Egalitarian Strategies
Roemer, John E.
WE ON THE left are in search of a new model for egalitarian society, after the definitive failure of what was called communism, and the evident victory, on an international scale, of...
...That is, in brief, the economic part...
...If the latter, then narrowing wage differentials through some kind of institutional mechanism would probably have substantial economic costs...
...So, if nationalization of firms were the manner for socializing profits, and if nationalization also eliminated competition, then it would not be economically feasible...
...Economists don't know very much about this important question...
...This I assume without proof...
...It is easy to demonstrate that, in an economy in which profits are equally distributed, it is in the interest of the working class to advocate wage rates at which unemployment is zero— which is not true when profits go to a small class...
...Nevertheless, these two conservative arguments —that the poor are undeserving and that taxation will kill the golden goose—surely have a hold on electorates in some countries...
...firms...
...I have calculated what would be required, with respect to educational finance, to equalize opportunities for future earning capacity of black and white children in the United States...
...LET ME briefly describe a decentralized way of equalizing profit streams...
...We are, after all, assuming democratic politics and good international communication...
...ASIGNIFICANT national experiment with the narrowing of wage differentials occurred in Sweden—the so-called solidaristic wage policy, proposed initially by the Swedish economist Rudolf Meidner in the 1950s and implemented for about twenty-five years, beginning in the early sixties...
...The most highly paid American CEOs "earn" about $50 million per annum...
...In the United States, there is a fairly easy way to implement the strategy—endow schools in disadvantaged areas with larger budgets...
...most citizens in a democratic polity will not accept a standard of living appreciably less than they could have under an alternative set of institutions...
...THE FIRST justification is that the prize of the profits is necessary to induce entrepreneurs to put their good ideas into social practice, to develop commodities that satisfy the needs or wants of others...
...There are at least two linkages through which racism weakens the welfare state: first, because the members of majority ethnic groups fail politically to support transfer payments, which they view as benefiting mainly undeserving minorities, and second, because racial division weakens the labor movement, which historically has been a key element in support of the welfare state...
...In countries with a small welfare state, such as the United States, the opponents of its expansion make essentially two arguments...
...The state of Alaska owns rich oil deposits...
...Many of these resources are leased to private firms at rates far below their market value...
...There is the problem of getting there from here, and that involves politics...
...Many believe that the current distribution of transfers is skewed too much toward the old...
...In large part, this is due to the experiences of European countries with high unemployment...
...In fact, the argument continues, the transfer of control of firms through stock acquisition is the key feature that ensures that management acts in the interest of shareholders...
...The policy was eventually abandoned, successfully opposed by a coalition of some capitalists, white-collar workers, and skilled workers...
...At most, what this argument establishes is that standard capitalism—allowing unlimited accumulations of stock—is one way of monitoring management...
...The reason is that reallocating corporate profits would dramatically hurt a small but extremely powerful group—the very wealthy, the big capitalists...
...For I think that performing highly skilled work brings its own rewards—as such work generally requires a good deal of autonomy in the workplace and hence engenders self-realization and self-esteem...
...There seems to be a strong correlation between the degree of cultural homogeneity of European countries—linguistic, religious, and ethnic—and the depth of their welfare states...
...It is naive to believe that nations run by aristocrats, capitalists, and monarchists could have any interest in expending resources, altruistically, to encourage economic development in poor countries...
...This is a great egalitarian accomplishment...
...There is a standard way of measuring the extent to which opportunities have been equalized in a society...
...The United States would still have an ample supply of good physicians were the salaries for most types of physician to fall by 50 percent...
...There is indeed a philosophical view—communitarianism —that attempts to justify this kind of chauvinism...
...The advanced countries have not, perhaps unfortunately, been too troubled by restricting inward flows of people...
...The United States already provides an example of a corporate social dividend...
...There is, therefore, a value in protecting that example, even if the cost of that protection is the exclusion of people who are much worse off than the beneficiaries of the national welfare state...
...Its consequence is to raise the incomes of workers who are far poorer than workers in the advanced countries...
...3) increased expenditures on education, with disproportionate expenditure for children from disadvantaged backgrounds...
...That is far from the truth...
...The organization of Swedish trade unions, the LO, negotiated according to this mandate with the capitalists' association...
...As I said earlier, I believe that profits, in advanced capitalist economies—though perhaps not in developing ones, where entrepreneurship is still very important—make up a true economic surplus, in the sense that their distribution can be altered without negative economic consequences...
...In most countries of the Organization for Economic Cooperation and Development (OECD), the public financial investment in the education of children is roughly equal across children in the nation...
...The more interesting question concerns the scope for narrowing wage and salary differentials without a change in the distribution of skills in the workforce...
...It is not clear how such a policy would be organized without the active involvement of unions, unless employers transform work practices according to the team model I briefly outlined...
...It is not uncommon for American CEOs to earn ten times as much as their counterparts in Japan...
...Indeed, the variation in local public school funding per student in the United States is probably on the order of four to one...
...Two hundred years from now, people may look upon John Rawls as a hopelessly parochial philosopher, who virtually ignored, in his classic work, this glaring injustice...
...WE ON THE left are in search of a new model for egalitarian society, after the definitive failure of what was called communism, and the evident victory, on an international scale, of capitalism...
...And, I should say, very softly, that the salaries of the American professorate could fall by at least 25 percent without substantially diminishing the supply of skilled labor in that sector...
...But there are at least four egalitarian strategies that we have, mostly, only begun to exploit...
...How economically feasible are such "socialist property rights...
...There is a fraction of people in modern society who would prefer to live off transfer payments rather than work, but the fraction of people who have those preferences and have training enabling them to perform interesting and meaningful work is very small...
...But the Soviet experiment was characterized by the confluence of three characteristics, which together, in my view, entailed failure: (1) the state ownership of firms, (2) administrative, rather than market, resource allocation, and (3) noncompetitive (that is, nondemocratic) politics...
...For integration will inevitably redistribute some fraction of the national income from some producers in rich countries, to poorer producers in other parts of Europe, chiefly in the south...
...But, with worse luck, this assessment might have to wait five hundred years...
...The main source of inegalitarian ideology in capitalist countries is the capitalist class, which must create, through every means at its disposal, the belief among citizens that its manner of acquiring income is not only socially necessary but morally legitimate...
...Thus, equalizing opportunities for leading a decent life requires compensatory spending on the education of disadvantaged children...
...So the social function of highly unequal ownership of firm shares is the provision of management monitoring services...
...And we know the consequences for Soviet consumers, whose goods (such as cars) were at least twenty years behind the international frontier by the mid-1980s...
...On the other hand, it is less clear to me that there is such a degree of freedom with respect to the allocation of wage income...
...If a powerful section of the polity loses by its implementation—such as the capitalist class—then we can expect it will be difficult to implement...
...So the second question is, to what extent is the proposed strategy politically feasible, by which I mean, can we persuade a democratic polity to demand and implement it...
...I don't have much evidence for the payoff of this kind of reform, but mention it as a theoretical possibility...
...Nevertheless, I think that the advanced welfare states have erred on the chauvinistic side...
...To begin, I must state two ground rules for thinking about this question...
...Of course, the welfare state is not perfect...
...The Nordic countries, during the period of the development of the welfare state, were each homogeneous and small societies...
...Thus, a key error of the Soviet experiment was to shield firms from competition—either from other firms in the nation or from international competition through participation in trade...
...We see beginnings of it in employee-share ownership programs (ESOPs...
...The left should reject it...
...I rate the "equal profits" strategy high not so much because of the short-run increment in income that it would produce, but because the euthanasia of the capitalist class would wipe out the central ideologically reactionary interest group in our societies, the class that is, by and large, economically superfluous, and has the greatest interest in perpetrating false consciousness, both with respect to its own economic role and with respect to an egalitarian ethic...
...The incentive for the raider is the capital gain on shares...
...their support for the narrowing of wage differentials was mixed—it lowered skilled wages but also made it more difficult to recruit skilled workers...
...There are two central justifications: entrepreneurship and monitoring of firm management...
...This is not inconsistent with the view, which I also hold, that individuals may behave altruistically as political agents—for instance, when they vote...
...And a significant number of these are in China, where economic growth has not been due to capitalism, but largely to harnessing the skills of the population without having to dangle the plum of private capital accumulation...
...This is a signal to a corporate raider, who buys a controlling interest in the firm, fires management, and replaces it with new, more profit-oriented management...
...If innovation is necessary in any modern society—a point I will address presently— then markets are useful, and perhaps necessary...
...Sweden leads the world: it spends about 0.7 percent of its gross national product on non-military aid to developing countries, and the other Scandinavian social democracies are not far behind...
...I certainly do not believe that the only valuable work is paid work, but in market economies most people will count their lives as successful only if they are capable of performing paid work...
...To begin, what is the supposed social function of allowing profits to be highly concentrated —in Marxian lingo, of allowing highly concentrated ownership of the means of production...
...We have a theory that says, first, that in a competitive labor market, workers will be paid wages equal to their marginal productivities, and second, that wages must have that property for allocational efficiency...
...Granted, the Easterners wanted Western civil liberties as well, but I think the trumping factor was the differential in the standard of living...
...What about the payoff of this strategy...
...This point need hardly be labored here...
...This is what I call the strategy's payoff...
...I have recently proposed the possibility of each citizen's having a right to a per capita share of the nation's profits as a "social dividend," a right that the citizen cannot transfer to anyone else...
...There are two parts to this intuition, the first economic, and the second ethical...
...Indeed, it would not be surprising if the distribution of income among team members were quite egalitarian: that kind of equality might lead to a productivityenhancing esprit de corps...
...She would be entitled to trade these stocks at prices quoted on a competitive stock market, but she could not cash out her portfolio—that is, capitalize it...
...I am skeptical that, in a market economy, we can drastically alter wage differentials without harming economic efficiency —which, bottom line, means the growth of national income...
...Thus, while egalitarian reforms in the advanced countries may be limited by the possibility of capital's exit, the international egalitarian effects of the demand for reforms (in the advanced countries) increase...
...the talented will fail to develop their talents, or will withdraw their valuable labor from the market, and those who own capital will shift it to societies with less taxation...
...Of course, there are individuals like Bill Gates, who invent software in their garage that eventually transforms an entire industry...
...In particular, I claim that it would be possible for corporate shares to be held approximately equally across the population, and for firms to be monitored by institutions, without a loss in efficiency...
...The more difficult question concerns allocational efficiency of skilled labor...
...I rank it thus, and not low, because of the ethic, quite deeply held in contemporary Western citizenries, of equal opportunity...
...But the bottom line is that the success of organizational monitoring in Japan and Germany indicates that individual ownership of large blocs of firm shares is unnecessary either to induce innovation or to monitor management...
...2) the tax-and-transfer mechanism—chiefly, the welfare state...
...In contrast, to equalize the opportunities for children across families of low and high socioeconomic status would require a compensatory financial ratio of about eight to one...
...For a small, well-organized and powerful group stands to lose a lot, while a large and unorganized group stands to gain a little...
...Investors buy and sell shares on the stock markets in these countries, but control of management is vested in boards of directors made up, chiefly, of representatives of financial institutions (and labor, in the case of Germany), which take a long-term view of firm management...
...This is a mark of the ethical immaturity of humans during this period in our history—for by far the greatest injustice in the world is the unequal chances that people have by virtue of being born into particular countries...
...Naturally, one must be cautious about this kind of qualitative analysis, lest the summary be given too much weight...
...The second strategy is to argue that the expansion of the welfare state is not, in our terminology, economically feasible...
...One looks at the transition matrix of its citizens with respect to economic class...
...In my view, however, labeling that search as one for a "third way" or a "fourth way" is misguided...
...We would have to spend approximately ten times as much on the education of blacks, per capita, as on whites...
...The question arises when such a society has to restrict immigration...
...So the first strategy of welfare-state opponents is to paint the poor as lazy...
...In the United States, public schools are mainly financed through local property taxes, so that municipalities with wealthy citizens and valuable real estate have more schools with greater resources than other municipalities...
...And a policy of distributing shares to ordinary citizens could be combined with trade-union promises to hold back wage increases, thus lowering unemployment —the social dividend would substitute for some fraction of wage increases...
...European countries have arguably limited immigration far more than they should, given the egalitarian argument...
...Since World War II, only one firm has changed hands in Germany in a hostile takeover...
...I shall restrict most, although not all, of my comments to the problem of egalitarian reform within a nation...
...I think this may have been true in the early years of capitalism, and may still be true in developing countries...
...Thus, the potential for individuals to purchase large blocs of shares is, according to this theory, what solves the principal-agent problem between management and shareholders...
...Markets decentralize the allocation of resources and commodities, a process that is hopelessly complex for a central planner to carry out...
...Nevertheless, it is far from obvious that either nationalization of a nation's firms or the reassignment of rights to profit streams in a more decentralized way to citizens is economically feasible...
...It would provide an even greater example to the rest of the world were these citizenries to allow their levels of per capita national income to fall somewhat as a consequence of holding the doors slightly more ajar to poorly educated immigrants...
...This simple, logical point is ignored by those who now proclaim that capitalism is only at the beginning of its thousand-year reign...
...I say a strategy is economically feasible if, were it enacted, neither the size of national income nor its rate of growth over time would fall appreciably...
...I think the advantages to capital of having a home base in the advanced countries are immense—and would be even larger, should the advanced countries manage to increase substantially the level of effective literacy and numeracy of the citizenry (This would increase both the quality of labor and the demand for sophisticated consumption commodities...
...One can never say that some new "third way" will not materialize...
...In other advanced countries, disproportionate educational spending on children from relatively disadvantaged families would also be the main strategy for equalizing opportunities...
...The modern theory of finance has more or less downplayed this social function of capitalist property arrangements, and emphasized another...
...There are disagreements about the elasticity of labor supply with respect to the tax 68 DISSENT / Summer 1999 rate, but the preponderance of evidence is that labor-supply reaction to taxation is small...
...one-third of the land in the western United States is publicly owned...
...One result of the current Asian depression may well be a growing demand for social insurance...
...I will argue, however, for their feasibility, if they are properly implemented...
...But equal investment in all children is not the true egalitarian strategy...
...I will return to this point...
...Over time, however, this "solidaristic wage policy" was reinterpreted as a call to narrow the wage differentials between skilled and unskilled workers...
...What about the political feasibility of wage compression...
...Suppose work is organized by production teams, so that the marginal productivity of an individual becomes ambiguous...
...Capitalists supported the original conception of the solidaristic wage, because of its role in culling the inefficient firms...
...This argument is somewhat heretical (among economists) in claiming that there is a degree of freedom in the distribution of property rights in firms, a parameter that can be 66 DISSENT / Summer 1999 varied without altering the efficiency of the system...
...These are called township and village enterprises...
...Why have the Asian tigers not developed European-style welfare states...
...But the chief factor in economic growth has been the formation of small enterprise, and even enterprises that are collectively owned at the municipal level...
...People choose how much skill to acquire, what profession to enter, and how hard to work, with an eye to advancing their own welfare and the welfare of their family...
...That kind of equal opportunity is, in my view, a major goal, and it has nowhere been achieved, although some advanced countries have come closer to achieving it than others...
...A second example is the remuneration of "women's work...
...72 DISSENT / Summer 1999 Nationa . lobal Reforms I have ignored until now the issue of the feasibility of national reforms...
...JOHN E. ROEMER is a professor of economics at the University of California, Davis...
...In practice, this meant raising the wages of workers in less profitable firms...
...The Solidaristic Wage My fourth egalitarian strategy is the narrowing of wage and salary differentials...
...I wish to reiterate a distinction among various strategies in the "payoff" column...
...DESPITE THESE positive remarks, I remain skeptical about the economic feasibility of wage compression...
...It is far preferable to equalize the earning capacities of citizens than simply to equalize their incomes through transfer payments...
...For earning capacity reflects personal achievements highly correlated with self-realization and self-esteem...
...Of course, there are large capitalist firms in China...
...Prior to the advent of democracy—that is, roughly prior to 1900—it was possible to view international inequality as an unalterable feature of the world...
...Capital flight to developing countries has been, and will continue to be, only a marginal option...
...transfer payments filter down to the young through their parents, which is not the optimal arrangement...
...Elementary school teachers and nurses receive salaries that are lower than those men receive in other professions that are not traditionally dominated by women, and that, many people think, require approximately the same degree of talent and training...
...In a country like the United States, where only 12 percent of the labor force is now unionized, the political feasibility of this reform seems distant...
...One of the motivations was fairness, but another was to force inefficient firms out of business, thus maintaining the competitiveness of the Swedish economy...
...Life is very much better for almost everyone, and massively better for the unskilled, in welfare states than in other states...
...It may come as a surprise to Europeans to learn that virtually all forests are publicly owned in the United States...
...Political and economic theory can explain this failure quite easily...
...The citizens of a country in which the rate of growth is low, or perhaps even negative, will not long put up with that situation if it could be rectified by a transition to conventional capitalism...
...It is beyond my scope, here, to discuss the capital flight issue carefully...
...production...
...Here, we must know to what extent wages and salaries in different jobs are created by custom, and to what extent they are created by competitive market forces...
...And because the short-term payoff is relatively small, the strategy ranks low, again, in political feasibility...
...This it attempts to do by sponsoring ideological work in the academy, and through education, advertising, and the dissemination of ideology through the media...
...I BELIEVE the political feasibility of an equalopportunity educational strategy is medium...
...Second, I assume that, in designing blueprints for egalitarian society, we take people to behave, in their economic decisions, in a self-regarding manner...
...If a strategy is not economically feasible in this sense, then I think it is a non-starter, for as long as there are conventional capitalist societies that can dominate an egalitarian society with respect to the rate of growth of the gross national product (GNP), then the egalitarian society is bound to fail...
...One day, perhaps, after people have experienced equality and when an egalitarian ethos has been established, people may become less self-regarding in their economic decisions...
...However, note that a Rawlsian would stop immigration before that point had been reached, if it set off virulent fascist and antiimmigrant movements in the host country...
...Of course this property right is not transferable to others...
...Why don't capitalist firms simply view their labor force as a team and apply the same egalitarian principle...
...Without a small class that benefits so obscenely from profits, this ideological counterweight to an egalitarian ethos would dissolve...
...As I said, there is a value to equalizing wages beyond achieving the same redistributive effect through equalizing incomes—the self-esteem effect...
...As well, there is a long history of transfers within the family in these societies...
...The task of international reform, although by far more important, has barely begun...
...The link is not hard to see...
...THUS, IF capital flees as a result of egalitarian reforms in an advanced country, that is not a defeat: for the odds are that the beneficent welfare consequences of that flight will exceed the benefits sacrificed at home, from a moral viewpoint...
...It turns out, however, that this mechanism is important in only two capitalist countries, the United States and the United Kingdom...
...Then a society in which, say, 20 percent of children become poor adults, 50 percent become middle-class adults, and 30 percent become well-off adults, independent of what class their parents were, would be one that has achieved equality of opportunity, even though it has not achieved equality...
...64 DISSENT / Summer 1999 I shall refer to these four strategies, respectively, as profit equalization, tax and transfer, education, and the solidaristic wage...
...For education is the main conduit through which children can be compensated for growing up in families that lack the experience of education, or do not value education, or lack financial resources to invest in their children...
...For classical theory tells us that, in a market economy, wages must reflect marginal productivities to achieve allocational efficiency—in this case, of labor within and across firms...
...I restrict myself here to national egalitarian projects, for these are ones with which we have more experience, and which are on the agenda...
...The team then divides up its income among its members, according to a rule that, it believes, maximizes productivity...
...second, dividends are paid to individuals, in a manner more egalitarian than is characteristic of dividend payments in a typical capitalist society...
...Nevertheless, the political feasibility of this strategy is not zero...
...If a firm is poorly managed, and profits fall, shareholders will sell, lowering the price of the stock...
...Thus, corporate dividends flowing to individuals would be a dividend to the citizenry, not a transfer payment from one group of citizens to another...
...The strategy of disproportionate investment in the education of children from disadvantaged class and ethnic groups is the most promising, all things considered...
...But with the advent of democracy and the welfare state, the capacity for citizens to consider and implement international redistribution has been enhanced...
...This class would use every manner at its disposal—its control of the media, its ability to bribe politicians (what is politely called lobbying)—to prevent the reallocation of corporate profits...
...First, any complex society must use markets...
...It was patently obvious that the regime had failed to keep the living standards of its populace up to those of their German counterparts across the border, a failing that, given the level of education of the East Germans, was impossible to justify...
...As I said, I am assuming market allocation and competitive (democratic) politics are in place, and so we can make no inferences about the economic feasibility of equalizing profits, under these other circumstances, from DISSENT / Summer 1999 65 the Soviet experience...
...The period that we in the first world call the Crisis—roughly the last twenty years—has seen hundreds of millions of people, perhaps billions, acquire literacy and rise out of poverty in Asia...
...It is this factor that largely explains the peaceful implosion of the Soviet societies: once Gorbachev gave the signal that the USSR would not send troops into East Germany were the government to fall, it fell with barely a whimper of reaction from the leadership...
...In other successful capitalist countries, chiefly Japan and Germany, monitoring is undertaken by financial institutions of various kinds...
...Indeed, the more egalitarian structure of wages in Japan may reflect the fact that Japanese production is more team centered than U.S...
...I want to evaluate each of these four strategies with respect to three criteria: economic feasibility, political feasibility, and expected payoff...
...all four strategies, if successful, would increase the pressure for immigration...
...If one were to apply the DISSENT / Summer 1999 73 Rawlsian difference principle, then one would allow immigration until the worst-off group in the host country were almost as badly off as the worst-off group in the rest of the world...
...Racism, in a word, remains a divisive element in large, heterogeneous societies, such as the United States and Britain—and also, now, in France...
...The ethical intuition is that capital flight of the long-term variety, when it occurs, is largely progressive...
...As I said, the inequality of average incomes across nations is far graver in its effects on human self-realization than the inequality between the average income and the highest income in an advanced country...
...Of course, implementing a strategy of equalopportunity educational spending would require some creativity...
...It is costly to monitor management, and the small shareholder has no incentive to do so, for the costs of monitoring are far greater than the higher dividends accruing to the shareholder from better management...
...Although I believe that the left, at the moment, is itself somewhat chauvinistic, there is a non-trivial general question about the ethics of building egalitarian societies in an unequal world...
...So these countries have not seen the need for social insurance...
...74 DISSENT / Summer 1999...
...if one thinks that Japanese firms are about as well run as American firms, then one must conclude that American CEOs are earning a very large rent that could 70 DISSENT / Summer 1999 be reallocated without harming economic efficiency...
...But the fact is that, today, in advanced societies, most research and development is carried out by salaried workers in large firms, and so it is questionable how much individual entrepreneurial activity is needed for innovation...
...I am much more skeptical about the second justification for substantial wage differentiation than the first...
...It is surely the left that must take the lead on internationalist issues of this kind...
...I have already mentioned the first: the likely beneficiaries of an expanded welfare state are undeserving...
...I believe the answer is that, in the period of the rapid rise of East Asian capitalism—in Japan, Taiwan, South Korea, Thailand, Malaysia, Hong Kong, Singapore, and Indonesia—the rate of growth has been high and unemployment low...
...Tax and Transfer We know that tax and transfer is a feasible strategy in capitalist societies, as it has already been implemented to a considerable extent in Europe, especially in the five Nordic countries...
...If mean household income is about $40, 000 in the United States, then profit income is about $8,000 per household...
...The third question is, how effective would the strategy be, if implemented, in equalizing the distribution of income, wealth, and wellbeing...
...In turn, firms could trade coupons received from issuing stock at the state Treasury for investment funds...
...Firms must remain competitive for innovation to continue...
...Meidner's original proposal was to equalize the wages of workers who were performing similar work in different firms in the same industry...
...Workers in a market economy who receive approximately equal wages are viewed as approximately equal in social value, and that would increase the self-esteem of formerly low paid workers...
...In turn, the first of these ways could be implemented either by very large taxes on profits, or by nationalization of firms, while the second could be implemented in a variety of ways...
...Any proposal that entertains the possibility of dispensing with markets is, I think, utopian...
...What we should have learned from the failure of communism is not that humans are by nature greedy or that capitalism is the optimal system for human development today, but rather that a system made up of non-democratic politics, and non-market, noncompetitive economics will not work...
...An important example that fits the custom view is the salary level of top management in U.S...
...This is obviously so for the education and wage compression strategies, and it's also true of the equal profits strategy, because, were firms nationalized or privatized in the egalitarian fashion of the coupon economy, the ethos would be that every citizen has a right to her per capita share in the stream of profits of the nation's firms...
...Nevertheless, the long-term payoff of the equal-profits strategy is high, because the DISSENT / Summer 1999 67 elimination of the class of individuals whose great wealth comes from corporate profits would remove the greatest stumbling block to creating a society with an egalitarian ethos...
...It is unrealistic to assume that people, in general, will not behave in a self-regarding manner in their personal economic decisions...
...I draw an important distinction between the distribution of profit income and of wage and salary income...
...I don't know to what extent this holds true in Europe...
...The European welfare states provide the rest of the world with an example of immeasurable importance...
...There are many studies that show that citizens in European and North American countries believe it is right for society to compenDISSENT / Summer 1999 69 sate people who have suffered by virtue of ill luck, and children's growing up in disadvantaged families is a prime instance of ill luck...
...The principal moral weakness in the left in advanced countries is its chauvinism, which leads it to consider increases in the incomes of people in the poorer two-thirds of the world only as an afterthought...
...Of course, as the labor forces in developing countries become more skilled, the attractiveness to capital of locating there increases—but as they become more skilled, they will also earn higher wages and organize for social reform—meaning the taxation of profits...
...What one has to judge is the value to human society of having successful egalitarian sub-societies...
...The payoff of this strategy is high...
...My claim is that there are egalitarian ways of reallocating profits that are economically feasible...
...I summarize the foregoing analysis in a EFFECTIVENESS OF FOUR EGALITARIAN STRATEGIES Economic Feasibility equal profits High tax and transfer High education High wage compression Medium Political Feasibility Payoff Low High Medium Medium Medium High Low Medium table...
...Some countries, however, the United States among them, have still not accomplished this equalization...
...This dividend may suffice to raise most poor families above the poverty line, as it is currently defined, but it would hardly engender the kind of equality that we egalitarians prize...
...Citizens in such societies can more easily sympathize with less fortunate fellow citizens than in societies in which economic fortune is correlated with race and/or a particular ethnic culture...
...Reassigning Profits Let me begin, then, with the strategy of profit equalization, that is, of a reallocation of property rights in the nation's firms so that profits flow, in a more equal fashion, to all the citizenry...
...Clearly, one does not want to put children from economically disadvantaged families in special classes...
...I am much less confident that that degree of freedom exists with respect to the distribution of wages and salaries...
...But paying attention to economic incentives, which societies must do as long as individuals are selfregarding, does not require regimes of highly inegalitarian property rights, nor highly inegalitarian distributions of wealth...
...I referred to a finite number of strategies for egalitarian improvements...
...This question, in turn, requires asking: to what extent does the market require the degree of wage differentiation that we see in most capitalist economies...
...This can take two forms: first, the profits of firms can flow into the state treasury, which then provides public goods or transfer payments, either equally consumed in the population or disproportionately consumed by those who are poorer...
...It is worth noting that Asian capitalism, despite the lack of social insurance, is much more egalitarian than American and some European capitalism...
...The modern corporation, it is agreed, is not run by entrepreneurs, but by managers, who are paid to maximize profits for shareholders...
...There are a finite number of strategies that we know, and none of them has been exhausted...
...My intuition is that egalitarian reforms are not seriously compromised by the international capital market...
...The payoff from such a reform, however, would be significant...
...What is now relevant for us, however, is the period of transition...
...I think this strategy ranks low on this dimension...
...Prior to this century, it was mainly male children of the wealthy who were educated...
...The only example we have of a national program, the Scandinavian case, inDISSENT / Summer 1999 71 volved a very high degree of union density— about 90 percent of workers in Sweden belonged to unions represented by the LO...
...The simple conclusion is that the CEOs in one of these countries are not being paid a salary that is socially necessary...
...Monitoring of firms would be done by various financial institutions, not by shareholders...
...The opponents claim that increasing taxation will squelch the desire of individuals to get ahead...
...To what extent can these reforms be implemented in a world of frictionless capital and labor flows...
...Because the esprit-de-corps effect, perhaps, can only work in relatively small groups, where individuals feel a responsibility to their comrades and where norms easily develop to prevent shirking...
...These are the following: (1) a reassignment of property rights in firms, so that profit income is distributed in a more egalitarian manner among citizens...
...Your first response might be: this has been tried, and has failed— look at the Soviet experiment...
...From this table, we notice that "education" is a dominant strategy: it ties or dominates each of the other three strategies, on each of the three dimensions of "effectiveness...
...The immediate payoff would be relatively small, because profits make up only between 20 percent and 25 percent of national income in most advanced countries...
...In addition, the growth of white-collar (service industry) jobs chipped away at the solidaristic wage policy, as these workers did not wish to be constrained by it...
...In the United States, at least, the popular conception of equal opportunity is one of "leveling the playing field," and with respect to a generation of children, the troughs and gullies in the playing field are the disadvantages children face, in the process of acquiring education and training, that are due to the circumstances of the families into which they are born...
...This brings me to what I think has been the moral equivalent of an Achilles' heel in the position of large segments of the European and North American left—its national chauvinism...
...There is evidence that custom plays an important role in the setting of wages and salaries, but that evidence is contested by proponents of competitive markets...
...Each young adult would receive a portfolio of stock in the nation's firms...
...Each year, every Alaskan citizen receives her per capita share of the oil profits, a dividend of somewhat more than $1,000...
...Citizens there understand that the income stream is risky, and they will continue to demand social insurance...
...In the United States, 88 percent of corporate shares are owned by the wealthiest 10 percent of the population...
...So the oppositional posture is only ethically defensible from a chauvinistic standpoint, which values the lives of fellow citizens more than the lives of fellow humans...
...As egalitarians, we must count this a good thing...
...It is beyond my scope to expand on this process here...
...This is a classic situation in which the small group gets what it wants...
...Thus, households that currently have no income from dividends would add about $8,000 to their income under an equal-profits scenario—assuming that total profits would not fall from the reorganization of property rights, which they well might...
...And clearly, were profits to flow into the state treasury, people would have no difficulty in viewing them as publicly owned, from a moral viewpoint...
...The only shareholders who have an economic incentive to monitor are very large ones, for whom an increase in profits would make a significant difference in the dividend stream or the capitalized value of their shares...
...Owning shares of a firm would entitle the owner to dividends from the firm in the usual manner...
...Moreover, there is the second, and different, claim that substantial wage differentiation is needed as an incentive to get people to undergo the costly training required for the acquisition of certain skills...
...A quite different kind of reform might narrow wage differentials, but not through institutional fiat...
...Formally, these trades would be carried out with a "coupon currency" that was the only acceptable tender on the stock market...
...and (4) the narrowing of wage differentials...
...Although workers and other citizens in advanced countries have more to lose than their chains, they still have a world to win...
...This is perhaps the most devastating single statistic testifying to the ethical immaturity of our human society...
...The second virtue is that markets, in the presence of competition among firms, induce innovation...
...What is the ethically optimal level of immigration for an egalitarian society...
...The nation's firms would be viewed as the nation's forests are in the United States, a resource belonging to all citizens, and which no citizen would be allowed to capture...
...This strategy works if economic classes are residentially segregated...
...How about the political feasibility of equalizing dividend streams...
...The key issue is the distributive consequences of implementing the strategy...
...Profits rise, investors purchase the shares, and the stock price rises...
...Increasing a person's income through transfer payments will also increase self-esteem to some degree, because it enables the person to acquire the means of life without shame, but transfer payments will do much less than education...
...Or perhaps I should say, it is a popular but false inference that the failure of communism implies the exhaustion of all egalitarian prospects...
...There is, therefore, what economists call a principal-agent problem: how can the shareholders make sure that the manager is doing a good job...
...For instance, in Italy more than half of men in their late twenties still live with their parents...
...At death, an individual's stock portfolio would escheat to the Treasury, to be recirculated to young adults...
...The counter-arguments I have provided either claim that the actual wage structure of market economies does not reflect marginal productivities, despite the theory of competition, or that marginal productivities can be changed through the reorganization of work...
...T. SUM UP, I believe that the left has four principal strategies for egalitarian reform, and that we should elaborate upon, and organize for, all of them...
...A person, for example, may vote for higher taxes to finance benefits for the disadvantaged, yet at the same time take every tax break available to him when filling out his income tax form...
...But economic feasibility is far from sufficient to guarantee that a strategy will be implemented...
...There are, in fact, several proposals around similar to mine, from economists ( for example, Richard Freeman, James Meade) and political theorists (for example, Bruce Ackerman and Anne Alstott...
...A widespread popular view is that, to the extent that citizens are poor by virtue of bad luck, they deserve to receive social transfers, but to the extent that their condition is due to low effort, they do not...
...In this case, economic theory suggests that teams would be paid according to the marginal productivity principle, but it has nothing (or little) to say about how the team should or would divide up its income...
...The concentration of wealth is a far cry from what it is the United States and the United Kingdom...
...Moreover, the rate of growth of the Scandinavian economies in the postwar period has been at least as high as of European economies generally, and so it is hard to claim that a large welfare state is inimical to growth...
...This is one of the market's chief virtues...
...In like manner, I think the opposition that some hold to European integration is retrograde...
...Suppose we partition society into three economic classes—poor, middle, and well-off...
...Education The third strategy on my list is education, and by that I mean a disproportionately large investment in the education of children from disadvantaged families, through both schooling and job training...
...Clearly, if wage differentials are narrowed by virtue of the narrowing of skill differentials, there is no problem for economic feasibility...
...Of the four strategies, three—all except tax and transfer—have the virtue of increasing the earnings of individuals, if they succeed, not just the incomes of individuals...
...it cannot be capitalized (sold), and it escheats to the state if the individual leaves Alaska...
...Teams produce output, and wages are paid to teams...
...In fact, in the social democracies, it is already much less socially acceptable to flaunt one's wealth than in the relatively laissez-faire regime of the United States...
...If the former, then perhaps a new custom can be created without harming economic efficiency...
...The "equal profits" and "tax-and-transfer" strategies are perhaps most likely to induce capital flight...
...Therefore, although I am convinced that large welfare states are everywhere economically feasible, their political feasibility is sometimes quite low...
...I rate the payoff of the education strategy as high...
...I do not think that the tapering off of the rate of growth of the welfare state is a leading indicator of its decline: in Europe the welfare state is here to stay...
...But it is certainly not obvious that such entrepreneurs are necessary today...
Vol. 46 • July 1999 • No. 3
