WHY BOTHER ABOUT INEQUALITY?
BY PREM MISIR
March 1, 2004
The year is 1994 in the U.S. About 23% of households received an annual income of less than $15,000 while about 7% had $ 100,000 plus per year. In 1993 in the U.S., 20% of people at the lowest rung of the income ladder had 7% of the net wealth while 20% of those at the highest rung possessed 44% of the wealth. This is income and wealth inequality. But there also are social-status aspects of inequality.
Most people despise inequality. Why not? Inequality negatively impacts their life chances. People as a group with power create this inequality to sustain that power. Inequality can damage morality, society, and the economy. But people do have the capacity to reduce inequality and create a new morality. The new morality requires a new economic format that has to start at the 'economic system' baseline.
Mandatory to know the 'economic system' baseline
Last week, we stated that baseline as:
(1) capitalism and foreign exploitation cannot end disadvantage in a culture of substantial inequalities. (2) There is need for a new economic format. (3) Failure of the former Soviet Union and East European countries' economic system has little to do with Marxian theory. (4) These countries practiced non-Marxist versions of socialism, using a totalitarian political system. (5) Marxism and capitalism like all theories can be revised. (6) Prejudicing the application of any theory, and Marxism is the popular victim of this bias, shortchanges progressive developmental injections.
Both traditional and modern theories' explanations see this inequality as originating from the distribution and control of scarce resources in society. This being the case, a government then will have enormous social responsibilities for the management of societal resources if it will impact inequality. In short, substantial inequality reduction will require substantial government interventions. Greater government interventions mean less capitalism. Societies experiencing extensive poverty and inequality require a new hybrid economic system.
Last week, I concluded that we need to apply the best combinations of capitalism and socialism to reduce social and economic disadvantage and consequently social inequality in a society. This 'combination approach' really is the 'convergence theory' perspective where both capitalism and socialism can take on elements of the other. We can better 'sus' this out by understanding a few primary criticisms of capitalism and socialism. A major condemnation of capitalism is that it creates social inequality. Capitalism, its detractors argue, generates a small top layer of wealthy and powerful people who exploit a large bottom layer of the unemployed and underemployed. Critics of capitalism further state that these few powerful and wealthy people are able to influence laws opposed to the public good, laws that only promote their own wealth, power, and prestige.
Detractors of socialism believe that it is not a respecter of individual rights (Berger: 1986) through its efforts to control people's lives. These opponents of socialism also believe that central planning is revoltingly inefficient (Kennedy 1993), and socialism is unable to create a large amount of wealth. People from both camps see each other as evil and see both capitalism and socialism as systems of exploitation. Capitalists probably see socialists as infringing fundamental human rights of freedom of decision and opportunity. Socialists probably perceive capitalists as breaching fundamental human rights of freedom from poverty. Therefore, a convergence of both capitalism and socialism can be touted as a method of conflict resolution of inequality issues, as class, race, ethnicity, sex, gender, among others. In short, this convergence can reduce disadvantage.
Capitalism, is it pure?
Throughout history, the ruling class, that is, people who control the levers of economic and political power, have presented their ruling ideology as a belief system that cannot be replaced. And why should they want their ruling ideology to be replaced when it protects and sustains their vested interests?
The U.S. generally is seen as a model of pure capitalism, historically described as laissez-faire capitalism (meaning 'hands off'). Laissez-faire capitalism is a reality when the laws of demand and supply prevail without governmental interference. The U.S. is instructive here because contrary to popular perceptions, there is no pure capitalism. The US has welfare or state capitalism where ownership is in private hands and profit seeking prevails, but these exist within an arena of governmental interventions, that is, within a large array of laws intended to protect the citizens' welfare. Let's use the U.S. to demonstrate the absence of pure capitalism, and the existence of a capitalism mixed with socialism.
"Suppose that you have discovered what you think is a miracle tonic: it will grow hair, erase wrinkles, and dissolve excess fat...Before you count your money...you reckon with market restraints, the laws and regulations of welfare capitalism that limit your capacity to sell what you produce..." "First, you must comply with local and state rules. You must obtain a charter of incorporation, business license, and a state tax number that allows you to make untaxed purchases. Then come the federal regulations. You cannot simply take your item to local stores and ask them to sell it; you must first seek approval from federal agencies that monitor compliance with the Pure Food and Drug Act...Your manufacturing process is also subject to government regulation:..." (Henslin: 1995). Here, the role of market competition, an important element of capitalism, is limited.
Again, some people argue that the socialist base of the US economy is indistinct because some socialist elements have become well integrated into the economic system. Look at these examples, drawn from Henslin: unemployment compensation - taxes paid by workers given to those who do not at that time create a profit; subsidized housing - shelter, created by others for the poor and elderly, with no profit motive; welfare - taxes paid by many and given to the disadvantaged; the presence of minimum wage - it is the government, not the private sector that decides the minimum at which a worker shall be compensated; Social Security - the retired are not given what they have paid into the system, but are provided with funds taken from the current workforce.
These examples demonstrate that the U.S. Governmental regulatory interventions are integral to its central planning role, and the application of funds involuntarily removed from others for the disadvantaged, are part of a socialist base, intended to promote the public good and reduce inequality.
Why bother about inequality?
The convergence perspective attempts to resolve the problem of inequality. But why inequality matters anyway? It matters because there is a moral issue as to whether it is fine for some people to be so wealthy while there is a growing culture of poverty. It matters because inequality destroys social solidarity. Research evidence concludes that greater inequality is related to a higher incidence of social disorder. It matters because it negatively impacts the economy. Where there is great wealth in few hands and a large growing number with little or no assets, a substantial number of people will go into debt. This situation means that banks would be making risky loans. In effect, a greater concentration of wealth in fewer hands is related to high bank failures (Batra: 1990).
This greater ownership of wealth by the few also creates a surplus absorption, a situation where an abundance of capital has insufficient markets to maximize profits. This overaccumulation of capital has stimulated globalization. The developed world's concern to expand globalization, therefore, is self-seeking, and has very little to do with creating international free trade. Globalization, then, ultimately will further increase inequality, especially as it intensifies poor countries' dependent relationship with the developed world.