Report of the dialogue on free markets & inequality
As part of the Future Markets Consultation, we organize a series of online dialogues between visionary economists. This is a report by Ilse Oosterlaken on the dialogue between philosopher Elisabeth Anderson & economist François Bourguignon on the relationship between free markets & inequality, which took place on 19 October.
Episode #6 in our series of online dialogues on the future of capitalism, broadcast this Monday, started off as a continuation from last week, when we discussed the effects of contemporary capitalism on everyday life, and more in particular in the areas of housing and work. In that episode French sociologist Isabelle Ferreras made a plea to give workers an equal say to shareholders in management decisions that affect them. She argued that this would be fair, as workers invest their body and mind and sometimes even sacrifice their (mental) health to make it possible for companies to make profit by delivering goods and services to society. It would probably have sounded like a wildly unrealistic, even utopian dream, to American philosopher Elisabeth Anderson, one of the guests in the episode this Monday on free markets and inequality, if she had been brought in dialogue with Ferreras last week.
Anderson as well spoke about the lack of power of the working class in comparison to the firms employing them, but her examples made clear that this situation is much worse in the US than in Europe. Employers there, she claimed, can act like dictators. They can basically fire workers for just anything, such as supporting a political candidate that their boss does not like. The complete lack of protection also makes it virtually impossible for workers to find a recourse in situations of sexual harassment in the workplace. Her plea was not one for equal decision power, but merely and more modestly for more regulation to protect workers, a topic that she already addressed extensively in her book Private Government; How Employers Rule Our Lives (2017). The US, she thought, could learn a lot from labor practices and regulations as they currently already exist in many European countries. Although we should not overlook the challenge, it was also noted by someone, that the increase in flex work and temp contracts in Europe is starting to make more and more people over here vulnerable too.
That moderators Natasja van den Berg and David van Overbeek had decided to inquire so extensively about Anderson’s book Private Government to start of the dialogue surprised me, as the topic of (lack of) power in the work place was already addressed last week and Anderson’s work on inequality is so much broader than this topic alone (see this 3 minute video to get a short intro). For example, she is currently apparently working on a history of egalitarianism, and I know her as one of the participants in the so-called ‘equality of what?’ debate, in which Nobel prize winning economist Amartya Sen has also been a prominent voice. Anderson has in this debate been adopting the capability approach, which proposes that ‘capabilities’ – or the real and effective opportunities for people to realize valuable ‘beings’ and ‘doings’ – are the appropriate space in which to assess whether inequality amounts to injustice. So I was expecting the moderators to pick her brain about different ways of understanding, assessing and evaluating inequality.
Fortunately, different ways of looking at and perceiving inequality did come up in the interview with the other guest this evening, economist Francois Bourguignon, and also in the subsequent dialogue between all participants after that interview. Bourguignon is a retired professor of economics and – among others – former Chief Economist (2003–2007) of the World Bank. He is also the author of The Globalization of Inequality (2015). Inequality in the sense of having more or less freedom on the work floor than other people is something that is not captured, he noted, in the sort of statistics on inequality that economists tend to produce. And the French revolution, he noted, was about inequality in yet another non-economic sense: equal standing in society as a citizen. But even in more economic understandings of inequality, he explained, it is important to be clear about the definition used. He made a distinction between ‘market income inequality’ (which increased quite a lot after the deregulation of the economy through neoliberal policies in the 1980s) and ‘disposible income inequality’ (which has had a much flatter growth curve, especially in Europe, thanks to redistribution policies).
Short videos with Anderson and Bourguignon on inequality
Reality versus perception
Interestingly, Bourguignon noted, people in the US have overall had less of a perception that inequality has been on the rise than people in Europe, even though objectively inequality has increased more in the US. His thesis was that this is because people in the US tend to focus less on equality in income, and more on equality of opportunity – embodied in the American dream that every newspaper boy can become a millionaire. Anderson concurred, and added that this was probably because the US has always been a country of immigrants. Immigrants early in the history of the US have always had the experience that their opportunities increased as compared to the country that they came from. Even though equality of opportunity seems to have decreased in the US, this idea has become so much ingrained in the culture that people are slow to catch up with the reality.
An important issue that came up, is how much inequality is useful. Some (income) inequality is needed, Bourguignon stated, to keep any market system or economy going, as it provides people with incentives to do things like starting a business and working on innovations. Anderson agreed, but was quick to add that it does not have to be as much inequality as currently exists in the US. Moreover, there is no straightforward trade-off between the level of inequality and the efficiency of an economy; If there is too much inequality, Bourguignon claimed, an economy also starts to work less well overall.
Not surprisingly, the moderators expressed interest in what the ‘right’ or ‘best’ level of inequality then is, from an economic perspective. This question did not receive an answer, as apparently that is hard to say in the abstract, but will depend on the economy in question. Still, it would have been interesting to learn more about the signs that inequality has become too high for an efficient functioning economy, or which mechanisms make it the case that inequality can have a negative impact on how well an economy is doing (but then again, that is too much to ask from an episode of a little over an hour). Also not addressed, unfortunately, was the negative effect that too much inequality may have on the quality of society more broadly – such as the functioning of democracy.
Several other topics were (briefly) touched upon in this episode, including globalization and technological developments as factors in the increase of inequality within countries, the limitation of GDP and the alternative and broader notions of welfare that have in the last decade been developed, the complex relationship between inequality and ecological damage, the idea from political philosopher John Rawls that inequalities are morally permissible only if they make the least advantaged in absolute sense better off than in a situation of equality (his so-called ‘difference principle‘), the importance and limitations of rights, and whether CEOs of large companies deserve their high income because their innovations and efforts create jobs for others. If you are interested, you can watch the full episode at the event page.
Up next Monday: the role of (good) markets in reducing poverty worldwide.