What Causes Social Inequality?

In Power and Inequality: A Comparative Introduction, Gregg Olsen examines three “Nordic” countries—Finland, Norway and Sweden—and three “Anglo” countries—Canada, the United Kingdom and the United States—through the lens of social inequality. Readers with an allergy to footnotes or definitions or statistics should be warned from the start: this book is not an easy, or a superficial, read. Major parts of it articulate the different dimensions of social inequality—for example, as well as inequalities of income and wealth, there are those of access to education, health care and housing. Olsen also discusses the values by which one might judge inequality and assesses the theoretical frameworks within which it can be analyzed. But although Olsen has a large agenda, in the end it is a fairly clear one. He argues that one can really only understand one’s own society by comparing it with others, that the Nordic countries have substantially less social inequality than the Anglo countries and that “social inequality is created, reproduced, institutionalized, legitimated and perpetuated by the people who hold the most resources in society.”

Which all left me wondering—what is obvious and what is not so obvious about social inequality? In particular, although it may now be obvious that particular countries have ended up with differing levels of social inequality, is it obvious that this is the way the world had to turn out?

Because people who have never left home have direct experience of only one society, it is often hard for them to imagine that life can be very different from what they have always known. Forty years ago, social science research was pretty much in that situation. Until the 1970s, it was not actually so obvious that social inequality is very different in different countries—largely because there were not a lot of comparable hard data then available.

In the 1980s, however, high-quality statistical data, rigorously harmonized to similar definitions, started to enable precise comparisons across countries of social inequality and social policy. Since then, the field has exploded. Feasting on the cornucopia of data now available (often accessible online) from international agencies, national statistical offices and coordinated private surveys, a small army of economists and sociologists has written literally hundreds of academic papers on comparative social inequality. (And because it is a good gig—lots of international travel and conferences in very cool locations—the papers just keep coming.)

For more than 25 years, the big picture painted by all this research has supported Olsen’s main point—there is much less social inequality in the Nordic nations than in the Anglo countries ((The Organisation for Economic Co-operation and Development summarized the comparative international evidence in 2008—see Growing Unequal? Income Distribution and Poverty in OECD Countries. Paris: OECD, 2008.)). The basic pattern is the same whether one is interested in inequality of outcome or in inequality of opportunity, the distribution of market income, or in the net benefits of government taxes, transfers and delivery of public services, child poverty, wealth distribution, or in the income share of the super-rich, health outcomes or gender wage differentials. Finland, Norway and Sweden form a cluster, trading places with each other at one extreme of the international distribution. The U.S. is typically an outlier at the other extreme of social inequality, while the UK usually sits closer to the European model than other Anglo countries. Canada is typically somewhere in between the U.S. and the UK.

The accumulation of all this evidence means that many people would now think it obvious that the Nordic nations have much less social inequality—even if it was not always quite so transparent in the old days. This implies that some readers’ eyes may glaze over at the raft of statistics that Olsen presents to show the superiority of the Nordic model on many dimensions.

However, readers who are coming to this literature for the first time are sure to be impressed. And their revised perceptions matter because, in general, the power of the entrenched interests of the status quo has always been partly based on a combination of fatalism and collective failure of popular imagination. When most people really cannot conceive of a different organization of society, the default setting is that social inequality continues in the future as it has been in the past.

Historically, there have always been more or less sophisticated rationalizations—along the TINA (There Is No Alternative) line—for the perspective that “things must be as they always have been.” In sociology, “neo-functionalists” have argued that social inequality is the inevitable and natural implication of society’s need to fill crucial roles and positions. Sociobiologists and social Darwinists have also claimed to find “immutable laws” of social stratification. Olsen examines and rejects those perspectives. Although such theories may have been convincing when researchers could only examine a single country’s data (which used to be the only feasible approach), they cannot survive cross-national comparisons because they offer no reason why countries might differ. Even though all six countries examined here share many social institutions and have similar levels of material affluence, global competitiveness, technological sophistication and democratic governance, it is clear that they differ substantially in degree of social inequality.

So the interesting issue to explain is why these cross-national differences in social inequality exist.

The explanation that Olsen favours is something called Power Resource Theory. (He abbreviates it to PRT, but it seems pretty similar to what I used to know as class analysis in grad school.) But is this “obviously true” or does one need evidence to convince a skeptic?

I would say that it is pretty obvious that being rich and powerful is much more fun than being poor and oppressed. Most people would also think it obvious that the rich and the powerful will try to hold onto their advantaged positions—i.e., that they will use their economic, social and political power to maintain their privileges, whenever that is possible.

However, as Olsen notes, “power” is a slippery concept to define and next to impossible to measure. As Hosni Mubarak has recently learned, the ability to order troops into the streets to suppress a protest is definitely an important power, but the observed exercise of that power is really an indicator of conflict and of challenges to established authority. Truly powerful rulers never have to suppress protests, since nobody dares to challenge their authority. Indeed, they may rarely have to issue an explicit command, since anticipation of their wishes is so clearly in the interest of their subordinates.

So how could one ever test Olsen’s hypothesis that cross-national social inequality differences are caused by differences in relative power? Some may suggest that the real cause is that Nordic nations are also more homogeneous—even if homogeneous countries sometimes produce, as in Portugal or Italy, fascist dictatorships. (Indeed, homogeneity is itself not so obvious—both Canada and Finland are constitutionally self-defined as bilingual countries.)

One of the problems with a book that lists a long catalogue of the current gaps between Nordic and Anglo countries in power relationships and economic and social inequality is that readers can get the impression of immutable permanent differences. Although greater working-class power in the Nordic countries now correlates strongly with their lower level of social inequality, that only tells us how history did turn out. What is not obvious at all is where those differences in relative power came from, how history could have turned out and which events of the present are now shaping the social inequality of our future.

Olsen’s book surveys a great deal of the current literature in sociology and political science, but it provides only the briefest of potted histories of the Nordic and Anglo countries to put it all in context. The history of bitter class conflict that preceded the Scandinavian social democratic consensus of
the post-war years is never mentioned. But that history is crucial to understanding the emergence of the consensus. In Finland, the civil war of 1918 between “reds” and “whites” has been estimated to have killed more than 1 percent of the population, mostly in mass executions and concentration camps (the equivalent in Canada today would be 340,000 dead). By the criterion of days of production lost to industrial dispute, “up to the middle of the 1930s … Sweden, together with Norway, had the highest measured ‘relative volume’ of industrial conflict in the western world ((Walter Korpi and Michael Shalev (1979), “Strikes, Industrial Relations and Class Conflict in Capitalist Societies,” British Journal of Sociology, volume 30, number 2, pages 164–187.)).”

In the 1930s, business and trade union leaders in Scandinavia did not have to look very far to see—in Russia, Germany, Austria and Spain—the potential costs for everyone if class conflict spiralled completely out of control. In 1935 in Norway and in 1936 in Sweden, business and labour signed historic agreements establishing centralized wage bargaining, within a welfare state framework. Just why Scandinavians were able to step back from the brink and reap the benefits of mutual accommodation and corporatist compromise while others—e.g., Spain—experienced civil war and fascism remains a fascinating question ((See Victor Lapuente and Bo Rothstein (2010), “Civil War Spain versus Swedish Harmony: The Quality of Government Factor,” Quality of Government Working Paper Series, University of Gothenburg.)). But it is clear that the Nordic model of corporatism and social democracy was not always there and did not just “happen.”

Why are there now such big differences between Anglo and Nordic countries? Olsen does not emphasize the historic periods when public policy in Anglo countries attempted to reduce social inequality. He correctly notes that the United States has today considerably more inequality and substantially less welfare state intervention than other affluent members of the Organisation for Economic Co-operation and Development—but in the 1930s, with Roosevelt’s New Deal, the U.S. was arguably a social policy leader. (Social security was, for example, established in 1935 in the U.S., but Canadians had to wait until 1967 for the establishment of Canadian and Quebec pension plans.)

The Labour governments of post-war Britain brought in the National Health Service, state-funded post-secondary education and a raft of redistributive social transfers. In the U.S., Lyndon Johnson’s “War on Poverty” during the 1960s was a burst of social policy activism that left a lasting legacy, but the food stamps program was passed under Dwight Eisenhower and implemented by John F. Kennedy. Richard Nixon’s proposals for welfare reform in the early 1970s look positively liberal by current standards. Scholars who contemplate the rising inequality, and diminished state response, of the U.S. and the UK commonly trace the big break in social inequality trends back to the 1980s—the Reagan-Thatcher era—but was it then inevitable? Or did it depend partly on accidents of history?

In 1980, Ronald Reagan won the U.S. presidency, after an election that many pollsters thought too close to call. In 1983, Margaret Thatcher won re-election as prime minister in the UK, after an initial term during which public opinion polls suggested that she was the most unpopular prime minister in British history. Thatcher’s and Reagan’s subsequent policies to break trade union power, reduce the progressivity of taxation and roll back the welfare state have correctly been called a right-wing “revolution,” but their election victories both hung by the thinnest of military threads.

As the Warrior Queen who won the Falklands war with Argentina, Thatcher rode a wave of jingoistic nationalism back to power, which enabled her to lock in structural reforms to labour relations and the role of government in society. But her victory in the Falklands was a very close thing. The British fleet were thousands of kilometres from any base. The Exocet missiles of the Argentine air force sank the Sheffield, but missed the sole supply ship and the single British aircraft carrier. Had another Exocet found its target, the fleet would have had to withdraw, and Thatcher’s military gamble would have produced ignominious defeat in an unnecessary war.

In the U.S., Jimmy Carter was presiding over a prosperous economy when his re-election strategy was blindsided by the Iran hostage crisis. When two U.S. special forces helicopters collided in a desert sand storm in April 1980, the American attempt to rescue their hostages failed shamefully. A muscular Reagan rode the ensuing public reaction to U.S. humiliation into the White House. But had the helicopters not collided, and had the rescue mission succeeded, U.S. TV networks would have been broadcasting images of Carter at the airport, welcoming home the rescued hostages, in the middle of a presidential election race.

Could have been, should have been, whatever—at one level, it does not matter. Actual historical events did turn out the way they did, and we all now live with the implications. But is the grand balance of large forces always so overwhelming that individual decisions and fortuitous events are irrelevant? If not, then it is no longer so obvious that political events in the UK and U.S. (or in Scandinavia) had to turn out as they did. The implication is that it is not obvious that the differences in social inequality that they produced had to happen—which implies in turn that Olsen would have had to write a very different book.

Now that we know which countries ended up with less inequality, we can look for correlated variables to explain what we observe, but we can never directly observe the various different paths that presented themselves historically. In general, the roads not taken are not at all obvious.