Inequality and Modernization

During the past century, economic inequality in the developed world has traced a massive U-shaped curve—starting high, curving downward, then curving sharply back up again. In 1915, the richest one percent of Americans earned roughly 18 percent of all national income. Their share plummeted in the 1930s and remained below ten percent through the 1970s, but by 2007, it had risen to 24 percent. Looking at household wealth rather than income, the rise of inequality has been even greater, with the share owned by the top 0.1 percent increasing to 22 percent from nine percent three decades ago. In 2011, the top one percent of U.S. households controlled 40 percent of the nation’s entire wealth. And while the U.S. case may be extreme, it is far from unique: all but a few of the countries of the Organization for Economic Cooperation and Development for which data are available experienced rising income inequality (before taxes and transfers) during the period from 1980 to 2009.

The French economist Thomas Piketty has famously interpreted this data by arguing that a tendency toward economic inequality is an inherent feature of capitalism. He sees the middle decades of the twentieth century, during which inequality declined, as an exception to the rule, produced by essentially random shocks—the two world wars and the Great Depression—that led governments to adopt policies that redistributed income. Now that the influence of those shocks has receded, life is returning to normal, with economic and political power concentrated in the hands of an oligarchy.

Piketty’s work has been corrected on some details, but his claim that economic inequality is rising rapidly in most developed countries is clearly accurate. What most analyses of the subject miss, however, is the extent to which both the initial fall and the subsequent rise of inequality over the past century have been related to shifts in the balance of power between elites and masses, driven by the ongoing process of modernization.

In hunting-and-gathering societies, virtually everyone possessed the skills needed for political participation. Communication was by word of mouth, referring to things one knew of firsthand, and decision-making often occurred in village councils that included every adult male. Societies were relatively egalitarian.

The invention of agriculture gave rise to sedentary communities producing enough food to support elites with specialized military and communication skills. Literate administrators made it possible to coordinate large empires governing millions of people. This much larger scale of politics required specialized skills, including the ability to read and write. Word-of-mouth communication was no longer sufficient for political participation: messages had to be sent across great distances. Human memory was incapable of recording the tax base or military manpower of large numbers of districts: written records were needed. And personal loyalties were inadequate to hold together large empires: legitimating myths had to be propagated by religious or ideological specialists. This opened up a wide gap between a relatively skilled ruling class and the population as a whole, which consisted mainly of scattered, illiterate peasants who lacked the skills needed to cope with politics at a distance. And along with that gap, economic inequality increased dramatically.

This inequality was sustained throughout history and into the early capitalist era. At first, industrialization led to the ruthless exploitation of workers, with low wages, long workdays, no labor laws, and the suppression of union organizing. Eventually, however, the continuation of the Industrial Revolution narrowed the gap between elites and masses by redressing the balance of political skills. Urbanization brought people into close proximity; workers were concentrated in factories, facilitating communication; and the spread of mass literacy put them in touch with national politics, all of which led to social mobilization. In the late nineteenth century and early twentieth century, unions won the right to organize, enabling workers to bargain collectively. The expansion of the franchise gave ever more people the vote, and leftist political parties mobilized the working class to fight for its economic interests. The result was the election of governments that adopted various kinds of redistributive policies—progressive taxation, social insurance, and an expansive welfare state—that caused inequality to decline for most of the twentieth century.

The emergence of a postindustrial society, however, changed the game once again. The success of the modern welfare state made further redistribution seem less urgent. Noneconomic issues emerged that cut across class lines, with identity politics and environmentalism drawing some wealthier voters to the left, while cultural issues pushed many in the working class to the right. Globalization and deindustrialization undermined the strength of unions. And the information revolution helped establish a winner-take-all economy. Together these eroded the political base for redistributive policies, and as those policies fell out of favor, economic inequality rose once more.

Today, large economic gains are still being made in developed countries, but they are going primarily to those at the very top of the income distribution, whereas those lower down have seen their real incomes stagnate or even diminish. The rich, in turn, have used their privilege to shape policies that further increase the concentration of wealth, often against the wishes and interests of the middle and lower classes. The political scientist Martin Gilens, for example, has shown that the U.S. government responds so attentively to the preferences of the most affluent ten percent of the country’s citizens that “under most circumstances, the preferences of the vast majority of Americans appear to have essentially no impact on which policies the government does or doesn’t adopt.”

Because advantages tend to be cumulative, with those born into more prosperous families receiving better nutrition and health care, more intellectual stimulation and better education, and more social capital for use in later life, there is an enduring tendency for the rich to get richer and the poor to be left behind. The extent to which this tendency prevails, however, depends on a country’s political leaders and political institutions, which in turn tend to reflect the political pressures emerging from mobilized popular forces in the political system at large. The extent to which inequality increases or decreases, in other words, is ultimately a political question.

Today the conflict is no longer between the working class and the middle class; it is between a tiny elite and the great majority of citizens. This means that the crucial questions for future politics in the developed world will be how and when that majority develops a sense of common interest. The more current trends continue, the more pressure will build up to tackle inequality once again. The signs of such a stirring are already visible, and in time, the practical consequences will be as well.

NOT ABOUT THE MONEY

For the first two-thirds of the twentieth century, working-class voters in developed countries tended to support parties of the left, and middle- and upper-class voters tended to support parties of the right. With partisan affiliation roughly correlating with social class, scholars found, unsurprisingly, that governments tended to pursue policies that reflected the economic interests of their sociopolitical constituencies.


As the century continued, however, both the nature of the economy and the attitudes and behaviors of the public changed. An industrial society gave way to a postindustrial one, and generations raised with high levels of economic and physical security during their formative years displayed a “postmaterialist” mindset, putting greater emphasis on autonomy and self-expression. As postmaterialists became more numerous in the population, they brought new issues into politics, leading to a decline in class conflict and a rise in political polarization based on noneconomic issues (such as environmentalism, gender equality, abortion, and immigration).

The success of the modern welfare state made further redistribution seem less urgent.

This stimulated a reaction in which segments of the working class moved to the right, reaffirming traditional values that seemed to be under attack. Moreover, large immigration flows, especially from low-income countries with different languages, cultures, and religions, changed the ethnic makeup of advanced industrial societies. The rise of religious fundamentalism in the United States and xenophobic populist movements in western European countries represents a reaction against rapid cultural changes that seem to be eroding basic social values and customs—something particularly alarming to the less secure groups in those countries.

All of this has greatly stressed existing party systems, which were established in an era when economic issues were dominant and the working class was the main base of support for sociopolitical change. Today, the most heated issues tend to be noneconomic, and support for change comes increasingly from postmaterialists, largely of middle-class origin. Traditional political polarization centered on differing views about economic redistribution, with workers’ parties on the left and conservative parties on the right. The emergence of changing values and new issues gave rise to a second dimension of partisan polarization, with postmaterialist parties at one pole and authoritarian and xenophobic parties at the opposite pole.

The classic economic issues did not disappear. But their relative prominence declined to such an extent that by the late 1980s, noneconomic issues had become more prominent than economic issues in Western political parties’ campaign platforms. A long-standing truism of political sociology is that working-class voters tend to support the parties of the left and middle-class voters those of the right. This was an accurate description of reality around 1950, but the tendency has grown steadily weaker. The rise of postmaterialist issues tends to neutralize class-based political polarization. The social basis of support for the left has increasingly come from the middle class, even as a substantial share of the working class has shifted its support to the right.

In fact, by the 1990s, social-class voting in most democracies was less than half as strong as it was a generation earlier. In the United States, it had fallen so low that there was virtually no room for further decline. Income and education had become much weaker indicators of the American public’s political preferences than religiosity or one’s stand on abortion or same-sex marriage: by wide margins, those who opposed abortion and same-sex marriage supported the Republican presidential candidate over the Democratic candidate. The electorate had shifted from class-based polarization toward value-based polarization.

THE MACHINE AGE

In 1860, the majority of the U.S. work force was employed in agriculture. By 2014, less than two percent was employed there, with modern agricultural technology enabling a tiny share of the population to produce even more food than before. With the transition to an industrial society, jobs in the agricultural sector virtually disappeared, but this didn’t result in widespread unemployment and poverty, because there was a massive rise in industrial employment. By the twenty-first century, automation and outsourcing had reduced the ranks of industrial workers to 15 percent of the work force—but this too did not result in widespread unemployment and poverty, because the loss of industrial jobs was offset by a dramatic rise in service-sector jobs, which now make up about 80 percent of the U.S. work force.

Within the service sector, there are some jobs that are integrally related to what has been called “the knowledge economy”—defined by the scholars Walter Powell and Kaisa Snellman as “production and services based on knowledge-intensive activities that contribute to the accelerated pace of technical and scientific advance.” Because of its economic significance, the knowledge economy is worth breaking out as a separate category from the rest of the service sector; it is represented by what can be termed “the high-tech sector,” which includes everyone employed in the information, finance, insurance, professional, scientific, and technical services categories of the economy.

Today the conflict is no longer between the working class and the middle class; it is between a tiny elite and the great majority of citizens.

Some assume that the high-tech sector will produce large numbers of high-paying jobs in the future. But employment in this area does not seem to be increasing; the sector’s share of total employment has been essentially constant since statistics became available about three decades ago. Unlike the transition from an agricultural to an industrial society, in other words, the rise of the knowledge society is not generating a lot of good new jobs.

Initially, only unskilled workers lost their jobs to automation. Today, even highly skilled occupations are being taken over by computers. Computer programs are replacing lawyers who used to do legal research. Expert systems are being developed that can make medical diagnoses better and faster than physicians. The fields of education and journalism are on their way to being automated. And increasingly, computer programs themselves may be written by computers.

As a result of such developments, even highly skilled jobs are being commodified, so that even many highly educated workers in the upper reaches of the income distribution are not moving ahead, with gains from the increases in GDP limited to those in a thin stratum of financiers, entrepreneurs, and managers at the very top. As expert systems replace people, market forces alone could conceivably produce a situation in which a tiny but extremely well-paid minority directs the economy, while the majority have precarious jobs, serving the minority as gardeners, waiters, nannies, and hairdressers—a future foreshadowed by the social structure of Silicon Valley today.

The rise of the postindustrial economy narrowed the life prospects of most unskilled workers, but until recently, it seemed that the rise of the knowledge society would keep the door open for those with sophisticated skills and a good education. Recent evidence, however, suggests that this is no longer true. Between 1991 and 2013, real incomes in the United States stagnated across the educational spectrum. The highly educated still make substantially larger salaries than the less educated, but it is no longer just the unskilled workers who are being left behind.

The problem is not aggregate growth in the economy. During these years, U.S. GDP increased significantly. So where did the money go? To the elite of the elite, such as the CEOs of the country’s largest corporations.

During a period in which the real incomes of even highly educated pro­fessionals, such as doctors, lawyers, professors, engineers, and scientists, were essentially flat, the real incomes of CEOs more than tripled. The pattern is even starker over a longer timeframe. In 1965, CEO pay at the largest 350 U.S. companies was 20 times as high as the pay of the average worker; in 1989, it was 58 times as high; and in 2012, it was 273 times as high.

WORKERS OF THE WORLD, UNITE?

Globalization is enabling half of the world’s population to escape subsistence-level poverty but weakening the bargaining position of workers in developed countries. The rise of the knowledge society, meanwhile, is helping divide the economy into a small pool of elite winners and vast numbers of precariously employed workers. Market forces show no signs of reversing these trends on their own. But politics might do so, as growing insecurity and relative immiseration gradually reshape citizens’ attitudes, creating greater support for government policies designed to alter the picture.

There are indications that the citizens of many countries are becoming sensitized to this problem. Concern over income inequality has increased dramatically during the past three decades. In surveys carried out from 1989 to 2014, respondents around the world were asked whether their views came closer to the statement “Incomes should be made more equal” or “Income differences should be larger to provide incentives for individual effort.” In the earliest polls, majorities in four-fifths of the 65 countries surveyed believed that greater incentives for individual effort were needed. By the most recent surveys, however, that figure had dropped by half, with majorities in only two-fifths of the countries favoring that. Over a 25-year period in which income inequality increased dramatically, publics in 80 percent of the countries surveyed, including the United States, grew more supportive of actions to reduce inequality, and those beliefs are likely to intensify over time.

New political alignments, in short, might once again readjust the balance of power between elites and masses in the developed world, with the emerging struggle being between a tiny group at the top and a heterogeneous majority below. For the industrial society’s working-class coalition to become effective, lengthy processes of social and cognitive mobilization had to be completed. In today’s postindustrial society, however, a large share of the population is already highly educated, well informed, and in possession of political skills; all it needs to become politically effective is the development of an awareness of common interest.

Will enough of today’s dispossessed develop what Marx might have called “class consciousness” to become a decisive political force? In the short run, probably not, because of the presence of various hot-button cultural issues cutting across economic lines. Over the long run, however, they probably will, as economic inequality and the resentment of it are likely to continue to intensify.

It was the rise of postmaterialist values, together with a backlash against the changes that the postmaterialists spearheaded, that helped topple economic issues from their central role in partisan political mobilization and install cultural issues in their place. But the continued spread of postmaterialist values is draining much of the passion from the cultural conflict, even as the continued rise of inequality is pushing economic issues back to the top of the political agenda.

During the 2004 U.S. presidential election, for example, same-sex marriage was so unpopular in some quarters that Republican strategists deliberately put referendums banning it on the ballot in crucial swing states in the hope of increasing turnout among social conservatives in the middle and lower echelons of the income distribution. And they were smart to do so, for the measures passed in every case—as did virtually all others like them put forward from 1998 to 2008. In 2012, however, there were five new statewide referendums on the topic, and in four of them, the public voted in favor of legalization. Crosscutting cultural divisions still exist and can still divert attention from common economic interests, but the former no longer trump the latter as reliably as they used to. And the fact that not just all the Democrats but even several 2016 Republican presidential candidates have pledged to abolish the tax break on “carried interest” benefiting elite financiers might well be a portent of things to come.

The essence of modernization is the linkages among economic, social, ideational, and political trends. As changes ripple through the system, developments in one sphere can drive developments in the others. But the process doesn’t work in just one direction, with economic trends driving everything else, for example. Social forces and ideas can drive political actions that reshape the economic landscape. Will that happen once again, with popular majorities mobilizing to reverse the trend toward economic inequality? In the long run, probably: publics around the world increasingly favor reducing inequality, and the societies that survive are the ones that successfully adapt to changing conditions and pressures. Despite current signs of paralysis, democracies still have the vitality to do so.