Tackling Inequality With Politics

Thomas Piketty’s bestseller, Capital in the Twenty-First Century, provided an economic framework for the startling rise of inequality, but the book too often downplayed political causes and failed to suggest enough plausible socialist solutions to help reverse the neoliberal trend.

You can order Thomas Piketty’s Capital in the Twenty-First Century directly from Truthout by clicking here. This nearly 700-page book has electrified the debate about capitalism because it argues, with persuasive statistical and historical analysis, that the current economic system insures the increase of economic inequality and undermines democracy.

Nearly 40 years of bipartisan policies of the “4 Ds” of neoliberalism – deregulation, decrease in union strength, defunding of public goods and decreases in taxes on the rich and corporations – have produced inequalities in income and wealth that rival those of the Gilded Age. The main task for the left over the next period is to build social movements capable of altering these policies. In our organizing, we must show that inequality is not foreordained. It has been the conscious political project of the corporate elite, and it can be reversed politically.

In 1973, the top 1% of income earners garnered 8.5 percent of total income. Today, they take in 23 percent (much of it from dividends and interest). The figures for wealth distribution are even more striking, with the top 1% of Americans controlling 38 percent of non-housing wealth and the top 10 percent some 80 percent. The bottom half of the adult population has zero wealth, and many are seriously in debt.

About 25 percent of US jobs do not pay wages sufficient to lift a family of four out of poverty (an annual income of $23,000 or $12 an hour). During the past decade, 40 percent of US families have spent at least a year living below the poverty line.

The post-Second World War landscape was not one of racial and class equality, but from 1947 to 1973, living standards improved for millions of working-class families, and the civil rights struggle enabled millions of African Americans and Latinos to escape a previously segregated labor market. During that period, in part because nearly 30 percent of the working population belonged to unions, family income kept pace with the gross domestic product.

As the GDP rose 95 percent, median family income rose 93 percent as well. In contrast, from 1979 to 2010, a period when union density in the private sector fell from 20 percent to 6.5 percent, GDP and productivity rose 80 percent, but median family income rose only 17 percent. Even this paltry rise only came about because of the massive entry of women into the labor market and the rise of two income-earning households. In fact, 80 percent of income gains in this period went to the top 20 percent of income earners.

What accounts for the shift from the “Great Compression” of 1947-1973 to the “Great Divergence” of 1973 onward? Neoliberal pundits such as Thomas Friedman and David Brooks would have us believe that globalization and technological change brought inordinately high returns to those with education and technical skills. They ignore the role that decades of zealous neoliberal economic policies played in causing radical inequality.

This “skills-based technological change” thesis remains the predominant neoliberal explanation for the rise in inequality. If the thesis were correct, wages for scarce college-level skills would have increased significantly, and there would be too few applicants for higher-skilled jobs. But neither is the case. In fact, wages for college graduates have largely been stagnant over the past decade. It is true that the 4 percent of jobs that demand high-level STEM (science, technology, engineering, math) skills do pay better, but there simply are not enough good jobs to go around. The continued “premium” for college education persists only because real wages for non-college-educated adults have fallen 12 percent over the past decade, while wages of the college-educated have been flat. What’s the real cause of rising inequality? Billionaire investor Warren Buffett speaks the truth: It was the class warfare carried out by his class against the working class.

Deregulation

Government economic deregulation contributed to this upward shift, starting in the 1970s. Democratic Party supporters thought that deregulation of trucking, airlines, finance and telecommunications would benefit consumers. They failed to see that it would lead to concentration in industries and that industry would take advantage of the abolition of state-mediated labor relations to destroy unions and unionized jobs, mostly in industries not subject to international competition.

Today, telecommunications, airlines and trucking represent major growth areas for “temporary” workers and “independent contractors.” These workers neither receive benefits nor are they subject to government labor regulations. “Independent contractors” now constitute over 25 percent of the work force (up from 8 percent in the 1970s). These are not just temporary jobs at times of peak labor demand. “Temp” is the new permanent.

De-unionization

At the same time that deregulation caused the loss of good union jobs, both the state and corporate America carried out a massive attack on the right of workers to bargain collectively. Ronald Reagan’s 1981 firing of 10,000 striking air traffic controllers led to the breaking of numerous private-sector strikes in the 1980s with permanent replacement workers (formerly known as “scabs”). This terror in the workplace contributed to union density in the private sector falling from 20 percent in 1980 to 6.5 percent today. Timothy Noah estimates in The Great Divergence that 25 percent of the increase in inequality is due to de-unionization, often of jobs that cannot be outsourced, such as construction.

In addition, the failure to index the minimum wage to inflation and to gains in worker productivity has placed downward pressure on all wages. If the minimum wage had kept pace with inflation, it would be $10.70 today. If it had risen along with the 80 percent growth in productivity since 1979, it would be a robust $20 an hour. This is why the fight to raise the minimum wage to $15 an hour is so crucial to the fight against inequality. Such a raise, most liberal economists estimate, would yield only a 2 percent increase in retail sales prices.

Defunding

But we need more than high wages to combat inequality. Sustaining a strong social wage -that is, a guaranteed minimum income along with universal provision of those goods necessary for equality – is the only way to decrease rampant inequality. For this, we need a strong labor movement and strong left. Even a family making the median family income of $50,000 cannot live well absent equitably financed, high-quality public education, single-payer health care, universal childcare and paid parental leave. Yet public services have been slashed at every point, from libraries and schools to hospitals and Head Start. The more robust level of public provision in Northern Europe is the major reason why these societies have more egalitarian distributions of income, much lower poverty rates and higher rates of social mobility than does the United States.

Decreased Taxes

The final major cause of the increase in inequality has been a shift to even more pro-corporate tax and trade policy and a decrease in the overall tax revenue taken in by federal, state and local governments. Each of the Reagan and George W. Bush (2000-2008) tax cuts took 2.1 percent of the gross national product (GNP) out of the federal coffers, with 80 percent of those tax breaks going to the top 10 percent. The Clinton administration lowered the capital gains tax to 15 percent and decreased the estate tax. Paul Pierson and Jacob Hacker, in Winner-Take-All Politics: How Washington Made the Rich Richer – and Turned Its Back on the Middle Class, estimate that these regressive changes in tax policy caused 25 percent of the upward redistribution from the 1980s onward.

The Clinton administration’s abolition in 1999 of the Glass-Steagall Act’s legal separation of commercial from finance banking codified the ongoing deregulation of the financial industry that gave us successive boom-and-bust financial bubbles. We’ve had the merger-and-acquisition bubble, the high-tech stock bubble, the housing bubble. Is the higher-education-debt bubble next?

In addition, “free trade agreements” such as the North American Free Trade Agreement and the Central American Free Trade Agreement have contributed to a “race to the bottom” global economy that has outsourced industrial jobs to producers with the lowest wage, labor, environmental and human rights standards. The absence of any industrial and job-training policy in the United States has led to the loss of many otherwise viable industrial jobs. For example, 70 percent of wind turbines used in the United States are made in Germany and China, and 25 percent of our industrial imports come from Japan and Europe. Fiscal austerity in the United States leads us to radically under-invest in infrastructure renewal and precludes necessary public investment in alternative energy and mass transit.

Moderate Democratic and Republican claims that “the government is broke” are disproven by the reality that the Reagan and George W. Bush tax cuts combined today deny the federal budget $800 billion of annual tax revenue. A financial transaction tax of 0.25 percent (popularly called the Robin Hood tax) would not only dampen speculation, but could also raise $400 billion annually for the federal government.

Reversing tax cuts and going back to private and corporate tax rates of the 1970s, combined with prudent cuts in wasteful “defense,” and eliminating $200 billion in corporate tax giveaways would enable us to radically increase spending on public goods and public investment.

Reversing radical inequality will require a radical shift in class power. We need to take on the slow and steady work of rebuilding powerful social movements for economic justice: immigrant rights, voting rights, labor rights and publicly financed election campaigns. The left must also develop a popular critique of the dominant neoliberal “common sense” that “there is no alternative” to an unjust and nonegalitarian world.

It is in the interest of the powerful to convince the majority that the forces of globalization and technological change are “natural” rather than shaped by political conflict. This is why rebuilding a socialist center in the United States remains a crucial task for those committed to social justice. Socialists must work to build mass democratic social movements; but we must also articulate an alternative “good sense” as to how and why a better world is not only possible but feasible.