Tag Archives: inequality

The Psychology of Wealth and the Social Contract

Credit: Flickr User Philip Taylor
Credit: Flickr User Philip Taylor

Social science is telling us that morality and generosity decline among the most well-off.   Ever since I heard about this study at UC Berkeley I’ve been curious to imagine how these findings might apply to political systems.  It seems that material wealth, or even the feeling of wealth, has a greater impact on one’s attitudes towards others than previously believed; possibly even a greater impact than previous political ideology, upbringing, or education!   Studies have shown for some time already that generosity is more marked among those who have fewer resources compared to those with more, but now it seems we’re starting to get results that reveal even more about the nature of these differences.  There are intriguing hints at the sources of these really surprising findings.

Nick Powdthavee, an author of a study of the effect of lottery winnings, found that greater wins tend to make people more right-wing and inegalitarian.  He declared:

“We are not sure exactly what goes on inside people’s brains but it seems that having money causes people to favour conservative right-wing ideas. Humans are creatures of flexible ethics.”

Also in this study, the authors speculate about the effect on democracy, arguing that self-interest trumps morality in decision making.

This last point is where I depart a bit in interpreting the meaning of these studies.  Moving to the right may mean supporting an effort to protect one’s own ‘hoard’, but it is only ‘self-interested’ on an individual level, not necessarily on a social level.  Democracy is to some degree about keeping these tendencies in check and allowing a public good to emerge from the apparent conflict of interest created between the rich and the poor.   The paradox, of course, is that the wealthy MUST be on board the project of contributing to the social good at the very point when they are the least motivated to do so (due to their wealth, apparently).   As the wealthy opt out of the social contract that makes things better for everyone, they undermine themselves by eroding the means by which the social fabric is maintained.

 The paradox, of course, is that the wealthy MUST be on board the project of contributing to the social good at the very point when they are the least motivated to do so…

I assume, of course, that the wealthy are still in some way part of that social fabric.  Wealth seems to offer a way out of social obligations and norms [for example, by letting people think they can drive faster with a more expensive car, even if they end up paying a ticket].   But why do people choose to opt out, even if it becomes more expensive, and actually less rational, for them to do so? Why send your kids to private school, pay your taxes to another country, or get your healthcare from a boutique provider, when comparable services can be obtained much more cheaply by paying your fair share to the common pool?  It’s not exactly self-interested in the rational, economic sense, to do this.

I’m wondering if the answer has to do with the psychological need to control the environment, something that money provides unequivocally in a capitalist society.  What one loses in material cost [private school is more expensive than public, paying a ticket is more expensive than driving according to the rules, for example] is made up for in control over the process. If it is about control rather than about wealth, it has implications not only for what the rich do individually, but how they act toward the political system as a group.  For if the tendency to protect one’s own extends to the effort to control the society as a whole, it means the wealthy will make social laws and rules for everyone else that reflect their particular interests.

Fostering empathy in the minds of the wealthy may not be the way to go, as this article in the Atlantic suggests.  A considerable amount of energy is spent in encouraging charity among the wealthy, which has had little impact on the mindset.  Indeed, what is interesting is that most Americans have experienced poverty in their lives, if only temporarily, at one time or another.  This means a significant number of wealthy individuals, and yes, even members of Congress or Parliament, have also experienced poverty.  If the above studies are correct, it seems unlikely that this experience can trump the psychological effects of wealth, and the tendency to be less egalitarian or generous, that goes with wealth. It doesn’t seem likely that human nature will change.

Credit: Flickr User Brent Granby
Credit: Flickr User Brent Granby

Bridging the psychology of the individual with the need for a public good means bolstering institutions that supercede and limit the tendencies of the wealthy to opt out and to control the process. Unfortunately, many democratic institutions have been put in place to do exactly the opposite: to control and limit the worst excesses of the general public [see the Canadian Senate].

Public education, public health care, parental leave, elder care, social services, and even sewers and parks have often been thought of as contingent on ‘affordability’ (Yes I’m looking at you, BC Liberals!)  In fact, by highlighting the idea of the public good, these institutions remind us of the vulnerability of the social contract to the psychology of wealth. Now that we know more about the effects of wealth on our thinking  (and by that I mean everybody’s thinking) social planners should be better equipped to make the case for the defence of that social contract.  That defence should strongly state the need for everyone, but especially the wealthy, to be included in the social project from which we all benefit.

The Sources of Inequality: Why Globalization Matters

1Photo Credit: Rangan Halder 500px “Materialism Versus Materialistic Capture” http://500px.com/photo/8540236

In his speech to the Rock ‘n Roll Hall of Fame, Chairman of the Council of Economic Advisers Alan Krueger offered up some food for thought regarding the sources of inequality in American society, and globally. Krueger focused on four factors that help to explain income inequality: technology, scale, luck, and the erosion of social pressures for fairness. In this post, I want to focus on scale, and I’m going to also refer to the Atlantic’s reprint of the key points of Krueger’s talk to expand on a factor that Krueger mentions but does not develop in enough detail, in my view: globalization.

The authors discuss the music industry as an example. As they point out, the music industry creates a ‘star economy’ focused on a few ‘winners’ or ‘stars’ who are able to drive growth in the system. The ‘star economy’ in music has produced a skewed income curve. If you look at incomes across the industry, the greater benefits are concentrated at the top. However, if one considers not just the artists (who are essentially the workers producing the product) but the entire ecosystem of label CEOs, CFOs, managers, R & R people, the marketing department, etc. then one gets a better idea of the scope of the real economy of music. In fact, music industry bloggers and observers have been criticizing the inequality in the music industry for a long time: As Bob Lefsentz points out in a recent post, the corporate labels, the entertainment mega-giants like Sony and Universal, are the real structural beneficiaries of the sharper inequalities imposed upon all musicians, just as the fat cats in the garment or manufacturing industry are the real beneficiaries of inequality in those economies.

The power of the music industry has grown in lock-step with globalization, offering command of larger and larger shares of music consumption. The incomes of the music industry managers have survived the recent purge caused by the technological challenges. They have survived for a reason: it is their machines that generate the wealth, rather than the luck or talent of the artists. Ultimately, as Krueger suggests, ‘luck’ and the perception of popularity have a huge impact on success in the music industry, but ‘luck’ is not some impartial uncertain or random arbiter of fortunes, since success comes through the perception of popularity, which is heavily influenced by these industrial complexes.

As Salganik et. al. have discovered through experimenting with a controlled ‘music market’, social perceptions of the popularity of songs increase the degree of inequality among them (although they don’t make it any easier to predict success). Frankly, no matter the uncertainty caused by the internet or disruption of the industry by downloading, any artist that can command the attention of the marketing machine and the vast resources of a label can succeed beyond their wildest dreams through these social effects. Many high-quality and deserving artists don’t succeed, while a few poor quality and undeserving artists succeed beyond their wildest dreams. Youtube doesn’t ‘make’ you a star, but the attention that Youtube brings can make you popular. Attention from the music elite (increasingly, from successful artists) or from a label with a hyper-marketing machine behind it makes you a star, since you can then marshal the resources necessary to maintain that attention.

Globalization has had one important impact on the 1% that should not be downplayed: it has vastly expanded the freedom to disengage from local economies and impose conditions upon all other economic activities. What matters is the decisions made by the elite to affect the market, and these decisions are not based on luck, fairness, or even on quality. In political science this is termed ‘structural power’: the ability to not only win the game, but to affect the rules of the game for all other players. The inequality of today arises from specific decisions made by earlier masters of the universe in the 1980s to protect the interests of their class. Krueger hints at some of these decisions in his article: the demise of labour unions, the deliberate erosion of the minimum wage policy, and changes to taxation. These factors cannot be explained by the impartial workings of a global market or by luck, rather, these are conscious government policies aimed at expanding the scope and freedom of movement for the wealthy.

I would allow that there is some room in this analysis for what might be termed ‘unexpected’ consequences in the form of a severe recession and political backlash against perceived unfairness. Krueger’s analysis seems to suggest that the erosion of a social commitment to fairness in income distribution is some kind of ephemeral byproduct of historical forces and global and cultural change. However, I would argue that society has always appreciated the importance of fairness. Indeed, when elites overreached in their efforts to influence the public’s perception of fairness, it created the present global backlash and protests against inequality.

Given the true nature and extent of the cultural power that elites have garnered over the last 50 years, their expectation of being able to manage the change to a more unequal society was not unrealistic. And they may still succeed! Leaving out the element of cultural power, and the broader impact of corporate globalization and the effects of structure, neglects one of the key explanations for the continuation of inequality. The perception that success comes from luck or from effort, and not from the structure, is central to the perception of inherent fairness in the system that allows inequality to persist.

So, Krueger’s piece gives us much to think about: technology, scale, luck and the erosion of fairness have played their parts in the rise in inequality. I would put the focus on scale and the rise of globalization, which has fundamentally altered not only the rules for economic acquisition, but also the rules for social, political, and technological relationships. The change in these rules has helped to produce the profound social and economic inequalities we see today.

What Kind of (In)Equality Do We Want?

Photo Credit: Jessica Tam Flickr

When analyzing any phenomena, it helps to have a good idea what we want to achieve. In political science as in life, equality has great significance. Analysts tend to think quite differently from the general public, however, about what constitutes equality and how we should use the term. Let’s consider a thought experiment to sort out the difference between ‘equality of opportunity’ and ‘equality of condition’.

If we imagine that equality of opportunity and equality of condition are kinds of ideal types at opposite poles, with a spectrum of variations in between, then the picture might look something like this: under ‘equality of condition’ everyone would experience the same life outcomes: equal incomes, equal standards of living, and equal levels of education, health care, and work. How would things differ? Likely inequality would creep in through limited means: for example, some may work longer hours, have more or less education, spend more or less time skiing, etc.

What is wrong with this picture? The most common criticisms of this ‘absolute equality’ are:

It reduces the incentive to succeed, and 2. It distorts the value of things, leading to scarcities and gluts in supply.

Society involves differential treatment.

But these are practical criticisms, not questions of justice.   Would absolute equality actually be ‘just’?  Assuming for the moment that such a system could be workable (and I’m not saying it is) then an argument could be made that it actually creates injustice by failing to differentiate among people with ascribed or inherent differences who deserve differential outcomes.  Those who work harder or are more creative or who are disabled or ill should be treated differently.  Some may deserve preferential access to resources either as a result of their extra effort, their accomplishment or contributions, or by virtue of need.  Tellingly, the right more often argues for differential outcomes based on effort and accomplishment, while ‘need’ tends to take second place. It is sometimes said that such a system would be communistic.  However, under Marx’s vision of communism, the ideal form of equality actually allowed for differential rewards focusing on need rather than accomplishment or contribution. Contrary to popular belief, Marx did not advocate absolute equality of condition. Indeed, nobody has, in all seriousness, ever really proposed that large-scale industrial societies impose absolute equality of condition.  This is because serious thinkers would quickly realize that equality of condition, even in its ideal form, would inevitably raise both practical and fairness questions since there would still need to be some argument for different treatment of some people.  Nobody is average.

Now, what about equality of opportunity? That sounds like something we can all get behind: everybody can try or fail equally well, and those with the greatest accomplishments and talents will rise to the top. This is kind of what Paul Summerville argues when he says:

Equality of opportunity is a virtue when it is twinned with unequal outcomes. It is meaningless without it. What is the point of equality opportunity if success is discouraged by custom, law, or taxation?

But, to respond to this, how can we be sure that everyone actually has an equal opportunity to try, and to win? Inequality all by itself is not evidence of equality of opportunity. What if the winners try to ‘kick the ladder out’ from behind them, blocking the upward advance of others? What if they use their newfound positions to favour their heirs and families and friends rather than allow their loved ones to fail? Perhaps when we see that some are able to climb up to the top from the very bottom of the social ladder without artificial assistance from the state, then we can say that equality of opportunity exists. But how many of these examples are sufficient to prove it? One? One in ten? One in a thousand? The fact is there is no natural or inevitable level of inequality that can tell us when everyone truly has an equal chance. We can point to clues: perhaps when the top 1% is as diverse and representative of the entire society, or when every member of the top group can claim to have climbed out of the gutter, but that seems as unlikely as the ideally equal society discussed above. The question of fairness rises again: even in a society in which opportunities are purely equally distributed, there will be unfairness due to the same factors mentioned above: What about those disadvantaged by illness or age or poor upbringing? What about highly talented or accomplished individuals who don’t manage to make it through no fault of their own? why value some talents more than others?

Given differences, how can we be sure that equality of opportunity exists?
Given differences, how can we be sure that equality of opportunity exists?

Again, the argument to treat some people differently in order for equality of opportunity to be realized is present. But, the same question arises: what should be the basis for differential treatment? Here, the differences between the two poles start to disappear: the essential argument is not about equality at all, but about the basis and rationale for differences. Both sides work toward an ideal world that is impractical and unfair, yet both sides argue for ‘differential’ treatment on the basis of different individual characteristics. The right argues that differential treatment should be based on talents or contributions, while the left focuses on compensating for special needs and other (class) disadvantages.

The world we actually live in is of course far more complicated. Equality before the law, which is the dominant discourse of equality in Canada and other Western liberal democracies, is actually a fall-back position avoiding both of the options described above. It doesn’t guarantee equality of opportunity and it doesn’t mitigate inequalities of condition. At most, it provides a measure of our progress toward some compromise on fairness and practicality. It’s not irrelevant, far from it! The legal guarantees of the Voting Rights Act or protections for gay marriage or for equality between religious beliefs do matter, but not for the reasons we think. They matter less because they create equal opportunities, and more because they clarify the legitimate grounds for treating people differently. The fact that people are all, in some way, treated differently by society still needs to be acknowledged by all participants in the equality debate.

The next two blog posts will address the sources of present-day inequality in globalization, and the basis for differential treatment and its centrality to equality.

Upside Down: A Post-Modern World System

In 1974, Immanuel Wallerstein argued that the world was composed of three types of economies: a core, a semi-periphery, and a periphery.  In the core countries, capital-intensive manufactured products with high levels of complexity and value-added were the primary source of national wealth.  In the periphery, labour-intensive primary resource industries were the main source of wealth.  The semi-periphery countries mediated between the twroller coastero, but all countries acted in accordance with the principles of the global capitalist system. What characterized the relationship between the three regions was the terms of trade among them: core countries accumulated wealth by extracting resources and labour from the periphery.  In the outskirts, raw materials were traded for machinery and technology. The semi-periphery managed the relationship between the other two, with a mixed economy based on trade.

Even though Wallerstein’s analysis was applied primarily to Western and Eastern Europe, no one had any illusions at that time about who constituted the core, and who the periphery.  At the commanding height of the world economy, the US was unrivalled as a trading powerhouse, the most efficient and competitive economy in the world, the driver and reference point for development for all countries (including the Soviet Union, the ostensible rival).  Americans were the world’s consumers, traders, thinkers, workers, and investors.  America defined the ‘core’ of the world economy.


Today, Asia is the world’s factory and an exporting powerhouse, sucking in raw materials from abroad at a ferocious rate.  China is becoming the world’s braintrust, transforming trade goods into high-end tradable commodities and changing their workforce using technical and business knowledge to ‘reverse innovate’ new products and services. Today, Hollywood movies are released in China and India a full month before anyone in the US can see them.   Australia, Canada, the Middle East, and South Africa, formerly the nimble trading members of the semi-periphery, are now repositioning themselves as raw materials and commoditiesproducers, supplying the forests, minerals, food, and fuel for the new core countries.

In this post-modern world-system, unrecognizable as it is fromwinners and losersthat of 50 years ago, the core and periphery have switched places.  It is not so much ‘flat’ (as claimed by Thomas Friedman) as ‘bumpy’; with hills and valleys defined by the underlying forces of finance and production.  Sometimes the ‘bumps’ create stranged bedfellows, as Greece and Germany are discovering.   It is highly intermingled, more like a ‘neo-Medieval’ system of interlocking interdependencies coupled with rigid underlying hierarchies.

But as Wallerstein recognized, exactly which country plays which role is irrelevant. All of the things that are often deemed to make civilizations unique, like values, culture, soft power, technology, and even military prowess, are less important than the underlying patterns of wealth and exchange that dictate the range of motion that a country has.   Assuming, as America and Canada have recently, that one is immune to the disciplining forces of capitalism, and that capitalism will only ever  work in your own interests and against those of your competitors and partners; is a myopic failure of vision.  It assumes that only one vantage point exists or even matters, and neglects the realities of the new post-modern topsy turvy world.