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Rising economic inequality has been at the center of America’s public debate since the Great Recession, and President Obama has characterized it as “a fundamental threat to the American Dream” and the “defining challenge of our time.”
For American liberals, inequality not only points to a huge flaw in our economic system; it also comes close to being the taproot of all our societal problems: larger financial crises, slower economic growth, reduced upward mobility, increased middle class indebtedness, and outsized influence of the rich on government.
Conservatives, on the other hand, are skeptical about inequality’s negative effects. They argue that income inequality statistics overlook enormous economic improvements in quality of life for all. They also point out that immigration has brought many people into the United States from poor parts of Latin America, which has increased inequality but arguably been good for those migrants (and for their families). Conservatives hold that there is little reason to believe that reducing income inequality will spur growth, encourage upward mobility, avoid financial crises, or make the country more democratic.
Liberals and conservatives find more common ground when it comes to upward social mobility. Both want to help those born into difficult social and economic circumstances to earn more and improve their prospects, though they disagree on how to achieve this.
In Social Democratic America, Kenworthy makes an enlightening contribution to the discussion of what government can and should do about what he identifies as the three interrelated problems plaguing America’s political economy: insufficient economic security to protect against the risks of job loss, illness, or old age; limited upward mobility; and the disconnect between household income and economic growth.
Kenworthy, a sociologist and political scientist at the University of Arizona, makes a powerful case for a big increase in social welfare spending. His model is the Nordic countries, which have managed to combine generous welfare policies with steady economic growth. The solutions he offers aren’t all that complicated. In terms of social policy, the United States just needs to do a lot more of what it is already doing. “All of us, not just some, are [now] dependent on [government],” Kenworthy claims, “And life is better because of it.” While liberals often lament America’s failure to emulate Sweden, Kenworthy believes not only that America should imitate Northern European countries but that it eventually will. This conviction gives Kenworthy’s book an upbeat tone. In a way, he has it all figured out.
But given Kenworthy’s admission that America’s economy in the coming decades will only exacerbate a host of issues, his optimism is striking. He predicts that along with “reasonably healthy economic growth” and “a modest increase in the employment rate,” we will also see “a rise in the likelihood of losing a job, little or no improvement in inflation-adjusted wages for earners in the lower half, growing inequality of market household incomes, and little rise in wealth for middle- and low-income households.” Economic competition will intensify, individuals’ financial risks will grow, families will continue to fracture, civic associations will be less vibrant, and labor unions will remain weak.
While little can be done, Kenworthy contends, to reverse these larger trends, the creation or expansion of social programs can mitigate their effects: expanded healthcare insurance; universal early childhood education; longer paid parental leave; increased child tax credit; sickness insurance; eased eligibility for unemployment insurance; subsidized automatic enrollment defined-contribution pension plan; expanded EITC; an increased minimum wage indexed to prices; and a host of other measures.
In a nutshell, Kenworthy wants to improve outcomes by taxing and spending more. If government can institute wrap-around social programs that begin with prenatal care for unwed mothers; continue into universal pre-K; are followed by after-school tutoring during K–12; help pay for college; prop up wages on the job; nudge workers into defined contribution retirement plans; offer extended unemployment benefits; provide universal healthcare; expand cash assistance for the impoverished; and perhaps end with late-night basketball, then America will enhance income insecurity, increase upward mobility, and reduce inequality.
Kenworthy claims that to enact his program, the government needs to collect “only” another 10 percent of GDP, which would move U.S. government revenues from the 37 percent of GDP it currently collects to 47 percent—just about where Sweden, Denmark, and Finland are today. But simply taxing the rich won’t work. In addition to raising taxes on the wealthy to their pre-2000 levels, we would have to institute a national consumption tax (VAT), end the home mortgage interest tax deduction, put a tax on carbon emissions and financial transactions, cap the Social Security payroll tax so that it covers 90 percent of earnings, and increase the payroll tax.
Politically, such large tax increases on the middle class are impossible today. Yet Kenworthy insists that they will be adopted in the coming decades, if only because Americans are “ideologically conservative but programmatically progressive,” which means that they can be enlisted to back individual social policies even if they are highly skeptical about big government in general. Democrats will continue to be electorally competitive, if not dominant, and Republicans will be pressured by the growing political importance of struggling working-class whites. In a pinch, “policymakers can overcome ambivalence among the citizenry.” And even if the decline of labor unions has shifted the balance of power between business and labor to the right, it has not and will not prevent the expansion of social welfare programs, which have grown considerably since the 1970s. In short, “progress is probable,” since the “long-run trend in American social policy has been one of slow but steady ratcheting upward.”
Kenworthy argues that social programs can mitigate the effects of declining economic security, limited upward mobility, and rising inequality.
All this may sound like a liberal daydream. But Kenworthy is not a simple partisan of big government. In considering alternatives to his agenda, Kenworthy refreshingly cuts through a lot of cant on both the left and the right.
He brusquely dismisses the prospects for labor unions, for example, and the potential for a revival of manufacturing or extensive income redistribution. Instead, he makes a case that more government services should be privatized or otherwise made more responsive, accountable, and innovative, even if that means defying public employee unions. According to Kenworthy, liberals should not fight globalization by trying to limit imports, outsourcing, or immigration. He urges them to give up on protecting existing manufacturing jobs (which will shrink to less than 10 percent of employment in the next two decades) and restoring those that have been lost.
With equal firmness Kenworthy dismisses conservative concerns about the cost of the welfare state and reliance on government and conservative calls for more means-tested programs targeted to specific groups. He rejects the claim that economic advancement requires greater family stability and argues that big government will neither reduce the pace of growth (as long as government revenues don’t top 60 percent of GDP, which sparked a crash in Sweden in the 1990s) nor undermine innovation. Yet, to encourage and sustain growth, Kenworthy argues for a dramatic reduction in government regulation of business. So while the state would tax and spend a lot, it would leave individuals free to start businesses and allow firms to allocate capital, hire and fire, and make most decisions in a relatively unfettered manner.
Insofar as Kenworthy’s policy prescriptions constitute a sort of “third way” between left and right, he is likely to find himself in a lonely middle. While liberals will agree with his call for expanded social programs and higher taxes, they will dislike his refusal to increase taxes on the rich, revive manufacturing, and champion labor unions. Conservatives will warm to his plan for decreased business regulation, concede that family strengthening policies don’t work, cheer a retooling of affirmative action around class rather than race, and maybe even welcome an increase in the EITC. But they are likely to remain opposed to higher taxation.
Kenworthy makes his case with brio, but he admits that the existing social science literature does not by any means support all of his proposals. He is refreshingly candid about the soft spots in his arguments, carefully evaluating the numerous studies he cites and acknowledging when the evidence is ambiguous.
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For all its virtues, Kenworthy’s call for the United States to mimic the Nordics is not unprecedented. American liberals have been arguing that we should emulate the Swedes at least since John Kenneth Galbraith was advising the Kennedys—and that was when Sweden had a much different policy profile than it does today. But since then, the Nordics have in some respects begun to resemble the United States rather than the other way around. In recent years, the Nordics have adopted many market-based programs, cut taxes, reduced regulation of business firms, sustained corporate-friendly tax policies, and begun to welcome immigrants. Furthermore, the fact that nearly all European welfare states are experiencing fiscal stress and cutting back makes one wonder about the sustainability of Kenworthy’s model.
And it is hard to picture how such an ethnically and religiously diverse country of 316 million people can adopt the programmatic character of a largely homogenous society of 9.5 million. Kenworthy acknowledges and tries to address this issue by claiming that “the grounds for concern” about borrowing other nation’s policies “dissolve once we consider specific policies.” Yet specific policies have different effects in different contexts. We can and should experiment with other nation’s policies but we shouldn’t necessarily expect that they will have the same effects here.
A fairer comparison might be to contrast the United States with Europe. If we look at individual America states across a variety of social welfare metrics, some, such as Massachusetts, actually perform a lot like the Nordic countries. But we also have Texas, and Mississippi. Kenworthy doesn’t pause to consider that there must be something valuable in the policy diversity of our federal system that allows for experimentation and adaption to different circumstances. Looking at Europe as a whole, we would see that they have Sweden and the other Nordics but also Spain, Italy, and Greece—to say nothing of the nations of Eastern Europe.
It is also important to bear in mind that Kenworthy admits that negative social trends, such as rising income inequality, family breakdown, community dysfunction, and labor market participation, may still get worse even with the extensive government intervention he prescribes. Public policy simply is not powerful or wise enough to fully counteract such large social and economic trends. It has been a half-century since the Great Society’s War on Poverty, and after all the money spent the poverty rate has hardly budged—though it has not gotten worse either. Following Kenworthy’s prescriptions will mean that defenders of greater social spending will find themselves saying that things would only have gotten worse (rather than better) without all the government intervention.
According to this view, America will have a vast welfare state (with some services run by private entities) that intervenes early and often. Economic competition will be intense. Incomes will be increasingly volatile. Workers may spend long stretches receiving unemployment benefits. And most workers will be in service jobs, a significant slice of which will be subsidized. Only about 5 percent of workers will remain in manufacturing. Most children will be born out of wedlock and many will be raised by single-moms. The financial and technocratic elite will be increasingly distant from average citizens. Product markets will be highly competitive and innovative, producing real gains for all.
Whether social democratic America will materialize is impossible to say. Social science has a bad track record of predicting the future. Many things could change the equation. Immigration from Latin America could decline. Credit could continue to expand. Not to mention war, economic shock, environmental disaster, or some other crisis.
Furthermore, Kenworthy says next to nothing about the current budget pressures being exercised by growing entitlement costs—especially Medicare. Therefore, even if revenues were increased, much of the cash would be needed to pay existing liabilities. Whether the proposals come from President Obama or Congressman Paul Ryan, discretionary domestic spending is likely to shrink in the coming years. Unless something dramatic happens, the federal government is on a trajectory to become a heavily armed health insurance provider with a pension plan on the side. Meanwhile, state and local governments are under serious fiscal strain from the pension and healthcare commitments they have made to current and future retirees.
Kenworthy also elides the political conundrum created by the Democratic alliance with public employee unions. It will be very difficult to secure improvements in service delivery while at the same time relying on the unions for campaign contributions and get-out-the-vote operations. Finally, he doesn’t address the worrisome decline in labor force participation rates, especially among men, which is problematic because many of his proposals hinge on prime-age adults working at least some of the time.
All told, however, Lane Kenworthy has written one of the more thoughtful recent assessments of the future of American social policy. The book is chock-full of data and distills an enormous amount of social science research into accessible prose. The basic deal that he offers, which is more economic flexibility for firms and individuals in exchange for more social protections from government, has a lot to commend it. Both liberals and conservatives should read Kenworthy because he provides a cogent account of a possible policy future for the United States.
Daniel DiSalvo is an assistant professor of political science in the Colin Powell School at the City College of New York-CUNY and a senior fellow at the Manhattan Institute. His book on public sector labor relations, Government Against Itself, will be published in January.
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