequality be so dangerous to democracy? According to Acemoglu and Robinson (2006), unrest is often a consequence of inequality. And yet, changes are more likely to occur in those societies with greater inequality between elites and citizens. The more equals the society, the less likely are the masses to demand democratization. Democratization requires that society be sufficiently unequal so that the threat of revolution is credible. Therefore, elite may be willing to begin a transition by extending the right of franchise because it is in its interests to do so. The transition effectively preserves the status quo by staving off the threat of revolution, which in the end may preserve the power base of the elite. Yet, the elite only democratizes to the degree necessary to stave off the threat of revolution, because the former effectively limits the power of the majority by diluting popular pressure and undermining the power of the majority. Democratization refers to achieving voice through fair procedures. But democratization could mean achieving greater equality through the redistribution of resources aimed at achieving equality of result.
Economic equality, then, effectively promotes democracy because it effectively reduces the pressure for redistribution, which could occur as a byproduct of mass revolution and the subsequent creation of an authoritarian regime (Boix 2003). More unequal distribution of wealth increases the redistributive demands of the population and the ultimate level of taxes in a democratic system. But what happens when the political system is unresponsive to a so-called democratic vote on the tax rate?
A truly democratic regime would not simply take away from the wealthy elite for the benefit of the masses, but it might set a higher tax rate for purposes of redistribution. In a democracy, everybody votes on the tax rate in accordance with what is known as the median voter theorem. This holds that the more inequality there is the greater will be the distance between the median income and society’s average income. The greater the distance, the more calls there are for redistribution, and it is the distance itself that effectively determines the tax rate (Meltzer and Richard 1981).
On an individual level, unequal distribution of wealth and income, however, may adversely affect individuals’ ability to participate in the democratic process as equals. It may result in procedural inequality to the extent that those lacking in wealth and income may not enjoy the same access to political and policy officials as those who possess wealth and income enjoy. With a greater concentration of wealth at the top, elites are in a better position to use their wealth toward the attainment of their political and other ideological objectives (Bachrach and Botwinick 1992: 4-5). Those at the top of the distribution often enjoy inordinate power and are able to not only limit redistribution, but shape the rules of the game in favor of those with more resources (Stiglitz 2012). Various studies have found legislative bodies to be more responsive to affluent constituents than to non-affluent constituents (Bartels 2008; Gilens 2012; Volscho and Kelly 2012).
Inequality, especially in its extreme form of poverty, does in the end deprive us of our capabilities, which is said to be a kind of freedom. To the extent that individuals at the bottom of the income distribution could be said to be poor, poverty deprives individuals of their capabilities. Therefore, there is a strong case to be made for judging individual advantage in terms of the capability that a person has — “the substantive freedoms he or she enjoys to lead the kind of life he or she has reason to value” (Sen 1999, p.87). Such freedoms are the basis of individual autonomy. Those with more resources may be better positioned to pursue their goals and objectives, while those with fewer resources may find that their ability to pursue their goals and objectives are limited.
An individual’s ability to pursue their goals and objectives is important to democracy for yet another reason. A democracy, especially as its legitimacy and power are derived from popular consent, assumes that individuals have the capacity to reason for themselves, i.e. to deliberate in the public square, and to act on that capacity in a responsible manner. They cannot effectively participate, whether it be in full policy discussions or selecting their own representatives, if they cannot deliberate in a rational manner. As democracy requires that individuals execute their agency, human agency must be protected. But this human agency also presupposes that basic material needs will have been met, which may be less likely given ever widening disparities in wealth and income. Democracy also requires a measure of trust between people, and growing income inequality is said to threaten trust as various groups, mainly those at the bottom, experience political alienation and perceive the system not to be fair. As social capital is the glue that holds society together (Stiglitz 2012), if individuals believe that the economic and political system is unfair, the glue does not work and society does not function well. This is because institutions effectively promote trust. A trusting population tends to be more cooperative, and governments with trusting populations tend to be less corrupt and function with less conflict and greater responsiveness (Uslaner 2008).
Impact of Inequality on Civic Participation
Income inequality not only distorts democracy in terms of how institutions and political actors respond to different levels of income, but it may have a profound effect on the development of social capital, which affects civic engagement. Democracy requires the active participation of citizens in the affairs of their communities, which extends beyond mere voting. Underlying social capital is the notion that civic virtue is most powerful when it is embedded in a dense network of social relations. American civil society has been defined by its associative life, in which Americans belong to voluntary organizations. And through these organizations, they participate in the affairs of their communities (Putnam 2000).
In a study of the relationship between income inequality and civic engagement, Levin-Waldman (2013) found that in 2008 individuals in households with different levels of income had different levels of civic engagement. Six measures of civic engagement were considered: daily discussions of politics, daily reading of newspapers — which were intended to speak to one’s knowledge about and interest in politics — involvement in protests, attendance at political meetings, visiting public officials, and participating in civic organizations. Participation was found to be greater on all measures of participation among those in households earning more than $100,000 a year than among those earning less than $30,000. Those at the highest end of the distribution were not necessarily more likely to be engaged than those between $30,000 and $99,999, but those in households between $30,000 to $59,999 were considerably more likely to be engaged than those in households below $30,000. Participation appeared to improve dramatically when one was in a household with income greater than $30,000. These differences alone would suggest that entry into the middle class might result in greater levels of civic participation. Moreover, logistical regressions found that those with higher incomes were more likely to be civically engaged, and that those earning less than a minimum wage were least likely to be engaged.
Aside from the adverse impact that income inequality has on civic engagement, it could also lead to political anomie. As family income inequality increases, those families below the median are further from the social norm than before. Similarly, those at the top of the distribution see a larger gap between themselves and the rest of the population. Families at the bottom of the distribution may end up drifting further from the mainstream, and thus may also experience greater alienation as those with greater resources may come to see them as both more distinct and undeserving. This may also have consequences for how citizens in turn view the potential role and functions of government (Haveman, Sandefeur, Wolfe, and Voyer 2004). Poor people experience greater social alienation because of their tendency to participate less, which means that they may be out of touch with common interests. But participation is also less likely because the alienation coming from social isolation will lead many to the conclusion that there really is no benefit from participation in the common project of which they are part. When resources are unequally distributed, those at the top and the bottom might not see themselves as sharing the same fate. Consequently, they have less reason to trust people of different backgrounds. Where inequality is high, people may be less optimistic about being masters of their own fate. Increasing inequality results in less participation because of declining trust (Uslaner and Brown 2005).
Conclusion
With rising inequality, it ought to be clear that there are serious challenges to democracy. It cannot be predicted with certainty just how disruptive inequality will be to democracy, as this is contingent on the fragility of democracy. In the U.S., we are clearly seeing an erosion in democracy in that elected representatives no longer represent all people equally. Rather there is greater responsiveness to those with resources, especially those contributing to political campaigns. Increasingly those without resources find themselves frozen out. In more fragile democracies, the response is unrest. And even in the U.S. we see some of that with various social protest movements. Although the results of the 2016 national election were not necessarily a response to rising income inequality, they were clearly a response to the larger economic conditions of which rising income inequality has been a symptom. Specifically, voters appeared to be rebelling against political elites who apparently were unable to deliver good job growth with rising wages. Voters chose a candidate who, rhetorically at least, was opposed to open borders and free trade, and were effectively challenging the commitment of elites to globalism — the same globalism that has resulted in the two-tier economy with highly skilled and paid workers at the top and poorly skilled and paid workers at the bottom. It might be a stretch to conclude that the election of Donald Trump represents a desire for authoritarianism. And yet, his critics view him as such, and if the voters were not choosing what they might have thought were authoritarian solutions to economic conditions, they were clearly responding to the very economic conditions that have been the source of rising inequality in recent years.
Notes and References
[i] Dividend income is income from stocks and/or other types of investments.
Acemoglu, Daron and James A. Robinson. 2006. Economic Origins of Dictatorship and Democracy. Cambridge & New York: Cambridge University Press.
Bachrach, Peter and Aryeh Botwinick. 1992. Power and Empowerment: A Radical Theory of Participatory Democracy. Philadelphia: Temple University Press.
Bartels, Larry M. 2008. Unequal Democracy: The Political Economy of the New Gilded Age. Princeton: Princeton University Press.
Belman, Dale and Paul J. Wolfson. 2014. What Does the Minimum Wage Do? Kalamazoo, MI: W.E. Upjohn Institute for Employment Research.
Boix, Carles. 2003. Democracy and Redistribution. Cambridge and New York: Cambridge University Press.
Gilens, Martin. 2012. Affluence & Influence: Economic Inequality and Political Power in America. Princeton and New York: Princeton University Press/Russell Sage Foundation.
Hacker, Jacob S. & Paul Pierson. 2010. Winner-Take-All Politics: How Washington Made the Rich Richer — And Turned its Back on the Middle Class. New York: Simon & Schuster.
Haveman, Robert, Gary Sandefeur, Barbara Wolfe, and Andrea Voyer. 2004. “Trends in Children’s Attainments and Their Determinants as Family Income Inequality Has Increased.” in Kathryn Neckerman ed., Social Inequality. New York: Russell Sage Foundation.
Levin-Waldman, Oren M. 2013. “Income, Civic Participation and Achieving Greater Democracy. Journal of Socio-Economics. 43,2:83-92.
Meltzer, Alan H. and Scott F. Richard. 1981. “A Rational Theory of the Size of Government.” Journal of Political Economy. 89,5: 914-927.
Piketty, Thomas. 2014. Capital in the Twenty-First Century. Cambridge, MA and London: Belknap Press of Harvard University Press.
Putnam, Robert. 2000. Bowling Alone: The Collapse and Revival of American Community. New York: Simon & Schuster.
Sen, Amartya. 1999. Development as Freedom. New York: Anchor Books.
Stiglitz, Joseph E. 2012. The Price of Inequality. New York: W.W. Norton.
Uslaner, Eric. 2008. “The Foundations of Trust: Macro and Micro.” Cambridge Journal of Economics. 32:289-294.
—————– and Mitchell Brown. 2005. “Inequality, Trust, and Civic Engagement.” American Politics Research. 33,6 (November):868-894.
Volscho, Thomas W. Jr. and Nathan J. Kelly. 2012. “The Rise of the Super-Rich: Power Resources, Taxes, Financial Markets, and the Dynamics of the Top 1 Percent, 1949-2008.” American Sociological Review. 77,5:679-699.
Zetterbaum, Marvin. 1987. “Alexis De Tocqueville.” In Leo Strauss and Joseph Cropsey eds., History of Political Philosophy. Chicago: University of Chicago Press.
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