This blog post is the 4th in a 5-part series on income inequality. Click below to navigate between the parts of the series:
Part 4: Peaceful Alternatives to Violent Leveling
Up to this point, I’ve been making the point that leveling is directly correlated with violence: the more leveling, the more violence is required. But is there really no evidence that we can achieve the same results without lots of people dying? In this part of the series, I will be examining this question in more detail to illustrate that humans have tried a lot of different non-violent methods of redistributing income and wealth, and none have been very effective.
Land Reform
For most of human history, wealth was land and vice versa. As a result, land reform efforts are the most promising place to look for peaceful redistribution.
As discussed in the section above on revolutions, Mao in China and Stalin in the Soviet Union achieved unprecedented land reform, but at the cost of millions of lives. There are examples of land redistribution which involve far less human misery, but in most of these, the threat of violence was always present, if not exercised.
In the 1980s, Zimbabwe embarked on a policy of land redistribution from wealthy white landowners to nearly 70,000 mostly poor black families. This process was radicalized in 1997 when veterans of the liberation war staged “land invasions” which coerced another eighth of farmland to be acquired and redistributed. By 2014, 90% of the land controlled by 6,000 white farmers in the 1980s had been given to approximately a quarter million families. White land ownership collapsed from 39% to .4%. But to call this process entirely peaceful would be a lie: Mugabe was forced into the latter stages of redistribution by threats of violence from veterans, which eventually caused him to join the movement in 2000 and lead to protections for those recipients of redistributed land, keeping the changes from being unraveled.
Many land reforms throughout history were carried out as part of armistice agreements ending formal wars. Examples include Japanese land reform after World War II, Czarist Russian after the Crimean War, and reform in a number of European countries after the Napoleonic wars. In the latter two cases, the results ended up worsening inequality due to poor administration, loopholes, and graft. Violence is still common among these transitions too: in the 1920s, the shock of defeat in World War I brought the Bulgarian Agrarian National Union to power in that country. Their ambitious land reform policy triggered violence from the establishment which led to the overthrow of the government. Similarly, in Guatemala after World War II, the loss of German-owned coffee plantations combined with pressure to nationalize remaining plantations led to agrarian reform by a democratically elected government in 1952. By 1954, in a peaceful process, 40% of the rural population had received land grants. Unfortunately, a coup later that year brought a military regime to power that immediately annulled the results of the redistribution, and 150,000 people died in the civil war that followed. By the 1990s, 3% of landowners held 67% of all land, and 90% of the rural population was almost entirely landless.
There are some examples of peaceful redistribution that were carried out in the shadow of potential revolution or war, especially during the Cold War. A key example is South Korea. Americans in the 1940s feared that North Korean communists might enlist South Koreans to their cause. The resulting American support of land redistribution was both peaceful and impactful. By the mid-1950s, landlords in South Korea had lost 80% of their income and the bottom 80% of rural households had gained 20-30%. The Gini coefficient of land ownership prior to the reforms was .72 and fell to ~.3 by the 1960s. This was further amplified by the Korean war, which destroyed large amounts of infrastructure and introduced hyperinflation which almost completely eliminated the South Korean landed elite. But again, the reason this created so much equalization was that the US feared a war and used its military to influence the process.
These examples further support the claim that while peaceful redistribution is possible, it is often carried out to avoid violence. Furthermore, land reform has historically been a poor leveler. A survey of 27 reforms during the second half of the twentieth century found that in 21, or 78%, land inequality either remained unchanged or became worse.
One potential recipe for peaceful land reform is to conduct the reform under the protection of a foreign power, like the South Korean and Japanese examples above. The World War II Japanese land reform proceeded using this formula. It worked in Puerto Rico in the 1940s and in Ireland in the 1870s. So there is some hope here, but it relies upon the direct appeal to force provided by a far superior occupying enemy military which is almost certainly present as the result of recent violence.
Debt Relief
Another peaceful leveling mechanism with some promise would appear to be debt relief. The idea here is that the poorest members of society very often get caught in debt traps. Although ancient Sumerians didn’t have payday loan companies and high interest credit cards, indentured servitude and sharecropping have been features of agrarian societies for thousands of years. What if the wealthy elite simply cancelled all loans in an effort to make society more economically equal? Surprisingly, we have evidence that this occurred at least a dozen times between 2400 and 1600 BCE in Mesopotamia. Sumerians, Babylonians, and Assyrian rules have all cancelled debts or freed debt-bondsmen via royal decree. Unfortunately, we know little about the effects of these efforts and since extraordinary claims require similarly extraordinary evidence, we have to conclude that these efforts were either ineffective or highly temporary levelers.
The abolition of slavery can be viewed as a form of debt relief, and is a promising candidate for successful leveling. In many historical societies, slaves represented a very large portion of owned wealth and so it would follow that any policy the emancipated slaves would reduce the wealth of slave owners and increase the incomes of former slaves.
There are a number of prominent, recent, and well-documented emancipations. France began the process in 1794, Britain emancipated slaves across its empire in 1833, and America followed suite at the end of the Civil War in 1865. Unfortunately, all of these events were directly related to violence. The British emancipation started in 1806 but was initially targeted at only non-British colonies. Then widespread slave uprisings started in Demerara in 1823 followed by uprisings in Jamaica in 1831 and 1832 which forced the issue and brought about the 1833 Emancipation Act.
The French example is equally checkered. Although France started to emancipate slaves as part of the 1794 revolution, that was subsequently reversed by Napoleon. In 1804, French-controlled Haiti declared independence and white slave owners were massacred. But even this didn’t bring about emancipation, which had to wait until the revolution of 1848 which was part of a larger wave of European violence.
In America, the Civil War, though ostensibly fought to preserve and redefine state rights, was inextricably intertwined with the issue of slavery. It was also the single bloodiest conflict that has been fought in the history of the nation. Approximately 50% of all battle-related deaths in US history are attributable to the conflict.
So violence was integral to emancipation, which rules it out as a purely peaceful leveling mechanism, but was it effective? In short, yes, but again the greater the violence, the greater the leveling. In both Britain and France, initial attempts to emancipate slaves were comparatively less violent and slave owners were compensated for the loss of their slaves by the government. This process had little effect on income or wealth inequality. In France’s later emancipation efforts and the revolution in Haiti, along with the American Civil war, violence was extreme and leveling was substantial.
Historically speaking, then, debt relief, whether through explicit cancellation of monetary debts or emancipating slaves appears to follow the same pattern as the four horsemen outlined above and isn’t a viable force for peaceful leveling. As an additional point, there just aren’t many outright slaves left in the world today, so any opportunities here probably lie in releasing bonded labor and other forms of psuedoslavery that look more like debt relief which I showed above to be ineffective at equalizing income and wealth inequality.
Economic Crises
What about peaceful crises that occur without violence? Things like banking failures, trade wars, and natural disasters have the capacity to act like mini-system collapses and reshape the order of society without going so far as to induce violence.
Unfortunately, we don’t have much data about the distant past and have to turn to more recent examples. The most comprehensive survey looks at 72 systemic banking crises from 1911 to 2010, 100 consumption declines of >10%, and 101 GDP declines of >10% between 1911 and 2006.
Among the banking crises data, 37 out of 72 yield useful information. Outcomes tended to increase rather than decrease inequality. Inequality fell in only 3, rose in 7, and remained unchanged in the remaining 27.
Among the 100 documented declines in consumption of >10%, 36 present us with usable data. Of those, inequality fell in 7 and rose in only 2, remaining unchanged in the remainder. So there is some leveling potential in nation-wide declines in consumption for equalizing outcomes. As with other violent methods, however, there is scant evidence that the poor were any better off during these declines in consumption, merely that the rich were made much worse off.
Among declines in GDP, there is no summary trend.
For those American readers, you might be wondering about the Great Depression, which surely had some sort of leveling effect, right? The answer is actually yes. During the Great Depression, top income shares fell even as real wages for those at the bottom of the distribution rose. The wealth share of the top 1% of Americans declined from 51.4% to 47% between 1928 and 1932 at the same time that the top 1% income share dropped from 23.9% to 15.5% (including capital gains income). The number of wealthy individuals shrank quickly during this time. Membership in the National Association of Manufacturers, which was mostly populated by wealthy industrialists, fell by more than 67% between the early 1920s and 1933. In just 4 years from 1929 to 1933, the number of American banks fell from 25,000 to 14,000.
Elsewhere in the world, however, the effects of the Great Depression were dramatically less pronounced. Australia, France, and the Netherlands were only moderately affected, and the effects were weaker and briefer still in Japan and New Zealand. Top income shares remained stable in Germany and Finland and actually rose in South Africa, Canada, and Denmark.
The summary here suggests that short of the Great Depression in America, relatively peaceful banking crises and declines in GDP do not appear to be capable of reducing inequality. Declines in consumption appear to be weak levelers, but are definitionally bad for individuals within a society because they lower everyone’s standard of living.
Policy Change
Policy changes are by far the most popular suggested fix for income and wealth inequality. And most of the policy changes involve taxation that redistribute wealth from the rich to the poor. Among the books I’ve read, there are countless suggestions about how best to implement such taxes, but Picketty’s suggestion of a global 2% tax on wealth is emblematic of these ideas.
First, as I’ve covered above, there is no historical precedent for peaceful redistribution like this to have any major impact on income or wealth inequality. The fact that the historical record has no examples of this approach being successful is, in my opinion, the strongest evidence that policy won’t solve the problem peacefully. Either humans are incapable of this sort of cooperation or the conditions have never been right to support these changes at any other time in recorded human history. Either way, they seem good on paper, but impossible to implement. That said, economists and writers stubbornly stick to this topic because it is the most politically correct and palatable way to address income and wealth inequality.
All of the authors I read followed a similar pattern: they suggested and reviewed policy change ideas and then conclude with a phrase like “at present, it seems unlikely that there is enough political will to make any of these changes.” That seems like a bit of a cop out. In my opinion, the primary reason why taxation can’t fix income and wealth inequality peacefully has to do with the fact that it is too easy to move wealth around in the world.
Let’s unpack my claim with an example: Picketty’s controversial, but seemingly plausible suggestion of a global tax on wealth. The idea here is that very wealthy people would be heavily taxed on their net worth, regardless of how it’s held. Poor people would pay almost nothing and people like Jeff Bezos would see their billions dwindle in just a few short years due to very high taxation.
Today, if the US were to institute a very high tax on the wealthiest people, say 70% per year, those people would simply restructure their wealth into corporate shell companies based in tax havens like the Netherlands, Singapore, or Ireland and take distributions to continue living where they pleased. If the Netherlands could be compelled to apply the same high tax law, wealth would simply move to Singapore and Ireland, and so on. Literally one country failing to pass the law would cause wealth to flow to that country, negating the redistributive effect of the tax. Rather than income and wealth being redistributed in the country where the tax was implemented, a safe haven country would get wealthier and the original country would become poorer.
But let’s wave a magic wand and assume humans could figure out a way to coordinate and get such a tax bill considered in every nation in the world. The next most-rational response from the hyper-wealthy would be to spend some large portion of their wealth to influence legislators not to pass the laws. Is it realistic to assume that a Congressman or EU parliamentary member would pass up vast personal wealth to pass such a law? What if they were offered $50 million or $100 million? Under current systems, such bribes are illegal and the bribes that do occur are relatively constrained, but if hundreds of billions in personal wealth were threatened, it would make sense to use a large portion to try to bend and break the political system to prevent such a change. At which point, wealth has simply shuffled hands between the multi-billionaires of the world to current sitting legislators, which wouldn’t improve income or wealth inequality.
But let’s go further and magically assume that all the nations of the earth do pass this wealth tax. What would physically compel billionaires to actually write the tax checks? Surely some would voluntarily do it: Warren Buffet and Bill Gates spring immediately to mind. But others may resort to force to preserve their interests. Remember from part 1 in this series that the top 1% in America currently own ~35% of all the things that can be owned in the entire country. In short, they are well funded enough to put up a fight if they were so inclined, and only the countervailing threat of government-funded military action might be a sufficient deterrent.
In this last phase, we have violated the stipulation that the tax law be peacefully implemented and every step before it demonstrates that easy capital flight will ensure that anything less will be ineffectual.
Conclusion
In this section, I’ve outlined the four most promising categories of non-violent economic levelers: land reform, debt relief, economic crises, and policy changes. There are a few non-violent levers that have managed to reduce income and wealth inequality: namely the reliance on another country’s military presence for land reform, large national declines in consumption, and the very specific example of the Great Depression. Government-enforced debt relief has inconclusive results, emancipating slaves has worked, but seems to always be accompanied by great violence. So we’re left with either being conquered in a war and relying on the victors to support economic redistribution, having our quality of life decline substantially through contractions in consumption, or living through an unprecedented international economic meltdown and the accompanying individual unemployment and social instability.
But all is not lost! In the final part of this series, Part 5, I’ll provide hope by distinguishing between causation and correlation. Just because things are unequal, doesn’t mean bad stuff happens, and that’s an important distinction. Plus, trying to defy history is not just the right to do, it’s also the cheapest thing to try.