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The Great Inequality

Michael D. Yates (mikedjyates [at] msn.com) is associate editor of Monthly Review and editorial director of Monthly Review Press. He is the author of Why Unions Matter and Cheap Motels and a Hot Plate, and the editor of Wisconsin Uprising: Labor Fights Back, all published by Monthly Review Press.
This essay is, in part, a discussion of Inequality and Power: The Economics of Class by Eric A. Schutz (London: Routledge, 2011).

In the early 1980s, I began telling my students that growing inequality of income and wealth would become the dominant political issue of the future. I did not think that the future meant thirty years, but better late than never. The Occupy Wall Street (OWS) uprising has put inequality squarely on the political agenda, with the brilliant slogan, “We are the 99%.” While the “99%” includes many rich persons, the focus on the “1%” at the top of the economic pyramid serves to shine a light on those who rule both the economy and the politics of the United States. The 1 percent is a diverse group, but among them, especially at the top, are the men and (a few) women who own controlling interests in our largest businesses, including the financial corporations whose actions precipitated the Great Recession, which officially began in December 2007 and ended in June 2009, and has since morphed into what looks like a long period of slow growth best termed stagnation. They are also the people whose campaign contributions and prominent positions in Congress, as advisors to the president, and on the Supreme Court have placed the government firmly on the side of the rich.

Given the prominence that OWS has given to inequality, it is useful to know what causes it.1 We cannot just look at the facts, dramatic as they might be, and say that something is wrong or that all we need is to take money from the rich and transfer it to the poor. What is needed is a theory of distribution, because this can give us guidance on what political strategy might best confront the underlying forces that generate inequality. Fortunately, economist Eric Schutz, in his timely book Inequality and Power: The Economics of Class provides us with such a theory. His argument is simple and straightforward. Those who are rich have advantages that keep them rich, while the poor suffer disadvantages that keep them poor. However, there is a relationship between the two groups, one in which the rich have power over the poor, and this relationship is built into the nature of a capitalist economy and continuously reproduced by it. The power of the dominant group reinforces the existing set of social/property relationships, which serves to further enhance the power of the dominant group relative to all others. It turns out, no surprise to readers of Monthly Review, that the rich are the capitalists, and the poor are the workers (what differentiates the book, however, from most radical works is that Schutz provides concrete examples and extremely clear exposition to give chapter and verse to Marxian, and particularly Gramscian, concepts). All sorts of complications must be considered, but these work in general to strengthen the basic power inequality. Therefore, attacking inequality will require nothing less than attacking capitalism itself. There are a host of pragmatic measures that can reduce inequality, but only those that address the system-generated power of the capitalists can strike down the structures that give rise to it in the first place.

Schutz’s book does not contain much data, just the bare bones. So let us preface our interrogation of his theoretical analysis with a more detailed look at the facts. They are startling. There are many kinds of inequality, but the two most obviously important ones are those of income and wealth. Incomes—normally in a money form but also “in kind,” as when part of a worker’s pay takes the form of room and board—are flows of cash (or “kind”) that go to persons over some period of time, such as a wage per hour or a yearly dividend. Incomes are always unevenly divided in a capitalist economy, and in the United States they are more unequal than in every other rich capitalist country. Since 1980, the year Ronald Reagan became president and helped engineer a savage attack on the working class, income inequality has risen considerably.

Households are physical spaces identified by the Census where people live, excluding institutional spaces like prison cells. Those in a household need not be related. In 2010, according to U.S. Census data, the richest 20 percent of all households received 50.2 percent of total household income. The poorest 20 percent got 3.3 percent. A mere three decades ago, in 1980, at the outset of the so-called Reagan Revolution, these shares were 44.1 and 4.2 percent, respectively. Those in the least- affluent households thus lost 21.4 percent of their income share, while the most affluent saw theirs rise by 13.8 percent. The next two poorest quintiles also lost in their shares of the economic pie, while the next richest quintile gained, but not by nearly as much as the top quintile. The Census breaks out the richest 5 percent of households from the top quintile. The income share of the richest 5 percent rose from 16.5 percent in 1980 to 21.3 percent in 2010, a gain of 29.1 percent. In 2010, the share of the top 5 percent was greater than that of the bottom 50 percent of households.

Economists often use a single statistic, the Gini Coefficient, to summarize increases or decreases in inequality or to compare inequality among countries.2 The Gini is a measure of how far away the actual distribution of income is from one of perfect equality, which would be a distribution in which each income quintile received exactly 20 percent of the total household income pie. In this case, the Gini turns out to equal zero. If, on the other hand, one household got all the income, the distribution would be perfectly unequal, and the Gini equals one. The greater the inequality, the closer is the Gini to one; the more equal, the closer it is to zero. The Gini Coefficient in the United States has been rising for nearly four decades. In 2010, the U.S. Gini was, according to Census calculations, equal to .469. In 1980, it was .403.3 Most wealthy capitalist nations have coefficients considerably lower than that of the United States. An article on The Atlantic website puts U.S. inequality starkly: “Income inequality is more severe in the United States than it is in nearly all of West Africa, North Africa, Europe, and Asia. We’re on par with some of the world’s most troubled countries, and not far from the perpetual conflict zones of Latin America and Sub-Saharan Africa.”4 Recently, economic historians Walter Schiedel and Steven Friesen estimated that the Gini coefficient in the Roman Empire at its peak population around 150 C.E. was slightly lower than that of the contemporary United States.5

The Census data are based upon sample surveys of households, and these use a definition of income that does not include capital gains (an example would be the sale of a share of stock at a higher price than that at which it was purchased), which go overwhelmingly to high-income households. Therefore, the share of the top quintile is lower than it would be if capital gains income was included. In addition, the Census Bureau has found that non-wage incomes, such as rent, dividends, interest, and profits of unincorporated businesses, are underreported in the surveys, and this again lowers the apparent share of the most well-off households.

Economists William Piketty and Emanuel Saiz have used federal income tax data, with their broader definition of income and truer reporting, to provide a more detailed and refined picture of the U.S. income distribution. Their findings show that the income share of the richest 1 percent of individuals (note that individual and household incomes are not necessarily the same) is now at its highest level since just before the Great Depression, standing at 23.5 percent in 2007. This share fell some during the Great Recession, but it is reasonably certain that this decline has since been reversed. What is more, it has been rising sharply since 1980, when it was about 10 percent. If we take the total gain in household income between 1979 and 2007, 60 percent of it went to the richest 1 percent of individuals, while just 8.6 percent accrued to the poorest 90 percent. An incredible 36 percent found its way into the pockets of the richest 0.1 percent (one-one thousandth of all individuals).6

Amazingly, there is stark income inequality even at the top of the income distribution. In the United States in 2007, it is estimated that the five best-paid hedge-fund managers “earned” more than all of the CEOs of the Fortune 500 corporations combined. The income of just the top three hedge-fund managers (James Simon, John Paulson, and George Soros) taken together was $9 billion dollars in 2007.7

Perhaps a story and some striking facts will serve to sum up the grotesque nature of our skyrocketing income inequality. When I was a boy, I was amazed to learn in my encyclopedia how large a sum was one billion dollars. If a person spent $10,000 a day (my encyclopedia used $1,000 a day, but that was a long time ago), it would take 100,000 days to spend a billion dollars, just under 274 years. In 2009, Pittsburgh hedge-fund manager, David Tepper, made four billion dollars.8 This income, spent at a rate of $10,000 a day and exclusive of any interest, would last him and his heirs 1,096 years! If we were to suppose that Mr. Tepper worked 2,000 hours in 2009 (fifty weeks at forty hours per week), he took in $2,000,000 per hour and $30,000 a minute. This means that he would have paid his social security tax for the entire year in about four minutes of his first workday. Today there are many individuals who, while not as rich as Tepper, make millions of dollars in a single year, enough money to secure them against any calamity.

Others are not so fortunate. In 2010, more than 7 million people had incomes less than 50 percent of the official poverty level of income, an amount equal to $11,245, which in hourly terms (2,000 hours of work per year) is $5.62. At this rate, it would take someone nearly three years to earn what Tepper got each minute. About one-quarter of all jobs in the United States pay an hourly wage rate that would not support a family of four at the official poverty level of income.

If incomes are unequal and becoming more so, the same can be said for a more important, though related, statistic—wealth. Simply put, wealth, for our purposes, is the money value of what we own at a given point in time. It includes houses, cars, computers, cash, stocks, bonds— anything convertible into cash. If we subtract what we owe from what we own, we get net worth. Wealth is important for many reasons. Some types of wealth, such as stocks and bonds, generate income, such as dividends, interest, and capital gains. A good deal of the income of people like David Tepper is saved and converted into wealth, which in turn, generates income, and so on, indefinitely. If incomes are unevenly divided, and if rich households save a bigger fraction of their income than do poor ones, wealth will get steadily more unevenly divided, even if the income distribution remains stable. Wealthy individuals with a lot less than Tepper can live, and live well, without ever working, simply by spending some of the income that derives from their wealth. Some wealth represents possession of the means of production, such as factories, land, banks, and the like, and such ownership is obviously important in terms of economic power. Even more mundane forms of wealth such as automobiles and houses can provide security and aid us in earning our incomes. Wealth can be used as collateral for loans; the more of it we have, the more we can borrow and the more favorable the terms of the loans. Wealth can be inherited and thus passed down, with its advantages intact, to future generations. Our capacities to work and earn wages, on the other hand, die with us.

Sylvia Allegretto of the Economic Policy Institute has done an extended analysis of the current U.S. wealth distribution.9 In her article, she provides charts and tables that show that in 2009, the top 1 percent of households owned 35.6 percent of net wealth (net worth) and a whopping 42.4 percent of net financial assets (all financial instruments such as stocks, bonds, bank accounts, and all the exotic instruments that helped trigger the Great Recession, minus non-mortgage debt). The bottom 90 percent owned 25 percent of net wealth and 17.3 percent of net financial wealth. The richest 1 percent had 33.1 percent of net worth in 1983 (the chart does not show the numbers for 1980), an increase of 7.5 percent; if we extend our view to the wealthiest 5 percent, we see a rise in share from 58.1 to 63.5 percent, an increase of 9.3 percent. The bottom four-fifths of households suffered a decline in their share of net worth, from 18.7 to 12.8 percent, a loss of nearly 32 percent. Allegretto shows the share of the poorest 20 percent of households; it is negative and declining, meaning that, on average, these households owe more than they own, and the gap between what they own and owe is getting larger. To put these numbers in proper perspective, she notes that the wealth of the “1 percent” is now 225 times larger than the median wealth of all households, the highest ratio on record. It was 131 in 1983.

Allegretto’s charts and tables provide three particularly striking facts about wealth. First, as with income at the very top, there is inequality too. For the super wealthy in the “Forbes 400,” a list compiled by Forbes magazine of the richest persons in the United States, average net worth was $3.2 billion in 2009. However the top wealth holder of the “400” had wealth fourteen times greater than the average for all 400. In 1982, this ratio was 8.6. Second, the share of households with zero or negative net worth increased by 60 percent between 1983 and 2009; we now have about a quarter of all households in this wealth-less state.

Third, and a critical element in any discussion of inequality, is the disparity in wealth by race. The fraction of black households with no or negative net worth was nearly 40 percent in 2009, almost double the fraction for white households. The median net worth of black households in 2009 was a paltry $2,200, a mere 2 percent of white net worth, which was $97,900; this ratio was three-and-a-half times higher in 1983. The median net financial wealth of black households was $200, remarkably low but an improvement over 1983 when it was zero. So much for the nonsense promoted by conservatives that race no longer matters.

What causes such enormous disparities in income and wealth? Why have they increased so much? Why do they matter? Schutz looks at these questions systematically. His approach is to start with the theory of mainstream (neoclassical) economists. These economists ignored inequality for decades, but the extent of it has forced them to consider it now. In 2001, Martin Feldstein, Harvard professor and, under President Ronald Reagan, the chairman of the Council of Economic Advisors, said, “Why there has been increasing inequality in this country is one of the big puzzles in our field and has absorbed a lot of intellectual effort.” But, this effort has apparently been wasted, since he goes on to say, “But if you ask me whether we should worry about the fact that some people on Wall Street and basketball players are making a lot of money, I say no.”10 As the fine film, Inside Job, makes clear, there are a good many economists who still hold this view.

Schutz begins with the most fundamental idea of neoclassical economics: the economy is best conceived as a set of markets in which buyers and sellers act solely out of self-interest, each trying to maximize his or her well-being, which is assumed to be profits in the case of employers and “utility” or “satisfaction” on the part of employees. Each actor in the marketplace faces constraints of one kind or another, and each takes these constraints as a given, making choices within them so as to maximize profits or “utility.” Ordinarily, the analysis focuses on the choices and not the constraints, but Schutz says there is no good reason why we should not pay most attention to the constraints.

Let us imagine, as Schutz does, a man making a labor market decision. Assume that he has complete knowledge of the wages and benefits associated with every occupation he is considering entering. He also knows what it will cost him in terms of schooling and training to be eligible for employment in each occupation, as well as the income he will have to forego by not working while he is getting the necessary schooling and training. Any particular disamenities of an occupation, such as physical danger, are also costs of entering it. Given these considerations, what will he do? He will assess the costs and benefits of each occupation and choose that for which the difference between the two is the largest. Implicit in this scenario is a wage for each occupation that at least covers the cost of entering it. Competition in the marketplace will, in fact, make the wage just equal to the entry cost. An occupation with a wage higher than the entry cost will attract new applicants; this will put downward pressure on the wage and upward pressure on the costs (as more people demand schooling and training); and eventually, the above average wage-cost difference will disappear.

The implication of this theory is not intuitively plausible. It is that, while some workers earn higher wages than others, higher wages must reflect higher entry costs. In a sense, then, a doctor is not really better off than a motel room cleaner; in terms of wages minus costs, they are in exactly the same position. Voila! At least as far as labor income is concerned, there can be no inequality.

Once Schutz has laid out the basic neoclassical model, he proceeds to demolish it. First, he says that within the strict mainstream theory, its proponents admit to one reason why there might be inequality. This would be if some persons had greater innate ability than others. If you and I appear to face the same wage and entry cost but I have greater innate ability than you, in practice I will face a lower cost because, for example, I will be able to complete a course of education more rapidly than you. Or I will be able to work less hard and get the same amount of work done as you, giving me a psychic income that you will not get. Either way, I will enjoy a permanent advantage over you, one that competition will not eliminate. However, this notion of unequal ability falls to the ground if we cannot know what innate ability is or how it might be measured, neither of which we do know and in all likelihood cannot know.

What is more, wages are not the only type of income. Profits, rents, and interest all must be accounted for. Schutz points out that rent is clearly a return to the ownership of land, and the owner does not have to work to get it. Interest goes to those who own bonds, and as with land, the more you own, the more income you get. The market will do nothing to equalize these amounts, and the legerdemain the neoclassical economists use to argue that unequal wage incomes are really equal cannot be employed here. Economists have come up with a number of reasons why profits can be analyzed in the same way as wages, but Schutz skewers each of these. For example, “Profit may be argued to be an indirect return to labor itself, as most people who receive it do so by virtue of having put aside a portion of their labor income which accumulates into the savings that are then invested in one or more firms” (85). Or, “Business owners (and land owners, lenders and other investors) receive property income for the very specific labor they perform of managing their resources, obviously a critically necessary productive activity” (86) (emphases in original). These arguments, however, run up against the truths that business investment comes overwhelmingly out of retained earnings, and the income a businessperson receives for managing is a wage. And managers are typically hired, especially by the large firms that dominate the economy. The conclusion we must reach is that profits are just another return to the ownership of property. More of it accrues to those who own the most business property, or the stocks that represent such ownership.

Schutz devotes his most extended critique of neoclassical distribution theory to the unequal constraints we face as we make our market decisions. Constraints take many forms: cultural backgrounds are different; material circumstances are extremely unequal and these shape and condition cultural differences; there are considerable inequalities in the amount of information available to people; some have the power to withhold or manipulate the information available to those contemplating investments in their “human capital”; some have social connections that can give boosts to their career paths; some face racial and/or gender discrimination; labor markets are segmented by monopoly power, and this limits the number of “good” jobs to those in the primary, more monopolized markets; it takes time to unravel any incorrect market decisions we make, and this time may exceed our lifetimes; people can get trapped where they live because they cannot afford to relocate every time an employer moves or some catastrophe occurs; and, of great importance, we have widely different access to the credit so essential for making any kind of investment, and whatever access we have depends critically on the wealth we have available for collateral when we apply for loans.

The upshot of all this is that we make choices subject to constraints over which most of us have little control. And nearly all of the constraints are intimately tied to the material circumstances in which we find ourselves. Since we know conclusively that these material circumstances are unequal, we also know that the outcomes, in terms of income and wealth, will also be unequal, irrespective of whether markets are competitive or whether people have similar or dissimilar innate aptitudes. Perhaps something I wrote in my book, Naming the System, sums up concretely Schutz’s arguments about the usefulness of the theory of individual choice in explaining inequality.

In Pittsburgh, Pennsylvania, where I lived for many years, there is an extraordinarily wealthy family, the Hillmans, with a net worth of several billion dollars. One of their homes, along once fashionable Fifth Avenue, is a gorgeous mansion on a magnificent piece of property. About three miles east of this residence is the Homewood section of the city, whose mean streets have been made famous by the writer, John Edgar Wideman. On North Lang Street there is a row of three connected apartments. One of the end apartments has been abandoned to the elements to the rodents and the drug users. This is gang territory, and if you are African American, you do not go there wearing the wrong colors. Poverty, deep and grinding, is rampant on this street and in this neighborhood, which has one of the nation’s highest infant mortality rates.

Consider two children, one born in the Hillman house and another born in the North Lang Street apartment. In the former, there are two rich and influential parents, and in the latter there is a single mother working nights with three small children. Let us ask some basic questions. Which mother will have the best health care, with regular visits to the doctor, medicine if needed, and a healthy diet? Which child is more likely to have a normal birth weight? Which child is more likely to get adequate nutrition and have good health care in early childhood? If the poor child does not have these things, who will return to this child the brain cells lost as a consequence? Which child is more likely to suffer the ill effects of lead poisoning? Which child is more likely to have an older sibling, just 12 years old, be responsible for him when the mother is working at night? Which will be fed cookies for supper and be entertained by an old television set? If the two children get ill in the middle of the night, which one will be more likely to make it to the emergency room in time? Which child will start school speaking standard English, wearing new clothes, and having someone at home to make sure the homework gets done? Which child will travel, and which will barely make it out of the neighborhood?

As the two children grow up, what sort of people will they meet? Which will be more likely to meet persons who will be useful to them when they are seeking admission to college or looking for a job or trying to find funding for a business venture? Which will be more likely to be hit by a stray bullet fired in a war over drug turf? Which will go to the better school? Which will have access to books, magazines, newspapers, and computers in the home? Which one will wear worn-out clothes? Which one will be embarrassed because his clothes smell? Which one will be more likely to have caring teachers who work in well-equipped and safe schools? Which one will be afraid to tell the teacher that he does not have crayons and colored paper at home? Which child will learn the grammar and syntax of the rich? Which child will join a gang? Abuse drugs? Commit a crime? Be harassed by the police because he is black? When these two children face the labor market, which one will be more productive?

To ask these questions is to answer them. And when we consider that this poor child in the United States is better off than two-thirds of the world’s population, we must conclude that most of the world’s people live in a state of deprivation so extreme that they must be considered to have almost no opportunities at all. They are almost as condemned as the person on death row in a Texas prison.11

If individual choices can not take us very far in explaining inequality, what can? The constraints that we face are enormously unequal, and this takes us further in our quest to discover the roots of inequality. Yet, what is it that structures the constraints themselves? Why is it that we find ourselves in circumstances from which there does not appear to be a way out, even if we are rational, smart, and skilled in making decisions? Schutz puts the problem clearly:

A simple individual choice approach to economic inequality fails utterly as a theory of distribution because it neglects the opportunity side of individual choice. People can only choose from among whatever alternatives are available to them, hence in principle the opportunity side matters as much as the choice side. We have seen how a consideration in-depth of the most important general patterns or contours of opportunities in society and economy takes one far in the direction of a clearer understanding of economic inequality. Yet reflecting on the patterns of opportunity considered in earlier chapterswe find the story is still not complete, for we still do not have a complete answer to the question, what determines these patterns of opportunity, from where do they come, or how do they arise? (63)

The problem with the neoclassical perspective is that it is static; at best it can make comparisons of different circumstance or two different points in time, but it cannot tell us the dynamics of the unequal circumstances or how we go from one point in time to another. You and I are in different circumstances because we made different choices and/or did not face the same constraints. For us to be more equal, we would have to make similar choices under the same constraints. Yet, what if whatever it is that generates the life conditions in which we make our choices guarantees that the constraints can never be the same or even altered permanently?

Schutz’s approach here is ingenious, and it takes us directly to a consideration of class not just as a condition—as in, you and I are in different social classes—but as a dynamic relationship in which one class exercises power over another so that society is structured in such a way that there can be no escape from persistent inequalities unless the power (class) relationship is confronted directly and abolished. As we make our choices, we also collectively make “social choices,” that is we structure the very society that faces us with constraints when we choose. However, to say this is to suggest that we are not at all equal in terms of how society itself is constructed. At the level of society, power is critically important. Here is how Schutz defines power: “If person A can get person B to do something in A’s interest by taking advantage of some situation or set of circumstances to which B, were he or she free to choose with full knowledge from among all possible alternatives, would not give full consent, then A has power over B” (66).

While this is a general definition, it is still possible immediately to say some particular things about power. First, power allows a person unilaterally to change another’s constraints, and it can, when exercised long enough, change the habits of subordinates so that the latter act automatically in the interests of their masters. Second, those with personal power will inevitably also have social power, and this will allow them to make the rules that all must obey, and these will benefit the powerful. These rules, in turn, may come to seem normal, which lowers any costs the powerful would have to incur to maintain their power. Third, wherever there is power, there can be no democracy, since if there were, such power would be abolished by majority rule.

After defining power, Schutz examines it in a capitalist context. The most important kind of power is that which employers exert at the workplace. The power advantage capitalists have vis-à-vis their employees is as obvious as it is neglected by mainstream economists. Workers do not have the wealth to withstand periods without employment, and while they might quit a particular job, they cannot quit all jobs. In addition, the ownership of businesses gives capitalists the legal right to structure their workplaces (through detailed division of labor, mechanization, close monitoring to ensure maximum intensity, and so forth) so that the amount of labor used is always a good deal less than the supply of workers. This pool of surplus labor, Marx’s “reserve army,” serves to keep the employed in line, from making excessive wage and hour demands on the bosses. Employers also create artificial job hierarchies to split workers and keep them from seeing their common interests. In larger firms, seemingly impersonal bureaucracies make rules that come to be accepted as inevitable and even fair. All of these things allow employers to extract a surplus of work from their hired hands, a surplus that the employers get to keep. Power always involves a “taking” by the powerful from those without it. What is taken is the fruits of the exercise of their labor time. The control of the labor power of others over a definite period of time, in other words, is the principal basis of economic profit and power under capitalism.

Of course, a “pure” model of power in capitalism, one in which the capitalists merely exploit workers and the analysis stops there, is too simple, even if it remains the essential starting point, and Schutz devotes chapters to other classes, such as managers and professionals, to the hierarchy of businesses (with the largest monopoly capitals at the top), to political power, and to the power represented by complex social networks and cultural institutions such as colleges and universities and media. Each of these other power hierarchies has a certain degree of independence from the basic economic hierarchy, but each is, in the end, connected to it. Together, they serve inevitably to reinforce it; they make it more impregnable to change by, in large part, making it appear normal, the consequence of human nature, and creative of the best world possible. All of these other power structures make our economic system extraordinarily complex and difficult to penetrate, but they do not negate the essential importance of the capital-labor power inequality. They come into being because of it, and they make it stronger. We cannot understand any of them if we do not grasp it.

Once Schutz has laid out his theoretical position on inequality, he addresses the question of why it has risen so dramatically in the United States. He critiques several mainstream hypotheses, the most important of which is that the information technology revolution has raised the skill requirements (education and training costs) at the upper end of the wage hierarchy, while these costs at the lower end have either not risen or fallen. Since, according to neoclassical theory, wages equal the costs of entry into an occupation, this implies that wages at the top are rising disproportionately to those at the bottom. Schutz points out that wage equality began to rise at least a decade before the IT revolution took off. Also, education and training have become more equally distributed, and this should have been reflected in more equality. And if we consider a particular skill group, say those with college degrees in a certain field, inequality has risen within such groups. Schutz might have noted as well that the de-skilling practices associated with Frederick Taylor are deeply ingrained in what all managements do, so that any argument concerning widespread and long-lasting increases in skill requirements is implausible.

As we have seen, for Schutz, the key to understanding inequality, both between labor and capital and within the wage-earning class, is power. Incomes (and the wealth that can be purchased with incomes) have become so unequal because the power of those at the top has risen at the expense of those at the bottom. Specifically, he argues, several things have enhanced the power of those who own and manage capitalist enterprises. IT, for example, has been a boon to the power of top managers, professionals, and the owners themselves. The first two groups have used their superior knowledge of it to extort money from corporate owners, as did those at AIG and other companies who invented and sold billions of dollars of toxic Credit Default Swaps. IT also has enhanced the power of employers to control the labor process, by allowing managers to force greater work intensity. Devices pioneered by Toyota, such as just-in-time inventory, kaizan (constant improvement), and team production have allowed cars to be produced at a rate of one every forty-five seconds. In the modern, IT-driven workplace, there is nowhere to hide. IT continues to churn the labor market, making workers ever more insecure. The constancy of its development and introduction creates a large and growing pool of more or less permanently unemployed persons—perhaps one reason why long-term unemployment is so high many months after the official end of the Great Recession.12

Globalization, both alone and in combination with technology, is driven by the growing political power of capital and has significantly increased employer power. Beginning in the mid–1970s, capital intensified its war against labor as it tried to restore falling profits. Its victories in this war allowed it to secure enough political power to alter the global economic landscape: new trade agreements and elimination of restrictions on international movements of money and investment.

The global economy is now more open for capital, while labor remains much less mobile. This has given employers many more options for production, such as capital export, offshoring, and outsourcing. The exploitation of labor has increased, especially in the Global South where workers can often be paid below the value of their labor power.13

Growing inequality has strengthened the tendency toward the monopolization of production in mature capitalist economies. Incomes do not just flow from poorer to richer households but from lesser to greater businesses (this latter phenomenon is part of what Schutz calls “the business power structure”). Large firms, a small number of which dominate many markets, are best situated to expand globally, and as they do, they become more powerful economically and politically. This power permits them to increase the rate of exploitation of labor, again especially in the Global South, as they can both utilize modern labor process control techniques better than their smaller rivals and exert political pressure more effectively. Their growing and almost total control of mass media creates a modern propaganda system that shapes the culture in a thoroughly pro-capitalist manner, forging a climate in which it is difficult for people to escape being bombarded with the idea that there is no alternative to the terrible things that have been happening to them. Governments are increasingly seen as incapable of doing anything except getting out of the way of the capitalist juggernaut.

The increased political power of capital has harmed labor directly as well. We have seen a weakening of all public programs that make working men and women more secure, from unemployment compensation and public assistance to social security, Medicare, and Medicaid. Labor laws are evermore inadequately enforced, and proposals for better laws never see the light of day. Business-friendly courts gut the common sense meaning of laws that might benefit the majority of people. Antitrust laws have become a dead letter, which steadily eliminates any roadblocks to growing monopoly power, thereby making stronger the inequality-producing trends that weaken the power of workers.

Schutz does not discuss the growing financialization of the economy, which is surely a consequence of greater ruling class power. This feature of contemporary capitalism allows for easier attacks on any government that does things that favor workers and the poor; currency speculation and capital flight are two examples. Furthermore, cash-strapped workers have had to turn to the financial markets to make ends meet, and the new instruments that have been an outgrowth of rampant financialization have allowed the banks to take ample advantage of this, in effect, making profits by taking money directly out of the pockets of the working class.14

It is appropriate at this point to ask why inequality matters. Schutz offers several compelling reasons. First, from the fact that the power that generates inequality is inherently undemocratic, it follows that societies that exhibit consistently high degrees of inequality, as is true of all capitalist societies, cannot be democratic. As inequality rises in the United States, even the formal democracy we do have becomes less meaningful. Is it not by now, for example, pointless to vote in national elections?

Second, inequality is also harmful to the formation of the social bonds so necessary for human well-being. It isolates us from one another; in effect, there are two worlds, that of the rich and that of the rest of us. The rich exert power over us and, by doing so, deny us our full humanity. Schutz says: “The concept of alienation clarifies both the extent and the significance of what is lost for those subordinated in social power structures. Not only is their full self-initiative deniedbut the full development of their faculties and intentions in all other realms of life is thereby stifled and more or less permanently stunted. Peoplemanifest behaviors ranging from withdrawal to social or intellectual incompetence, from distraction to aimlessness or apathy, from anger, confusion, depression and anxiety to obsession and neuroses and, in some, violence of one kind or another” (162).

Third, inequality is not good for the economy. As the working class loses ground, its members cannot spend as much money, and this can cause a reduction in the demand for many goods and services, which can dampen capital spending and employment growth. Growing inequality has reduced economic mobility, and this can lower the willingness of workers to put forth as much effort as previously. Fourth, inequality does great damage to the environment. There is no way out of our environmental crisis without a radical change in public policies. Yet, the more inequality there is, which is to say, the greater the power of the well-to-do over everyone else, the less likely is this to happen. Governments become more subservient to business and its growth mania, and they are less likely to combat the rampant consumerism that is the lifeblood of corporations; the more conspicuous and energy-wasting consumption there is; and the more the rich will seek individual ways to insulate themselves from environmental catastrophes.

Schutz might have added a fifth cost of inequality. Modern research is beginning strongly to suggest that a growing gap between the top and bottom of the income and wealth distributions causes, in and of itself, a host of problems, similar to those we are almost certain are caused by rising unemployment. One researcher studied the states in the United States and found that,

States with greater inequality in the distribution of income also had higher rates of unemployment, higher rates of incarceration, a higher percentage of people receiving income assistance and food stamps, and a greater percentage of people without medical insurance. Again, the gap between rich and poor was the best predictor, not the average income in the state.

Interestingly, states with greater inequality of income distribution also spent less per person on education, had fewer books per person in the schools, and had poorer educational performance, including worse reading skills, worse math skills, and lower rates of completion of high school.

States with greater inequality of income also had a greater proportion of babies born with low birth weight; higher rates of homicide; higher rates of violent crime; a greater proportion of the population unable to work because of disabilities; a higher proportion of the population using tobacco; and a higher proportion of the population being sedentary (inactive).

Lastly, states with greater inequality of income had higher costs per-person for medical care, and higher costs per person for police protection.15

The most difficult part of writing a book like Inequality and Power is explaining to readers what might be done to change things. He does this in his final chapter, but he cautions that he is not going to discuss how a social movement to accomplish this could be constituted. His suggestions are straightforward and broken down into categories. I have paraphrased his points:

  1. Traditional measures: more progressive income taxes; greater reliance on estate and gift taxes; higher and inflation-indexed minimum wages; expanded social security, workers’ compensation, and unemployment compensation; more aid to needy persons and families; strengthening of Medicare and Medicaid; antitrust enforcement; affirmative action to reduce discrimination; and greater regulation of the media to ensure a broader spectrum of viewpoints.
  2. New thinking: ceilings on executive compensation; encouragement of labor unions (through enforcement of existing laws and amendments to these laws to make organizing workers less burdensome); a universal pension system; universal health care; publicly subsidized “individual development accounts” so that poorer people could buy homes, go to college, or start a business; compensatory spending on local public education and more federal aid for higher education; abolition of corporate personhood; a pluralistic media system; proportional political representation; and a full-employment jobs policy or a basic income entitlement to help break the jobs-income nexus.
  3. More radical changes: socialized investment aimed at the public interest as determined by some sort of democratic decision-making process; a close look at socialist economies to see what they did and have done right (Schutz points out that after recovery from the Second World War, there was no unemployment, homelessness, or illiteracy in the Soviet Union); and consideration of moving toward some form of socialism, such as market socialism or democratic worker-managed firms (the Yugoslav experience offers a good deal of encouragement to proponents of the second of these).

Many of Schutz’s suggestions are worthwhile goals which radicals could fight to achieve. Yet there is something unsatisfactory about his discussion. He devotes a good part of his book to an elaboration of the dynamic nature of class domination, of how and why power is exercised by one class over another and, in the process, society is structured in such a way that this domination is replicated from one point in time to the next. It would seem necessary, then, to put this analysis in reverse and ask how the self-sustaining set of mechanisms that nourish this system can be unraveled so that working people can develop the power needed to destroy it. Certainly workers have organized and done any number of things to at least improve their daily lives. What has worked? What has not? Which activities have undermined capitalist class power and which have reinforced it? Perhaps this is too much to ask. The Occupy Wall Street uprising, the Wisconsin events of last winter, and all of the revolts taking place from Egypt to China, show us that the power of the 1 percent never goes unchallenged. It is our job to push the struggle forward. Schutz provides plenty of ammunition to help us do so.

What sets Schutz’s book apart is that he begins with the neoclassical model of individual choice, points out that the constraints we face when choosing are at least as important as the choices, delineates the nature of these constraints and shows how they are inevitably and inexorably unequal, and then, very subtly shifts the conversation to one of class and social power, saying, in effect, that neoclassical economists ought to be ashamed of themselves for not doing this as a matter of course, as good scientists would. I wish that I had had a book like this forty years ago when I was in the process of escaping the clutches of the neoclassical monsters and finding my way into the all-embracing arms of Karl Marx.

Notes

  1. A recent Pew Research Center survey indicates that a growing proportion of people in the United States see a sharp class conflict between rich and poor. See Rich Morin, “Rising Share of Americans See Conflict Between Rich and Poor,” Pew Research Center, January 11, 2012, http://pewsocialtrends.org.
  2. The Gini Coefficient is named after Italian statistician and sociologist, Corrado Gini, 1884–1965. He was a noted fascist theoretician and ideologue, who wrote a book titled The Scientific Basis of Fascism, an oxymoronic title if ever there was one.
  3. Quintile and Gini data in this and the preceding paragraph can be found in Carmen DeNavas-Walt, Bernadette D. Proctor, and Jessica C. Smith, Income, Poverty, and Health Insurance Coverage in the United States: 2010 (Washington, DC: U.S. Government Printing Office, 2011), http://census.gov. The data on the income shares of the top 5 percent of households can be found in “Table H2 All Races” at http://census.gov/hhes/www/income/data/historical/inequality/.
  4. See Max Fisher, “Map: U.S. Ranks Near Bottom on Income Inequality,” The Atlantic, September 19, 2011, http://theatlantic.com.
  5. Walter Scheidel and Steven J. Friesen, “The Size of the Economy and the Distribution of Income in the Roman Empire,” Journal of Roman Studies 99 (2009): 61–91.
  6. See “Share of the Nation’s Income Earned by the Top 1 Percent,” New York Times, October 25, 2011, http://nytimes.com. The chart here shows the changing share of the highest 1 percent of income recipients. The data on the share of income growth that went to the richest 1 and 0.1 percent is from Josh Bivens and Lawrence Mishel, “Occupy Wall Streeters are right about skewed economic rewards in the United States,” October 26, 2011, http://epi.org.
  7. Menzie D. Chinn and Jeffrey A. Frieden, Lost Decades (New York: W.W. Norton, 2011), 172. There is a useful article in the New York Times that points out that there is a very wide range of incomes among the top 1 percent. Unlike the richest 0.1 percent, not all in this group can be described as extremely rich or wealthy. Still, none of them will starve any time soon. It is interesting to read how these people see themselves, often remarking on how hard they work and, by implication, how deserving they are of their incomes and lifestyles. See Shaila Dawan and Robert Gebeloff, “Among the Wealthiest One Percent, Many Variations,” New York Times, January 14, 2012, http://nytimes.com. Note the confusion in the title between wealth and income. The influential liberal economist Paul Krugman notes on his blog that the richest 0.1 percent are not a diverse group. See “But The Top 0.1 Percent Isn’t Diverse,” New York Times, January 15, 2012, http://krugman.blogs.nytimes.com.
  8. See Nelson D. Schwartz and Louise Story, “Pay of Hedge Fund Managers Roared Back Last Year,” New York Times, March 31, 2010, http://nytimes.com.
  9. Sylvia A. Allegretto, “The State of Working America’s Wealth, 2011: Through Volatility and Turmoil, the Gap Widens,” EPI Briefing Paper #292, March 23, 2011, http://epi.org.
  10. Alexander Stille, “Grounded by an Income Gap,” New York Times, December 15, 2001, http://nytimes.com.
  11. Michael D. Yates, Naming the System: Inequality and Work in the Global Economy (New York: Monthly Review Press, 2002), 58–59.
  12. Our position at Monthly Review is that the slow growth typical of the most advanced capitalist economies, what we call stagnation, is the underlying cause of the high unemployment that continues so long after the Great Recession officially ended.
  13. This has been stressed in an important recent Review of the Month. See John Bellamy Foster, Robert W. McChesney, and R. Jamil Jonna, “The Global Reserve Army of Labor and the New Imperialism,” Monthly Review 63, no. 6 (November 2011), 1–31.
  14. See the useful essay by Costas Lapavitsas, “Financialisation and Capitalist Accumulation: Structural Accounts of the Crisis of 2007-9,” Research on Money and Finance, Discussion Paper no 16, Department of Economics, School of Oriental and African Studies, University of London, February 2010, http://se.ruc.edu.cn.
  15. See Peter Montague, “Economic Inequality and Health,” http://huppi.com.
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