Hahnel ABCs of Political Economy Modern Primer

16 The ABCs of Political Economy

grading incentives alone, wanting to be led or entertained by the instructor, then the elimination of authoritarianism in the institutional structures of a single classroom in the context of continued authoritarian expectations in the student body would result in very little learning indeed.

Social stability and social change

Whether the result of any “discrepancy” between the human center and institutional boundary will lead to a remolding of the center to conform with an unchanged boundary, or changes in the boundary that make it more compatible with the human center cannot be known in advance. But in either case stabilizing forces within societies act to bring the center and boundary into conformity, and lack of conformity is a sign of social instability.

But this is not to say that the human centers and institutional boundaries of all human societies are equally easy to stabilize. While we are always being socialized by the institutions we confront, this process can run into more or fewer obstacles depending on the extent to which particular institutional structures are compatible or incompatible with innate human potentials. In other words, just as there are always stabilizing forces at work in societies, there are often destabilizing forces as well resulting from institutional incompatibilities with fundamental human needs. For example, no matter how well oiled the socialization processes of a slave society, there remains a fundamental incompatibility between the social role of slave and the innate human potential and need for self-management. That incompatibility is a constant source of potential instability in societies that seek to confine people to slave status.

It is also possible for dynamics in one sphere to reinforce or destabilize dynamics in another sphere of social life. For example, it might be that the functioning of the nuclear family produces authoritarian personality structures that reinforce authoritarian dynamics in economic relations. Dynamics in economic hierarchies might also reinforce patriarchal hierarchies in families. In this case authoritarian dynamics in the economic and kinship spheres would be mutually reinforcing. Or, hierarchies in one sphere sometimes accommodate hierarchies in other spheres. For example, the assignment of people to economic roles might accommodate prevailing hierarchies in community and kinship spheres by placing minorities and women into inferior economic positions. It is also possible that role definitions themselves in a sphere are influenced

Economics and Liberating Theory 17

by dynamics from another sphere. For instance, if the economic role of secretary includes tending the coffee machine as well as dictation, typing, and filing, the role of secretary is defined not merely by economic dynamics but by kinship dynamics as well.

On the other hand, it is possible for the activity in one sphere to disrupt the manner in which activity is organized in another sphere. For instance, the educational system as one component of the kinship sphere might graduate more people seeking a particular kind of economic role than the economic sphere can provide under its current organization. This would produce destabilizing expectations and demands in the economic sphere, and\or the educational system in the kinship sphere. Some argued this was the case during the 1960s and 1970s in the US when college education was expanded greatly and produced “too many” with higher level thinking skills for the number of positions permitting the exercise of such potentials in the monopoly capitalist US economy – giving rise to a “student movement.” In any case, at the broadest level, there can be either stabilizing or destabilizing relations among spheres.

Agents of history

The stabilizing and destabilizing forces that exist between center and boundary and among different spheres of social life operate constantly whether or not people in the society are aware of them or not. But these ever present forces for social stability or social change are usually complemented by conscious efforts of particular social groups seeking to maintain or transform the status quo. Particular ways of organizing the economy may generate privileged and disadvantaged classes. Similarly, the organization of kinship activity may distribute the burdens and benefits unequally between gender groups – for example granting men more of the benefits while assigning them fewer of the burdens of kinship activity than women. And particular community institutions may not serve the needs of all community groups equally well, for example denying racial or religious minorities rights or opportunities enjoyed by majority communities. Therefore, besides underlying forces that stabilize or destabilize societies, groups who enjoy more of the benefits and shoulder fewer of the burdens of social cooperation in any sphere have an interest in acting to preserve the status quo. Groups who suffer more of the burdens and enjoy fewer of the benefits under existing arrangements in any sphere can become agents for social change. In this way groups that are either privileged or disadvan-

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taged by the rules of engagement in any of the four spheres of social life can become agents of history.

The key to understanding the importance of classes without neglecting or underestimating the importance of privileged and disadvantaged groups defined by community, kinship or political relations is to recognize that only some agents of history are economic groups, or classes. Racial, gender, and political groups can also be conscious agents working to preserve or change the status quo, which consists not only of the reigning economic relations, but the dominant gender, community, and political relations as well.3 Pre-Mandela South African society is a useful case to consider. Of course the economy generated privileged and exploited classes – capitalists and workers, landowners and tenants, etc. South African patriarchal gender relations also disadvantaged women compared to men, and undemocratic political institutions empowered a minority and disenfranchised most citizens. But the most important social relations, from which the system derived its name, apartheid, were rules for classifying citizens into specific communities – whites, colored, blacks – and defining different rights and obligations for people according to their community status. The community relations of apartheid created oppressor and oppressed racial community groups who played the principal roles in the social struggle to preserve or overthrow the status quo in South Africa. This perspective need not deny that classes, or gender groups for that matter, played significant roles as well. But a social theory that recognizes all spheres of social life, and understands that privileged and disadvantaged groups can emerge from any of these areas where the burdens and benefits of social cooperation are not distributed equally, can help us avoid neglecting important agents of history, and help us understand why not all forms of oppression will be redressed by a social revolution in one sphere of social life alone – as important as that change may be.

3.Broadly speaking the term “economism” means attributing greater importance to the economy than is warranted. It can take the form of assuming that dynamics in the economic sphere are more important than dynamics in other spheres when this, in fact, is not the case in some particular society. It can also take the form of assuming that classes are more important agents of social change, and racial, gender or political groups are less important “agents of history” than they actually are in a particular situation.

Economics and Liberating Theory 19

Hopefully this conception of human beings, human societies, and different spheres of social life in the liberating social theory summarized in this chapter provides a proper setting for our study of “political economy” – one that neither overstates nor understates its role in the social sciences. In chapter 2 we proceed to think about how to evaluate the performance of any economy.

What Should We Demand from Our Economy? 21

of increasing wealth and income inequality is overwhelming. In a study published in 1995 by the Twentieth Century Fund, Edward Wolff concludes:

Many people are aware that income inequality has increased over the past twenty years. Upper-income groups have continued to do well while others, particularly those without a college degree and the young have seen their real income decline. The 1994 Economic Report of the President refers to the 1979–1990 fall in real income of men with only four years of high school – a 21% decline – as stunning. But the growing divergence evident in income distribution is even starker in wealth distribution. Equalizing trends of the 1930s–1970s reversed sharply in the 1980s. The gap between haves and have-nots is greater now than at any time since 1929.1

Chuck Collins and Felice Yeskel report: “In 1976, the wealthiest one percent of the population owned just under 20% of all the private wealth. By 1999, the richest 1 percent’s share had increased to over 40% of all wealth.” And they calculate that in the twenty-three years between 1976 and 1999 while the top 1% of wealth holders doubled their share of the wealth pie, the bottom 90% saw their share cut almost in half.2 Between 1983 and 1989 the average financial wealth of households in the United States grew at an annual rate of 4.3% after being adjusted for inflation. But the top 1% of wealth holders captured an astounding 66.2% of the growth in financial wealth, the next 19% of wealth holders captured 36.8%, and the bottom 80% of wealth holders in the US lost 3.0% of their financial wealth. As a result, the top 1% increased their share of total wealth in the US from 31% to 37% in those six years alone, and by 1989 the richest 1% of families held 45% of all nonresidential real estate, 62% of all business assets, 49% of all publicly held stock, and 78% of all bonds.3 Moreover, “most wealth growth arose from the appreciation (or capital gains) of pre-existing wealth and not savings out of income. Over the 1962 to 1989 period, roughly three-quarters of new wealth

1.Edward N. Wolff, Top Heavy: A Study of the Increasing Inequality of Wealth in America (The Twentieth Century Fund, 1995): 1–2.

2.Chuck Collins and Felice Yeskel with United for a Fair Economy, Economic Apartheid in America (The New Press, 2000): 54–7.

3.The New Field Guide to the US Economy, by Nancy Folbre and the Center for Popular Economics (The New Press, 1995).

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was generated by increasing the value of initial wealth – much of it inherited.”4 When we look to see who benefitted from the stock market boom between 1989 and 1997 the same pattern emerges. The top 1% of wealth holders captured an astonishing 42.5% of the stock market gains over those years, the next 9% of wealth holders captured an additional 43.3% of the gains, the next 10% captured 3.1%, while the bottom 80% of wealth holders captured only 11% of the stock market gains.5

While growing wealth inequality has been more dramatic, income inequality has been growing as well. Real wages have fallen in the US since the mid 1970s to where the average hourly wage adjusted for inflation was lower in 1994 than it had been in 1968. Moreover, this decline in real hourly wages has occurred despite continual increases in labor productivity. Between 1973 and 1998 labor productivity grew 33%. Collins and Yeskel calculate that if hourly wages had grown at the same rate as labor productivity the average hourly wage in 1998 would have been $18.10 rather than $12.77 – a difference of $5.33 an hour, or more than $11,000 per year for a full-time worker.6 Moreover, the failure of real wages to keep up with labor productivity growth has been worse for those in lower wage brackets. Between 1973 and 1993 workers earning in the 80th percentile gained 2.7% in real wages while workers in the 60th percentile lost 4.9%, workers in the 40th percentile lost 9.0%, and workers in the 20th percentile lost 11.7% – creating much greater inequality of wage income.7

In contrast, corporate profit rates in the US in 1996 reached their highest level since these data were first collected in 1959. The Bureau of Economic Analysis reported that the before-tax profit rate rose to 11.4% and the after-tax rate rose to 7.6% in 1996 – yielding an eightyear period of dramatic, sustained increases in corporate profits the Bureau called “unparalleled in US history.” Moreover, whereas previous periods of high profits accompanied high rates of investment and economic growth, the average rate of economic growth over these eight years was just 1.9%. Whatever was good for corporate profits was clearly not so good for the rest of us.

4.Lawrence Mishel and Jared Bernstein, The State of Working America 1994–1995 (ME Sharpe, 1994): 246.

5.The State of Working America 1998–1999: 271.

6.Economic Apartheid in America: 56.

7.The State of Working America 1994–1995: 121.

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the facts? When are unequal outcomes inequitable and when are they not?

Different conceptions of economic justice

What is an equitable distribution of the burdens and benefits of economic activity? Philosophers, economists, and political scientists have offered three different distributive maxims attempting to capture the essence of economic justice, which we can label the conservative, liberal, and radical definitions of economic justice.

Conservative Maxim 1: Payment according to the value of one’s personal contribution and the contribution of the productive property one owns.

The rationale behind the conservative maxim is that people should get out of an economy what they and their productive possessions contribute to the economy. If we think of the goods and services, or benefits of an economy, as a giant pot of stew, the idea is that individuals contribute to how big and rich the stew will be by their labor and by the productive assets they bring to the kitchen. If my labor and productive assets make the stew bigger or richer than your labor and assets, then according to maxim 1 it is only fair that I eat more stew, or richer morsels, than you do.

While this rationale has obvious appeal, it has a major problem I call the Rockefeller grandson problem. According to maxim 1 the grandson of a Rockefeller with a large inheritance of productive property should eat 1000 times as much stew as a highly trained, highly productive, hard working son of a pauper – even if Rockefeller’s grandson doesn’t work a day in his life and the pauper’s son works for fifty years producing goods or providing services of great benefit to others. This will inevitably occur if we count the contribution of productive property people own, and if people own different amounts of machinery and land, or what is the same thing, different amounts of stocks in corporations that own the machinery and land, since bringing a cooking pot or stove to the economy “kitchen” increases the size and quality of the stew we can make just as surely as peeling more potatoes and stirring the pot more does. So anyone who considers it unfair when the idle grandson of a Rockefeller consumes more than a hard working, productive son of a pauper cannot accept maxim 1 as the definition of equity.

What Should We Demand from Our Economy? 25

A second line of defense for the conservative maxim is based on a vision of “free and independent” people, each with his or her own property, who, it is argued, would refuse to voluntarily enter a social contract on any other terms. This view is commonly associated with the writings of John Locke. But while it is clear why those with a great deal of productive property in Locke’s “state of nature” would have reason to hold out for a social contract along the lines of maxim 1, why would not those who wander the state of nature with little or no productive property in their backpacks hold out for a very different arrangement? If those with considerable wherewithal can do quite well for themselves in the state of nature, whereas those without cannot, it is not difficult to see how requiring unanimity would drive the bargain in the direction of maxim 1. But then maxim 1 is the result of an unfair bargaining situation in which the rich are better able to tolerate failure to reach an agreement over a fair way to assign the burdens and benefits of economic cooperation than the poor, giving the rich the upper hand in negotiations over the terms of the social contract. In this case the social contract rationale for maxim 1 loses moral force because it results from an unfair bargain.

This suggests that unless those with more productive property acquired it through some greater merit on their part, the income they accrue from this property is unjustifiable, at least on equity grounds. That is, while the unequal outcome might be desirable for some other reason such as improving economic efficiency, it would not be just or fair. In which case maxim 1 must be rejected as a definition of equity if we find that those who own more productive property did not come by it through greater merit. One way people acquire productive property is through inheritance. But it is difficult to see how those who inherit wealth are more deserving than those who don’t. It is possible the person making a bequest worked harder or consumed less than others in her generation, and in one of these ways sacrificed more than others. Or it is possible the person making the bequest was more productive than others. And we might decide that greater sacrifice or greater contribution merits greater reward. But in these scenarios it is not the heir who made the greater sacrifice or contribution, it is the person who made the bequest, so the heir would not deserve greater wealth on those grounds. As a matter of fact, if we decide rewards are earned by sacrifice or personal contribution, inherited wealth violates either norm since inheriting wealth is neither a sacrifice nor a personal contribution. A more compelling