Canada Class Economic theory Inequality

The lament for Canada’s middle class

I’ve been posting more sparsely lately for a number of external reasons but this should change soon I hope. For now, here is the first major piece I wrote for Ricochet. In some ways, it’s the obligatory piece on Thomas Piketty’s Capital in the Twenty-First Century, but really it’s my way of trying to think through the hand-wringing about Canada’s middle class. Below are the first couple of sections, read the rest here.

The US is in the throes of a debate about inequality: It’s the Waltons versus the Walmart workers on food stamps, the runaway rich in the 1 per cent versus everyone else. Meanwhile, Canada’s inequality discussion has been largely confined to the woes of the middle class. Even the New York Times added grist to the mill by proclaiming Canada’s middle class better off than its US equivalent.

Similarly, while the US has made a veritable rock star out of French economist Thomas Piketty, whose 600-page economics tome Capital in the Twenty-First Century has topped best-seller lists, Canadian reception has been much more muted. This is a bit surprising because Piketty, in drawing out the link between capitalism and inequality, tells the story of a new Gilded Age replacing the post-war Golden Age that saw the middle class establish itself. One reason Piketty’s book may have left less of a mark on Canadian debate is that more of a middle class has endured in Canada. But will today’s middle class survive?

Inequality Workers

Supermanagers and the social psychology of wealth

By now, Thomas Piketty’s U-shaped graphs of wealth and income concentration are well known. What has received less attention are the differences between the last, early-20th-century inequality peak and today. One important difference is that the composition of wealth and income has changed: more of the income of the wealthy today comes from (ostensibly, at least) work.

140708 Piketty 1
Figure 1. Income going to the top 10% in the US over time followed by distribution of income between labour and capital income in the US, 1929 and 2007. (Sources: New Yorker and Capital in the Twenty-First Century, Figs. 8.9 and 8.10) Figure 1. Income going to the top 10% in the US over time followed by distribution of income between labour and capital income in the US, 1929 and 2007. (Sources: New Yorker and Capital in the Twenty-First Century, Figs. 8.9 and 8.10)

It seems not a month goes by without a new study highlighting that CEOs today are earning some enormous multiple of average worker pay. The latest figures put the pay of Canada’s top 100 CEOs at 171 times the average wage. Today’s top billionaires may be richer than Roman emperors but they are more likely to put in a 40-hour-or-more week. While Piketty is not the first to notice that the last few decades have witnessed a profound transformation in the upper class and the rise of “supermanagers”, he provides some of the best data on the exact shape of this enormous change.

The scope of the changes goes far beyond the relative weight of income sources. The rise of a numerically very small class of supermanagers at the top has had impacts on the perceptions and the culture of wealth and work throughout society – and it is this that remains less clear. We know who the supermanagers are, but we know a lot less about how we’ve all changed because of their rise. Certainly, their existence and social position reinforces the tendency towards an acceptance of meritocracy – no matter how much we diverge from it and despite mounting inequalities of resources that are incommensurable with inequalities of skill, education or creativity. The scope of changes, however, goes beyond merit and just desserts: a complex web of material and cultural changes mediated by changing institutions.

In the context of individual, cultural change, it is useful to bring up the work of psychologists like Paul Piff who have studied the effects of wealth on values, attitudes and behaviour. In short, study after study has found intense class-based differences across how people think and act – differences that, in general, do not reflect positively on the rich. One well-known finding is that the rich actually are relatively less charitable then those with low incomes. It is well-known that, generally, the poorer you are, the larger piece of your income you give to charity. Only the very wealthiest give a higher percentage of their income and this is largely aimed at things like “high” arts of which they are primary patrons or the funding of legacies and abetting reputations (named business schools and the like).

Figure 2. Charitable giving by income in the US (Source: Financial Samurai).
Figure 2. Charitable giving by income in the US (Source: Financial Samurai).

Such behaviour accords well with self-reinforcing meritocratic beliefs. Somewhat more cynically, it’s possible to note that the poorest may have been hoodwinked into confusing charity for justice – more charitably, perhaps we simply understand that we will not be getting justice anytime soon and so resort to the lousy second-best of charity, in particular when the welfare state is being slowly dismantled.

The studies carried out by psychologists go much further in cataloguing the social psychology of modern meritocracy. A notable example is a study that found how easy it is to attribute money-making luck to skill. Two players play a game of Monopoly that is rigged so that one player has to win (she gets more money at the start and on each passing of “Go!”). The roles are decided by a coin toss at the start. Perhaps less surprisingly, over the course of the game, the winning player usually became more self-assured engaged in overt displays of power. More tellingly, after the game, winners were likely to attribute their success to skill and (mental) effort rather than chance despite having been explained the rigged rules and witnessing the coin toss. The game was “managed” through skill and the success is testament to it.

Indeed, the old aristocratic value of noblesse oblige is today apparently less of a value the wealthier you are. Today’s wealthy are liable to think they worked their way to the top. On the one hand, this is really true. Not only are workers working longer on average (link to own blog), so are top managers. Economic data is useful in putting a different lens to these social psychology studies. Without the context of broader class dynamics like the rise of supermanagers, the studies can easily give way to moralizing. While they are often construed as morality tales about the value of being nice or the virtues of moderation, their real value lies in shedding light on how the changes in economic relationships are remaking who we are.

Put differently: while the language of precarity is useful, in some sense, workers have always precarious; the wealthiest have, however, not always been managers. The now popular story about vast patterns in distribution needs additional grounding. We need a history of “the making of the working capitalist” that will at once implicitly tell an important part of the story of the remaking of the working class in the neoliberal age.

Class Inequality Workers

We can’t all be workers: Putting inequality in the inequality debate

It’s easy to get confused about who is a worker and who isn’t these days. Your CEO may worker longer hours than you, not the top-hatted capitalist of the Monopoly board he. Indeed, it may seem that the leisure class of the turn of the last century has been replaced by the workaholic professional and managerial class of today. Yet, if everyone is a worker and no one is a capitalist, then how can we still be living under capitalism?

The short answer is we can’t…or, better yet, we are, which means that not everyone can be a worker, no matter how hard they try and how many hours they put in. These reflections are a continuation of something I just posted on the Progressive Economics Forum. With all the talk these days in Canada about income inequality and the shrinking middle class, I thought it might be a good idea to take another look at the labour share of income. I concluded that post with the following chart.

Figure 1. The labour share of income, with and without the 1%.
Figure 1. The labour share of income, with and without the 1%. (Source: Statistics Canada and World Top Incomes Database).

I think this has some of the answers as to why it is unhelpful to talk about the very highest income earners as workers. The reason is economic power, for which the labour share of income is a proxy. The widening gap between the income share made up by total employment income and the employment income of the bottom 99% shows precisely a gap in power. The highest earners disproportionately affect the power of labour, but they do so not as uber-workers but as something different entirely.