- Economic mobility depends on an absence of legal barriers preventing people’s ownership of resources or entry into professions. Significant evidence also indicates that historical inequalities of capital ownership, declining real wages, and other factors, may also contribute to economic immobility in capitalist societies where prohibitive legal barriers have been removed.
- Lack of economic immobility can undermine faith in political representatives when citizens feel they are not rewarded according to merit.
Economic Mobility in Capitalist Democracies
Economic mobility depends largely on an individuals’ access to resources, and the ability, or lack thereof, to transfer wealth between generations. In some places and times, political norms in fixed-status societies prevent people from accumulating land and capital that may allow them to move upward within a hierarchy of wealth distribution. Restrictions may also exist when one’s profession is limited by their received status, or class, within a society. Economists and historians have noted such static economic norms in pre-capitalist societies such as the feudal tenure systems, and guild-regulated commercial monopolies, which dominated the European economy into the eighteenth-century.1 In such situations, people are born attached to land or a profession, and are prevented from entering other careers. In modern capitalist societies, many of these traditional norms have disappeared in favor of a theoretical principle of economic mobility based on merit. However, some economists argue that restrictions on mobility continue to exist in capitalist societies as well. This, they argue, is particularly due to the skewed access to capital and distributions of wealth with which different groups start when they participate in market relations. These imbalances of wealth may also promote unequal access to education. Additionally, access to certain career opportunities might be closed to those without the networks and knowledge necessary to gain admission to selective firms, schools, and other institutions. In such scenarios, even though no outright legal stipulations exist that dictate immobility between classes, imbalances still exist due to the historical distribution of knowledge and resources such that people’s economic position often remains difficult to transcend in one’s lifetime or between generations.2
One cause of limited economic mobility occurs when middle-class real wages decline.3 In such cases, the ability for upwardly mobile people to save and invest is limited by the proportion of a paycheck necessary to buy goods necessary to maintain a minimal standard of living. Economic mobility may also face limitations when people’s incomes, and economic growth, lag behind returns on capital. In such cases, those who hold capital, or pass it to heirs, accrue more wealth as a proportion of total output in an economy. Consequently, those who do not hold capital, and whose wealth relies solely on income, face increased wealth inequality which, in turn, further exacerbates their ability to own capital by limiting any income above what they spend on consumption. This cycle of accumulation among a wealthy elite, and lack of accumulation among a majority, can prevent diffusion between the two groups on the grounds of merit.4 A solution may hold that, given low bureaucratic and startup costs to participation in an economy, someone with limited resources can nonetheless find long term success through innovation and discipline, and that they too can accumulate capital that allows for upward mobility into an economic elite. The feasibility of this type of mobility is a question that democratic politics has faced, and will continue to face, in a world dominated by global capitalism. In the meantime, lack of economic mobility can have psychological implications that can cause political rifts capable of destabilizing national unity and undermining government legitimacy.
While capitalist societies tend not to limit economic mobility legally, such as by birth or monopoly-status, de facto limits to mobility remain, which can aggravate political and social tensions especially when a small group of upwardly mobile persons use wealth as leverage in accumulating political power. An alternative, and more optimistic, explanation of the long term effects of economic growth emerged during the postwar economic boom in the U.S., when economists argued that economic growth would improve the welfare of the rich and poor alike, citing data over the previous half century that indicated balanced gains across the American wealth spectrum.5 In such a case, the idea that preexisting wealth would build on itself in a way that would separate the wealthy elite from a permanent majority seemed unlikely. The question of whether capital ownership does or does not create a widening barrier to economic mobility between classes remains a critical question in societies that wish to balance democracy and capitalism in the present day.
Why It Matters
In recent years, political discussion has revolved largely around the question of the growing divide between a small wealthy elite and the popular majority, which many see as preventing the possibility of movement between the two groups. Answering the question of whether, or to what extent, income and access to capital correlate with one’s ability to transcend an economic hierarchy, will remain a core question among policymakers, academics, and society as a whole.
1 On the effects of early modern capitalist transitions on traditional social structures, see Immanuel Wallerstein, The Modern World-System I: Capitalist Agriculture and the Origins of the European World-Economy in the Sixteenth Century (1974; Berkeley, CA: University of California Press, 2011), 14-131.
2 Thomas Piketty, Capital in the Twenty-First Century. Trans. Arthur Goldhammer.(2013; Cambridge, MA: The Belknap Press of Harvard University Press, 2017), 34.
3 Decline in real wages corresponds historically to periods of inequality and political turbulence. One explanation of this effect is relative disparities inwealth and economic mobility, which explains why events like the French Revolution occurred during periods of peak declines in real wages and historically high prices. On this correlation, see David Hackett Fischer, The Great Wave: Price Revolutions and the Rhythm of History (Oxford, UK: Oxford University Press, 1996).
4 Piketty, Capital in the Twenty-First Century, 1-9, 13-9.
5 Simon Kuznets, “Economic Growth and Income Inequality,” American Economic Review 45, no. I (1955), 1-28; Robert Solow, “A Contribution to the Theory of Economic Growth,” Quarterly Journal of Economics 70, no. I (February 1956), 65-94.