Equality (or, at least, fairness) and democracy
are closely related. But the first has declined. Can the second survive? And if not, what will the endgame be? Thoughts on
inequality, complexity, and collapse
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| The 1930s Slump. A march in Toronto |
Inequality has been increasing. Few people have explained this
process so well as Robert Reich, author of the 2010 book Aftershock: The Next Economy and America's Future.
Reich was Labor Secretary in Bill Clinton’s first
administration and is now Chancellor’s Professor of Public Policy at Berkeley.
His diagnosis, as set out in Aftershock,
is simple; it is that the concentration of wealth in the hands of a few will
make everyone poorer, because the rich don’t spend anything like enough to
generate employment – that needs a mass market, in which wealth is distributed
through the workforce so that everyone can participate in the consumer economy.
However, a process of wealth concentration has been going on for years. “The
wages of the typical American hardly increased in the three decades leading up
to the Crash of 2008, considering inflation. In the 2000s, they actually
dropped,” says Reich, and goes on to explain that the economy has grown so much
over that period that, had the benefits been divided equally, the typical
person would be 60% better off.
If that’s the case, how come that, for 30 years, no-one
seemed to notice this upward redistribution was happening? Reich argues that
the relative decline in income for most people was masked by longer hours,
which meant their overall income did not always decline – so that although
their income per hour did, they didn’t always notice. He also notes the
participation of women as well as men in the workforce, generating dual incomes
so that people did not, subjectively, feel poorer (he does not use this as an
argument that women should not be in
the workforce). And, most dangerously, the decline in real incomes has been
compensated for by an explosion of credit. A quick look at house prices over
the last 30 years suggests where much of that credit went. When the property
bubble burst, the game, indeed, stopped.
Britain is scarcely better in terms of income distribution.
Inequality is often measured using the Gini coefficient, which measures
variation through frequency distribution. The coefficient is expressed as a
value between zero and one, where zero represents perfect equality and one
represents the concentration of all wealth in one individual. According to the
OECD, individual countries’ Gini coefficients range from roughly 0.24 to 0.7.
That of the US in 2013 was 0.396 and Britain’s was not much better, at 0.358.
These figures are high for developed countries; for comparison, France’s and
Germany’s were 0.294 and 0.292 respectively. This suggests that if Reich is
right and the US has a problem with income inequality, then Britain has one
too.
The numbers seem to bear this out; according to the Equality
Trust, households in the bottom 10% of the British population have an average
net income of £9,277 while the top 10% have net incomes over nine times that
(£83,897). The poorest 50% of all households own just 8.7% of the wealth; the
richest 10% of households hold 45%. True, the Trust has an angle; its mission
is to encourage greater equality. However, the figures have been drawn from
Britain’s Office of National Statistics. The Trust adds that poorer children
can expect 52 years of healthy life against richer ones’ 71. One could add that
even the lower figure is far better than in lower-income countries.
Nonetheless, the evidence of inequality in Britain is striking.
Inequality is not good for democracy. Reich warns that, if
we’re unlucky, Americans will at last say “Hell, we were screwed”, but then
draw quite the wrong conclusion from that, electing a right-wing, isolationist,
populist and frightening President. He is wise enough to make this a fictional
character (though she slightly resembles a sort of Palin-Thatcher cross.) It is
an intriguing premise, given that Aftershock was written many months
before the Trump campaign began to gain traction. It is not surprising. Losers of rigged games, as Reich rightly
says, tend to get angry. An alternative scenario that Reich does not consider
is that Americans, and Brits, will vote for governments who see the need for
greater equality, but that those governments will be hamstrung by markets,
trade treaties and, in the US, legislative stasis. In that case people will,
quietly first and then in greater numbers, drift away from the system, and
society will lose its cohesion; government will become ineffective; and the
Western world will decay into irrelevance.
A historical relationship
But the link between equality and democracy is not a new one.
Without the former, the latter could not have taken root.
A functioning democracy requires a measure of equality – yet
a certain equality is needed to attain democracy. The Industrial Revolution
was, in effect, a breaking of that vicious circle. Between 1700 and 1900,
Britain broke the cycle of poor nutrition, low output, low income, low
consumption and poor nutrition. J.D. Chambers, in his elegant 1972 summary
Population, Economy And Society In Pre-Industrial England, credits a fortuitous
break in cycles of disease, but also says: “One aspect of the Industrial
Revolution… is that the labour force was not only very much larger but that it
was worked very much harder.” This needed better nutrition. In a 1990 paper,
the future Nobel prizewinner Robert Fogel pointed to “the exceeding[ly] low level
of work capacity permitted by the [18th century] food supply… The increase in
the amount of calories available for work over the past 200 years… increased
the labour-force participation rate by bringing [in] the bottom 20% of the
consuming units… [who had had] only enough energy… for a few hours of strolling
each day – about the amount needed for a career in begging.” (The Conquest of High Mortality and Hunger in
Europe and America: Timing and Mechanisms, 1990.) He concluded that
improvements in nutrition and health had accounted for perhaps 30% of the
growth in per capita income in Europe between 1790 and 1980.
So the vicious circle had been broken. But those who
controlled food and wages did not permit this out of altruism, or because they
had read Fogel. Chambers cites the way in which 18th-century labour combined to
obtain better wages. Or as the filmmaker Michael Moore put it in his 1996
polemic, Downsize This!, “When the
early unionists stood up to the companies, it resulted in a higher standard of living
for all of us… Thanks to labor unions, we have… wages that allow even the most
unskilled worker to purchase many products – which, in turn, gives more people
jobs.” This process of collective bargaining could not have happened under an
all-powerful oligarchy. In effect, one type of human right secured another. In
19th-century Britain, freedom – albeit imperfect, the beginnings of liberal
democracy – became more than its own reward.
Free debate was central to this process. Brian Inglis’s
absorbing account of the social reforms of the 19th century, Poverty and the Industrial Revolution
(1971), describes how in 1832 MP Michael Sadler fielded a Bill to regulate
abuse of labour in factories; the
evidence collected by the Bill’s Committee proved, as the Leicester Mercury
put it, that “cruel over-working [of children] has in many places been
practised… It is horrible, and an outrage on humanity, and decency…” The uproar
forced the new government to pass its own 1833 Factory Act, which for the first
time created an independent inspectorate.
Britain never became a workers’ paradise, but that is not the point;
rather, it is that democracy and the free circulation of information allowed
the vicious circle of malnutrition to be broken and real growth to begin. It is
an argument also stated, in a rather different form, by Amartya Sen, chiefly in
his much-read book Development as Freedom (1999). Crudely put, a
democracy is a society in which people may empower themselves; to Sen,
famously, famines do not happen in a democracy. The development of capitalism
and democracy, and the synthesis between the two, in the 19th century seems to
demonstrate the same argument.
This is of course an imperfect thesis. Technological change
also fed people in the 19th century: tinned goods; the introduction of
refrigeration, enabling the transport of meat from Argentina and the
Commonwealth; the process of enclosures, which slung people off the land but
also created cheaper food; then building of the railways deep into the Great Plains
of the US, which brought cheaper grain and in so doing caused an agricultural
depression in Britain but also fed people – all of this mattered, and it is
dangerous to say that there would have been no rise in living standards without
democracy. Yet it is hard to see how ordinary people would have claimed their
share without the freedom to organize and to be represented.
Today, however, as Reich has explained, the rich have
reacted, and grabbed back a bigger share of the cake. This reaction has been happening for a while,
and it has already destabilized our world.
Consider the following from Reich’s Aftershock.
It is a very good summary of what happened in 2008:
As mass production has
to be accompanied by mass consumption, mass consumption, in turn, implies a
distribution of wealth... Instead of achieving that kind of distribution, a
giant suction pump had... drawn into a few hands an increasing portion of
currently produced wealth. ...In consequence, as in a poker game where the
chips were concentrated in fewer and fewer hands, the other fellows could stay
in the game only by borrowing. When their credit ran out, the game stopped.
Except that it isn’t Reich himself and it isn’t about 2008.
Reich is quoting long-ago Fed chairman Marriner Eccles. And Eccles was writing
not about 2008 but about 1929 and the Great Depression that followed. Yet this
is not so different to what happened after 2008, as the British and US
governments bailed out the banks that were too big to fail, and ordinary people
paid for it through a regime of austerity. After 1929, and again in 2008, it
wasn’t the wealthy that paid for their folly.
So why not?
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| Anti-austerity demonstation in Valencia (Fito Senabre/Wikimedia Commons) |
Rousseau is alleged to have said in a speech, “When the
people shall have nothing more to eat, they will eat the rich.” Actually the
rich are quite good at making the poor eat each other instead. One can see this
in the carefully whipped-up rhetoric against “scroungers” and the “workshy”;
those of limited means are encouraged to blame their troubles on those less,
rather than more, fortunate than themselves. Meanwhile the rich have helped
themselves to the country’s assets. Anyone who doubts that this is what has
taken place in Britain should read Owen Jones’s excellent The Establishment and How
they Get away With It, or James Meek’s shrewd take on privatisation, Private Island.
This is part of a process by which wealth will become more
and more concentrated. At some point, the consumer economy and the mass-markets
it supports will go into decline. It will not be for the first time. Some have
argued that this was the fate of Mayan society; it all became too much and the
great mass of people stopped supporting their priestly class, and simply
dissolved back into the jungle. (The American anthropologist Joseph Tainter has
seen this process slightly differently, as one of societies collapsing because
they support too much complexity; more on this below.) Is that what will happen
to us – that the system will simply decay, leaving our societies to decline
into illiberalism and superstition; a repeat of the end of the Roman Empire?
That is somewhat apocalyptic, but as the philosopher John Gray has pointed out,
the idea that history is, by its nature, progressive has little to support it.
But the threat to democracy in a society doesn’t just come
from the inequalities within it. It comes also from inequality between societies – global inequality.
Global inequality
There is a rising tide of xenophobia in some European
societies that is at least in part the result of a broader dimension of economic
inequality that is threatening European democracy – global inequality and the
refugee crisis. In 2015-2016, we saw the arrival, in Europe, of large numbers
of refugees and illegal economic migrants (we should be careful about this
distinction; one may be a refugee from poverty). This gave rise to a liberal
and decent reaction in some quarters, but has also been of use to the radical
right.
As Slavoj Žižek puts it (in Against the Double Blackmail, published in 2016), after the
terrorist outrages in Paris in November 2015, these liberal impulses were
drowned out by the rhetoric of the war on terror. It is, he writes, “easy to
imagine what will follow ...The greatest victims of the Paris attacks will be
the refugees themselves, and the true winners ...will be simply the partisans
of total war on both sides.” Žižek’s answer to this is a global solidarity that
attacks the causes of conflict and migration – global inequalities – at their
root. In fact, there is sometimes more at issue than that; the specific
problems of Syria and Eritrea are not solely about north-south inequalities. In
principle, however, Žižek is right. Global, as well as internal, inequalities
are threats to democracy.
Moreover, the two types of inequality are related, for those
who feel themselves disadvantaged will always be vulnerable to the siren call
from those who would have them believe that their enemy is not the rich, but
those who have nothing. In such a mood, no-one will be disposed to listen to
the reasoned arguments that tell them refugees and the poorest are not the
cause of their problems. We saw a process of this type in the 2016 Brexit
referendum in Britain, where millions trooped to the polls to vote “Leave”,
convinced that the tide of migrants from Europe was making them poorer. In
fact, the evidence suggests the exact opposite. What will happen when, too
late, people find that their standard of living is not rising but dropping?
Again, as Reich suggests in the case of the US, they may decide that democracy
is not the answer.
So what is to be done?
Robert Reich’s book is lucid and enjoyable (as is the film
based on the book). But although it’s great on diagnosis, I’m not so sure he
has solutions. He suggests a number of measures to address inequality. One is a
“reverse income tax” that will subsidize the middle class (why does the US not
appear to have a working class, one wonders?). The money would be funded by a
carbon tax, and would be added to paychecks. This reminds one of the system of
poor relief devised by magistrates at Speenhamland in Berkshire at the end of
the 18th century. “Speenhamland” was, when I was young, always taught as an
example of the road to hell being paved with good intentions. It simply allowed
employers to lower wages, thus accumulating wealth for themselves while making
the public pay their wage bill. In fact, recent research has suggested that
Speenhamland’s outcomes were not so clear-cut. Still, with many lower-paid
workers in Western countries now drawing welfare to supplement their wages, one
wonders whether we already have Speenhamland writ large. In any case, this is
tinkering around the edges. Wouldn’t we be better off having a much higher, and
strongly enforced, minimum wage? Far from bankrupting employers, it’ll make us
all richer in the end.
Even more important, we could address the whole question of
governance. Reich does suggest measures to get money out of politics, but what
he does not discuss is the weakness of electoral systems that give voters a
limited choice between at most two candidates. You want to throw the bums out?
Give us a system that lets us choose a better government. But in any case, suppose we did get one; it might not be able
to do much about inequality, and that might make things worse. Progressive rates of taxation are
one answer. In Britain, however, a modern government would find it very
difficult to return to the rates of supertax that applied before 1970; neither
is it entirely clear that it should, as it would be hard to collect and might
not, in the end, make much difference. Other forms of taxation change are
possible, with a move back towards the social-democratic model. But at the
moment there seems little prospect of it.
I suspect the answer lies in some major shift in economic
life. This may be something like automation, which we have seen coming, but for
which we have done little to prepare. But it is not really clear what the
consequences will be; many may find themselves without jobs, but they may be
the people least able, as a class, to effect change. If so they will simply
suffer.
But perhaps leadership is not the answer to this anyway.
Joseph Tainter, mentioned briefly earlier, would not think so. Complex
societies, he says, “do not evolve on the whims of individuals.”
The collapse of
complexity?
Tainter’s 1988 book The Collapse of Complex Societies
posits that social systems evolve by meeting challenges through the development
of complex structures, both social and technical. This is not hard to believe;
as the population rises, innovations such as (for example) public irrigation
systems will be needed to grow their food, and roads to carry it to them. To
run these systems demands complexity, with a growing number of people in roles
that are removed from primary production. At some point, the marginal rate of
return on this complexity will fall to a point where it can no longer justify
its cost, and the complex society will collapse. Tainter presents a number of
examples to support this theory; the Mayans are one, the Western Roman Empire
another. The latter’s collapse, says Tainter, is seen as a lapse into darkness;
actually it may have been a logical response to an overly complex system that
could no longer justify its existence, and it ceasing to support it, the
population made a rational economic decision.
One must not oversimplify Tainter’s argument. He does
not, for example, see collapse as occurring in societies that have stronger
neighbours. They will simply get taken over. Moreover he sees a society’s
resources in terms of energy; if it can expand those resources, through
conquest or technological change, it may be able to sustain complexity. Given
that we may be on the verge of an energy revolution, this is interesting.
Nonetheless Tainter’s vision is compelling; of a society splitting into
multiple specialized sectors as it evolves, and acquiring more and more
functions that are removed from primary production, until at some point the
whole shebang simply cannot pay its way. Oddly, the group closest to this
argument, for me, may be the 18th-century Physiocrats, who believed all wealth
derived, in the end, from the land; they would have understood Tainter
perfectly.
Tainter is not talking about inequality. He is talking of
the costs of complexity. But it seems axiomatic that these would fall hardest
on the poor. Tainter does comment that, as the rate of return on complexity
drops, “parts of a society perceive increasing advantage to a policy of
separation or disintegration. ...Various segments increase passive or active
resistance, or overtly attempt to break away.” So can we apply his theory to
our own situation? Is growing inequality in the UK and USA a symptom of
excessive complexity? If so, Tainter may have shown us the exact mechanism
through which inequality will destroy democracy and, if we are unlucky, much else
besides.
Droning monks
One can even guess which area of complexity will be the
first to exhaust everyone’s patience. Earlier, I quoted Mariner Eccles’s
diagnosis of what happened in 1929 and suggested that 2008 had not been so very
different. In these cases, the part of society that went wrong was the
financial sector. This sector adds to complexity. But it is not a luxury; it
grew up in order to finance productive enterprises, including infrastructure –
a cursory dip into the history of the railways, shipping and other industries
will confirm this. Thus, if Tainter is right, the marginal rate of return on
this aspect of complexity should be adequate. But in both 1929 and 2008, it
showed itself not to be, as it had acquired functions that served its own
existence rather than the needs of society as a whole – for example, through
the “securitization”, or packaging, and sale of mortgages that should really
have remained with the original lender.
The resulting losses fell not simply upon society as a
whole but on those parts of it that could least afford it. The results, in the
1930s, were catastrophic for democracy, and 2008 seems to have had a similar
(if so far milder) effect.
If my analysis is correct, then, we can both attack
inequality and preserve democracy by removing layers of complexity, rather
than, as in Tainter’s prognosis, collapsing or being swallowed up by
neighbours. And the interesting thing is that in England, at least, we have
been here before.
I have lately been ploughing through a mighty tome called
The England of Elizabeth. It has 533 close-set pages (excluding index)
and this was just the first volume. The book was the crowning achievement of
the historian A. L. Rowse, who died in 1997 at the age of 94. It is packed with
detail – too much, perhaps; yet it is a magisterial picture of a country in an
age of self-discovery, facing multiple dangers from within and without, guided
to safety by a monarch of extraordinary ability. I’ll be returning to this in a
future post. But what is striking in this context is Rowse’s take on the
Dissolution of the Monasteries, which took place not many years before
Elizabeth’s accession; looking back, we see this as a political event, but
profoundly affected the economy. According to Rowse, it threw:
“one-sixth of the whole cultivable area of the country
upon the market ...the settling in of numerous hard-headed, hard-fisted
families to screw the utmost return out of the land in innumerable places where
idle monks had droned away their lives [means] there must have been a considerable increase in
productivity...”
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| Dissolved: Whitby Abbey (Ackers72/Wikimedia Commons) |
There surely was. But more relevant here, perhaps, is the
fact that the monastic structure must have made huge demands on the resources
of the society that supported it. We are back with Tainter; there was a burden
of complexity that could not justify itself economically. But instead of
collapsing, this complex society laid a
part of that burden down. To be sure, it did not do so solely for that
reason. The Dissolution was a political act. Yet it both released the burden on
resources, and increased them. In so doing it was part of the roots of the
Industrial Revolution.
So what will our Dissolution be? And will it throw
Tainter’s process into reverse, as the Dissolution appears to have done? If
not, the weaknesses caused by inequality will be laid bare, and democracy will
find it harder and harder to justify its existence.
But what if none of this is inevitable? Maybe Tainter has
shown us how things might end, but a complex society in which everyone does have an interest in the level of complexity may prove
resilient; why not? Of course, if its level of complexity continues to rise
without delivering sufficient benefits, it will collapse. In this, Tainter is
surely right. But if those benefits are more fairly shared, the burden of
complexity will be tolerated for longer. It is this challenge that we face now.
Ask someone on the conventional left, and they may argue that it can be met
through progressive taxation and through State ownership of key sectors. They
may be part-right. But to me, only a more fundamental reform of democracy will
enable it to meet the challenge of inequality, just as it did in the 19th
century.
A couple of years ago I wrote in these pages about the
way the political agenda in the US and especially the UK is distorted by the
electoral system, making it open to manipulation (Don't like anchovies? Don't bother voting,
then, July 2016). There is no need to restate the arguments in detail
here. But in a nutshell, the current systems allow vested interests to target a
very small number and homogenous type of electors in order to swing the result.
A few months later, the US Presidential election showed how horribly right this
was. The extent to which that very small number of floating voters in swing
states actually were targeted and their minds changed, by outside interests
remains open to dispute. However, the implication is that the agenda can be
distorted. Thus the decline in real wages for (say) socioeconomic groups C3, D1
and D2 may be the main concern for millions of people, but the election will be
fought instead on some matter that only really exercises a few hundred thousand
– say inheritance tax on homes worth more than £325,000, although few people
outside South-East England really own them (in fact the average house price in
the UK in February 2018 was £225,047). Thus the costs of maintaining a complex
society are shifted onto the shoulders of those less able to bear it, and at
some point, they may decide not to do so.
The danger at that point is that they will set about some
droning monks. My guess is that it their victim would be the financial services
industry. In a way they will be right. Many of its activities are superfluous
and damaging, as we found out in both 1929 and 2008. But it provides over a
million jobs and generates a trade surplus of £60 billion. And as stated
earlier, it does have productive functions. What if the baby gets thrown out
with the bathwater? And what about other
“non-essential” sectors – foreign aid, the arts? Would they survive?
In a sense, this has already happened. Disenfranchised in
general elections, millions of people trooped into the polling booths in 2016
to vote to dismantle one aspect of complexity: Britain’s membership of the
European Union, with its tangled skein of rights and obligations, its notorious
(though overstated) bureaucracy – and its net benefits, which were just too
hard for people to envisage. Maybe the Brexit vote was the collapse of
complexity in action. And maybe the rapid reform of our democracy is the only
way to halt this process, tackle inequality and prevent everyone melting, like
the Maya, into the jungle. As Tainter points out, for some, to abandon the
Western Roman Empire was a rational decision. But we should remember what came
next – the Dark Ages.
Mike Robbins's essay Such Little Accident: British democracy and its enemies
was published in December 2016 and is available from Amazon and other online retailers, or through bookshops
(ISBN 978-0-9978815-0-9, ebook; ISBN 978-0-9978815-1-6, paperback)
Follow Mike Robbins on Twitter (mikerobbins19), on Facebook or on Goodreads
