In 1914, Henry Ford paid his factory workers $5 a day, twice the going rate, with the aim of creating a broad middle class able to buy the cars they were building. Today, that project isn’t faring so well: The Economist reports that in the U.S. “the gap between rich and poor is bigger than in any other advanced country.” And it’s growing. According to the Congressional Budget Office, from 1979 to 2001, the after-tax income of the top 1 percent of U.S. households soared 139 percent, while the income of the middle fifth rose only 17 percent and the income of the poorest fifth climbed just 9 percent. Last year American CEOs earned 262 times the average wage of their workers—up tenfold from 1970.
This widening gap can be seen virtually everywhere we look—in America; within other countries, even those hitherto distinguished by a high degree of equality (in particular, Japan, South Korea, and China); and between rich and poor countries in the world at large. This pervasive reality has been explored ably and comprehensively in recent books by the popular and learned conservative writer Kevin Phillips. But it has also been recognized by professional analysts at the very heart of the capitalist system: a recent study by Citigroup Global Markets entitled “Plutonomy: Buying Luxury, Explaining Global Imbalances” suggested investment strategy on the basis of these trends.
Since most of the writing on inequality is done by economists, it is natural that they focus on the fiscal consequences. But in this essay, our focus will be on the ramifications for politics and culture, both within America and within the world more generally.
As Phillips documents, there have been several previous eras in American history that were characterized by growing economic inequality. They include not only the famous (and infamous) Gilded Age of the 1880s but also the 1830s and the 1920s. These previous eras and their eventual end may provide some prototypes for our own. But as we shall see, there are certain unique features of our era of growing inequality that make it something new under the sun.
It would be one thing, and bad enough, if great personal wealth were simply expended on more goods, in order to engage in conspicuous consumption. The consequences for society would include ever greater public displays of materialistic values. But this phenomenon seems to be as old as recorded history, and it is hard for a conservative to get really angry about something that has so much tradition behind it.
It would be another thing, and even worse, if great personal wealth were simply translated into more great wealth —if capital were invested in capital in order to get even more capital. The consequences for society would include ever greater concentration of market power. But in the United States, this phenomenon has been around for more than a century, and we have dealt with it by permitting more competition, not only by antitrust legislation but also by opening the American economy to similar goods imported from abroad and, even more effectively, to entirely new goods and services that have resulted from technological innovation. It is difficult to get anxious about a problem that has been so readily and so often solved in the past.
A more serious problem results because the rich also like to buy people —personal servants who work in their homes and grounds as maids, cooks, nannies, painters, and gardeners. Nowadays, this largely means Mexican and Central American immigrants—and illegal ones at that. Of course, U.S. agricultural and manufacturing businesses want to hire illegal immigrants, too. However, the really animated core of the political lobby that supports illegal immigration—its mass base, so to speak—is composed of rich homeowners, who desperately want someone to do their dirty work and to do it cheaply. Although they are the largest beneficiaries of the American way of life, including the rule of law, when it comes to the issue of illegal immigration, the rich do everything they can to undermine the American way for the vast majority of other Americans. There is nothing conservative about these actions by the rich; rather, the true conservatives are the less well-off who oppose illegal immigration and who are trying to preserve (and conserve) what was once an established and respected order.
But immigration policy is only one example of the most serious problem with increasing economic inequality: the holders of great wealth—especially if they are organized into a political lobby of similar holders of great wealth—can buy not only more goods, more capital, and more people. They can also buy (through the vehicle of campaign contributions) more important people: politicians and other public officials and therefore public policies.
Some of these bought policies may be for the purpose of making the rich even richer, most obviously the current regressive tax policies of the Bush administration. The wealth of the very rich is never the product of free enterprise and the free market alone but comes by operating within and exploiting a network of government supports, such as licenses, regulations, subsidies, and contracts. It is the product of a sort of giveaway. Consequently, to reduce the taxes on wealth (estate taxes) or on the income from wealth (capital-gains taxes), when that wealth has been acquired with one or another kind of government support, is in effect to give the wealth holder an additional give-away. Again, there is nothing authentically conservative about this process.
Having even more wealth than they had before, the very rich can thus buy even more government supports and giveaways and acquire even more wealth, enabling them to buy even more government supports and giveaways. And so on. The result of great wealth buying public policies is a positive feedback loop, or perhaps a vicious cycle, which transfers ever greater wealth and power to the very rich and away from everyone else.
What is to prevent this cycle from going on forever? Historically, there have been two major constraining (or reversing) processes: one derives from macroeconomics, and the other derives from mass politics. Both constraints were once very powerful but neither are really operating today.
If the rich are getting richer, and the poor, if they are not getting poorer in real terms are not seeing their fortunes rise at comparable rates, this would seem to mean that the increasingly opulent consumption by the rich will have as its counterpart the increasingly austere consumption by the poor, and even by the now shrinking middle class. Eventually, the newly poor will not be able to earn enough to maintain their previous levels of consumption. Consequently, some goods produced will not be consumed, thus there will be fewer goods produced, there will be fewer producers or workers, there will be fewer goods consumed, and so on. We have yet another kind of cycle. It is exactly this process that has long been identified (by John Maynard Keynes, among others) as one of the classical explanations of how the growing inequality of the 1920s led to a crisis of under-consumption and overproduction and then to the Great Depression of the 1930s. A similar cycle had occurred earlier, when the growing inequality of the 1880s had issued in the depression of the 1890s (which, at that time, had also been called the Great Depression).
Given this simple model and given the recent pattern of growing economic inequality, one would have expected that the American economy would already be in a new Great Depression. What element has been added that has suspended, perhaps only temporarily, the execution of this macroeconomic iron law? The answer, of course, is consumer credit and record levels of consumer debt. Over one billion credit cards are in circulation in the U.S.—four for every man, woman, and child—and with 40 percent of families spending more than they earn, this keeps consumption rising, even as income may be declining.
In addition, some of the American consumption is also financed, albeit in an indirect and complex way, through the credit extended to the U.S. government and to U.S. lending institutions by the producers (or more precisely, by their governments) of many of the very goods that Americans are consuming—those of China, Japan, and South Korea. On the one hand, these foreign creditors have enabled the United States to avoid another Great Depression. On the other, this has come at the cost of a growing Great Dependence: the proportion of foreign-held debt is half what we owe as a nation and interest alone totals nearly $100 billion per year. That dependence is more immediate and obvious with respect to the U.S. government than it is for the American consumer. It does mean, however, that our government will have to tax American citizens more in order to finance its debt. With the tax policies of the Bush administration, this will in turn add to the growing inequality. It also means that the U.S. government may come to be more constrained in confronting the creditor governments on a variety of foreign-policy issues.
It strains credulity to believe that this cycle of increasing credit—be its sources domestic or foreign—can go on forever. When it ends, the old macroeconomic iron law will impose its penalties.
When we turn from economic responses to growing inequality to political ones, we quickly recall a dramatic parade of social—and socialist—movements marching across the historical landscape, from the beginning of the Industrial Revolution to the end of the Cold War. In America, these included the Jacksonian movement of the 1830s; the Populist movement of the 1880s-1890s; and the New Deal, along with a variety of Marxist movements, in the 1930s. Each of these represented a popular, even mass, reaction to growing economic inequality.
In Europe, of course, these social movements were more massive and more radical. They included the Labour Party in Britain in its early decades; Marxist parties in most nations on the Continent; anarchist movements in Southern Europe; and of course a successful Communist revolution in Russia. Each of these also represented a mass reaction to growing inequality. Communist movements and parties also spread to Asia, where they represented not only the class conflict between rich and poor within countries but also the international conflict between rich and poor countries within the world at large, with these Communist movements becoming anti-colonialist and nationalist ones as well (as in China and Indochina). Marxist movements also spread to Latin America, but there the reaction against growing inequality more often took the form of populist ones (the most familiar case being Peronism in Argentina).
Wherever their locale, most of these mass social movements were eventually able to impose some kind of constraint upon, or even reversal of, the growing inequality within their countries (but not, however, upon the inequality between countries). Sometimes the constraint was imposed by democratic elections and egalitarian legislation as with the American New Deal, the British Labour Party, and the Scandinavian social democratic parties. Sometimes an electoral triumph by socialist parties was followed by a repressive reaction imposed by parties of the Right as in much of Continental Europe during the 1920s-1930s. And on a few occasions, a Communist party succeeded in making a revolution and imposing a reversal of inequality that was ruthless and terrible indeed as in Russia, China, and Indochina.
But of course, this long historical parade of mass social movements effectively came to an end with the end of the Cold War and with the discrediting and collapse of Communism and of much of Marxism more generally. With the end of the Marxist version of mass social movements, it is not surprising that the past 15 years have been a period of growing economic inequality that is now almost completely unconstrained.
Given the extensive historical record of equalitarian social movements and the recent pattern of growing economic inequality, however, one might have expected that some such movement would have already arisen. If we look around the world, perhaps we will be able to see it before our very eyes. Indeed, when we eventually turn our attention to particular poor countries or regions, this will be the case.
In regard to contemporary America, however, there is no evidence of any social movement at all. Has a new element been added to American politics that has suspended, perhaps only temporarily, operation of the social-movement constraint in our own time? Actually, we can identify three such new elements.
First, there has been a change in the nature of the working population, which always constitutes a good part of the poor or increasingly poor within a society. The conditions of the working class, including the conditions conducive to political organization, are one thing in an industrial economy and a very different thing in a post-industrial, or information, economy such as our own. Sociologists have long observed and specified the many reasons it is much more difficult to politically organize workers who perform clerical, technical, or professional tasks in offices than workers who perform industrial or manufacturing tasks in factories. In any event, there are very few labor unions that are composed of clerical, technical, or professional employees. When we remember that unions of industrial workers were a fundamental and major pillar of the Democratic Party in America, the Labour Party in Britain, and the socialist and Marxist parties in continental Europe, we can see how, by itself, the shift to an information economy has removed the most powerful political constraint on growing economic inequality.
Second, there has also been a change in the economic self-identification of the general population. The way people define themselves is different in a consumer society, with a total focus upon individual self-gratification, than it is in a producer society, with an emphasis on the social consequences and connections of one’s work. It is obviously much more difficult to politically organize masses of people if they all think of themselves as individual consumers or as expressive individualists, each freely choosing his own unique (even if vapid and banal) lifestyle, than to organize masses of people who think of themselves as members of working classes or local communities, who share in common most of the important conditions of their lives.
Third, and a variation on the consumer mentality, there has been a change in the non-working or leisure activities—the preoccupations and not just the occupations—of much of the population. For many Americans today, especially those in what was once the working class, there is indeed a kind of mass activity, but it is not mass political or social activism. Rather, it involves spectator entertainment, especially sports. For them, there is no participation in anything involving real interaction with other human beings, be it political parties, labor unions, community associations, fraternal societies, or, if they have become adults, even in participatory team sports themselves. It is the poorer classes, in contrast to the richer ones, that spend most of their free time with spectator entertainment. As more and more people become poor or poorer and lose any reasonable hope of improving their economic status, either by their own economic efforts or by anything like political activism, it is not surprising that they would seek to fill their bleak hours and vent their sullen frustrations with escapist (and violent) entertainment. What would have been seen as juvenile and abnormal preoccupations in the society of half a century or more ago have become normal ones in the society of our own time.
The same three shifts that have essentially demolished the social-movement constraint on growing inequality in America have also gone far toward doing so in other Western countries as well and even in Japan. All of these have now followed America far along the path of becoming information economies, consumer societies, and spectator cultures. A good illustration is Europeans’ perennial obsession with watching soccer games (of course, this is better than actually killing each other by the millions, as they did during the golden age of mass social movements, particularly in the two world wars). Not surprisingly, social movements that seek to limit or reverse growing economic inequality in these countries are weaker now (and the inequalities greater) than they have been any time since World War II.
These three shifts—from an industrial economy to an information one, from a producer society to a consumer one, and from a participatory culture to a spectator one—have come together in an extreme way to politically immobilize the very group that is the poorest in the United States—African-Americans. Relatively well-employed in manufacturing industries, they have little employment in information companies. Consequently, the majority of young African-American males are now found either among the unemployed, within the underground economy, or in prison. They are certainly not found in social movements, including the long-moribund civil-rights movement. This does not prevent them, however, from being totally absorbed with conspicuous consumption and with spectator sports. Ironically, there had been more involvement by young African-American males in social and political activities back in the bad old days of segregation.
Ever since the exhaustion of the civil-rights movement in the 1970s, the way many young African-American males have actually contested growing economic inequality has been with crime—mugging, robbing, and raping the rich (and not only the rich but much larger numbers of the middle class and the poor as well, including vast numbers of other African-Americans). Their method is not a social movement but individual initiative or gang activity, and their scale is not wholesale but retail. Still, for a while, all these individual and gang crimes added up to a kind of guerrilla war against American society. It was not surprising—and it was a good thing—the American law-enforcement authorities finally got their act together in the 1990s and at last engaged in what can be seen as a counterinsurgency campaign, one that was somewhat effective in rounding up and putting down many of the insurgents.
What happens when we turn our attention from America and the West to the world at large? Of course, due to the promotion of globalization by successive U.S. governments and by American elites, the United States is now very much in that world—and in its face.
As it happens, globalization adds to the processes producing a widening gap between rich and poor. First, as is well known, in any country that is immersed and enmeshed in globalization, it has resulted in both winners (those who already have international connections, English-language proficiency, or information-age skills) and losers (those engaged in traditional agricultural, industrial, and cultural occupations). Those who are already rich tend to benefit from globalization, and many of those who are already poor tend to be hurt by it. It is no accident that the era of globalization—which has largely been the era since the end of the Cold War—has also been an era of a widening gap between rich and poor. Anyone who claims that globalization is a conservative process is either a liar or a fool.
What has been true within countries has been true between countries as well. Over the past 15 years or so, globalization has generally increased the GNP per capita of the countries that were already rich—the United States, Europe, and Japan—although of course even in these countries there are some sectors and groups that have been hurt by it. More momentously, globalization has also increased the GNP per capita of some countries that were once poor or near-poor, particularly many countries in Asia and including such immense ones as China and India. This is a very impressive result indeed, although again, even in these countries there are very large sectors and groups in the traditional economy that have been hurt by globalization.
However, there are three big regions where a very large majority of the people have lost out from globalization, or are at least convinced that they have: Africa, Latin America, and most consequentially, the Middle East and more generally the Muslim world. The increasing economic inequality within the countries of these regions combined with the increasing economic inequality between these regions and the rest of the world has generated vast reservoirs of resentment toward the globalization process, toward the West, and especially toward that arch-promoter of globalization, the United States. And starting in the early 2000s, that popular resentment has developed into actual resistance movements, which bear some resemblance to the egalitarian movements of earlier eras.
The resistance to globalization has developed least in Africa, which in any case is the least developed—the poorest and the most anarchic—region of the world. In Latin America, however, populist—and anti-globalization and anti-American—movements have surged in the past few years. Radical versions have been voted into power in Venezuela and Bolivia; more moderate versions have been successful in Argentina, Chile, and Uruguay; and populist candidates have come close to electoral victory in Mexico and Peru. In many ways, these contemporary populist movements and leaders are reminiscent of earlier ones in Latin America history. If the United States were not now bogged down in the quagmire of Iraq, the attention of the U.S. government and the American media would be fixated upon what they would perceive as a dangerous populist threat sweeping Latin America.
But the really serious resistance movement to globalization, the West, and the United States has arisen within the Muslim world. This is Islamism, which is also often called political Islam. When we in America consider Islamism, we do not think of it as an egalitarian social movement. However, the theology (more accurately, ideology) of political Islam is permeated with egalitarian norms and sentiments, and Islamists are often animated by egalitarian resentments and anger as well. Islamists speak frequently about the injustices and exploitation inflicted by the rich upon the poor, and by the rich West upon the poor Muslim world. “Social justice” is a central concept in most Islamist programs. They have their own way of claiming, as the Communists claimed in an earlier era, to speak for “the wretched of the earth.”
However, most of these wretched of the earth—and of globalization—are not likely to be listening when the Islamists speak. There is little evidence that they have any appeal—thus far at least—among any peoples who are not already Muslim. But with the wretched of the Muslim world—and with many of the educated, the middle classes, and the simply aggrieved and frustrated as well—it is a very different story. At least for now, some version of Islamism is more appealing to them than any of the other existing ideological alternatives, including the secular liberal democracy of the West.
Perhaps the most interesting place where the Islamist ideology of social justice will resonate is that part of the Muslim world within the West itself: Western Europe’s communities of Muslim immigrants and their European-born children and descendents. By now several major European countries—Spain, Britain, France, and the Netherlands—have suffered either Islamist terrorist attacks or Muslim youth riots and violence, and there will doubtless be more of this in the future.
Indeed, many Western European countries are becoming two nations. The first is the original, ethnic-European nation; it is now largely secular or even pagan, rich, and aging. And because of its extraordinarily low birth rates, it is shrinking in numbers. The second is the immigrant, non-European nation, the Muslim nation or umma; it is substantially religious or even Islamist, poor, and young. And because of its high birth rate, it will continue to grow in numbers.
The two nations are coming to view each other with mutual contempt, but in the new Muslim nation there is a growing rage, and in the old, ethnic-European nation there is a growing fear. This will provide the perfect conditions for a widespread Islamist sense of social injustice, a deep Islamist hatred of what are perceived as rich Europeans, and as a natural consequence, an endemic threat of Islamist violence.
Of course, contemporary Islamist movements are not organized in quite the same way as earlier Communist movements (although the governing Islamist party in Turkey today is rather similar to the Socialist parties in continental Europe in the first half of the 20th century). Indeed, there is increasing evidence that Islamist movements take the form of loosely co-ordinated, transnational networks rather than tightly disciplined international organizations as was the case with the Communist parties. This difference has much to do with, as we have discussed before, the shift from an industrial economy to an information one, along with the related shift from a national economy to a global one. In an industrial and national economy, everything important took the form of a hierarchical organization. In an information and global economy, conversely, almost everything important is more like a horizontal network.
In addition, contemporary Islamist movements do not employ political violence in quite the same way as earlier Communist movements. In particular, most Islamist acts of violence are directed at ordinary civilians—and at large numbers of them at that. They are meant to terrorize civilians and therefore are terrorism in the literal sense. In contrast, most acts of violence by Communist movements were directed at the civilian officials or the security and military personnel of the regime the Communists sought to overthrow, as in the Communist insurgencies or guerrilla wars in China, Indochina, Malaya, and Central America. The historical counterpart to Islamist terrorism is not so much Communist insurgents but anarchist bombers. This feature may also have something to do with the shift from hierarchical organizations (as with the Communists) to more horizontal networks (as with both the anarchists and the Islamists).
Moreover, Islamists frequently engage in suicide-terrorism, whereas this was virtually unknown among Communists when they inflicted their violence. It was also rare among anarchist terrorists.
And finally, of course, Islamist terrorists may soon acquire weapons of mass destruction, something that only states have possessed up to now. States, being established, hierarchical institutions, have not really wanted to put their WMD at the service of egalitarian projects. With Islamist transnational networks, however, there is no obvious reason why they would not be willing, even eager, to use WMD to bring the rich and the powerful, and rich and powerful states, crashing down. Although Islamist terrorist networks are not really very good examples of mass social movements, they will be very good at achieving mass social destruction. And, brimming over with egalitarian envy and self-righteous wrath, they will delight in doing so.
And so, what will be the eventual fate of the current drive toward greater economic inequality, in America and around the world? Within America and the other rich countries (or rather, the countries with a lot of rich), there do not now seem to be any internal forces that will arrest this drive. As for external forces, only Islamism is now beginning to mount a serious threat to the security of the rich, and that threat is also directed at all the other groups and peoples that the Islamists despise as well. Still, whoever might be the specific target of a particular Islamist attack with a weapon of truly mass destruction, it will take a lot of the rich along with it. Furthermore, by exploding established expectations about the future of economic and financial assets, and therefore by reducing the value of those assets, it will take a lot of their wealth too.
In the course of the 20th century, there were several eras of growing economic inequality. On a few occasions, they came to an end in a relatively gentle way, with democratic elections and more egalitarian legislation. More often, however, they were ended by a catastrophe, such as the Great Depression, a violent social revolution, or a world war. When the rich went out, it seems, they normally did so with a bang, and not with a whimper. The way things are now going, it is likely to be so in the future.
James Kurth is Claude Smith Professor of Political Science at Swarthmore College, where he teaches American foreign policy, defense policy, and international politics.