What evidence is there to suggest a "widening gap" within American Society? (A seminar paper)

Reggie Hamster

Any evidence offered to support the concept of a "widening gap" must be qualified by the apparent ideology of some of the authors quoted and their choice of secondary data. The nature of the subject attracts a generally critical view of The United States, often from a Marxist, sympathetic or emotive perspective. Some might argue that their evidence is selective. This study is also subjective when trying to explain the forces of globalisation and national policy response to global events, based on the discussion of the seminar.

This paper sets out to analyse some of the data offered as evidence, and to offer some explanation of the economic divide apparently developing; the separation appearing to be around 1973. The economic factors in operation will be considered historically on a national and global scale. 

It is acknowledged that only one factor will be used in this study, that of income across a broad section of society. It would be interesting to expand the research to include other indicators of social deprivation or social well being that might have changed in the post war to present day period. These might have included questions about access to health care, birth / death rates, housing, educational opportunities, employment and location. Inner cities and ethnicity may have given some of the best indicators of a lack of opportunities and any "widening gap".

Figure 1 displays the 68.5 million United States families or households separated into quintiles, each group's increase in income shown as a percentage. The post war years to 1973 show a remarkable parity, what some would call a "Golden Era". The rich became richer, but at least at the same rate of increase as the rest of the population. However, this could be misleading in that the proportional increase for the rich would be greater than a low income family over a long time period. Even so, it would be easy to imagine an air of relative prosperity and equality across all sections of society.

The upper diagram has been described as a "picket fence" by Paul Krugman (economist at Stanford University) whilst the lower, he called "the staircase". This bottom diagram appears to show three main groups evolving in American society: the bottom two-fifths whose income has seen a reduction; the middle tier that has stagnated; and the top two-fifths whose income growth, whilst reduced from post war levels, has continued to rise.

One explanation for the growth of the higher earners might be their participation in the stock market. In this period, 1973-1993, the value of the Dow Jones Index has doubled; 80% of all stocks are held by the top 10% of American households.
( New Internationalist 281 :12)

However, aside from this initial national issue, the global economy has changed, influencing national manufacturing industries and therefore the traditional lower income group. The apparent change in American income groups coincides with the 1973 "oil crisis". A cartel of oil producing countries began to control prices and began a redistribution of wealth around the world. Formerly poor oil producing countries became some of the richest countries in the world. (Short 1982 :44) Other low income countries also looked to expand their economies and increase their exports in an attempt to counter the highly priced oil imports (and the subsequent international loans) they were dependent upon.

Multinational corporations began to invest in these countries due primarily to lower labour costs, freer legislation and lower taxation and the traditional manufacturing industries of the United States (and other developed countries) relocated to the periphery, often the Far East. Other raw materials became controlled by cartels; materials often conveniently located in developing countries. Examples such as copper, oil, tin, bauxite, iron ore and rubber, all used by the relocated industries.
Despite this relocation of industry, and thus employment, to poorer countries, prosperity appears to be widening on a much larger scale than just the United States. This would suggest that profits are leaving the manufacturing countries and enriching the shareholders of transnational corporations; global evidence of a "widening gap". 

Towards this, Table 1 compares income, trade and lending ability of income groups between 1960 and 1989 as percentages of global economic activity. The most striking change appears to be that of income. The richest 20%  reflecting the trend of American society, a steady increase apparently "gaining" the income of the middle group. The poorest 20% have seen a reduction of some 45% in their incomes, the ratio between, and thus gap, widening.
Importantly, the poorest 20% have little or no access to commercial lending to generate economic activity, what little available, reducing by 30%. Again, the ratio between richest and poorest increasing, more evidence of a widening gap.

Much of the discussion has centred on a broad (simplistic) overview of global economic change. The seminar used the example of a specific case study quoted in New Internationalist (Issue 281) concerning the American corporation of General Dynamics.
On 25th February 1991, the board of directors met to decide company policy and the remuneration of the top twenty five company executives. They approved a plan which would award a year's salary as bonuses should the company share price rose ten points on the stock market. The next ten point rise would see two year's salary as a bonus and so on until 1994. 

The company immediately announced the sacking of 12,000 of the 86,000 strong workforce, quickly amassed $600 million at the bank to spread amongst the shareholders and awarded themselves $18 million in bonuses under the scheme.
It was argued that each of the executives had awarded themselves the salaries of 500 other people within the company. David Ransom (N.Internationalist 281 : 8) describes this as, "...Their ability to do this, and get away with it, presupposes the existence of a whole structure which empowers one small group of people to do this to a much larger group - and eventually cast out upwards of 30 million people into an underclass, beyond the parameters of the "American Dream". 

It appears that this system he describes not only empowers this smaller group but applauds and rewards them for doing so.
Much of the discussion that followed this example concerned the value to an area of 12,000 families participating in the local economy or several executives with millions in the bank. It also raised the question of welfare payments to 12,000 people against the gains of shareholders in the highest quintile of our diagram within the perspective of a nation with lower taxation. 

It would appear from the evidence selected from a limited number of sources that there has emerged a "widening gap". However, the study is limited in using only the example of income to illustrate change and then only as a broad trend. There has been little geographical context to the study, simply a wide economic overview and general  discussion of points raised within the seminar. 

It would have been interesting to study an urban area, perhaps one formerly dependent on a manufacturing industry that has relocated and look at the new income levels and industries that have replaced them. Other indicators might illustrate a "gap" far more effectively within a welfare state such as the United States. They might include the live birth / death rates in urban areas for each income quintile; the opportunities of education; health care facilities; housing quality; life expectancy and ethnicity as factors in any of the examples. Importantly, government spending on welfare and service provision could be linked to taxation policies and compared to lower income groups and their "life chances".

The conclusions to be drawn from this exercise are that the global economy and relocation has changed the traditional manufacturing base on which much of the United States' wealth was founded. National policy (some would say capitalism) has adjusted through right-wing policies of lower government taxation and reduced welfare provision.

This study has therefore raised many more issues than first thought, income simply one expression of any widening gap.
This idea of a widening gap is a relative term, poverty is subjective in a welfare state - there have been political changes and with them a different social perception of poor people. Different values have been placed on success and wealth alongside a different culture, that of enterprise for the individual and the increasing power of the multi-national corporation. 

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