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Chapter 6. A Devastating Problem in Liberal Democracy: Inequality
After the summary of the pros and cons of the geopolitics and liberal world order, it is also necessary to address one of the biggest problems behind the mentality under the liberal capitalist democratic system—the inequality. I would use the exceptionalism of the U.S. Americans as the extension.
In terms of international relations, apart from the Middle Kingdom mentality that China possesses, on the other hand, the United States also has a deeply-embedded mindset in their foreign policy making, behaviors, and the actions they take. In other words, the Americans assume themselves to be exceptional: the country is an “empire of liberty”, a “shining city on a hill”, the “last best hope on Earth”, “the leader of the free world”, and last but not least, the “indispensable nation”.
Harvard University’s professor of international relations Stephen Walt noted in his article The Myth of American Exceptionalism one claim that most Americans would reject: “The only thing wrong with this self-congratulatory portrait of America’s global role is that it is mostly a myth.”
The Americans believe that the quality of life that the United States provides its citizens is the best in the world. That is, America is the greatest society in the world in improving the lives of its citizens. There truly was a period, around the end of World War II to roughly about 1980, when the broad mass of the people in the U.S.,
including the bottom 50 percent, experienced a significant improvement in their standard of living. There was clearly a period when the whole world envied America’s record in social and economic development. However, according to some thoughtful scholars and observers around the world, for example, the professor Danny Quah of the National University of Singapore, the good time is over. Many of the key
indicators has turned negative. Pretty shockingly, America is the only major
developed society where the average income of the bottom 50 percent has stagnated
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over three decades, 1980-2010.
Chart 1. Average Income of an Individual in the Bottom 50 Percent of the Nation of Region
Income in thousand
euros
1980 1990 2000 2010 2015
US 7.8 7.3 6.6 6.8 n/a
EU 8.3 8.2 8.1 9.9 10.3
China 0.8 1.2 1.3 2.6 3.9
Asia excluding Middle East
1.1 1.5 1.7 2.3 2.8
World 1.7 2.0 2.1 2.7 3.0
Source: Quah. “The U.S. Is, Indeed, the Exceptional Nation.”
Quah ironically revealed that U.S. is truly an “exceptional” nation among the major blocs or economies in the area of the decline in average income of its bottom 50 percent of population.
This stagnation of income has also led to a huge amount of human pain and suffering, as described by two Princeton University economists, Anne Case and Angus Deaton.
The white working classes of the United States used to carry the American dream of getting a better life in their hearts and souls. Today, as Case argued, there is a “sea of despair” among them. She and Deaton made a conclusion: “Ultimately, we see our
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story as about the collapse of the white, high-school-educated working class after its heyday in the early 1970s, and the pathologies that accompany that decline.” They also document with details how poor economic prospects “compounds over time through family dysfunction, social isolation, addiction, obesity and other
pathologies.”
Based on one of America’s greatest moral and political philosophers of recent times, John Rawls, a test on how societies should measure their success in delivering social justice is that the higher expectations of those better situated are just if and only if they work as part of a scheme which improves the expectations of the least advantaged members of society. To sum up, if one wanted to judge if U.S. is the world’s greatest society on the theoretical basis of Rawls’s advice, he or she would look into the data to see how its “least advantaged members of society” are doing.
In Rawls’ book Oligarchy, there is a stunning illustration provided by the American political scientist Jefferey Winters. It is about how serious U.S. inequality has
become: the average wealth of the richest one hundred American households relative to that of the bottom 90 percent is similar to the wealth disparity between a Roman senator and a slave at the height of the Roman Empire.
As I have cited before, Professor Danny Quah had not only compared the difference of the average income of the bottom 50 percent among the major economies, he also made a comparison about the skyrocketing inequality in U.S. with those of other major economies with valuable data, please see Chart 2 below in the front of the next page.
As Professor Danny Quah observed, “in the U.S. this ratio of rich individual to poor individual was 41 in 1980. Afterwards, it had increased more than triple, to 138, in the thirty years following. According to this chart, although inequality has increased everywhere in the world, as well as in China where it has quadrupled in the last 30
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years, the degree of inequality of nowhere has risen to that of the U.S.
Chart 2: The Ratio of Average Income in the Top1 to That in the Bottom 50 Percent
Ratio of Average Income in the Top 1% to Average Income in the Bottom 50%
1980 2015
U.S. 41 138 (2010)
EU 24 32
China 12 47
Asia Excluding Middle East 38 66
World 100 108
Source: Quah. “The U.S. Is, Indeed, the Exceptional Nation.”
Why has U.S. performed so terribly in the aspect of inequality? John Rawls’ words could be a convincing explanation: “The liberties protected by the principle of
participation lose much of their value whenever those who have greater private means are permitted to use their advantages to control course of public debate. Almost half a century ago, he even warned that American democracy would be subverted if those with “greater private means” are allowed to control the course of public debate.
Former diplomat of Singapore Kishore Mahbubani furthered the viewpoints of Rawls.
He considered there are two ways to explain this deterioration of U.S. inequality. The first is that it is just a temporary situation just as the temporary socioeconomic
aberration of the Great Depression of 1929 to 1939. U.S. quickly recovered from it to have several more decades of prosperity. The same could happen this time. America could be expected to recover fully, especially if one believes that its democratic political system is built to be self-correcting. American democracy should guarantee
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that the interests of the majority of population are always protected.
The second explanation is that it demonstrates a fundamental change in America’s political system without the Americans noticing it. Originally, every two to four years, the Americans go to vote for their congressmen, senators, governors, and state
legislative representatives. And however, under the surface guise of a functioning democracy, U.S. has become a society run by a moneyed aristocracy that uses its money to make huge political and social decisions. As a result, this class has been capable of enacting the greatest transfer of wealth that has ever taken place in American history.
Which explanation is closer to the reality? According to the article written by two Princeton University professors, Martin Gilens and Benjamin Page about how ordinary American citizens have lost their political power and influence, the second explanation of Mahbubani should be more persuasive. They found that the economic elites and organized groups representing business interests back in the year of 1779 had quite substantial independent impacts on U.S. government policy, while average citizens and mass-based interest group had little even no independent influence.
What’s more, the preferences of economic elite (as measured by the two professors’
proxy, the preferences of “affluent” citizens) had far more independent impact upon policy change than the preferences of average citizens did. In other words, their findings indicated that in the United States, it was not the majority who ruled—at least not in the casual sense of actually determining policy outcomes.
They reached the worrying and disturbing conclusion that the democratic society of the United States was seriously threatened if policy-making was dominated by powerful business organizations and a small number of wealthy Americans.
The other three scholars from the School of International and Public Affairs of Columbia University—Alexander Hertel-Fernandez, Theda Skocpol, and Jason Sclar
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also argued that there is a stark inequality in government responsiveness. Based on their research, since the mid-2000s, newly founded conservative and progressive donor consortia—especially the Koch seminars (founded by brothers Charles and David Koch) and the DA (Democracy Alliance)—have magnified the impact of wealthy donors by raising and channeling ever more money not only into elections but also into full arrays of cooperating political organizations. For instance, the Koch seminars allowed donations to be channeled into building a virtual third political party organized around AFP (Americans for Prosperity), an overarching political network able not only to electorally support the Republican Party but also to push and pull its candidates and office holders in preferred ultra-free-market policy directions. When this sort of plutocratic collectives imposed new agendas on political organizations which seek to attract financial support, the funders would reshape routines, goals, and centers of power in U.S. politics well beyond the budgetary impact of particular grants. The authors had concluded: to understand how the wealthy are reshaping the U.S. politics, one should not only look at their election and lobbying expenditures but also at their concerted investments in many kinds of political organizations operating a wide range of fields and functions.
It is an irony that there are many American scholars and political scientists who are fond of quoting the British historian, Lord Acton’s most famous words: “Power corrupts. Absolute power corrupts absolutely.” If the Americans are relieved that they live under a democracy with separation of powers and this tragedy would never happen to them, they should try to consider the variation on the same quotes instead as Kishore Mahbubani had suggested: “Money corrupts. Absolute money corrupts absolutely.”
Despite there is strong evidence that the myth of American dream—the United States is a society of equal opportunity has declined, American’s belief in equal opportunity
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remains very strong. This belief also explain why few Americans resent billionaires, such as Bill Gates, Jeff Bezos and Mark Zuckerberg. Successful celebrities seem to show that the doors are open for every American’s advancement. America has
effectively become a class-stratified society where the prospects of someone from the bottom 10 percent climbing up to the top 10 percent are extremely low, indeed lower than many other advanced societies in the world. Recent data of The Economist in 2018 revealed that “an American born to a household in the bottom 20% of earnings, for example, only has a 7.8% chance of reaching the top 20% when they grow up.”
Even when we asked any thoughtful and well-informed American which country, U.S.
or China, provided a better opportunity for a child from the bottom 10 percent to reach the top 10 percent, the strong belief of American dream may just lead 99 percent of them to the option of their own country without any doubt. However, the data show that the social mobility in China is bigger than that in U.S. In November 2018, the New York Times reported:
Like the United States, China still has a yawning gap between rich and the poor—and the poorest Chinese are far poorer, with nearly 500 million people, or about 40
percent of the population, living on less than $5.50 a day, according to the World Bank. But by some measures Chinese society has about the same level of inequality as the United States.
Below is a chart about the income growth and inequality in China and the United States during 1980-2015 from the data of World Inequality Database:
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Chart 3. Differential Levels of Social Mobility
Income Growth and Inequality in China and the United States, 1980-2015
China U.S.
Income Group Average Annual
Growth Rate
Source: Designed by Patti Issacs in Chapter 7 “The Assumption of Virtue” of the book Has China Won? by Kishore Mahbubani.
From what the chart reveals, China is doing better than U.S. in the aspect of social equity. Whereas the total accumulated income growth of the top 10 percent in China from 1980 to 2015 was 1232 percent, compared to 124 percent for U.S., the total growth of the top 10 percent in U.S. was 41 times larger than the bottom 50 percent.
By contrast, the total growth in China was only 4 times larger.
The data contradicts the common myth of American dream in U.S. which is the core of American identity. The myth of equal opportunity is also tied to the myth that U.S.
has been an exceptionally successful society because it imposes fewest restrictions on the freedom of the individual politically and economically. The majority of the
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Americans believe they could achieve a comfortable middle-class standard of living without any legislation of income equality. They may take freedom in a distorted way.
Despite that a vast majority of Americans are supportive of higher taxes for those with extremely high annual incomes. A survey completed by the famous American media CNBC revealed that fully 60%of millionaires supported (Senator Elizabeth) Warren’s plan for taxing the wealth of those who have more than $50 million in assets. There were polls showing that a majority of Americans also backed a wealth tax. However, the support from the millionaires, some of whom would presumably pay the tax, showed that some millionaires were willing to accept higher taxes in concern of inequality and increasing fortunes of the rich people. While 88% of Democrats supported the wealth tax, 62% of independent supported along with 36% of
Republicans. Even the upper cohort of millionaires, those worth more than $5 million, were in favor of a wealth tax, with two-thirds supportive.
Nevertheless, as a matter of fact, it is almost impossible for members of U.S.
Congress to vote for higher taxes as they would be targeted by special interest lobbies.
Even more treacherously, most ordinary Americans are not aware of that they
effectively pay higher taxes than their ultrawealthy counterpart because those from the top of the top are capable of hiring innocuous-sounding tax provisions that effectively lower their tax rate. About their tax treatment, there was a report by New York Times in 2017 as following:
For decades, the carried interest provision has enabled wealthy private equity managers, hedge fund managers and real estate investors to pay the lower capital gains rate (20 percent, not counting the Obama health care surcharge of 3.8 percent) on their income rather than the rate on ordinary income (a maximum of 39.6
percent)… the primary argument against the carried interest loophole… [is] that the
“carry”—the percentage of an investment’s gains that the manager takes as a
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compensation—should be treated as a payment for services and taxed like regular income, and not be viewed as a return on invested capital, in which the manager has put assets at risk.
In conclusion, the interests of the new capitalist aristocracy outdo those of the majority of the population.
On the other hand, according to the argument of Robert Evan Ellis, the researcher in the field of the influence of China on Latin America: “in addition to ‘purely’
economic interests, Latin America is interested in China because of the possibility that the Asian giant will help the region to offset the traditional political, economic, and institutional dominance of the United States, giving it greater freedom of action to pursue a more autonomous course politically.”23
It is a source of huge inspiration for many Latin Americans that China had
transformed itself from an impoverished country to a rising power that challenges the United States in the global economy only within the short time span of a generation.
Unlike the neoliberal economic policies practiced in the United States and other liberal capitalist democracies, sustained growth of the PRC suggests an alternate development model in which progress and prosperity can be achieved through the use of mercantilist trade policies and without giving up state control of strategic sectors.
Ellis further explained:
The term “Beijing consensus” referring to the example of China, is a derisory allusion to the
“Washington consensus” and policies pursued during the 1990s that failed to address—and, in the eyes of some, may have deepened—Latin America’s deep-rooted problems of inequality, corruption, and stagnant growth. By contrast, the example of China is of great interest for
23 June Tuefel Dreyer (2006b: 96) notes, “The PRC could potentially provide a source of leverage against the U.S. for Latin America and Caribbean countries, but it has not yet done so.”
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Latin America. […] In other words, whatever the lessons of Chinese experience that can be applied realistically in Latin America, the “Chinese model” is a convenient rhetorical tool for regimes in search of development.24
What’s more, being a communist regime, China has important symbolic appeal to a group of Latin American leaders on the left side of the political spectrum, through what may be termed “nostalgic radicalism.” The new PRC is the only successor of the legacy of Mao Zedong’s China, which acted as a revisionist power on the world stage and as a source of inspiration for leaders such as Hugo Chávez of Venezuela and Evo Morales of Bolivia.
24 Ellis, R. 2009. Chap 3 “Why Latin America Is Interested in China” China in Latin America. Lynne Rienner Publishers, Inc.: Boulder, Colorado.
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