Tuesday, February 6, 2018

Inequality: The Great Compression Came After Thirty Years of Conflict; Is the Conflict Necessary?

Walter Scheidel assumed the task of applying a historian’s perspective to the history of economic inequality as it can be determined from early historical periods to the present day.  He presented his findings in the book The Great Leveler: Violence and the History of Inequality from the Stone Age to the Twenty-First Century.  His conclusions were rather grim.

“For thousands of years, civilization did not lend itself to peaceful equalization.  Across a wide range of societies and different levels of development, stability favored economic inequality.  This was as true of Pharaonic Egypt as it was of Victorian England, as true of the Roman Empire as of the United States….Four different kinds of violent ruptures have flattened inequality: mass mobilization warfare, transformative revolution, state failure, and lethal pandemics….Sometimes acting individually and sometimes in concert with one another, they produced outcomes that to contemporaries often seemed nothing short of apocalyptic.  Hundreds of millions perished in their wake.  And by the time the dust had settled, the gap between the haves and the have-nots had shrunk, sometimes dramatically.”

It seems that elites with some degree of power, however they accumulated it, would use their power to accumulate more wealth.  This conduct was apparent in the earliest states and persists to this day in modern democracies.  Peace and stability were the conditions under which inequality thrived and grew.  States provided the elites with protection of their wealth and business activities and provided them access to the levers of power so that they could enrich themselves further at the nation’s expense.  State collapse, such as that of the Roman Empire, can render the elites much poorer by eliminating state protection of assets and by withdrawing access to public wealth that might no longer exist.

Pandemics such as the Black Death provided a very direct mechanism for diminishing inequality: if up to half of the population of workers are killed, then those who survive will earn higher wages.  The laboring class had acquired the means to demand and receive greater compensation.  Population would always increase and return to greater inequality was inevitable.

Most revolutions were ineffective at bringing about significant leveling of inequality.  Only the Communist revolutions in Russia and China actually managed to pull it off.  However, only after the use of violence to attain goals.  Many people died in the course of these revolutions, and the leveling generally involved the destruction of wealth rather than its redistribution.  Equality was attained at great price, but it often meant everyone was in an equally poor state.

It would be only in the twentieth century that wars would grow sufficiently consequential that changes would occur that lessened economic inequality to a significant degree and kept it low for an extended period.  Scheidel provides this summary.

“For war to level disparities in income and wealth, it needed to penetrate society as a whole, to mobilize people and resources on a scale that was often only feasible in modern nation-states.  This explains why the two world wars were among the greatest levelers in history.  The physical destruction wrought by industrial-scale warfare, confiscatory taxation, government intervention in the economy, inflation, disruption to global flows of goods and capital, and other factors all combined to wipe-out elites’ wealth and redistribute resources.”

Scheidel combines his history of violent changes with the inability to provide change peacefully and reaches this gloomy conclusion.

“If history is anything to go by, peaceful policy reform will prove unequal to the growing challenges ahead.  But what of the alternatives?  All of us who prize greater economic equality would do well to remember that with the rarest of exceptions, it was only ever brought forth in sorrow.  Be careful what you wish for.”

While “mass mobilization warfare,” as evidenced by the two world wars, caused a great deal of death and much destruction of physical assets, a considerable fraction of the actual leveling in the Great Compression came about through social and political changes.  Could those changes have occurred without the warfare?  Could significant developments cause social change on a massive scale without the violence of war?

Let’s examine some data provided by Thomas Picketty in his Capital in the Twenty-First Century.  This figure utilizes the income share of the highest 10% of the wage earners as an indication of income inequality.  The data covers several European war-impacted countries and the United States from 1900 to 2010.

All the European nations tracked experienced decreases in inequality during the first world war.  Except for the UK, all then saw small upticks from 1920 to 1930 as normalcy was apparently making a comeback.  The US actually increased in inequality during the war years from 1910 to 1920.  All countries then experienced a significant leveling during the depression era of the 1930s.  Changes incurred during and immediately after the second world war were generally smaller than those encountered during The Great Depression.  It would be around 1970 that the elites began fighting back and propagated neoliberal concepts designed to reestablish their dominance.  This set the UK and the US off in a race to determine who would become the most unequal nation.  However, by this measure, Germany and France changed little over the period from 1950 to 2010.  Note also that Sweden, the European country least affected by the damage of war, continued to lower its level of inequality from 1960 to 1980.  Whatever policies the Swedes had implemented to cause that change seem to be under attack by the elites there as well.

The point of that survey was to suggest that policies necessitated by severe societal stresses were responsible for much of the leveling of inequality that occurred.  And in some cases, those policies have persisted into the current era.  These observations provide some degree of hope that societies in states of severe stress in the future would be able to address their problems without the violence brought by war.

Let us discuss the policy decisions necessitated by mass mobilization war and consider whether these are actions that could reasonably be taken in peacetime by a nation facing critical problems.

Wars are tremendously expensive.  The government quickly realizes the only source of such large amounts of funds is highly progressive taxation.  One must extract the money from where the money exists.  Progressive taxation is a well-known method of leveling economic inequality.  To efficiently extract wealth from those in possession of it, one must tax not only income but wealth itself.  Taxes on wealth and inheritance were also efficient means of leveling.

The need for dramatic increases in spending to support a war can easily feed inflation.  Inflation was extremely harmful to the wealthy who disproportionately invested in bonds and other capital investments.

Scheidel discusses at length the social and economic ramifications of asking a nation’s population to make sacrifices, and even risk their lives.  Such a situation is quite supportive of democratic rights.  He includes a long list of the instances where European nations followed a war with an expansion of electoral rights for their citizens.

“….modern scholarship has repeatedly linked mass warfare and the extension of political rights.  Insofar as raising mass armies requires societal consent, extensions of the franchise may be regarded as a logical corollary of intense military mobilization.”

“Broadly speaking, European peacefulness after 1815 had retarded political reform.  This changed dramatically with the unprecedently massive mobilizations of the world wars.  Full male suffrage was introduced in 1917 in the Netherlands and in 1918 in Belgium, Ireland, Italy, and the United Kingdom.  Universal suffrage became the law in Denmark in 1915; in Austria, Estonia, Hungary, Latvia, Poland, and (technically) Russia in 1918; in Germany, Luxembourg, the Netherlands, and Sweden in1919; in Anglophone Canada, the United States, and Czechoslovakia in 1920; in Ireland and Lithuania in 1921.”

Scheidel uses the example of President Woodrow Wilson seeking to sell suffrage for women as a consequence of wartime’s call to duty with this quote.

“….essential to the successful prosecution of the war of humanity in which we are engaged….We have made partners of the women in this war.  Shall we admit them only to a partnership of sacrifice and suffering and toll and not to a partnership of privilege and right?”

The social and political implications of asking the poorest paid to accept the greatest risks in a time of war can produce notable changes in the social contract.  Scheidel provides this quote from Max Weber.

“Military discipline meant the triumph of democracy because the community wished and was compelled to secure the cooperation of the nonaristocratic masses and hence put arms, and along with arms political power, into their hands.”

Scheidel provides this view of the mood of the affected peoples as they emerged from World War II.

“Widely diffused across national populations, these dislocations eroded class distinctions and raised expectations of fairness, participation, inclusion, and the acknowledgment of universal social rights, expectations that were fundamentally at odds with the highly skewed distribution of material resources that had characterized the prewar period.  Wartime state planning gave a boost to collectivist thinking.  A large body of scholarship concurs that the experience of the world wars was a crucial catalyst for the creation of the modern welfare state.”

Could these changes in social expectations have occurred without the death and destruction experienced by the major participants?  Sweden provides an example that suggests a positive answer.

Sweden was not a direct participant in the warfare of the 1940s, but it did experience the threat of war.  It found itself threatened by the allies who resented any assistance provided Germany on one side and the Germans who had to be ready to attack if the allies moved into Sweden on the other.  The result was that Sweden had to mobilize for full-scale war but escaped from its realization.

“Military spending increased eightfold in the course of the war.  Whereas fiscal responses to the Great Depression had remained modest, the tax reform of 1939 greatly raised top rates and created a temporary defense tax that became highly progressive only for the highest earners and that was further sharpened in 1940 and 1942.  In addition, the statutory corporate tax rate rose to 40 percent.  The strengthening of military capacity was the official rational for all these measures.  Thanks to the threat of war, in a telling departure from the fractious politics of the 1920s ad 1930s, these reforms were passed with little debate or controversy as an almost unanimous political decision.”

“Moreover, mass mobilization generated social effects well beyond the fiscal sphere.  It transformed what had been a right-wing military force into a people’s army based on mass conscription and volunteerism.  Some 400,000 men served out of a population of 6.3 million.  Shared military and civilian service helped overcome existing distrust and fostered teamwork and mutual dependency.  Sacrifice went beyond service as such: some 50,000 soldiers were invalided as the result of injuries, accidents, and harsh service conditions.  Rationing likewise served as a crucial means of leveling class differences.  The war thus promoted homogeneity and civic engagement.”

Sweden emerged from the war years as a changed nation.  The increased economic homogeneity and the experienced solidarity between its citizens became the basis for its postwar politics.  Henceforth, the political goal would be as follows.

“….the majority is liberated from dependence upon a few owners of capital, and the social order based on economic classes is replaced by a community of citizens cooperating on the basis of freedom and equality.”

The data presented earlier indicated that Sweden had kept its promise to its people and inequality continued to fall well after the end of the war.

As to the question of whether inequality can be levelled without the death and destruction inherent in mass mobilization warfare, Sweden provides a glimmer of optimism.  Sweden required a near-existential threat before it got its act together.  Could it, or any other country, have accomplished the same with merely an act of democratic will? 

One would like to believe that is the case in spite of history’s lessons.

It is sad to consider that only catastrophe, or at least the threat of catastrophe, is capable of producing a feeling of solidarity within a nation and of motivating it to produce a more egalitarian society.  If one chooses to believe that, and if one wishes to anticipate a day when more societies will take the path pursued by Sweden (and the other Nordic countries) there may yet be a few more catastrophes in store.

Global warming may induce changes on a catastrophic scale.  Rising sea levels and changing weather patterns are going to cause huge internal migrations and require wartime levels of government spending.

Automation coupled with artificial intelligence could soon cause an employment crisis in which even low-level work is disappearing.  Capitalism as we know it has no answer to such a situation.  Society will have to decide how it wishes to engage such a future.

Every flu season we are reminded that influenza can be a potent killer.  Every few years a new virus migrates out of some unknown place to scare us with its potential for a deadly pandemic.

There are still people out there who continue to believe that nuclear explosives are viable weapons in international conflicts.

The world’s population continues to climb, climate is changing, and conflict over resources is ongoing.  Malthus is out there patiently waiting.

Scheidel may be only partly correct.  Death and violence are not absolutely necessary for the leveling of inequality, but future historians are likely to agree with his assessment.

“….it was only ever brought forth in sorrow.  Be careful what you wish for.”

The interested reader might find the following articles informative:

Massive Violence, Widespread Death, and the History of Inexorable Inequality

The Creation of the Middle Class

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