A Steady State Sustains All Boats

by Gregory M. Mikkelson

An important recent article on resource use and its environmental impacts starts from the premise that “the planet’s resources and ecosystems are a commons, and… all people are entitled to an equal, sustainable share.” Alas, the world today deviates wildly from this norm. Indeed, inequality—of resource use, but also of income and wealth—is extremely high today and is actually worsened by economic growth. What’s more, it is bad for our politics, encouraging the trend toward authoritarianism. The good news is that measures of economic democracy, which fit comfortably within the steady state economy, can mitigate inequality and its damaging effects.

Inequality: Unfair and Wasteful

Current levels of inequality are patently unfair, and most people understand this. A 2014 study reported that respondents in a 40-country survey agreed that pay differentials of people in different occupations should not exceed seven to one. This consensus held “across countries, socioeconomic status, and political beliefs.” At the same time, most respondents showed a poor understanding of the actual level of income inequality. They guessed that the ratio of CEO pay to “unskilled” worker pay averaged around 30 to one. The actual ratio: nearly 400 to one.

Besides being unfair, inequality is wasteful. It involves the distribution of resources to those who need them less (the rich) rather than those who need them more (the poor). Yet inequality does more harm than this simple corollary of diminishing marginal utility implies. In more unequal societies, even the rich suffer more disease and premature death, and fewer people move up the socioeconomic ladder. Inequality also makes certain environmental problems worse. For example, it aggravates biodiversity loss and inflates energy requirements. And inequality carries ominous political consequences, as discussed below.

Growth Worsens Inequality

Simon Kuznets famously hypothesized that economic growth would eventually lower inequality to tolerable levels. More recent studies have disproven this hypothesis, which even Kuznets admitted was based on “95 percent speculation, some of it possibly tainted by wishful thinking.” In fact, growth seems to widen the gap between rich and poor.

Across 130 countries and 70 years tracked by the World Inequality Database, the Gini index of wealth inequality rises by an average of 0.68 points for each $10,000 of growth in GDP per capita. The Gini ranges from 0, indicating perfect equality, to 100, for maximal inequality. I focus here on wealth, because inequalities of wealth tend to exceed disparities of income, and wealth has more permanence than income, which can change dramatically from year to year. (Income inequality yields similar results.) The figure below depicts how wealth inequality has evolved in the world’s five largest economies. In all these countries, inequality is very high, and has worsened over time.

Inequality Breeds Authoritarianism

“We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can’t have both,” observed Justice Louis Brandeis, who served on the U.S. Supreme Court from 1916 to 1939. Brandeis’ insight is buttressed by recent research.

Studies have shown that economic inequality depresses voter turnout and other forms of political engagement, and inflames nationalistic and authoritarian tendencies. Gross levels of inequality make it easy for the rich “to find someone who will promptly and unquestioningly fill their orders—whether to deliver a new luxury automobile or tend to their lawns and gardens. For both richer and poorer individuals, greater economic inequality makes market relations with others much more likely to be characterized by obedience and deference.”  Such inequalities of power color the attitudes of most people, but particularly those of the rich, who then use their power to further entrench a culture of “unhesitating obedience to orthodox authorities.”

A Toll on Politics

The inequality-authoritarianism link helps explain how rising inequality ushered in by late-20^th-century neoliberalism paved the way for early-21^st-century neoconservatism. By 2020, authoritarian views and practices had gained such a foothold in the USA that the most widely-used international metric no longer classified it as a democracy. The USA is not alone in its slide toward autocracy. Over the past six years, the number of people living in autocracies soared from 3.6 to 5.6 billion, while the number living in democracies plummeted from 3.9 billion to 2.3 billion.

Just as GDP growth is linked to rising inequality, it is also linked to a decline in democracy. The Polity Index of democratic governance rates countries on a scale from -10 to 10. Scores of -10 to -6 indicate autocracies, -5 to 5 signify mixed regimes or “anocracies,” and 6 to 10 denote democracies. At the national level, the Polity Index has a statistically significant tendency to fall with rising GDP. And at the global level, changes in the Polity Index have a negative relationship with changes in GDP. In the graph below, each point represents a different year between 1961 and 2018.

What Is to Be Done?

Mainstream economists largely ignored inequality for much of the 20^th century, using the platitude “A rising tide (of GDP) lifts all boats” as cover. This helps to explain governments’ devotion to economic growth, which has brought horrendous environmental consequences (to be laid out in our forthcoming book GDP: The Untold Story). The results discussed above suggest that GDP growth makes things worse not only for the biosphere that contains and sustains all species, but also for the prospects of distributing resources—including political power—fairly across the human species.

Yet simply ending growth will not do enough to reduce inequality. More progressive taxation will help, but this, too, will not suffice. Herman Daly proposed a legislative limit of 100-to-one on income disparity. Others argue for a more lasting transformation of the economy to one dominated not by corporations beholden to shareholders, but by cooperatives democratically accountable to workers, customers, and/or citizens. Co-ops limit the disparity between the highest and lowest wage earners to levels much lower than are found in otherwise comparable corporations. Co-ops thus help to reduce inequality in the larger society. And as we saw above, this helps to bolster democratic engagement in that wider context, thus protecting against the looming threat of authoritarianism.

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Gregory M. Mikkelson is CASSE’s Ecological Economist.