How to Build a More Equal American Society: Lessons from Successful Experiences

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Simon Holliday
Japan is a wealthy, developed country that has achieved relative equality in part through income divergence and wealth limitation.

In Brief

Acknowledging the depth of social crisis in the United States and linking these social problems to its exceptionally high levels of income inequality, this paper illustrates alternative models and policies that reduce inequality. The models described are successful real-life examples that have been employed around the world. They include the following: flattening income structures, taxing highly, nationalizing services and resources, allocating a universal basic wage, and creating spaces for alternative economic and political structures. The United States has deeply ingrained racial discrimination caused by similar processes to economic inequality. Addressing the latter could dramatically reduce the former. Studying successful examples from around the world illustrates how increasing economic equality is a politically achievable goal, which could lead to substantial societal benefits.


Key Concepts

  • Economic inequality damages society by exacerbating health and social problems.

  • The United States has very high-income inequality among rich market democracies

  • Equality mechanisms of catching up, inclusion, institutional flattening, and redistribution are considered here. Examples are drawn from Sweden, the UK, Japan, Argentina, Bolivia, and Alaska.

  • Inequality levels vary greatly over time, and the differing trajectories of countries illustrate that there is room for policy makers, pressure groups, and industry to influence levels of inequality.

  • Addressing economic inequalities in the United States could have the additional benefit of reducing racial, religious, and gender inequalities because these are generated by similar processes.

  • Now is a pivotal moment for increasing equality and introducing the policies needed due to the changing political climate and widespread questioning of income distribution in wealthy countries.

There is a widespread belief that as countries become richer, their citizens benefit from a better quality of life. However, the evidence shows that once countries attain a certain standard of living, it is the distribution of income and wealth within the society that actually determines health and well-being as well as a range of other social factors. This is exemplified by the current status of the United States of America. Today the USA is among the richest and most powerful countries in the world. In 2010, the US Gross Domestic Product (GDP) was the largest in the world at US$14.6 trillion and a GDP per capita at purchasing power parities ranked third worldwide after Singapore and Norway.1 Yet in contrast to this material affluence, other indicators suggest that the USA ranks very poorly in terms of the well-being of its citizens. Among rich, developed market democracies, the USA has the highest income inequality, after taxes and benefits.2 Compared to those same countries, the USA also has exceptionally high levels of infant mortality, mental illness, obesity, homicides, imprisonment, and teenage pregnancies, as well as lower life expectancy and social mobility.3 The USA also has the second largest ecological footprint in the world, after the oil-producing United Arab Emirates. Within the USA, it is the less equal states that tend to fare worse. The more unequal states of Alabama, Louisiana, and Mississippi have worse health and social outcomes than more equal states such as Utah, Alaska, and Wisconsin,3 and this is not explained by higher levels of poverty or average incomes. Within and beyond the USA, over 200 academic studies have linked income inequality with health outcomes and the relationship fits epidemiological causal criteria.4 Comparing levels of well-being among citizens of the USA to those in other countries would be a futile exercise if it did not also offer an opportunity for reflection and strategic thinking. Learning lessons from history and from societies that manage to attain both high levels of overall economic performance and more equal distributions of income and wealth, resulting in higher levels of well-being, can lead to a positive and optimistic vision for America’s future.

Mechanisms Underlying Inequality and Equality

Levels of inequality can fluctuate significantly over time (Figure 1). Since 1960, the USA and UK have converged, while Sweden and the UK have become increasingly different from one another. This demonstrates that there are no long-term cultural inevitabilities that determine inequality in any particular society. Instead, the mechanisms outlined below reinforce or counter one another, shifting the ways in which resources are distributed among people.

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Figure 1. Changes in inequality over time. The GINI coefficient measures inequality: 0 is perfect equality and 1 is complete inequality. In 1960 the UK and Sweden had very similar levels of inequality (GINI coefficients of roughly 0.27, where 0 indicates perfect equality and 1 is perfect inequality), whereas the USA was more unequal at that time. The USA and Sweden then became increasingly equal until the 1980s, whereas the UK changed very little. From the 1980s onwards, when neo-liberalism gained political and economic dominance in both the USA and UK, there were substantial increases in inequality in both countries; by 2010 they had a similarly high GINI coefficient of roughly 0.36. Meanwhile, Swedish levels of inequality remained much lower, and were just 0.23 by 2010, although they have since increased.50

Sociologist Göran Therborn has identified four processes that produce inequality: 1. Distantiation, where some pull ahead and others fall behind; 2. Exclusion, where barriers prevent certain people from accessing elements of ‘the good life’; 3. Hierarchy, where society and organizations are structured so that some have high status and pay and others are ordered below them; and 4. Exploitation, whereby wealth is taken from the poor by the rich via subjugation.5 Generally, a combination of these processes can be observed, and there is substantial overlap in experience; for example, those who are excluded may also be exploited, and hierarchy encourages distantiation. Therborn identifies a corresponding set of processes that produce greater equality: 1. Catching up, where those who have fallen behind can make progress; 2. Inclusion, where barriers to accessing the ‘good life’ are removed; 3. Organizational flattening, where hierarchies are leveled out; and 4. Redistribution, where money is shared more evenly between people (Tables 1 and 2).5 Therborn’s categorizations offer a framework for understanding examples of successful equality policies.

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Table 1. Inequality mechanisms. Adapted from (ref. 5, p.14).

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Table 2. Equality mechanisms. Adapted from (ref. 5, p.14).

Becoming Equal, Remaining Equal

Catching up

Positive action in Higher Education. In 2011, just 1 percent of UK state school students went to the Universities of Oxford or Cambridge, whereas 5 percent of UK private school students went to one of those universities.6 While positive discrimination on the basis of race, sex, or social background is illegal in the UK, positive action to redress misbalances is allowed. Positive action means supporting and encouraging under-represented groups. The University of Cambridge has a target to admit 61 to 63 percent of its students from the state sector by 2015–16. To help encourage state school applications, the University offers outreach activities including residential Easter and Summer Schools.7 Applicants from particularly deprived backgrounds are flagged up within the application system, so that their achievements are considered in context. These steps towards being more representative of the national population are being made by an institution with an interest in maintaining its high position in the national hierarchy of universities. Thus the overall social structure is not questioned, but those who are disadvantaged are encouraged to catch up. Positive and affirmative action in access to further and higher education, targeted provision of early childhood education, and child poverty reduction programs all have potential to increase social mobility and ‘catch up.’

Inclusion

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MD111
Japan is a wealthy, developed country that has achieved relative equality in part through income divergence and wealth limitation.

Nationalization of services. Nationalization has the potential to ensure that the entire population of a country has access to basic services, with access based on need rather than ability to pay. In more unequal countries there is considerable variation in ability to pay and, therefore, in ability to access services, an inequality of basic rights and justice. The UK National Health Service was established in 1948, funded by taxation. It was the first health service in the world to offer free health care based on citizenship at a time when infant mortality was roughly 1 in 20 and thousands died annually from diphtheria, polio, meningitis, and tuberculosis. Former chairman of the British Medical Association, Dr. Marks reflected that “people who had been ill for years and years came forward for help because they did not have to worry about paying for it.”8 Granting all citizens the right of access to free health care is an important step towards equality of outcome. It means that those who do not get health insurance through work can nevertheless access health care.8,9

Flattening structures

Income convergence, wealth limitation. Japan exhibits an alternative route to the redistributive model seen in Scandinavian countries: income differences are smaller before taxes and benefits. The main flattening of Japanese incomes occurred during, and following, World War II, when top incomes quickly fell: from 1885 to 1941, the income share of the top 1 percent of Japanese earners was 15 to 20 percent. By 1945 it had declined to what would become a relatively stable 8 percent. However, the second richest 4 percent did not reduce their income share during World War II, and following the war, their income share was higher than that of the top 1 percent.10 Postwar, MacArthur imposed changes intended to increase democracy and decentralize wealth and power, including breaking up business conglomerates, promoting labor unions, and legislating a maximum wage.11 Greater pretax income equality has the advantage of less distinction in terms of how much someone’s labor is valued. Further, it avoids the issue of richer people resenting that they are contributing much more tax than others. The decline in top Japanese incomes was accompanied by a decline in top wealth (ensured by progressive taxes, inheritance laws, and tax incentives for holders of small assets).10 Japan offers a model of a wealthy developed country, with the longest life expectancies in the world, that has achieved its relative equality by limiting divergence in incomes and wealth. One way in which these lower pay differences are maintained is by businesses promoting from within, so managers have personal experience of performing other jobs within their company. Further, it is not uncommon for union leaders to become managers of companies, again bringing with them a heightened awareness of workers’ concerns. The Japanese experience is instructive: it shows that equality need not inhibit growth or undermine world-leading technological innovation, despite the prevalent myths suggesting the opposite. And there is clear evidence that strong trade unions are a feature of more equal societies.12

Creating alternative structures. Overall, national policies and laws may be the quickest way to redistribute income and wealth and create a more equal society due to the large scale of implementation. However, people have always tried to improve things for themselves and their acquaintances on a smaller scale, and many have experimented with ways of living more equally and autonomously. The Argentine Movements of Unemployed Workers are an example of people creating alternative, nonhierarchical forms of organization and even a parallel economy. These groups started in the 1990s, responding to the needs of the unemployed, and membership involves weekly collective decision-making and undertaking certain responsibilities, and most importantly, full participation. Members provide services, make food and clothing, educate themselves, sell products, and take political action together. This has sometimes been a challenging adjustment for newly unemployed workers accustomed to hierarchical work settings.13 These alternative social structures have provided work, support, and income for people who might otherwise be destitute. Instead, they work in egalitarian organizations, participating equally in decision making, and working collectively. Throughout the world, alternative forms of employment and institutions (including employee representation, trade unions, employee ownership, cooperatives, mutual, etc.) increase economic democracy and reduce inequality.12

Redistribution

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Eneas De Troya
Bolivia’s current president, Evo Morales, has begun to nationalize the country’s oil and gas fields, using revenues earned by the state to fund social programs.

High income taxes. In Sweden, local and national government income taxes can amount to 60 percent of the income of higher earners, whereas lower earners may have just 29 percent of their income taxed. These relatively high, but progressive, income taxes mean that the state has substantial financial resources to provide services that are heavily subsidized or free at the point of use. These include up to 480 days of maternity/paternity leave, where each parent takes a minimum of 60 days; child benefit paid for all children under 16 years of age; free health and dental care for those under 18 years; unemployment pay at 80 percent of one’s previous salary for the first 200 days of unemployment, dropping to 70 percent for the following 100 days; and a guaranteed minimum pension for those who have not worked long enough to secure a state pension.14 This high and progressive taxation thus provides a strong welfare state in which access to health care, education, child care, and pension are guaranteed. By ensuring free access, even those on low incomes have their basic needs met. Toby Ord’s Giving What We Can voluntary income-capping scheme offers an example of self-taxation.15

Nationalization of resources. Nationalization has the potential to ensure that the whole population of a country benefits from the resources within its territory, rather than any profits going to private interests. Bolivia’s current president, Evo Morales, has embarked on the nationalization of the Bolivian oil and gas fields. Previously, privatization of services and resources had resulted in declining government revenues and an ongoing economic crisis. The majority of the population had not benefited from privatization; paying more for services while spending on social programs was cut back.16 Coming into power in 2006, Morales rebalanced the share of additional profits from rises in oil prices. Instead of private companies taking 82 percent of the extra earnings, and the state receiving just 18 percent, these percentages were reversed.17 The revenue generated has funded social programs, such as a cash-transfer scheme encouraging children to attend primary school and the extension of a universal and noncontributory pension scheme for anyone over the age of 60. The approach taken by Morales is considered by some as a pragmatic approach to capturing some of the surplus from the exploitation of natural resources, rather than a dramatic shift in economic model.18

The (Financial) Costs of Inequality

It is worth noting that moving towards a more equal society is not a more expensive option than continuing as we are, despite possible start-up costs of new approaches to inequality. Taking the example of imprisonment, more equal countries have lower incarceration rates, which means much less spending on prisons. In America annual spending per inmate ranges from $18,000 in Mississippi to $50,000 in California, and there are 2.3 to 2.4 million prisoners nationwide. Spending on incarceration is not as cost effective in averting criminal damage as it once was in America because small crimes are being punished with prison sentences: by 2001, each dollar spent on prisons averted just 37 cents’ worth of harm.19 A more equal America with fewer prisoners could save considerably, not just through the lower costs of imprisoning people, but also because outside of prison people can contribute to their family lives, communities, and wider society.

The UK, one of the least equal countries in Europe, fares badly in terms of “almost every preventable social problem,” including crime, mental illness, drug abuse, low child well-being, and obesity. Analysis by the New Economics Foundation shows that as a result, the UK spends a third more than the next most troubled European country to address these problems.20 If the UK continues as it is, the cost of addressing social problems over the next 20 years will amount to £4 trillion. However, targeted interventions, universal child care, and paid parental leave could together address £1.5 trillion worth of these costs (Note: universal child care and paid parental leave are forms of Therborn’s inclusion and redistribution). Taking into account the costs of transition to a new, preventative approach, £486 billion could be returned to the UK economy over 20 years.20

Reducing inequality is a financially sound choice due to the lower costs of addressing the problems that stem from inequality. By approaching social spending holistically and over long-time scales, it is clear that prevention is not only good for budgets but also for people’s health, security, and well-being. Lower net inequality even appears “to drive faster and more durable growth for a given level of redistribution” and redistribution generally has a benign impact on growth.21

America learning from America

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G. Frank Peterson
Every Alaskan citizen receives an identical annual dividend as a benefit of the state’s oil resources, helping in part to make Alaska one of the most equal states in the US.

One counter-argument to great equality that is heard frequently is that inequality might be an ingrained aspect of a country’s culture and identity and that not all societies ‘want to be like Sweden.’ However, equality and egalitarianism are not inherently Scandinavian, and in the past the USA and UK have had similar levels of inequality to those seen currently in Scandinavia. It is not ‘un-American’ to value equality. For example, 1945 to 1968 wages were compressed in the USA using the minimum wage. However, as the minimum wage lost value relative to prices, it actually contributed to pretax inequality by holding lower wages down.22 Although there are many lessons to be learned from other countries, there are numerous other historical and contemporary examples within the USA of successful policies and approaches that have supported greater equality.

As noted earlier, Alaska is one of the more equal states in the United States. Alaska is home to what is regarded as the “only genuine basic income system,” the Alaska Permanent Fund. Basic incomes are universal and unconditional, paid to individuals without requiring work or means testing, and made at “the highest sustainable level,”23 so this example demonstrates inclusion and entitlement from Therborn’s model.5 This policy, established in 1976 by the state governor, aimed to ensure that the financial rewards of Alaska’s oil resources would benefit contemporary and future Alaskan residents. Public support for oil mining was encouraged by the payment of this annual dividend. The value of payment was initially proportional to the number of years someone had been a state resident, but this was soon overturned as it discriminated against recent immigrants. Since 1982, every Alaskan resident who has lived there for longer than six months, irrespective of age, receives an identical payment. The value of this dividend rose from $300 in 1984 to $2000 in 2000 and dropped to $1281 in 2010.24,25

Another challenge to greater equality is the idea that America’s high levels of inequality result from its high religious and racial diversity. This misconception makes tackling inequality appear difficult, maybe even undesirable, despite the association between inequality and diversity being flawed. But economic inequality is caused by the uneven distribution of resources, not diversity of belief or race. A recent OECD report identified the single most important driver of greater inequality as being greater inequality of wages and salaries.26 In addition, an international study, which collected data on the ethnic mix in each country found that it did not explain the association between poor population health and inequality.27 Interestingly, very similar proportions of the populations of Sweden and the USA are foreign born, and Spain is more equal and does better than its neighbor, Portugal, despite having a larger migrant population. Among the US states, income distribution tends to be more unequal in states in which a higher proportion of the population are African–American. One paper suggested this explained the relationship between inequality and health.28 But since then, other papers have been published showing this is not so (e.g. ref. 29, 30).

In the more unequal states, health is worse in both the black and white populations. But migrant groups sometimes have unexpectedly good health. In the USA, the largest group of migrants are Hispanic, predominantly from Mexico. Although their levels of education and income are much like those of African–Americans, for most outcomes, their health is as good as that of the non-Hispanic white population. That they do not seem to suffer the effects of their low social status is sometimes referred to as the ‘Hispanic paradox.’ In the United States and Canada, Daly and Wilson have shown that the high rates of homicide in the southern United States are not due to ‘Southern culture’ or ethnicity, as some critics have suggested, but are indeed strongly related to income inequality.31

Race is not “an unchanging presence that necessarily and uniformly pervades the whole of society”; it is not an objective factor that mechanically determines outcomes.32 The same is true for religion: how people perceive racial and religious diversity and choose to act on this shapes inequalities between groups and even creates these groups as distinctive phenomena. Insofar as ethnic divisions are related to inequality and may contribute to the effects of inequality, it is not of course skin color itself—or for that matter religious or linguistic differences—which affect well-being. Instead, they become important when they serve as markers of social status attracting stigmatization, prejudice, and discrimination. This means that rather than ethnic divisions involving quite separate processes from those through which inequality has its effects, they involve very much the same processes. Whether the markers of social status differences are attributes of class alone or whether they include issues of language, religion, or ethnicity, the underlying processes are basically the same.

Reducing economic inequalities within the population could even be a very effective way to tackle other types of discrimination and horizontal inequality (e.g. gender, race, sexuality, and religion) because people will be able to access services and goods more equally irrespective of their identity and will feel more equality with others. Publicly challenging misconceptions about the causes of inequality could help prevent these ideas from derailing practical discussions about how to reduce inequality in America.

Conclusion: Wanting Equality

In this paper, we have presented examples, or case studies, of policies that reduce inequality. This is in no way intended to be a comprehensive list but merely to point out the range of different possibilities for tackling inequality. But do people actually want to live in a more equal society?

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David Shankbone
Public support is critical in promoting policies aimed at increasing equality.

Public support for greater equality can catalyze and generate change, particularly in democracies, because policies and planned societal shifts generally require some support. Whether inequality is considered natural and inevitable or unjust and unacceptable can have far-reaching implications for how it is handled, and this is true for both public policy makers and academics.24 For many of the policy examples we have described, public support was an important component in making these policies a reality. An acceptance of the idea of a basic income, for instance, requires changes to established ideas and norms, and policy makers and citizens have to adapt their thinking and values.33 In Alaska, support for a basic income was grounded in a desire for citizens to directly access oil revenue, partly due to mistrust of politicians who were perceived to have previously misspent it.25 In Bolivia, there were many public movements and protests against the corruption, debt, and poverty that were associated with neoliberal policies. These movements supported President Morales’ nationalization programs and help him to justify his policies based on public demand.18 In contrast, President Barack Obama’s recent attempts to establish nationalized health care were quashed by a lack of widespread public and political support for the initiative.

Universality of welfare provisions can help to ensure public support for measures that improve equality. Universal programs enable people to feel that they are part of a collective contribution to, and beneficiary of, welfare programs34,18 and remove the stigma of receiving welfare, so universality can become a crucial expression of citizenship and social cohesion.35 Further, means-tested welfare programs can act as a disincentive for moving into marginally higher income groups by effectively taxing through the removal of welfare benefits.36,37

Shifts in public opinion can help to disrupt the four mechanisms identified by Therborn that produce inequality.5,38 Firstly, distantiation, where some pull ahead while others fall behind, could come to seem unacceptable if there were a greater awareness of the damaging impact of inequality. Exclusion can come to seem undesirable or unacceptable when people are educated about human rights and entitlements, as well as by the creation of a more trusting, cohesive society. Hierarchical structures in society and institutions can be flattened when alternative structures are shown to be successful. Lastly, in a context of deeper awareness of, and respect for, others, exploitation becomes unacceptable, and knowledge of past exploitation can lead to public support for redistribution as a matter of social justice and human rights.39

Social movements and campaigns can have a dramatic effect on political rhetoric and debate. In the 2010 UK General Election, the newly founded Equality Trust (cofounded by author KP) played a role in bringing discussions around inequality and equality back into the political arena. Founded with the aim of disseminating evidence-based research on the impact of inequality and campaigning for greater equality, the Equality Trust called on all political parties to commit to greater equality in their pre-election manifestos. In the run up to the election and since, discussions of equality and fairness received considerable national radio, television, and newspaper coverage (e.g. ref. 40–43), and the concepts received cross-party support.44 The three main political parties each supported the publication of a report describing policies to increase equality, compatible with its own political philosophy.45-47 Publicly and politically engaged campaigns such as these can alter the terms of debate.

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David Shankbone
Policies should reflect America’s growing public desire for equality.

Beyond public support for greater equality, political will is needed. Otherwise, no matter how strong the evidence base in favor of more equality, it can be used selectively or ignored.48 Politicians need to be made aware of the public appetite for greater equality. In a random sample of over 5,500 Americans, researchers from Duke and Harvard Universities investigated views of the distribution of wealth (rather than income) in society.49 People were shown three pie charts illustrating three different distributions of wealth—one in which each fifth of the population got the same, another which showed (unlabeled) the distribution of wealth in the USA and another (also unlabeled) based on the distribution in Sweden. Ninety-two percent said they would prefer to live in a society with the Swedish distribution—and the percentage only varied from 89 to 93 percent depending on whether they were rich or poor, Democrats or Republicans. When asked what they thought the actual distribution of wealth is in the USA, the average estimate was that the richest 20 percent of Americans control 59 percent of the wealth. In reality, they control 84 percent. Asked what they thought the ideal distribution would be, people preferred the top 20 percent to have 32 percent of all wealth. There are real opportunities available to American politicians to change the terms of public debate on inequality and take the lead in creating a bold new vision for American politics, compatible with the founding principles of the country and based on research evidence. The strong links between income inequality and reduced social mobility and the impossibility for so many Americans of living the American dream could be a starting point for a new politics.