The Great Leveler, page 47
Peaceful land reform also failed to make much headway in Sparta. As we have seen in chapter 6, landed wealth had come to be increasingly unevenly distributed, marginalizing an ever larger proportion of the citizenry. By the mid-fourth century BCE, the number of full citizens had declined to 700 (down from more than ten times that number a century and a half earlier), about 100 of whom were classed as wealthy, with the others their debtors. Another 2,000 or so Spartan men were categorized as second-class citizens in part because their income had dropped below the required threshold. Extreme inequality within the citizen body, to say nothing about other subordinate strata of Spartan society, paved the way for reform attempts.
The first intervention, meant to be accomplished without bloodshed by king Agis IV in the 240s BCE, aimed for debt cancellation and the redistribution of land in 4,500 equal allotments not only to citizens but also to suitable members of subject poleis. When these efforts were thwarted while he was away on a military campaign, Agis went into exile and the reform failed. The next round was already a little more violent, as King Cleomenes III in 227 BCE staged a coup with the help of mercenaries, killing four of Sparta’s five senior magistrates (the ephors) and about ten others and expelling eighty more. His program was similar to Agis’s, and this time it was actually implemented, accompanied by military reform that was swiftly rewarded with military and diplomatic successes. Finally brought down by military defeat in 222 BCE, Cleomenes fled the country; there is no indication that his redistributions were tampered with. Massive loss of life in this defeat would, however, have greatly reduced the number of landowners. Further military disaster in 207 BCE prompted the third and most radical round of reform, led by Nabis, who freed and enfranchised thousands of “slaves,” probably helots. He supposedly killed, tortured, or exiled wealthy Spartans and gave their land to the poor. Once he had been deposed through foreign intervention in 188 BCE, a reactionary settlement compelled the expulsion or sale of the recently enfranchised helots. This is yet another illustration that the successful implementation of land reform tends to require a measure of violence, and it also shows how this may unleash even greater counterviolence in return.22
”BREAKING THE TABLETS”: DEBT RELIEF AND EMANCIPATION
For all we can tell, land reform that was not associated with violence one way or another has rarely, if ever, been a potent means of combating inequalities of income and wealth. Much the same might be said about debt relief. Debt has certainly been a driver of inequality, forcing farmers to sell their land and cutting into disposable incomes. At least in theory, the reduction or cancellation of debt might have helped to improve the position of poor borrowers at the expense of wealthy lenders. In practice, there is no good evidence that any such measures ever made a real difference. Debt relief programs are attested from the earliest literate societies on record: Michael Hudson has gathered more than two dozen references to the cancellation of interest or debt itself and the freeing of debt-bondsmen in Mesopotamia between 2400 and 1600 BCE, an ancient Near Eastern tradition that is reflected in the semicentennial Jubilee restitutions ordained in the Book of Leviticus of the Old Testament. The royal relief decrees of the Sumerians, Babylonians, and Assyrians are best understood as an element of the perennial struggle between state rulers and wealth elites over the control of the surplus and the ability to tax and raise troops that I already discussed in the opening chapter. If relief was both effective and recurrent, we would expect it to have been priced into the terms of loans (which might explain documented high interest rates); if it was effective but rare or frequent but ineffectual, it would have had little effect on inequality. Either way, it seems hard to interpret debt relief as a potent instrument of leveling.23
Abolition of slavery might seem like a promising leveling force. In those—relatively few—societies in which much of elite capital was tied up in slaves, emancipation had the potential to compress asset inequality. In practice, however, large-scale abolitionist processes were frequently entangled with violent disturbances. After a failed attempt in 1792, the British parliament passed a ban on the slave trade in 1806 as a measure that initially targeted only non-British colonies and that was meant to serve Britain’s national and, more specifically, military interests vis-à-vis the French during the Napoleonic War. Abolition proper was precipitated by massive slave uprisings in Demerara in 1823 and especially in Jamaica in 1831 and 1832. The Emancipation Act promptly followed in 1833, compelling freed slaves to work without pay for their former owners for several years and offering compensation to slave owners. The required outlay of 20 million pounds was huge, equivalent to 40 percent of the country’s annual public spending and worth $2.3 billion today (or indeed more than $100 billion in current dollars if expressed as a share of the British economy then and now). Although this was less than the market value of the freed slaves—estimates at the time mention 15 million, 24 million, and as much as 70 million pounds—in conjunction with four to six years of unpaid apprenticeship, the total value of the compensation package need not have resulted in a major shortfall. More than half of the payout went to absentee owners and creditors, most of them London-based merchants and rentiers. None of the large-scale rentiers is known to have declined compensation. Under these circumstances, leveling was bound to be very limited at best. Moreover, at a time when British state revenue heavily relied on indirect taxes such as customs and excise duties, the need to take on a large amount of debt to fund this scheme effectively redistributed income from the majority of the population to more affluent slave owners and purchasers of public debt.24
Other instances of emancipation were even more directly linked to violent conflict. France abolished slavery in 1794 at the height of the French Revolution as a tactical measure designed to draw the rebellious slaves of Saint-Domingue (now Haiti) back to its side and away from its enemies. This measure was subsequently reversed by Napoleon. In 1804, when Haiti declared independence, former slave owners were expelled and those who stayed behind were killed in the massacre of whites that year. Another violent shock was required to end slavery in the remaining French colonial possessions: the revolution of 1848, part of a Europe-wide wave of unrest, once again brought down the French monarchy and resulted in immediate emancipation. Owners received some compensation in cash and credit, albeit on less generous terms than they had in Britain. War was instrumental in abolition in most Spanish colonies in Latin America. After colonial rule succumbed to local risings triggered by Napoleon’s invasion of Spain in 1808, the newly formed states soon passed emancipation laws. In chapter 6 I discussed the violent destruction of slavery in the American Civil War, in which the uncompensated expropriation of slave owners was partly offset by collateral damage to non-elite groups that reduced the overall extent of leveling. Meanwhile, the British suppression of the Atlantic slave trade, essentially an act of state violence, had contributed to the decline of what remained of Latin American slavery. Brazil and Cuba were the main holdouts. In the case of Cuba (and Puerto Rico), it was once again violent conflict that prompted policy change. Revolution in Cuba in 1868 led to emancipation in part of the island during a war that lasted a decade. Reforms curtailed slavery from 1870 until abolition was achieved in 1886. When Brazil continued to import African slaves in breach of diplomatic commitments to the contrary, the British navy attacked Brazilian ports in 1850 to destroy slave ships, forcing the country to prohibit the slave trade. Only the final phase of the process was not primarily driven by violence: slavery was gradually dismantled from 1871 onward, and final abolition in 1888 was not accompanied by compensation to owners.25
Broadly speaking, the more violence was involved, through war or revolution, the more effective leveling was likely to be (as in Haiti, much of Latin America, and the United States), whereas the more peaceful the process was, the more compensation was forthcoming and the better able owners were to negotiate this transition (as in the British and French colonies). Only Brazil represents a partial exception. Emancipations that reduced wealth inequality were thus commonly associated with the violent leveling forces covered in earlier chapters of this book. Conversely, emancipations that were both peaceful and significantly equalizing (in material terms) were rare, possibly even non-existent. More generally, abolition events had an even weaker effect on income inequality, considering that owners regularly retained control of the land and were able to benefit from alternative exploitative labor arrangements, such as sharecropping in the postbellum South.
”ON A SOUND AND PROSPEROUS BASIS”: ECONOMIC CRISES
As we have seen, economic contractions were capable of reducing inequality. Massive downturns caused by systems collapse, discussed in chapter 9, had leveling effects that we can discern from archaeological evidence. Severe economic dislocations in the wake of transformative revolutions could yield similar outcomes, albeit on a less dramatic scale. But what was the role of “peaceful” macroeconomic crises, downturns that were not rooted in violent shocks? For most of human history, the consequences of such crises for the development of inequality are impossible to investigate. An early example is a sustained depression in Spain during which real per capita output fell throughout the first half of the seventeenth century as wool exports, trade, and urban activity declined. Inequality outcomes differed depending on our choice of proxies: whereas the ratio of land rents to wages dropped during this period, suggesting higher returns to labor than to land and thus lower income inequality, the ratio of nominal per capita output to nominal wages remained fairly stable, implying the absence of major change in the distribution of income. This, which may be in part a function of the limitations of the available data, highlights the difficulties of exploring leveling induced by economic forces in premodern societies.26
Substantive evidence is available only for the more recent past. Major economic crises have not had a systematic negative effect on inequality. The most comprehensive survey to date looks at seventy-two systemic banking crises from 1911 to 2010 as well as 100 consumption declines of at least 10 percent from their peak and 101 GDP declines by the same margin between 1911 and 2006. These different types of events overlapped only moderately: for instance, only eighteen of the banking crises coincided with the recessions. Thirty-seven of seventy-two systemic banking crises in twenty-five countries yield useable information. Outcomes were biased in favor of increasing disparities: whereas income inequality fell in only three cases, it rose in seven, a figure that grows to thirteen if one includes cases in which no precrisis data are available. Consumption declines were more likely to produce different outcomes: among thirty-six usable cases, inequality fell in seven and rose in only two. There is no discernible trend for GDP contractions. Among both types of macroeconomic crises, the majority of cases registered very little change in inequality. A separate study of sixty-seven instances of GDP collapse in developing countries identifies ten cases in which these events caused inequality to rise, which indicates that poorer countries may be more vulnerable to this kind of shock. We must conclude that macroeconomic crises do not serve as an important means of leveling and that banking crises even tend to have the opposite effect.27
A survey of sixteen countries between 1880 and 2000 confirms this last finding but adds a temporal dimension. Financial crises tended to raise inequality before World War I and after World War II by depressing lower-level incomes more quickly than they did those at the top. The main exception is the Great Depression, when real wages rose even as the incomes of the most affluent, who were heavily dependent on capital income, fell. The Great Depression was the only macroeconomic crisis that had a powerful impact on economic inequality in the United States: the wealth share of the richest 1 percent of Americans declined from 51.4 percent to 47 percent between 1928 and 1932, just as the top 1 percent income share dropped from 19.6 in 1928 to 15.3 percent three years later—and from 23.9 percent to 15.5 percent over the same period if capital gains are included. Losses among the top 0.01 percent were particularly pronounced: their income share including capital gains fell from 5 percent to 2 percent between 1928 and 1932. The ranks of the wealthy shrank accordingly: membership in the National Association of Manufacturers fell by more than two-thirds between the early 1920s and 1933, and the number of banks declined from about 25,000 to 14,000 between 1929 and 1933.28
The Great Depression’s global effect on inequality was generally more modest. In Australia, the top 1 percent income share fell from 11.9 percent in 1928 to 9.3 percent in 1932 but averaged 10.6 percent from 1936 to 1939, not far below the precrisis level. In France, it dropped from 17.3 percent in 1928 to 14.6 percent in 1931 before recovering slightly, and it dropped from 18.6 percent to 14.4 percent in the Netherlands between 1928 and 1932, where this was likewise followed by a partial rebound. Corresponding declines were weak and brief in Japan and were weaker still in New Zealand. During these years, top income shares remained stable in Germany, Finland, and South Africa and actually rose in Canada and Denmark. The equalizing consequences of the Great Depression thus seem to have been largely confined to the United States. Yet even there it produced mixed outcomes: after a few years of leveling, income concentration held steady until the beginning of the war, whereas different measures of wealth inequality show conflicting trends.29
President Herbert Hoover famously erred in asserting, in a speech given four days before the stock market crash of October 29, 1929, that “the fundamental business of the country, that is the production and distribution of commodities, is on a sound and prosperous basis.” But the basis of American inequality may have been sounder than it would soon appear to have been: signs of a rebound of elite income and wealth in the late 1930s should make us wonder how long this trend might have continued had it not been snuffed out by renewed world war. After all, resilience and rebounds of top income shares have also been typical of the more recent past. The stock market crash of 1987 failed to arrest the steady rise of top incomes at the time and the modest equalizing effect of the bursting of the dotcom bubble in 2000 and the 9/11 dislocations of the following year had fully worn off by 2004. The same was true of the Great Recession of 2008, whose negative effect on top income shares had also been fully undone four years later. This holds true regardless of whether we consider the top 1, 0.1, or 0.01 percent share of American incomes. Equalizing effects in other developed countries were heterogeneous but likewise modest. Economic crises may be serious shocks but in the absence of violent pressures are not normally capable of reducing inequality all by themselves.30
”BUT WE CAN’T HAVE BOTH”: DEMOCRACY
At first sight, the expansion of democratic institutions may seem like a plausible candidate as a peaceful means of leveling. However, as we have seen in chapters 5 and 6, formal democratization cannot readily be treated as an autonomous development unrelated to violent action. Much as the evolution of ancient Athenian democracy appears to have been intertwined with mass mobilization warfare, the extension of the franchise in many Western countries at specific points during the first half of the twentieth century was very significantly linked to the shocks of the two world wars. For this reason alone, even if democratization could be shown to have had an equalizing effect on the distribution of material resources in those societies, any such process would at least in part have been driven by the pressures of war.31
Moreover, scholarship on the relationship between democracy and inequality has long produced contradictory results. This ambiguity of outcomes has now been confirmed by the most ambitious and comprehensive survey of this problem to date. Drawing on 538 observations from 184 different countries from independence or 1960 (whichever is later) until 2010, Daron Acemoglu and his associates find no consistent effect of democracy on market or even disposable income inequality. An observed negative effect on the Gini coefficient of disposable income distribution does not reach statistical significance. It is true that the lack of precision of many of the underlying inequality measures leaves room for doubt. Yet the lack of a significant relationship is made all the more striking because democracy does have a robust effect on tax revenue as a share of GDP. This suggests that democracy’s role in shaping the net distribution of resources is complex and heterogeneous and that the often presumed association of democracy with equalizing redistributive policies is far from straightforward. Two reasons for this stand out: equalization can be impeded if democracy is “captured” by powerful constituencies, and democratization provides opportunities for economic development that may by itself increase income inequality.32
More specific studies by Kenneth Scheve and David Stasavage undermine the notion that democratization in the West constrained material inequality. They find that partisanship—whether governments were controlled by parties of the left or not—had no effect on overall income inequality in thirteen countries between 1916 and 2000 and only a small dampening effect on top 1 percent income shares. Centralized, national-level wage bargaining likewise failed to make much difference. They also explore the relationship between franchise extension and partisanship on the one hand and top income tax rates on the other. Because top rates tend to be negatively correlated with inequality and are often better documented than inequality as such, they may serve as a rough proxy for the period before reliable inequality measures became available. Scheve and Stasavage find that the introduction of universal male suffrage did not have a strong effect on top income tax rates: in fifteen countries, the mean top rate in the five years leading up to universal male suffrage was only minimally lower than in the following decade. Incremental extensions of the franchise, as in Britain between the Reform Act of 1832 and the introduction of universal male suffrage in 1918, also did not raise top tax rates. These rates were driven up by World War I, and electoral reforms followed rather than preceded this rapid surge. Finally, comparison of average top income tax rates before and after the transition to a left-wing government reveals only a small mean increase of 3 percentage points (from 48 percent to 51 percent) between the five year–year periods before and after such events.33
