Antidote to Economic Inequality is More Democracy, Not Less

In the March/April edition of Foreign Affairs, Catholic University Professor Jerry Muller has written a piece entitled “Capitalism and Inequality,” which examines the structural nature of inequality in capitalist societies in the context of policy debates in the U.S. between liberals and conservatives. In the article, Muller argues that economic inequality in the U.S. is an inherent function of capitalist activity rather than a function of politics. Indeed, Muller argues that liberal attempts to expand equality of opportunity through the institution of the “welfare state” only serve to further increase inequality. This is because, according to Muller, some individuals and communities are better able to exploit the available opportunities afforded by capitalist economic systems than others. While criticizing the left for what he sees as its insistence on state-centric solutions to addressing the problem of inequality, he nonetheless warns the right that rising inequality can cause significant disruptions in social order.

Muller’s argument is grounded in what economists and other social scientists call “economic determinism.” In simple terms, economic determinism entails a belief that human behavior is “determined” by the operation of economic forces or “laws.” As such, history is simply the product of economic forces acting upon human beings. Marxism is the most conspicuous example of a theory based on the principles of economic determinism, and it is little surprise that Muller borrows from both Marx and Engels in tracing the historical development of capitalism. However, Muller is clearly no Marxist. While acknowledging that inequality is an inherent feature of capitalism, Muller extols the dynamism of capitalism and notes that “the spread of capitalism has generated a phenomenal leap in human progress, leading to both previously unimaginable increases in material living standards and the unprecedented cultivation of all kinds of human potential.” The central problem for capitalist societies, according to Muller, is finding a way to shield its citizens from the “adverse consequences” of capitalism while preserving the system’s ability to generate wealth and prosperity.

According to Muller, the historical solution to the capitalist dilemma arose with the rise of the “welfare state.” To one extent or another, virtually every capitalist society in the world has adopted some form of welfare state, in which social protection is provided to the most disadvantaged members of society through a system of redistributive taxation which provides funds for programs such as job training, unemployment benefits, healthcare, etc. Muller’s argument seems to be predicated on the idea that there exists an ideal “middle ground” which preserves the basic elements of the welfare state without simply redistributing income from rich to poor or using government as a vehicle for addressing inequality through policy. Muller rejects redistribution on two grounds. The first is that the forces which generate inequality in the first place reassert themselves, leading to even further inequality and more redistribution. The second is that redistribution produces substantial public resentment and impedes economic growth.

If Muller is correct in his assertion that there exists an ideal “middle ground,” why is there so much variation among the industrialized nations with respect to their redistributive policies? Wouldn’t the laws of economics cause policy to converge around this ideal mean? Why can’t policymakers agree on where this middle ground lies?

Unfortunately, Muller doesn’t attempt to address these questions and his deterministic economic narrative makes doing so impossible. The reason is because these questions are political by nature. By downplaying the role of politics in order to discredit attempts to redress social inequalities through government policy, Muller is unable to provide any prescriptive remedy other than saying that the left and right should be able to find middle ground. He can’t explain why they have yet to do so or why our political system has become so dysfunctional with respect to addressing these issues.

Muller’s argument also has disturbing implications for race relations and immigration. Muller makes clear that different ethnic, racial, and religious constituencies are better able to exploit opportunities in the capitalist system than others. If capitalism inherently reinforces inequality and redress through government policy is rejected as a means of overcoming these inequalities, then are certain social groups simply doomed to perpetual social inferiority? It seems reasonable to conclude that such a prescription would lead to plenty of public resentment and social disorder as well.

And herein lay the major problem with Muller’s thesis. Muller treats the welfare state as a reified given rather than as a contingent institution formed from a history of social struggle. Even a casual reading of Howard Zinn’s A Peoples’ History of the United States is sufficient to demonstrate that the welfare state wasn’t a necessary outgrowth of capitalist evolution, but rather the result of the political activism of organized labor, minority groups, intellectuals, and other groups. Likewise, the fact that many of the social safety net features of the welfare state have been allowed to erode over time is the result of a political and ideological struggle waged by conservative forces in the U.S. since the Reagan years. It thus makes sense to conclude that the decision to maintain the welfare state is decidedly a political, rather than economic, matter.

In the United States, budget deficits resulting from rising health care costs, combined with spending on two wars and a large military budget, have become the focus for renewed political debate regarding the sustainability of the welfare state. We are told that we simply cannot afford to maintain programs like social security and Medicare. But, as anyone with an income knows, a budget reflects the priorities and values of an individual, or a nation. Those values, while shaped by market forces, are not determined by them. In a democracy, it is debate within an open public sphere which determines what priorities our nation sets and what items get ignored. Democracy, for all its faults, nonetheless presumes the equality of all citizens, whereas capitalism makes no such presumptions. As such, it is the only mechanism available for disadvantaged groups to seek upward social mobility. If Muller is right that maintaining the welfare state is the key to sustaining economic growth while simultaneously protecting citizens from the vagaries of capitalism, it will only be through the participation of an informed citizenry via the democratic process that the welfare state will survive.