Income Inequality (21): And Economic (In)Efficiency

Standard economic theory suggests that these problems created by income inequality are a necessary price to pay for economic efficiency: unequal rewards – however unpleasant they are and whatever consequences they have – incite those with talents, skill and perseverance to innovate and be productive. Ultimately, this serves the welfare of the whole of society. Reducing inequality means taking away incentives for doing well, and results in economic inefficiency.

Sam Bowles has argued that the opposite is true:

Inequality breeds conflict, and conflict breeds wasted resources … in a very unequal society, the people at the top have to spend a lot of time and energy keeping the lower classes obedient and productive.

Inequality leads to an excess of what Bowles calls “guard labor”. In a 2007 paper on the subject, he and co-author Arjun Jayadev, an assistant professor at the University of Massachusetts, make an astonishing claim: Roughly 1 in 4 Americans is employed to keep fellow citizens in line and protect private wealth from would-be Robin Hoods.

The job descriptions of guard labor range from “imposing work discipline”—think of the corporate IT spies who keep desk jockeys from slacking off online—to enforcing laws, like the officers in the Santa Fe Police Department paddy wagon parked outside of Walmart.

The greater the inequalities in a society, the more guard labor it requires, Bowles finds. This holds true among US states, with relatively unequal states like New Mexico employing a greater share of guard labor than relatively egalitarian states like Wisconsin.

The problem, Bowles argues, is that too much guard labor sustains “illegitimate inequalities,” creating a drag on the economy. All of the people in guard labor jobs could be doing something more productive with their time—perhaps starting their own businesses or helping to reduce the US trade deficit with China. (source)

I must say I’m not entirely convinced. Income inequality creates a lot of problems, but economic inefficiency isn’t the most important one. Justifications for the fight against inequality based on efficiency look a lot less promising than justifications based on justice and fairness.

What is Democracy? (16): Strong Man?

Democracy means continuous confrontations between a maximum number of different opinions coming from a maximum number of levels of society, all of which have to be treated equally, with the same respect and attention. We have to listen to and take into consideration every opinion on an equal basis. This confuses, complicates and extends the debates. Debates have many different antagonists and often take a very long time before they reach a conclusion. This introduces an element of slowness and inefficiency. A democracy does not seem to be a very efficient system of decision-taking.

Furthermore, the larger the number of different interests or different groups participating, the more difficult it is to reach a decision which pleases a majority. It often takes much effort, time and complexity to unify different and contradicting interests into a single compromise decision. This again introduces elements of inefficiency. And as if this is not enough, a democracy makes it possible to question a decision over and over again. New arguments have to be taken into account and the debate is open-ended. As a result, decisions change and a feeling of insecurity and instability prevails.

Democracy equals complexity, obscurity, confusion, chaos, slowness, unpredictability, doubt, insecurity and discontinuity. It is not surprising, therefore, that many people long for the relative simplicity, certainty, clarity, invariability, reassuring stability, order and swiftness of the decisions in a dictatorship, where there is only one voice that speaks.

Efficiency, resolve, clarity of vision, firm direction and the ability to do things become the most important values and the equal participation of all has to be sacrificed in order to realize these values. Tyranny becomes less objectionable when people tire of social conflict, struggle, confusion, compromise, insecurity and change resulting from equal democratic participation. To decide once and for all, quickly and in a simple way, to do something and to be active is indeed easier when decisions are made by only one person who must listen to nobody but himself (in most cases it is a him). The decisions of a dictator can be fast, efficient, simple, clear and definitive. He does not have to take other opinions into account, he does not have to consult all layers of the population, he does not have to wait and see which opinion wins the struggle of ideas and he does not have to make compromises. He is master of the situation because he can force people. As a result, he can act and he can develop an image of resolve, forcefulness, decisiveness and efficiency. People may even accept the violations of human rights that result from dictatorial action, if this is the price to pay for clarity, decisiveness etc.

It is true that democracy is sometimes incompatible with simplicity, clarity, speed, steadfastness and continuity. In a democracy, it is sometimes difficult to take fast, efficient, simple and definitive decisions. This is a weakness because swiftness, simplicity, efficiency etc. are important to many people. Insecurity, unpredictability, obscurity, confusion etc. generally cause dissatisfaction and even fear. Every individual tries to avoid obscure, uncertain and unpredictable situations for him or her personally, so why cherish these “values” at the level of society and politics? Only those who want to hide something can make use of them. On the other hand, discussion, equal participation and massive consultation do not have to be an impediment to action as long as decisions are not postponed indefinitely. On the contrary, they are necessary conditions for wise action because a wise decision needs a maximum number of arguments and points of view.

Decisiveness is clearly not the only or most important value. Quality and acceptability are also important. What is the use of having a fast and simple decision if it is a stupid one or if it is unacceptable to the people and therefore thwarted by the people? Acceptability is one of the justifications of democracy because large-scale and equal participation guarantees a large degree of acceptability. Acceptability and easy implementation are therefore also elements of efficiency, just as speed and simplicity. In a democracy, decisions may be more difficult and more time-consuming because of the large number of equal participants and equal interests, but they are also more acceptable and therefore easier to implement and enforce.