Apartheid Economy

April 28, 2011 2:13 PM

Towards an Apartheid Economy? A 1996 Harvard Business Review article on rising inequality, by Richard Freeman.

The list of costs--crime, insecurity at work, stress on families, skewed business decisions, and political turmoil--is neither exhaustive nor definitive. The magnitude of the costs is not well known, because there is little in our history to provide guidance. But the ultimate cost of increasing inequality lies in the potential for an apartheid economy, one in which the rich live aloof in their exclusive suburbs and expensive apartments with little connection to the working poor in their slums. Just as many South African whites were blind to the plight of nonwhites, so too in an apartheid economy will many of us be blind to citizens of lower economic status--if we are not blind to them already. When was the last time you were shocked by the homeless?

To be fair, Freeman also cites some benefits:

For people with high incomes, however, inequality has some benefits. If I am rich and you are poor, I can hire you cheaply as my gardener, maid, or nanny. Not surprisingly, the personal services sector has grown with the rise of inequality. Moreover, if the middle class shrinks and buys fewer tickets to basketball games and concerts, there will also be more places for the well-off at these events.

Freeman made some specific suggestions in the Boston Review to reduce inequality. Responses.

In most developed countries, progressive taxation and income redistribution help to mitigate income inequality. A discussion of trends in pre-tax and post-tax inequality in various countries: Income Inequality and the Welfare State in a Global Era (PDF).

Previously.

posted by russilwvong (34 comments total)

" Freeman also cites some benefits:
. . .
Moreover, if the middle class shrinks and buys fewer tickets to basketball games and concerts, there will also be more places for the well-off at these events."

Well, thank God for that, at least.
posted by absalom at 2:26 PM on April 28, 2011 [2 favorites]

He forgot the most important benefit; the pleasant breeze you'll feel over your neck when your head is taken off.
posted by Talez at 2:28 PM on April 28, 2011 [7 favorites]

Towards?
posted by Blazecock Pileon at 2:33 PM on April 28, 2011 [4 favorites]

BURBCLAVE GATE/CHECKPOINT THUG: Papers, please?
posted by Pirate-Bartender-Zombie-Monkey at 2:38 PM on April 28, 2011

Sometimes being a human makes me sick, when I read stuff like this.
posted by dbiedny at 2:52 PM on April 28, 2011

Pirate-Bartender-Zombie-Monkey: "BURBCLAVE GATE/CHECKPOINT THUG: Papers, please? "

I'm confused. Were you being sarcastic? Many subdivisions already have gate guards who check your ID and call your "host" to make sure you're allowed in. It's mildly disturbing, IMO. What most chaps my ass is when the people who live in these gated communities then expect the rest of us to help pay to maintain their private roads.
posted by wierdo at 2:56 PM on April 28, 2011 [1 favorite]

I used to have a coworker who had recently (at the time) moved to Canada from Bahrain. She was always complaining about how much better it was when you could simply employ an endless supply of people for next to nothing to do things like gardening, washing your car, etc. I always just replied that I didn't mind washing my own car.
posted by GuyZero at 2:57 PM on April 28, 2011 [1 favorite]

He forgot the most important benefit; the pleasant breeze you'll feel over your neck when your head is taken off.

I just came here to favorite the first guillotine joke, because the levers of democracy in America are clearly broken, so perhaps a geometric rise in gallows humor will get the people who do still have time to change things to wake the hell up to how fed up the rest of us are becoming
posted by crayz at 3:02 PM on April 28, 2011 [5 favorites]

Towards?

To be fair this was written in 1996. Those intervening years... well yeah
posted by crayz at 3:05 PM on April 28, 2011

Well, there is also another issue at work: a "skill divide." In classes that I have taught, I always make a point of emphasizing that skills are the most valuable things you can gain – not facts, but abilities. Many of my students, particularly young men, had a dismissive attitude: "There aren't any jobs even if you know how to X." I don't know where they get this impression; there were people (from the same age group and experience level) graduating from our trade-skill programs (plumbing, carpentry, welding, and so on up to networking technicians) and walking into jobs making more money than I did at that time. It's a peculiar situation.
posted by sonic meat machine at 3:07 PM on April 28, 2011 [4 favorites]

I don't think there's much of a skill divide now, sonic meat machine - maybe I'm wrong, I don't know. All I do know is that I've met a lot of unemployed carpenters, welders, plumbers, and networking technicians who are very skilled. Sad to say, if they weren't right then, your students are certainly correct now.
posted by koeselitz at 3:15 PM on April 28, 2011 [3 favorites]

forgot the 'prescient' tag.
posted by modernnomad at 3:17 PM on April 28, 2011

I'm confused. Were you being sarcastic?

More referencing the Code 46 trailer. It's one thing to have a private gated enclave with teh poorz on the outside.

It's another thing to organize your society around those principles.
posted by Pirate-Bartender-Zombie-Monkey at 3:18 PM on April 28, 2011

perhaps a geometric rise in gallows humor will get the people who do still have time to change things to wake the hell up to how fed up the rest of us are becoming

I'm convinced that waiting for other people to change things is a huge part of the problem. Another part of the problem is so many people not really being fed up at all.
posted by Hoopo at 3:19 PM on April 28, 2011 [4 favorites]

koeselitz, this was after the recession began, and even now there are people going to trade schools, gaining skills, and then walking out and getting a job using those skills. There are also people who have existing skills who can't find anything. Like I said, it's a peculiar situation.
posted by sonic meat machine at 3:34 PM on April 28, 2011

Could that maybe be because entry level, fresh-out-of-school employees are a lot cheaper than experienced labor?
posted by kaseijin at 3:44 PM on April 28, 2011

Study: 26 percent of renters spend over half their income on housing
posted by robbyrobs at 3:48 PM on April 28, 2011

It's possible, but the wage curve for non-self-employed welders and most other tradesmen is pretty flat, unless you're a specialist; one of my friends' favorite stories from his time as a counselor at the Employment Security Agency is a guy who learned to weld and was great at it, then became a tank welder working 6 month contracts and grossing something in the low six figures. Those types aren't losing their jobs, because they can't easily be replaced.
posted by sonic meat machine at 3:49 PM on April 28, 2011

On that same thought, an MIT economics professor believes we're heading towards a barbell economy [original paper], where jobs are mostly focused towards low-skill, low-pay jobs, and high-skill, high-pay jobs, with nothing in between, meaning there. Higher education seems to be the big differentiating factor.
posted by mccarty.tim at 4:17 PM on April 28, 2011

How economic inequality looks at a world level.

According to the map, the first-world nations with the least economic inequality are:

Sweden Denmark Norway Finland Iceland Germany

It may hurt one's pride to say: "I think I'm going to try out what they're doing", but that's when you tell your pride to go fuck itself.

I think the US needs a socioeconomic think tank dedicated to studying Scandinavia...
posted by lemuring at 4:28 PM on April 28, 2011 [7 favorites]

I think the US needs a socioeconomic think tank dedicated to studying Scandinavia...

It's not that we couldn't stand to adopt some good ideas here, but there are issues of scalability and heterogeneity.

...and all that entrenched power.
posted by Reasonably Everything Happens at 4:48 PM on April 28, 2011 [4 favorites]

I think the US needs a socioeconomic think tank dedicated to studying Scandinavia...

Those are largely racially and ethnically homogeneous societies, in the states, not so much.

And demagogues take advantage of that.
posted by Max Power at 4:54 PM on April 28, 2011 [2 favorites]

Another part of the problem is so many people not really being fed up at all.

I know you mean "not really being fed up" in the bread-and-circuses sense of being distracted from their problems, but it is functionally equivalent to satisfaction in that case.

"...so many people not really being fed up" is a problem, now?

Sounds to me like that's kinda the point of civilization. Damn, we can't have our revolution! There are too many people out there not fed up at all about what's going on!
posted by chimaera at 4:57 PM on April 28, 2011

I think the US needs a socioeconomic think tank dedicated to studying Scandinavia...

And we might neven do that, if US leaders had any intention of decreasing economic inequality. As it stands, they don't appear to even consider it a problem. To many powerful people in America, economic inequality is a feature, not a bug. I think Freeman was hinting at this with the mention of benefits to the upper classes (e.g. cheaper service labor for people who can afford it).
posted by dialetheia at 4:58 PM on April 28, 2011 [2 favorites]

US leaders are all phenomenally wealthy compared to the populations they supposedly represent. Ain't no way in hell they're going to change things.
posted by five fresh fish at 5:42 PM on April 28, 2011

US leaders are all phenomenally wealthy compared to the populations they supposedly represent. Ain't no way in hell they're going to change things.

Indeed. If the US ruling class wanted Scandinavia, we'd have Scandinavia.
posted by Pirate-Bartender-Zombie-Monkey at 5:50 PM on April 28, 2011 [2 favorites]

Those are largely racially and ethnically homogeneous societies, in the states, not so much.

I think this a lot. You can see it in so many places and policies in the u.s. Want to know why we don't have universal healthcare? Because those darkies will get it too, and we can't have that. So many policies that make sense, and where there is the mystified scratching of heads as to why we don't have it - that's often behind the scenes, sitting there.
posted by cashman at 6:19 PM on April 28, 2011 [2 favorites]

Canada is also racially and ethnically heterogenous - indeed, it has always been more divided than the US along linguistic lines. Canada currently has a smaller proportion of people who are what we call "visible minorities" (that is, people who are neither white, nor aboriginal) than the US, but a higher proportion of the population was born outside of the country. We also have less inequality (lower GINI) and a great health care system.

I would agree with those who argue that xenophobia in the US and fears that the only people who would benefit from a good social welfare system would be the "other" may have undermined efforts to get for Americans what everyone else in the first world enjoys. I also think that the nature of the political system (requiring more agreement to get bills passed) may also have had an effect; healthcare didn't pass by that much in Canada. But arguments that social welfare can't work in heterogenous places are clearly baseless - they can work, but you have to sell them as benefiting the majority. I noticed that Medicare is very popular with whites over 65 in the US.
posted by jb at 6:54 PM on April 28, 2011 [1 favorite]

Canada is also racially and ethnically heterogenous
There're two things that make this a largely moot statement, though. For one, the degree is night and day. 16% visible minority versus 36% in the states. But more importantly, the ghettoization of racial minorities in the United States was a far more violent, drawn-out, and codified matter down here, and as a result, it has become damned near impossible to untangle race from social class. At best, the American People (as a unit) can make only a tenuous distinction between the two categories, and this exacerbates the whole problem with wealth inequality we've got.

Bottom line is that Canada, or Scandinavia, or whatever place you want to point to and say "look, we did it here" just has no practical value for the US. We are Vastly Different from all of these places, and the road to equality will first require a complete attitude change before anything like a policy change can come about.
posted by Room 101 at 7:54 PM on April 28, 2011

> Bottom line is that Canada, or Scandinavia, or whatever place you want to point to and say "look, we did it here" just has no practical value for the US.

I love these arguments - they always seem to boil down to "America cannot change."

Unfortunately, you will have to change, or break.
posted by lupus_yonderboy at 8:33 PM on April 28, 2011 [4 favorites]

The bottom line is that if countries with vast wealth inequalities don't straighten their shit out, those few remaining that aren't yet third-world are going to become so.

Which, if you're wealthy, isn't a problem. The Penthouses, Estates, and Ranches are all patrolled by private mercenaries of the blackwater kind. You rabble in the public favela are invisible.

Look at the money the ultra wealthy spend to elect a figurehead, to influence politicians, to dismantle public safety, environment, education, research, communication — can there be any doubt that they are purposefully turning America into a nation of have-nots?

If you are reading this, it is very likely that your welfare just does not matter to the people who are in power. You can be replaced.

The writing is on the wall: just as labour is becoming extremely outsourced, so will consumerism and invention. Service employees and resource laborers are the only essential not-wealthy citizens. Or slaves, whatever.

Oceans rising will wipe most of you out, solving the favela problem, and allowing the ultra wealthy a fresh start with unspoiled views of neo-America.

But that's all too depressing to think about. I wonder what's on the distraction box?
posted by five fresh fish at 8:56 PM on April 28, 2011 [1 favorite]

Well, there is also another issue at work: a "skill divide."

There has been a decades long push to put people through the university system and not into the trades. The results are degree inflation and scarcity of people in the trades (who don't necessarily pull in large incomes). Here is the fundamental problem that Friedman, Rand, or even Horatio Alger could not overcome: Even in a world of perfectly equal skill sets, evenly distributed business acumen, equal effort by all, and equal luck for all, you cannot fit the bottom 80% into the top 20% of slots. Anyone* can make it to the top, but not everyone.

So you either do what societies with better median standards of living (in terms of longevity, access to health care, reported happiness and income) do and treat a rising GINI index seriously, or buy into the libertarian bullshit and get used to increased rates of violent crime and a crumbling society.


*"Anyone" does not include people with developmental challenges, mild to severe mental illness, or people for whom ethics and equality are codes to live by and not garments to put on when it's necessary to build PR points.
posted by Dodecadermaldenticles at 7:18 AM on April 29, 2011 [1 favorite]

five fresh fish: US leaders are all phenomenally wealthy compared to the populations they supposedly represent. Ain't no way in hell they're going to change things.

I'm going to disagree with that. Politics is based on ideas as well as interests. Keynes:

... the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas. Not, indeed, immediately, but after a certain interval; for in the field of economic and political philosophy there are not many who are influenced by new theories after they are twenty-five or thirty years of age, so that the ideas which civil servants and politicians and even agitators apply to current events are not likely to be the newest. But, soon or late, it is ideas, not vested interests, which are dangerous for good or evil.

If Keynes is correct, then future support for progressive taxation and income redistribution may depend on how many teenagers today are reading The Hunger Games instead of Atlas Shrugged.

It's not difficult to have a society where the rich live in extravagant luxury; see any ancient empire or modern Third World country. It's far more difficult to maintain a society with broadly shared prosperity.
posted by russilwvong at 10:51 PM on April 29, 2011 [1 favorite]

¿ You think your phenomenally wealthy leaders are going to do the difficult work in changing things, and moreso changing things such that they themselves will pay higher taxes?

That's absurd. They will do no such thing on their own. If things change if will be because the underclass revolts. It'll take heads on pikes to change the system.
posted by five fresh fish at 8:58 AM on April 30, 2011