Global inequality

image: scenes from Mumbai, April 2016

Inequalities of wealth and income throughout the world have generated a great deal of attention in the  past several years, in both the media and the scholarly world. Thomas Piketty’s Capital in the Twenty-First Century gave this set of debates a huge impetus when it appeared in 2013. Branko Milanovic treats this subject in his very recent book, Global Inequality: A New Approach for the Age of Globalization. (Here is a review of the book in the Financial Timeslink.) Some of the core arguments were presented in an earlier World Bank white paper (link). Global inequality refers to the distribution of income over the world’s population as a whole, pooling together the populations of all nations. And, as Milanovic observes, this distribution can be understood as the sum of within-nation inequalities and inequalities of the mean incomes of all nations. Piketty’s analysis is focused on within-nation incomes, and he highlights the fact that many OECD countries are experiencing a rapid increase in inequalities. But Milanovic demonstrates that the picture is quite different for global inequalities, where there has been a significant decrease in inequalities over the past two decades or so.

An earlier post considered and rejected a similar argument in the New York Times by Tyler Cowen (link). Cowen endorsed the idea that the world is becoming more equal in terms of income, and I argued that this conclusion misses the point of current concerns about inequality. It is not the size distribution of the whole world’s population that is of primary concern, but rather the distribution of income within national economies that is of concern. Milanovic provides data supporting a similar conclusion as one part of his analysis. But his arguments are much more substantive and data-rich. And his analysis makes it clear that both trends concerning income inequalities are important.

Milanovic directly addresses the relevant contrast here under the heading of “within-country” and “cross-country” inequalities, or what he designates as class inequalities and location-based inequalities. And, very interestingly, he suggests that the relative importance of the two sources of inequality changes over time, but both are important.

Here is the key graph representing much of the central argument in Milanovic’s book. (Milanovic refers to this as the “elephant” graph.)

The graph is reasonably clear once you understand its logic. The chart represents the income segments of the entire global population by percentile, and it represents the growth in income various percentiles have experienced during a recent decade. This means mixing populations globally; so, for example, the 40th percentile group includes rich Malians, middle-income Chinese, and poor Canadians. And, since different economies grew at different rates during that decade, the mix for a given percentile in the global income distribution changes from beginning to end. The x-axis represents percentiles of global income — the 10th percentile, the 30th percentile, etc. The y-axis represents the real increase in income experienced by that percentile in the period 1988-2008. So the 20th percentile experienced a 40% increase in income during the period; the 75th percentile experienced 29% growth; the 85th percentile is 4% growth; etc. And it is indeed striking to see that different segments or strata of the global income distribution had such very different growth profiles over this twenty-year period.

Milanovic thinks the turning points A, B, and C are particularly revealing about important current economic trends (11 ff.). Here is how he analyzes the segments: Point A encompasses people in the emerging Asian economies, with rapidly rising incomes in the middle range. Point B encompasses middle-income workers in OECD countries. And point C is the “global plutocrats” (22). Framed in these terms, Milanovic’s analysis has major implications for global politics and the way we understand the winners and losers of globalization.

The book offers a useful theoretical innovation for development economics. The Kuznets curve was thought to represent a one-time feature of economic development through a process of modernization: the view that inequalities within a national economy increase during the early phase of modernization and structural transformation, and then decline over an extended period of time. The theory seems to be refuted by the sustained period of rising inequalities in OECD economies from the 1980s. Milanovic argues for a revision of the concept by introducing the variation of a Kuznets wave or cycle, or “alternating increases and decreases in inequality” (50ff.). The intervening variable causing this fluctuation in Milanovic’s account is rising per capita income and the new social and economic forces this rising level of wealth creates. Two important elements of this dynamic are the paired forces of rising power in the hands of wealth holders on the one hand and mass organizations like labor unions on the other, leading to a struggle between pro-rich policies and pro-worker policies. He explains the current resurgence of inequalities as the consequence of technology change and buy the rapid expansion of international trade (globalization) (103). But key to his approach is a recognition of the extensive complexity of the processes of growth that economies experience — what Bhaskar called the open character of social causation.

Milanovic goes into substantial detail in explaining the elephant graph in this extensive lecture at Peterson Institute for International Economics (link). The discussion of the slide occurs at 7:45.

 

Milanovic is one of the most expert analysts of economic inequalities anywhere, and Global Inequality is a contribution that anyone interested in inequalities will want to read.

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Youth service and America’s progress

 

Several hundred leaders from around the country convened this week in Washington, D.C. to participate in the 2015 City Year National Leadership Summit. City Year is a national youth service organization with a focused and ambitious mission: to harness the talents of young people in service towards the goal of solving the nation’s dropout crisis. Currently there are more than 2,800 young people serving on teams of 8-10 in some of our country’s most difficult schools, focused on helping disadvantaged students stay in school and on track.

Making use of educational research conducted by scholars like Robert Balfanz at Johns Hopkins Center for the Social Organization of Schools, the City Year strategy is designed around a simple concept: using near-peers to help students overcome deficiencies of attendance, behavior, and course work so they have a high probability of graduating from high school. There is good quasi-experimental data to show that the intervention works. Some results of the signature “Diplomas Now” program are provided in the graphic below.

So the challenge is scale: is it possible to expand the scope of City Year’s activities around the country so that the majority of our country’s “dropout factories” have been addressed? The scale goals City Year has adopted are challenging but attainable: 80% of students in City Year schools will reach 10th grade on track for graduation; City Year will reach 50% of at-risk students in its communities; and City Year will expand nationally to serve the cities that account for 67% of the nation’s urban dropouts.

In order to reach the scale goal it is estimated that the national City Year corps needs to increase to 10,000 young people in roughly fifty cities — an ambitious goal substantially beyond the current level of 2,800 members in 26 cities. So the number of cities served by the organization needs to grow, and the number of schools served in each city needs to expand. And the key obstacle to reaching this goal is money. The “all-in” cost of supporting one corps member is roughly $40,000 per year. So to support a corps of 100 in a city like San Antonio or Cleveland, the local organization needs to raise about $4 million per year. Ideally there are four sources of support, roughly equal in magnitude: Americorps funds, local school funds, corporate sponsorships, and private gifts. This means the local organization needs to raise about three million dollars a year in local funds (schools, corporations, and individuals), with one million dollars in support from Americorps. And to get to scale, this goes up to about nine million dollars for cities like Detroit.

Dropout prevention through programs like City Year has a large return on investment. Throughout the summit City Year leaders and Federal and local education officials estimated that the return on keeping a student in school through graduation is roughly four times the cost of the programs that do it. So dropout prevention is a fantastic investment for society. But it requires public and private will to allocate the dollars necessary to achieve the goal.
This is a movement and a national organization that is making serious, meaningful progress towards solving one of America’s most pressing problems, the failure of high-poverty schools. This situation creates one of the most enduring forms of inequality of opportunity our country faces, and it disproportionately impacts low income young people of color. 
 
The City Year organization continues to expand the impact and scope of its program of national service for young people. City Year announced the startup of its 27th city in the United States, Dallas. Corps members in Dallas will begin having the impact on children in poverty in Dallas that their counterparts have in cities around the country.

What is genuinely appealing about the City Year effort over the past twenty-six years is its pragmatic idealism. This is the best example I know of where a grassroots organization has transformed itself into a powerful force for progress nation-wide. And the values that hold the organization together, from the national staff in Boston to the site leaders to the 2,800 corps members, are positive, democratic, and inclusive. This is the foundation for a better America.

 

Or as City Year says to the young people of America, “Give a year, change the world!”

Here are a couple of thoughtful books on national service and Americorps as vectors of social progress:

(Policy Studies Association is a research and consulting organization that has done a good deal of program assessment for City Year; link.)

 

Was the Civil Rights movement a revolution?

photo: African-American newsman attacked by mob in Little Rock, 1957 (link)

I think of the results of the civil rights struggles of the 1950s and 1960s in the United States as the second American revolution, though a slow-moving one. And it is tempting to think of MLK as one of the founding fathers of this revolution. Is this an exaggeration or a legitimate historical and sociological judgment? Was this struggle comparable in any way to the experience of France in 1789, Cuba in 1953, or Teheran in 1979?

It is true that this period lacked some of the common attributes of a revolution — in particular, it did not lead to regime change or fundamental change in the system of government. But it resulted in a fundamental realignment of power in the United States nonetheless. It profoundly changed the terms of inequality embodied in the race regime of the United States in the first half of the twentieth century. It decisively closed the door on the idea of second-class citizenship for African Americans in the United States, and ultimately for other social and ethnic groups, and it broke up forever the foundations of white power and white supremacy through which this subordination was maintained.

It is important to remember the brutality and comprehensiveness of the system of Jim Crow relations between white and black people that prevailed in much of the United States in the 1920s into the 1950s. The photo above captures this system for me: resistance to demanded forms of subordination was met with physical violence. Jerrold Packard provides a detailed and graphic inventory of the code of the Jim Crow system in American Nightmare: The History of Jim Crow, and Danielle McGuire’s At the Dark End of the Street: Black Women, Rape, and Resistance–A New History of the Civil Rights Movement from Rosa Parks to the Rise of Black Power offers a focused look at the way the Southern racial system worked for women. This system of subordination extended to virtually all forms of ordinary life: employment, residence, politics, family life, education, and ordinary street behavior. And it was a durable system, reproducing itself through generations of assertive displays of white power. (See also C. Vann Woodward’s 1955 book The Strange Career of Jim Crow and Anne Valk and Leslie Brown’s moving collection of oral history interviews in Living with Jim Crow: African American Women and Memories of the Segregated South.)

The civil rights movement challenged every dimension of this system. African Americans of every level of society demanded equality and rights of access to all of the crucial activities of ordinary life: transportation, schools, voting rights, political participation, and the full expression of human dignity. And many thousands of black men and women showed their courage and commitment in standing up to the violence that enforced this system. This includes the famous — King, Parks, Abernathy, Lewis, Malcolm; but it also includes the many thousands of ordinary people whose names are now forgotten but who accepted beatings to register to vote or enroll in segregated schools.

So if a revolution may be described as a fundamental change in the power relations in a society, brought about by the concerted effort of a large-scale collective movement, then indeed, the civil rights movement brought about a revolution in America. Doug McAdam’s fine sociology of American race relations and the civil rights movement is right to call this an insurgency in Political Process and the Development of Black Insurgency, 1930-1970. It was an insurgency that was broadly based, passionately pursued, supported by effective regional and national organizations, and largely successful in achieving its most important goals.

It barely needs saying that this revolution is not complete. Tom Sugrue found a good phrase to capture the story in the title of his recent book, Not Even Past: Barack Obama and the Burden of Race. But further progress will build upon the cultural and structural changes brought about by these courageous and committed ordinary men and women in waging revolution against an oppressive social order.

Elitism?

There are a variety of ways of valorizing individuals and institutions in our society. We can value contribution and productivity; effectiveness; talent and merit; honesty and integrity; and “elite status”. Just watch the credits for Masterpiece Theater, including the promotions for a luxury cruise line and a luxury fashion house, and you will get a pretty good feel for the final category of value mentioned here, elite status. These promotions are clearly aimed at selling the product by selling the marks of elite standing with which they associate themselves. “If you too want to count yourselves among the elite, buy our clothes and travel on our cruise ships.”

Many individuals seem to be motivated by the desire to be perceived as being exceptional, high-status, and, well, elite. This has a connotation of wealth and power, but it also connotes other forms of access and privilege in society — able to gain the ear of elected officials, able to get a corner table at Elaine’s, able to gain membership in exclusive clubs and organizations. So what is “elite”?

To start, “elite” is a social characteristic of meaning attributed to individuals by other individuals. And pretty clearly, it is a socially engineered characteristic. It is the product of specific social actions and institutional arrangements. The fact of a group of families possessing concentrated wealth and power doesn’t automatically create an “elite” in society; rather, features of these individuals and families need to be marketed to the public in ways that lead others to recognize, admire, and respect them. Hierarchy needs to be cultivated.

But “elite” also applies to institutions and practices. Institutions can be perceived as being elite in and of themselves; and they can be perceived as the kinds of places where wannabes can gain the marks of the style and membership that will permit them too to be classified as “elite”. Private schools in New York and Philadelphia compete for both forms of elite status. The New York Yacht Club is elite; the Brooklyn Bowling League is non-elite. Princeton University is elite; LaGuardia Community College is non-elite. Medical school is elite; cosmetology school is non-elite. And, like the cruise line and the fashion house mentioned above, the elite status of the institutions is something that is deliberately cultivated and marketed. Princeton, Harvard, Johns Hopkins, and Berkeley are all very concerned about maintaining their elite status and reputation.

Status and privilege are social products; so it is an important task for sociology to decode their workings in contemporary society.

Pierre Bourdieu’s theorizing of various forms of social and cultural capital is directly relevant here. Bourdieu is particularly astute in tracing the markings and features of various kinds of privilege in French society, and the workings of the institutions that reproduce those features. Having elite status is a very tangible form of power and influence, independent from the personal qualities of talent, education, and experience that the individual may possess. Bourdieu traces how this mechanism works in France in The State Nobility: Elite Schools in the Field of Power. The markers of elite status — school, manners, dress, clubs, friendship circles — are forms of social capital that greatly contribute to the influence and power of the young people who are introduced into these practices. Here is a brief statement of Bourdieu’s approach:

One cannot get an accurate picture of the educational institution without completely transforming the image it manages to project of itself through the logic of its operation or, more precisely, through the symbolic violence it commits insofar as it is able to impose the misrecognition of its true logic upon all those who participate in it. Where we are used to seeing a rational educational enterprise, sanctioning the acquisition of multiple specialized competences through certificates of technical qualification, we must also read between the lines to see an authority of consecration that, through the reproduction of the technical competences required by the technical division of labor, plays an ever-increasing role in the reproduction of social competences, that is to say, legally recognized capacities for exercising power, which are absolutely essential if the social division of labor is to endure. (116)

Bourdieu uses the language of “consecration” — the quasi-religious anointment of young men and women into the ranks of the elite holders of power in twentieth-century France.

The processes of social separation that Bourdieu describes for France seem to have close counterparts in North America as well. Elizabeth Armstrong and Laura Hamilton, Paying for the Party: How College Maintains Inequality and Shamus Rahman Khan, Privilege: The Making of an Adolescent Elite at St. Paul’s School offer sociological studies of how very different educational institutions work to create the distinction between elite and non-elite. Armstrong and Hamilton study a mid-rank Midwestern research university, and Khan studies the St. Paul’s School, an ultra-elite boarding school in New England. Armstrong and Hamilton’s central finding is that the institution they study embodies institutional arrangements and practices that “track” students into outcomes that are closely correlated with the socioeconomic status of their families. Students from affluent families have a high likelihood of attaining degrees and future opportunities that support their own affluent careers upon graduation, whereas students from mid- and low-socioeconomic status families are led into educational pathways that result in lower rates of completion, less marketable degrees, and less career success. Here is the diagram they provide describing the flow of their argument:

What they mean by “class projects” is a bundle of activities and educational goals that characterize different groups of students. They find three large class projects at work among the women students whom they study: reproduction via social closure; mobility; and reproduction via achievement (table I.1). And they find that the institutional arrangements of the university and the organizational imperatives that embody these arrangements work fairly well to convey different socioeconomic groups onto different outcomes. The pathways that correspond to these projects include the party pathway, the mobility pathway, and the professional pathway; and they find that the class resources and assumptions of the young women they study have a powerful impact on the choices they make across these various pathways.

Khan’s reading of St. Paul’s School emphasizes a different set of processes, at a more elevated level of the American upper crust. And he uncovers an important feature of the past fifty years: the elitist institutions have become simultaneously more diverse and more inegalitarian. It is what he calls a democratic conundrum:

All of this is to say that the ‘new’ inequality is the democratization of inequality. We might call it democratic inequality. The aristocratic marks of class, exclusion, and inheritance have been rejected; the democratic embrace of individuals having their own fair shake is nearly complete. (conclusion)

The fundamental impact of this institution, Khan believes, is to increase the concentration of wealth and power in America, even as a certain number of non-traditional candidates are incorporated.

And so my optimism is heavily tempered. If our economic trends continue, if the spoils produced by the many are increasingly claimed by the few, then the transformations among the elite may be durable. That is, we may have a diverse elite class. And this I imagine will no doubt be trotted out by the elite to suggest that ours is an open society where one can get a fair shake. But diversity does not mean mobility and it certainly does not mean equality. Ours is a more diverse elite within a more unequal world. The result of our democratic inequality is that the production of privilege will continue to reproduce inequality while implying that ours is a just world; the weapons of the weak are removed, and the blame for inequality is placed on the shoulders of those whom our democratic promise has failed. (Conclusion)

These are important features of the contemporary social world. But they raise an important parochial question as well: can public universities truly serve the democratizing role that is so deeply important in our highly unequal world today? Or is there a creeping elitism across many top public universities that undercuts the democratizing effects they ought to have for people on the bottom three or four quintiles of the population?

Underinvesting in the public good

There are quite a few investments in social programs that would have spectacular return on investment, but that in fact remain unfunded or underfunded. I am thinking here of things like broadened preschool programs, enhanced dropout prevention programs, regional economic development efforts, and prison re-entry programs. Why are these spectacular opportunities so dramatically under-exploited in the United States and other nations?

One line of answer derives from a public choice perspective: the gains that follow from the investment represent public goods, and public goods are typically under-provided. But that doesn’t really answer the question, because it is governments that are underinvesting, not uncoordinated groups of independent agents. And governments are supposed to make investments to promote the public good.

Another plausible answer is that the citizens who are primarily served by most of the examples provided above are poor and disenfranchised; so the fact that they would benefit from the program doesn’t motivate the politically powerful to adopt the policy.

There is also a powerful influence of political ideology at work here. Conservative ideas about what a good society looks like, how social change occurs, and the role of government all militate against substantial public investment in programs and activities like those mentioned above. These conservative political beliefs are undergirded by a white-hot activism against taxes that makes it all but impossible to gain support in legislative bodies for programs like these — no matter what the return on investment is.

Failure to achieve these kinds of social gains through public investment might seem like a very basic element of injustice within our society. But it also looks like strong evidence of system failure: the political and economic system fail to bring about as much public good as is possible in the circumstances. The polity is stuck somewhere on the low shoulders of the climb towards maximum public benefit for minimum overall investment. It is analogous to the situation in private economic space where there are substantial obstacles to the flow of investment, leaving substantial possible sources of gain untapped. It is s situation of massive collective inefficiency, quite the contrary of Adam Smith’s view of the happy outcomes of the hidden hand and the market mechanism.

This last point brings us back to the public goods aspect of the problem. A legislature that designs a policy or program aimed at capturing the gains mentioned here may succeed in its goal and yet find that the gains accrue to someone else — the public at large or another political party. The gains are separated from the investment, leaving the investment entity with no rational incentive to make the investment after all.

Some policy leaders have recognized this systemic problem and have turned to an innovative possible solution, social impact bonds (link). Here is how the Center for American Progress explains this idea.

A social impact bond, or SIB, is an innovative financial tool that enables government agencies to pay for programs that deliver results. In a SIB agreement, the government sets a specific, measurable outcome that it wants achieved in a population and promises to pay an external organization—sometimes called an intermediary—if and only if the organization accomplishes the outcome. SIBs are one example of what the Obama administration calls “Pay for Success” financing. (link)

Essentially the idea is to try to find a way of privatizing the public gains in question, so that private investors have an incentive to bring them about.

This is an interesting idea, but it doesn’t really solve the fundamental problem: society’s inability to make rational investment in its own wellbeing. It seems more like a way of shifting risks of program success or failure from the state agency to the private entity. Here is a McKinsey discussion of the concept (link), and here is a more skeptical piece in the Economist (link).

A sense of injustice in China?

 

Quite a few years ago Barrington Moore explored in his book Injustice the idea that a sense of justice sometimes plays an important role in history. Here is how he put his central question:

This is a book about why people so often put up with being the victims of their societies and why at other times they become very angry and try with passion and forcefulness to do something about their situation. For the most part, the book focuses on people at or near the bottom of the social order: those with little or no property, income, education, power, authority, or prestige. (xiii)

Moore is interested in a particular moment in history, the moment when …

… people come to believe that a new and different set of criteria ought to go into effect for the choice of those in authority and the manner of its exercise, for the division of labor, and for the allocation of goods and services… In this chapter we are looking for general processes that occur at the level of culture, social structure, and individual personality, as groups of people cease to take their social surroundings for granted and come to reject or actively to oppose them. (81)

We might summarize this idea in these terms:

  • A sense of justice is a broadly shared set of factual and normative beliefs about how existing society works when it comes to fair and equitable treatment of individuals by institutions and groups.
  • People are likely to mobilize in an effort to change the social order when their sense of justice is profoundly offended.

Moore offers examples of how offenses to a prevalent sense of justice can influence collective behavior, mostly drawn from German working class history. But for other examples we can also turn to E.P. Thompson’s concept of the moral economy of the crowd (link; also included in Customs in Common: Studies in Traditional Popular Culture) and James Scott’s application of this concept to the situation of rebellion and mobilization in SE Asia (The Moral Economy of the Peasant: Rebellion and Subsistence in Southeast Asia, Weapons of the Weak: Everyday Forms of Peasant Resistance).

This set of ideas raises two different sets of questions. First, can we confirm the idea that the motivations that arise from the experience of justice and injustice are in fact important in influencing the outcomes of specific cases of social life? Or is the sense of justice simply an epiphenomenon? And second, can we empirically investigate the particulars of the sense of justice and injustice of a particular people at a point in time? Is the sense of justice itself a social fact that can be investigated and mapped?

These ideas seem especially relevant to the case of China since the Revolution. On the one hand, the Chinese Communist Revolution depended upon a set of values that couched social justice in terms of equality across classes. On the other hand, China’s economy and society have witnessed an explosion of inequalities of income and influence since the 1980s. It is natural to ask, then, whether people who came to adulthood in the 1930s and 1940s in China acquired an egalitarian sense of justice and injustice; and whether they and their children experience today’s inequalities as being unjust. And in fact, some observers believe that rising inequalities in China are contributing to dangerously high levels of dissatisfaction and outrage among ordinary citizens. Or in other words, China is ripe for the kind of morally induced protest and resistance that Barrington Moore described. China is a “social volcano” in the early stage of venting and steaming, with an eruption to follow.

Martin Whyte’s recent study of this question leads to surprising findings (for me, anyway). In Myth of the Social Volcano: Perceptions of Inequality and Distributive Injustice in Contemporary China Whyte sets out to use the tools of survey research to assess and measure the contours of the assumptions about justice and inequality that are shared by several generations of Chinese men and women. He and research colleagues (including Shen Mingming and Yang Ming) conducted a national survey in 2004 aimed at probing Chinese attitudes towards inequalities. The survey involved responses from about 4,344 individuals, stratified in terms of region and rural/urban status.

Here is Whyte’s assessment of the survey data (chapter 3):

How can we summarize Chinese citizens’ feelings about issues of inequality and distributive justice? Which aspects of current inequalities in China do they accept and view as fair, and which do they see as basically unjust? In general, our survey results indicate that the majority of respondents accept and view as fair most aspects of the unequal, market-based society in which they now live. There is little sign in our results of strong feelings of distributive injustice, of active rejection of the current system, or of nostalgia for the distributional policies of the planned socialist era. (kl 1191)

In fact, Whyte describes a set of attitudes that place China squarely within what we might call the values of social democracy, favoring a social safety net and a market society that provides widespread opportunities for advancement. Here is a particularly relevant chart (figure 3.3):

The results in this chart display an intriguing blend of liberal and socialist commitments. Equal distribution (the Mao principle) receives 29.1% support, significantly lower than the 44.7% who oppose the principle. But another anti-liberal principle, government guarantee of jobs, receives higher positive than negative support (57.3% in support, 23.9% against). And there is overwhelming support for the idea of a government guarantee of a minimum living standard (80.8%).

Whyte singles out a number of principles of legitimacy and justice that he discerns in the survey findings (quoting from chapter 3, kl 1191 ff.):

  • There should be government-sponsored efforts to provide job and income guarantees to the poor …
  • There should be abundant opportunities for individuals and families to improve their livelihoods …
  • There should be equality of opportunity …
  • Material advancement and success should be determined by merit factors …
  • The pronounced social cleavage between China’s rural and urban citizens … are unfair
  • Since individuals and families vary in their talents, diligence, and cultivation and deployment of merit-based strategies for success, society will have a considerable amount of inequality …
  • Upper limits should not be set on incomes …
  • It is acceptable for the rich to use their advantages to provide better lives for their families
  • People in positions of political power should not be entitled to special privileges …

It is the generally optimistic character of these findings that leads Whyte to doubt that China is a “social volcano”. He finds that the bulk of the Chinese population possesses a conception of justice and economic expectation that aligns fairly well with China’s current social and economic realities. He does not find a rising sense of injustice and resentment that might fuel anti-regime mobilization. So China is not approaching a social eruption driven by a deepening sense of injustice among ordinary people; or at least this is how Whyte reads the data.

But it seems possible to read the data in another way as well. The principle of equal distribution — the Maoist principle — does actually correspond to the moral sense of a very large number of Chinese men and women in the survey (29.1%). (This number falls to 11.3% if it is specified that inequalities derive from a system of equal opportunity; figure 3.5.) How strongly does this minority hold this egalitarian view? Who are they? Is there a generational split on this question? And how about perceptions of conflict? Figure 3.7 presents opinions about the severity of conflict between various groups in Chinese society; there we find that 38.5% of respondents find large or very large conflicts between poor and wealthy people. Is this a large number or a small number?

In fact, there is an alternative reading of Whyte’s data that comes to a somewhat darker conclusion. It is true that there is a large majority in Chinese society who are optimistic about the direction of change China is undergoing, and who are optimistic about their futures and those of their children. But there also seems to be a meaningful percentage of China’s population who do not share these attitudes and beliefs. And perhaps this group is large enough to portend the kind of social conflict that Whyte is so skeptical about. When it comes to the likelihood of social unrest, perhaps it is not the modal individual but the disadvantaged minority who is most salient. So maybe a Moore-ian crisis is brewing in China after all.

Tyler Cowen on global inequality

Tyler Cowen sounds a bit like Voltaire’s Pangloss when he argues, as the New York Times headline puts it, that we are living “all in all, [in] a more egalitarian world” (link). Cowen acknowledges what most people concerned about inequalities believe: “the problem [of inequality] has become more acute within most individual nations”; but he shrugs this off by saying that “income inequality for the world as a whole has been falling for most of the last 20 years.” The implication is that we should not be concerned about the first fact because of the encouraging trend in the second fact.

Cowen bases his case on what seems on its face paradoxical but is in fact correct: it is possible for a set of 100 countries to each experience increasing income inequality and yet the aggregate of those populations to experience falling inequality. And this is precisely what he thinks is happening. Incomes in (some of) the poorest countries are rising, and the gap between the top and the bottom has fallen. So the gap between the richest and the poorest citizens of planet Earth has declined. The economic growth in developing countries in the past twenty years, principally China, has led to rapid per capita growth in several of those countries. This helps the distribution of income globally — even as it worsens China’s income distribution.

But this isn’t what most people are concerned about when they express criticisms of rising inequalities, either nationally or internationally. They are concerned about the fact that our economies have very systematically increased the percentage of income and wealth flowing to the top 1, 5, and 10 percent, while allowing the bottom 40% to stagnate. And this concentration of wealth and income is widespread across the globe. (Branko Milanovic does a nice job of analyzing the different meanings we might attach to “global inequality” in this World Bank working paper; link.)

This rising income inequality is a profound problem for many reasons. First, it means that the quality of life for the poorest 40% of each economy’s population is significantly lower than it could and should be, given the level of wealth of the societies in which they live. That is a bad thing in and of itself. Second, the relative poverty of this sizable portion of society places a burden on future economic growth. If the poorest 40% are poorly educated, poorly housed, and poorly served by healthcare, then they will be less productive than they have the capacity to be, and future society will be the poorer for it. Third, this rising inequality is further a problem because it undermines the perceived legitimacy of our economic system. Widening inequalities have given rise to a widespread perception that these growing inequalities are unfair and unjustified. This is a political problem of the first magnitude. Our democracy depends on a shared conviction of the basic fairness of our institutions. (Kate Pickett and Richard Wilkinson also argue that inequality has negative effects on the social wellbeing of whole societies; link.)

 
The seeming paradox raised here can be easily clarified by separating two distinct issues. One is the issue of income distribution within an integrated national economy — the United States, Denmark, Brazil, China. And the second is the issue of extreme inequalities of per capita GDP across national economies — the poverty of nations like Nigeria, Honduras, and Bangladesh compared to rich countries like Sweden, Germany, or Canada. Both are important issues; but they are different issues that should not be conflated. It is misleading to judge that global inequality is falling by looking only at the rank-ordered distribution of income across the world’s 7 billion citizens. This decline follows from the moderate success achieved in the past fifteen years in ameliorating global poverty — a Millenium Development Goal (link). But it is at least as relevant to base our answer to the question about the trend of global inequalities by looking at the average trend across the world’s domestic economies; and this trend is unambiguously upward.
 
Here is a pair of graphs from The Economist that address both topics (reproduced at the XrayDelta blog here). The left panel demonstrates the trend that Cowen is highlighting. The global Gini coefficient has indeed leveled off in the past 40 years. The right panel indicates rising inequalities in US, Britain, Germany, France, and Sweden. As the second panel documents, the distribution of income within a sample set of national economies has dramatically worsened since 1980. So global inequalities are both improving and worsening — depending on how we disaggregate the question.

The global Gini approach is intended to capture income inequalities across the world’s citizens, not across the world’s countries. Essentially this means estimating a rank-order of the incomes of all the world’s citizens, and estimating the Lorenz distribution this creates.

We get a very different picture if we consider what has happened with inequalities across the world’s national economies. Here is a graph compiled by Branko Milanovic that represents the Gini coefficient for GDP per capita for a large set countries over time (link):

This graph makes the crucial point: inequalities across nations have increased dramatically across the globe since 1980, from a Gini coefficient of about .45 to an average of .54 in 2000 (and apparently still rising).

Finally, what about inequalities within nations? This OECD report provides comparative data for 27 countries during the period 1975 and 2010 (link). They find that income inequalities increased in most of the countries studied. This report does not cover all countries, of course; but the findings are suggestive. Here is their summary finding:

And this is the most important point: most of these countries are suffering the social disadvantages that go along with the fact of rising inequalities. So we could use the OECD report to reach exactly the opposite conclusion from the one that Cowen reaches: in fact, global inequalities have worsened since 1980.

Thomas Piketty’s name does not occur once in Cowen’s short piece; and yet his economic arguments about capitalism and inequality in Capital in the Twenty-First Century are surely part of Cowen’s impetus in writing this piece. Ironically, Piketty’s findings corroborate one part of Cowen’s point — the global convergence of inequalities. Two French economists, François Bourguignon and Christian Morrisson, made a substantial effort to measure historical Gini coefficients for the world’s population as a whole (link). Their work is incorporated into Piketty’s own conclusions and is included on Piketty’s website. Here is Piketty’s summary graph of global inequalities since 1700 — which makes the point of convergence between developed countries and developing countries more clearly than Cowen himself:

 
So what about China? What role does the world’s largest economy (by population) play in the topic of global economic inequalities? China’s per capita income has increased by roughly 10% annually during that period; as a population it is no longer a low-income economy. But most development economists who study China would agree that China’s rapid growth since 1980 has sharply increased inequalities in that country (linklink). Urban and coastal populations have gained much more rapidly than the 45% or so of the population (500 million people) still living in backward rural areas. A recent estimate found that the Gini coefficient for China has increased from .30 to .45 since 1980 (link). So China’s rapid economic growth has been a major component of the trend Cowen highlights: the rising level of incomes in previously poor countries. At the same time, this process of growth has been accompanied by rising levels of inequalities within China that are a source of serious concern for Chinese policy makers.

Here are charts documenting the rise of income inequalities in China from the 2005 China Human Development Report (link):

 
 
 
 
 
 
 

So rising global income inequality is not a minor issue to be brushed aside with a change of topic. Rather, it is a key issue for the economic and political futures of countries throughout the world, including Canada, Great Britain, the United States, Germany, Egypt, China, India, and Brazil. And if you don’t think that economic inequalities have the potential for creating political unrest, you haven’t paid attention to recent events in Egypt, Brazil, the UK, France, Sweden, and Tunisia.

Saskia Sassen on austerity and social exclusion

Soup 2 greece
 
The previous post summarized some of Kathleen Thelen’s thinking about the prospects for a more egalitarian capitalism in our future. Saskia Sassen offers a more negative view of the direction of the development of European capitalism in her most recent book, Expulsions: Brutality and Complexity in the Global Economy.

Here is a post in Open Democracy in which Sassen summarizes her current thinking. Her view is that there is something new in the political economy of liberalization and austerity — the systematic exclusion and expulsion of a significant portion of the population from the economy altogether. She writes:

Low growth, unemployment, inequality, and poverty are no longer reliable markers for capturing the ‘economic cleansing’ afflicting European institutions and societies throughout Europe. This ‘works’ on the backs of all those who have simply been expelled.

This seems pretty descriptive in the urban environment in which I live in Detroit metro. The factors Sassen highlights — high unemployment, even higher rates of discouraged workers, and high rates of foreclosure and abandonment fit the Detroit experience very well. The most recent development — water shutoff notices to tens of thousands of Detroit residents — only reinforces the point of exclusion.

Thanks, Saskia, for providing the link!

Thelen on the prospects for egalitarian capitalism

source: Kathleen Thelen, Varieties of Liberalization (kl 3310)

There is a version of economic historical thinking that we might label as “capitalist triumphalism” — the idea that the institutions of a capitalist economy drive out all other economic forms, and that they tend towards an ever-more pure form of unconstrained market society. “Liberalization,” deregulation, and reduction of social rights are seen as economically inevitable. On this view, the various ways in which some countries have tried to ameliorate the harsh consequences of unconstrained capitalism on the least well off in society are doomed — the welfare state, social democracy, extensive labor rights, or universal basic income (link). Through a race to the bottom, any institutional reforms that impede the freedom and mobility of capital will be forced out by a combination of economic and political pressures.

The graphs above demonstrate the current structural differences among Denmark, Sweden, Germany, Netherlands, and USA when it comes to training and income support for the unemployed and underemployed. It is visible that the four European economies devote substantially greater resources to support for the unemployed than the United States. And on the triumphalist view, the states demonstrating more generous benefits for the less-well-off will inevitably converge towards the profile represented by the fifth panel, the United States.

Kathleen Thelen is a gifted historical sociologist who has studied the institutions of labor education and training throughout the past twenty years. Her book How Institutions Evolve: The Political Economy of Skills in Germany, Britain, the United States, and Japan is an important contribution to our understanding of these basic economic institutions, and it also sheds important light on the meta-issues of stability and change in important social institutions. With James Mahoney she also edited the valuable collection Explaining Institutional Change: Ambiguity, Agency, and Power on this topic.

Thelen’s most recent book, Varieties of Liberalization and the New Politics of Social Solidarity addresses the question of capitalist triumphalism. (That isn’t a term that she uses, but it seems descriptive.) She locates her analysis within the “varieties of capitalism” field of scholarship, which maintains that there is not a single pathway of development for capitalist systems. “Coordinated” capitalism and neoliberal capitalism represent two poles of the space considered by the VofC literature.

From the beginning, the VofC literature challenged the idea that contemporary market pressures would drive a convergence on a single best or most efficient model of capitalism. (kl 228)

Thelen is interested in assessing the prospects for what she calls “egalitarian” capitalism — the variants of capitalist political economy that feature redistribution, social welfare, and significant policy support for the less-well-off. She focuses on several key institutions — industrial relations, vocational education and training, and labor market institutions, and she argues that these are particularly central for the historical issue of the development of capitalism towards harsher or gentler versions.

Different varieties of liberalization occur under the auspices of different social coalitions, and this has huge implications for the distributive outcomes in which many of us are ultimately interested. (kl 243)

This point is key to her view of the plasticity and path-dependency of basic economic institutions: these institutions change as a result of economic imperatives and the strength of various social groups who are in a position to influence the form that change takes. “The conclusions I reach here are based on a view of institutions that emphasizes the political-coalitional basis on which they rest” (kl 259). But there is no simple calculus proceeding from power group to institutional outcome; instead, the results for institutional change are a dynamic consequence of strategy, coalition, and constraint.

I suggest that the institutions of egalitarian capitalism survive best not when they stably reproduce the politics and patterns of the Golden Era, but rather when they are reconfigured — in both form and function — on the basis of significantly new political support coalitions. (kl 330)

A key finding in Thelen’s analysis is that “coordinated” capitalism and “egalitarian” capitalism are not the same. Coordinated capitalism corresponds to the models associated with social democracies of the 1950s and 1960s, the “Nordic” model. But Thelen holds that egalitarian capitalism can take more innovative and flexible forms and may be a more durable alternative to neoliberal capitalism.

Is a more “egalitarian” capitalism possible? The data on labor markets that Thelen presents shows that there are major differences across OECD economies when it comes to wage inequality. Here is a striking chart:

Source: Thelen, Figure 3.3. Share of Employees in Low-Wage Work, 2010

Fully a quarter of US workers are employed in low-wage work in 2010. This is about double the rate of Denmark and quadruple the rate of low-wage workers in Sweden. Plainly this reflects a US economy that is creating substantially greater numbers of low-income people than any other OECD country. And yet all of these countries are capitalist economies, some with rates of growth that are higher than the United States. This demonstrates that there are institutional and policy choices available that are consistent with the imperatives of a capitalist market economy and yet that give rise to more egalitarian outcomes than we observe in the US, Canada, and the UK.

A key element in common among the more egalitarian labor outcomes that Thelen studies (Netherlands, Denmark, Sweden, Germany) is the expansion of part-time work, mini-jobs, and “flexi-curity”. This phenomenon reflects a combination of liberalization (relaxation of work rules and requirements of long labor contracts), with a set of arrangements that allows a smoother allocation of labor to jobs and an improvement in income and security for the lower end of the labor market. This trend is part of what Thelen calls a strategy of “embedded flexibilization”, which she regards as the best hope for a pathway towards equitable capitalism.

Thelen closes with a realistic observation about the uncertain coalitional basis that is available in support of the policies of embedded flexibilization. Xenophobic tendencies in countries like the Netherlands and Denmark have the potential for destroying the social consensus that currently exists for this model, and the leaders of nationalistic anti-immigrant parties have made this a key to their efforts at political mobilization (kl 5541). Maintenance of these policies will require strong political efforts on the part of progressive coalitions in those countries, and organized labor is key to those efforts.

This analysis is deeply international and comparative, but it has an important consequence for the political economy of the United States: where are the coalitions that can help steer our economy towards a more egalitarian form of capitalism?

(Readers may be interested in an earlier discussion of the Nordic model; link.)

Basic social institutions and democratic equality

We would like to think that it is possible for a society to embody basic institutions that work to preserve and enhance the wellbeing of all members of society in a fair way. We want social institutions to be beneficent (producing good outcomes for everyone), and we want them to be fair (treating all individuals and groups with equal consideration; creating comparable opportunities for everyone).  There is a particularly fundamental component of liberal optimism that holds that the institutions of a market-based democracy accomplish both goals.  Economic liberals maintain that the economic institutions of the market create efficient allocations of resources across activities, permitting the highest level of average wellbeing. Free public education permits all persons to develop their talents. And the political institutions of electoral democracy permit all groups to express and defend their interests in the arena of government and law.

But social critics cast doubt on all parts of this story, based on the role played by social inequalities within both sets of institutions. The market embodies and reproduces a set of economic inequalities that result in grave inequalities of wellbeing for different groups. Economic and social inequalities influence the quality of education available to young people. And electoral democracy permits the grossly disproportionate influence of wealth holders relative to other groups in society.  So instead of reducing inequalities among citizens, these basic institutions seem to amplify them.

If we look at the fundamentals of social life in the United States we are forced to recognize a number of unpalatable realities: extensive and increasing inequalities of income, wealth, education, health, and quality of life; persistent racial inequalities; a growing indifference among the affluent and powerful to the poverty and deprivation of others; and a political system that is rapidly approaching the asymptote of oligarchy. It is difficult to be optimistic about our political future if we are particularly concerned about equality and opportunity for all; the politics of our time seem to be taking us further and further from these ideals.

So how should progressives think about a better future for our country and our world? What institutional arrangements might do a better job of ensuring greater economic justice and political legitimacy in the next fifty years in this country and other democracies of western Europe and North America?

Martin O’Neill and Thad Williamson’s recent collection, Property-Owning Democracy: Rawls and Beyond contains an excellent range of reflections on this set of problems, centered around the idea of a property-owning democracy that is articulated within John Rawls’s A Theory of Justice. A range of talented contributors provide essays on different aspects and implications of the theory of property-owning democracy. The contributions by O’Neill and Williamson are especially good, and the volume is a major contribution to political theory for the 21st century.

Here is one of Rawls’s early statements of the idea of a property-owning democracy in A Theory of Justice:

In property-owning democracy, … the aim is to realize in the basic institutions the idea of society as a fair system of cooperation between citizens regarded as free and equal.  To do this, those institutions must, from the outset, put in the hands of citizens generally, and not only of a few, sufficient productive means for them to be fully cooperating members of society on a footing of equality. (140)

One thing that is striking about the discussions that recur throughout the essays in this volume is the important relationship they seem to have to Thomas Piketty’s arguments about rising inequalities in Capital in the Twenty-First Century. Piketty presents rising inequality as almost unavoidable; whereas the advocates for a property-owning democracy offer a vision of the future in which inequalities of assets are narrowed. The dissonance disappears, however, when we consider the possibility that the institutional arrangements of POD are in fact a powerful antidote to the economic imperatives identified by Piketty. And in fact the editors anticipate this possibility in their paraphrase of Rawls’s reasons for preferring POD over welfare state capitalism:

Because capital is concentrated in private hands under welfare state capitalism, it will be difficult if not impossible to provide to call “the fair value of the political liberties”; that is to say, capitalist interests and the rich will have vastly more influence over the political process than other citizens, a condition which violates the requirement of equal political liberties. Second, Rawls suggests at points that welfare state capitalism produces a politics that tends to undermine the possibility of tax transfers sufficiently large to correct for the inequalities generated by market processes.(3)

These comments suggest that Rawls had an astute understanding of the ways that wealth and power and influence are connected; so he believed that a more equal prior distribution of assets is crucial for a just society.

The primary aim of this public activity is not to maximize economic growth (or to maximize utility) but rather to ensure that capital is widely distributed and that no group is allowed to dominate economic life; but Rawls also assumes that the economy needs to be successful in terms of conventional measures (i.e., by providing full employment, and lifting the living standards of the least well off over time). (4)

The editors make a point that is very incisive with respect to rising economic inequalities.

The concentration of capital and the emergence of finance as a driving sector of capitalism has generated not only instability and crisis; it also has led to extraordinary political power for private financial interests, with banking interest taking control in shaping not only policies immediately affecting that sector but economic (and thereby social) policy in general. (6)

In other words, attention to the idea of a property-owning democracy is in fact a very substantive rebuttal to the processes identified in Piketty’s analysis of the tendencies of capital in the modern economy. As the editors put the point, the idea of a property-owning democracy provides a rich basis for the political programs of progressive movements in contemporary politics (5).

Two questions arise with respect to any political philosophy: is the end-state that it describes a genuinely desirable outcome; and is there a feasible path by which we can get from here to there? One might argue that POD is an appealing end-state; and yet it is an outcome that is virtually impossible to achieve within modern political and economic institutions. (Here is an earlier discussion of this idea; link.) These contributors give at least a moderate level of reason to believe that a progressive foundation for democratic action is available that may provide an effective counterweight to the conservative rhetoric that has dominated the scene for decades.

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