Escaping the Inequality Trap
You don’t have to be a Marxist to see that capitalism generates inequalities in wealth and income. As long as a relative few control society’s major productive resources, and as long as they can, by virtue of this control, dictate terms of employment to everyone else, inequality is inevitable. It’s what the system is designed to produce. Yet even in capitalist societies the degree of economic inequality can vary. How much inequality there is depends on a lot of things.
It depends, for instance, on worker organization. When workers are organized, they’re better able to fight for higher wages and to represent their interests in the political sphere. When workers are disorganized, capitalists can easily “capture the state” and use it to make laws that rig the game in their favor. The more control over government that capitalists achieve, the worse the rigging and the greater the inequality that results.
Inequality also depends on capitalist organization. An internally cohesive capitalist class is more powerful than a factionalized one. The worst situation is when capitalists are united and workers are divided. That’s when we’re likely to see runaway inequality.
The opportunities available for profit-making matter, too. If capitalists in one country can super exploit workers in another country -- colonialism is the classic example -- they are usually less aggressive about sticking it to their working-class fellow citizens. This translates into a bit less domestic inequality, at the price of more international inequality.
Likewise, capitalists will accept more equality if an economy is growing. When the pie is getting bigger, capitalists don’t try so hard to get more for themselves at everyone else’s expense. If workers take advantage of these periods of growth to press for higher wages, inequality can be reduced. But, again, it’s a matter of degree; even a rapidly growing capitalist economy remains an engine for generating inequality.
The labor market is also crucial. If capitalists need skilled workers, and such workers are in short supply, capitalists must pay more to employ them. This tends to diminish inequality somewhat, at least until capitalists can expand the labor pool by changing immigration policy or trade laws, or by devising new technologies that make it possible to hire workers who don’t need to have expensive skills. The labor market and technology can thus have at least temporary effects on the degree of inequality in a society.
In the United States, inequality has waxed and waned as a result of these factors. When the working class has been well organized, when the demand for skilled labor has been high, when the economy has been expanding, and when immigration policy and trade laws protected U.S. workers from exploitation on a Third-World scale, inequality has decreased. The period from about 1945 to 1970 fits this pattern. Because less inequality means less wealth for capitalists, capitalists fight back. That’s what we’ve seen in the period from about 1970 to today.
This analysis suggests a seesawing class struggle. During some periods, capitalists pull ahead and inequality increases -- until workers get fed up and begin to resist collectively. Under capitalism, workers never ultimately win, but sometimes they manage to turn the tide and regain lost ground. Maybe that’s the moment at which we’ve arrived today. If so, this is good news for nearly everyone, except capitalists.
Then again, hallelujahs may be premature.
Extreme economic inequality in U.S. society is indeed beginning to generate widespread discontent. But some economists and sociologists have argued that the last 30 years of capitalist ascendancy have brought us to something other than a routine tide-turning moment. What these last decades have brought us to, or rather gotten us into, they say, is an inequality trap -- a situation in which capitalists are so far ahead that it may be nearly impossible to turn things around without fundamental change.
The kind of inequality trap in which we find ourselves has a number of parts. One is the nearly complete capitalist capture of the state. As capitalists and their elite agents -- think here of the richest 1% -- have accumulated more and more wealth, their ability to control elections and policy-making has grown enormously. This has yielded not only an economic game hugely rigged in favor of capitalists, but the squeezing-out of populist opposition in government. It’s no surprise, then, that many people have lost hope in mainstream electoral politics, and thus refuse to participate in what seems like a sham. Under these conditions, capitalist dominance is more or less ensured and inequality is locked in.
A second part of the inequality trap is the destruction or co-optation of institutions that once inspired dissent and built solidarity among the working class. I am referring principally to unions. Despite their all-too-human failings, unions once brought working people together to fight for their interests. Capitalists know this, which is why they have devoted so much effort over the last 30 years to crushing unions in the private sector and are now doing it in the public sector. As unions have been weakened, the inequality trap has closed all the more tightly.
Another part of the inequality trap, alluded to earlier, is the ability of capitalists in the U.S. to draw on a worldwide labor pool. The international “free trade” laws that make this possible undercut the ability of workers in the U.S. to demand better wages. Which means that many workers in the U.S. feel that resisting capitalist demands is pointless, because if these demands aren’t met, capitalists will just move overseas. Workers here are thus stuck in a situation of worsening inequality, while capitalists enjoy a new freedom to roam the globe in search of cheaper labor and higher profits.
Economists stress the fourth part of the inequality trap: the loss of capitalist incentive to invest in ways that would benefit everyone. This incentive disappears once capitalists are so far ahead of everyone else that what they would gain from economic growth is less than what they would have to give up to produce that gain. Under these conditions, capitalists fiercely resist populist efforts to make them give up any wealth for purposes of productive investment -- the kind that builds new industries, or revitalizes old ones, and puts more people to work at decent wages that increase over time.
An inequality trap also means that capitalists don’t need to engage in productive investment to increase profits. Why? Because they can derive more profit simply from intensifying exploitation; that is, from making people work harder, paying them less, or doing both. This strategy is effective because, for all the reasons noted above, workers feel they are trapped and have no choice but to submit. If people feel lucky to have any job at all, and they have no vehicle for collective action, they will put up with a lot of abuse. The result is a stagnant economy in which the degree of inequality gets worse or doesn’t budge.
So if we’re in an inequality trap, and it seems clear that we are, the question is, How do we get out? On the one hand, the answers will seem obvious. On the other hand, the answers will seem impossible.
What seems obvious, for instance, is the need to create or rebuild institutions that can generate political consciousness and solidarity among those who stand to gain from reducing inequality. Unions, though battered, might still be a part of this process, as might some progressive churches, and as might the Occupy movement, depending on how it evolves. Cooperative work organizations might also be incubators of political consciousness and solidarity.
But solidarity in the form of shared political sentiment is just a start. We also need mass mobilization to achieve greater democratic control of the state. This is necessary if we want to change tax codes and labor laws, direct investment to productive uses, bring corporations to heel, save the planet from destruction, and end the horrors and wastes of war.
Presuming we could achieve greater democratic control of the state, what else do we need to do to loosen the inequality trap?
We need to tax financial transactions and wealth itself. We need to tax income and capital gains over $400,000 a year at a 90% rate. We need to use the money to create a democratically controlled central bank to fund cooperative work enterprises. We need to create a public jobs program so that everyone who is willing and able to work can have a meaningful job at a living wage. We need to at least double the minimum wage and set a maximum wage.
And, while we’re at it, we need to establish a national health service, so no one goes broke trying to pay for medical care. We also need to abolish tuition at public universities, so that every qualified student can get as much education as he or she wants.
No doubt this to-do list seems wildly unrealistic. But perhaps that’s precisely because we’re caught in an inequality trap that makes necessary and obvious solutions seem infeasible. A stunted sense of what’s possible, we might say, is yet another screw that tightens the trap.
There is a tendency, instilled in us by the can-do spirit of American culture, to immediately follow a gloomy analysis of a problem with a cheery, uplifting prescription for solving it. I am going to resist that tendency because, other than what I have said are obvious solutions, I don’t have a prescription to offer (and even if I did, I would be suspicious of it). A practical escape plan is something we’re going to have to figure out together.
What I do know is that when a great many people feel trapped in a situation of extreme inequality, which they also see as illegitimate, the potential for social explosion grows. Political and economic elites have perhaps correctly perceived that the Occupy movement could be the fuse, and so they have sought to repress it. But regardless of what happens with the Occupy movement, the conditions that gave rise to it -- not just inequality but an increasingly intolerable inequality trap -- will continue to generate pressure for change. Which means that we must either find a peaceful way out of the inequality trap, or eventually face a more destructive convulsion.
In the meantime, finding that peaceful way will depend on facing the gloomy reality of our current predicament. To get out of the inequality trap, we must first see that we’re in it. If there is a solution, perhaps it will be found by refusing to believe that what is necessary is impossible. That refusal will also be a step toward escaping the larger inequality trap called capitalism.