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In his provocative essay, David Grusky calls for Occupy Wall Street and other groups looking to combat inequality to go beyond a “tax-based redistributive agenda.” They should focus instead on the way that “corruption, bottlenecks, and sweetheart deals” embedded in our markets give rise to rents that generate inequality.
As Dean Baker argues in his recent book The End of Loser Liberalism, this critique of the way our markets themselves generate inequality is essential to addressing problems of inequality. But Grusky also thinks that a program to reduce inequality should embrace an authentic commitment to a competitive market economy, as if there were such a thing as a pure, competitive market economy, apart from law and regulation. Instead, we need to acknowledge that markets always depend on legal and regulatory choices, that different choices of laws and regulations lead to different outcomes, and that part of the point of democracy is to make those legal and regulatory choices well. We cannot take refuge in the abstraction of a competitive market economy.
Consider, for example, the idea of corporate personhood. At any Occupy event, one will see a sign with the message that corporations aren’t people. The point of the slogan is not simply to say that politicians will use campaign finance to distort the market and capture rents. It also raises a deeper concern about who is given voice and access in a democracy. The point is not to complain about government “interference” with competitive markets. Instead, it is about how we, in our collective decisions, legally define a corporation, what responsibilities and powers that confers, and how that can be changed by democratic decisions. Opponents of inequality aren’t mad that CEOs might be rigging their compensation packages. They are mad about the political role of corporations: citizens with no responsibilities to communities or workers, exercising too much power over everyday lives and democracy broadly.
The real battle is not about eliminating rents but determining who will benefit from them.
Or consider the issues of debt and foreclosure, both continually on the mind of Occupy participants. Why foreclose on a homeowner who can pay at least something, as most can? What does it mean to allow a corporation to devastate a community by leaving houses abandoned? Why are the laws surrounding student loans so repressive? The answers to these questions are deeply embedded in our bankruptcy code, foreclosure laws, accountancy rules, and the regulatory stance toward Wall Street. To discuss these issues constructively requires seeing the market not as an abstraction—an ideal that is thwarted by rent—but instead as part of our political economy: as created alongside and with governments and thus shaped by democracy.
Occupy also aims to fight inequality by creating non-market spaces, bolstering the power and freedom of workers, and resisting austerity, none of which fits well within a rent framework. Occupy began with the repurposing of public spaces. Occupied spaces made food, library services, daycare, basic medical care, and a place to sleep universally and unconditionally available, rather than distributed through market logic. This is similar to what Grusky calls for when he argues that colleges should be open to all: an astute point, with colleges being a major battleground for occupations from Puerto Rico to California to England to Canada. But making higher education more widely available is important not simply because it busts up rent-generating privileges. It is also essential to modern democracy.
The anti-inequality agenda also includes stronger unions and a bolstered minimum wage, yet many economists view these as invitations to rent extraction. An alternative view is that strong unions increase the freedom of workers, and that upgrading them would do more to temper corporate abuses than would limiting CEO salary. The inequality between workers and CEOs—the 99 percent and the 1 percent—is about who has power and freedom, and who exercises control over democracy and markets.
Thinking through the relationship between inequality and power will be crucial, because the “rent-free” choice will never be obvious. Patent laws redistribute wealth upward as a rent, but they also provide incentives to innovate. The Federal Reserve greatly influences the unemployment rate, and it has to balance between price stability for capital and employment for labor. Basic regulatory decisions—such as those surrounding large financial firms—have to balance multiple, competing interests. No matter how much elite education is expanded, we are unlikely to reduce the compensation at the very top of the income distribution.
The real battle is not about eliminating rents but instead determining who will benefit from them and how they will get shared among many rival parties. The principal task is not to perfect our markets, but to improve our democracy. Inequality goes deeper than the failures getting in the way of an otherwise functioning market: inequalities shape how those markets are constructed in the first place.
If we’re serious about reducing inequality, we need to do more than raise taxes on the rich. We need to correct the market failures in labor and education that generate it.
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