Saturday, June 13, 2015

Inequality, Democracy, and Law (keynote address, 2015 SELA conference, Rio de Janeiro, Brazil)

Inequality is very old.  Until now, indeed, deep economic and social inequality has been perennial in all remotely complex societies. 

Democracy, by contrast, is arrestingly new.  Manhood suffrage is 100-150 years old even in the so-called “mature” democracies.  Women’s suffrage is a product of the twentieth century.  In the United States, effective enfranchisement of African-American and Latino citizens dates to the passage of the Voting Rights Act of 1965, and policies like denying former felons the vote continue to qualify the right. 

            How should we think about the relationship between one of the oldest features of social life – inequality – and our new political condition – democracy, at least nominal and aspirational democracy?  I put the question this way emphasize that, historically speaking, these questions are fresh as well as difficult, and we shouldn’t be surprised to be unsure or baffled in answering them.  Everything I will say has the tentativeness appropriate to this novelty and uncertainty.

            Now, although inequality is old, it feels fresh, even surprising, just now. 

            To recite a cultural history that you already know as cliché, Thomas Piketty’s Capital in the 21st Century alerted Americans to a body of research that had been developed over more than a decade, showing both income and wealth growing sharply more unequal around the world.  Piketty warned that a new rentier class of inherited wealth and social prestige is on the verge of emerging.

            It has become mandatory to raise an eyebrow at “Pikettymania,” and Piketty himself has had the good grace to profess bemusement at all the attention, but the fact remains that the book is a watershed from which many streams of inquiry are beginning. 

            There was a period in the North Atlantic countries, between the end of World War Two and the 1970s, when profound inequality seemed a thing of the past, growth was widely shared, and the shares of capital and labor in national income looked stable. It was easy to assume that those years were Act V of a comedy, watching history’s conflicts resolve into harmony. But maybe those years were instead Act II of a tragedy, observing but failing to understand inequality-producing dynamics that were at work below the surface. If so, we are now in Act III or IV of that tragedy.

Besides giving the numbers, Piketty’s book charts cultural changes that we’re all witnessing: the financial power of the one percent and the 0.1 percent change social life. Talent and ambition follow the money.  They go where capital either trades (Wall Street) or ventures (Silicon Valley). The professions seem drab and mediocre by contrast, and building up a good life by working for wages is becomes unrealistic. Working-class security, middle-class mobility, and stable, respected professions all give way to a rush for big money.  Picking the right parents becomes the key to good prospects — or marrying into the right family if you are born into the wrong one. Piketty lingers over Jane Austen’s asset-oriented marriage comedies with affection but also a certain horror: the need to marry someone with the right capitalization level, a central assumption of those plots, is no longer a quaint feudal relic. It is courtship in advanced capitalism.
            As his most acute respondents have pointed out, Piketty’s work opens more questions than it answers.  He has no theory of how the economy produces and distributes value.  Numbers — powerful ones — are what he has. He has counted things that were harder to count before now — income, asset value — and adorned the bottom line with some nice formulas for holding onto their importance. But the famous inequality r > g, as Piketty readily admits, is not a theory of anything; it is a shorthand generalization from some historical facts about money’s tendency to make money. Those facts held in the agrarian and industrial societies of Europe and North America in the nineteenth century and seem to be holding in today’s industrial and post-industrial economies. But these are very different worlds. Is there something constant that unifies different versions of inequality — that unites plantation owners and Apple shareholders, in their shared position above bondsman and Best-Buy techs — or is the inequality itself the only constant? Without answers to these questions, we don’t have a theory of capitalism, just a time-lapse picture of it.

            The growing interest in connecting private law with theories of inequality, which Amy gave us a terrific introduction to on Friday morning, is one attempt to use law to begin filling in these gaps.  Part of what is happening here, I think, is trying to nail down the thought that Piketty’s famous r, the rate of return on capital, is in part the product of struggles, struggles between those who own the world and those who just work here. Sometimes these are contract negotiations, sometimes strikes, and sometimes elections and lawmaking.  

 Maybe the basic question is power, arrayed along various dimensions, including the comparative power
of organized wealth on the one hand and organized working people on the other. Focusing on this question means putting human struggle at the very heart of any analysis of economic life. As the author of an earlier book titled Capital put it (though not in that book), the root is man.
The period of shared growth in the mid-20th century was not just the aftermath of war and depression, which Piketty makes much of. It was also the apex of organized labor’s power in Europe and North America, which came from many decades of organizing, not a little of it bloody, not a little under the flag of democratic socialism. Various crises cleared the ground, but the demands of labor, and an organized left more generally, were integral to building the comparatively egalitarian, high-wage world that came after the wars, with its strong public sector, self-assertive workers, and halfway tamed capital. A new attention to the distributive effects of the law of the economy – what we tend to call “private law” – is an attempt to get specific about the world that this egalitarian politics built, what became of it, and what might be involved in building a successor to it.

The kinds of changes we are discussing must pass through politics, which is to say, in various versions, that they must succeed democratically.  But of course, democracy, like capitalism, is not one thing but a pattern with many versions.  The culture of unequal wealth, with its patterns of status, influence, and ambition, shapes the practice of politics.  As Zephyr Teachout has emphasized in her important book, Corruption in America, unlimited spending in elections by the wealthy produces dependence on the part of candidates, who need money for political survival.  The result is not usually the outright bribery that the Supreme Court classifies as “corruption,” but a subtler reorientation of attention and concern.  You might think of it by analogy to the ways one sees and hears in a crowded room: where does the eye go, which voices does the ear pick up?  Who, a day later, does one remember was there?  In a democracy that depends on private wealth for its basic activities of communication and mobilization, candidates see and hear the wealthy, because they need them.

Here, then, we are beginning to see the entanglement of unequal wealth and democracy.  It is increasingly common to say that inequality matters to democracy in this way, that it undermines a version of civic equality that democracy presupposes.  But of course this is not obvious.

There is no pre-theoretical formulation of democracy’s relation to unequal wealth.  The question depends on one’s conception of democracy, and also on one’s conception of economic order.   The stronger one’s commitment to a idea of robustly equal citizenship, and the more strongly one believes that a political community might choose among a range of economic orders, the more of a problem unequal wealth looks to be for democracy, because it undermines citizenship and constrains the choices that belong to the political community.

Conversely, the more one sees politics and law as handmaidens to a naturalized set of market relations, the less is at stake in unequal wealth among citizens.  The naturalization of markets is a long tradition.  Its eighteenth-century version rooted rights of property and contract in human nature and divine design.  The twenty-first century version is more likely to proceed negatively, asserting that – in the famous phrase - “there is no alternative” to markets –on account of incentives, information costs, or some other constraint on institutional design.  In either case, the basic logic of the argument is demotion of political sovereignty by the naturalization of market economics.

Let me bring down to earth this question about the work that theories of wealth and democracy are doing, and connect with the role of law in structuring inequality.  Consider the U.S. Supreme Court’s First Amendment cases on money in politics.  What are the implicit theories of markets and democracy here? The Court’s ready assimilation of money to speech assumes that there is, in principle, no conflict between political argument and economic accumulation, that these are compatible, even mutually supportive.  The Court’s embrace of for-profit corporations as essential participants in the process of American democracy also highlights its confidence that there is no contradiction between the accumulation of great wealth and the survival of effective self-rule.

And why would the justices think those things?  Part of the answer may lie in an implicit theory of what self-rule is.  These decision hold that campaign-finance regulation cannot be justified by the goal of equalizing influence among citizens or avoiding so-called “distortion” of political debate by moneyed interests. In other words, equal citizenship as a constitutional value does not imply any rough equality of political means, influence, or efficacy – other than the vote itself.

Instead, the Court’s concern for democracy seems much more minimalist: to avoid the entrenchment of a political class through self-serving campaign laws, even at the cost of ensuring the entrenchment of a class of wealthy donor-citizens who effectively set policy.  That is, as it happens, the role to which twentieth-century economist and political theorist Joseph Schumpeter restricted democracy: facilitating elite rotation while declining as romantic the idea that ordinary citizens should, or can, participate in self-government in any meaningful way.  The patronage relationships that the Court’s decisions foster between wealthy donors and their preferred candidates and movements are exemplary Schumpeterian politics, intra-elite disruptors that change the menu of choices for voters who are mainly passive.
By invoking Schumpeter, I mean to do a little more than name-drop.  When I emphasized the newness of democracy at the start of this talk, part of what I had in mind is that much of the experience of widespread and stable mass democracy occurred in the halcyon years when economic inequality seemed to be in abeyance, those years that seemed to be the late act of a comedy.  In that time, from the mid-1940s through the mid-1970s, the worry that market-driven inequality would undermine democratic equality seemed to have been resolved in practice.  At the same time, resources – intellectual and institutional – for dealing with conflicts between the two were being eroded.  But of course that didn’t seem to matter so much if no conflicts should be expected to arise.

During these decades, a line of argument widely broadcast in the United States by Schumpeter and Walter Lippmann, among others, held that actually existing mass democracy could not instantiate any robust account of collective self-rule.  Voters were ill-informed, emotional, and often in states of fantastical confusion.  Majorities were contingent and fleeting.  Even at its most lucid, the will of the majority was simply visited on the minority like an authoritarian dictate.  The idea that democracy involved a collective body deliberately choosing its direction was insupportable outside certain archaic circumstances, such as the Greek polis or Swiss canton.  The most optimistic account one could give of democracy was to describe majoritarian elections as a rule of decision to resolve contests among rotating bands of elites – the position Schumpeter adopted.  These arguments appeared between the 1920s and the 1940s: by the 1970s, a sophisticated body of public-choice literature portrayed government as, in effect, a subset of economic life: a congeries of rent-seeking by industries and constituencies, power-accumulation by bureaucrats, and, at worst, utopian flights of reformist fancy free of the discipline that cost-internalization imposes on private decisions.

            But there remained a confidence that markets would solve their own problems with respect to inequality.  We had, with help from technocrats, enough democracy to serve as a handmaiden to markets, if not much more than that.  It might have seemed to be enough then; it might not now.

            I am describing the return, in the 21st century, of a 19th-century drama: the worry that the economy has a logic of its own which intrudes on other institutions & domains of life.  It is also the revival of the question what we can do about it.

            In the nineteenth century, among those who thought a basic conflict between market order and political community was real and a serious problem, one can identify two alternatives.  The first, associated with various strands of socialism, sought to absorb economic life fully into the community of equal citizens, that is, to overcome the distinction between the political and economic domains and dissolve all forms of unequal economic power into the sovereign power of democratic politics. 

The other, associated with Progressive reformers in the United States and in Europe with social democracy and, later, Christian democracy, took the opposite approach. It used the power of the state to strengthen the boundary between economic relations and non-economic social life, notably in the domains of the family, education, culture, and professional activity.  The latter was the basic strategy of the accommodation that structured post-War life in the twentieth century.

            Trans-Atlantic social democracy, then, was more social than democratic.  It took seriously the appetite for security in a relatively familiar, stable, and manageable social world, whether that of the factory, the union, the neighborhood, the university or profession, or the family.  Through pluralistic representative institutions, it sought to maintain a reasonable balance among interests.  Its basic strategy of reform was to open up existing institutions of representation and advancement to previously excluded groups while also redefining the state’s relation to individuals through an increasingly homogenous and libertarian scheme of negative rights that was complemented by a scheme of social provision.  It all seemed to be working well enough – until a reassertion of market principles and market power began to break down the barriers protecting various secure domains of social life and revealed the lack of power, or maybe lack of will, in the democratic state to reassert their protection.

The most sustained and influential intellectual attack on this Great Society optimism came from economist Friedrich Hayek.  Hayek argued that, contrary to welfare-state promises of security, an economy could do its work only if it maintained a measure of insecurity and arbitrariness.  Hayek famously argued that the economy should be understood as an information-processing system, conveying data about the relative scarcity of goods, time, and talent, and the extent and intensity of desire for them.  Effective communication of this data laid the groundwork for rational decisions about the trade-offs between possible uses of resources that are the ligature of economic life.

The key to this informational function was the price mechanism, which expressed the kaleidoscopic facts of economic life in uniquely succinct and usable form.  Prices could do this work only if they were in fact allowed to coordinate decisions about distribution and use of resources: every redistributive or regulatory mandate clogged and diverted the flow of information, turning a healthy vascular system of data into a swampy delta of drifting decisions, culminating in an administered state.  Faced with a choice between liberalism – which for him meant the classical liberalism of laissez-faire – and democracy, Hayek argued, one should prefer liberalism.  The more democracy developed in social-democratic directions, the more it tended to force the choice.

On the strength of these arguments, Hayek has become the exemplar of the approach to political economy often called neoliberalism.  Less a program or system of thought than a constellation of programs united by an intellectual mood, neo-liberalism is sometimes bolstered by the claims that markets secure liberty and equality (which Hayek argued), fairness (which he did not), or welfare (which he did, but in qualified form), but the heart the neo-liberal position is a negative one: there is nothing much for the state to do but make and maintain markets.  Ambitious political projects that aim at equality or fairness will undermine these and take welfare welfare with them.  A market regime is the least-worst for all of these values.

These ideas form an important part of the intellectual climate in which new revelations of growing inequality have been received.  One of the major divisions in today’s political economy must come over why neoliberalism has advanced as it has.  Was it because Hayek’s recuperation of market theory, combined with a long-running theoretical demotion of democracy, was intellectually right, and sensible policy-makers saved the world from incipient statism?  Or was it because, as Wolfgang Streeck has argued, capital revolted against the broadly social-democratic mid-century accommodation? Put differently, is the surging inequality of recent decades a feature of the best of possible worlds, or of a world where false necessity enforces an undue impression of inevitability in the very market arrangements that produce and sustain inequality?  Obviously, the stakes of this question are not small.  They concern whether the inequality-generating logic of economic life limits the possible forms of democracy or, on the contrary, the real possibility of democratic decisions about the shape of the economy has been suppressed by a counter-democratic revolt of capital.

            Now I would like to suggest that we treat this question in a pragmatic light, not trying to answer it generally and in the abstract, but concretely as a matter of experimentation.  I want to suggest that law fills in a large part of the picture of how inequality is produced and reproduced that is missing from Piketty’s account.  This gives us pressure points where we might find out how far it is possible to do things differently, and with what result.  And – this is a key further step – law is also the vehicle that will foreclose experimentation in these dimensions, if it is foreclosed.  What I presented earlier as a pair of abstract, theoretical questions – whether one views democracy more or less robustly and whether one sees market-driven inequality as contingent or necessary – may turn out to be a very practical question about how law is used concretely.

            I suspect that for many of you, the idea that law produces inequality will not be as novel as it might be to some US lawyers, especially private-law scholars for whom, as Amy pointed out yesterday, questions of distribution were exiled as pointless a generation ago.  The examples are not hard to find.  Law is the source of the original allocation of productive assets, and repeated new allocations, ranging in the US from the first land grants to settlers in the eighteenth century to the federal housing policies of the twentieth century, all favoring certain races and other groups.  Labor law, especially but not only the law of unionization and collective bargaining, shapes the push and pull between profits and wages.  Antitrust law limits or tolerates industry concentration, meaning both wealth and the power to shape markets.  Amy helped us to see on Friday how thoroughly intellectual property distributes control of wealth – and also direct control of goods essential to life, such as certain medicines.  When Piketty says that the economy produces inequality, it is only natural for lawyers to lift the hood and ask, How does law produce the economy?

            And how does law reproduce inequality, embedding it in the class structure Piketty warns against?  Answers come so quickly that you have already thought them.  Income taxes.  Inheritance taxes.  Wealth taxes.

            But taxes are merely the explicit part, the favorite policies of a tax-and-transfer era.  Our earlier examples, like labor law and antitrust, looked at how the economy produces and distributes income – under the hood, so to speak.  Now let’s ask how the shape of economic power helps to shape those laws, the legal rules of economic life.  For instance: the massive and very effective lobbies for pharmaceuticals and entertainment, which are endowed by IP law and, in turn, get to write IP law – including defining international IP law from their US base.  Or think of how antitrust and financial deregulation helped to produce the too-big-to-fail banks that were widely seen to constrain policy options in the US after the crisis of 2007-08.  Or move directly to politics: labor law feeds back into a recent finding that more than half of US business executives surveyed said they pressed their employees to be politically involved, and, of those, more than three-quarters were pushing for donations to specific candidates, showing up at rallies, voting for certain initiatives that they saw as business-friendly, and so forth.  Here is the return of a kind of dependency relationship that would have horrified the more idealistic republicans at the US founding, and was part of the reason that many radicals and progressives in the late nineteenth and early twentieth centuries argued that democracy under modern conditions had to become economic democracy.

            And I have not yet mentioned spending on elections.  Here, the situation in the US is astonishing.  The advocacy group Public Citizen estimates that between the 2008 and 2012 elections, spending by outside groups, newly empowered by the Supreme Court’s Citizens United decision, rose almost 250 percent.  If you are a Republican candidate for the US presidency, you need a billionaire patron.  If you are Hillary Clinton – well, it takes a village of wealthy donors cultivated over the Clintons’ unprecedentedly lucrative years between White House stints.  When political scientists Martin Gilens and Benjamin Page published a study last year finding that the distribution of policy influence across economic classes in the US was less suggestive of democracy than of oligarchy, it drew attention less because it was news than because it came as a certain kind of technical confirmation of what was already widely believed.

            Does it have to be this way?

Unless you are a thoroughgoing fatalist, it seems fair to judge from the last seven decades that there is a range of possibility in both the ways that law structures economic life and, in turn, the ways that the economy structures politics and law.  The social-democratic accommodation of the mid-twentieth century represents a genuine alternative to a marketized social and political order.  This is true despite whatever social democracy’s internal failures were (notably failures of inclusion), and despite the doubts that its decline raises about its sustainability in the face of marketizing pressure.  As I noted earlier, however, social democracy, always had more to do with securing a strong form of social membership for citizens than with the active political supervision of economic life: it was, to repeat, more social than democratic.  This may have been its Achilles heel.

            Now I want to turn to another way that economic inequality can colonize the production of law.  LAW’S CONCERN WITH JUSTIFICATION MAKES IT AN IDEOLOGICAL BATTLE-GROUND: it contains vocabulary for both criticizing and justifying inequality.
            Under democratic conditions – even loosely, imperfectly democratic, or aspiringly democratic, to justify the law is to argue that it is law fit for a community of equals.  The question then becomes: what is a community of equals?  What does it look like?

            This is a self-referential question: the question itself has to be answered by such a community.

            In the US, we are now seeing a trend in legal interpretation that deepens inequality by entrenching it in the way law structures and reproduces the economy; but it also does something more: it interprets basic values such as liberty and equality in ways that tend to reinforce market logic by identifying it with the defining commitments of a democratic community.

            I already talked about the Supreme Court’s interpretation of free speech in the cases on political spending.  These decisions are dismissive of the idea of a robust conception of equal citizenship or sovereign community.  The liberty they protect is the liberty to project your own interest or opinion as far as your bank account allows. 

There are plenty of other examples.  Sebelius v. NFIB, the Supreme Court’s first encounter with the Affordable Care Act, came very close to overturning the keystone of the law – a requirement that individuals purchase health insurance – to protect consumer sovereignty, the freedom not to be told what to buy.  The Court has used free speech principles to invalidate regulation of tobacco advertising and restrictions on pharmaceutical companies’ sale and commercial use of prescription data.  It has warned that it may invalidate laws requiring workers represented by unions to pay union dues.  In a whole series of cases, individual liberty has meant to liberty of a company to resist regulation, or of an individual to impose a collective-action problem on a scheme of regulation designed to overcome just such problems, such as mandatory insurance and collective bargaining.

            And what about equality?  The same justices who are driving the anti-regulatory interpretation of personal freedom are also advancing a view of constitutional equality, color-blindness, that interprets the civil-rights cases of the twentieth century as forbidding government to take account of race even in remedial policies such as affirmative action.  These opinions describe racial classification as an affront to the dignity of the individual.  They are idealistic, in their way.  They insist on the autonomy of self-defining persons, whose identities and relationships are theirs to form, and may not be dictated by a supervisory state.  But in a world where racial stratification remains pervasive and tracks economic and educational inequality, this form of constitutional individualism can be simply unreal.
            If there is a neoliberal approach to race, this is it: respectful of a certain kind of individual choice, wary of political intervention, and mainly blind to the ways that inequality persists and makes race real in practice.  In our doctrines of equality as well as our doctrines of liberty, then, Americans are finding in our law an increasingly laissez-faire, or neoliberal, image of a community of equals.  It is an image in which individual choice comes to the fore and collective interventions into structure recede or become unthinkable.  That is, it is an image in which mobilizing law to engage the sources of inequality becomes that much harder to do.

It is increasingly common to believe that economic inequality must be brought under control for democracy to realize, or recover, its potential.  As we have seen, this claim depends on one’s conception of democracy; but it is highly plausible for any conception of democracy that aims at meaningful version of collective self-rule, rather than simple elite rotation. 

And there is something further: robust democracy may be necessary if wealth is to realize its potential for social benefit.  Indeed, democracy must be able to intervene in the definition, creation, distribution, and use of wealth precisely to capture the humanitarian and emancipating benefits of growing total wealth.  A political scheme of social provision, and political limitations on the scope of inequality, are the most plausible means to prevent growing wealth from undercutting its own benefits through inequality that limits life-prospects, creates hierarchy, and distorts the image of a community of equals – and, in turn, makes inequality that much harder to combat.

            In the abstract, inequality is not good or bad; it is just a ratio.  In practice, its effects must be measured, like those of any economic order, by the kinds of lives it makes possible, the kinds of relations people live out within it, the human powers that it fosters and those it inhibits and constrains.

            We can key growing inequality to many such powers – or, if you prefer, capabilities: health, mobility, self-development and self-expression, the sense of dignity and efficacy at work and in personal life.  But the most basic danger is that inequality might undercut a political community’s capacity to master inequality itself, making inequality self-perpetuating and all but natural, inscribing it in culture, politics, and personality as well as in the economy.  In this setting, democracy stands for the power of collectively choosing the structures in which we make our private choices, for the idea that a community of equals can aim at equality in many dimensions, and does not need to accept inequality as fate.

            Of course, these thoughts all add up to nothing more than an experiment in trying to think our situation.  But, as a long-dead lawyer with misgivings about equality once told us, all of life is an experiment.  Democracy is a way of owning and sharing the experiment, rather than submit to be experimented on by blind economic and historical forces that are, themselves, just the residue of earlier human choices.

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