Oct 28th 2016

How Inequality Found a Political Voice

by Michael Spence

 

Michael Spence, a Nobel laureate in economics, is Professor of Economics at New York University’s Stern School of Business and Senior Fellow at the Hoover Institution. 



MILAN – It took a long time for widening inequality to have an impact on politics, as it suddenly has done in recent years. Now that it is a central issue, national economic priorities will need to shift substantially to create more equitable, inclusive economies and societies. If they do not, people could embrace explosive alternatives to their current governments, such as the populist movements now sweeping many countries.

Political leaders often speak of growth patterns that unfairly distribute the benefits of growth; but then they do relatively little about it when they are in power. When countries go down the path of non-inclusive growth patterns, it usually results in disrespect for expertise, disillusionment with the political system and shared cultural values, and even greater social fragmentation and polarization.

Acknowledging the importance of how economic benefits are distributed is of course not new. In developing countries, economic exclusion and extreme inequality have always been unconducive to long-term high-growth patterns. Under these conditions, pro-growth policies are politically unsustainable, and they are ultimately disrupted by political dislocations, social unrest, or even violence.

In the United States, rising inequality has been a fact of life at least since the 1970s, when the relatively equitable distribution of economic benefits from the early post-World War II era started to become skewed. In the late 1990s, when digital technologies began to automate and disintermediate more routine jobs, the shift toward higher wealth and income inequality became turbocharged.

Globalization played a role. In the 20 years before the 2008 financial crisis, manufacturing employment in the US rapidly declined in every sector except pharmaceuticals, even as added value in manufacturing rose. Net jobs loss was kept roughly at zero only because employment in services increased.

In fact, much of the added value in manufacturing actually comes from services such as product design, research and development, and marketing. So, if we account for this value-chain composition, the decline in manufacturing – the production of tangible goods – is even more pronounced.

Economists have been tracking these trends for some time. Massachusetts Institute of Technology economist David Autor and his colleagues have carefully documented the impact of globalization and labor-saving digital technologies on routine jobs. More recently, French economist Thomas Piketty’s international bestseller, Capital in the Twenty-First Century, dramatically widened our awareness of wealth inequality and described possible underlying forces driving it. The brilliant, award-winning young economists Raj Chetty and Emmanuel Saez have enriched the discussion with new research. And I have written about some of the structural economic shifts associated with these problems.

Eventually, journalists picked up on these trends, too, and it would now be hard to find anyone who has not heard of the “1%” – shorthand for those at the top of the global wealth and income scales. Many people now worry about a bifurcated society: a thriving global class of elites at the top and a stressed-out class comprising everyone else. Still, despite these long trends, the political and policy status quo remained largely unchallenged until 2008.

To understand why it took politics so long to catch up to economic realities, we should look at incentives and ideology. With respect to incentives, politicians have not been given a good enough reason to address unequal distribution patterns. The US has relatively weak campaign-finance limits, so corporations and wealthy individuals – neither of which generally prioritizes income redistribution – have contributed a disproportionate share to politicians’ campaign war chests.

Ideologically, many people are simply suspicious of expansive government. They recognize inequality as a problem, and in principle they support government policies that provide high-quality education and health-care services, but they do not trust politicians or bureaucrats. In their eyes, governments are inefficient and self-interested at best, and dictatorial and oppressive at worst.

All of this began to change with the rise of digital technologies and the Internet, but especially with the advent of social media. As US President Barack Obama showed in the 2008 election cycle – followed by Bernie Sanders and Donald Trump in the current cycle – it is now possible to finance a very expensive campaign without “big money.”

As a result, there is a growing disconnect between big money and political incentives; and while money is still a part of the political process, influence itself no longer belongs exclusively to corporations and wealthy individuals. Social-media platforms now enable large groups of people to mobilize in ways reminiscent of mass political movements in earlier eras. Such platforms may have reduced the cost of political organizing, and thus candidates’ overall dependence on money, while providing an efficient alternative fund-raising channel.

This new reality is here to stay, and, regardless of who wins the US election this year, anyone who is unhappy with high inequality will have a voice, the ability to finance it, and the power to affect policymaking. So, too, will other groups that focus on similar issues, such as environmental sustainability, which has not been a major focus in the current US presidential campaign (the three debates between the candidates included no discussion of climate change, for example), but surely will be in the future.

All told, digital technology is shuffling economic structures and rebalancing power relationships in the world’s democracies – even in institutions once thought to be dominated by money and wealth.

A large, newly influential constituency should be welcomed. But it cannot be a substitute for wise leadership, and its existence does not guarantee prudent policies. As political priorities continue to rebalance, we will need to devise creative solutions to solve our hardest problems, and to prevent populist misrule. One hopes that this is the course we are on now.


Michael Spence, a Nobel laureate in economics, is Professor of Economics at New York University’s Stern School of Business and Senior Fellow at the Hoover Institution.

Copyright: Project Syndicate, 2016.
www.project-syndicate.org

 


This article is brought to you by Project Syndicate that is a not for profit organization.

Project Syndicate brings original, engaging, and thought-provoking commentaries by esteemed leaders and thinkers from around the world to readers everywhere. By offering incisive perspectives on our changing world from those who are shaping its economics, politics, science, and culture, Project Syndicate has created an unrivalled venue for informed public debate. Please see: www.project-syndicate.org.

Should you want to support Project Syndicate you can do it by using the PayPal icon below. Your donation is paid to Project Syndicate in full after PayPal has deducted its transaction fee. Facts & Arts neither receives information about your donation nor a commission.

 

 

Browse articles by author

More Current Affairs

Jul 9th 2020
EXTRACT: "The ideas behind MMT [=Modern monetary theory] were mainly developed in the 1970s, notably by Warren Mosler, an American investment fund manager, who is also credited with doing much to popularise it. However, there are many threads that can be traced further back, for instance to an early 20th-century group called the chartalists, who were interested in explaining why currencies had value. These days, prominent supporters of MMT include L Randall Wray, who teaches regular courses on the theory at Bard college in Hudson, New York state. Another academic, Stephanie Kelton, has gained the ear of politicians such as Bernie Sanders and, more recently, Democrat US presidential candidate Joe Biden, providing theoretical justification for expanding government spending."
Jul 7th 2020
EXTRACT: "So we are left with herd immunity and viable treatments as the world’s only realistic near term solution. Sweden has been roundly criticized and shunned by its neighbors for embracing herd immunity at the outset of the pandemic. It has paid a price for having done so based on accelerated infection and death rates. But while the jury will remain out for some time to come about the wisdom of having done so, Sweden may prove to have been ahead of the curve in its approach. Herd immunity is an option that should be seriously considered by the world’s governments, for a safe and effective vaccine could be many years away, and may not be achieved at all. PICTURE: Daniel Wagner.
Jul 5th 2020
EXTRACT: "The war on Yemen begun in 2015 by Saudi Arabia and the United Arab Emirates has been a failure militarily and a vast drain on resources that, in the age of Covid-19, neither country can any longer afford. Not only has the war been Saudi Arabia’s Vietnam, it has inflicted untold human damage on Yemenis. UNICEF has a new report out warning that millions of Yemeni children are on the brink of starvation. Yemen, with a population of about 28 million (think Texas), is one of the poorest countries in the world. Saudi Arabia, with a citizen population of some 21 million, is one of the richest. The United Arab Emirates, with a citizen population of a little over 1 million, is likewise very rich. Both have waged a high-tech air war on the indigenous Yemeni Houthis, but in the past year have pitched their Sunni proxies against one another."
Jun 25th 2020
EXTRACT: "The facts are clear: the wealthiest 0.54%, about 40 million people, are responsible for 14% of lifestyle-related greenhouse gas emissions, while the bottom 50% of income earners, almost 4 billion people, only emit around 10%. The world’s top 10% income earners are responsible for at least 25% and up to 43% of our environmental impact. Most people living in developed countries would fit into this category, meaning you don’t have to consider yourself rich in order to be globally affluent. Even many poorer people in wealthy countries have a disproportionately large and unsustainable resource footprint compared to the global average."
Jun 24th 2020
EXTRACT: "To be sure, the American Dream was always more aspiration than reality. Economic, social, and intergenerational mobility have always fallen short of what the myth of the self-made man or woman would lead one to expect. But with social mobility now declining as inequality rises, today’s young people are right to be angry."
Jun 19th 2020
EXTRACT: "There is only one way to repair America’s reputation, regain the trust of allies, and ensure that the US can act as an effective counterweight to China: address the root causes of the cracks that Trump’s disastrous presidency has exposed and widened. This is in line with the vision advanced in 2011 by two military strategists, Captain Wayne Porter and Colonel Mark Mykleby, using the pseudonym “Mr. Y.” Porter and Mykleby argued that national security depends not only on the capacity to respond to threats from foreign powers, but also – and perhaps more important – on the “application of credible influence and strength.” That influence, in turn, depends on America’s success in providing a “pathway of promise” for US citizens – and a model for the world."
Jun 14th 2020
EXTRACT: "The most critical question then is not how far Trump will go to promote his treasonous agenda, but for how long Republican leaders will silently accept and subserviently enable Trump to destroy the basic moral tenets and values on which this Union was founded, and which they swore to uphold and protect...............Of course, shame on us if we continue to be surprised by Republicans’ continuing silence, because as we all know, even when presented with overwhelming evidence that Trump committed crimes against the American people, Trump’s Republican stooges in the Senate exonerated him following impeachment almost unanimously...................The Republican leadership, to be sure, has made its bed. It has committed moral suicide. History will judge them harshly for their treason and betrayal of the nation, including all of those who have lived and died throughout our history to foster and protect our safety, integrity, and freedom."
Jun 9th 2020
EXTRACT: " Governments can do nothing about the quotidian offenses of living as a black person in America – the empty taxis that refuse to stop, being mistaken for employees in supermarkets, the myriad intentional and unintentional insults. Many now in the streets won’t be satisfied unless the result of this national spasm is improved schools, health care, and job opportunities for minorities – a fair shake for black people. What will happen when America once again falls short of honoring its professed values?."
Jun 8th 2020
EXTRACT: "It should be apparent to most observers of international relations that the Chinese government wants the world to play by its own set of rules. Beijing appears to believe that China’s rise and its assumption of global leadership positions are an inevitable extension of earlier periods in its history, when it was the world’s most powerful country. This is often at odds with the global norms that have been established – with China’s participation, it is worth adding – since the 1940s. While this is clearly the Chinese century, few outside of China would agree that Beijing’s global leadership is either inevitable or necessarily desired – certainly not on the Chinese government’s terms."
Jun 4th 2020
EXTRACT: "Many Americans are clearly horrified by their president’s crass and incendiary words. But will their disapproval be offset by anxiety about violent social unrest? Will age-old racial prejudices, often unspoken, or even acknowledged, still make them vote for the false security of a coarse white bully?  Much will depend on how hot this summer gets. If people think rationally in November, it is hard to imagine that enough of them would vote to keep this appalling administration in power for another four years. But fear is reason’s worst enemy."
Jun 2nd 2020
EXTRACT: "For starters, many Americans have accepted that they live in a winner-takes-all society of deepening inequality. While the wealth and incomes of those at the very top continue to grow, tens of millions of Americans struggle to afford health care, childcare, and other basic goods. This story has been told many times over. But what often goes unremarked is that the responsibility for managing the social costs of this system has been offloaded onto the police."
May 27th 2020
EXTRACT: "Obamagate is the latest conspiracy theory to be pushed by US president, Donald Trump. It started on the morning of May 10, when Trump retweeted the word “OBAMAGATE!” By the next day, the Obamagate hashtag had accrued over two million tweets and another four million by the end of the week. Trump has repeatedly reused the slogan on his Twitter feed since and it has been promoted by right-wing influencers including Glenn Beck, Sean Hannity and many others....You are not alone if you’re confused by what Obamagate actually is or why Trump is tweeting about it."
May 23rd 2020
EXTRACT: "Not all aspects of our near and medium-term future can be foreseen at this juncture of the Covid-19 pandemic, but we now know enough to make some hypotheses about what is likely to change, based on what has already changed. The future is sure to look very different than it did before this decade began, regardless of whether a vaccine is found. If a vaccine is found, it is unlikely to be tested, approved, manufactured, and efficiently distributed to the world’s population of nearly 8 billion people for years. Bearing in mind that there is no vaccine for any coronavirus, what is likelier is that the world will be living with Covid-19 as a part of our ecosystem for many years to come – possibly permanently. That means that our new normal is probably already here."
May 21st 2020
EXTRACT: "LONDON – The new Franco-German proposal for a €500 billion ($547 billion) European recovery fund could turn out to be the most important historic consequence of the coronavirus. It is even conceivable that the deal struck between German Chancellor Angela Merkel and French President Emmanuel Macron might one day be remembered as the European Union’s “Hamiltonian moment,” comparable to the 1790 agreement between Alexander Hamilton and Thomas Jefferson on public borrowing, which helped to turn the United States, a confederation with little central government, into a genuine political federation."
May 19th 2020
EXTRACT: "In April 2011, Donald Trump, then considering a run for the presidency the following year, said that he had sent investigators to Hawaii to check out rumors that President Barack Obama wasn’t born there, but in Kenya, which would disqualify him for the presidency. His investigators, Trump declared, “cannot believe what they’re finding.” I can find no record of Trump being challenged on this outlandish claim at the time. In the fall of 2016, Trump, now the Republican presidential nominee, was convinced by his staff that he had to abandon this “birther” nonsense. He did so reluctantly, charging – also with no evidence – that such rumors had actually been initiated by his opponent, Hillary Clinton. There, in a nutshell, is Trump’s modus operandi: he’s not just a liar but a fabulist, seemingly unconcerned with whether his fictions will be exposed. If they are, the world simply moves on as he invents fresh distractions."
May 19th 2020
EXTRACT: "Li, a doctor, was purportedly silenced and chastised by Chinese officials for warning on December 30, 2019, about a new virus in the Wuhan hospital where he worked. When it became evident that he was on to something serious – so serious, in fact, that it ultimately killed him – the Chinese government changed its tune and celebrated Li’s bravery. If only that had happened sooner, the argument goes, the world would have avoided this horrific pandemic.................... But that’s not what happened."
May 9th 2020
EXTRACT: "Jana Winter and Hunter Walker at Yahoo News broke the story that 11 Secret Service agents have tested positive for the coronavirus. Likely some of them served in the West Wing. This week it was revealed at that a US military valet who brought Trump food came down with the virus, sending Trump into a “lava level” rage. Two aides to Vice President Mike Pence have tested positive. Some observers are afraid that the virus is circulating in the West Wing itself."
May 6th 2020
EXTRACT: "There has been much debate around the world about the source of the COVID-19 pandemic, ranging from a laboratory to Wuhan’s seafood market to some other form of animal-to-human transmission. While there is no proof (yet) that the virus may have been inadvertently released from one of the two biological research laboratories located at Wuhan, there is evidence that viral release has occurred in the past, and a host of additional data that point to a laboratory connection. "
May 4th 2020
EXTRACT: "A better bet is that nothing will be the same. Wealth will be destroyed on a catastrophic scale, and policymakers will need to find a way to ensure that, at least in some cases, creditors take part of the hit, a process that will play out over years of negotiation and litigation. For bankruptcy lawyers and lobbyists, it will be a bonanza, part of which will come from pressing taxpayers to honor bailout guarantees. Such a scenario would be an unholy mess."
Apr 29th 2020
EXTRACT: "We need the twenty-first century’s two superpowers, America and China, to set the example, by burying their rivalry and uniting all of humankind around a collective response to the current crisis, and to those that await us. As COVID-19 has taught us, the old international system can no longer guarantee humankind’s safety and security. We cannot afford to be taught that lesson twice."