Commentary: How the West lost its way and what can be done to restore social mobility

Commentary: How the West lost its way and what can be done to restore social mobility

What many advanced economies need are comprehensive programmes that enhance economic security and social engagement, says Helmut K Anheier.

Workers walk across London Bridge as they head for the City of London
Workers walk across London Bridge as they head for the City of London, Britain, September 21, 2018. (File photo: REUTERS/Peter Nicholls)

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.

MOBILITY IS TAKING LONGER THAN USUAL

Nowadays, parents cannot assume that their children will be better off than they are.

On the contrary, a 2018 OECD report concluded that in the average developed country, it would take four to five 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.

READ: Commentary: Is the global economy finally turning the corner?

In the United States, the Brookings Institution reports that cities with more than one 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 to 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.

ACROSS THE DEVELOPED WORLD

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.

Rising unemployment, low wages and below-target inflation are stoking fears about the health of the
Rising unemployment, low wages and below-target inflation are stoking fears about the health of the economy in the Western world. (Photo: AFP/William WEST)

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 US$29,133 – 60 per cent lower than Hamburg’s US$69,719. The national average was US$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.

READ: Commentary: China lifted 850 million people out of poverty but now faces bigger challenges

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.

ROOTS IN THE 1980S AND 1970S

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.

US manufacturing
A US factory. (File photo: AFP/Robyn Beck)

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 color – are “working poor” (full-time workers with incomes that are less than 200 per cent of the poverty line).

A LIMBO

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.

READ: Commentary: Isn’t Grab’s cash advance scheme a loan programme?

READ: Commentary: Workers in the gig economy feel lonely, anxious and powerless

Over time, they become economically, socially, and culturally isolated, increasingly resentful of the prosperous elites, and vulnerable to appeals by neo-nationalist populists.

This dynamic is most pronounced in the US, where it contributed to the election of President Donald Trump, and in the UK, where it fueled support for Brexit.

The logo of Deutsche Bank is pictured on a company's office in London
The logo of Deutsche Bank is pictured on a company's office in London, Britain on July 8, 2019. (File photo: REUTERS/Simon Dawson)

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.

INEQUALISATION

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 certain political 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.”

Workers walk in the City of London
Workers walk in the City of London, Britain on Sep 21, 2018. (File photo: REUTERS/Peter Nicholls)

Yet more than two decades later, most have not even attempted that feat. Instead, following the logic of neoliberalism, they focused on economic growth.

ENHANCING ECONOMIC SECURITY

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 problematic political temptations, given such policies’ link to identity politics.

READ: Commentary: Germany has one of the highest trade surpluses in the world. That’s a big problem

Instead, it requires a comprehensive programme comprising proven measures for increasing economic security and social and political engagement.

Helmut K Anheier is Professor of Sociology at the Hertie School of Governance in Berlin and at the Max Weber Institute, Heidelberg University.

Source: Project Syndicate/sl(ml)

Bookmark