PUT your social-engineering hats on. The problem to be wrestled with is the new inequality -- the increasing income, wealth, and opportunity gap, not between the rich and the poor but between the rich and the rest of us. Charles Handy, the British social thinker, describes what is emerging as "the 80/20 society," dramatic shorthand for the nascent carve-up of life chances. Census statistics put this development beyond debate -- and here I rely heavily on the research gathered by Frank Levy, an economist at the Massachusetts Institute of Technology, in his important new book, The New Dollars and Dreams. Whereas the median U.S. family income grew by 37 percent from 1949 to 1959 and by 41 percent in the 1960s, it grew by only 6.8 percent over the next two decades, with 97 percent of the increase since 1979 going to the top 20 percent of families. And the concentration of recent prosperity is narrower yet: as late as the 1970s the top one percent held 13 percent of the wealth; in 1995 it held 38.5 percent. Nearer the other end of the income scale, male high school graduates employed in services saw their median earnings fall from $34,000 in 1979 to $26,500 in 1996; those in manufacturing suffered a similar decline, from $37,500 to $29,500. Young and older men with college degrees also lost ground. The only group that saw its real income grow was men thirty-five to forty-four with college degrees. In 1997 the median family income, $43,200, was $400 below what it had been at the start of the decade.
How have American families managed to get by in the era of the new inequality? Sue Shellenbarger has reported in The Wall Street Journal that since 1969, according to the Census Bureau, "Working wives [have] contributed 23 percentage points of the 25% increase in family income, adjusted for inflation."
In the past two years the long nineties expansion has finally reached the "bottom" 80 percent, giving a fillip to average wages, especially to the wages of minorities. A few good quarters are not necessarily evidence of a trend, however, particularly since one can point to signs of a countertrend: for example, that there were more layoffs in 1998 than in any year since 1993, when "downsizing" decimated whole ranks of middle management. The new inequality is unlikely to be reversed by a global market that remorselessly bids most wages down: according to 1994 figures, American garment workers made $7.53 an hour, competing against Bangladeshi workers making twenty-five cents an hour; American steel workers made $13 an hour, competing against Brazilian workers making $1.28. Inequality needs to be reversed not alone for the sake of economic justice, never much of an American cause, but for stability. Unequal incomes, says Alan Greenspan, the chairman of the Federal Reserve Board, are potentially "a major threat to our security." The many cannot be expected to long endure, Lester Thurow has written, a system that works only for the few. The challenge is to democratize prosperity without sacrificing economic dynamism, every bit of which is needed to raise incomes, living standards, and fulfillable hopes.
The most comprehensive analysis I have seen of how we got to the point where observers with no vested interest in gloom can speak of an emerging 80/20 society is a 1996 essay, "Toward an Apartheid Economy?," by Richard B. Freeman, a Harvard economist, in the Harvard Business Review. Freeman critically reviewed the leading hypothesized causes of the new inequality: trade, immigration, the drop in union membership from 30 percent of the private-sector work force in the 1960s to 11 percent in the 1990s, the fall in the real value of the minimum wage, the advent of job-threatening information technology, and the influx of women into the job market since the 1960s. There is no consensus on the weight to give these or other factors, he found, and even if there were, it would not help much in reversing inequality. "That is because," he wrote,
there is no necessary link between the causes of a problem and potential cures. When someone has myopia, a largely genetic disease, we cure it with glasses or contact lenses. We do not mess with the genes, although they may be the root cause.
To apply this medical analogy to the economy, if trade is a cause of the new inequality, should we erect protective tariffs to deal with it? "No," Freeman wrote. "Protective tariffs are one of the most inefficient ways to redistribute income that the mind of man has ever conceived." If technology is a cause, should we smash our computers? Only if we have lost our minds. The significant question is not how the new inequality originated but what to do about it now.
Bruce Ackerman and Anne Alstott, both professors at Yale Law School, also accept the causes of the new inequality as reversible only at an incalculable economic price. In The Stakeholder Society they address the question of how to increase equality of opportunity within a system through which inequality is marbled -- in which, perversely, inequality appears to have become a condition of economic dynamism. (Freeman offers a suggestive illustration of that last dark point: "If I am rich and you are poor, I can hire you cheaply as my gardener, maid, or nanny" and invest the money saved on your wages in a high-growth hedge fund.) Part political theory, part policy argument of an intricacy that only obsession demands, The Stakeholder Society risks the scorn that often greets new ideas. American business worships change, but in intellectual life novelty threatens the franchises of the familiar. Policy advocates dig in behind a position, often get funding to subsidize it, and, rightly, see new ideas -- new ways of conceiving of their problem -- as daggers to their jobs. Also, much political, social, and economic wisdom is a memory of failure -- a record of how ideas miscarried. Indeed, neo-conservatism, that contemporary school of polemics, rests on the bleak verity that because the unintended consequences of ideas often undo their purposed good, society is probably better off on balance without them. The resistance to change among the intellectual guilds militates against a fair hearing for this book, whose central idea is anyway ripe for ridicule.