We do not reap the seeds we sow – someone else sowed them long ago!

In 1944, Swedish economist Gunnar Myrdal published his famous 1,500 page work – An American Dilemma: The Negro Problem and Modern Democracy, which documented the conflict in American society driven by what he called the “American Creed”, which is about the “ideals of equality and liberty” and the obvious “moral lag in the development of the nation”, which at the time was referred to as “the Negro problem”. More recently, a book by American academic Nancy DiTomaso – The American Non-Dilemma – challenges the earlier notion and argues that whites in America are able to exploit racial inequality without doing “bad things” to blacks. Both works are interesting, but the more recent work fits with my current research because it introduces a new conflict, albeit unwittingly, that centres on whether you reap the seeds you sow.

This topic was also raised in the Melbourne Age article today – The lucky country? Try selfish and deluded, too – which analysis the mean-spirited nature of Australia society in the context of our recent cuts in foreign aid – all in the name of “living within our means”.

The Age article begins:

We think of ourselves as a generous people and many Australians are. But it’s a form of national psychosis when a rich, secure nation unblinkingly spends more on killing people than helping them … The overall aid budget will fall to 0.33 per cent of gross domestic product and the defence budget will rise to 2 per cent, in an increase 10 times as big as the aid cut.

The way we are able to “live with a world of obscene disparities” is by deluding ourselves that:

… our lives, careers and successes are all our own work. If others struggle, that’s their fault, their own mistakes, or lack of skills or work ethic.

This is of course the classic neo-liberal myth – that there is no such thing as society or community interdependencies and that we reap the seeds we sow.

This has been a very familiar theme as governments abandoned the notion that mass unemployment was a systemic failure of the economy to create enough jobs, and instead reframed it as an individual failure – indolence, attitude, poor skills etc

In the US, this individualistic perception is regularly articulated and usually mixed with words such as freedom, enterprise, and all the other buzzwords that frame now delusional understanding of our place in the world.

The Age article notes that:

I have never seen prosperous Australians work as long and hard as I have seen Africans toil just to survive. People living in rural Africa struggle for everything we take for granted. Fetching water and firewood can involve a long walk every day. Our essential services – running water, sanitation, power and healthcare – are unattainable luxuries.

Villagers get up before dawn and work until dark even when they are ill, which is often. Millions of Africans have to be resourceful (they make fine floors of polished dung), brave and resilient to survive in mud huts housing families with no visible means of support, save for some meagre crops and livestock if they’re lucky.

Which should be the end of the debate. It is not about hard work or enterprise or commitment or determination or resilience.

A lot of the inequality that arises across and within nations is about who helps who to get a “head-start in life”. That is one of the purposes of development aid – to redress the lack of capital in societies so that basic resources are provided.

Australians are too mean to see that and support political parties who deny a few measly dollars to the poorest nations in the world because we “cannot afford it”.

The Age article refers to a recent major report – Global Wealth Report 2013 – which found that:

Ranked 9 among the top 12 countries by HNWI population, Australia saw an increase of 15.1% in 2012 while wealth grew by 15.5% to $625 billion, outpacing global growth rates.

[HNWI = high-net-worth-individual]

Many of these individuals have led the charge in recent years in the political attacks on public deficits and welfare spending, ignoring the massive corporate welfare budget they receive themselves from the public sector.

Which one of them has ever given the public funds they have received in one way or another back? Answer: A small number approaching zero.

The Age article says that

Wealthier Australians win life’s lottery not just by being born here, but by being born into families that provide an upbringing of good health and education plus valuable social networks … How many of us really do it all on our own, without calling on any relatives or social and business contacts?

All the evidence available (including analysis in the Global Wealth Report) tells us that the vast inequalities in wealth holdings reinforce themselves that the “benefits of such wealth are intergenerational” and that there is considerable “persistence” meaning that “10 generations or more have to lapse before the wealth of an individual in North America is completely independent of the wealth of their ancestors”.

The conclusion in the Age article is that:

If we still insist we don’t have money to spare, and anything we make is rightly ours to keep, then we are a self-deluded nation. We will never convince anyone but ourselves that good people can live such privileged, selfish lives.

But the idea of social networks and inherited advantage is very interesting. It not only explains income and wealth disparities but also helps us understand regional disparities where wealth or lack of it creates vastly different spatial mobility patterns and responsiveness to industry shifts.

The poor are locked in by housing and transport circumstances to areas that may lose jobs and cannot move to other areas where new jobs might open up.

Nancy DiTomaso’s challenge to the old Myrdal conjecture is about social networks. She summarised the arguments from her book in a New York Times article earlier this year (May 5, 2013) – How Social Networks Drive Black Unemployment – which was part of “The Great Divide” series on inequality that the NYT was running.

Basically, she says:

1. The downturn has been very bad for black Americans relative to the non-black cohorts.

2. “… regardless of the economy, job prospects for African-Americans have long been significantly worse than for the country as a whole.”

3. This is not solely due to “racial discrimination”. Rather, she found “a somewhat different culprit: favoritism”.

4. “Getting an inside edge by using help from family and friends is a powerful, hidden force driving inequality in the United States” and this “favoritism has a strong racial component”.

5. White Americans metwork better than African-Americans and so information about where new job openings are is more readily transmitted to the members of these networks. Outsiders get locked out of these infomration networks.

6. “while exclusion or discrimination is illegal, inclusion or favoritism is not – meaning it can be more insidious and largely immune to legal challenges”.

The relevant point that the social networks’ literature challenges is the central idea from mainstream economics that the return one gets from labour market participation is reflection of your skill, experience and endeavour (so-called marginal productivity theory).

Nancy DiTomaso writes:

In this context of widespread networking, the idea that there is a job “market” based solely on skills, qualifications and merit is false. Whenever possible, Americans seeking jobs try to avoid market competition: they look for unequal rather than equal opportunity. In fact, the last thing job seekers want to face is equal opportunity; they want an advantage. They want to find ways to cut in line and get ahead.

The capacity to network is not equal across the occupational structure – low-wage jobs are fairly open whereas the better jobs are relatively closed (if not entirely closed).

The white networks channel like souls through their systems and exclude others – but, while that sort of behaviour is not eclusive to whites, it is the fact that “whites are more likely to hold the sorts of jobs that are protected from market competition, that pay a living wage and that have the potential to teach skills and allow for job training and advancement.”

She also documents how people are oblivious to the help that their background etc gives and typically consider they have made it on their own steam.

But these people also deeply oppose affirmative action and on closer scrutiny she found that their major complaint was that it overrode the network influence.

I did some data analysis to see what it showed. The data comes from the BLS CPS databases (and I would use FRED2 rather than the BLS to extract it given the changes to the BLS site which have made it harder to get more detailed data).

The first graph shows the unemployment rate for whites and blacks (and Hispanic) for various periods (depending on the data availability). The grey bars are the NBER recession (peak to trough) dates.

As you would expect both series (ignoring the Hispanic) are highly cyclical and asymmetric – sharp rises as the economy moves into recession followed by slow decline as growth ensues.

While not obvious to the naked eye, recession tends to push up the white unemployment rate proportionately more than the black unemployment rate whereas in the growth phase that pattern reverses.

We can see that in the next graph which plots the ratio of the black unemployment rate to the white unemployment rate. You can also see that the ratio is lower now than it was (on average) in the 1990s and 1980s

Next we consider employment. Remember that the unemployment rate reflects a confluence of factors including the participation rate, the labour force and employment growth rates.

The next graph Shows the annual employment growth for US whites and blacks from January 1972 to September 2013. Once again the shaded bars represent the NBER recessions (peak to trough).

What we observe is something interesting. In the downturn the contraction in black employment is proportionately higher than it is for whites but in the recovery phase there appears to be a tendency for the black employment growth rate to overshoot the white growth rate.

Take the current downturn as an example (shown in the next graph). From peak to trough, white employment fell by 4,904 thousand or 4.1 per cent, whereas black employment fell by 1,035 thousand or 6.4 per cent.

However, in the upturn, white employment has grown by 256 thousand (0.2 per cent) whereas black employment has grown by 1,210 thousand or 8.0 per cent, thus wiping out the losses incurred in the downturn.

Moreover, while recessions cause a smaller proportionate loss of jobs for whites, the recoveries tend to be better for blacks.

This graph starts at January 2007 and traces the employment growth since then (to September 2013).

The next graph shows the ratio of white to black employment since January 1972. The downward trend doesn’t mean there isn’t a significant proportionality issue here – with white employment still 7.5 larger than black employment even though the underlying population ratio is around 6.4.

In December 1982, at the end of the recession, the employment ratio was 9.55 while the population ratio was 8.0. Both have been declining.

The next graph – the ratio of the two employment-population ratios (white over black) – shows that the whites are still doing better proportionately than the blacks even though the white population is not growing as fast as the black population.

Turning now to labour force participation rates, the next graph shows the white and black rates since January 1972. The white rate grew faster up until the early 1990s, and after some compression through the next decade, both have fallen steadily since.

The most recent recession has seen an acceleration of the declining participation (as a result of a lack of job opportunities and rising numbers of discouraged workers), although since the trough, the white partipication rate has fallen by 2.8 points compared to the decline in the black rate of 1.4 points.

Finally, to summarise the relative movements in participation rates for whites and blacks, the following graph presents the ratio of the two (white on black) from January 1972. If past behaviour is anything to go by, the current decline the ratio as some way to go before an upturn will be seen.

Conclusion

While none of this refutes the importance of social networks in perpetuating income and wealth inequalities, it seems that the story might be somewhat more complex than the simple whites get access to the better jobs through networks and the Blacks miss out

Clearly, the distribution of job opportunities between so-called good jobs and bad jobs is not continuous. There are rigid immobolities between the two, and social networks are important in determining who gets access to the good jobs.

Nancy DiTomaso also recognises that pure discrimination is still a major screening force, which keeps some cohorts (for example, blacks) from gaining access to the better jobs.

The data shows that in the downturn the economy sheds more jobs that blacks hold but adds them back more quickly in percentage terms in the recovery.

But with barriers to the better jobs firmly in place, the capacity for blacks in America to experience social mobility is limited.

The evidence also suggests that whites are starting to lose out as well (but are still proportiontely in front of the blacks).

That is enough for today!

(c) Copyright 2013 Bill Mitchell. All Rights Reserved.