Detail of
A Social History of the State of Missouri by Thomas Hart Benton. (Getty Images / John Elk)
Recent political debate in the United States and other advanced
capitalist democracies has been dominated by two issues: the rise of
economic inequality and the scale of government intervention to address
it. As the 2012 U.S. presidential election and the battles over the
"fiscal cliff" have demonstrated, the central focus of the left today is
on increasing government taxing and spending, primarily to reverse the
growing stratification of society, whereas the central focus of the
right is on decreasing taxing and spending, primarily to ensure economic
dynamism. Each side minimizes the concerns of the other, and each seems
to believe that its desired policies are sufficient to ensure
prosperity and social stability. Both are wrong.
Inequality is indeed increasing almost everywhere in the
postindustrial capitalist world. But despite what many on the left
think, this is not the result of politics, nor is politics likely to
reverse it, for the problem is more deeply rooted and intractable than
generally recognized. Inequality is an inevitable product of capitalist
activity, and expanding equality of opportunity only increases it --
because some individuals and communities are simply better able than
others to exploit the opportunities for development and advancement that
capitalism affords. Despite what many on the right think, however, this
is a problem for everybody, not just those who are doing poorly or
those who are ideologically committed to egalitarianism -- because if
left unaddressed, rising inequality and economic insecurity can erode
social order and generate a populist backlash against the capitalist
system at large.
Over the last few centuries, the spread of capitalism has generated a
phenomenal leap in human progress, leading to both previously
unimaginable increases in material living standards and the
unprecedented cultivation of all kinds of human potential. Capitalism's
intrinsic dynamism, however, produces insecurity along with benefits,
and so its advance has always met resistance. Much of the political and
institutional history of capitalist societies, in fact, has been the
record of attempts to ease or cushion that insecurity, and it was only
the creation of the modern welfare state in the middle of the twentieth
century that finally enabled capitalism and democracy to coexist in
relative harmony.
It was the creation of the modern welfare state that finally enabled capitalism and democracy to coexist
in relative harmony.
In recent decades, developments in technology, finance, and
international trade have generated new waves and forms of insecurity for
leading capitalist economies, making life increasingly unequal and
chancier for not only the lower and working classes but much of the
middle class as well. The right has largely ignored the problem, while
the left has sought to eliminate it through government action,
regardless of the costs. Neither approach is viable in the long run.
Contemporary capitalist polities need to accept that inequality and
insecurity will continue to be the inevitable result of market
operations and find ways to shield citizens from their consequences --
while somehow still preserving the dynamism that produces capitalism's
vast economic and cultural benefits in the first place.
COMMODIFICATION AND CULTIVATION
Capitalism is a system of economic and social relations marked by
private property, the exchange of goods and services by free
individuals, and the use of market mechanisms to control the production
and distribution of those goods and services. Some of its elements have
existed in human societies for ages, but it was only in the seventeenth
and eighteenth centuries, in parts of Europe and its offshoots in North
America, that they all came together in force. Throughout history, most
households had consumed most of the things that they produced and
produced most of what they consumed. Only at this point did a majority
of the population in some countries begin to buy most of the things they
consumed and do so with the proceeds gained from selling most of what
they produced.
The growth of market-oriented households and what came to be called
"commercial society" had profound implications for practically every
aspect of human activity. Prior to capitalism, life was governed by
traditional institutions that subordinated the choices and destinies of
individuals to various communal, political, and religious structures.
These institutions kept change to a minimum, blocking people from making
much progress but also protecting them from many of life's
vicissitudes. The advent of capitalism gave individuals more control
over and responsibility for their own lives than ever before -- which
proved both liberating and terrifying, allowing for both progress and
regression.
Commodification -- the transformation of activities performed for
private use into activities performed for sale on the open market --
allowed people to use their time more efficiently, specializing in
producing what they were relatively good at and buying other things from
other people. New forms of commerce and manufacturing used the division
of labor to produce common household items cheaply and also made a
range of new goods available. The result, as the historian Jan de Vries
has noted, was what contemporaries called "an awakening of the appetites
of the mind" -- an expansion of subjective wants and a new subjective
perception of needs. This ongoing expansion of wants has been chastised
by critics of capitalism from Rousseau to Marcuse as imprisoning humans
in a cage of unnatural desires. But it has also been praised by
defenders of the market from Voltaire onward for broadening the range of
human possibility. Developing and fulfilling higher wants and needs, in
this view, is the essence of civilization.
Because we tend to think of commodities as tangible physical objects,
we often overlook the extent to which the creation and increasingly
cheap distribution of new cultural commodities have expanded what one
might call the means of self-cultivation. For the history of capitalism
is also the history of the extension of communication, information, and
entertainment -- things to think with, and about.
Among the earliest modern commodities were printed books (in the
first instance, typically the Bible), and their shrinking price and
increased availability were far more historically momentous than, say,
the spread of the internal combustion engine. So, too, with the spread
of newsprint, which made possible the newspaper and the magazine. Those
gave rise, in turn, to new markets for information and to the business
of gathering and distributing news. In the eighteenth century, it took
months for news from India to reach London; today, it takes moments.
Books and news have made possible an expansion of not only our awareness
but also our imagination, our ability to empathize with others and
imagine living in new ways ourselves. Capitalism and commodification
have thus facilitated both humanitarianism and new forms of
self-invention.
Over the last century, the means of cultivation were expanded by the
invention of recorded sound, film, and television, and with the rise of
the Internet and home computing, the costs of acquiring knowledge and
culture have fallen dramatically. For those so inclined, the expansion
of the means of cultivation makes possible an almost unimaginable
enlargement of one's range of knowledge.
FAMILY MATTERS
If capitalism has opened up ever more opportunities for the
development of human potential, however, not everyone has been able to
take full advantage of those opportunities or progress far once they
have done so. Formal or informal barriers to equality of opportunity,
for example, have historically blocked various sectors of the population
-- such as women, minorities, and the poor -- from benefiting fully
from all capitalism offers. But over time, in the advanced capitalist
world, those barriers have gradually been lowered or removed, so that
now opportunity is more equally available than ever before. The
inequality that exists today, therefore, derives less from the unequal
availability of opportunity than it does from the unequal ability to
exploit opportunity. And that unequal ability, in turn, stems from
differences in the inherent human potential that individuals begin with
and in the ways that families and communities enable and encourage that
human potential to flourish.
Not everyone has been able to take full advantage of the new opportunities for the development of human potential.
The role of the family in shaping individuals' ability and
inclination to make use of the means of cultivation that capitalism
offers is hard to overstate. The household is not only a site of
consumption and of biological reproduction. It is also the main setting
in which children are socialized, civilized, and educated, in which
habits are developed that influence their subsequent fates as people and
as market actors. To use the language of contemporary economics, the
family is a workshop in which human capital is produced.
Over time, the family has shaped capitalism by creating new
demands for new commodities. It has also been repeatedly reshaped by
capitalism because new commodities and new means of production have led
family members to spend their time in new ways. As new consumer goods
became available at ever-cheaper prices during the eighteenth century,
families devoted more of their time to market-oriented activities, with
positive effects on their ability to consume. Male wages may have
actually declined at first, but the combined wages of husbands, wives,
and children made higher standards of consumption possible. Economic
growth and expanding cultural horizons did not improve all aspects of
life for everybody, however. The fact that working-class children could
earn money from an early age created incentives to neglect their
education, and the unhealthiness of some of the newly available
commodities (white bread, sugar, tobacco, distilled spirits) meant that
rising standards of consumption did not always mean an improvement in
health and longevity. And as female labor time was reallocated from the
household to the market, standards of cleanliness appear to have
declined, increasing the chance of disease.
The late eighteenth and early nineteenth centuries saw the gradual
spread of new means of production across the economy. This was the age
of the machine, characterized by the increasing substitution of
inorganic sources of power (above all the steam engine) for organic
sources of power (human and animal), a process that increased
productivity tremendously. As opposed to in a society based largely on
agriculture and cottage industries, manufacturing now increasingly took
place in the factory, built around new engines that were too large, too
loud, and too dirty to have a place in the home. Work was therefore more
and more divorced from the household, which ultimately changed the
structure of the family.
At first, the owners of the new, industrialized factories sought out
women and children as employees, since they were more tractable and more
easily disciplined than men. But by the second half of the nineteenth
century, the average British workingman was enjoying substantial and
sustained growth in real wages, and a new division of labor came about
within the family itself, along lines of gender. Men, whose relative
strength gave them an advantage in manufacturing, increasingly worked in
factories for market wages, which were high enough to support a family.
The nineteenth-century market, however, could not provide commodities
that produced goods such as cleanliness, hygiene, nutritious meals, and
the mindful supervision of children. Among the upper classes, these
services could be provided by servants. But for most families, such
services were increasingly provided by wives. This caused the rise of
the breadwinner-homemaker family, with a division of labor along gender
lines. Many of the improvements in health, longevity, and education from
the mid-nineteenth to the mid-twentieth century, de Vries has argued,
can be explained by this reallocation of female labor from the market to
the household and, eventually, the reallocation of childhood from the
market to education, as children left the work force for school.
DYNAMISM AND INSECURITY
For most of history, the prime source of human insecurity was nature.
In such societies, as Marx noted, the economic system was oriented
toward stability -- and stagnancy. Capitalist societies, by contrast,
have been oriented toward innovation and dynamism, to the creation of
new knowledge, new products, and new modes of production and
distribution. All of this has shifted the locus of insecurity from
nature to the economy.
Hegel observed in the 1820s that for men in a commercial society
based on the breadwinner-homemaker model, one's sense of self-worth and
recognition by others was tied to having a job. This posed a problem,
because in a dynamic capitalist market, unemployment was a distinct
possibility. The division of labor created by the market meant that many
workers had skills that were highly specialized and suited for only a
narrow range of jobs. The market created shifting wants, and increased
demand for new products meant decreased demand for older ones. Men whose
lives had been devoted to their role in the production of the old
products were left without a job and without the training that would
allow them to find new work. And the mechanization of production also
led to a loss of jobs. From its very beginnings, in other words, the
creativity and innovation of industrial capitalism were shadowed by
insecurity for members of the work force.
Marx and Engels sketched out capitalism's dynamism, insecurity, refinement of needs, and expansion of cultural possibilities in
The Communist Manifesto:
The bourgeoisie has, through its exploitation of the world market,
given a cosmopolitan character to production and consumption in every
country. To the great chagrin of reactionaries, it has drawn from under
the feet of industry the national ground on which it stood. All
old-established national industries have been destroyed or are daily
being destroyed. They are dislodged by new industries, whose
introduction becomes a life and death question for all civilized
nations, by industries that no longer work up indigenous raw material,
but raw material drawn from the remotest zones; industries whose
products are consumed, not only at home, but in every quarter of the
globe. In place of the old wants, satisfied by the production of the
country, we find new wants, requiring for their satisfaction the
products of distant lands and climes. In place of the old local and
national seclusion and self-sufficiency, we have intercourse in every
direction, universal inter-dependence of nations.
Inequality and insecurity are perennial features of capitalism.
In the twentieth century, the economist Joseph Schumpeter would
expand on these points with his notion that capitalism was characterized
by "creative destruction," in which new products and forms of
distribution and organization displaced older forms. Unlike Marx,
however, who saw the source of this dynamism in the disembodied quest of
"capital" to increase (at the expense, he thought, of the working
class), Schumpeter focused on the role of the entrepreneur, an innovator
who introduced new commodities and discovered new markets and methods.
The dynamism and insecurity created by nineteenth-century
industrial capitalism led to the creation of new institutions for the
reduction of insecurity, including the limited liability corporation, to
reduce investor risks; labor unions, to further worker interests;
mutual-aid societies, to provide loans and burial insurance; and
commercial life insurance. In the middle decades of the twentieth
century, in response to the mass unemployment and deprivation produced
by the Great Depression (and the political success of communism and
fascism, which convinced many democrats that too much insecurity was a
threat to capitalist democracy itself), Western democracies embraced the
welfare state. Different nations created different combinations of
specific programs, but the new welfare states had a good deal in common,
including old-age and unemployment insurance and various measures to
support families.
The expansion of the welfare state in the decades after World War II
took place at a time when the capitalist economies of the West were
growing rapidly. The success of the industrial economy made it possible
to siphon off profits and wages to government purposes through taxation.
The demographics of the postwar era, in which the breadwinner-homemaker
model of the family predominated, helped also, as moderately high
birthrates created a favorable ratio of active workers to dependents.
Educational opportunities expanded, as elite universities increasingly
admitted students on the basis of their academic achievements and
potential, and more and more people attended institutions of higher
education. And barriers to full participation in society for women and
minorities began to fall as well. The result of all of this was a
temporary equilibrium during which the advanced capitalist countries
experienced strong economic growth, high employment, and relative
socioeconomic equality.
LIFE IN THE POSTINDUSTRIAL ECONOMY
For humanity in general, the late twentieth and early twenty-first
centuries have been a period of remarkable progress, due in no small
part to the spread of capitalism around the globe. Economic
liberalization in China, India, Brazil, Indonesia, and other countries
in the developing world has allowed hundreds of millions of people to
escape grinding poverty and move into the middle class. Consumers in
more advanced capitalist countries, such as the United States,
meanwhile, have experienced a radical reduction in the price of many
commodities, from clothes to televisions, and the availability of a
river of new goods that have transformed their lives.
Most remarkable, perhaps, have been changes to the means of
self-cultivation. As the economist Tyler Cowen notes, much of the fruit
of recent d
evelopments "is in our minds
and in our laptops and not so much in the revenue-generating sector of
the economy." As a result, "much of the value of the internet is
experienced at the personal level and so will never show up in the
productivity numbers." Many of the great musical performances of the
twentieth century, in every genre, are available on YouTube for free.
Many of the great films of the twentieth century, once confined to
occasional showings at art houses in a few metropolitan areas, can be
viewed by anybody at any time for a small monthly charge. Soon, the
great university libraries will be available online to the entire world,
and other unprecedented opportunities for personal development will
follow.
All this progress, however, has been shadowed by capitalism's
perennial features of inequality and insecurity. In 1973, the
sociologist Daniel Bell noted that in the advanced capitalist world,
knowledge, science, and technology were driving a transformation to what
he termed "postindustrial society." Just as manufacturing had
previously displaced agriculture as the major source of employment, he
argued, so the service sector was now displacing manufacturing. In a
postindustrial, knowledge-based economy, the production of manufactured
goods depended more on technological inputs than on the skills of the
workers who actually built and assembled the products. That meant a
relative decline in the need for and economic value of skilled and
semiskilled factory workers -- just as there had previously been a
decline in the need for and value of agricultural laborers. In such an
economy, the skills in demand included scientific and technical
knowledge and the ability to work with information. The revolution in
information technology that has swept through the economy in recent
decades, meanwhile, has only exacerbated these trends.
One crucial impact of the rise of the postindustrial economy has been
on the status and roles of men and women. Men's relative advantage in
the preindustrial and industrial economies rested in large part on their
greater physical strength -- something now ever less in demand. Women,
in contrast, whether by biological disposition or socialization, have
had a relative advantage in human skills and emotional intelligence,
which have become increasingly more important in an economy more
oriented to human services than to the production of material objects.
The portion of the economy in which women could participate has
expanded, and their labor has become more valuable -- meaning that time
spent at home now comes at the expense of more lucrative possibilities
in the paid work force.
This has led to the growing replacement of male breadwinner-female
homemaker households by dual-income households. Both advocates and
critics of the move of women into the paid economy have tended to
overemphasize the role played in this shift by the ideological struggles
of feminism, while underrating the role played by changes in the nature
of capitalist production. The redeployment of female labor from the
household has been made possible in part by the existence of new
commodities that cut down on necessary household labor time (such as
washing machines, dryers, dishwashers, water heaters, vacuum cleaners,
microwave ovens). The greater time devoted to market activity, in turn,
has given rise to new demand for household-oriented consumer goods that
require less labor (such as packaged and prepared food) and the
expansion of restaurant and fast-food eating. And it has led to the
commodification of care, as the young, the elderly, and the infirm are
increasingly looked after not by relatives but by paid minders.
The trend for women to receive more education and greater
professional attainments has been accompanied by changing social norms
in the choice of marriage partners. In the age of the
breadwinner-homemaker marriage, women tended to place a premium on
earning capacity in their choice of partners. Men, in turn, valued the
homemaking capacities of potential spouses more than their vocational
attainments. It was not unusual for men and women to marry partners of
roughly the same intelligence, but women tended to marry men of higher
levels of education and economic achievement. As the economy has passed
from an industrial economy to a postindustrial service-and-information
economy, women have joined men in attaining recognition through paid
work, and the industrious couple today is more likely to be made of
peers, with more equal levels of education and more comparable levels of
economic achievement -- a process termed "assortative mating."
Globalization has reinforced this pattern of increasingly unequal returns to human capital.
INEQUALITY ON THE RISE
These postindustrial social trends have had a significant impact
on inequality. If family income doubles at each step of the economic
ladder, then the total incomes of those families higher up the ladder
are bound to increase faster than the total incomes of those further
down. But for a substantial portion of households at the lower end of
the ladder, there has been no doubling at all -- for as the relative pay
of women has grown and the relative pay of less-educated, working-class
men has declined, the latter have been viewed as less and less
marriageable. Often, the limitations of human capital that make such men
less employable also make them less desirable as companions, and the
character traits of men who are chronically unemployed sometimes
deteriorate as well. With less to bring to the table, such men are
regarded as less necessary -- in part because women can now count on
provisions from the welfare state as an additional independent source of
income, however meager.
In the United States, among the most striking developments of recent
decades has been the stratification of marriage patterns among the
various classes and ethnic groups of society. When divorce laws were
loosened in the 1960s, there was a rise in divorce rates among all
classes. But by the 1980s, a new pattern had emerged: divorce declined
among the more educated portions of the populace, while rates among the
less-educated portions continued to rise. In addition, the more educated
and more well-to-do were more likely to wed, while the less educated
were less likely to do so. Given the family's role as an incubator of
human capital, such trends have had important spillover effects on
inequality. Abundant research shows that children raised by two parents
in an ongoing union are more likely to develop the self-discipline and
self-confidence that make for success in life, whereas children -- and
particularly boys -- reared in single-parent households (or, worse,
households with a mother who has a series of temporary relationships)
have a greater risk of adverse outcomes.
All of this has been taking place during a period of growing equality
of access to education and increasing stratification of marketplace
rewards, both of which have increased the importance of human capital.
One element of human capital is cognitive ability: quickness of mind,
the ability to infer and apply patterns drawn from experience, and the
ability to deal with mental complexity. Another is character and social
skills: self-discipline, persistence, responsibility. And a third is
actual knowledge. All of these are becoming increasingly crucial for
success in the postindustrial marketplace. As the economist Brink
Lindsey notes in his recent book
Human Capitalism, between 1973
and 2001, average annual growth in real income was only 0.3 percent for
people in the bottom fifth of the U.S. income distribution, compared
with 0.8 percent for people in the middle fifth and 1.8 percent for
those in the top fifth. Somewhat similar patterns also prevail in many
other advanced economies.
Globalization has not caused this pattern of increasingly unequal
returns to human capital but reinforced it. The economist Michael Spence
has distinguished between "tradable" goods and services, which can be
easily imported and exported, and "untradable" ones, which cannot.
Increasingly, tradable goods and services are imported to advanced
capitalist societies from less advanced capitalist societies, where
labor costs are lower. As manufactured goods and routine services are
outsourced, the wages of the relatively unskilled and uneducated in
advanced capitalist societies decline further, unless these people are
somehow able to find remunerative employment in the untradable sector.
THE IMPACT OF MODERN FINANCE
Rising inequality, meanwhile, has been compounded by rising
insecurity and anxiety for people higher up on the economic ladder. One
trend contributing to this problem has been the financialization of the
economy, above all in the United States, creating what was characterized
as "money manager capitalism" by the economist Hyman Minsky and has
been called "agency capitalism" by the financial expert Alfred
Rappaport.
As late as the 1980s, finance was an essential but limited element of
the U.S. economy. The trade in equities (the stock market) was made up
of individual investors, large or small, putting their own money in
stocks of companies they believed to have good long-term prospects.
Investment capital was also available from the major Wall Street
investment banks and their foreign counterparts, which were private
partnerships in which the partners' own money was on the line. All of
this began to change as larger pools of capital became available for
investment and came to be deployed by professional money managers rather
the owners of the capital themselves.
One source of such new capital was pension funds. In the postwar
decades, when major American industries emerged from World War II as
oligopolies with limited competition and large, expanding markets at
home and abroad, their profits and future prospects allowed them to
offer employees defined-benefit pension plans, with the risks involved
assumed by the companies themselves. From the 1970s on, however, as the
U.S. economy became more competitive, corporate profits became more
uncertain, and companies (as well as various public-sector
organizations) attempted to shift the risk by putting their pension
funds into the hands of professional money managers, who were expected
to generate significant profits. Retirement income for employees now
depended not on the profits of their employers but on the fate of their
pension funds.
Another source of new capital was university and other nonprofit
organizations' endowments, which grew initially thanks to donations but
were increasingly expected to grow further based on their investment
performance. And still another source of new capital came from
individuals and governments in the developing world, where rapid
economic growth, combined with a high propensity to save and a desire
for relatively secure investment prospects, led to large flows of money
into the U.S. financial system.
Spurred in part by these new opportunities, the traditional Wall
Street investment banks transformed themselves into publicly traded
corporations -- that is to say, they, too, began to invest not just with
their own funds but also with other people's money -- and tied the
bonuses of their partners and employees to annual profits. All of this
created a highly competitive financial system dominated by investment
managers working with large pools of capital, paid based on their
supposed ability to outperform their peers. The structure of incentives
in this environment led fund managers to try to maximize short-term
returns, and this pressure trickled down to corporate executives. The
shrunken time horizon created a temptation to boost immediate profits at
the expense of longer-term investments, whether in research and
development or in improving the skills of the company's work force. For
both managers and employees, the result has been a constant churning
that increases the likelihood of job losses and economic insecurity.
An advanced capitalist economy does indeed require an extensive
financial sector. Part of this is a simple extension of the division of
labor: outsourcing decisions about investing to professionals allows the
rest of the population the mental space to pursue things they do better
or care more about. The increasing complexity of capitalist economies
means that entrepreneurs and corporate executives need help in deciding
when and how to raise funds. And private equity firms that have an
ownership interest in growing the real value of the firms in which they
invest play a key role in fostering economic growth. These matters,
which properly occupy financiers, have important consequences, and
handling them requires intelligence, diligence, and drive, so it is
neither surprising nor undesirable that specialists in this area are
highly paid. But whatever its benefits and continued social value, the
financialization of society has nevertheless had some unfortunate
consequences, both in increasing inequality by raising the top of the
economic ladder (thanks to the extraordinary rewards financial managers
receive) and in increasing insecurity among those lower down (thanks to
the intense focus on short-term economic performance to the exclusion of
other concerns).
THE FAMILY AND HUMAN CAPITAL
In today's globalized, financialized, postindustrial environment,
human capital is more important than ever in determining life chances.
This makes families more important, too, because as each generation of
social science researchers discovers anew (and much to their chagrin),
the resources transmitted by the family tend to be highly determinative
of success in school and in the workplace. As the economist Friedrich
Hayek pointed out half a century ago in
The Constitution of Liberty,
the main impediment to true equality of opportunity is that there is no
substitute for intelligent parents or for an emotionally and culturally
nurturing family. In the words of a recent study by the economists
Pedro Carneiro and James Heckman, "Differences in levels of cognitive
and noncognitive skills by family income and family background emerge
early and persist. If anything, schooling widens these early
differences."
Hereditary endowments come in a variety of forms: genetics, prenatal
and postnatal nurture, and the cultural orientations conveyed within the
family. Money matters, too, of course, but is often less significant
than these largely nonmonetary factors. (The prevalence of books in a
household is a better predictor of higher test scores than family
income.) Over time, to the extent that societies are organized along
meritocratic lines, family endowments and market rewards will tend to
converge.
Educated parents tend to invest more time and energy in child care,
even when both parents are engaged in the work force. And families
strong in human capital are more likely to make fruitful use of the
improved means of cultivation that contemporary capitalism offers (such
as the potential for online enrichment) while resisting their potential
snares (such as unrestricted viewing of television and playing of
computer games).
This affects the ability of children to make use of formal education,
which is increasingly, at least potentially, available to all
regardless of economic or ethnic status. At the turn of the twentieth
century, only 6.4 percent of American teenagers graduated from high
school, and only one in 400 went on to college. There was thus a huge
portion of the population with the capacity, but not the opportunity,
for greater educational achievement. Today, the U.S. high school
graduation rate is about 75 percent (down from a peak of about 80
percent in 1960), and roughly 40 percent of young adults are enrolled in
college.
The Economist recently repeated a shibboleth: "In a society
with broad equality of opportunity, the parents' position on the income
ladder should have little impact on that of their children." The fact
is, however, that the greater equality of institutional opportunity
there is, the more families' human capital endowments matter. As the
political scientist Edward Banfield noted a generation ago in
The Unheavenly City Revisited,
"All education favors the middle- and upper-class child, because to be
middle- or upper-class is to have qualities that make one particularly
educable." Improvements in the quality of schools may improve overall
educational outcomes, but they tend to increase, rather than diminish,
the gap in achievement between children from families with different
levels of human capital. Recent investigations that purport to
demonstrate less intergenerational mobility in the United States today
than in the past (or than in some European nations) fail to note that
this may in fact be a perverse product of generations of increasing
equality of opportunity. And in this respect, it is possible that the
United States may simply be on the leading edge of trends found in other
advanced capitalist societies as well.
DIFFERENTIAL GROUP ACHIEVEMENT
The family is not the only social institution to have a major impact
on the development of human capital and eventual success in the
marketplace; so do communal groupings, such as those of religion, race,
and ethnicity. In his 1905 book,
The Protestant Ethic and the Spirit of Capitalism,
the sociologist Max Weber observed that in religiously diverse areas,
Protestants tended to do better economically than Catholics, and
Calvinists better than Lutherans. Weber presented a cultural explanation
for this difference, grounded in the different psychological
propensities created by the different faiths. A few years later, in
The Jews and Modern Capitalism,
Weber's contemporary Werner Sombart offered an alternative explanation
for differential group success, based partly on cultural propensities
and partly on racial ones. And in 1927, their younger colleague
Schumpeter titled a major essay "Social Classes in an Ethnically
Homogeneous Environment" because he took it for granted that in an
ethnically mixed setting, levels of achievement would vary by ethnicity,
not just class.
The explanations offered for such patterns are less important than
the fact that differential group performance has been a perennial
feature in the history of capitalism, and such differences continue to
exist today. In the contemporary United States, for example, Asians
(especially when disaggregated from Pacific Islanders) tend to
outperform non-Hispanic whites, who in turn tend to outperform
Hispanics, who in turn tend to outperform African Americans. This is
true whether one looks at educational achievement, earnings, or family
patterns, such as the incidence of nonmarital births.
Those western European nations (and especially northern European
nations) with much higher levels of equality than the United States tend
to have more ethnically homogeneous populations. As recent waves of
immigration have made many advanced postindustrial societies less
ethnically homogeneous, they also seem to be increasingly stratifying
along communal lines, with some immigrant groups exhibiting more
favorable patterns than the preexisting population and other groups
doing worse. In the United Kingdom, for example, the children of Chinese
and Indian immigrants tend do better than the indigenous population,
whereas those of Caribbean blacks and Pakistanis tend to do worse. In
France, the descendants of Vietnamese tend to do better, and those of
North African origin tend to do worse. In Israel, the children of
Russian immigrants tend to do better, while those of immigrants from
Ethiopia tend to do worse. In Canada, the children of Chinese and
Indians tend to do better, while those of Caribbean and Latin American
origin tend to do worse. Much of this divergence in achievement can be
explained by the differing class and educational backgrounds of the
immigrant groups in their countries of origin. But because the
communities themselves act as carriers and incubators of human capital,
the patterns can and do persist over time and place.
In the case of the United States, immigration plays an even larger
role in exacerbating inequality, for the country's economic dynamism,
cultural openness, and geographic position tend to attract both some of
world's best and brightest and some of its least educated. This raises
the top and lowers the bottom of the economic ladder.
WHY EDUCATION IS NOT A PANACEA
A growing recognition of the increasing economic inequality and
social stratification in postindustrial societies has naturally led to
discussions of what can be done about it, and in the American context,
the answer from almost all quarters is simple: education.
One strand of this logic focuses on college. There is a growing gap
in life chances between those who complete college and those who don't,
the argument runs, and so as many people as possible should go to
college. Unfortunately, even though a higher percentage of Americans are
attending college, they are not necessarily learning more. An
increasing number are unqualified for college-level work, many leave
without completing their degrees, and others receive degrees reflecting
standards much lower than what a college degree has usually been
understood to mean.
The most significant divergence in educational achievement occurs
before the level of college, meanwhile, in rates of completion of high
school, and major differences in performance (by class and ethnicity)
appear still earlier, in elementary school. So a second strand of the
education argument focuses on primary and secondary schooling. The
remedies suggested here include providing schools with more money,
offering parents more choice, testing students more often, and improving
teacher performance. Even if some or all of these measures might be
desirable for other reasons, none has been shown to significantly
diminish the gaps between students and between social groups -- because
formal schooling itself plays a relatively minor role in creating or
perpetuating achievement gaps.
The gaps turn out to have their origins in the different levels of
human capital children possess when they enter school -- which has led
to a third strand of the education argument, focusing on earlier and
more intensive childhood intervention. Suggestions here often amount to
taking children out of their family environments and putting them into
institutional settings for as much time as possible (Head Start, Early
Head Start) or even trying to resocialize whole neighborhoods (as in the
Harlem Children's Zone project). There are examples of isolated
successes with such programs, but it is far from clear that these are
reproducible on a larger scale. Many programs show short-term gains in
cognitive ability, but most of these gains tend to fade out over time,
and those that remain tend to be marginal. It is more plausible that
such programs improve the noncognitive skills and character traits
conducive to economic success -- but at a significant cost and
investment, employing resources extracted from the more successful parts
of the population (thus lowering the resources available to them) or
diverted from other potential uses.
For all these reasons, inequality in advanced capitalist societies
seems to be both growing and ineluctable, at least for the time being.
Indeed, one of the most robust findings of contemporary social
scientific inquiry is that as the gap between high-income and low-income
families has increased, the educational and employment achievement gaps
between the children of these families has increased even more.
WHAT IS TO BE DONE?
Capitalism today continues to produce remarkable benefits and
continually greater opportunities for self-cultivation and personal
development. Now as ever, however, those upsides are coming with
downsides, particularly increasing inequality and insecurity. As Marx
and Engels accurately noted, what distinguishes capitalism from other
social and economic systems is its "constant revolutionizing of
production, uninterrupted disturbance of all social conditions, [and]
everlasting uncertainty and agitation."
At the end of the eighteenth century, the greatest American student
and practitioner of political economy, Alexander Hamilton, had some
profound observations about the inevitable ambiguity of public policy in
a world of creative destruction:
Tis the portion of man assigned to him by the eternal allotment of
Providence that every good he enjoys, shall be alloyed with ills, that
every source of his bliss shall be a source of his affliction -- except
Virtue alone, the only unmixed good which is permitted to his temporal
Condition. . . . The true politician . . . will favor all those
institutions and plans which tend to make men happy according to their
natural bent which multiply the sources of individual enjoyment and
increase those of national resource and strength -- taking care to
infuse in each case all the ingredients which can be devised as
preventives or correctives of the evil which is the eternal concomitant
of temporal blessing.
Now as then, the question at hand is just how to maintain the
temporal blessings of capitalism while devising preventives and
correctives for the evils that are their eternal concomitant.
One potential cure for the problems of rising inequality and
insecurity is simply to redistribute income from the top of the economy
to the bottom. This has two drawbacks, however. The first is that over
time, the very forces that lead to greater inequality reassert
themselves, requiring still more, or more aggressive, redistribution.
The second is that at some point, redistribution produces substantial
resentment and impedes the drivers of economic growth. Some degree of
postmarket redistribution through taxation is both possible and
necessary, but just how much is ideal will inevitably be contested, and
however much it is, it will never solve the underlying problems.
A second cure, using government policy to close the gaps between
individuals and groups by offering preferential treatment to
underperformers, may be worse than the disease. Whatever their purported
benefits, mandated rewards to certain categories of citizens inevitably
create a sense of injustice among the rest of the population. More
grave is their cost in terms of economic efficiency, since by
definition, they promote less-qualified individuals to positions they
would not attain on the basis of merit alone. Similarly, policies
banning the use of meritocratic criteria in education, hiring, and
credit simply because they have a "differential impact" on the fortunes
of various communal groups or because they contribute to unequal social
outcomes will inevitably impede the quality of the educational system,
the work force, and the economy.
A third possible cure, encouraging continued economic innovation that
will benefit everybody, is more promising. The combination of the
Internet and computational revolutions may prove comparable to the
coming of electricity, which facilitated an almost unimaginable range of
other activities that transformed society at large in unpredictable
ways. Among other gains, the Internet has radically increased the
velocity of knowledge, a key factor in capitalist economic growth since
at least the eighteenth century. Add to that the prospects of other
fields still in their infancy, such as biotechnology, bioinformatics,
and nanotechnology, and the prospects for future economic growth and the
ongoing improvement of human life look reasonably bright. Nevertheless,
even continued innovation and revived economic growth will not
eliminate or even significantly reduce socioeconomic inequality and
insecurity, because individual, family, and group differences will still
affect the development of human capital and professional
accomplishment.
For capitalism to continue to be made legitimate and palatable to
populations at large, therefore -- including those on the lower and
middle rungs of the socioeconomic ladder, as well as those near the top,
losers as well as winners -- government safety nets that help diminish
insecurity, alleviate the sting of failure in the marketplace, and help
maintain equality of opportunity will have to be maintained and
revitalized. Such programs already exist in most of the advanced
capitalist world, including the United States, and the right needs to
accept that they serve an indispensable purpose and must be preserved
rather than gutted -- that major government social welfare spending is a
proper response to some inherently problematic features of capitalism,
not a "beast" that should be "starved."
In the United States, for example, measures such as Social Security,
unemployment insurance, food stamps, the Earned Income Tax Credit,
Medicare, Medicaid, and the additional coverage provided by the
Affordable Care Act offer aid and comfort above all to those less
successful in and more buffeted by today's economy. It is unrealistic to
imagine that the popular demand for such programs will diminish. It is
uncaring to cut back the scope of such programs when inequality and
insecurity have risen. And if nothing else, the enlightened
self-interest of those who profit most from living in a society of
capitalist dynamism should lead them to recognize that it is imprudent
to resist parting with some of their market gains in order to achieve
continued social and economic stability. Government entitlement programs
need structural reform, but the right should accept that a reasonably
generous welfare state is here to stay, and for eminently sensible
reasons.
The left, in turn, needs to come to grips with the fact that
aggressive attempts to eliminate inequality may be both too expensive
and futile. The very success of past attempts to increase equality of
opportunity -- such as by expanding access to education and outlawing
various forms of discrimination -- means that in advanced capitalist
societies today, large, discrete pools of untapped human potential are
increasingly rare. Additional measures to promote equality are therefore
likely to produce fewer gains than their predecessors, at greater cost.
And insofar as such measures involve diverting resources from those
with more human capital to those with less, or bypassing criteria of
achievement and merit, they may impede the economic dynamism and growth
on which the existing welfare state depends.
The challenge for government policy in the advanced capitalist world
is thus how to maintain a rate of economic dynamism that will provide
increasing benefits for all while still managing to pay for the social
welfare programs required to make citizens' lives bearable under
conditions of increasing inequality and insecurity. Different countries
will approach this challenge in different ways, since their priorities,
traditions, size, and demographic and economic characteristics vary. (It
is among the illusions of the age that when it comes to government
policy, nations can borrow at will from one another.) But a useful
starting point might be the rejection of both the politics of privilege
and the politics of resentment and the adoption of a clear-eyed view of
what capitalism actually involves, as opposed to the idealization of its
worshipers and the demonization of its critics.