A Republic of Equals

A Manifesto for a Just Society

Jonathan Rothwell

• Publisher: Princeton University Press
• Year: 2019
• ISBN:
  9780691189987
• Topic: Politics & International Relations
• Subtopic: Public Policy
• Index: Politics & International Relations

Why political inequality is to blame for economic and social injustice Political equality is the most basic tenet of democracy. Yet in America and other democratic nations, those with political power have special access to markets and public services. A Republic of Equals traces the massive income inequality observed in the United States and other rich democracies to politicized markets and avoidable gaps in opportunity—and explains why they are the root cause of what ails democracy today.In this provocative book, economist Jonathan Rothwell draws on the latest empirical evidence from across the social sciences to demonstrate how rich democracies have allowed racial politics and the interests of those at the top to subordinate justice. He looks at the rise of nationalism in Europe and the United States, revealing how this trend overlaps with racial prejudice and is related to mounting frustration with a political status quo that thrives on income inequality and inefficient markets. But economic differences are by no means inevitable. Differences in group status by race and ethnicity are dynamic and have reversed themselves across continents and within countries. Inequalities persist between races in the United States because Black Americans are denied equal access to markets and public services. Meanwhile, elite professional associations carve out privileged market status for their members, leading to compensation in excess of their skills. A Republic of Equals provides a bold new perspective on how to foster greater political and social equality, while moving societies closer to what a true republic should be.

1

Behind the Discontent

“OUR COUNTRY IS IN SERIOUS TROUBLE,” began Donald Trump as he formally announced his candidacy for president of the United States in June 2016. He listed China, Japan, and Mexico as aggressors who are “beating us” and “killing us economically” via bad trade agreements. Mexico, meanwhile, is further harming the United States through immigration, he claimed: “The U.S. has become a dumping ground for everybody else’s problems.”¹

In remarks that would be much quoted and criticized, he said:

When Mexico sends its people, they’re not sending their best. They’re not sending you. They’re not sending you. They’re sending people that have lots of problems, and they’re bringing those problems with us. They’re bringing drugs. They’re bringing crime. They’re rapists. And some, I assume, are good people.

Trump eventually won 46 percent of the vote in the 2016 U.S. presidential election. His victory followed significant gains by nationalist parties in the European Union’s 2014 parliamentary elections, and a shocking vote by the United Kingdom to leave the European Union.² In 2017, Marine Le Pen, representing France’s National Front party, won 21.4 percent of the vote in the first round of France’s presidential election before eventually losing in the second round.³

The nationalists seem to have two things in common: An insistence that their countries are declining, economically and culturally, and the identification of external forces as the reason—with trade and immigration being primary suspects. These views are badly mistaken, but the nationalists have a point about the ill-functioning of the economy, and much of the public shares their sense that something important is wrong with their country’s political leadership.

This chapter lays out what is wrong and why. Rising income inequality and slow economic growth have been two of the most striking patterns in rich countries during the last 35 years. The explanation is not trade or technological innovation; nor is it mass migration or the rise of global superstars. Rather, countries are becoming more inefficient and unequal because services—which are regulated and controlled by elite associations to the benefit of their members—are taking over the economy, and a small group of elite service providers has managed to secure much of the gains for itself via the gradual accumulation of rights and privileges that elevate this group above markets.

VOTES OF NO CONFIDENCE

In most of the world’s richest countries, political discontent reigns. Confidence in government is low and has fallen steadily in recent years. In 2006, 43 percent of residents living in Organisation for Economic Co-Operation and Development (OECD) member countries—the world’s 35 richest democracies—expressed confidence in their national government, when asked by the Gallup World Poll.⁴ By 2016, that already low share had fallen to just 37 percent of residents. Shockingly, that’s lower than the global average of 54 percent.

Confidence has plummeted in a number of countries that have seen a rise in support for nationalist parties or politicians, including Greece, Finland, the United States, Denmark, the United Kingdom, and Austria (figure 1.1).⁵ Confidence, which was already low, also fell in France ahead of a strong second place finish by the far-right National Front in the presidential election. Just 28 percent of French residents expressed confidence in 2016. As of this writing (early 2019), a “yellow jacket” populist movement has upended French politics with massive street protests in response to rising taxes on diesel, and according to reports, rising housing and living expenses.⁶ In the United States, confidence is only slightly higher at 30 percent.

On the other hand, low or declining confidence in national government is not inevitable in rich countries. In the Netherlands, confidence increased from 43 percent to 57 percent. In Switzerland, confidence went from 63 percent to 80 percent. It is also up and relatively high in Canada and Germany. Extreme political parties have not been as successful in these countries, with the exception of Germany, where the far-right Alternative for Germany Party (AfD) has gained traction, reportedly, in response to the governing party’s acceptance of a large number of refugees.⁷

Figure 1.1. OECD countries with declining confidence in national government, 2006–2016

Source: Gallup World Poll, via Gallup Analytics. Chart shows change in the percentage of residents who expressed confidence in their government in 2016 compared to 2006.

SLOW ECONOMIC GROWTH, SPREAD LESS EVENLY

Lurking behind the rising discontent has been a major international slowdown in economic growth, or the rate at which living standards increase. The financial crisis that originated in a U.S. housing market bubble certainly had a large negative effect, but the growth slowdown preceded that, and in many ways, the housing bubble can be understood as a desperate attempt to find profitable investments in a low-growth world.

Figure 1.2. The 50-year slowdown in productivity growth in OECD countries compared to the United States, 1964–2014

Source: Penn World Tables 9.0, Real GDP divided by employment, annualized growth over ten-year periods.

In 28 of the 30 OECD countries with available data, the rate of growth has been slower from 1980 to 2014 than from 1960 to 1980. New Zealand and Sweden were the only rich democracies to avoid this fate. For the average resident of an OECD country, the annual growth rate in gross domestic product (GDP) per capita slowed from 3.8 percent between 1960 and 1980 to 2.1 percent between 1980 and 2014. This can’t be attributed to the aging baby boomers dropping out of the labor force. Growth has also slowed on a per worker basis, from 3.5 percent to 1.9 percent (figure 1.2).⁸ From 2008 to 2014, annual growth has been particularly weak, just above 1 percent in either per capita or per worker terms. Productivity growth—the fundamental source of long-run living standards—has slowed.

This means an entire generation has now come of age in a less dynamic society than the one experienced by its parent’s generation. Partly because of the Great Recession, growth since 2008 has been particularly weak, but the slowdown started even before then.

Figure 1.3. Share of national income going to richest one percent in 2014 and 1980

Source: World Inequality Database, accessed October 2018 via STATA program WID.

Slow growth, it must be said, is not a disaster. It is much better than no increase in living standards or, even worse, a decline. For most rich countries, living standards have continued to improve.

Yet, this minimal progress has been undermined by a disturbing trend, famously documented by the French economist Thomas Piketty and his collaborators. The earlier robust round of growth—after World War II—occurred under conditions of falling income inequality, while the latest round has coincided with rising income inequality. From 1980 to 2014, the richest 1 percent of taxpayers took home a larger share of national income in every rich country with comparable data (figure 1.3).

Modest growth, combined with high inequality, results in little to no gains for substantial portions of the population. This can be seen for the United States, which, by all accounts, stands out as one of the most unequal developed countries in the world and has become more unequal over the last 40 years.

The economists Piketty, Saez, and Zucman have used tax records and other public sources to trace where income growth has gone in the United States. From 1980 to 2014, the share of income going to the top one percent doubled from 10 to 20 percent, while the bottom 50 percent of taxpayers (those with taxable income at or below the median) saw their share fall from 20 percent to 13 percent. Average pretax real income for this group increased by only 1 percent from 1980 to 2014.⁹ The middle distribution (those between the 50th and 90th percentiles) saw a 42 percent increase, but most of the gains went to the top 10 percent of income earners.¹⁰

Overall, the weak growth in income for those outside the very top made it difficult to accumulate wealth, according to the data from Piketty and collaborators. In 1980, the bottom half of the distribution had a meager $3,405 in average wealth (in 2014 USD).¹¹ Wealth for this group peaked in 1992 around $7,000 and declined thereaf...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Contents
• Acknowledgments
• 1. Behind the Discontent
• 2. The Natural Foundations of a Just Society
• 3. Merit-Based Egalitarianism
• 4. The Importance of Equal Access to Public Goods and Markets
• 5. Unequal Access to Education
• 6. The Historical Contingencies of Group Differences in Skills
• 7. Unequal Access to Housing Markets
• 8. How Unequal Access to Housing Perpetuates Group Inequality and Injustice
• 9. Unequal Access to the Buying and Selling of Professional Services
• 10. Creating a Just Society
• Appendix
• Notes
• Index