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π Society
Why is social inequality increasing in the 21st Century?

The resurgence of economic and social inequality

Richard Robert, Journalist and Author
On February 9th, 2022 |
4 mins reading time
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The resurgence of economic and social inequality
Key takeaways
  • During the 20th Century, the reduction in economic inequality shifted focus away from the discrimination that had previously prevented access to the middle class.
  • Over the last ten years, the issue of economic inequality has made a comeback, with the worldwide success of Thomas Piketty's work, which has put the spotlight on wealth.
  • But various experts have criticised this focus on capital inequalities, noting for example the existence of incomes without capital or the ever powerful effects of redistribution in European societies.
  • More worrying is the impact these inequalities have on people’s futures, leading to the reconstitution of polarised and watertight social classes, both on the side of the advantaged and the disadvantaged.

The ‘social ques­tion’ of eco­nom­ic and social inequal­i­ty and pover­ty emerged with the Indus­tri­al Rev­o­lu­tion. It remained at the cen­tre of debates for more than a cen­tu­ry, inspir­ing rad­i­cal think­ing but also pro­vid­ing solu­tions that drove the evo­lu­tion of cap­i­tal­ism. Two very dif­fer­ent eco­nom­ic events have seen it take a back seat.

The reasons for the eclipse

The first is the Key­ne­sian trans­for­ma­tion of the econ­o­my in the wake of the 1929 cri­sis. Redis­tri­b­u­tion and inclu­sive growth led to a vast move­ment to reduce eco­nom­ic and social inequal­i­ty in devel­oped economies and to cre­ate a mid­dle class. The sec­ond event fol­lowed the eco­nom­ic crises of the 1970s, which was seen as the exhaus­tion of the Key­ne­sian mod­el. The major issue then became growth, and there was an assump­tion that inequal­i­ties would increase in order to pro­mote it. More­over, glob­al­i­sa­tion led to the West hav­ing access to an unprece­dent­ed range of cheap products.

The ques­tion of eco­nom­ic inequal­i­ty was then fil­tered through that of dis­crim­i­na­tion: in the Key­ne­sian world, as in the ‘Rea­gan­ite’ world that fol­lowed it in the 1980s, the clear­est divide was not between rich and poor, but between the vast major­i­ty of the mid­dle class­es and the minori­ties who strug­gled to inte­grate them. Pos­i­tive dis­crim­i­na­tion is one of the respons­es to these ‘soci­etal’ inequal­i­ties, which have a high­er impact depend­ing on skin colour or eth­nic origins.

It was after the 2008 cri­sis that the issue of eco­nom­ic inequal­i­ty returned to the fore­front, and with it the cri­sis of the mid­dle classes.

Piketty’s capital and Milanovic’s elephant

In April 2014, a 900-page eco­nom­ics book topped the sales charts on Ama­zon. Thomas Piket­ty’s Cap­i­tal in the Twen­ty-First Cen­tu­ry cap­tured the spir­it of the times, pro­vid­ing a the­o­ret­i­cal basis for the Occu­py Wall Street move­men­t’s cri­tique of the “1%”.

Under the del­uge of data, his argu­ment was sim­ple: “as soon as the rate of return on cap­i­tal exceeds the rate of growth of pro­duc­tion and income – which was the case until the 19th Cen­tu­ry and is like­ly to become the norm again in the 21st Cen­tu­ry – then cap­i­tal­ism mechan­i­cal­ly pro­duces unsus­tain­able, arbi­trary inequal­i­ties, rad­i­cal­ly call­ing into ques­tion the mer­i­to­crat­ic val­ues on which our demo­c­ra­t­ic soci­eties are based.”

Two years ear­li­er, anoth­er econ­o­mist caused a stir by sum­maris­ing the eco­nom­ic fate of glob­al soci­ety in a sin­gle graph. Branko Milanovic pre­sent­ed on the hor­i­zon­tal scale (abscis­sa) the dis­tri­b­u­tion of the Earth­’s inhab­i­tants accord­ing to their income (the poor­est on the left, the rich­est on the right), and on the ver­ti­cal scale (ordi­nate) the pro­gres­sion of income between 1988 and 2008. The result was an ele­phan­tine curve, sug­gest­ing that glob­al­i­sa­tion has ben­e­fit­ed the poor­est Asian coun­tries and the rich­est West­ern­ers at the expense of the work­ing and mid­dle class­es in rich countries.

This work has had an impact on pub­lic debate, also giv­ing rise to numer­ous aca­d­e­m­ic works. In pol­i­tics, it has been used to explain the rise of pop­ulism and the suc­cess, for exam­ple, of Don­ald Trump. In eco­nom­ics, Piket­ty’s work has brought issues such as wealth tax­a­tion and redis­tri­b­u­tion to the forefront.

In recent years, the phe­nom­e­na described by Piket­ty have gained momen­tum. One of the effects of the mas­sive cre­ation of mon­ey by cen­tral banks after the 2008 cri­sis was spec­tac­u­lar infla­tion in cer­tain mar­kets, notably finan­cial assets, and real estate: hence the rapid increase in val­ue of the largest for­tunes. The pan­dem­ic itself has accel­er­at­ed this trend: Capgem­i­ni’s World Wealth Report 2021, for exam­ple, looked at the “High Net Worth Indi­vid­u­als” (HNWI), the 20 mil­lion or so peo­ple in the world who own wealth of more than one mil­lion dol­lars, exclud­ing their main res­i­dence. By 2008, the num­ber of HNWIs had fall­en by 13% and their wealth by almost 20%. Now, after a year of health cri­sis, not only are there more mil­lion­aires (+6.3%) in the world, but their wealth is rapid­ly increas­ing, grow­ing by 7.6% – almost two per­cent­age points more than in the 2013–2019 period.

The theme of inequal­i­ty has also been linked to the cli­mate cri­sis. Accord­ing to the Glob­al Inequal­i­ty Lab 2022 report (Paris School of Eco­nom­ics) pub­lished in Decem­ber 20211, the rich­est 10% of the world’s pop­u­la­tion account­ed for almost half of all car­bon diox­ide emis­sions in 2019 (47.6%).

Nonethe­less, there are also crit­ics. Daniel Walden­ström high­lights the dif­fer­ences between the Amer­i­can and Euro­pean tra­jec­to­ries, point­ing out that with mod­ern pen­sion sys­tems we are all poten­tial ren­tiers, even if we do not have cap­i­tal to our name.

Immobility and social mobility

OECD econ­o­mists, for their part, draw atten­tion to the need to dis­tin­guish between income inequal­i­ty before and after redis­tri­b­u­tion, point­ing out that most devel­oped coun­tries have imple­ment­ed pro­gres­sive tax­a­tion that pro­duces pow­er­ful equal­is­ing effects. But they add in the 2018 report Equi­ty in Edu­ca­tion: Break­ing down bar­ri­ers to social mobil­i­ty2, in some high­ly redis­trib­u­tive coun­tries such as France, the real prob­lem of inequal­i­ty lies in social repro­duc­tion and inequal­i­ties at birth, which can appear par­tic­u­lar­ly unfair.

The prob­lem is that while pub­lic poli­cies can part­ly rem­e­dy these inequal­i­ties, by invest­ing in edu­ca­tion for exam­ple, some of these efforts are can­celled out by the much greater finan­cial and per­son­al invest­ments of the upper class­es, and in par­tic­u­lar of the overe­d­u­cat­ed elite that has come to be known as “the aspi­ra­tional class”. The soci­ol­o­gist Eliz­a­beth Cur­rid-Halkett shows in The Sum of Small Things: A The­o­ry of the Aspi­ra­tional Class (Prince­ton Uni­ver­si­ty Press, 2017) that while the share of spend­ing on edu­ca­tion increased by 60% for all Amer­i­cans between 1996 and 2014, it increased by 300% for the rich­est. But more impor­tant­ly, she adds, high­ly edu­cat­ed par­ents now spend a con­sid­er­able amount of time on edu­ca­tion. “Par­ents from priv­i­leged back­grounds are devot­ing more and more time to their off­spring, in par­tic­u­lar by encour­ag­ing chil­dren to express them­selves so that they can devel­op their inde­pen­dence, sharp­en their argu­men­ta­tion skills, enrich their vocab­u­lary and test their social skills.” In this way, elites devel­op in a vacuum.

Sym­met­ri­cal­ly, many soci­o­log­i­cal stud­ies point to the ten­den­cy of inequal­i­ties to accu­mu­late and wors­en. The Covid cri­sis would have fur­ther rein­forced these effects, as Yann Coatan­lem and Anto­nio de Lecea note in their con­tri­bu­tion to this dossier.

This is how the con­tem­po­rary vision of eco­nom­ic and social inequal­i­ties is defined. Our soci­eties accept eco­nom­ic inequal­i­ties, which they are also try­ing to cor­rect, with some suc­cess. But while they are found­ed on the explic­it promise of an equal­i­ty of pos­si­bil­i­ties, they are threat­ened by an immo­bil­i­sa­tion of social destinies.

This is the para­dox of our time: the inequal­i­ties that wor­ry us are con­ceived and lived under the sign of per­son­al dynam­ics and the mobil­i­ty of indi­vid­u­als. But these dynam­ics build up to form a polarised and immo­bile, two-speed society.

1https://​wir2022​.wid​.world/
2http://​www​.oecd​.org/​e​d​u​/​e​q​u​i​t​y​-​i​n​-​e​d​u​c​a​t​i​o​n​-​9​7​8​9​2​6​4​0​7​3​2​3​4​-​e​n.htm