A Greater Inequality

The Occupy Wall Street movement is no doubt about many things, but I think it could be said to be at its core about income inequality.   My greatest problem with income inequality may have less to do with actual equality of income, but rather the inequality of opportunity it represents.   

The ownership of capital gives one an advantage in a capitalist economy.  We can accept that a certain amount of private capital is necessary to a healthy, competitive, robust marketplace, as its incentive structure tends to foster innovation and efficiency, often towards the common good.  But this is not necessarily the case, as it can also hamper innovation and efficiency, generally as accumulated wealth tends to accrete into entrenched interests.

But something I think is often missing from this part of the discussion is the degree to which human capital also accretes and gives structural advantage to the few.  I recently wrote about this in response to Eric Cantor's evocation of his poor Jewish immigrant grandmother's overcoming poverty to live out the American Dream through her grandchildren.  He speaks - as so many often do - of poverty in purely financial terms, as if financial capital is the only leverage point in capitalist society, and it is possible for anyone without it to begin to accumulate his or her own leverage.

Yet there is another, more powerful form of capital that needs to be leveraged in order to even begin to compete in a capitalist economy.  This is human capital.  What Cantor didn't mention (although was implicit in his narrative), was the amount of human capital his immigrant grandmother possessed.  Malcolm Gladwell raises the point in his book, Outliers, that Jewish immigrants in early 20th century New York tended to have access to human capital that other immigrants, such as Italian and Irish, did not.  Ironically, because of their oppression and marginalization in European society, they did not have the "luxury" of relying upon low-skill labor in the countryside, and instead were forced to develop skill-intensive occupations such as tailoring, jewelry, etc.  This provided an enormously useful form of capital they could then leverage in America, as such corollary skills, such as accounting and business-management, enabled them to make a profitable new life.

The problem the notion of human capital poses to the traditional economic debate is one of human behavior.  It makes a case that even in a relatively competitive and "free" market, even when you overcome the problem of access to capital, you're still faced with the dilemma of human means, where it simply isn't the case that "everyone" can succeed, because everyone does not have access to the same levels of human capital - that which allows them to leverage themselves in the economy, their ability to work hard, play by the rules, learn new skills, apply their knowledge, have productive social interactions, plan for the future, delay gratification, etc.  These are all skills that have little to do with inherited traits, but rather what they have learned from family, friends, neighbors and cultural interactions.

Most damning of all, just like financial capital human capital has a tendency to accrete.  Not only is the capital self-leveraging (healthy self-esteem = determination = study skills = more knowledge = more self esteem), but it brings up those around it, whether children or friends and neighbors, or schoolmates.  And because property values tends to create communities of homogeneous financial capital, so too do they create communities of homogeneous human capital.  So you end up with communities either both low in financial and human capital, or high in financial and human capital.  The clearest evidence of this can be see in public schools, where academic progress, the product primarily of human capital, aligns almost perfectly with financial capital.

It is a fact that opportunity is a product of human capital.  Without these core skills, one has no real self-efficacy.  Thus, to the extent that American citizens are growing up in families and communities which are failing to provide them with human capital, all the objective opportunity in the world will be essentially inaccessible.  It is rather like dangling fruit just out of reach of one whose legs are simply not long enough to reach.

The situation is clearly unfair.  People are growing up without opportunity.  For them, there is no real American dream.  Likewise, there are those who have been privileged with an abundance of human capital, and have been able to leverage it into great wealth. The million dollar question is not whether this is fair (it obviously is not), but whether there is anything we as a society can do to help them.  Public education is a great first start.  Other social programs that aim to guarantee access to the means to build human capital are equally important.  But it remains to be seen how effective any of these programs can really be.

So the next question that must be asked is whether a sort of "palliative care" might be owed to those lacking both human capital itself, and for whatever reason the means to develop it.  First on this list might be access to health care.  Millions of Americans will be stuck in poverty wage jobs with no access to it.  They will not have the means to develop sufficient human capital in the foreseeable future.  This will lead directly to great hardship as they inevitably become sick and injured.  Other quality of life issues can be remedied through such things as parks, libraries, public museums.  As this population will continue to be at risk of financial catastrophe, a basic social safety net will be required.

A case can be made that provision of these services runs the risk of disincentivizing the development of human capital.  However, I find claims that the strongest factor in the development of human capital is the desire to avoid the punitive effects of life without healthcare, food stamps or temporary welfare to be quite weak.  Millions already live in dire poverty, without these supposed barriers to human capital development, due to their acquisition of menial, poverty-wage labor, and obviously are not climbing out of poverty in large numbers.  American generation poverty is vast, and multi-causal.  Structural concerns are much more deterministic than the paltry government assistance offer. 

For instance, take the example of a common problem in poor neighborhoods.  A single parent household, in which children return home from school and are essentially left unattended, to roam the streets with neighborhood peers.  This will more often than not contribute to a net weakening of human capital.  Some strengths will be gained, but many more will likely be lost, or rather, weaknesses gained.  Many forms of human capital will be gained that provide some real benefit in the context of the norms of that marginalized neighborhood - such as fighting, acting tough, becoming fluent in cultural norms - but these will more than often represent patterns of thinking and behaving that are obstacles in wider society.  Even to a family with the best intentions, a child may not be able to avoid developing these negative behaviors and attitudes, sometimes referred to having been "lost to the streets".  This is a problem of structural failure, when even high degrees of human capital in a parent are overwhelmed by its opposing forces in other areas of a child's development.

Not only is capitalism, or free marketism, not competent to address this age-old dilemma, but it often actively contributes to it, through the accretion of unequal distributions in human capital and structural impediments to its formation and leveraging.