GV4D4 - week 5

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These are my notes from October 24 for GV4D4 at the London School of Economics for the 2017-2018 school year. I took this module as part of the one-year Inequalities and Social Science MSc program.

The usual disclaimer: all notes are my personal impressions and do not necessarily reflect the view of the lecturer.

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Liberalism and Inequality: Winner-Take-All Politics

Readings

Winner-Take-All Politics by Jacob S. Hacker and Paul Pierson

On the political features that account for America’s high inequality.

• winner-take-all inequality is the result of organisational/policy shifts in the 1970s (finance, corporate governance, industry, tax)
  • economic gains highly concentrated; sustained since the 80s w/o trickle-down effects, as anyone might have predicted (basically the top 1% pulled away from the rest)
  • compared to Europe: growth rates similar, but inequality not as pronounced there
  • in fact, productivity per hour worked is higher in Europe (at least as measured in terms of GDP, which I personally find problematic but let’s skip past that for now)
  • the gains of the well-off came at the expense of those lower down on the ladder (which is kind of tautological if you analyse it with a Marxist lens tbh)
• skills-biased technological change is often touted as an explanation, but in this case it doesn’t explain the whole story
  • only a small number of educational elites entered the economic elites
  • also, the skills gap is similar in other countries but inequality is not as high
  • biggest increase in inequality in the US came in the 70s: broke away from the pack compared to other countries
    • esp Switzerland: the two countries had similar top 1% income shares until ~1980
  • all Anglo-Saxon countries have broadly similar trends but even among them, the US stands out, unfavourably
    • we can see the UK/Canada as downstream of US inequality changes especially in the upper echelons of the labour market (executives are highly mobile, plus salary trends are often linked due to the similar corporate cultures)
• weaknesses of existing political approaches to inequality in the US
  • treated as an “electoral spectacle” when a better metaphor would be “organised combat”
  • tend to neglect the sheer concentration at the top (focus on gap between bottom/top third when the real story is the top 1% pulling away from the rest)
    • criticising the approach taken by Larry Bartels in Unequal Democracy (2008), which showed that inequality decreased under Democratic presidencies and increased under Republican
    • Bartels looked at the 80:20 ratio and so his conclusion means that the bottom 20% do worse under Republicans
    • but since the 1980s, we’ve seen upward trend in the fortunes of the top %, regardless of the party affiliation of the president
  • overemphasise “median voter” theories
    • assumes that voters converge on redistribution which never really happens
    • which raises the Q: if politicians are exacerbating inequality, why? who are they doing it for?
    • my own take: mixture of an opaque process, poor education, and a media that (intentionally or not) misleads people with a convincing but false narrative (esp re the value public services)
    • Polarized America by McCarty, Rosenthal suggests that the median voter theory can still stand if we account for low-income immigrants (non-voters)
    • Hacker & Pierson are skeptical that immigrants can have that much impact, given that the foreign-born population is still quite small (went from 4.7% in 1970 to 10.4% in 2000)
    • Bartels’ solution is to amend the median voter model: voters still do care about inequality, but they are also myopic and easily distracted by growth (or are just unsure of how politics works)
    • which doesn’t really address the question of where the pressure for higher inequality comes from
  • narrow focus on tax/transfer programs
    • e.g., policies like minimum wage which can impact fortunes of those at bottom but can’t fully explain top (assuming that their fortunes aren’t just from surplus value appropriation)
    • Hacker & Pierson also critique Bartels’ claim that Dem presidents use fiscal/monetary policy to impose economic redistribution—they think that can only have short-term impacts, not long-term
    • doesn’t mention trade union/corporate interests, or employ a comparative framework
  • ignore the influence of organised interests
  • ignore predistribution and the effect of government policies on markets
    • a notable example is Mankiw … glad to see I’m not the only person who can’t take him seriously
    • after all, government policy structures the economy, sets the basic contours for the market, etc
• policy drift: my absolute favourite term in this paper and I was incredibly stoked to see it defined here
  • when policy fails to achieve its original goals, and attempts to update that policy (to make it adapt to the shifting realities of the world) are blocked by groups in whose interest it is to preserve that failure
  • after all, you can’t always preserve the link between a social policy & its intended outcome unless you let it evolve over time (where necessary)
  • thus drift occurs when you recognise the need to update, but politicians do not, despite majority pressure, due to opposition from those who don’t want it updated
  • good example: hedge fund managers’ fees are taxed at the (lower) capital gains rate instead of as income
    • due to some technicalities in the tax code, created before hedge funds became so prominent
    • despite public support to change this, the financial industry has resisted efforts to update the relevant policies (ofc)
  • drift can also occur due to polarisation, due to Republicans moving right & dragging the Dems along with them (despite the fact that the public is way further left than either party on many issues); this sort of gridlock makes policy drift more likely, especially due to non-action (it’s easier to conceal this, as well)
• overall, we need to focus not just on elections but on other sources of power/authority as well, particularly lobbying
  • shifts in the balance of power among organised interests affects both parties, not just whoever’s currently in office
  • contemporary policy makers don’t just cater to the median voter anymore—they’re also accountable to organised interests, which tend to encourage policy drift when it’s in their favour
• another factor, related to the above: voters no longer trust governments to tackle inequality properly, with faith in political institutions severely weakened lately (this is probably truer now than it was when this paper was published tbh)
• historical factors:
  • in 60s and early 70s, anti-business regulation proliferated (pro-consumer, environmental, workplace safety), due to pressure from public interest orgs
  • this engendered a strong reaction from business community: corporations launched a counteroffensive, invested in n lobbying and campaign finance to try to push their agenda
  • by the 1970s, they had basically succeeded: deregulation revolution + minimum wage allowed to drift (not indexed to inflation) + defeat of attempts at labour law reform
  • note that this all happened BEFORE Reagan, under a Dem pres (Carter) when the Dems had large majorities in both the House and Senate
• on unions: always weak in the US, but the decline since the 1980s startling, unmatched elsewhere
  • influence of unions important not just for wage bargaining but for political clout—their presence may encourage stronger labour protections or welfare programs
  • they are often the only political forces representing the poor
  • overall, working class voters (Dem or Rep) have fewer ways to express their sentiments and organise
  • these days, the well-known organisations in the political landscape (like Emily’s List) focus on the interests of donors, not average voters
• the effects of the rise of Christian conservative influence:
  • voters were going to the polls for moral, not economic issues
  • which means they might vote for higher inequality (bad for median voter) because they’re swayed by a stance on a “moral” issue (abortion, gay rights, etc)
• on the role of taxes in rising inequality
  • early 70s, peak in terms of high tax brackets (up to 75% effective tax rate at the top)
  • since then, tax rates have fallen fairly steadily
  • though that doesn’t explain all of the increase in inequality—accounts for maybe 1/3 of increase for top 0.1%
• note that the fall of union density is not a “neutral” market process, merely the result of jobs going overseas
  • in Canadian, union density is still quite high, even though it’s been theoretically exposed to the same market forces
  • so there must be political factors as well
  • events like Reagan breaking the air traffic controllers’ strike play a role
  • but there are also structural components, esp policy drift
  • basically the govt abdicated its responsibility to take care of workers and opted for more of a “free market” approach to the labour market, allowing employers and employees to (essentially) duke it out amongst themselves
• factors explaining the rise of exec pay
  • shift in corporate governance (ostensibly based on the concept of “shareholder value” but really managerism, where those in charge found more and more ways to siphon value from the corporation)
  • linked to one particular policy re: stock options
    • central to exec pay in the 90s: they lower the visibility of total exec compensation (harder to calculate)
    • the Financial Accounting Standards Board tried to force employers to disclose true costs but political mobilisation in opposition prevented this, allowing for policy drift to occur
• also, the role of financialisation & financial deregulation -> winner-takes-all
  • we should situate this within the wider context of the post-Bretton Woods need to maintain US hegemony + Kondratieff B-phases
  • what’s new with the most recent wave of financialisation is the global aspect

Organized Combat or Structural Advantage? by Jonathan Hopkin and Kate Alexander Shaw

On how the organised combat model that Hacker and Pierson developed to explain winner-takes-all inequality in the US doesn’t quite work for the UK, where a better explanation takes into account the structural advantage that elites derive from the ideology of unfettered markets (as pioneered by Thatcher and subsequently New Labour). Co-authored by the lecturer in 2014.

• transformation of the UK since the 80s primarily driven by rise of finance + weakening of unions/welfare
• unlike in the US, financialisation in the UK was driven less by domestic interest groups and more by policy elites
  • there was an ideological shift where finance was viewed as a Good Thing for the nation
  • less organised combat, more change in the organisational balance of power
• unlike with the US, Thatcher’s strategy was more decisive, and openly confrontational with regard to unions (“the enemy within”)
  • also more regressive re: tax
  • incidentally, of the top 0.1% by income, FIRE (finance, insurance, real estate) accounted for 70% in 2008 holy shit
  • policies that paved the way for financialisation:
    • the “Big Bang” reforms of 1986 (liberalisation of finance)
    • earlier removal of capital controls (1979)
    • historical separations between brokers and jobbers were removed
    • the privatisation of formerly state-run industries helped, by giving the finance industry a new source of profits (not entirely sure of the exact mechanisms tho)
    • plus a monetary policy that was inflation-wary (low interest rates) made the financial industry the obvious place to look if you wanted high returns, which helped them attract capital
• note that policy changes were endogenous to the govt, not necessarily brought about by organised interests
  • recall Thatcher’s love of The Road to Serfdom (there’s a possibly apocryphal story about her pulling out the book at one meeting and saying this was the Conservative Party’s program now)
  • in fact, these policies may have harmed the existing domestic financial elites
    • previously, they had enjoyed some degree of protectionism and self-regulation and insulation from political pressures
    • but now that the govt was getting involved (even if in a somewhat positive way) they had to start investing in lobbying (started ~1980)
    • the main consequence of liberalising finance was to drive out British firms (replaced by US/French/German/Swiss equivalents)
    • there was also some indirect pressure from the concurrent deregulation of the US financial sector, with which the City of London had to compete (race to the bottom)
• when New Labour came into power, they had totally absorbed Thatcher’s “there is no alternative” ideology
  • avoided stigmatising wealth & inequality, focused instead on “poverty” and “social exclusion”
  • their strategy: leverage growth, which of course meant a very pro-business atmosphere—they aligned with the existing business elites
  • public spending did expand, but it was on the back of an expanded financial industry (which of course will generate problematic inequalities in the longer term)
• difference between US/UK political systems
  • here, decision-making is more centralised (via the Prime Minister), unicameral, more party discipline, less lobbying
  • also, the Labour Party is much less beholden to financial interests than the Democratic Party is (since most of their donations have a trade union component whereas the Dems are all about that Wall Street cash)
• on the impact of the 2008 crisis: the Gordon Brown govt didn’t impose any real structural changes to the financial industry even though it very well could have
  • New Labour believed in unfettered finance at the time and thus had never developed the tools to reign it in
  • on the reason New Labour veered so far right in the early 2000s:
    • they signed up for the pro-finance agenda because that’s what the Tories were doing & leaders didn’t have enough backbone (thought they couldn’t win an election otherwise)
    • which, in hindsight (and given the recent rise of Corbyn’s extreme anti-finance stance), seems like it could have been a misreading (or maybe public opinion has just changed dramatically since the crash, who knows)

Why Hasn’t Democracy Slowed Rising Inequality? by Adam Bonica et al

Addressing the failures of the Meltzer and Richard model + similar models, specifically in the US. Gives five main reasons.

1. both mainstream parties have moved rightward recently
   • both parties espouse neoliberal economic policy, with a focus on free markets at the expense of greater redistribution
2. higher immigration (esp low-income migrants) & poor not voting means that the median voter tends to be more well-off than the median resident
3. as private markets for welfare flourish, people get used to turning to market solutions for social services
   • they start to associate government spending with poor quality services & inefficiency, thus voting against spending increases
   • which ofc becomes sort of a self-fulfilling prophecy (ratchet effect?) because govt services that don’t get enough funding will get worse and worse
4. influence of $ in policy-making, revolving door (those at the top are usually quite centrist in their views)
5. lack of accountability of elected officials (gerrymandering, gridlock, voter apathy)

my own thoughts on this (though not necessarily relevant to this paper, which came out in 2013): we should also consider the impact of ossified structures & the power of individuals within those structures to have lasting impacts. part of the reason Bernie didn’t get the Dem nomination was due to Debbie Schultz’s desire (with the backing of others in the establishment) to keep him out no matter what. If she hadn’t had the institutional ability to do that, OR if she had just changed her mind, then maybe Bernie would have gotten the nomination & perhaps even the Presidency, and our view of the American political landscape would be very different

• public support for fighting inequality is still high, esp after the crash
  • the only problem is that it sometimes begins and ends with Wall Street: people correctly identify Wall St as part of the problem, but don’t always realise that their grievances with finance are really grievances with the whole economic system as such (finance is a symptom, or an emergent phenomenon if you will)
• the pivot model in US politics (relevant to my sidebar on the power of individuals above)
  • there are actors with unusual leverage at various points in the political process
  • for example, to pass the Senate with 60 votes, there may be some key actors who need to be influenced
  • recall the recent healthcare bill failure where the spotlight was placed on defecting Republicans (McCain, Murkowski, etc) because they really did have that much power over the future of the bill
• on policy drift:
  • min wage is currently not indexed to inflation but income tax brackets are. reason: otherwise you would get bracket creep, which is bad for rich people
  • legislative polarisation leads to gridlock, which leads to e.g., Dodd-Frank never being updated (and in fact Republicans are trying to repeal it entirely)

Lecture

• Last week: you can see CMEs as softer alternatives to the market, either for purported greater efficiency (à la the VoC model) or in order to protect society (the welfare capitalism model)
• Today: on the LMEs and their ideology of economic liberalism (private property, individual rights over collective, etc)
  • this ideology is highly entrenched in the Anglo-Saxon countries (although it’s hard to back that up quantitatively)
• explanations based on labour mobilisation:
  • in the Anglo countries, unions failed to establish alliances needed to entrench working-class power
  • in the UK, since (semi-)democratisation came earlier, perhaps the working class allied with liberal (bourgeois) elements early which impeded social democratic progress later?
  • in the US, there was never really a strong socialist movement, and less history of state-owned enterprises (outside of the military-industrial complex)
  • US, Canada, Ireland had weaker labour movements than Australia, New Zealand, UK
  • the UK Labour Party is the strongest party of its kind anywhere in the world (unless you want to define the US Democratic Party as a labour party, which Hopkin personally wouldn’t, and I would agree)
  • basically patterns of labour mobilisation aren’t sufficient to explain why liberalism took hold in the Anglo-Saxon countries
• so what do these countries have in common?
  • perhaps their early (semi-)democratisation, in the early 19th century, which undermines the rationale for subsequent labour movements (think of as an early compromise to constrain radical demands by the working class and constrain them within the confines of a democratic framework)
  • legal systems may also have an impact—former colonies of the UK have “common law” systems
  • English language? influence of English political thinkers, esp Protestant ones (recall Weber’s whole thing about the influence of religious normative positions on economic viewers)
  • strong influence of property-owning middle classes in pushing for sociopolitical reforms, which exist partly due to early democratisation (the “have-somes”)
    • contrast this with the more polarised social stratification in continental Europe (mostly proletariat vs bourgeoisie)
• what characterises the liberal, Anglo-Saxon model?
  • pro-market, pro-private property, rather than egalitarianism
  • very Lockian, “possessive individualism” (term used by political philosopher C. B. Macpherson about Locke’s ideas)
  • commodification is seen as the natural, legitimate way of life; decommodification is resisted
  • strong myth of self-regulating markets—markets are seen as the optimal method for coordinating things, at least between firms (Karl Polanyi talks about this a lot in The Great Transformation)
  • you can view the death of feudalism as partly caused by capitalist struggle: rising capitalists wanted to dismantle protections of existing system so they could accumulate more wealth
• of course, this liberal ideology hasn’t necessarily been consistently applied throughout history of LMEs
  • some countries, like the US and the UK, went through strong protectionist/interventionist phases
  • which speaks to the incomplete nature of any ideology (they’re never total, and never the whole story)
• the welfare/redistribution regimes in LMEs are consistent with liberal principles
  • equality of rights (esp re: property) but not re: outcome (esp in terms of material goods)
  • the welfare system acts as a residual structure, a safety net, rather than trying to subvert the market
• let’s look at the US in particular
  • no one political party has consistent hegemony
  • unions have very little power, esp when it comes to wage bargaining
  • low social spending for the poor (at most, there’s tax relief, of which the prime beneficiaries are the wealthy)
  • laissez-faire model when it comes to social services, esp care; medium-high participation of women in workforce
  • some state provision: social security, and medicare
  • unemployment: time-limited income protection, low replacement rates
  • welfare state “divided” (privatised), encouraging private provision for healthcare, old age
    • which of course has a regressive effect (esp when there are tax reliefs for private provision)
    • so middle-income workers gain from private subsidies, and don’t want to pool risk with the poor
    • middle class opts for, say, privatised daycare, which is propped up by low-wage, predominantly female workers
    • there’s an ethic of individual over collective responsibility, which itself rests on the myth of equality of opportunity (despite the fact that equality of opportunity does not exist … look at legacy admissions + high tuition at universities for one obvious reason)
  • institutionalisation of free markets as the solution for everything, thus there is the tendency for market responses to social issues
• now for the UK:
  • social spending slightly higher, more public care, mix of public/private pensions
  • welfare benefits less time-limited than in the US
• recall that most of the Anglo countries have majoritarian rules and very little proportionality (resulting in winner-takes-all politics)
  • the Q: are the electoral rules the cause or the consequence of liberal ideas? are they endogenous or exogenous
  • incidentally, Ireland, which has high pre-tax inequality but low post-tax inequality, has proportional representation, but similar institutions
• on the politics of social mobilisation (of distinct social classes attempting to secure their own interests)
  • if high mobilisation explains government growth historically (one theory), does recent govt retrenchment (esp w/ austerity, etc) mean we’re living in an era of _de_mobilisation?
  • union membership in the US has declined precipitously since its peak in the 1950s (30%)
  • in the UK, the peak was in the 80s, and much higher: 50%
  • on the impact of Thatcher and Reagan on unions:
    • US: August 5 1981, 11,000 ATC workers went on strike; Reagan broke it by firing them & bringing in the military (big symbolic moment tho obvs not the whole story)
    • 1984-1985, UK miners’ strike (142,000 at its peak) to prevent closing coal mines; Thatcher bought up huge coal stockpile & used police to break up attacks on scabs, resulting in a victory for the Conservative govt
  • inverse relationship between degree of mobilisation of working classes & welfare state
    • power of working class has recently been in decline, partly due to structural economic change but also due to the opposing mobilisation of capital
    • essentially, the problems of 1970s (stagflation, falling profits) led to a distributional crisis in which capital ended up seizing power
• on public choice theory
  • sees large welfare systems as engendering the phenomenon of exploitation of the commons (since that’s the rational response)
  • thus their ideological solution is to roll back the powers of the govt re: redistribution
  • (whereas they don’t try to roll back, say, government enforcement of property rights …)
  • the theory comes down to moral hazard: if there’s a safety net, it’ll slow people down because they won’t have an incentive to work hard
  • lots of the proponents of the pro-liberal, anti-government theories under this umbrella were American
  • these ideas were picked up by the ruling class of the US/UK because they were seen as advantageous
    • basically rich people have captured the political system—the 1% has become the govt
    • thus, as the super-rich holds a disporportionate amount of wealth and power, the welfare state starts to recede
• we can see politics as a battlefield of ideas in which the well-funded lobbyists usually win
  • quiet politics: action happens behind the scenes, and with the recent decline in mass movement potential there is little challenge
  • the question is: how does a democratic society allow this to happen?
    • decline of mobilisation of lower-middle classes, plus lower voter turnout, plus false consciousness
    • Offe and Weisenthal, in their paper Two Logics of Collective Action (PDF), identified another reason
    • basically the dynamics of mobilisation are different for different economic classes
    • it’s easier for a smaller number of rich people to act collectively (easier to coordinate since there are fewer of them, plus they have more resources in total)
    • so the political field is already structurally tilted in favour of the wealthy
    • Thomas Ferguson, in his 1995 book Golden Rule, elaborated on the investment theory of party competition: the interests of business elites dominate politics because they have lots to gain (potentially) in terms of greater profits
• on the problems with Esping-Anderson/Hall & Soskice
  • very static models—they don’t account for the possibility that the liberal underpinnings of a political economy can change over time
  • to ponder: what is the role of the influence of the raw power of the wealthy vs the influence of their ideas? (think of Marx’s theory that the ideas of the ruling class are the ruling ideas—how are they promulgated and what are the limitations?)

Seminar

• where do liberal ideas come from in the first place?
  • Weber’s Protestant theory, think tanks, individual actors
  • plus some sort of shadowy right-way conspiracy bringing them all together …
    • enter the Mont Pelerin Society, which was my primary contribution to the debate
    • (apparently it’s shadowy enough that none of the other students in this seminar had heard of it)
  • a thought that I had during this discussion, which I will leave as an open question:
    • given the existence of the MPS, was neoliberalism inevitable?
    • is there an alternative history where a left MPS, dissatisfied by Keynesianism, had been waiting in the wings for 30 years, ready with a more socialist agenda?
    • or would that have been structurally impossible due to the perceived blurry line between Keynesianism and a stronger left-wing agenda?
    • thus did neoliberalism win partly because it offered a stark contrast to the apparent failures of Keynesianism?
    • if we look at it teleologically, maybe neoliberalism is a necessary phase (you gotta zigzag)
• why did neoliberal ideology become so much more entrenched in the US/UK?
  • on Europe: turning to collective solutions (the EMS, EU, etc) partly to protect the postwar welfare state, which perhaps hampered the spread of more liberal ideals
  • for the UK: the impact of some sort of patriotic, “Britain First” identity? drawing on Britain’s colonial history?
  • for the US: the idea of US exceptionalism & postwar American economic hegemony due to Bretton Woods?
  • neither the US nor the UK were really invaded by foreign powers during the war, which perhaps made them less likely to turn to collective solutions as a result
  • both are also effectively two-party systems w/ political baton-passing, it just so happened that the worst crises of the 70s went down on the left’s watch (fits in w/ my zigzag theory above)
  • public attitudes towards the rich:
    • in the US, the idea of “meritocracy” has a pervasive hold, and ofc this ideology is a perfect match for high inequality (does a great job of masking it)
    • in the UK, the class system strongly correlates w/ wealth and thus makes extreme wealth feel more natural
    • whereas in some other countries, it’s more acceptable to view extreme wealth as the result of theft (see the French Revolution, which is basically just expropriating the rich)
  • recall that the leftwing govts were the ones implementing the postwar social contracts
    • rightwing parties went along but only begrudgingly, so MPS found eager audiences in these sidelined rightwing parties
• the thing to remember about the LME/CME distinction is that once you go down one path, you’re in a virtuous/vicious cycle
  • the different institutions reinforce each other and become entreched
  • so the big Q is what sets one country down one path in the first place
• recall the context of stagflation, oil crises etc in the 70s
  • did popular support for neoliberalism rise? why did people vote for these parties?
  • Hacker & Pierson’s theory is that the electorate only has a role up to a point (after that, organised interests take over)
    • for ex, when people voted for Thatcher the first time, they didn’t necessarily know what they were voting for
    • and when they voted for her the second time, it may have been because they felt like they were doing slightly better economically (due to right-to-buy, house prices going up, short-term economic growth etc)
• the role of mistrust in institutions
  • there’s this unfortunately common refrain in US politics in particular: higher taxes means your money will go to “welfare queens” etc
  • people who are concerned by rising inequality, but still support neoliberal policy: cognitive dissonance or just fundamental misunderstanding of how the world works
  • recall the point of the third paper: the super-rich fund both Dems & Reps, meaning that both parties have been captured by elite interests to some degree
  • which makes distrust of political institutions understandable tbh—there’s no real option to combat inequality or really change up the system
• on the differences between the US/UK
  • the US doesn’t have any large social welfare institutions like the NHS, which is a good symbol psychologically
  • easier to convince people to spend money on an institution rather than flat-out cash transfers, which is the only real option in the US
• link between rising inequality & rising polarisation (measured by voting records in government)
  • could be due to polarisation along a non-economic axis
• incidentally, % of people who want to decrease the size of the state has always been <10% in the last 30 years
  • and yet, in media/debates/political realm this view (that of shrinking state expenditures) gets like majority coverage
  • suggesting elite political discourse is fairly detached from actual voter preferences
  • this itself is spurred on by the collapse of working-class/socialist papers and the concurrent rise of right-wing tabloids—the right is winning the battle of ideas

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