The Hard Truth About Economic Inequality That Both the Left and Right Ignore

Economic historian Jerry Muller argues that rising economic inequality “is more deeply rooted and intractable than generally recognized” — because of families. He says your financial fate could be determined by who you choose as a partner, if you decide to get married and your family unit. Photo by Vstock LLC/Getty Images.

A Note from Paul Solman: I have long been an admirer of economic historian Jerry Muller of Catholic University and his books “The Mind and the Market,” “Adam Smith in His Time and Ours” and “Capitalism and the Jews.” So when he recently published an article called “Capitalism and Inequality” in Foreign Affairs — given our longtime interest in both topics — I asked him to write something for The Business Desk.

He sent us a post that I don’t buy in full. And others may find his emphasis on the influence of “assortative mating” on increasing inequality unappealing, if not downright objectionable. (Given all the attention grabbed the last two weeks by Susan Patton’s “Letter to the Women of Princeton,” the issue of assortative mating — and the corollary theme of the “rich getting richer” — is in the air right now.)

But neither of these constitute reasons not to read what Muller has sent us about the most troubling trend of my long career as an economics reporter: rising economic inequality.

Jerry Muller: Inequality is increasing almost everywhere in the post-industrial capitalist world. Despite what many think, this is not the result of politics, nor is politics likely to reverse it. The problem is more deeply rooted and intractable than generally recognized.

Inequality is an inevitable product of capitalist activity, and expanding equality of opportunity only increases it — because some individuals, families, and communities are simply better able than others to exploit the opportunities for development and advancement that today’s capitalism affords. Some of the very successes of western capitalist societies in expanding access and opportunity, combined with recent changes in technology and economics, have contributed to increasing inequality. And at the nexus of economics and society is the family, the changing shape and role of which is an often overlooked factor in the rise of inequality.

Though capitalism has opened up ever more opportunities for the development of human potential, not everyone has been able to take full advantage of those opportunities or to progress very far once they have done so.

Formal or informal barriers to equality of opportunity, for example, have historically blocked various sectors of the population — such as women, minorities, and poor people — from benefiting fully from all capitalism offers. But over time, in the advanced capitalist world, those barriers have gradually been lowered or removed, so that now opportunity is more equally available than ever before. The inequality that exists today arguably derives less from the unequal availability of opportunity than it does from the unequal ability to exploit opportunity.

And that unequal ability, in turn, stems from differences in the inherent human potential that individuals begin with and in the ways that families and communities enable and encourage that human potential to flourish.

The Role of the Family

The role of the family in shaping individuals’ ability and inclination to make use of the means of cultivation that capitalism offers is hard to overstate. The household is not only a site of consumption and of biological reproduction. It is also the main setting in which children are socialized, civilized, and educated, in which habits are developed that influence their subsequent fates as people and as market actors.

To use the language of contemporary economics, the family is a workshop in which human capital is produced.

In a seminal book of 1973, the sociologist Daniel Bell noted that in the advanced capitalist world, knowledge, science, and technology were driving a transformation to what he termed “post-industrial society.” Just as manufacturing had previously displaced agriculture as the major source of employment, he argued, so the service sector was now displacing manufacturing. In a post-industrial, knowledge-based economy, the production of manufactured goods depended more on technological inputs than on the skills of the workers who actually built and assembled the products.

That meant a relative decline in the need for and economic value of skilled and semiskilled factory workers — just as there had previously been a decline in the need for and value of agricultural laborers. In such an economy, the skills in demand included scientific and technical knowledge and the ability to work with information. The revolution in information technology that has swept through the economy in recent decades, meanwhile, has only exacerbated these trends.

The Rising Status of Women

One crucial impact of the rise of the post-industrial economy has been on the status and roles of men and women. Men’s relative advantage in the pre-industrial and industrial economies rested in large part on their greater physical strength — something now ever less in demand. Women, in contrast, whether by biological disposition or socialization, have had a relative advantage in human skills and emotional intelligence, which have become increasingly more important in an economy more oriented to human services than to the production of material objects. The portion of the economy in which women could participate has expanded, and their labor has become more valuable — meaning that time spent at home now comes at the expense of more lucrative possibilities in the paid work force.

This has led to the growing replacement of male-breadwinner/female-homemaker households by dual-income households. Both advocates and critics of the move of women into the paid economy have tended to overemphasize the role played in this shift by the ideological struggles of feminism, while underrating the role played by changes in the nature of capitalist production. The redeployment of female labor from the household has been made possible in part by the existence of new commodities that cut down on necessary household labor time (such as washing machines, dryers, dishwashers, etc.).

The trend for women to receive more education and greater professional attainments has been accompanied by changing social norms in the choice of marriage partners. In the age of the breadwinner/homemaker marriage, which predominated from the nineteenth century and the first two thirds of the twentieth, women tended to place a premium on earning capacity in their choice of partners. Men, in turn, valued the homemaking capacities of potential spouses more than their vocational attainments. It was not unusual for men and women to marry partners of roughly the same intelligence, but women tended to marry men of higher levels of education and economic achievement. As the economy has passed from an industrial economy to a post-industrial service and information economy, women have joined men in attaining recognition through paid work, and the industrious couple today is more likely to be made of peers, with more equal levels of education and more comparable levels of economic achievement — a process termed “assortative mating.”


Capitalism and Inequality

Assortative Mating

These post-industrial social trends have had a significant impact on inequality. If family income doubles at each step of the economic ladder, then the total incomes of those families higher up the ladder are bound to increase faster than the total incomes of those further down.

But for a substantial portion of households at the lower end of the ladder, there has been no doubling at all — for as the relative pay of women has grown and the relative pay of less-educated, working class men has declined, the latter have been viewed as less and less marriageable.

Often, the limitations of human capital that make such men less employable also make them less desirable as companions, and the character traits of men who are chronically unemployed sometimes deteriorate as well. With less to bring to the table, such men are regarded as less necessary — in part because women can now count on provisions from the welfare state as an additional independent source of income, however meager.

In the United States, among the most striking developments of recent decades has been the stratification of marriage patterns among the various classes and ethnic groups of society. When divorce laws were loosened in the 1960s, there was a rise in divorce rates among all classes. But by the 1980s, a new pattern had emerged: divorce declined among the more educated portions of the populace, while rates among the less-educated portions continued to rise. In addition, the more educated and more well-to-do were more likely to wed, while the less educated were less likely to do so. Given the family’s role as an incubator of human capital, such trends have had important spillover effects on inequality.

Abundant research shows that children raised by two parents in an ongoing union are more likely to develop the self-discipline and self-confidence that make for success in life, whereas children — and particularly boys — reared in single-parent households (or, worse, households with a mother who has a series of temporary relationships) have a greater risk of adverse outcomes.

In today’s globalized, post-industrial environment, human capital is more important than ever in determining life chances. This makes families more important, too, because as each generation of social science researchers discovers anew (and much to their chagrin), the resources transmitted by the family tend to be highly determinative of success in school and in the workplace.

Familial endowments come in a variety of forms: genetics, prenatal and postnatal nurture, and the cultural orientations conveyed within the family. Money matters, too, of course, but is often less significant than these largely nonmonetary factors. (The prevalence of books in a household is a better predictor of higher test scores than family income.) Over time, to the extent that societies are organized along meritocratic lines, family endowments and market rewards will tend to converge.

Studies show that educated parents tend to invest more time and energy in child care, even when both parents are engaged in the work force. And families strong in human capital are more likely to make fruitful use of the improved means of cultivation that contemporary capitalism offers (such as the potential for online enrichment) while resisting their potential snares (such as unrestricted viewing of television and playing of computer games).

This affects the ability of children to make use of formal education, which is at least potentially, available to all regardless of economic or ethnic status. At the turn of the 20th century, only 6.4 percent of American teenagers graduated from high school, and only one in 400 went on to college. There was thus a huge portion of the population with the capacity, but not the opportunity, for greater educational achievement. Today, the U.S. high school graduation rate is about 75 percent (down from a peak of about 80 percent in 1960), and roughly 40 percent of young adults are enrolled in college.

The Economist Gets it Wrong

“The Economist” recently repeated a shibboleth:

“In a society with broad equality of opportunity, the parents’ position on the income ladder should have little impact on that of their children.”

The fact is, however, that the greater equality of institutional opportunity there is, the more families’ human capital endowments matter. Improvements in the quality of schools may improve overall educational outcomes, but they tend to increase, rather than diminish, the gap in achievement between children from families with different levels of human capital.

Recent investigations that purport to demonstrate less intergenerational mobility in the United States today than in the past (or than in some European nations) fail to note that this may in fact be a perverse product of generations of increasing equality of opportunity. And in this respect, it is possible that the United States may simply be on the leading edge of trends found in other advanced capitalist societies as well.

A growing recognition of the increasing economic inequality and social stratification in post-industrial societies has naturally led to discussions of what can be done about it, and in the American context, the answer from almost all quarters is simple: education.

One strand of this logic focuses on college. There is a growing gap in life chances between those who complete college and those who don’t, the argument runs, and so as many people as possible should go to college. Unfortunately, even though a higher percentage of Americans are attending college, they are not necessarily learning more.

An increasing number are unqualified for college-level work, many leave without completing their degrees and others receive degrees reflecting standards much lower than what a college degree has usually been understood to mean.

The most significant divergence in educational achievement occurs before the level of college, meanwhile, in rates of completion of high school, and major differences in performance (by class and ethnicity) appear still earlier, in elementary school. So a second strand of the education argument focuses on primary and secondary schooling. The remedies suggested here include providing schools with more money, offering parents more choice, testing students more often, and improving teacher performance. Even if some or all of these measures might be desirable for other reasons, none has been shown to significantly diminish the gaps between students and between social groups — because formal schooling itself plays a relatively minor role in creating or perpetuating achievement gaps.

The gaps turn out to have their origins in the different levels of human capital children possess when they enter school — which has led to a third strand of the education argument: focusing on earlier and more intensive childhood intervention. Suggestions here often amount to taking children out of their family environments and putting them into institutional settings for as much time as possible (Head Start, Early Head Start) or even trying to resocialize whole neighborhoods (as in the Harlem Children’s Zone project).

There are examples of isolated successes with such programs, but it is far from clear that these are reproducible on a larger scale. Many programs show short-term gains in cognitive ability, but most of these gains tend to fade out over time, and those that remain tend to be marginal. It is more plausible that such programs improve the noncognitive skills and character traits conducive to economic success — but at a significant cost and investment, employing resources extracted from the more successful parts of the population (thus lowering the resources available to them) or diverted from other potential uses.

For all these reasons, inequality in advanced capitalist societies seems to be both growing and ineluctable, at least for the time being. That has implications for how those on the right as well as those on left should think about the safety nets provided by the welfare state.

This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions