Taking the long view: could today’s multiple crises ultimately reduce inequality?

ScheidelTheGreatLevelerAmid today’s multiple and actually or potentially devastating crises, from the pandemic and war to the environment and the energy shock, and the economic, social and political responses, I have found it somewhat therapeutic to turn away, at least for a moment, from the increasingly depressing daily diet of multimedia news and towards a more historical perspective. Stanford Professor of Classics and History Walter Scheidel penned his 2017 book The Great Leveler: Violence and the History of Inequality from the Stone Age to the Twenty-First Century (hereafter TGL) to make the argument that only major war, revolution, state collapse and pandemics have been able to substantially reduce inequality within countries. If he is right, this hardly seems to offer the prospect of a less worrying take on today’s events.

But maybe taking the long view and stepping out of the 24 hour news cycle provides cause for some optimism, even if the path is proving exceptionally difficult. This is not to ignore the essential need for action from policymakers and citizens. But Scheidel’s book suggests that, given we are living through at least two of his ‘Four Horsemen’ (of the apocalypse), major war and a pandemic, it is possible that we might see major reductions in inequality some way down the road. His work could be seen to be pessimistic in itself, in that historically this seems to often require violent change in society and the economy in order for it to occur, and one would not wish any of this on any society and its members. But perhaps it is also a realistic view: we are being hit to varying degrees by crises from all sides, and could eventually emerge from the other side with something positive.

In TGL, Scheidel argues that historically, developments in and the interaction between technology, economic development and the rise of nation states have led to rising inequality. Key to this is the management and ownership of the economic surplus, or that part of production which is over and above the necessary level of consumption which is needed to sustain the community. The nature and use of the economic surplus conditions the form of social hierarchy, which is one reflection of inequality.

As mentioned above, Scheidel’s ‘Four Horsemen’ are major war, revolution, state collapse and pandemics and it is these alone which have been able to sharply reduce inequality within countries. He goes on to describe some historical examples and I will touch on a few here.

Major war

During World War Two, Japanese mass mobilisation militarily and economically for war led to a ‘great levelling’ and laid the foundations for rapid post-war economic transformation, initially with US help following the end of the war, which sustained relative equality amid the country’s economic growth ‘miracle’.

The stresses of global conflict, in the form of physical destruction, increased state intervention and high inflation which can destroy elite wealth, all contributed to a ‘Great Compression’ of incomes and wealth during the two world wars and the Great Depression.

More generally, mass mobilisation for war between states, along with the post-war legacy of a fear of future war, helped promote democracy and in many cases progressive social democratic policies which included steeply progressive taxation, stronger trade unions and greater state intervention in the economy. The mass mobilisation itself proved a potent leveller, in contrast to the outcomes of many civil wars. In the UK, as men went off to fight, more women entered the workforce back home than ever before, shaking up the gender structure of the labour market.

Revolution

There is no doubt that communist revolution led to large scale violence, and proved another drastic leveller. Even if communist states ultimately failed to deliver materially compared with their capitalist foes and many eventually collapsed, the social consequences were undeniably transformative, though the economic record since the transition to capitalism has been decidedly mixed across the former communist states of Eastern Europe and the Soviet Union.

State collapse

State failure and the collapse of political systems have often decimated the wealth of elites and compressed those incomes remaining at the top of the distribution, whether the poorest lost out or not. The richest have more to lose, in the form of, for example, unproductive rent-seekers finding that their wealth and incomes collapse with that of the state itself.

Pandemics

Scheidel uses the example of the Plague, with its effects on demographics, labour markets, institutions and institutional responses from the state. Taken together, these determined the impact on inequality. The sharp fall in the numbers of the poorest and most vulnerable in such situations reduced the labour supply, increasing wages at the bottom of the distribution and thereby reduced inequality. In such cases, the mitigation of inequality lasted for different periods of time, while demographic recovery tended to restore a tendency towards rising inequality once again.

Historically Scheidel’s ‘Four Horsemen’ have not always occurred separately and have sometimes interacted to reduce inequality.

Alternative Levellers

TGL addresses some other possible drivers of reduced inequality, such as land reform (which is often violent), debt relief, economic crises, and the introduction of democracy. He argues that there is no clear relationship between these and falling inequality throughout history, but that they have in fact often increased inequality. Other factors might include economic development and improved education, but these have sometimes increased inequality and at other times reduced it.

Inequality and the motive for conflict

Another interesting point made in TGL is that weak growth in consumption in many societies has tended to increase the incentives for nation states to engage in overseas expansion and conquest. This might be termed empire building and might arise from the need to find new markets for surplus production which cannot be consumed domestically due to the weakness of the home market. This implies that faster wage growth which boosts consumption relative to production could help to prevent such actions. Economist Michael Pettis has also made such arguments in his books The Great Rebalancing and Trade Wars are Class Wars. While this is not to say that reducing inequality domestically will necessarily prevent international conflict, the greater and more widely-shared domestic prosperity which follow can play a role.

What of today?

The advent of the pandemic more than two years ago ultimately called forth a massive response from the state in many countries to support incomes during enforced lockdowns. Today’s energy price shock is likely to summon a similar response to support those, especially the poorest and most vulnerable, who can least afford to pay their energy bills. A strategy for business will likely also be needed in some form. Such action can only come from highly functional states.

Whatever the political persuasion of incumbent governments, they will discover that preventing social and economic collapse requires increased state intervention. Economies which are net importers of energy are suffering a fall in incomes. The question is, how is this loss to be distributed across society and the economy? What starts as an economic shock inevitably becomes political, and if social cohesion is to be sustained, a large measure of redistribution is called for. In an inflationary economic environment, new spending financed largely by borrowing could fuel further price rises. Those who can bear it must therefore shoulder the burden for those who clearly cannot.

War in Ukraine has united the West to some extent, though whether this will be sustained is another matter. Putin is hoping that the global economic repercussions of his actions will eventually make the West war-weary and ultimately sow division between states. But it is vital that unity is sustained. Historically existential external threats have often galvanised nation states and global cooperation, and called for increased state intervention which has lasted beyond the end of the threat or conflict.

The energy shock is also an opportunity to accelerate the shift to cleaner and cheaper sources and uses of energy, as part of a long term plan to increase energy security and reduce emissions in many countries. The changing climate will prove even more serious as the whole world is forced to catch up with its consequences.

Even if it is only Ukraine which is going through the direct horrors of war in Europe, its allies are facing severe economic shocks which are the result. As with the pandemic, economies find themselves on a kind of war footing, with strong responses needed from governments. More than ever, and to counter Margaret Thatcher’s wrongheaded quip, we are finding that there is ‘such as thing as society’, and that the role of the state in securing collective action which sustains it is becoming ever more vital. We may find that in the long term today’s disasters play a role in reducing inequality and moving us beyond a form of capitalism which has for several decades now generated apologetics for social injustice. The concurrent crises could ultimately unite rather than divide, and lay the political foundations for progressive socioeconomic transformation in many countries. There are no guarantees, but here’s hoping that we emerge from such drastic problems with something positive.

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