Washington, DC, November 12, 2013 --  

Promises to fight inequality are resonating with voters. Politicians must figure out a way to deliver.

When New Yorkers elected Bill de Blasio mayor on a platform of fighting inequality, nobody should have been surprised. An overwhelmingly left-leaning electorate had somehow elected Republican or formerly Republican mayors for two decades — something that couldn’t possibly continue.

Mayors Giuliani and Bloomberg got much credit for cleaning up the city. Street-level Manhattan bares scant resemblance to 1993. when panhandlers were everywhere and graffiti and drug paraphernalia littered the periphery of the island. The last two mayors have also taken the blame for rising inequality that has decimated the city’s working class over the same period. Backlash against this inequality has created fertile ground for a mayor catering to New York’s left-wing base.

This backlash is not a purely an American phenomenon. In Chile, former president Michelle Bachelet is the favorite to retake office on a similar platform of fighting for a fairer society.¹ Like New York, Chile has enjoyed decades of strong economic growth, giving it the highest GDP per capita of Latin America and landing it in the rich-world club of the Organization of Economic Co-operation and Development (OECD).

Both in Santiago and New York, most economic gains have gone to the rich and professional classes. The Economist magazine quotes OECD figures noting Labor’s share of production has dropped from 66 percent in the early 1990s (when Republicans took control of New York, and Chileans made their transition to democracy) to 62 percent in the 2000s.²

In Chile, two years of unrelenting student protests against inequality in education has shaped the political mood toward seeking a fairer society in general. But it is unclear what Bachelet and de Blasio can do to change these trends.

Rising inequality has been driven both by outsourcing of manufacturing to low-cost countries in East Asia and the emergence of disruptive technologies. The trend of outsourcing won’t last forever — eventually incomes will rise in poor countries, balancing the scales. But technological pressures on labor are not going away. If anything, they are getting worse. The robots and automated manufacturing systems that appeared a quarter century ago are still spreading. Computerized systems made by engineers are steadily replacing physical ones made by workers. Digital cameras pushed film manufacturers like Kodak into bankruptcy. The internet and handheld computers are shutting down newspaper printing plants.

What can politicians do to reverse these trends? Both Bacelet and de Blasio want to raise taxes on corporations or the rich and increase social spending. Bachelet wants to make higher education free for Chileans. Both will probably expand public-sector union jobs.

These prescriptions at best seek to treat symptoms, not the disease. Even if education is free and there are more public sector jobs, it is hard to imagine how this will replace the millions and millions of working class manufacturing jobs that have disappeared and continue to do so. Some people simply do not have the aptitude for a traditional college degree — even if that degree is offered free of charge. And there are only so many sanitation workers, firemen, and other public sector jobs to go around, even if the numbers are expanded.

The answer to some left-wingers is found in controversial “living wage” laws, requiring employers with low-skilled (especially retail) jobs to pay above market wages to employees. They mayor of Washington, DC — another city with a disappearing working class — recently vetoed a bill that would have applied such a law to Walmart employees in the city. The theory behind these laws is that they strengthen the working class and allow them to share in the gains of the rest of society. If affluent shoppers have to pay more for their products so employees can have a living wage, then so be it.

The problem again is that this treats the symptom not the problem. If prevailing wages indicate limited demand for these workers, laws that force higher pay will probably accelerate jobs losses. In the case of Walmart, this means more self-checkout lines, and fewer people to help find the Cheetos.

Truly fighting inequality means helping today’s low-skilled workers find a new niche in the modern economy. Such a niche would be rewarded with high wages by the market, not left-leaning politicians. Proposals to treat the problem with more education are welcome, but they must target the real working class — not the lefty yuppies in training who dominated protests both in Chile and on Wall Street last year.

Notes:

1. The Economist, Cruising back to La Moneda, November 9, 2013

2. Ibid, Labor Pains, November 2, 2013

Nothing to Lose, October 1, 2013

Not Quite Cruelty-Free, September 13, 2013

Please Paint My Ceiling, August 21, 2012

Dead Wood
The Unemployable Working Class, November 3, 2009

Worse than Worthless

The Coming Dependent Majority, October 25, 2005