Inequality and Power

The Economics of Class

Eric A. Schutz

• Publisher: Routledge
• Year: 2011
• ISBN:
  9781136811371
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

This book is about the causes and consequences of economic inequality in the advanced market economies of today. It is common that in market systems people choose their own individual economic destinies, but of course the choices people make are importantly determined by the alternatives available to them: unequal opportunity is the critical determinant of economic disparities. This begs the question; from where do the vast inequalities of opportunity arise? This book theorizes that power and social class are the real crux of economic inequality.

Most of mainstream economics studiously eschews questions involving social power, preferring to focus instead on "individual choice subject to constraint" in contexts of "well-functioning markets". Yet both "extra-market" power structures and power structures arising from within the market system itself are unavoidably characteristic of real-world market-based economies. The normal working of labor and financial markets engenders an inherent wealth-favoring bias in the distribution of opportunities for occupational choice. But that bias is greatly compounded by the economic, social, political and cultural power structures that constitute the class system. For those power structures work to distribute economic benefit to class elites, and are in turn undergirded by the disparities of wealth they thus help engender.

Inequality and Power offers an economic analysis of the power structures constituting that class system: employers' power over employees; the power of certain businesses over others; professionals' power over their clients and other employees; cultural power in the media and education systems; and political power in "democratic" government. Schutz argues that a "class analysis" of the trend of increasing economic inequality today is superior to the mainstream economic analysis of that trend. After considering what is wrong with power-based inequality in term of criteria of distributive justice and economic functionality, the book concludes with an outline of various possible correctives.

This book should be of interest to students and researchers in economics, sociology, political science and philosophy, as well as anyone interested in the theories of social class.

1 Introduction

The recent trend of increasing economic inequality in the U.S. is by now universally acknowledged, yet certain critical aspects of it apparently remain proscribed from mainstream public discussion. Liberal commentators rightly lament increasing inequality as an injustice and a rising threat to democracy, while conservatives, having given up trying to disprove it is happening, argue it is not a serious matter. For both, discussion of the real heart of the issue of inequality, the problem of class, is mostly avoided as a kind of taboo. This book is offered in the hope that readers’ understanding of this momentous trend, and of the larger history of inequality in modern market societies generally, may be clarified by looking closely at that mostly unspoken problem of class.

Great inequality such as that seen in the U.S. today is not historically unusual. In the relatively egalitarian post-World War II period up to the late 1970s, it was not true that “the rich got richer, the poor got poorer”: all income groups’ standards of living rose about equally. Yet the U.S. was anything but exemplary even then, despite its own popular self-congratulatory mythology. Many Americans saw their society as one that did not need the kind of draconian and largely self-defeating approach toward real, egalitarian democracy taken by its arch-rival, the Soviet Union – they felt the U.S. was already a society of equals in freedom. But from the viewpoint of many of its post-war allied nations, this was pure pretension, for the European social democracies were making genuine and successful efforts toward the real thing. Today, as the American experience of a rising disparity between the rich and the rest progresses, the old pretension of America as a “classless society” is rapidly losing its appeal.

However, that is no thanks to the mainstream of public commentary on the subject. The fact that economic inequality has been discussed at all in the mainstream today is some indication of its seriousness, given that discussion of the subject was basically non-existent in the U.S. for decades. But as welcome as it may be, mainstream media commentary on the issue is narrow and shallow, effectively downplaying some of the most important ramifications of rising inequality, and reducing the concept of class itself to something harmless and apparently not greatly interesting alongside the main currents of the American experience today. The perspective of this book, by contrast, highlights economic inequality of the kind seen throughout American history all the way up to the present as essentially manifesting the reality of social class. More critically, it acknowledges class itself to be the worst possible violation of those aspirations of democracy that are proclaimed so much a part of this culture.

What precisely is class? It is a division of society into strata defined by positions of power or relative powerlessness for those occupying them. While some mainstream commentators might recognize this much, most see class as a phenomenon not of power but merely of privilege or status. Thus, the extensive New York Times (2005) online series on inequality and class does not even mention “power” in the sense of individuals decisively influencing other people. It portrays the American “class” system as one of conspicuous privilege and status for the affluent and relative degrees of pain and anonymity for the rest, an important enough observation and one that certainly deserves elaboration – but it does not even begin to get at the critical heart of the class system as constituted in structures of power.

What then is power? The term connotes a range of personal capacities, from that of simply accomplishing tasks to that of subjecting others to one’s will. The latter of these two extremes of connotation constitutes the essence of power as a social problem, and it is that social problem that is the heart of the problem of class: in a word, class is a form of power in the sense of domination or rule. That most commentators on the trend of increasing inequality today fail even to consider this historic development in relation to the underlying realities of a class system in that sense is not surprising. Class as a form of rule is not a particularly pleasant subject for public discussion; the taboos against serious comment upon it are invariably quite strong, jobs and livelihoods depend on knowing how to skirt matters upon which superiors would frown. This book contends, however, that the problem of increasing economic inequality is essentially one of class as a system of power in the sense of domination, and that the problem cannot be effectively dealt with otherwise than by acknowledging as much.

It is not that class as a system of rule is something new in the U.S., or that increasing economic inequality manifests the rise of a kind of social system previously absent in the U.S. Class has been with us all along, what has changed is some of the specific contours of the power structures of which the class system of the modern market economy is constituted. This book does not provide a thorough account of the recent trend of increasing inequality and the specific changes that have brought it about, but instead an account of inequality in general in the modern market system and the class and power structures that are of a piece with it. The theoretical debate over the exact causes of the trend of rising inequality today has included some excellent accounts based in class analyses, even if these are not widely acknowledged in the mainstream of public discussion. Taken altogether, the literature from the perspective of class-based analyses provides a sufficient account of the real roots of rising inequality today.¹ What I hope this book might add to that literature is a kind of synthesis of the economic foundations of the class system of modern market societies, a general framework for comprehending those class-based analyses of increasing inequality today.

Such a framework has been lacking to a large extent because of the neglect of the economics of power, class and inequality. The distribution of income and wealth is now a respected research agenda in mainstream economics, where not too long ago it was considered of little interest. Nonetheless, not only are mainstream economists as a group poorly prepared to provide the kind of analyses that will be required for real progress in dealing with the trend of rising inequality, they are actually to blame for much of the misleading and obfuscating public discussion taking place on the subject today. Their past neglect of distributional matters was of a piece with their continued, studied avoidance of issues of power, the single concept most critical, this book argues, not only for comprehending economic inequality but for appreciating its importance in the first place. Their colleagues on the “fringes” of the field, along with analysts in the other social sciences where the concept of social power is a theoretically respectable and widely employed analytic tool, are far better prepared to provide fruitful insights on the causes and possible remedies of rising economic inequality than are mainstream economists themselves. Given the special weight naturally carried by the pronouncements of the latter on economic matters, their eschewal of all discussion of power in this context makes them, in effect, a major part of the problem. It is hoped this book will help remedy that by providing a conceptual framework firmly based in mainstream economics but applied for consideration of issues long and assiduously neglected by mainstream economists.

Inequality on the rise

Mainstream economists would probably not even have discovered an interest in the subject of the distribution of income and wealth were it not for the increasingly obvious trend of rising economic inequality at the turn of the twenty-first century.² This trend may well prove to be one of the most momentous events of our era. Just how bad has the rise in inequality been as of this writing?

The end of World War II marked the beginning of an exceptional period in the recent history of the U.S. and other advanced market economies. All the way up to the 1970s, these economies experienced uninterrupted high rates of growth unlike anything seen before or since. It was, moreover, shared growth. The social democracies of Europe worked on redistributing the gains from growth away from those who would, under other, more usual circumstances, have monopolized them, and down to the middle- and lower-income classes. In the U.S. all income classes participated roughly equally in the unprecedented material bounty, a consequence partly of extensions of the Social Security system, of the “War on Poverty” and the efforts to lessen racial disparities in the 1960s, and of an historically exceptional balance in American labor-management relations.

Many commentators looking at the steady growth experience of the time believed policy-making in the capitalist economy had finally matured into a mere management science, and that the field of economics had become, as J.M. Keynes had hoped, a kind of “humble and competent” trade peopled by trusted, easily trained, social engineers. Considering the even distribution of the gains from growth to all groups across the income-class spectrum, many mainstream economists had actually come to believe the distribution of income in modern market economies was fixed by the institutional requisites of the market system and essentially unchangeable. Since all boats were being lifted on the rising tide, there was apparently little of interest for mainstream economists in the subject of the distribution of income and wealth. Few seemed to care much about why some boats were so enormous while most were pretty small, why some others were barely large enough to hold their passengers, and why some others yet failed even to float despite the apparently benign flow of things generally.

Although it is not completely clear, looking back on the recent trend of rising inequality in income and wealth it appears to have begun because of the same developments that led to the end of this happy era of strong economic growth. As the post-war global economy gradually came into its own – “globalization” in today’s sense of the term began around the 1960s and 1970s – the competition among advanced national economies grew keener, and the post-war system of international finance began to collapse under the developing stresses. In combination with the consequent “stagflation” then arising, these led to stresses also on the post-war labor-capital accord that reigned throughout the period. A kind of multi-national corporate-oriented free-market approach began to develop in public governance and private business policy as an incipient reaction to the rising welfare state and was now greatly strengthened by the government’s apparent inability to deal with the changing economy in a sufficiently business-friendly manner.

Along with globalization, the growth of this attitude in business and government policy was the other major cause of the rise in the degree of inequality in the distribution of income and wealth. As will be explained later in this book, the resulting increase in economic inequality further fueled both these processes of globalization and “free-market corporatism” in business and government in a vicious circle. Today, the disparity in the distribution of wealth present in the U.S. today is roughly equal that prevailing just prior to the Great Depression.

Many commentators acknowledge the apparent connection between great inequality and the “great recession” that reigns at the time of this writing, certainly the worst downturn since that of the 1930s. Most do not see such inequality as causal (as I argue it is in this book),³ but rather as an undesirable side-effect of those things that do cause large recessions and depressions, for example, speculative excess in a lax regulatory environment. As the current great recession proceeds, perhaps the corporate free-market attitude in public and business policy will continue what seems now to be a reversal of direction in the face of the obvious need for major policy changes. Perhaps too the accompanying trend of rising inequality will reverse as well with the progressive policy changes that may follow. As things stand at the moment, however, the enormity of the economic disparities seen in the U.S. today is astounding. It is worth dwelling upon for a moment.

Various common measures of the overall degree of inequality have reached almost unprecedented levels for the U.S. (in other advanced countries they have also risen, although for many they have not risen as much, while in some they have not risen at all).⁴ In terms perhaps more vivid, where once top corporate CEOs in the U.S. made about 24 times what their average worker made (that is about the same ratio that still holds today in many other advanced market economies), even after the stock-market crash that began the current recession CEO pay is still hundreds of times average worker pay (Mishel et al. 2009: 221). The average real income of the top 1 percent of households more than tripled from 1979 to 2005, while that of the highest growth category of households in the bottom four-fifths of the population grew by only about 23 percent. The income share of the top 1 percent of households more than tripled, rising from about 8 percent of total income in 1975 to 24 percent in 2005; the share of the top one-tenth of 1 percent (0.1 percent) of households rose fourfold (from less than 3 percent of total income to 12 percent of total income; see Atkinson and Piketty 2010). Inequality in the distribution of wealth has advanced equally greatly. Thus, the ratio of the average wealth of the top 1 percent in the U.S. to that of the median household rose from 125: 1 in 1962 to 190: 1 in 2004 (Mishel et al. 2009: 269).

At the very bottom of the scale, while the rate of poverty as officially measured fell from 22.4 percent in 1959 to 11.1 percent in 1973, its lowest on record in the U.S., it has mostly remained in the 12–13 percent range ever since, rising to about 14–15 percent only in 1991–1994. In the first year of the current recession (2008) it was 13.2 percent, and will certainly be seen to have risen significantly since then as the recession continues. The long-term trend in the official poverty rate generally has not been clearly upward, but the trend among the poverty population itself has been one of deepening poverty since the mid-1970s. Thus, the average real “poverty gap” for families has risen: the shortfall between their actual real income and the poverty threshold income level rose from about $6500 to about $8200 (in 2006 dollars) between 1975 and 2004.⁵ And the fraction of the poverty population living below half the poverty income threshold rose from 28 percent in 1975 to about 42 percent in 2005 (Mishel et al. 2009: 269).

It might be thought that even apparently dire indications such as these of increasing income and wealth disparity are not of much concern in a mobile society like the U.S., where the sting of inequality is greatly lessened by the very real prospect for every individual of moving “up the ladder”. Mobility is, however, merely another part of the myth of American “classlessness”: other nations show significantly greater mobility up and down the income ladder, both between generations and within one generation, than does the U.S. Measurements today indicate that the ease of movement from one income level to another in the U.S. is actually declining (Mishel et al. 2009: 105, 109, 110). Thus not only is the “length of the ladder” increasing as the degree of wealth and income inequality rises, it is also getting harder to climb the ladder as mobility both upward and downward is decreasing.

But was it not always so?

This is a major event if things continue along these lines: the not-so-distant future will be dark indeed, with a kind of corporate feudalism looming over the horizon. Still, we do need to develop some perspective: the increasing disparities of these times are no small matter, yet the disparities that prevailed before them, in the “relatively egalitarian” post-World War II period of American history, were not at all insignificant. Thus, by the end of that period the U.S. still had troubling economic disparities of race and sex, and its level of poverty remained twice that of its competitors in Western Europe. And measures of overall inequality in that period, even if perhaps considered moderate by today’s standards, were nonetheless quite staggering.

Thus, Dutch economist Jan Pen (1971) described the situation in the U.S. in the late 1960s with his famous parade metaphor: Imagine a street parade walking past as one stands on the curb. It will last one hour. The heights of the people marching in the parade are proportionate with their incomes, and paraders march past in increasing order of their height, i.e., income. Suppose a six-foot-tall marcher represents the mean income level. At the ten-minute mark, marchers are still not up to the spectator’s waist in height; at the 30-minute mark, halfway through the parade, the paraders are still not yet five feet tall – the six-foot-tall average-height parader does not even pass until around 45 minutes into the parade. As the parade advances further and marchers’ heights continue increasing, with six minutes to go the top decile of income earners march past, 20 feet tall and growing with dizzying rapidity from one to the next into the hundreds of feet tall. In the last few seconds, the spectator can see not much further than paraders’ knees. At the end is J. Paul Getty, the Bill Gates Jr. of his time. As he strolled past, thousands of feet tall, spectators looking upward to get a glimpse of him could barely see beyond the soles of his shoes.

That was the 1960s, again the most “egalitarian” period in modern U.S. history. Pen’s parade would be something else again today – readers are invited to calculate the height of the tallest individual passing at the end of the parade in these times.⁶ Still, while the outlandish increases in inequality in these times are certainly astonishing, so too is the extent of inequality in the modern market economy in “normal” times at least as astonishing, whether it be times of increasing inequality or not: even in relatively “egalitarian” times, inequality in this economy has been extreme. Increasing inequality is a call to action, as many commentators have by now emphasized and as this book too attests, but the kind of inequality present in our economy at any time in our history should never have been a matter for complacency.

Class and inequality

It is the thesis of this book that understanding inequality entails understanding class. In a society of significant inequality such as has prevailed in this society throughout its history, the association between an individual’s economic ...

Table of contents

• Cover
• Title
• Copyright
• Contents
• Acknowledgments
• 1 Introduction
• 2 People make their choices
• 3 Opportunity matters
• 4 Opportunity matters: more yet
• 5 How power works
• 6 Capitalism: “classical” class
• 7 Realities of class today
• 8 Running the system: business power and political power
• 9 Cultural power
• 10 Increasing inequality today
• 11 Confronting inequality and class: distributive justice
• 12 Confronting inequality and class: economy, community and biosphere
• 13 Conclusion
• Notes
• Bibliography
• Index