The aftershocks of the Great Recession are still being felt. The trail of suffering in the shape of unemployment and destruction of wealth has transformed the map-making of the western world, ending up by provoking a real geopolitical recession with an Anglo-American epicentre aka the cradle of global capitalism. Likewise, the coordinates of the political agenda are being modified; old conflicts are resurfacing, new cracks appearing. Once again, distribution of wealth, inequality and their effects are returning to the centre stage of public debate. Why is this?
We are reproducing the abnormal levels of inequality of the Gilded Age, precursor to the First World War and the following Great Depression. Fairness and social mobility are linked (The Great Gatsby Curve); in fact, if you want to ‘live the American Dream’, you should go to Scandinavia. Similarly, inequality in relation to income and between genders develops along parallel lines. Fairness acts as a social glue creating connections of mutual trust.
With inequality, there are various patterns of correlation that allow us to argue that fairer societies have better social results, as well as being healthier, more peaceful and cooperative (Wilkinson and Pickett). There is a correlation between inequality and infant mortality, life expectancy, unwanted pregnancies and rates of mental illness. Social vulnerability goes hand in hand with emotional fragility. In Spain, the OECD country after Cyprus where inequality has increased most, consumption of antidepressants has tripled in the last ten years.
One of the basic axioms of the dominant mode of thinking has been: inequality is the price to be paid for market efficiency. Until now. Endless academic literature links problems with growth to current levels of inequality. Its connection to secular stagnation has also come up, as inequality distorts demand, holds back family consumption levels and favours over-indebtedness. Therefore, it is worth recalling that an increase in salaries would activate the economy.
According to no less than the IMF, less inequality allows for a “faster and more longer lasting growth” (see here). All this invites us to transition to the following discourse: a move from growth for redistribution towards redistribution for growth. The left should take note. Only strategies of equal and balanced growth will guarantee recovery in the economies of industrialized countries.
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At the same time inequality acts as a solvent for democracy. The decline of the middle class undermines the political order and damages traditional politics. The polarization of income outcomes contributes to political polarization and weakens support for inclusive democratic and economic institutions. Inequality undermines interpersonal trust and encourages the sensation of lack of control. These ingredients are the basis of the reactionary political cocktail that is battering the world.
In this way, the components of welfare that end up defining social class and socio-economic context are being reconfigured (State, family and labour market). We fall back on the family more and require more help from the State due to the lack of quality labour opportunities. Put simply, labour has ceased to be the main source of prosperity and stability: a historical breakdown of the utmost gravity, aggravated by aggressive labour reform, a weakening of collective bargaining, and the consolidation of precarious and poorly paid employment.
Yet when we most need the State’s help, it faces aggressive processes of fiscal consolidation. Austerity is a painful medicine; it has caused a massive increase in unemployment and a fall in adjusted salaries (2010-2015). At the same time, fiscal consolidation based on cutbacks in public spending exacerbates social stratification.
The fiscal rules institutionalized during the Eurozone crisis (Fiscal Compact) are a deflationary anchor that acts as a straitjacket. The dysfunctional design of the single currency is a machine that worsens divergences, incapable of dealing with asymmetrical shocks. Completing the institutions of monetary union and increasing the member states’ room for fiscal manoeuvring should be at the heart of any progressive European Project.
Market globalization and liberalization acts in this way. On the one hand, it has taken millions of people out of poverty in recent decades, especially in Asia, yet on the other hand a significant part of the middle classes and workers in the developed world do not feel any benefit (Milanovic). Therefore, the perverse logic of focusing on net profit must be accompanied by the logic of profit distribution.
The automation and digitalisation of the economy act in a similar way. It’s clear that technological advances produce profit, but they also generate a strong skills bias in the labour market and renovate the typology of job positions. If public powers do not counteract, compensating and rebalancing the losers and winners, there will always be people prepared to smash machines with hammers or tempted to impose terrible commercial blockades.
This new clothing of inequality also brings with it the opening of new wounds that activate fears and identity crises. Generational and territorial gaps explain to a large extent recent European election results. The mechanisms of intergenerational solidarity are ceasing to function, and in the eyes of many young people the promise on which democracy is built has been broken: that the future is a desirable place to inhabit.
Open and shut
Jeremy Corbyn has achieved a spectacular increase in his electoral base, mobilizing young people and those who previously abstained with the pledge to restore that promise. He has managed to be seen as a politician who is honestly worried about the daily problems of many of them, indeed the majority. Quite a rara avis, and he has reintroduced the topic of socio-economic conflict into the electoral conversation.
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At the same time, urban/rural cleavages operate powerfully in the political conflict. Diverse urban centres integrated into the global value chain versus a periphery either rural or suffering from deindustrialisation (Guilluy). A breeding ground for Rousseau-istic resentment and identity withdrawal. A new logic emerges from all this – globalism versus nationalism/nativism – which crosses traditional political conflicts. And all this cannot be understood without one factor: inequality.
This new logic, between defending open and closed societies, has landed on territorial fault lines. Le Pen only managed to garner one in ten votes in Paris. Trump, 4% in Washington DC, the Brexiteers, one in four ballot papers in inner London. Emmanuel Macron skilfully positioned himself as an opposing party in the conflict, becoming the new strong man in a Europe lacking directional signposts.
But the risk provoked by the activation of this axis of conflict is looming in France: a left in total breakdown. To repair the progressive electoral base, it is necessary to put into practice a program of redistribution against inequality. The recipes of the twentieth century have been as follows: Keynesian management of economic policies of demand, state industrial planning, preservation of collective bargaining, fiscal redistribution through taxes and a system of social welfare. This road map remains valid but must adapt to multiple changes: the peculiarities of the Eurozone, an economy and market that is internationally integrated and changes in social structures.
We have to construct a new tax framework of public regulatory spending which redistributes in the most efficient way and inspires a fairer predistribution. And all this must be done tending to the vectors of transformation represented by urban concentration, ageing of the population and climate change. The leverage to rebuild the social contract should be the political threats that torment Europe, just as in the glorious thirty years (1945-1975); without threat, there can be no agreement. Because inequality explains, at least in part, the fracturing of the pillars that have held up the developed world: economic growth, middle classes, liberal democracy and the American order (Lizoain).
Like every Herculean task, the fight against inequality demands a narrative that supports it and gives it shape. A new narrative of equality in defence of economic growth, protection of democracy and the deepest sense of freedom: autonomy and dignity.
This post originally appeared in Spanish in the CTXT contexto y acción blog.
Javier López has been a Spanish member of the European Parliament since 2014. He is chair of its delegation to the Euro-Latin American Parliamentary Assembly and a member of the Committee on Environment, Public Health and Food Safety.