The West’s arrested social development

BERLIN — After three decades of worsening economic inequality, advanced-country populations are angry, and they are taking their grievances to the ballot box or the streets. But credibly addressing inequality also demands action regarding a less-discussed facet of this trend: Declining intergenerational social mobility.

Nowadays, parents cannot assume that their children will be better off than they are. On the contrary, a 2018 OECD reportconcluded that in the average developed country, it would take 4-5 generations for children from the bottom earnings decile to reach the mean earnings level. The more unequal the country, the longer upward mobility takes.

Inequality and lack of social mobility are closely linked to geography, with urban areas typically doing much better than rural ones. In the United States, the Brookings Institution reports that cities with more than 1 million residents have contributed 72 per cent of total employment growth since the 2008 financial crisis, compared to just 6 per cent for cities with populations of 50,000-250,000. Since 1970, wages in the top 2 per cent of US metropolitan areas have risen by nearly 70 per cent, compared to 45 per cent in the rest of the country.

Likewise, in France’s Île-de-France region, which includes Paris, GDP per capita rose from 148 per cent of the national average in 1975 to 165 per cent in 2010, whereas in the less-developed Lorraine, that figure fell from 95 per cent to 76 per cent over the same period. This divide can also be seen in Germany, though one major city, Berlin, does lag behind the rest. In 2016, per capita GDP in Germany’s poorest state, Mecklenburg-Vorpommern, was just $29,133 — 60 per cent lower than Hamburg’s $69,719. The national average was $43,110.

A study by the UK2070 Commission shows that from 1971 to 2013, Northern England’s cumulative output growth fell by 17 percentage points, whereas London’s rose by 12. This has important implications for social mobility: A child who is poor enough for free school meals in Hackney, one of London’s poorest boroughs, is still three times more likely to attend university than an equally poor child in the northern town of Hartlepool.

These trends can be traced back to the 1980s, when US President Ronald Reagan and UK Prime Minister Margaret Thatcher began to pursue structural reforms that aimed to boost competitiveness by rebalancing their economies away from manufacturing and curbing the power of unions. But, while those reforms were in some ways warranted — recall the “stagflation” of the 1970s, little was done to mitigate their social consequences.

This policy failure, exacerbated by the effects of technological progress, led to what the economist Dennis J Snower calls as the “decoupling” of economic and social trajectories: Even as GDP grew, real wages and prospects for advancement stagnated or deteriorated for large swaths of the population. For example, the Economic Policy Institute reports that, from 1979 to 2018, net productivity in the US rose 70 per cent, but real hourly wages increased by only 12 per cent. Today, 14 per cent of Americans, more than half of whom are people of colour, are “working poor” (full-time workers with incomes that are less than 200 per cent of the poverty line).

With low-paying jobs and little hope of getting ahead, a growing share of people are stuck in a kind of limbo, earning too little to make ends meet, but too much to qualify for government support. Over time, they become economically, socially and culturally isolated, increasingly resentful of the prosperous elites and vulnerable to appeals by neo-nationalist populists and aspiring authoritarians.

This dynamic is most pronounced in the US, where it contributed to the election of President Donald Trump, and in the UK, where it fuelled support for Brexit. But, with much of the Western world having followed Thatcher and Reagan’s example, it is now afflicting all developed economies, dividing societies and stunting their development.

None of this should be surprising. In 1995, the sociologist Ralf Dahrendorf described the “perverse choices” demanded by globalisation. To become and remain competitive in international markets, he observed, countries had to use resources in ways that threatened social cohesion and political freedom.

These choices led, for example, to a new form of inequality that Dahrendorf called inequalisation: “Building paths to the top for some and digging holes for others, creating cleavages, splitting.” He presciently predicted that the emergence of an “underclass”, excluded and insecure both economically and socially, would give rise to authoritarian temptations.

The advanced economies’ “overriding task” for the subsequent decade, Dahrendorf wrote, was to get as close to possible to “[squaring] the circle of wealth creation, social cohesion, and political freedom”. Yet more than two decades later, most have not even attempted that feat. Instead, following the logic of neoliberalism, they focused on economic growth.

It is time to heed Dahrendorf’s call. This does not mean implementing protectionist policies, which would not only undermine economic growth, but also potentially reinforce authoritarian temptations, given such policies’ link to identity politics. Instead, it requires a comprehensive program comprising proven measures for increasing economic security and social and political engagement.

For starters, countries should reform their tax systems with an eye to reducing wealth disparities and encouraging entrepreneurship and job creation. At the same time, following the example of California, where post-World War II investment in public universities were pivotal to its subsequent economic success, they should foster social mobility through investment in education and skills training.

Social protections targeting those who are most vulnerable to globalisation are also needed, as are policies to compensate for regional disparities, including managed migration, both domestically and internationally. In the 1930s, US President Franklin D. Roosevelt’s New Deal, which lifted the US out of the Great Depression, included such measures, as did similar programmes in Europe.

Finally, to counter social exclusion and fragmentation, efforts must be made to strengthen civil society and to encourage sustained, credible and respectful public debates. It may take decades to heal social and cultural divides, but it can be done. The question is whether leaders will do what is needed.

Helmut K. Anheier is a professor of sociology at the Hertie School of Governance in Berlin and at the Max Weber Institute, Heidelberg University. ©Project Syndicate, 2016. www.project-syndicate.org