Against Inequality

A valiant proposal to give every American twenty-one-year-old the same chance to prosper (or fail)

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.

That idea is to guarantee, as a matter of fundamental right, $80,000 to every U.S. citizen at his or her twenty-first birthday. "Our plan," the authors write,

seeks justice by rooting it in capitalism's preeminent value: the importance of private property. It points the way to a society that is more democratic, more productive, and more free. Bear with us, and you will see how a single innovation once proposed by Tom Paine can achieve what a thousand lesser policies have failed to accomplish.

The stake would disproportionately benefit those the sum of whose wages can never add up to wealth, especially blacks. Two-earner black families now roughly equal white families in income, but there is a growing wealth gap between the races, and this will only deepen as the parents of Baby Boomers pass on their money and property to their children.

Why twenty-one? Because young adults must face decisions about love and work in pinched circumstances that cloud judgment and narrow choice. The authors call this "the false promise of maturity." Conceding that some will squander their stake, they want young adults to have a taste of economic freedom when so much -- buying a house, starting a business, paying for a college education -- can be done with it. "Too many forty-year-olds look back to their twenties with bitter regret at the chances that they never had," they write, "but that were readily available to others higher up on the economic scale." Is it fair, they ask, that even children with the winds of family and class already behind them should receive federal scholarships and state-subsidized tuitions, while the 75 percent of young people who do not graduate from a four-year college "are tossed gently into the marketplace unaided"?

The authors' sympathies, commendably, are with the plight of blue- and pink-collar workers in an economy convinced that job competence is predicted by years in school, not character or performance -- an economy in which, Peter Drucker has observed, J. P. Morgan, "a college dropout," would never have got past the door of the bank that still bears his name. College is the great leveler in American society; college graduates less lucky in their birth earn about as much as those born luckier. ("Merit" is luck in slow motion.) The chance to enter college, however, is distributed as unequally as the chance to attend a good suburban high school: "51% of students from the top quarter of the economic hierarchy earn bachelor's degrees, compared to 22 percent of middle-status students and only 7.2 percent in the lowest socioeconomic quartile." The authors don't propose to stop the machinery of inequality that has produced this result -- only to "shift the balance of regret" in favor of those most harmed by its capricious grindings.

Why a stake of $80,000? Because that is the average price of a college education today; the college-bound, consequently, could collect their stake starting at age eighteen. The authors rule out means testing, on both practical -- $80,000 is a lot of money for all but the heirs of great fortunes -- and political grounds. And (the bad news) the money must be paid back, with interest, at death, making stakeholding programmatically sustainable.

Eighty thousand dollars, or even a couple's pooled $160,000, won't do more than mitigate inequality -- won't raise the wages of service workers or revitalize the unions or restore manufacturing jobs. But mitigation may be the best we can do in any case, absent a global New Deal to raise wages and labor standards in the sweatshop economies of the developing world. The aim of liberalism, one of its proponents has well said, should be to "hinder hindrances" -- whether from nature or from society -- that abridge freedom. Stakeholding would clearly hinder the hindrances of the new inequality.

The stake would not only increase individual freedom, in the sense of economic freedom. It would also promote community, social obligation, and national loyalty. These values can be realized together, the authors argue, without sacrificing one to another. Isaiah Berlin spent his career arguing that these values are not reconcilable, and that the attempt to reconcile them can lead (and has led) to tyranny. Communitarians will object that a paid-for loyalty is no loyalty at all. Libertarians will combust over the taxes needed to fund the stake, contending that they will inhibit economic growth.

The taxes would be substantial -- the program would cost another defense budget -- and they would fall heavily on those slightly better off and above. "An annual wealth tax of 2 percent should suffice to fund stakeholding completely," Ackerman and Alstott aver. "The wealth of America is distributed so unequally that stakeholding can be financed by a tax that hits only the top 41 percent, with the top 20 percent contributing 93 percent of the total." The exactitude of these percentages is both representative (the authors nail down every detail, trying to meet every objection) and poignant. Putting the finishing touches on the politically inconceivable, the authors seem to be fine-tuning their Nobel Prize acceptance speech after writing their first letter home from camp.

Yet the objection from impossibility rests on the frightening assumption that today's shrunken political debate should bound the horizon of thought. The smart money, after all, was once against Christianity, self-government, and Social Security. Possibility cannot be hostage to the content of Trent Lott's brain. The new century needs political and social innovation even more than it needs business innovation. The authors have done well what intellectuals are supposed, but are seldom bold enough, to do -- innovate ideas about important social issues. Those of us who share the former senator Bill Bradley's perception that American politics is "broken" will increasingly seek solutions to the new inequality in the private sector, where, as it happens, the concept of stakeholding is getting an unexpected hearing. Understood as employee participation in corporate ownership, stakeholding is a major incentive to the high-performance employees of many of the new high-tech start-ups embraced so exuberantly on Wall Street. But widespread corporate stakeholding faces huge obstacles. Bruce Ackerman and Anne Alstott still believe in a public-sector solution to the problem of the new inequality, in what Arthur M. Schlesinger Jr. has called "the politics of remedy." If their $80,000 stake is not the path to greater equality of opportunity, the burden is on their critics to say what is.

Jack Beatty is a senior editor of The Atlantic. His most recent book is (1998).


The Atlantic Monthly; April 1999; Against Inequality; Volume 283, No. 4; pages 105-108.