Addressing the rise of inequalities: How relevant is Rawls's critique of welfare state capitalism?

Abstract

Recent studies by economists such as Piketty (2013, 2019) and Atkinson (2015) have contested the well-established view that post-war redistribution policies have been successful in the long term at slowing down the rise of structural inequalities. In reality, the claim goes, they have dealt mostly with reducing inequalities of income through redistribution and have left inequalities of wealth and capital ownership uncontrolled. These, according to their studies, have now risen in the developed world and reached levels more typical of 19th Century Europe. To make matters worse, perceptions of and attitudes towards fighting inequalities as unjust that Rawls saw as based on a wide consensus of citizens' “considered judgments” (Rawls, 1999, p. 17), have changed, leading to them being accepted as the justified and even necessary price to pay for economic growth and as a reward for merit. Economic arguments based on the need for incentives for raising productivity and the “trickle-down effect” have become widely accepted as if the price of economic efficiency should be disconnected from the demands of equity. Meritocracy has provided ethical arguments too. As John Roemer says, “today the most important problem for the social sciences of inequality is understanding how electorates have come to acquiesce to policies which increase inequality… and to try revealing the logic of the micro mechanisms that lead to this acquiescence… to challenge the view that interfering with the incentives the market provides necessarily reduces economic welfare” (Roemer, 2011, p. 301). Such recent developments, as some critics have argued (Forrester, 2019, pp. 278–279), suggest that Rawls's A Theory of Justice, published in 1971, before the watershed of neoliberal welfare policies, should be considered as a product of its time and as still thinking about justice within the context of the post-war market economy of rising demand and economic growth, supported by state interventions. But post-1980s, another ideology has been dominant. “Small government” and limited state intervention are the new norms, even on the Left with the Third Way in Britain, and redistribution is being reconsidered1 as often too costly and conducing to the rise of a work-shy population, even if the 2020–2022 COVID-19 pandemic has considerably watered down these criticisms. The idea is not simply to assist those who lose out through accident or misfortune (although this must be done), but instead to put all citizens in a position to manage their own affairs and to take part in social cooperation on a footing of mutual respect under appropriate equal conditions (1999, p. xv). In this article, I examine Rawls's “political” critique of WSC and of its inability to fight structural injustices together with his proposal for POD as a realistic prospect and a credible alternative to WSC. Section 2 describes the rise of inequalities of wealth and power as a source of structural injustices, and Rawls's insight as to why WSC is unable to fight them. Section 3 presents Rawls's alternative proposal of POD with its two ambitions, to protect, but also to emancipate citizens and guarantee their full rights. Section 4 asks whether POD can fully articulate these two aims and answer Sen's criticism (Sen, 1999) that this is still a “resourcist” solution that fails to fully emancipate citizens. Section 5 tentatively suggests that the justification for POD must rest on a new paradigm that redefines the nature of the Self in developmental terms (Audard, 2019), both capable and vulnerable over time (Nussbaum, 2006). The fight against inequalities of wealth through POD can then be justified as it aims at increasing agency and social mobility for all, not simply consumption and utility maximization, and, most importantly, as a basis for democratic citizenship and the full value of political liberties (Thomas, 2017b; White, 2015; White, 2016). This section provides a brief overview of the new historical conditions faced by welfare state capitalism and of Rawls's political critique of its failures. Recent studies of inequalities have shown that if income inequalities have risen since the 80s in most developed economies, it is the rise of wealth inequalities which is most worrying for the future of social democracies, traditionally associated with rising prospects for the middle classes and social mobility. Instead, a capture of political power by the wealthy 1%, a quasi “oligarchisation”2 of society, is taking place due to extraordinary differences in capital ownership. In his book, Capital in the 21st Century, Thomas Piketty describes the history of this process and how inequalities of both income and wealth have evolved over more than two centuries in Europe and the United States. They have now reached levels not seen since the 19th Century. Even if very high incomes are justified in a meritocratic democracy, they lead to extreme wealth accumulation and to forms of both financial and political oligarchies that have captured the political agenda. “There is,” says Piketty, “a near-perfect correlation between decreasing levels of wealth taxes and the growth of the wealth of the 1%. The political process has been captured by the 1% and has prohibited any significant review of income and inheritance taxation rates” (Piketty, 2013, p. 823). Thomas (2017b) describes this “new normal” as leading to a structural fall in the level of demand that contradicts the Keynesian view of demand-led economic growth. Insufficient demand due to income and wealth deficits leads to excessive debt and higher levels of taxation for the middle classes. If consumption inequality is still not as extensive as income and wealth inequality, it is because access to essential goods such as healthcare, housing and education remains dependent on high levels of debt, leading to the comparatively worse off being burdened by unforgiven debts. This “new normal” explains the end of the kind of sustained prosperity and social cohesion that the West had experienced in the post-war years until the 80s. In other words, wealth inequalities have made democratic societies more polarized and the burden of the welfare state more and more unsustainable. The unequal transmission of wealth and capital and the growing political power of social, cultural, and economic elites that ensues are then responsible for the weakening of democratic institutions, even in long-established democracies. Fighting unfair inequalities is a most urgent aim to strengthen increasingly fragile democracies. As former US Supreme Court Justice Louis Brandeis said, “We may have democracy, or we may have wealth concentrated in the hands of a few, but we can't have both.” It is remarkable that a similar verdict was advanced by Rawls in Justice as Fairness as well as in the Preface for the revised edition of A Theory of Justice. It was also briefly present in the original version of TJ but was too easily missed or overlooked by readers (Rawls, 1971, p. 274). Some commentators note that, in fact, Rawls was explicitly thinking about the role of wealth inequalities, capital ownership and POD as early as in 1951 or 1952 (Forrester, 2019, pp. 16–18; Kloppenberg, 2022, pp. 41–44).3 What is striking in Rawls's critique of WSC is his insight that the political consequences of inequalities of wealth and what he calls “background justice” (Rawls, 1999, pp. 73–78), that is, inequality of power and participation in democratic politics, have not been included in its program of redistribution. Its aims have been mostly to remedy economic hardships, poverty, and loss of income, not the inequal distribution of wealth which has been allowed to develop. As a consequence, WSC “permits very large inequalities in the ownership of real property (productive assets and natural resources) so that the control of the economy and much of political life rests in few hands” (Rawls, 2001, p. 138). Keynesian policies have helped capitalism to survive crises and fight poverty in the post-war years, but without addressing the structural causes of poverty and inequalities. Reducing-poverty measures such as income transfers and increased benefits have not done enough to limit inequalities and have aggravated dependency. “The redistribution of income… given the lack of background justice and inequalities in income and wealth may develop a discouraged and depressed underclass many of whose members are chronically dependent on welfare” (Rawls, 2001, p. 140). There is a general agreement that working-class and even lower middle-class incomes have stagnated since the 1980s and social mobility has come to a standstill because redistribution has not eradicated the causes of inequalities. Poverty was the main target for Keynesian policies as it was an obstacle to a type of economic growth and prosperity fuelled by consumption and demand, leaving inequalities as necessary in a market economy or even justified in a meritocracy. Given Rawls's rejection of utilitarianism's view of welfare, even in the form of a “restricted utility principle” (Rawls, 2001, §38)—the dominant post-war ideology- as well as of meritocracy, his criticism of the welfare state should not come as a surprise. Anticipating on Piketty's inquiry, Rawls claims that the transmission of capital and wealth is one of the structural causes of unjust inequalities and of what he calls “background injustice.” This is the reason why he advocates a social policy that would aim at widely dispersing capital ownership and make it possible to apply his principles of justice to the basic structure of society and to fully democratize it: a “property-owning-democracy” (POD thereafter, Rawls, 2001, pp. 139–140 and pp. 158–162). Rawls's harsh conclusion is that WSC is incompatible with his two principles of justice because it allows “large and inheritable inequities of wealth incompatible with the fair value of the political liberties (introduced in §36), as well as large disparities of income that violate the difference principle” (Rawls, 1999, p. xv, my emphasis). Income-based inequalities can be remedied with benefits and income transfers. But these transfers are either insufficient or ineffective to fully secure fair equality of opportunities (the second principle of justice) as inheritance taxes and legislation fail to correct inequal starting points. They do not try to impact the basic structure of society, to “mitigate the arbitrariness of natural contingency and social fortune” (Rawls, 1999, p. 82), only to remedy individual circumstances and accidents of fortune. In other words, Rawls claims, benefits and income-transfers may momentarily increase demand and purchasing-power and reduce poverty, but they do not succeed in reducing structural and lasting inequalities of wealth. I would like now to stress that Rawls's first criticism of WSC is political as it concerns its impact on the distribution of political power. WSC tends to overlook the dangers of concentration of capital for the fair value of political liberties, Rawls's part of the first principle of justice as fairness (Rawls, 2001, p. 51). The illusion of WSC stems from its misunderstanding of the connection between political institutions and economic policies (Audard, 2007, p. 103). In contrast, a point not always clarified enough by Rawls himself, the theory of justice as fairness requires that its principles work as a single normative program that aims at reducing unfair inequalities and addressing both their political and economic roots. The measures needed to implement equal basic liberties, in particular political liberties and their worth, are only effective if they are supported by poverty-fighting redistributive policies. This is the striking point made by Rawls in his conception of justice. Equally, the measures supporting equality of opportunity and the difference principle, the second principle of justice as fairness, encourage political inclusion and equal citizenship: the two domains of the basic social structure are therefore inherently connected. “Both principles express political values” (Rawls, 2001, p. 48). Because of Rawls's emphasis on the political sources of inequality, one could label his view as quasi-republican in the sense argued for by Philip Pettit (Pettit, 1997), according to which “real” freedom demands political “non-domination,” not simply free choices and noninterference. “As far as this domination is experienced as a bad thing, as making many peoples' lives less good than they might otherwise be, we are again concerned with the effects of economic and social inequality” (Rawls, 2001, p. 131, my emphasis). WSC, being foremost concerned with increasing incomes and fighting poverty, does not address the fact that disadvantaged people are not only poor, but also politically dependent “on large concentrations of private economic and social power” (Rawls, 2001, p. 150). Protecting “the fair value of political liberties” (Rawls, 2001, pp. 148–150) creates a synergy between fighting for citizens' equal political influence and power, on the one hand, and reining in free-market processes and sustaining a more equal distribution of productive assets, on the other. Recognizing this synergy is an aim that “justice as fairness shares with civic republicanism” (Rawls, 2001, p. 150, my emphasis). Democratic governments, then, if they want to protect the worth of equal political rights need to put an end to state capture by private corporate interests and wealthy shareholders who can skew public policy and decision making in their own favor.4 A second criticism of WSC pressed by Rawls concerns the issue of stability and the threats to it created by the dependency of a rising and resentful underclass. This second “quasi-republican” argument insists that the stability of democratic institutions is threatened by the lasting exclusion of too many citizens, and even their alienation, from democratic politics because of their material insecurity and their prolonged dependency. This need for inclusion is ignored by WSC which is based on “the concept of a social minimum that is sufficient to cover the needs essential for a decent life” (Rawls, 2001, p. 129), but is certainly too low for what is needed for citizens to become fully integrated in the polity, to be able not only to exercise their rights, but also to support them and to see their value, “to affirm the principles of justice in our thought and conduct over a complete life” (Rawls, 2001, p. 128). The social minimum as measured by basic needs and the principle of restricted utility is unable to sustain a lasting and real commitment to the institutions of a just or quasi-just society and, instead, contributes to creating “a discouraged and depressed underclass, many of whose members are chronically dependent on welfare” (Rawls, 2001, p. 140). Even if WSC can regularly raise income levels, it still creates resentment “in asking the less advantaged to accept over the whole of their lives fewer economic and social advantages (measured in terms of utility)” (Rawls, 2001, p. 127), which leads to estrangement from and even rejection of democratic institutions that obviously do not work for them. This makes the “strains of commitment” (Rawls, 2001, pp. 128–130) excessive: less advantaged citizens will either reject society's demands of justice and its relevant obligations or grow distant from political society. Either way this will threaten democracy's stability. This is the second political argument against WSC based on Rawls's concern for the dignity and duties of citizenship and, again, for the importance of the political liberties that WSC does not take sufficiently into account, being bound up with an individualistic utilitarian ideology. Focusing on economic growth and consumption, and on the social minimum necessary to sustain it, WSC views justice and the distribution of wealth and opportunities as guided quasi-exclusively by capitalism's interests—this being a “capitalist” welfare state. Rawls's next criticism, then, is that the efficient allocation of resources at one point in time, given the needs, desires, and preferences of particular individuals, fails to address the damage to democratic institutions created by lasting inequalities of wealth. What is missing in welfare policies is an understanding of structural inequalities over time and of the value of predistribution that aims at preventing ex ante poverty and exclusion (O'Neill, 2020). Because they “take men's propensities and inclinations as given, whatever they are, and then, see the best way to fulfil them” (Rawls, 1999, p. 27, my emphasis), they tend to ignore the fact that wealth as well as poverty are both created over time as social products. This criticism of capitalism shapes Rawls's view of inequalities. A just welfare state should answer the rise of inequalities during a complete human existence and address life-prospects, not solely immediate consumption and purchasing power. Its ambition should be the lasting participation of the less advantaged in democratic institutions as well as their allegiance to their leading principles. The aim is not only to eradicate poverty, but to provide life-long solutions to the exclusion and disaffection of the less advantaged in so far as democratic institutions and political participation are concerned. The horizon is civic integration, not solely economic growth, and utility maximization. “While a social minimum covering only those essential needs may suit the requirements of a capitalist welfare state, it is not sufficient for what I call a property-owning democracy in which the principles of justice as fairness are realized” (Rawls, 2001, p. 130). A last criticism of WSC is that the fight against inequalities should also address inequalities within the various modes of production of wealth, not solely the inequal consumption of goods and purchasing power, which is the usual standard for measuring well-being and the effectiveness of WSC. Consumption isolates people, makes them compete for “positional” goods, for instance, and creates infinite demands, resentment and unsatisfaction whereas production needs cooperation as it is a collective effort. A just welfare state, then, should be concerned not only with the level of consumption of goods, but also with economic justice in the workplace, with the production of goods as a social and collective endeavor and as a source of self-respect. This would also be a political and quasi-republican argument based on the dignity and self-respect of active and productive citizens involved in their workplace (O'Neill, 2008, pp. 36–37; Schefczyk, 2013, pp. 8–10). Self-respect, says Rawls, is probably the most important primary good with which a society can provide its members. “Without it nothing may seem worth doing” (Rawls, 1999, p. 386). But it also needs recognition by others through collective endeavors and “finding our person and deeds appreciated and confirmed by others” (Rawls, 1999, p. 386), according to Rawls's Aristotelian principle: “We need one another as partners in ways of life that are engaged in for their own sake, and the success and enjoyments of others are necessary for and complementary to our own good” (Rawls, 1999, p. 458). Such a “quasi-republican” view of justice in the workplace should help re-shape the nature of firms and inspire their democratization (Ferreras, 2017). Because WSC is aiming at a social minimum and at general or average well-being defined in terms of income levels, consumption, and the satisfaction of basic needs, it is in the end unable to improve social relations and to support justice as fairness and equal citizenship. It cannot transform the basic structure of society so that “citizens are equal at the highest level and in the most fundamental aspects” (Rawls, 2001, p. 132). Now, the question is whether POD is really the radical answer to the rise of unjust and extreme inequalities of wealth and political power that Rawls suggests. The ambition is to combine an efficient market economy with social justice or, following Meade, “efficiency in the use of resources with equity in the distribution of income” (Meade, 1964, p. 75). This needs a two-pronged intervention. First, access to human and non-human capital should be widely dispersed through predistribution and, second, this initial “stake holding in society” (Ackerman, 1999) should be financed by progressive taxation of wealth and wealth transfers in a way that durably democratizes access to property and equalizes wealth distribution, reducing dangerous concentrations of power. First, what kind of property regime should be advocated? Changing existing capitalistic property regimes would seem to be the first step as “actual societies which have private ownership of the means of production are afflicted with grave injustices” (Rawls, 1999, p. 242). But such a regime needs to be compatible with a free-market economy that, for Rawls, is essential both for economic efficiency and for the protection of individual freedom (Rawls, 1999 §42). Simply moving from individual to collective ownership of the means of production is not necessarily the best solution as exemplified by the failures of a “command economy” (Rawls, 2001, p. 138). Rawls opposes socialist regimes (Rawls, 1999, §42–43 and 1993, pp. 7–8 note 7; O'Neill, 2021, p. 38) that restrict market economy and the distributive function of prices that are necessary to “gain the advantages of efficiency and protect the important liberty of free choice of occupation” (Rawls, 1999, p. 242). It is however clear that, while rejecting socialism and some forms of collective ownership of productive capital, Rawls opposes capitalism, the disparities in private capital ownership and in investment in human capital between the laboring classes and a capitalist class, that are at the root of social inequalities (Rawls, 2001, pp. 136–137; Krouse & McPherson, 1988, p. 83). The answer, then, is not the suppression of private property or its replacement with state or collective property, but its dispersal and democratization: a “property-owning democracy.” Rawls suggests a new direction towards a flexible property regime as “there is no essential tie between free markets and private ownership of the means of production” (Rawls, 1999, p. 239). In allowing for both private property and social property of productive assets, Rawls here is close to Keynes who rejected the rigid Marxist contrast between private and public/collective/state ownership of the means of production. Things are much more complicated and “arguments in social philosophy should not premise a highly unified conception of property” (Cohen, 1989, p. 49). Meade, for instance, recommended “to equalize the distribution of ownership of private property and to increase the net amount of property which was in social ownership” (Meade, 1964, p. 75). Martin O'Neill too stresses that “a theory of justice should not mandate a particular model of ownership of the means of production (O'Neill, 2008, p. 38). Wider access to private property is not limited to, for instance, buying one's own home, the Right to Buy, which was the Conservative programme of Thatcherite Britain in the 80s. It could lead to an increase in workers' ownership of productive capital, thanks to forms of participation in their companies' assets and even management and co-gestion.5 Following that inspiration, Rawls sketches an alternative to capitalism and to exclusively privately owned means of production that seats along the lines of “Mill's idea of worker-managed firms as fully compatible with property-owning democracy” (Rawls, 2001, p. 179). The hope, then, is that “a capitalist economy would gradually disappear and be peacefully replaced by worker-managed firms within a competitive economy” (Rawls, 2001, p. 178). An extended version of what Rawls had in mind (White, 2016, p. 106) could be Ackerman's “stakeholder society” that is also inspired by Meade (Ackerman & Alstott, 1999, p. 25) where each young person receives an initial grant of $80,000 (1999 value) that they can then invest in a variety of ventures, from higher education and skills development to the purchase of a property or of shares in their company's capital. Piketty suggests a similar scheme of universal capital grants (Piketty, 2019, ch. xvii). In that way, citizens would combine incomes from a variety of sources that would provide lasting security, way beyond income transfers, such as returns from their privately owned productive resources combined with income from their own work, returns from universal capital grant schemes, such as Ackerman's, but also, for Meade, from social dividend payments from public investment funds. Meade called this a “mixed model” where income would be raised from different sources and would allow greater security and protection for all. The question then becomes how to finance such a dispersion of capital ownership through taxation. The second and more developed part of Rawls's proposal concerns taxation (O'Neill & Orr, 2018) which he examines at some length in section 43 of A Theory of Justice. The aim of taxation should be to “encourage a wide and far more equal dispersion of real property and productive assets” (Rawls, 2001, p. 161). First, progressive taxation of wealth is not meant solely to raise the state's funds as in WSC, but, primarily, “to prevent accumulations of wealth that are judged inimical to background justice” (Rawls, 2001, p. 161). These very high rates of progressive taxation of wealth (over 70% for the richest 1%) have existed in the past in the US in the years 1919–1922 and again in 1937–1939 and were justified at the time by a strong American egalitarian ethos that condemned excessive wealth inequality (Piketty, 2013, p. 816). For Rawls, such high rates should help “moderate tendencies that lead, over time, to greater inequalities… and require continual growth over generations” (Rawls, 2001, p. 159). Rawls considers the role of taxation under the control of the Difference Principle as having a moderating influence on economic growth and advocates, like Mill, but also a great number of environmentalists, “the idea of society in a just stationary state” (Rawls, 2001, p. 159). Second, progressive taxation of transfers and high rates of inheritance taxes will lead to more resources for the welfare state and to limits on the biggest estates. Piketty (2019, ch. xvii) estimates that 5% of GDP could be raised from a progressive wealth tax and an inheritance tax that could finance the dissemination of capital ownership throughout the whole of society. Finally, progressive income taxation should be avoided and “a proportional expenditure tax adopted instead… to allow for an appropriate social minimum… and for the Difference Principle to be roughly satisfied by raising and lowering this minimum and adjusting the constant marginal rate of taxation” (Rawls, 2001, p. 161). However, such a project may seem quite unrealistic, given contemporary political culture and public opinions. The obstacles are not only financial. Even if rich countries could afford it with relatively modest long-term commitments equivalent to 5% of GDP in Europe (Piketty, 2019) or 3.5% of GDP in the US (Williamson, 2014, p. 239), finding a new political consensus on a universal access to property and wealth redistribution seems inconceivable, some kind of “politics fiction” for dreamers. This is, of course, a harsh judgment that overlooks the fact that rich capitalist countries have in the past agreed to very high rates of progressive income and wealth taxes to pay for a generous welfare state. The egalitarian ethos is still alive as many studies have shown (Forsé & Parodi, 2020; Williamson, 2014, pp. 290–291) and I would like to stress that the answer to the feasibility of POD is political and ideological, not purely technical. We should then not too quickly conclude that Rawls is a figure of the past. The rise of inequalities and the attacks on the welfare state, the prevalence of the neoliberal ideology, of the I-mentality (Putnam, 2020) do not preclude present aspirations to justice made possible by a new world of new technologies, new forms of work and of socialization. But I agree that Rawls's proposal is a very abstract and incomplete ideal that needs a lot of refinements and complexifications (O'Neill, 2021). However, I would like to answer a different but central criticism of Rawls, that he tends to see POD as an alternative to the welfare state and a free-standing option, not, as Meade did, as a complement to a just welfare state and its relevant policies. The difficulty noted by many commentators is that Rawls tends to exaggerate the contrasts between economic regimes that he describes as “ideal types” (Max Weber) whereas the reality is messy and “pure” economic systems do not exist. Instead, we must deal with “mixed regimes” (Meade, 1964) and recognize that “Rawls's architectonic error leaves out the most interesting territory in between these polar points”: POD and socialism, for instance (O'Neill, 2021, p. 15). One puzzling aspect of Rawls's critique of WSC is that he seems, on the one hand, to ignore, or at best to minimize, the importance of the various wider roles and functions that welfare states have played in contemporary societies while, on the other hand, recognizing that there should be a residual role for traditional forms of redistribution and income transfers. Rawls seems to have an extremely narrow view of the welfare state as providing mostly social assistance or “welfare” to a minority of the population, that is, a safety net of noncontributory, selective income-support and means-tested programs. However, we should underline the fact that the modern welfare state covers a much wider range of activities, to the value of 30%–40% at least of GDP, d