Increasing income inequality is usually cast as the inevitable result of vast, impersonal forces like globalization and automation. But it's not, at least not entirely.
Now, I'm not just talking about how much inequality there is after Uncle Sam has taxed the rich and spent on the poor. It's pretty obvious that that can turn the haves into the have-a-little-lesses and the have-nots into the have-somethings. No, I'm talking about how much inequality there is before the government gets involved with taxes and transfers. Even that, as economists Thomas Piketty, Emmanuel Saez and Gabriel Zucman show, has changed a lot more in some countries than others. Which is to say that while trade and technology have helped high-earners everywhere, other things have limited just how much it has — or not.
Just look at the difference between France and the United States. Since 1980, when inequality really started to take off, the bottom 50 percent in France have seen their pre-tax-and-transfer incomes go up by about 32 percent after accounting for inflation. The bottom 50 percent in the U.S., meanwhile, haven't seen theirs change at all. It's been a lost three and a half decades. Which is even worse than it sounds once you realize that Americans have been working longer just to fall behind. The French, after all, take Augusts off.
It's important to remember that universal trends are, well, universal. Trade and technology can't be to blame for working class incomes being flat in the U.S. when they haven't been enough to make working class incomes flat in France. Something else must be going on. The kind of thing that replaces some of the bargaining power workers have lost to robots and outsourcing, so that they can still demand raises. What's that? Well, Zucman told me it's policies like a higher minimum wage, higher unionization and more equal education that have let the bottom 50 percent do better in France than in the United States. Although that's not to say that things have been great in France. Their bottom 50 percent have only had their incomes grow 0.9 percent a year. It's just that anything is better than nothing, and nothing is what the U.S. working class has gotten for a long time now.
The point is that power matters, and the less you have of it, the harder it is to get more. Think about it like this. If you don't have much bargaining power, you can't get many raises, and if you don't get raises you won't have the money to, say, donate to a political campaign. This is also true in the opposite case. The more money the rich make, the more money they have to lobby for the policies they want, which will then help them make even more money. Indeed, political scientists Martin Gilens of Princeton and Benjamin Page of Northwestern found that it almost doesn't matter what average voters want when it comes to what bills Congress passes. All that matters is what elites and interest groups want. In other words, American democracy works for the top 1 percent because American capitalism does, and American capitalism works for the top 1 percent because American democracy does.
But it doesn't have to be this way. We could pay minimum wage workers more, we could make it easier to join and form a union, and we could do more — whether that's spending more on existing schools, allowing more charter schools or creating more trade schools — to try to give lower-wage workers the skills they need to make more. We don't, though. We choose inequality.
The result is that capitalism works better in France than in the United States.