Problems with Supply-Side Egalitarianism

Daniel M. Hausman

University of Wisconsin-Madison

Samuel Bowles and Herbert Gintis want to redirect egalitarianism away from redistribution of income and toward redistribution of assets, particularly productive assets.<1> Their main reason, apart from the fact that income redistribution is so obviously dead in the political waters, is that income redistribution lowers productivity and competitiveness, while asset redistribution raises these, and in the long run the welfare of the worst-off depends more on increasing productivity than it does on distribution. Compound interest is a wonderful thing. Young workers in an inegalitarian society growing at 5% per year making half the wages of those in an egalitarian society growing at 1/2% per year will catch up in 16 years and by the time of their retirement will have four times the income. Bowles and Gintis argue that such mathematics, which has long been an argument for inegalitarian trickle-down policies, in fact supports egalitarian asset redistributions.

The trick for egalitarians who do not want to shoot themselves in the foot and who also seek political success is to espouse egalitarian reforms that will increase productivity. If egalitarian reforms increased productivity enough, they could be painless. Those who suffer initially from the redistribution would be better off in the long run. More modestly and more realistically, most people would gain enough that the political opposition from the losers could be overcome. More plausibly still, one might argue that even if the productivity enhancements due to well-conceived asset egalitarianism do little to weaken political opposition to redistribution, they are essential to long-run feasibility: Unless a policy leads to sustained growth, it cannot long endure. Feasibility requires physical productivity and hence economic growth, not the possibility that gainers could compensate losers, which is how "productivity enhancement" is defined by Bowles and Gintis.

It is obvious that badly conceived and implemented income-redistribution programs lower productivity, but so do poorly conceived and implemented asset-redistribution policies. It is not at all obvious that well-designed programs of income redistribution impede productivity. An impressionistic comparison of policies and growth rates over the past two generations suggests just the opposite. There is, as I read the literature, little solid evidence one way or another and no good reason why egalitarians should drop their support for income-redistributive programs in favor of programs to redistribute assets. If Bowles and Gintis are right that their policies would enhance productivity and lessen inequality, egalitarians should find them attractive and should widen their program to include both income and asset redistribution.

Are Bowles and Gintis right? Would their programs lessen inequality and increase productivity? Although I am a philosopher not a social scientist, let me register some qualms. Bowles and Gintis sketch four asset-redistributions, which I shall discuss in a different order than theirs.

First, Bowles and Gintis urge a change in housing policy. Rather than building public housing or providing rent subsidies, the government should subsidize home ownership. Since home owners have better incentives to maintain their housing and police their neighborhoods, such a policy will lead to more efficient maintenance and surveillance. This seems, at first glance, sensible enough and politically feasible to boot. But egalitarians might reasonably complain that the policy is only weakly egalitarian. Since those who are currently renting their homes or apartments are, on average poor, giving them (mortgaged) titles to their homes would increase equality. But so would giving them an equivalent amount of cash. What is redistributive about the home ownership per se? I can see only two answers. The first is essentially paternalistic: the redistribution can be designed so that the mortgaged titles cannot be easily converted into immediate consumption, so the redistribution will not be undone by the imprudence of the poor. Second, homes should be worth more to owner occupants than to landlords, because owner occupants face lower costs in maintaining their homes and neighborhoods. So a redistribution of titles rather than cash provides a greater egalitarian effect. I doubt whether either of these reasons should make this reform especially attractive to egalitarians.

The efficiency claims are also questionable, because Bowles and Gintis do not carefully consider the alternatives. Other things being equal, home owners have, perhaps, the strongest motivation to maintain their homes and neighborhoods. But unlike landlords, they may spend little time thinking about maintenance and neighborhood concerns. Since they are more numerous than landlords and each has a smaller stake, they may face more serious collective action problems. They may also be less competent and less well-informed concerning maintenance and community problems than are landlords. The do-it-yourself plumbing in my home does not compare favorably to the minimally competent work done by the superintendent in the New York apartment building I used to live in, and I suspect that the plumbers I call to repair the damage I've done rip me off. What about alternatives such as subsidizing small-scale rental housing, in which resident owner-landlords maintain their property and neighborhoods, screen their tenants, and exert informal social control over deviant tenant behavior. Would such a policy be less egalitarian or less efficient?

Second, Bowles and Gintis argue that the inequalities created by divorce should be remedied by assigning to children rights to a portion of their parent's income. Such a proposal is designed to address inequalities that have often been overlooked by traditional egalitarians, who have been more concerned with inequalities among classes than with inequalities between the sexes or between adults and children. It is not clear whether such a policy would be appreciably more egalitarian than effective enforcement of existing child-support laws. (Indeed it is unclear how this proposal differs from effective enforcement of existing child-support laws.) Since husband and wife are typically of the same social class, this proposal does not address class inequalities. It seems to me that egalitarians should support something like this proposal, but the proposal is not distinctively egalitarian, and there are plenty of reasons for non-egalitarians to support it, too.

Third, Bowles and Gintis argue for a system of educational vouchers. Their efficiency arguments are exactly those of conservatives. Anyone who has experienced frustrations with public schools can sympathize with their case. If schools had to compete for children, incentives would be much different. Furthermore, there is a strong and specifically egalitarian case for vouchers. If the rules of the game were properly designed, a voucher system could bring about desegregation and equalization of school funding peacefully. Vouchers could even partly overcome the differentiation of schools by social class. Vouchers could thus be a radically egalitarian reform, and at the same time they could make a major contribution to productivity by increasing the efficiency of the use of educational resources and by improving the level of education of our semi-illiterate population.

Any voucher system has, however, major risks; and the attenuation of local democratic control (such as it may be) should give one pause. My principal qualm is that the consequences of voucher systems depend on the details of their design, and those details will be determined by those who write and implement the legislation. If egalitarians were to join conservatives in supporting a voucher system, what sort of voucher system would we actually get? I'm not optimistic. One might respond (as in discussion Samuel Bowles did) that the consequences of every proposal depend on the details of the implementation, and that this objection thus applies equally to all reforms. But the consequences of proposals are not equally sensitive to design details. The egalitarian consequences of vouchers require incentives (or sanctions) to encourage diversity, and they require that schools not be allowed to charge parents any fees in addition to the vouchers. The first of these runs into parental opposition to diversity. Currently only the accidents of school-district boundaries and the mandates of court-rulings overcome this opposition. The ban on additional fees collides both with the desires of the relatively affluent to secure advantages for their children and with a deeply entrenched ideology of individual freedom. Conservatives will say, "Why shouldn't parents be allowed to provide more resources for their children if they want to?" "If we don't allow parents to supplement vouchers, they will enroll their children in exclusive after-school programs anyway." Will egalitarians be able to respond persuasively to these arguments?

Finally we come to what is Bowles' and Gintis' main asset-redistributive egalitarian reform: the transfer of productive assets to workers. Since wealth depends so significantly on ownership of productive assets, this reform would necessarily be part of a massive transfer of wealth and as such would obviously lessen inequalities, even if inequalities among workers in different enterprises remain. Bowles and Gintis argue that this radical reform would enhance productivity, but they recognize that it has the potential to do just the opposite. Given their lesser wealth, workers are in general more risk averse. Since the wealth of workers who own their own firms will be concentrated in a single asset, they will be especially unwilling to take risks. Furthermore, if the structure of worker-ownership is not carefully devised, there can be perverse incentives to avoid increasing employment so as not to share the profits. On the other hand, costs of surveillance and enforcement of work effort will be lower, and one will be able to draw more effectively on the projects and innovations conceived by those who are not wealthy. With institutional reforms to ameliorate difficulties arising from risk aversion and the unwillingness of banks to provide credit, worker-owned firms will, Bowles and Gintis argue, be more efficient.

The propagation of worker-cooperatives seems desirable on many grounds, but its contribution to economic growth is a slender reed for supply-siders to rely on. The argument for the efficiency of worker-owned firms is speculative and inconclusive. Although there is some empirical evidence supporting Bowles and Gintis' claim,<2> there is not much. If one studies a very successful cooperative,<3> such as the Mondragon cooperative in Spain, one finds no spectacular caches of hidden productivity. Mondragon has been a splendid success, and it has in particular provided much-improved job security and social services for its members. Salary differentials have also been much smaller than in capitalist forms. But there are thousands of capitalist firms that have grown more rapidly. Why? Credit limitations were a problem during the early years, but during the last two decades the Mondragon cooperatives have had more investment funds than they have known what to do with. Risk aversion is a more plausible explanation. Indeed the fact that so few of the new investments undertaken by Mondragon have failed--which is cited as a proud achievement--shows that the cooperative has avoided risky investments. Bowles and Gintis argue that such risk aversion could be mitigated by a complicated scheme to provide contingent insurance against bankruptcy. But Mondragon is big enough that it has been able to self-insure against investment failures. It is dubious that any feasible system of state insurance would have changed things appreciably. The problem is that insurance won't give workers in an unsuccessful enterprise a new successful enterprise. Workers are not just investing capital. Even a return of the full value of the investment would leave them without work and drastically worse off, and that much insurance would severely diminish incentives to invest prudently. It is not obvious that the factors that limit the growth of worker-managed firms can be overcome.

Conversely, it is not obvious that there are large benefits to be gained from mutual monitoring and worker initiatives in cooperatives. Workers in capitalist firms (particularly small firms) may form close bonds with each other and even with owners, and in many cases they carry out the same monitoring and innovating that are argued by Bowles and Gintis to contribute so much to the greater productivity of worker-managed firms. Without full authority and rights to the full residual, the incentives for workers to control the workplace efficiently will be smaller, and distrust of owners and management lessens these incentives further. How much more efficiently will worker-owners monitor individual effort? In a one-hundred person firm, an individual worker's share of the profits will be 1%. How much of an incentive is that? Isn't there an efficiency case to be made for shared residual claimancy between workers and owners of capital?

Just as there is no compelling evidence for the productivity losses of well-designed income-redistribution policies, so there is no compelling evidence for the productive benefits of asset redistributions. Bowles and Gintis have not demonstrated the worshippers of productivity should be egalitarians.

If Bowles and Gintis were to accept this conclusion, I doubt that their commitment to egalitarianism would be shaken. Although the reasons for their egalitarianism are not evident in this essay, one can judge from their other work that their espousal of asset redistribution does not derive from a commitment to economic growth nor from a belief that economic growth is the best means to improve the lives of the worst-off. What one finds in this essay instead is an attempt to sell egalitarian policies to devotees of efficiency who have a soft spot for those on the bottom.

I've argued that the sales pitch isn't credible. It is also dangerous, because it obscures the grounds for egalitarianism and thereby undermines the real case for egalitarian policies. If one is mainly concerned about the incomes of the worst off, then the case for egalitarianism turns on whether egalitarian policies will increase them over the next couple of decades. (Beyond that time period the uncertainties are usually too great to permit comparisons.) If one wants the worst off to have higher incomes, then one should be an egalitarian if and only if egalitarian policies in fact lead to sustainable higher incomes for the worst-off. This sort of egalitarianism depends on the answers to technical questions in the theory of economic growth. If egalitarian policies are in the medium run worse for the worst-off, those concerned about the incomes of the worst-off should not be egalitarians.

I doubt that most egalitarians would be happy with the argument. Most would certainly hesitate before instituting egalitarian policies, if it could be shown the such policies clearly led to lower incomes for the worst-off, but most would not wait to espouse egalitarian reforms until there is good evidence concerning their consequences for the incomes of the worst-off. For income may not reflect well-being, and a concern for the well-being of those on the bottom is not the sole motivation for egalitarianism. Indeed for many egalitarians, it is not even the main concern. One reason why one might favor egalitarian policies would be that one is concerned with the well-being of the worst-off, just as one reason for concern with the well-being of those who are worst off is a prior commitment to egalitarianism. But egalitarianism and a concern for those on the bottom are distinct positions,<4> and there are reasons to pursue egalitarian policies that are independent of any concern with the worst off.

Why should anybody be concerned about equality? What's good about lessening inequality? Bowles and Gintis never say, and the reasons why people should support egalitarian policies may easily be forgotten altogether in Bowles and Gintis' concern with productivity.

Some people support egalitarian policies because they believe that such policies increase the well-being of the worst-off. This may be a good reason, particularly if one does not identify well-being with income. There are other reasons, too. Utilitarians have argued for lessening inequalities because of diminishing marginal utility: since transferring $100 from a rich person to a poor person increases the happiness of the poor person more than it diminishes the happiness of the rich person, equalizing wealth tends to increase total happiness.<5> Democrats may support egalitarian policies as a precondition for effective democracy. Those concerned with liberty may oppose inequality as a threat to effective liberty.

There are thus a variety of reasons why equality is valuable as a means to other ends. But one might wonder whether egalitarianism is a sensible ideal.<6> Could equality be of value apart from its consequences for liberty, democracy, productivity, total welfare, or the welfare of the worst off? David Miller presents the basic puzzle as follows:

Why should equality be thought desirable? Equality after all means a leveling of differences; it means a smoothing down of irregularities or idiosyncracies. Although I may from an aesthetic motive desire to trim my rose bushes to an equal height or polish my wine glasses to an equal shine, to treat people in such a way would be at best perverse and at worst immoral. The pursuit of equality seems to be impaled on a fork: either the ultimate end of the pursuit is not equality at all but some other value or values which have become confused in the popular mind with equality, or our societies are aiming at a goal that cursory inspection revealed to be quite monstrous.<7>

In response Miller points out that even if economic equality, like negative liberty, has mainly an instrumental value, it may also have an intrinsic connection to some of the goals it serves, just as negative liberty has an intrinsic connection to autonomy. Miller lists four different ends that equality, including economic equality, may serve and to which equality has an intrinsic connection.

First, equality is sometimes required in order to be fair. If there are benefits or burdens to distribute, then, other things being equal, it is unfair to distribute them unequally. In the absence of good moral reasons for an unequal distribution, fairness requires equality. This is the reason for egalitarianism that is most closely tied to a concern for the welfare of the worst off. It is also the reason that is least closely connected to the Marxian tradition. The weight and reach of concerns about fairness are controversial. I suspect that the only basis for extreme proposals to equalize opportunity for welfare<8> is the view that any differences in outcomes that are not the responsibility of the agents involved are unfair.

Second, equality is a good thing, because some measure of equality is necessary for self-respect. Except when they have behaved stupidly or immorally, individuals should be able to say, "I am as good as anybody else; I may not be as clever or hard working as you are, but I am as good as you are."<9> The great inequalities that characterize the United States today make it very difficult for individuals at the bottom to maintain their self-respect. The homeless are not only impoverished and uprooted, but they are also often regarded with suspicion, fear, and contempt by the more fortunate. This concern with self-respect is associated with the concerns for creative self-realization that Marx expresses so vividly in his 1844 manuscripts.

Third, equality is a good thing, because equal treatment implements the duty to show equal respect. The notion of equal respect is arguably the fundamental notion in morality. Views that morality requires recognizing and respecting individual rights or that morality requires treating the interests of individuals equally can be regarded as interpretations of the notion that there is a duty to show equal respect.<10> Equality is linked to a particular interpretation of equal respect. "...While [people] differ profoundly as individuals in capacity and character, they are equally entitled as human beings to consideration and respect."<11> The issue is not how well those who are at the bottom are able to maintain their self-respect, but how they are treated. Showing equal respect implies recognizing that all people without severe mental and emotional handicaps have capacities to deliberate for themselves, to engage in relationships and activities that are intrinsically valuable, and to develop skills and traits that are admirable.<12> Large economic inequalities are inconsistent with the social acknowledgement that everyone has such capacities, and they violate the duty to show equal respect. The commodification of human relationships jeopardizes equal respect insofar as it leads to a view of human beings "merely as means"<13> -- as things (hopefully soon to be replaced by less troublesome robots) whose services can be bought and sold.

Equality is also necessary for "fraternity." There should be some measure of solidarity among the inhabitants of a nation, and indeed among all human beings; and there should be no systematic barriers to social intercourse. Inequalities are objectionable in part because they place barriers to friendship, community, and love. "What is that some classes should be excluded from the heritage of civilization which others enjoy, and that the fact of human fellowship, which is ultimate and profound, should be obscured by economic contrasts, which are trivial and superficial."<14> Fraternity and solidarity are again values that have been prominent in the socialist tradition.

Equality is thus not only a means to unrelated goals. Severe inequalities degrade those on the bottom. This degradation violates the duty to show equal respect. It damages self-respect. It destroys fraternity. It is unfair. Equality is of intrinsic moral importance because of its links to fairness, self-respect, equal respect, and fraternity. True egalitarians, who are committed to equality as an ideal rather than merely as a means to unrelated goals, need to consider whether policy proposals such as those made by Bowles and Gintis serve fairness, self-respect, equal respect and fraternity.

The egalitarian case is independent of the productivity case, and indeed the level of income is not of ultimate concern to egalitarians. The level of income (as opposed to its distribution) is important only when it is so low as to threaten self-respect and the possibility of fraternity. The distribution of income in contrast is of general moral importance to egalitarians because of its link to all the underlying values. In a society like the United States, in which so much of consumption goes to creating barriers to fraternity and to undermining the bases of self-respect, egalitarians should not be greatly concerned about increasing productivity (except insofar as the increased output makes its way to relieve the absolute poverty of those in poor nations). The misery of those who are poorest in the United States could be alleviated without any economic growth, and (or so I would conjecture) will not be greatly alleviated by economic growth. The misery of the poor in the United States results as much from relative deprivation with its attendant insecurities and disorder as from absolute need. There is wealth enough in the United States to create a heaven on earth here, if only people could individually and jointly figure out how to employ that wealth to shape rich and fulfilling lives. Economic growth may contribute to well-being, but focusing on productivity or growth dodges the real problems. (This is of course not the case for the majority of people who do not live in rich nations.)

Bowles and Gintis are, I think, so busy making a pitch for egalitarian policies to soft-hearted efficiency worshippers that they risk leading their readers to forget what egalitarianism is all about. It is not about Nintendo games in every home and more trips to the Mall. It is about self-respect, fairness, equal respect and fraternity. I am not sure to what extent Bowles and Gintis' policy proposals serve these fundamental goals or to what extent they should be supported by egalitarians. The case needs to be made. Showing that well-designed asset redistribution will not greatly diminish productivity establishes the feasibility of the proposals and may help to limit opposition to them. It is thus a worthy (though very difficult) task to undertake, provided that the asset redistributions serve egalitarian ends. But in investigating implications of asset redistributions for productivity, one should not forget what the point of the redistribution is.

The fundamental mistake of those who think mainly of productivity is not, as Bowles and Gintis hint, that they fail to appreciate the role of government and community in economic growth. The fundamental mistake is that they fail to ask what economic growth is for, and they surrender all thought of questioning, let along controlling the future that markets dictate to us. Even if Bowles and Gintis are right that those concerned with efficiency should support egalitarian policies, egalitarians -- whether they call for redistribution of income or of assets -- should keep their distance from supply-side economics.

1. Samuel Bowles and Herbert Gintis, "Efficient Redistribution: New Rules for Markets, States and Communities." Back to text

2. See Ben Craig and John Pencavel, "The Behavior of Worker Cooperatives: The Plywood Companies of the Pacific Northwest," American Economic Review 82 (1992): 1083-1105. Back to text

3. These remarks on the Mondragon cooperative are based on William Whyte and Kathleen Whyte, Making Mondragon: The Growth and Dynamics of the Worker Cooperative Complex. 2nd ed. (Ithaca: Cornell University Press, 1991). Back to text

4. Even if the distribution of income were unaffected, much higher incomes for the worst off might satisfy those concerned with the well-being of those on the bottom. Back to text

5. For a classic presentation of this argument, see Abba Lerner, The Economics of Control (London: Macmillan, 1944).Back to text

6. The ensuing discussion of egalitarianism as an ideal draws on chapter 10 of Daniel Hausman and Michael McPherson, Economic Analysis and Moral Philosophy (Cambridge: Cambridge University Press, 1996). Back to text

7. David Miller, "Arguments for Equality," Midwest Studies in Philosophy 7 (1982): 73. Back to text

8. Richard Arneson, "Equality and Equal Opportunity for Welfare," Philosophical Studies 56 (1989): 77-93. Back to text

9. J. C. Davies, Human Nature in Politics (New York, 1963), p. 45; quoted in Stanley Benn, "Egalitarianism and the Equal Consideration of Interests," in J. Roland Pennock and John W. Chapman, eds. Equality (New York: Atherton Press, 1967), p. 69. Back to text

10. See Ronald Dworkin, Taking Rights Seriously (Cambridge: Harvard University Press, 1977) and Will Kymlicka, Contemporary Political Philosophy: An Introduction (New York: Oxford University Press, 1990). Back to text

11. (R. H. Tawney, Equality (New York: Harcourt, Brace and Co., 1931), p. 34. Back to text

12. David Miller, "Arguments for Equality," p. 81. Back to text

13. Immanuel Kant, Groundwork of The Metaphysics of Morals (1785), tr.: H. Paton (New York: Harper & Row, 1948), ch. 2. Back to text

14. R. H. Tawney, Equality, p. 139. Back to text