Inequality Is Not Our Fate
The Way Back to an Egalitarian Society
Nov 9, 2015
15 Min read time
The way back to an egalitarian society
Photograph: Robert L. Sherman
In 1955 the economist Simon Kuznets published a path-breaking article in the American Economic Review describing what became known as the “Kuznets curve,” shaped like an upside-down U. As industrial economies take off, inequality grows—we move up the curve. As growth continues, inequality gradually falls—we move down the curve’s other side.
Today, as Thomas Piketty writes in The Economics of Inequality, the Kuznets curve is “definitely dead.” In many advanced capitalist countries, notably the United States and the United Kingdom, income inequality has increased significantly since around 1980, rising steadily in the former, and, in the latter, jumping sharply in the 1980s and then plateauing.
Two new books and one older one—Piketty’s, newly translated—strongly reject the idea that this higher inequality is our fate. There is vital room for policy choice—for, in a word, democracy.
So what might an egalitarian policy look like? And what will get us there?
The Robots Are Coming!
In Piketty’s Economics of Inequality, originally published in French in 1997 and released this year in English translation by Arthur Goldhammer, and Anthony Atkinson’s Inequality: What Can Be Done? (2015), the central problem is income inequality. Income has three main sources: labor income (earnings, primarily from employment), income from wealth (including interest payments, dividends, and non-state pensions), and income from state decisions about taxes and transfers. This framework helps us understand past developments in income inequality, explain cross-national differences, and think creatively about how to reduce inequality.
Take Western Europe as an example. The specifics of the national stories differ, but developments in each of the three income sources—labor, wealth, and state transfers—explain why income inequality tended to fall between 1945 and 1980. Strong unions and tight labor markets allowed workers to bargain up the wage share of income, which tends to push down overall income inequality. For some of this period, state policy, including legislation to reduce the gender pay gap, further compressed wage inequality. Wealth inequality also fell in the United Kingdom in part because of rising home ownership. Moreover, this was an era of progressive taxation and growing cash transfers.
In the 1980s, these postwar trends either stalled or reversed. Earnings inequality increased and the wage share of national income fell. Wealth inequality stopped falling. And governments cut back on social security payments and cut tax rates on higher incomes. Piketty and Atkinson ask how we could once again get the three trends working to drive down income inequality.
Piketty’s main message is that egalitarians can and should respect the allocative function of prices in a market economy—their role in determining how resources are used. For example, trying to redistribute from capital to labor by legislating wage increases interferes with the allocative function of wages (the price of labor). That policy will eventually reduce employment. So it is often better to use “fiscal redistribution”—taxes and transfers. Thus we correct the distributive effects of the market but do not obstruct the working of the price system—in particular, the role of wages in determining the allocation of labor.
More participatory state structures will likely precede any major shift toward egalitarianism.
We should also seize opportunities for “efficient redistribution.” For example, real-world market economies allocate credit inefficiently. Potential lenders have limited ability to assess the merits of business proposals, so they demand collateral from prospective borrowers as protection from bad loans. As a result, many people with good investment ideas can’t pursue them because they lack the wealth to serve as collateral. Now imagine that we place a tax on wealth and use this to pay everyone a capital grant, a kind of social inheritance. We solve the collateral problem and in so doing strike a blow for efficiency as well as for equality.
This approach, with its emphasis on fiscal redistribution and a more egalitarian division of assets, fits firmly into a perspective one might call alternative liberalism. Alternative because in contrast to the neoliberalism that has dominated U.S. and U.K. politics since the 1980s, this perspective sees a vital role for the democratic state in shaping economic distribution toward egalitarian objectives. And liberal because it affirms the centrality of the market and preserves a role for the private ownership of wealth. As Martin O’Neill points out, an important source of this view is the British economist James Meade and his 1964 book Efficiency, Equality and the Ownership of Property. Like Piketty, Meade wants to free prices from serving distributional goals so that they can perform their allocative function properly. He is similarly sympathetic to measures that place assets in more hands.
Atkinson was Meade’s student, and he references the 1964 book. He sets out a comprehensive set of proposals for the U.K. but with potentially wider application.
On labor income, for example, Atkinson favors incorporating trade unions into a new consultative body, the Social and Economic Council, to promote a “national conversation” about distributional questions. While employment rates will indeed fall at some point if wages are pushed too high, Atkinson argues that there is space for wage bargaining that does not conflict with the allocative function of prices. In addition, society can actively shape the demand for labor by exercising control over the pace and direction of technological change, something that Atkinson sees as a key responsibility of the Social and Economic Council.
On capital income, Atkinson’s proposals include a tax on lifetime gifts and inheritances, using the proceeds to fund a scheme of universal capital grants—an idea that Piketty discusses and that was fully developed in the U.S. context in Bruce Ackerman and Anne Alstott’s The Stakeholder Society (1999). The idea also shaped the Child Trust Fund, introduced in the United Kingdom about a decade ago but abolished by the coalition government in 2010. Following Meade, Atkinson argues too for the state to establish a portfolio of assets—a sovereign wealth fund—so that the public has a direct, collective claim on returns to capital.
Finally, on transfers, Atkinson’s discussion includes the idea of a participation income, a variant of the idea of basic income, which Piketty and Meade also discuss in sympathetic terms. Basic income is an income grant paid to all as a right without a test of means or willingness to take a job. Participation income differs from standard basic income in that it is subject to a broadly defined participation condition covering employment, self-employment, unpaid care work, education, training, and voluntary work for “recognized associations.” Atkinson’s scheme would also apply to all U.K. residents—not just to citizens, as in some basic income proposals. Atkinson suggests a participation income at a little more than £3,000 (about $4,500) for each adult per year. This is equivalent to around 25 percent of median income in the United Kingdom for a two-person household with no children. This would complement existing cash benefits and would be accompanied by abolition of most personal tax allowances.
Atkinson argues that this reform program is feasible in the contemporary global economy. New welfare state initiatives can complement rather than weaken economic performance. In addition, Atkinson is optimistic about the prospects of deepening international cooperation to limit tax competition. Piketty also emphasises this, arguing for “taxation of capital at the broadest possible geographical level.” Atkinson also argues that some cash benefits should be paid transnationally (e.g., an E.U.-wide basic income for children).
Atkinson is particularly focused on the impact of technological change on jobs and wages. Information technology is leading to automation—a “rise of the robots”—and threatens to reduce demand for labor, depressing labor’s share of national income. As Atkinson points out, this precise scenario of “capital-biased technological change” stimulated Meade to write his book. Atkinson cites (as does Mason) a recent report from economist Carl Benedikt Frey and engineer Michael Osborne arguing that 47 percent of jobs in the United States could be automated. This gives an added urgency to the proposals for universal capital grants and sovereign wealth funds. As Atkinson puts it, “To the question, who owns the robots? The answer should be that, in part, they belong to us all.”
The New Commons
Information technology and its implications are even more central in Paul Mason’s Postcapitalism. Piketty and Atkinson are focused on money income from labor, wealth, and the state. But, as Atkinson points out, people haven’t always relied solely on money incomes. In earlier times, many people achieved some degree of self-sufficiency outside of the market because they shared in various kinds of commons. England’s wage-dependent working-class was made in part through enclosure: the process of destroying rights to the commons. As Guy Standing notes in A Precariat Charter (2014), this process was never fully completed, with working-class households achieving in the early twentieth century rights to “allotments” that remain to this day. But Mason’s gist is this: thanks to information technology, the commons are making a big comeback, and this holds out the liberating prospect of radically reducing our dependency on wage labor.
Mason has a background in computer journalism and Marxist politics. Although he describes his politics today as more complex, he remains very much in dialogue with radical left activists and journalists. Many in the United Kingdom find his work for Channel 4, where he is economics editor, refreshingly independent. And while his prescriptions are similar in some areas to Piketty’s and Atkinson’s, his analytical framework is different, drawing attention to at least one area of egalitarian potential—the commons—that neither Piketty nor Atkinson discusses.
Mason argues that capitalism develops through upswings and downswings of investment and growth centered on waves of technological innovation and new business models (long waves of the kind allegedly identified by the Soviet economist Nikolai Kondratieff in the 1920s). The most recent wave began after the Second World War, and we have been in an extended downswing, according to Mason, since the 1970s. Wage suppression—achieved by crushing union power—financial deregulation, accompanied, and expansionary monetary policy have helped keep growth going in the advanced capitalist countries. A new wave of technological innovation, centered on information technology, has also occurred. But this new technology is turning out to be difficult to harness for capitalist production. The recession that began with the 2008 crash had proximate causes in the excesses of financial deregulation. But the underlying conflict between information technology and capitalist property rights means that rapid growth is unlikely to resume.
The source of that conflict, according to Mason, is that information technology enables the reproduction of goods at zero marginal cost, or close to it. Mason’s book is an example. It is easy now to put the book manuscript online; everyone with access to a PC, tablet, or smartphone can read, copy, and circulate it at almost no cost. The only obstacle is that Mason’s publishers enjoy a legal right to prevent these activities unless they choose to permit them. The legal regime creates an artificial scarcity that maintains the opportunity to supply the book at a profit. Ditto for many other goods. “Apple’s mission statement, properly expressed, is to prevent the abundance of music,” Mason writes. But digital technologies press against this artificial scarcity.
Moreover, these same technologies enable people to make more goods on a nonmarket basis. The production of information goods takes on a new form: voluntary and collaborative, with outputs readily available for others’ use. Yochai Benkler refers to this as “commons-based peer production”; familiar examples include open-source software and Wikipedia. This kind of commons-based production—which, as Wikipedia shows, can outcompete for-profit production—is at the core of what Mason means by postcapitalism. In addition, technology can drive forward automation, making it possible to provide an increasing range of goods at low cost and potentially freeing people from unpleasant work.
Not that Mason believes we can sit back and let technology carry us into utopia. Postcapitalism must be a deliberate political project. The idea isn’t to suppress capitalism and markets in one giant heave but to use policy to promote the long-term expansion of a postcapitalist economic sector. Postcapitalism must also be environmentally sustainable, and this also calls for urgent and deliberate political action to drive down the use of carbon fuels and develop alternatives.
As Mason conceives it, the postcapitalist project has at its heart an idea also central to the alternative liberal perspective: basic income. In contrast to Atkinson’s participation income of £3,000, Mason proposes a basic income of £6,000 (about $9,000). “A basic income paid for out of taxes on the market economy gives people the chance to build positions in the non-market economy,” Mason writes. “It allows them to volunteer, to set up co-ops, edit Wikipedia, learn how to use 3d design software, or just exist.”
Mason agrees with Atkinson that we need to take collective control of how information technology is used to drive automation. But while Atkinson is concerned to maintain human service quality, employment opportunity, and wages, Mason stresses more the benefits of automation. Mason wants to get beyond wage-labor, not simply make it more equitable. He wants us to relocate our productive lives to a sector based on open, voluntary, and collaborative production. This is why, for Mason, basic income can only be a transitional measure: if things go well, the sphere of market income will eventually shrink so much that we won’t be able to sustain a basic income from taxation. But this transition will be a long one, and by the time it is complete, we won’t need taxation to supply basic income. Pretty much everything we will want will be free in kind, more or less, produced through inherently rewarding work. People will contribute according to their ability, and receive according to their needs.
Whether or not one finds this scenario convincing, Mason’s book, along with a growing literature on the commons, adds something important to liberal proposals to fight inequality. Quite apart from equitable distribution of labor income, wealth, and state transfers, egalitarian economics is also about defending and extending the commons. Nevertheless, Mason does not do enough to counter some challenges to his ideal of postcapitalism.
First, while it is not hard to see how commons-based production works for information goods, what about goods with more physical content? Presumably, this is where open-access hardware designs, 3d printers, community workshops, and so-called fab labs come in. While Mason argues that the zero-marginal-cost effect is spreading to the capitalist production of many of these goods, he does not do enough to explain concretely, with a skeptical reader in mind, what the postcapitalist alternative for them is. Mason should have given more space to explaining how we might get our shoes under postcapitalism.
A second issue is how commons-based production could itself be subject to inequalities. Mason implies that the sector has a strong, intrinsic egalitarianism. People can come in, contribute as they wish, and pretty much take what they want. But, as Atkinson suggests, not everyone is equally skilled at using the technology.
The Political Challenge
Meade wrote Efficiency, Equality and the Ownership of Property with a powerful labor movement in the background. This movement was in some ways exasperating to a liberal such as Meade. Still, its strength was critical in making politically possible egalitarian policy of the sort he espoused. The political context is different today. A growing body of literature suggests that many of the capitalist democracies of the affluent North have a “post-democratic” character: despite universal suffrage and regular, competitive elections, policy choice is heavily tilted toward the wealthy and business corporations. The policy agendas of an alternative liberal or postcapitalist kind thus run up against a challenging political reality.
Atkinson and Piketty have little to say on this issue. Ever the historical materialist, Mason seeks to identify a historical subject who can carry the political project of postcapitalism forward. This is not quite the proletariat identified by Marx and Engels but something Mason calls “networked humanity”:
In the past twenty years, capitalism has mustered a new social force that will be its gravedigger, just as it assembled the factory proletariat in the nineteenth century. It is the networked individuals who have camped in the city squares, blockaded the fracking sites, performed punk rock on the roofs of Russian cathedrals, raised defiant cans of beer in the face of Islamism on the grass of Gezi park, pulled a million people on to the streets of Rio and São Paulo and now organized mass strikes across southern China.
The category is suggestive but too simplistic, the start of analysis rather than the finishing point. And there is another dimension to the political question. The upsurges that so inspire Mason, while varied in their goals, are typically about political structures as much as economic reforms. This is obviously so in the cases where they are bravely confronting dictatorships, as in Egypt in 2011. But even in the liberal democratic (or “post-democratic”) nations, we see with the indignados, Occupy Wall Street, and Occupy London Stock Exchange a focus on political inequality and demands for new political structures.
As Donatella della Porta intimates in Can Democracy be Saved? (2013), there is a suggestive affinity between innovative state practices—such as participatory budgeting and randomly selected citizen juries and assemblies—and the practices of protest networks. Both embrace a more participatory and deliberative form of democracy. Opening up state structures so that they are more accessible to initiatives such as Occupy and other mobilizations of networked humanity will likely precede any significant policy shift toward a more egalitarian economy. Brazil’s participatory budgeting is as an example of what can be done, a state reform that made public spending decisions more accountable to local communities and civil society groups. But we need to take this kind of restructuring further, as well as find ways to extend democracy’s international reach, to redress the shift in power to the wealthy and business corporations.
As these books suggest, there is much we can do to create a more egalitarian economy and, in the process, a freer way of life. But the ambition to reshape and transcend capitalism needs to join with the struggle to renew representative democracy. Egalitarians need more discussion not just of policy but of politics and the democratic state.
November 09, 2015
15 Min read time