Monday, June 06, 2005

That roaring noise: that's the ruling class being formed

The term "ruling class," a coinage of (or at least popularization by) Marxian thought, has always been a bit problematic, since in its very phrasing it presumes that "class" -- an economic concept -- maps or translates unproblematically into political power (e.g. "rule"). Such identity has of course been common in many historical eras: early state society generally, feudalism, and contemporarily, under Communist diactatorships. One of the great triumphs of Western democratic politics over the last century has been to prevent the formation of just such an identity, to safeguard the political voice of the unmoneyed classes. Given the reality of how political access requires money, the formation of a permanent, politically entrenched, hereditary overclass threatens this fundamental value and system. The formation of such an overclass has been radically accelerated in recent years (basically, since Reagan came to power), as this graphic from the New York Times nicely illustrates.

Part of the reason for this shift is that since the 1980s, the American economy has increasing tended to dispense the results of the productivity gains to the upper segments of the economy. The results, in real terms, for low- and middle-income earners, has been income and wealth stagnation. Almost all the gains the economy has experienced have accrued to the very wealthy.

There's an interesting ethical dilemma at the heart of this shift. Many on the right argue that this is precisely as it should be. For in fact, macroeconomic productivity gains are almost entirely determined by two factors: technological innovation (better tools), and managerial innovation (getting people to work together more efficiently) -- and especially the wise marriage of these two. And why shouldn't the people who have driven these innovations, whether they are tech entrepreneurs or the senior managements of the largest American corporations, reap most of the rewards for these innovations, since it is them who created these innovations? From an ethical perspective, the answer is by no means obvious, but a metaphor for thinking about it may help.

Let's say you have a group of ten people working together at Widgets Inc. One person suddenly figures out a way (whether it's technical or organizational, doesn't matter in this scenario) so that the organization can produce twice as many widgets, without working longer hours. The macrosocial benefits are obvious: society's getting many more widgets with much less work, and it turns out that this let's him increase the size of the widget market.

However, from a labor and rewards perspective, things are a bit more murky. On the one hand, the firm's margins are great: it's making twice as much money by the time the supply/demand curve restabilizes on its new frontier, and it turns out that the group only needs seven people to produce the new, larger amount of widgets. On the other hand, three people are getting laid off.

So, how should these gains (and losses) be shared? Well, the way the American economic system is increasingly organized, virtually all the gains will go to the one person who conceived and organized the new production system, while the three people who got laid off are on their own to find a new job. (And, by the way, and the one big winner also increasingly gets taxed at a lower and lower rate.)

Is that fair? Let's just say that reasonable people can probably disagree. More later.

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