Richard B. Freeman
Over the past two decades,
income inequality in the United States has massively increased. This jump owes
to the unprecedentedly abysmal earnings experience of low-paid Americans, income
stagnation covering about 80 percent of all families, and an increase in upper-end
incomes. The rise in inequality-greater than in most other developed countries-has
reversed the equalization in income and wealth we experienced between 1945 and
1970. The United States has now cemented its traditional position as the leader
in inequality among advanced countries.1
These facts are not in dispute. From the Milliken Institute
on the right to the Economic Policy Institute on the left, virtually all analysts
agree that something has gone seriously awry with our income distribution.
And absent some major national effort to change things, the new inequality
is likely to continue (the recently reported 1995 decline in poverty and uptick
in wages notwithstanding). The next recession will surely exacerbate it, and
the forces contributing to wage losses at the bottom-foreign competition,
immigration of low-skilled labor, technological changes, shifts from manufacturing
to service industries, declining union density, subcontracting, and so on-are
unlikely to reverse themselves anytime soon.
Falling or stagnating incomes for most workers and rising inequality
threaten American ideals of political "classlessness" and shared
citizenship. Left unattended, the new inequality threatens us with a two-tiered
society-what I have elsewhere called an "apartheid economy"-in which
the successful upper and upper-middle classes live lives fundamentally different
from the working classes and the poor.2
Such an economy will function well for substantial numbers, but will not meet
our nation's democratic ideal of advancing the well-being of the average citizen.
For many it promises the loss of the "American dream."
What should we do about the new inequality? That's the important
question, but before getting to it I want to put two less fundamental ones
to the side.
First, what are the causes of the new inequality? The short
answer is that analysts disagree. Pat Buchanan and Ross Perot put immigration
and trade at the top. The Clinton Administration blames technology. Republicans
blame taxes and government regulations. The AFL-CIO stresses declining unionism
and the fall in the real value of the minimum wage. It would be nice to know
how much each of these factors (and others) contribute to the problem. But
such knowledge is largely irrelevant to the "what is to be done?"
question that should be our principal concern. After all, determining what
caused the new inequality does not dictate the policies we need to attack
it. Technology may indeed be the culprit, for example, but that doesn't recommend
Second, what are the proximate effects of the new inequality?
The short answer is that we don't know, because the new inequality is so new.
Our prison population-to reach 3 percent of the male workforce by 2000 or
so, surely a record for any democratic society-is largely composed of high
school dropouts for whom the job market has collapsed, but no one knows how
much the decline in the pay and employment of low-skill workers has contributed
to criminal activities. Poorer Americans live shorter and less healthy lives
than richer Americans, but just how much shorter and less healthy they have
recently become as a result of labor market changes is hard to estimate. Intact
families are strained by the increased inability of less educated men to make
a living, and child support payments are hard to dun from delinquent dads
with no cash-but again, getting precise estimates of the effects is difficult.
As with cause, however, so with effect. We don't need precise
estimates on the ill effects of inequality to agree that it is a serious problem.
No one argues that we need more inequality to generate work effort or economic
growth. To the contrary, most recent economic studies suggest that inequality
is harmful to growth. So let's put aside causes and consequences and simply
stipulate that the problem is real, big, and worth solving.
In what follows, I offer some candidate proposals on how to
do that. I emphasize their "candidate" status. Excepting radio talk
show hosts, nobody claims certainty about what new policies we need. And given
our fundamental uncertainty about how the new economy works, nobody should.
At this point of our knowledge, we should be more vigorous exploring alternative
strategies than peddling answers. Since we cannot explore forever, and at
some point need to plunk for some definite directions and policies, what we
most need now is a free-for-all debate about what might be done. That debate
should be disciplined by reason, but not cramped by political litmus tests
or stringent feasibility assumptions. We're in new territory here, and today's
impossibilities may turn out to be tomorrow's consensus solutions.
Consider my suggested strategies, then, as an invitation to
that debate. I think they make sense-otherwise I wouldn't make them-but of
course you may disagree. Don't leave it there, however. If you disagree, say
why. And if you think you've got a better suggestion, get it on the table.
Let the argument begin about how we as a nation might alleviate the new inequality
that threatens us. It's probably the most important economic argument of our
The New Inequality and Policy Failure
Before getting to proposals, however, let's state a bit more
precisely the dimensions of the problem-the facts about the new inequality
that any knowledgeable economist, regardless of his or her political persuasion,
would readily acknowledge as true-and say something about current policy discussion
Here are the facts:
Income inequality has skyrocketed. In 1979, for example, on
an hourly basis, the top decile of men earned four times what the bottom decile
earned; by 1993 they were earning five times as much. This rise in inequality
occurred in the context of general wage stagnation: the median male worker,
for example, earns about 13 percent less than the median male 15 years ago-despite
his being older and having more education.
Inequality in earnings has led to inequality in family incomes.
Virtually all of the past decade's economic growth has gone to the upper 5
percent of families. Since the early 1970s, while the income of the top 1
percent of households has doubled, family and household incomes have stagnated
or declined for 80 percent of the population.
Heavy income losses at the bottom of the distribution have
resulted in increased poverty. The share of Americans living in poverty rose
from 11.2 percent in 1974 to 15.1 percent in 1993, and the "poverty deficit"-or
amount of money needed to lift all to the poverty line-doubled in real terms.
The effects are felt most heavily among children. The lowest quintile of American
children are now poorer than the lowest quintile of children in 15 other advanced
countries, even as the upper quintile of American children are richer than
the upper quintile in those same countries.
Measured in "purchasing power parity" terms (which
take account of differences in prices), the bottom third of US workers now
earn less per hour than the bottom third of workers in Europe or Japan. Tenth
decile German workers make about twice as much as tenth decile American workers,
and the tenth decile worker in a typical European Union country makes 40 percent
or so more than a tenth decile American-this without taking account of the
fact that the European has national health insurance and other protections
that the American either buys out of the paycheck or does without.
Across the board, high-skill groups-college graduates, professionals,
managers, older workers-have obtained greater pay increases than low-skill
groups. The pay of professional men, for instance, increased by 6 percent
while that of laborers fell by 21 percent and that of machine operators fell
by 16 percent. The only low-paid group whose wages increased were women whose
pay rose relative to men (though there still remains a male-female pay gap).3
Falling incomes and rising inequality have occurred despite
US success in generating jobs and a huge work effort by Americans. Since 1974,
the US employment/population ratio has grown from 65 percent to 71 percent
while OECD Europe's has fallen from 65 percent to 60 percent. Americans work
considerably more hours and take less vacation than Europeans; according to
the newest OECD data, we even work more than the Japanese.4
The experience of prolonged earnings declines and rising inequality in the
context of job growth and economic expansion is unprecedented in US economic
If these are the uncontroverted facts, what's the policy response?
At this point, from both major parties, next to nothing.
When it first came into power, the Clinton Administration tackled
the problem through increases in the Earned Income Tax Credit (EITC), a proposed
national health insurance, and additional training programs. But the EITC
doesn't address declining wages themselves, health insurance went nowhere,
and training would have to be truly massive to make a dent in the problem.
You don't correct a 20 percent downward trend in real earnings by providing
a young person with a three- to six-month training program or by getting him
or her a Graduate Equivalency Diploma.
The 1996 minimum wage increase did do something for workers
at the bottom of the distribution-with, I surmise, little loss of employment.
But the minimum remains low, and its recent increase was not part of any general
plan to intervene at the low end of the labor market. It was forced on the
Clinton Administration by organized labor and massive public support: this
is one redistribution three-quarters of Americans wanted. And the 1996 welfare
"reform" will have a countervailing effect by increasing the market
supply of less-skilled workers and downward pressure on their wages.
Properly configured, a cut in income taxes could do something.
But Bob Dole's campaign pledge to give Americans a 15 percent cut-coupled
as it was with promises to roll back the capital gains tax, maintain the reduced
fiscal deficit, not cut military spending, and reduce taxes on Social Security
income-seemed more campaign gimmick than serious redistributive policy.
Some argue that we can grow our way out of the problem-through
more relaxed Federal Reserve policies or tax spurs to capital investment.
But while an expansionary Fed policy and increased capital investment (however
spurred) would be welcome, and while faster growth would certainly ease any
long-run solution, the experience of the last 15 years should seriously qualify
any hope that growth alone will do it. We've had job growth-and income has
declined for many and been spread more unevenly.
Others argue that the problem will correct itself through market
forces. Faced with increased returns to schooling, more people will get themselves
skilled, and the reduced supply of less-skilled workers will drive their wages
up. Some of this market logic is working-enrollments in higher education are
up-and the wages of college graduates have recently declined, but inequality
is not returning to pre-1980s levels. What most troubles me about the "market-will-solve-this"
view is that young people in the "baby bust" generation that followed
the boomers have seen their pay fall despite a diminished supply of young
people on the job market.
In sum, current "strategies" run the gamut from inadequate
to sham. There is no reason to believe that they will solve the new inequality
problem. So we're back to the question we started with: What should we do?
Five Strategies for Raising the Bottom (and Relieving Inequality)
I have phrased the title to this section deliberately. I believe
our goal should be to increase the earnings and living standards of those
at the bottom-thereby diminishing inequality by improving their position relative
to the better-off-rather than level down those who are prospering without
lifting up the poor. As the AFL-CIO has recently argued, we want to give America
a raise-with the biggest part going to low-paid workers. The result will in
fact be a substantial income redistribution from those who have gained so
much in the past 1520 years-not a redistribution for its own sake, but
for its results in improving the living standards of those now at or near
How to do this? Recognizing both the new economic circumstances
and the successes and failures of the traditional welfare state, I would recommend
five broad strategies of reform that would take us "out of the box"
of conventional remedies and constitute radical reform, in the best sense:
In combination, pursuit of these strategies would substantially
equalize economic opportunity, and institutionalize pressures for a more egalitarian
income distribution, while improving living standards generally, hopefully in
ways that are politically more acceptable than the present welfare state.
- Move redistributive strategies away from reliance on income
transfers and toward the transfer of productive assets.
- Shift redistribution forward in the life course, targeting
interventions on the young.
- Raise the "social wage" (guaranteed, non-market
benefits for all citizens) while taxing it progressively.
- Encourage the growth of those citizen organizations with
the clearest stake in improving the position of low-wage workers-namely
- Target metropolitan regions as the building blocks of a more
One virtue of capitalism is that individuals have capital assets,
physical and human, that they can freely use to the best of their ability
and that earn them market returns. Decentralized markets permit this use in
diverse circumstances, taking advantage of local knowledge and individual
initiative. The "hard budget constraints" of market competition,
moreover, assure that only "wise" (profit-generating) use is rewarded.
The result is invention, productivity, and increased social wealth.
Of course, real-world capitalism doesn't correspond perfectly
to this picture. Real markets are imperfectly competitive, and the operation
of even perfectly competitive markets has some undesirable social consequences.
For example, individuals with strong private economic positions use those
positions politically to soften the "budget constraint" on their
incompetence. Defense contractors are a prominent case in point, and the US
tax code is full of other examples.
Still, you get the basic idea. The really big problem in capitalism-at
least from the perspective of those concerned about inequality-is that those
original assets are themselves unequally distributed. If we were to start
democratic capitalism with a blank slate, we would naturally divide the ownership
of existing physical assets equally among the population (as the East Europeans
and Russians have tried with their various privatization schemes). Give everyone
a voucher to use for education or training or for investment in physical assets,
and let them compete in the market. In this competition-by dint of ability
or luck or effort-some people would become wealthy and others would become
poor. For the latter, we'd want to build some sort of safety net. But this
would be a distinctly secondary response. Our main strategy-be we left or
right-for fighting income inequality under capitalism, should be to assure
a fair initial distribution of physical and human capital themselves. Equality
of income obtained in the first instance via greater equality in those assets,
rather than as an after-the-fact (of earning or luck) state redistribution
of income from rich to poor, would enable us to better square the circle of
market efficiency and egalitarian aspiration.
Of course, we don't live in a virgin capitalism. In a functioning
free-enterprise economy, no one could sensibly propose seizing private assets
and redistribute them on an equal per capita basis. The modern welfare state
has sought to alleviate inequality through more indirect means-by meliorating
the effects of their exercise through redistributive income transfers. But
that shouldn't keep us from drawing a lesson for designing a policy to fight
the new equality from what we would do if we were starting anew. And at least
at the margin, we could begin now to move toward such asset-based, rather
than income-based, redistributive strategies.
Consider a two-step approach in this direction.
First, give workers themselves control of the most important
assets they already "own" but do not control-the $5 trillion in
deferred wages now residing in pension and other retirement funds. Amounting
to nearly a third of all US financial assets, this money could be used in
ways that substantially reduce inequality. The same goes for the worker equity
tied up in employee stock-option plans (ESOPs), which already claim some 11
million employee participants. We should amend current law (Taft-Hartley,
ERISA, and the tax provisions around ESOPs themselves) to permit real worker
control of worker assets.
Assume that worker-owners, no less than capitalists, use their
assets to advance their interests. If labor's capital were more firmly under
the control of its worker owners, we would expect it would be used to help
foreclose the "low road" on industrial restructuring that has disrupted
American labor markets and depressed family incomes; to reduce domestic investment's
sensitivity to speculative international capital flows; and to increase the
willingness of management to undertake policies that benefit a wider range
of enterprise stakeholders than short-term owners of shares. Each move would
benefit the less-well-off, though perhaps not the very poor. We would also
expect that a more "worker-friendly" portfolio of national investment
would include investment in metropolitan cores-where many workers with pension
assets reside and where their investment would bring the double bounce of
an income return and an improved community-and here it can be expected to
benefit poor urban minority populations.5
In addition, and of great interest to the business community, such changes
in capital accountability might increase the aggregate amount of capital available
for investment. This would have positive effects on economic growth, and allow
management to focus on long-run business problems, including business strategies
to improve the position of the worse-off.
But there is no need to stop here. As a second and longer-term
step toward an asset-based egalitarian strategy, we should move toward more
fundamental asset redistribution. Imagine if instead of being promised at
birth that you will get a Social Security pension decades in the future (assuming
taxpayers then are willing to fund this obligation) you were given a trust
fund based on bonds or stocks whose returns would constitute your social transfer.
Such a fund would give citizens a share of the nation's capital endowment
similar to the privatization vouchers in the transitional economies. The incompetent
poor would then be more like the incompetent rich: they would have income
from assets that would let them live at some basic level, without depending
on income transfers.
How might we fund such a redistribution and set up a citizen
asset trust fund? Through progressive taxes, in part on inheritance and other
forms of wealth, but also through the income tax, or some consumption or value-added
tax. There are important design issues on which we would have to strike compromises
in any such scheme. To prevent new cross-generational equity problems or perverse
savings incentives, we might stipulate that only the income from the individual
capital account could be consumed by its holder. Individuals might allot their
trust fund investments in different ways (subject to some fiduciary responsibility
limits). But the capital itself would, upon the holder's death, revert to
the national pool for disbursement to the next round of babies.
All manner of critical details need to be worked out, of course-from
the precise dimensions of such accounts and their funding, to the speed at
which this sort of social funding base could supplement or supplant traditional
entitlement programs. But as a general proposition, asset redistribution,
coupled with the accountability-inducing possibilities of the market, makes
more compelling sense in a society based on private capital than after-tax
income transfer and insurance. Instead of demonizing welfare mothers, we'd
all be tending our social stock portfolios-and so would they.
If we should move at the margin from income to asset redistribution,
we should also move at the margin from late-in-life redistribution to early-in-life.
This doesn't mean taking Grandma's Social Security check away from her tomorrow
(unless she is Grandma Moneybags). But as a share of total social expenditure,
money spent on her grandchildren should substantially increase.
In terms of economic efficiency, all intuition is that early
interventions-educational programs of diverse sorts (such as Head Start),
programs to teach better parenting skills, increased resources for primary
schooling-are more effective than later interventions.6
But even if they are not, we still have good reason to favor them. Redistributive
efforts focused on the young rather than on the old may be less distorting
of savings, because unconditional benefits to the old adversely affect savings
behavior and work effort.
Whatever their other problems, European welfare states-with
child allowances in tax codes, parental leaves, various forms of subsidies
for day care, and, increasingly, more substantial and more equal spending
on education7-have done a better job
in ensuring "starting-gate" equality for children.
Most Americans would, I believe, prefer generating equality
"naturally," from more equal labor-market endowments, to generating
it "unnaturally" by correcting market outcomes through taxes and
transfers. If that could be done, egalitarian policies would have a more stable
base. To do it, however, we of course need to invest in people before they
reach those labor markets.
Moving on this goal would, of course, be a hugely expensive
proposition. We'd need things like full insurance and counseling on pre-natal
and maternal care; paid time off at birth for either parent (which would encourage
both work and the two-parent family); health insurance for the child up to
maturity; child-care subsidies sufficient to get all kids into safe and responsible
care by qualified caregivers earning a living wage; child allowances to keep
all kids out of poverty; and increased investment in schooling-much more intensive
and extensive use of technology, more teacher training and more demanding
standards on teacher performance, and an extension of the school year.
How much might all this cost? Another $200 billion a year?
It would be a "Marshall Plan" for the poorest among us-our nation's
children-and an investment in our future. Properly developed, no economic
strategy is more likely to excite popular imagination, bring us together as
a nation, or reverse the new inequality than a massive investment in starting-gate
equality for children.
Like asset redistribution, shifting social expenditures forward
in the life cycle fits with the broad goal of remaking America as the land
of equal opportunity within a market economy. Indeed, just as asset redistribution
is an effort to level the playing field by providing capital resources to
those without such, starting-gate equality is an effort to level the field
by providing educational or human capital resources to them as well. These
strategies are the same approach applied to different aspects of the inequality
problem. The effect of both would be to raise living standards of the least
A Higher Social Wage, Progressively Taxed
Any scheme to address the problems of the current poor, including
the working poor, and of those who even in an ideal future will run into economic
difficulties, requires supplementing market wages. That this needs to be done
I take to be beyond controversy: so long as we have human beings, somebody's
going to fail for reason of ability, effort, or luck, and unless we're prepared
to write them off we have to give them something. Especially given recent
developments in the American labor market, moreover, we should be prepared
to supplement their incomes far beyond what we've got in place today.
Of course, the possibility of getting something for nothing,
or little, may distort incentives in inefficient or socially disruptive ways-creating,
as with any redistributive scheme, "poverty trap" problems. If you
give me enough when I don't work or when I have low take-home pay, I may forego
a job or invest less in skills; or my employer may not give me a pay increase,
since only a bit of it will show up in my after-tax-and-transfer income and
it will have little effect on my performance. But the lion's share of these
problems can be solved by work requirements at the employee's end and wage
norming at the employer's.8 The more
substantive problem, in my view, is the general form of the wage supplement.
One way is to expand the "safety net" of supports
for the very poor. Get some social agreement on the minimum acceptable income
level, and when individuals fall below that fill in the gaps. At one time
both conservatives and liberals supported a negative income tax. But this
seemingly economically rational solution no longer commands much support anywhere.
Workers, be they poor or non-poor, tend to be skeptical of
programs that fund those who do not work. If the very poor have a serious
physical or mental defect, we are willing to provide them with some funds,
but if they are able-bodied, we are suspicious. Given this skepticism, means-tested
programs for poor people risk becoming poor programs. Recently, this has produced
the a welfare "reform" that replaced "welfare as we know it"
with "stingier welfare as we don't know it."
Another approach is to provide universal income supplements-some
monetizable basket of goods or services provided to all citizens, irrespective
of their labor market position-which I call a "social wage." Any
expenditure on public goods-police protection, highways, public schools, parks,
libraries-could count toward such a wage. So would national health insurance,
or a universal citizen income grant. The important point is that a social
wage is provided to all. This makes social wage programs politically popular-since
everyone gets, or expects or hopes to get, something from them. But it also
can make them expensive, and socially inefficient in providing resources to
some who just don't need them.
Is there a way to get the targeted efficiency of means-tested
programs (making sure that the vast bulk of support goes to those who need
the supplement) with the political appeal of universal ones? Or, asking the
same question differently, is there a way to get a politically appealing "social
wage" that doesn't bankrupt us all?
I think there is. We could treat social benefits the same as
private incomes in the tax system, or perhaps even tax them more progressively.9
Imagine a scheme in which social benefits were universal but in which the
better-off who didn't really need them had the vast bulk taxed away. This
is what President Reagan tried, in part, to do with his proposed taxation
of the Social Security/medical benefits going to the wealthy elderly-but on
which he was creamed by the AARP and Democrats and Republicans in the Congress.
This is what President Clinton did by reducing the amount of Social Security
that receives a tax break-leading Republicans to denounce him for "raising
taxes" when they could just as easily have praised him for "reducing
In the current US political climate, I don't suppose this idea
to be an easy one. But the logic for it is more or less impeccable, and we
shouldn't plan forever on having a political debate in which reason never
prevails. Properly configured, a "tax universalism" scheme with
relatively low and flat rates of taxation on private income and steeply progressive
taxation of social income could vastly improve the lot of the poor, and the
middle class itself.
Consider the three stylized modes of redistribution-one approximating
Europe's welfare state, the second approximating the United States, the third
a social-wage welfare state. In all cases, the wealthy are assumed to earn
much more than the middle class, while the poor have no incomes at all. In
European-style system, the wealthy and the middle class are subject to heavy
taxation to pay for universal entitlements. In the US-style scheme, lower
rates of taxation underwrite a much-reduced basket of means-tested entitlements.
In the social-wage solution, tax rates on private incomes would be progressive,
though less steep than in Europe: a large basket of social benefits would
be supplied to all, and those benefits would themselves be subject to steeply
progressive taxes. The result has the potential to improve conditions not
only for the poor but also for the middle class-which would benefit from the
social wage and be allied with the poor by the workings of the social-wage
Whatever the precise details, there is a strong case for taxing
income that comes in the form of social benefits at least as high as income
that comes in the form of earnings. This is not a left/right issue. Taxing
social-wage income even higher than private incomes may make sense to some,
but not to others. However this issue is resolved, recentering the welfare
state in this way is a way to institutionalize commitments to greater equality.
The natural private sector response to rising inequality and
falling real earnings is for workers to form trade unions to bargain with
employers over pay. To succeed, unions must win the support of a majority
of workers at particular workplaces. But while US law in theory permits workers
to unionize through secret ballot elections and in theory encourages collective
bargaining, the reality is that unionization is more difficult in our country
than in any other advanced industrial society. It is, as Alison Porter of
the AFL-CIO has described it, an act of courage for workers to try to unionize.
They face a long election campaign in which supervisors may pressure them,
and management threaten or fire them for their effort, with no guarantee of
a collective bargaining contract at the end.
At the same time, US labor law stifles other forms of employee
workplace activity or organization for fear that they will become old-fashioned
company unions. We have nothing like the works councils that nearly every
European country mandates so that the company will hear employee voices. The
result is that we are preventing the private sector from responding to inequality
and falling real wages through the natural mechanism of collective action
This must change. Although the proportion of the US workforce
covered by unions has been falling for years, unions are still the single
largest group of Americans concerned with, and committed to fighting, the
new inequality. Indeed, without an enhanced union movement I cannot imagine
how the United States can ever get itself organized to reduce the new inequality.
The only measure adopted by the last Congress to combat inequality-the increase
in the minimum wage-was passed through union pressure. The only effective
way to increase the wages of low-wage and low-skill workers is through unionization.
Survey after survey shows that low-paid workers-particularly low-paid African-American
workers-want to join unions. Concentrated in the service sector, and thus
largely safe from foreign competition, the lives of these workers could be
substantially improved through the benefits of organization. If private sector
unionization rose to 20 or 30 percent-and the polling data indicate that it
would rise to that if workers had free choice-we would see a huge increase
in pay and benefits at the bottom of the distribution.
However much or little you like unions, if you like the new
inequality less you had better think of ways to strengthen the hand of your
one sure ally.
New leadership at the AFL-CIO may herald a more successful
union movement, so that labor will be able to resurrect by itself. But some
form of labor law reform is probably needed to increase the ability of workers
to exercise their right of association. Let me suggest one radical change:
Let's get rid of federal preemption in labor law. Let the federal government
set the minimum standards of protection, but let states vary, according to
their wishes, above that. We already permit states to regulate public sector
bargaining; but in the private sector, the gate only swings one way-states
can ban union security clauses through so-called "right to work"
amendments, but aren't permitted to improve the conditions of worker organization.
Why not let them do so?
What would result from this federal scheme? My guess is that
the more heavily unionized states like New York, Minnesota, Illinois, and
Hawaii would enact laws that made unionization easier; whereas states without
significant union presence might want to further experiment with "labor
management cooperation" schemes of the sort that present law at least
on its face deters.10 The result would
be a jump in unionization in states that are favorable to unions; competition
in the marketplace between those states and anti-union, right-to-work ones;
and a proliferation of new forms of organizations. But the bottom line would
be large increases in pay for service sector workers at the bottom of the
earnings distribution in the unionizing areas; and a stronger movement to
fight against the new inequality.
Anyone who has walked across Chicago's Midway, through the South
Bronx, or a few blocks from the White House knows that we cannot conquer our
inequality problem unless we so something about our cities. The most recent
economic studies suggest even more: that cities are centers of hope as well
as despair. By concentrating people, skill, and resources, they create "agglomeration"
benefits-new ideas and production techniques generated through the interaction
of their residents and communicated outward, externalities from environmental
improvement-that spur economic growth.
What might we do to make something of this potential? For all
their good intent, Jack Kemp's empowerment zones are not the way to go for
a simple reason: they are not cost-effective. They are simply another form
of ineffective trickle-down. Many of our current urban and transportation
programs might usefully be eliminated immediately-since all they do is pave
the way for employers to leave cities. We would take a big step forward to
end programs that subsidize the destruction of our cities. But we can do more:
invest in the physical and social infrastructure-from effective mass transit
systems to functioning schools to public safety, sectoral training consortia,
modernization services-that will enhance cities and that may more than pay
for themselves as they provide a base for thriving urban businesses that rely
upon an abundant supply of high-quality public goods, of the sort that cities,
given their population densities, are best able to afford.
Resuscitating cities will require some reduction of regulatory
red tape and elimination of municipal corruption and featherbedding. It will
be enhanced by local adoption of metropolitan forms of governance and taxation.
We've made it too easy to avoid the burdens of city life without sacrificing
the benefits by moving a few miles out. Rebuilding our metro regions could
be accompanied by institutionalizing regional government.
Last, at their core-and immediately-we need to make the poor
areas of cities more passably livable. One need not be a conservative to see
the logic of better police protection nor an old liberal to see the logic
of better social services for the inner-city poor-not simply to resurrect
the cities but to provide the social wage that all citizens merit. We cannot
we isolate "them" in city slums while "we" live in protected
suburban areas. If we do, we will have lost the war against the new inequality
and created my nightmare apartheid economy.
How To Think About This
These five strategies require substantial reordering of policy
priorities. They face any number of locked-in interest groups resisting their
advance; and they may give offense to all ideological camps, your own among
them. But they have the advantage of sidestepping received categories of debate
and partisan policies. We are all tired of the old political debates between
the liberals (wherever they are) and conservatives, do-littles and do-nothings,
Donkeys and Elephants. We have a real problem that must be solved, and ideology
should not constrain our design of policies to solve it.
The unifying theme of the five strategies is to achieve equal
opportunity by leveling the playing field. We ensure people the resources
they need to compete in the market on fair terms-through asset redistribution,
starting-gate intervention, and a social safety net of universal but taxed
benefits. We ensure that those who are better off don't exploit their advantages
by easing the conditions of organization for workers. And we concentrate resources
on cities, where concentrations of poverty are greatest and social investments
most likely to pay off.
If you are conservative, note that all these strategies are
respectful of what markets can do efficiently, of property rights (wanting
to enlarge in the case of workers!), and the need for productivity and contribution;
they simply widen the range of people able to make that contribution, and
don't rely on impoverishment as a spur to its being made. If you are a liberal,
note that all these strategies seek to achieve your desired ends-relief of
poverty, an expanded middle class-though not through the government-led administration
of people you have traditionally favored. If you are a progressive, note that
strategies along these lines seem like decent bets, and ones that distinguish
your commitments from the sham policies currently making the rounds.
But whatever you are, and whether you find these five strategies
attractive or not, I hope you agree that we must find a cure to the inequality
problem that is gnawing, like a cancer, at the soul of our country . . . and
that you agree that the way to do this is to be open to plans regardless of
their ideological or political pedigree. If you reject my proposals, don't
attack me, or my ideas, or even my profession: attack the problem. Let's find
what looks most promising, and then organize and fight for those plans. Give
'em hell-or whatever-with something new.
Responses to Solving the New Inequality
Originally published in the December 1996/
January 1997 issue of Boston Review