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Business and the new egalitarianism
Business and the New Egalitarianism Critics of the market system and the status of income distribution may be advocating goals which would be unfortunate for society and devastating to the business community.
NORMAN C. HILL AND GENE W. DALTON
Both authors are faculty members in the Department o f Organizational Behavior at Brigham Young University.
It w a s : . , bad form to praise the w o r l d and life openly. It was fashionable to see only its suffering and misery, to discover everywhere signs of decadence and of the near end--in short, to condemn the times and to despise them. - J . Huizing, The Waning o f the M i d d l e A g e s
This description of medieval society could easily be included in the b o d y of commentary upon social relations in America today. Citizen dissatisfaction with major institutions and pessimism concerning the future are revealed in almost every public opinion poll which inquires about general sentiments. Criticism seems focused on business corporations which, some say, have made society uglier, dirtier and less humane. That business is the target of attacks is nothing new to most businessmen. Yet there is something new in the charges. Critics claim that the market system has fostered and maintained a vast inequality in our social relationships, an inequality which ought to be eliminated. They claim that the current status of income distribution is unfair and unethical and that it must be changed if we are ever to reach our stated ideals of justice and equality. The general issues which underlie these claims are too complex to examine in a short article.
JUNE 1977
We are choosing, therefore, to limit our discussion to a few questions which, we believe, must not be ignored. Equality is neither new nor unfamiliar as an ideal in American society. Still, ambiguity shrouds the term, and the user often fails to understand its meaning. J o h n Gardner, former secretary of Health, Education and Welfare, has written that "Americans love the ideal of equality. In intellectual terms they may be confused as to what it implies, but emotionally they are not in doubt. ''a For most Americans the ideals of equality and justice are closely connected and are derived from basic inalienable rights codified in the Constitution. Since society mandates these inalienable rights through the instrument of government, a particular institution in society charged with creating an unequal or unjust situation must, ipso facto, be disciplined b y governmental action. Business has long been vulnerable to the charge that it fosters inequality. The early union movement in this country in the 1930s may have lacked a coherent set of principles, b u t it did not lack a sentiment of c o m m o n purpose. It generated loyalty and induced 1. John W. Gardner, Excellence: Can We Be Equal and Excellent Too? (New York: Harper and Row, 1962).
5
NORMAN C. HILL AND GENE W. DALTON
sacrifice primarily because it sought to be a "sword of justice." Critics of business today are using the same basic appeal in their attempts to limit the functions of the corporation. They are capitalizing on the public's dissatisfaction with contemporary institutions and on the deeply rooted ideals of equality and justice to call for a major renovation of the economic system. They are pointing to the income differences between the rich and the poor and implying that those who have large incomes obtained them immorally. They are saying that income and status differentials are unfair and unearned, and should, therefore, be eliminated. They are assailing the tax structure which protects the rich and allows corporations to bribe their way into market channels. They are determined, and, with the evidence they are marshaling, it seems they are convincing an increasing number of public policy makers and citizens alike. The initial target for many of these egalitarians is the business community. The strategic value for beginning with business stems from its size and resources. Its vulnerability stems from its visibility. Public awareness of huge profits made by corporations and of large executive salaries prompts many to wonder if a free enterprise system merely provides a license for those in business to do whatever they want, regardless of how it affects others. There is a growing feeling among large segments of the population that large organizations can only serve their own interests, and so people are beginning to insist that the government impose "social responsibilities" upon business.
EQUALITY OF RESULTS ADVOCATES Those who are using appeals to equality and justice as a means of criticizing business are emphasizing that political control must be established over economic institutions, and that equality of results, rather than equality
of opportunity, must be used as a social criterion. They maintain that ideals of justice and equality can be achieved only by utilizing a measurable standard, such as equality of results. These critics are saying that equality of opportunity is an inadequate means of achieving social justice. They maintain that individual effort has less effect on one's career success and personal achievement in today's complex organizational society than do such intangible and unmerited factors as social class, family background and luck. Christopher Jencks, whose extensive study of education and job mobility produced changes in federal educational policy, has recently written that: Instead of trying to reduce people's capacity to gain a competitive advantage on one another, we will have to change the rules of the game so as to reduce the rewards of competitive success and the costs of failure. Instead of trying to make everyone equally lucky or equally good at his job, we will have to devise insurance systems which neutralize the effects of luck, and income sharing systems which break the link between vocational success and living standards. 2
Herbert Gans, a colleague of Jencks's, suggests that one of the ways to change the rules of the game is to restructure society through social legislation. Gans asserts that "new policies must aim for equality of results, so that people become more equal in terms of income, education, quality of jobs and political power. ''3 Gans and Jencks claim that if society is to achieve any kind of a just and Iegitimate social order, public agencies must be able to regulate income distribution. Harvard philosopher J o h n Rawls asserts that only through such control can a society minimize individual differences and thereby achieve justice. In his massive and increasingly influential work, A Theory of Justice, Rawls 'writes that the intent and effect of public policy must be to 2. Christopher Jencks, Inequality: A Reassessment of the Effect of Family and Schooling in America (New York: Basic Books, 1972). 3. Herbert J. Gans, More Equality (New York: Pantheon Books, 1973).
BUSINESS HORIZONS
Business and the New Egalitarianism
nullify "accidents of natural e n d o w m e n t " and "results of social circumstance. ''4 In other words, regardless of their origin, individual differences must be minimized. America, charge those who agree with Rawls, Gans and Jencks, can be described as a society of inequality that would like to think of itself as egalitarian. They maintain that while we are officially dedicated to equality of opportunity, to enabling the disadvantaged to succeed on the basis of their personal ambition and talent, large segments of our society are barred from realizing that opportunity not only because of race or sex b u t often because of social background. Rich and poor, they say, have an equal opportunity to work as c o m m o n laborers, b u t the poor rarely obtain the necessary social contacts or background that provide access to professional and executive positions. The most blatant inequality, they assert, is in the area of wealth and income. The distribution of wealth and income in America has been described and interpreted b y a number of scholars who have derived basically the same statistics. By dividing the population into fifths, they have found that the poorest fifth of all Americans obtain about 3% of the country's annual income and own about one-half of 1% of its wealth. The next poorest fifth get 11% of the income and hold an estimated 2% of the wealth. The richest fifth, however, receive 46% of the annual income and own 77% of the wealth. Fully one-third of all the wealth belongs to 1% of the population. These differences are not new, b u t there is a difference in the way they are viewed. Most American have always aspired to improve their wealth and income, b u t now many expect to do so, and increasing numbers are demanding improvement. One of the significant changes of the last two decades has been a domestic revolution of rising expectations. 4. John Rawls, A Theory o f Justice (Cambridge, Mass.: Belknap Press, 1971).
JUNE 1977
When aspirations rise and people begin to hope for a better way of life, they tend to become pensive; b u t when expectations are heightened, they become impatient. When rising expectations are not readily realized, people tend to become more critical of society and demand more from their institutions. These rising expectations are shaping and providing support for some means of achieving greater equality of condition. The achievement of such equality has become, in the minds of many, a necessary moral objective.
INROADS INTO CORPORATE POWER The movement toward greater equality started in the beginning of this century as a push for legal rights: the right to vote, the right to equal j o b opportunities and the right to equal pay for equal work. This emphasis is currently expressed in the drive for equal treatment of blacks and w o m e n in the labor market. However, the goals of reformers have moved b e y o n d legal right of equal results. The goals n o w are for the achievement of power and economic equalization. Public employees have struck for wage equity with workers in private industry. Consumers have called for more control over what goods are to be sold and h o w they are to be marketed. Environmentalists have demanded that business firms consider the impact of production decisions on the ecological system. Stockholders have demanded greater control over the decisions made b y management. Most of those making such demands have spoken in terms of a u t o n o m y and democracy instead of in terms of equality. Still, if the claims are carefully scrutinized, it is evident that they mean more income for some and higher costs for others, more power for some and less for others. In other words, simply more equality. It seems that such movements often begin b y making just claims for rights and somehow
NORMAN C. HILL AND GENE W. DALTON
end in merely making more demands for power, for current egalitarians certainly do seek power. They seek to use the power of the government to achieve their ends and to maintain their position once achieved. Says Jencks, "We need to establish the idea that the federal government is responsible not only for the total amount of the national income, but for its distribution. ''s To achieve uniformity, they w o u l d willingly sacrifice some diversity and individual liberty. Many supporters of egalitarian attempts to reduce power differentials see the governmental interventions which they advocate as mere answers to a particular p r o b l e m - p o v e r t y , pollution, unemployment. Consequently, they view the move toward greater societal equality as only an incidental result of solving a particular problem. But such actions viewed in the aggregate have other ramifications. Taken together, they produce greater governmental centralization at the same time most citizens perceive government as becoming increasingly unresponsive. This side-effect alone should make us consider the desirability of legislating equality of results. Robert Nisbet has written that, even historically, equality and centralization seemed to occur together: T h e r e is n o t h i n g p a r a d o x i c a l in the f o n d n e s s of egalitarians for c e n t r a l i z e d p o w e r , the k i n d t h e military b e s t evidences, a n d t h e f o n d n e s s of centralizers for equality. T h e latter, w h a t e v e r else it m i g h t
signify, means the absence of the kinds of centers of authority and rank which are always dangerous to [central] governments. 6 Proponents of private enterprise have usually neglected such issues as equality and justice. The market, they claim, allows for the maximization of individual choice and that is the only criteria which can be adequately applied in economic relations. Says Nobel Prize winning economist Frederick von Hayek:
5. Jencks, Inequality. 6. Robert A. Nisbet, Twilight o f Authority (New York: Oxford University Press, 1975).
Since t h e y [i.e., differentials in w e a l t h a n d i n c o m e ] are n o t t h e effec.t o f a n y o n e ' s design or i n t e n t i o n s , it is meaningless to describe the m a n n e r in w h i c h the m a r k e t d i s t r i b u t e s the g o o d things o f this w o r l d as e i t h e r j u s t or u n j u s t . . . . No test or criteria have b e e n f o u n d or c a n b e f o u n d b y w h i c h such rules of "social j u s t i c e " can b e assessed . . . . T h e y w o u l d have to b e d e t e r m i n e d b y t h e a r b i t r a r y will of t h e holders of power. 7
Supporters of capitalism have unwarily assumed that the market system is self-justifying and have, consequently, failed to develop an ideological response to the claims of egalitarians. Now, when nearly all established institutions are being reexamined and required to establish their legitimacy anew, historic arguments must also he reassessed. Concepts of equality and justice, if not used as criteria to evaluate the market's effectiveness, must at least be integrated into a comprehensive scheme which justifies its perpetuation.
COSTS OF MORE EQUALITY A British member of Parliament, the late Hugh Gaitskell, once flatly proclaimed that "socialism is about equality." From the intensity of current movements in America one might conclude that capitalism, too, is "about equality." Although changes in the past two decades have ensured that people in America have more equality than they have ever enjoyed, and in many respects more than any other nation on earth, we still are dissatisfied. It seems as true now as when Alexis de Tocqueville said it more than a century ago that "the human desire for equality increases geometrically while actual equality is increasing arithmetically, and sensitivity to inequalities in the social order become greater as actual inequalities becomes smaller." Several facets of equality of results have been ignored by its proponents in their haste to affect public policy. These factors, taken together, 7. Fredrich August von Hayek, The Road to Serfdom (Chicago: University of Chicago Press, 1963).
BUSINESS HORIZONS
Business and the New Egalitarianism
should make us cautious in any consideration of policy designed to create a society based upon equality of condition. First is the fact that American society is multidimensional. Its political institutions provide universally distributed rights which proclaim the equality of all citizens. But its economic institutions rely upon a marketdetermined distribution of goods and services which results in economic disparities among citizens. The resulting mixture of equal rights and unequal incomes can, and often does, promote a conflict for many between the political assumptions of democracy and the economic premises of capitalism. This duality, far from being contradictory, allows for both political choice and economic productivity. Liberty is enhanced in public affairs, and incentives can be used in tile industrial arena by maintaining such a "split level" society. Financial rewards in the form of wages and profits allow individuals to determine their own areas of utility rather than being dictated to by a central planning agency. A move toward equality of results would seriously interfere with the use of incentives to improve productivity and output. Without effective incentives, production would fall, and everyone would have less. The equal result would be that everyone is equally less well off. Arthur Okun, former chairman of the Council of Economic Advisors, writes that in pursuing equality of results society would forgo any opportunity to use material rewards as incentives to production. And that would lead to ineffciencies that would be harmful to the welfai-e of the majority. Any insistence on carving the pie into equal slices would shrink the size of the pie. That fact poses the tradeoff between economic equality and economic efficiency. 8
Some have said that the tradeoff has favored economic efficiency for too long; that the unequal distribution of income requires
rectification. However, if one were to look not only at current income distribution, but also at recent trends, a different profile would emerge.
A SOCIALLY MOBILE SOCIETY Some nineteenth century observers predicted that a mature capitalistic system would dry up opportunities for upward mobility, but this has simply not happened in America. Business, in particular, has been a place where citizens have been able to improve their economic position. For instance, during the post-World War II period, the percentage of those from economically " p o o r " backgrounds who entered the top echelons of business experienced its greatest increase: from 12.1% in 1950 to 23.3% in 1964. Furthermore, the percentage of wealthy family members who were awarded significantly responsible executive positions also declined: from 36.1% in 1950 to 10.5% in 1964. 9 Besides these executive mobility patterns, people in all walks of life have been able to move up the status and income hierarchies. According to the findings of Stephen Thernstrom, social mobility has continued at a high rate. Studying demographic records in Boston for the past 80 years, he found an "impressive consistency i n . . . career p a t t e r n s . . , between 188.0 and 1968. About a quarter of all the men who first entered the labor market as manual w o r k e r s ended their careers in a middle-class calling; approximately one in six of those who first worked in a white collar job later skidded to a blue collar post. ''1 0 These findings challenge the often-voiced belief that American capitalism has created a permanent and growing class of the poor. In fact, evidence points in the opposite direc9. Seymour M. Lipset, "Social Mobility and Equal Opportunity," The Public Interest (Fall 1972), pp. 90-109. 10. Stephen Thernstrom, Migration and Social Mobility,
8. Arthur M. Okun, Equality and Efficiency; the Big Tradeoff (Washington, D.C.: The Brookings Institution,
1880-1970:
1975).
(Princeton, N.J.: Institute for Advanced Study, 1972).
JUNE 1977
The Boston Case and the American Pattern
NORMAN C. HILL AND GENE W. DALTON
10 tion. Thernstrom reports that statistical data from Poughkeepsie in the 1840s, Boston in five different samples from the 1880s to recent times, and Indianapolis in 1910, all affirm that most of the sons of unskilled workers either moved up into the ranks of the skilled or found middle-class jobs of various kinds. These conclusions are reinforced by a comprehensive national survey of mobility patterns which analyzed a national sample over several generations by relating family occupational background to first job, thereby permitting a comparison of the young still on their first job with the experience of the elderly when they were young. 11 It was found that "the influence of social origins has remained constant since World War I. There is absolutely no evidence of 'rigidification.' " There simply is more equality in America than those who advocate equality of results 11. Peter Blau and O. D. Duncan, The American Occupational Structure (New York: Wiley, 1967).
are willing to admit. Opportunity is measured not only by the share of total income received by the richest 20% (or any other group), but also by the chances for individuals to improve their economic lot. On this basis alone, the suggestion that American society is grossly unequal can be challenged. Capitalism in America has provided a mobile society in which the poor are not doomed to remain at the b o t t o m of the income heap. It has also provided the basis for individual liberty which the political system is expected to protect and which a philosophy of equality of results, paradoxically, endangers. For when the ethic of equality alone forms the basis of a social system, citizens are expected, through the influence of either tacit social norms or formal requirements, to adjust to the dominant group's demands. Alexis de Tocqueville once wrote that "in times of equality, no matter what political laws men devise for themselves, it is safe to forsee that trust in c o m m o n opinion will become a sort of religion, with the majority as its prophet." Individualism wanes under such conditions because people change the source of their views from internal to external causes. They are less like a gyroscope with personal reasons for performance and more like a radar unit which picks up impulses from the outside as guides to actions. To require equality of condition, then, may have the effect of reducing choice without providing a replacement. ~
Since our discussion has been selective rather than comprehensive, our conclusions must be considered tentative. Still, we feel that m a n y of the goals advocated under the banner of equality of results would be unfortunate for society and devastating to the business community. Fairness and equality are not the same thing. People should have a chance to gain an education and be considered for jobs on the basis of their ability, but it should be recognized that equal opportunity implies unequal results.
BUSINESS HORIZONS
Business and the New Egalitarianism
A d v o c a t e s o f free e n t e r p r i s e rightly view the egalitarian p u s h as a t h r e a t n o t o n l y to its incentive s y s t e m , b u t also to the f u n d a m e n t a l principles o f a m a r k e t e c o n o m y . As J o h n Cobbs noted: "The American economy, based on private p r o p e r t y , uses the m a r k e t to d e t e r m i n e r e w a r d s and to allocate resources. D i f f e r e n c e s in p a y a n d p r o f i t are essential to it. A t s o m e p o i n t , t h e r e f o r e , a m o v e t o w a r d e q u a l i t y w o u l d require a shift f r o m capitalism to a socialist or g o v e r n m e n t - d i r e c t e d state. ''1 2 B u t we m u s t also r e m e m b e r t h a t e q u a l i t y o f results is b e i n g o f f e r e d as a r e m e d y to a p a r t i c u l a r c o n d i t i o n p e r c e i v e d b y m a n y as requiring s o m e t y p e o f r e m e d y . I f t h a t r e m e dy has a b r o a d appeal, it is b e c a u s e the c o n d i t i o n is w i d e l y felt. T h e c o n d i t i o n , in o u r view, is a loss of faith in o u r s y s t e m and in o u r leaders to live u p to o u r t r a d i t i o n a l values o f fairness a n d e q u a l i t y o f o p p o r t u n i t y . E q u a l i t y o f results a n d the a c c o m p a n y i n g c e n t r a l i z a t i o n o f p o w e r are a p p e a l i n g o n l y to t h o s e w h o believe t h a t we have lost the 12. John Cobbs, "Egalitarianism: Threat to a Free Market," Business Week (December 1, 1975), pp. 62-65.
will or ability to m o v e t o w a r d these traditional goals. I f the public is to have faith in business and g o v e r n m e n t , leaders in b o t h sectors o f o u r e c o n o m y m u s t act r e s p o n s i b l y to achieve fairness and e q u a l i t y o f o p p o r t u n i t y w i t h i n o u r p r e s e n t f r a m e w o r k . Business leaders, during the s u m m e r o f the Watts riots, were able to m o b i l i z e t h e m s e l v e s to v o l u n t a r i l y find e m p l o y m e n t for minorities. A b r o a d s p e c t r u m o f the public m u s t perceive t h a t business leaders can and will use t h e i r p o w e r to achieve a c o n d i t i o n o f fairness w h e n an injustice is identified a n d n o t again wait until a crisis is thrust upon them. We m u s t w o r k to assure t h a t o u r p r e s e n t laws are e n f o r c e d fairly, regardless o f the w e a l t h or the p o w e r o f t h o s e a f f e c t e d . We m u s t r e e x a m i n e o u r i n c o m e t a x and inherit a n c e taxes to ensure t h a t t h e y achieve their i n t e n d e d result. Unless we are willing to p a y the price of m a k i n g o u r p r e s e n t s y s t e m m o v e us t o w a r d the goals to w h i c h we all o s t e n s i b l y subscribe, we will find ourselves grappling w i t h c u m b e r s o m e a n d coercive a t t e m p t s to achieve those goals.
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Modern complexities require that goals be formed into a highly sophisticated system. The more powerful and complex the means of achievement, the more astute and articulate must be the guiding goals. As commercial aircraft become supersonic, for example, they require ever more sophisticated flight controls, navigation equipment, and landing systems to assure safe arrival. Certainly, broad social goals are not so simple that they can be drawn up in a list and then readily approved and acted upon. Rather, an important public dialogue taking place over time makes possible a broad consensus . . . . Such goals then require careful interpretation to make them realistic for each location, time, and circumstance. --Kenneth R. Schneider Destiny o f Change
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JUNE 1977
I
11
NORMAN C. HILL AND GENE W. DALTON
Both authors are faculty members in the Department o f Organizational Behavior at Brigham Young University.
It w a s : . , bad form to praise the w o r l d and life openly. It was fashionable to see only its suffering and misery, to discover everywhere signs of decadence and of the near end--in short, to condemn the times and to despise them. - J . Huizing, The Waning o f the M i d d l e A g e s
This description of medieval society could easily be included in the b o d y of commentary upon social relations in America today. Citizen dissatisfaction with major institutions and pessimism concerning the future are revealed in almost every public opinion poll which inquires about general sentiments. Criticism seems focused on business corporations which, some say, have made society uglier, dirtier and less humane. That business is the target of attacks is nothing new to most businessmen. Yet there is something new in the charges. Critics claim that the market system has fostered and maintained a vast inequality in our social relationships, an inequality which ought to be eliminated. They claim that the current status of income distribution is unfair and unethical and that it must be changed if we are ever to reach our stated ideals of justice and equality. The general issues which underlie these claims are too complex to examine in a short article.
JUNE 1977
We are choosing, therefore, to limit our discussion to a few questions which, we believe, must not be ignored. Equality is neither new nor unfamiliar as an ideal in American society. Still, ambiguity shrouds the term, and the user often fails to understand its meaning. J o h n Gardner, former secretary of Health, Education and Welfare, has written that "Americans love the ideal of equality. In intellectual terms they may be confused as to what it implies, but emotionally they are not in doubt. ''a For most Americans the ideals of equality and justice are closely connected and are derived from basic inalienable rights codified in the Constitution. Since society mandates these inalienable rights through the instrument of government, a particular institution in society charged with creating an unequal or unjust situation must, ipso facto, be disciplined b y governmental action. Business has long been vulnerable to the charge that it fosters inequality. The early union movement in this country in the 1930s may have lacked a coherent set of principles, b u t it did not lack a sentiment of c o m m o n purpose. It generated loyalty and induced 1. John W. Gardner, Excellence: Can We Be Equal and Excellent Too? (New York: Harper and Row, 1962).
5
NORMAN C. HILL AND GENE W. DALTON
sacrifice primarily because it sought to be a "sword of justice." Critics of business today are using the same basic appeal in their attempts to limit the functions of the corporation. They are capitalizing on the public's dissatisfaction with contemporary institutions and on the deeply rooted ideals of equality and justice to call for a major renovation of the economic system. They are pointing to the income differences between the rich and the poor and implying that those who have large incomes obtained them immorally. They are saying that income and status differentials are unfair and unearned, and should, therefore, be eliminated. They are assailing the tax structure which protects the rich and allows corporations to bribe their way into market channels. They are determined, and, with the evidence they are marshaling, it seems they are convincing an increasing number of public policy makers and citizens alike. The initial target for many of these egalitarians is the business community. The strategic value for beginning with business stems from its size and resources. Its vulnerability stems from its visibility. Public awareness of huge profits made by corporations and of large executive salaries prompts many to wonder if a free enterprise system merely provides a license for those in business to do whatever they want, regardless of how it affects others. There is a growing feeling among large segments of the population that large organizations can only serve their own interests, and so people are beginning to insist that the government impose "social responsibilities" upon business.
EQUALITY OF RESULTS ADVOCATES Those who are using appeals to equality and justice as a means of criticizing business are emphasizing that political control must be established over economic institutions, and that equality of results, rather than equality
of opportunity, must be used as a social criterion. They maintain that ideals of justice and equality can be achieved only by utilizing a measurable standard, such as equality of results. These critics are saying that equality of opportunity is an inadequate means of achieving social justice. They maintain that individual effort has less effect on one's career success and personal achievement in today's complex organizational society than do such intangible and unmerited factors as social class, family background and luck. Christopher Jencks, whose extensive study of education and job mobility produced changes in federal educational policy, has recently written that: Instead of trying to reduce people's capacity to gain a competitive advantage on one another, we will have to change the rules of the game so as to reduce the rewards of competitive success and the costs of failure. Instead of trying to make everyone equally lucky or equally good at his job, we will have to devise insurance systems which neutralize the effects of luck, and income sharing systems which break the link between vocational success and living standards. 2
Herbert Gans, a colleague of Jencks's, suggests that one of the ways to change the rules of the game is to restructure society through social legislation. Gans asserts that "new policies must aim for equality of results, so that people become more equal in terms of income, education, quality of jobs and political power. ''3 Gans and Jencks claim that if society is to achieve any kind of a just and Iegitimate social order, public agencies must be able to regulate income distribution. Harvard philosopher J o h n Rawls asserts that only through such control can a society minimize individual differences and thereby achieve justice. In his massive and increasingly influential work, A Theory of Justice, Rawls 'writes that the intent and effect of public policy must be to 2. Christopher Jencks, Inequality: A Reassessment of the Effect of Family and Schooling in America (New York: Basic Books, 1972). 3. Herbert J. Gans, More Equality (New York: Pantheon Books, 1973).
BUSINESS HORIZONS
Business and the New Egalitarianism
nullify "accidents of natural e n d o w m e n t " and "results of social circumstance. ''4 In other words, regardless of their origin, individual differences must be minimized. America, charge those who agree with Rawls, Gans and Jencks, can be described as a society of inequality that would like to think of itself as egalitarian. They maintain that while we are officially dedicated to equality of opportunity, to enabling the disadvantaged to succeed on the basis of their personal ambition and talent, large segments of our society are barred from realizing that opportunity not only because of race or sex b u t often because of social background. Rich and poor, they say, have an equal opportunity to work as c o m m o n laborers, b u t the poor rarely obtain the necessary social contacts or background that provide access to professional and executive positions. The most blatant inequality, they assert, is in the area of wealth and income. The distribution of wealth and income in America has been described and interpreted b y a number of scholars who have derived basically the same statistics. By dividing the population into fifths, they have found that the poorest fifth of all Americans obtain about 3% of the country's annual income and own about one-half of 1% of its wealth. The next poorest fifth get 11% of the income and hold an estimated 2% of the wealth. The richest fifth, however, receive 46% of the annual income and own 77% of the wealth. Fully one-third of all the wealth belongs to 1% of the population. These differences are not new, b u t there is a difference in the way they are viewed. Most American have always aspired to improve their wealth and income, b u t now many expect to do so, and increasing numbers are demanding improvement. One of the significant changes of the last two decades has been a domestic revolution of rising expectations. 4. John Rawls, A Theory o f Justice (Cambridge, Mass.: Belknap Press, 1971).
JUNE 1977
When aspirations rise and people begin to hope for a better way of life, they tend to become pensive; b u t when expectations are heightened, they become impatient. When rising expectations are not readily realized, people tend to become more critical of society and demand more from their institutions. These rising expectations are shaping and providing support for some means of achieving greater equality of condition. The achievement of such equality has become, in the minds of many, a necessary moral objective.
INROADS INTO CORPORATE POWER The movement toward greater equality started in the beginning of this century as a push for legal rights: the right to vote, the right to equal j o b opportunities and the right to equal pay for equal work. This emphasis is currently expressed in the drive for equal treatment of blacks and w o m e n in the labor market. However, the goals of reformers have moved b e y o n d legal right of equal results. The goals n o w are for the achievement of power and economic equalization. Public employees have struck for wage equity with workers in private industry. Consumers have called for more control over what goods are to be sold and h o w they are to be marketed. Environmentalists have demanded that business firms consider the impact of production decisions on the ecological system. Stockholders have demanded greater control over the decisions made b y management. Most of those making such demands have spoken in terms of a u t o n o m y and democracy instead of in terms of equality. Still, if the claims are carefully scrutinized, it is evident that they mean more income for some and higher costs for others, more power for some and less for others. In other words, simply more equality. It seems that such movements often begin b y making just claims for rights and somehow
NORMAN C. HILL AND GENE W. DALTON
end in merely making more demands for power, for current egalitarians certainly do seek power. They seek to use the power of the government to achieve their ends and to maintain their position once achieved. Says Jencks, "We need to establish the idea that the federal government is responsible not only for the total amount of the national income, but for its distribution. ''s To achieve uniformity, they w o u l d willingly sacrifice some diversity and individual liberty. Many supporters of egalitarian attempts to reduce power differentials see the governmental interventions which they advocate as mere answers to a particular p r o b l e m - p o v e r t y , pollution, unemployment. Consequently, they view the move toward greater societal equality as only an incidental result of solving a particular problem. But such actions viewed in the aggregate have other ramifications. Taken together, they produce greater governmental centralization at the same time most citizens perceive government as becoming increasingly unresponsive. This side-effect alone should make us consider the desirability of legislating equality of results. Robert Nisbet has written that, even historically, equality and centralization seemed to occur together: T h e r e is n o t h i n g p a r a d o x i c a l in the f o n d n e s s of egalitarians for c e n t r a l i z e d p o w e r , the k i n d t h e military b e s t evidences, a n d t h e f o n d n e s s of centralizers for equality. T h e latter, w h a t e v e r else it m i g h t
signify, means the absence of the kinds of centers of authority and rank which are always dangerous to [central] governments. 6 Proponents of private enterprise have usually neglected such issues as equality and justice. The market, they claim, allows for the maximization of individual choice and that is the only criteria which can be adequately applied in economic relations. Says Nobel Prize winning economist Frederick von Hayek:
5. Jencks, Inequality. 6. Robert A. Nisbet, Twilight o f Authority (New York: Oxford University Press, 1975).
Since t h e y [i.e., differentials in w e a l t h a n d i n c o m e ] are n o t t h e effec.t o f a n y o n e ' s design or i n t e n t i o n s , it is meaningless to describe the m a n n e r in w h i c h the m a r k e t d i s t r i b u t e s the g o o d things o f this w o r l d as e i t h e r j u s t or u n j u s t . . . . No test or criteria have b e e n f o u n d or c a n b e f o u n d b y w h i c h such rules of "social j u s t i c e " can b e assessed . . . . T h e y w o u l d have to b e d e t e r m i n e d b y t h e a r b i t r a r y will of t h e holders of power. 7
Supporters of capitalism have unwarily assumed that the market system is self-justifying and have, consequently, failed to develop an ideological response to the claims of egalitarians. Now, when nearly all established institutions are being reexamined and required to establish their legitimacy anew, historic arguments must also he reassessed. Concepts of equality and justice, if not used as criteria to evaluate the market's effectiveness, must at least be integrated into a comprehensive scheme which justifies its perpetuation.
COSTS OF MORE EQUALITY A British member of Parliament, the late Hugh Gaitskell, once flatly proclaimed that "socialism is about equality." From the intensity of current movements in America one might conclude that capitalism, too, is "about equality." Although changes in the past two decades have ensured that people in America have more equality than they have ever enjoyed, and in many respects more than any other nation on earth, we still are dissatisfied. It seems as true now as when Alexis de Tocqueville said it more than a century ago that "the human desire for equality increases geometrically while actual equality is increasing arithmetically, and sensitivity to inequalities in the social order become greater as actual inequalities becomes smaller." Several facets of equality of results have been ignored by its proponents in their haste to affect public policy. These factors, taken together, 7. Fredrich August von Hayek, The Road to Serfdom (Chicago: University of Chicago Press, 1963).
BUSINESS HORIZONS
Business and the New Egalitarianism
should make us cautious in any consideration of policy designed to create a society based upon equality of condition. First is the fact that American society is multidimensional. Its political institutions provide universally distributed rights which proclaim the equality of all citizens. But its economic institutions rely upon a marketdetermined distribution of goods and services which results in economic disparities among citizens. The resulting mixture of equal rights and unequal incomes can, and often does, promote a conflict for many between the political assumptions of democracy and the economic premises of capitalism. This duality, far from being contradictory, allows for both political choice and economic productivity. Liberty is enhanced in public affairs, and incentives can be used in tile industrial arena by maintaining such a "split level" society. Financial rewards in the form of wages and profits allow individuals to determine their own areas of utility rather than being dictated to by a central planning agency. A move toward equality of results would seriously interfere with the use of incentives to improve productivity and output. Without effective incentives, production would fall, and everyone would have less. The equal result would be that everyone is equally less well off. Arthur Okun, former chairman of the Council of Economic Advisors, writes that in pursuing equality of results society would forgo any opportunity to use material rewards as incentives to production. And that would lead to ineffciencies that would be harmful to the welfai-e of the majority. Any insistence on carving the pie into equal slices would shrink the size of the pie. That fact poses the tradeoff between economic equality and economic efficiency. 8
Some have said that the tradeoff has favored economic efficiency for too long; that the unequal distribution of income requires
rectification. However, if one were to look not only at current income distribution, but also at recent trends, a different profile would emerge.
A SOCIALLY MOBILE SOCIETY Some nineteenth century observers predicted that a mature capitalistic system would dry up opportunities for upward mobility, but this has simply not happened in America. Business, in particular, has been a place where citizens have been able to improve their economic position. For instance, during the post-World War II period, the percentage of those from economically " p o o r " backgrounds who entered the top echelons of business experienced its greatest increase: from 12.1% in 1950 to 23.3% in 1964. Furthermore, the percentage of wealthy family members who were awarded significantly responsible executive positions also declined: from 36.1% in 1950 to 10.5% in 1964. 9 Besides these executive mobility patterns, people in all walks of life have been able to move up the status and income hierarchies. According to the findings of Stephen Thernstrom, social mobility has continued at a high rate. Studying demographic records in Boston for the past 80 years, he found an "impressive consistency i n . . . career p a t t e r n s . . , between 188.0 and 1968. About a quarter of all the men who first entered the labor market as manual w o r k e r s ended their careers in a middle-class calling; approximately one in six of those who first worked in a white collar job later skidded to a blue collar post. ''1 0 These findings challenge the often-voiced belief that American capitalism has created a permanent and growing class of the poor. In fact, evidence points in the opposite direc9. Seymour M. Lipset, "Social Mobility and Equal Opportunity," The Public Interest (Fall 1972), pp. 90-109. 10. Stephen Thernstrom, Migration and Social Mobility,
8. Arthur M. Okun, Equality and Efficiency; the Big Tradeoff (Washington, D.C.: The Brookings Institution,
1880-1970:
1975).
(Princeton, N.J.: Institute for Advanced Study, 1972).
JUNE 1977
The Boston Case and the American Pattern
NORMAN C. HILL AND GENE W. DALTON
10 tion. Thernstrom reports that statistical data from Poughkeepsie in the 1840s, Boston in five different samples from the 1880s to recent times, and Indianapolis in 1910, all affirm that most of the sons of unskilled workers either moved up into the ranks of the skilled or found middle-class jobs of various kinds. These conclusions are reinforced by a comprehensive national survey of mobility patterns which analyzed a national sample over several generations by relating family occupational background to first job, thereby permitting a comparison of the young still on their first job with the experience of the elderly when they were young. 11 It was found that "the influence of social origins has remained constant since World War I. There is absolutely no evidence of 'rigidification.' " There simply is more equality in America than those who advocate equality of results 11. Peter Blau and O. D. Duncan, The American Occupational Structure (New York: Wiley, 1967).
are willing to admit. Opportunity is measured not only by the share of total income received by the richest 20% (or any other group), but also by the chances for individuals to improve their economic lot. On this basis alone, the suggestion that American society is grossly unequal can be challenged. Capitalism in America has provided a mobile society in which the poor are not doomed to remain at the b o t t o m of the income heap. It has also provided the basis for individual liberty which the political system is expected to protect and which a philosophy of equality of results, paradoxically, endangers. For when the ethic of equality alone forms the basis of a social system, citizens are expected, through the influence of either tacit social norms or formal requirements, to adjust to the dominant group's demands. Alexis de Tocqueville once wrote that "in times of equality, no matter what political laws men devise for themselves, it is safe to forsee that trust in c o m m o n opinion will become a sort of religion, with the majority as its prophet." Individualism wanes under such conditions because people change the source of their views from internal to external causes. They are less like a gyroscope with personal reasons for performance and more like a radar unit which picks up impulses from the outside as guides to actions. To require equality of condition, then, may have the effect of reducing choice without providing a replacement. ~
Since our discussion has been selective rather than comprehensive, our conclusions must be considered tentative. Still, we feel that m a n y of the goals advocated under the banner of equality of results would be unfortunate for society and devastating to the business community. Fairness and equality are not the same thing. People should have a chance to gain an education and be considered for jobs on the basis of their ability, but it should be recognized that equal opportunity implies unequal results.
BUSINESS HORIZONS
Business and the New Egalitarianism
A d v o c a t e s o f free e n t e r p r i s e rightly view the egalitarian p u s h as a t h r e a t n o t o n l y to its incentive s y s t e m , b u t also to the f u n d a m e n t a l principles o f a m a r k e t e c o n o m y . As J o h n Cobbs noted: "The American economy, based on private p r o p e r t y , uses the m a r k e t to d e t e r m i n e r e w a r d s and to allocate resources. D i f f e r e n c e s in p a y a n d p r o f i t are essential to it. A t s o m e p o i n t , t h e r e f o r e , a m o v e t o w a r d e q u a l i t y w o u l d require a shift f r o m capitalism to a socialist or g o v e r n m e n t - d i r e c t e d state. ''1 2 B u t we m u s t also r e m e m b e r t h a t e q u a l i t y o f results is b e i n g o f f e r e d as a r e m e d y to a p a r t i c u l a r c o n d i t i o n p e r c e i v e d b y m a n y as requiring s o m e t y p e o f r e m e d y . I f t h a t r e m e dy has a b r o a d appeal, it is b e c a u s e the c o n d i t i o n is w i d e l y felt. T h e c o n d i t i o n , in o u r view, is a loss of faith in o u r s y s t e m and in o u r leaders to live u p to o u r t r a d i t i o n a l values o f fairness a n d e q u a l i t y o f o p p o r t u n i t y . E q u a l i t y o f results a n d the a c c o m p a n y i n g c e n t r a l i z a t i o n o f p o w e r are a p p e a l i n g o n l y to t h o s e w h o believe t h a t we have lost the 12. John Cobbs, "Egalitarianism: Threat to a Free Market," Business Week (December 1, 1975), pp. 62-65.
will or ability to m o v e t o w a r d these traditional goals. I f the public is to have faith in business and g o v e r n m e n t , leaders in b o t h sectors o f o u r e c o n o m y m u s t act r e s p o n s i b l y to achieve fairness and e q u a l i t y o f o p p o r t u n i t y w i t h i n o u r p r e s e n t f r a m e w o r k . Business leaders, during the s u m m e r o f the Watts riots, were able to m o b i l i z e t h e m s e l v e s to v o l u n t a r i l y find e m p l o y m e n t for minorities. A b r o a d s p e c t r u m o f the public m u s t perceive t h a t business leaders can and will use t h e i r p o w e r to achieve a c o n d i t i o n o f fairness w h e n an injustice is identified a n d n o t again wait until a crisis is thrust upon them. We m u s t w o r k to assure t h a t o u r p r e s e n t laws are e n f o r c e d fairly, regardless o f the w e a l t h or the p o w e r o f t h o s e a f f e c t e d . We m u s t r e e x a m i n e o u r i n c o m e t a x and inherit a n c e taxes to ensure t h a t t h e y achieve their i n t e n d e d result. Unless we are willing to p a y the price of m a k i n g o u r p r e s e n t s y s t e m m o v e us t o w a r d the goals to w h i c h we all o s t e n s i b l y subscribe, we will find ourselves grappling w i t h c u m b e r s o m e a n d coercive a t t e m p t s to achieve those goals.
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Modern complexities require that goals be formed into a highly sophisticated system. The more powerful and complex the means of achievement, the more astute and articulate must be the guiding goals. As commercial aircraft become supersonic, for example, they require ever more sophisticated flight controls, navigation equipment, and landing systems to assure safe arrival. Certainly, broad social goals are not so simple that they can be drawn up in a list and then readily approved and acted upon. Rather, an important public dialogue taking place over time makes possible a broad consensus . . . . Such goals then require careful interpretation to make them realistic for each location, time, and circumstance. --Kenneth R. Schneider Destiny o f Change
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