Inequality doesn’t breed populism. Social immobility does

Income inequality is often framed as the world's foremost economic challenge, apparently responsible for populist eruptions like Donald Trump's 2016 US presidential election win, Brexit, and French presidential candidate Marine Le Pen's popularity. 

Yet British politician Jeremy Corbyn's far-left platform ran aground in the United Kingdom, the French left is comatose and the US Democrats' left flank lost many Latino voters to Trump over perceptions of socialism. If inequality is such a big problem, why do politicians who preach aggressive redistribution keep failing at the ballot box?

Our book, which focuses on this question, was recently reviewed by sociologist Paolo Gerbaudo in a Foreign Policy article titled: "Does Inequality Provoke Populism?" Our thesis is that populism does not, in fact, chiefly result from income or wealth inequality but rather from economic unfairness. 

Confusing economic fairness with equality is what leads so many politicians to misunderstand and misdiagnose populism, delivering a big advantage to illiberal populist leaders.

The problem is not that economic outcomes are unequal. It is that opportunity is not equal and economic rewards do not relate to people's contributions to society, which together create an unfair economy. 

Voters see that family origins and elite networks lead to success when it should depend on talent and effort — and thus conclude the system is rigged. These issues have played out over and over while elites prospered: for example, in unfair job and income losses from globalisation and the 2008 global financial crisis. 

But crucially, citizens do not want to eliminate the possibility of success; they want to make success fair again.

Gerbaudo disagrees with these arguments and concludes that inequality is the decisive issue. In his view, there may be social psychology evidence showing that people praise fairness above equalised outcomes. But apparently, it is practically necessary to "[tackle] inequality" in Western countries to address that unfairness. 

He goes so far as to insist that "only redistributive policies can restore social mobility" — contending that to equalise opportunity, the state must also equalise outcomes.

Reclaiming Populism exposes in detail why this classic left-wing argument is wrong and consistently loses the very disenchanted voters who are so pivotal. Gerbaudo glosses over many of the most important explanations of why.

For one, the original quantitative research behind the book demonstrates that social mobility is a robust predictor of populism in the rich world today, both across and within different countries — but income and wealth inequality are not. 

This research has been cited by the European Union, United Nations, and International Monetary Fund. Economics professor Philip McCann, who coined the term "geography of discontent," even cited it to write that "social mobility is the crucial indicator of populist voting."

This finding is critical to our argument. Income and wealth inequality simply measure how unequal outcomes are — regardless of the reasons why they occur. These variables therefore completely fail to distinguish between individuals who get rich for fair reasons that most citizens support (say, inventing a new technology that makes everyone better off or releasing a fantastic music album) versus unfair reasons that most people abhor (like corrupt financing).

In contrast, social mobility specifically examines whether, in a given country or region, individual success is strongly influenced by family wealth. It thus homes in on whether the reasons for economic success are unfair in an important respect. 

Social mobility captures how badly the system is rigged in terms of whether success depends on what family you were born into.

The fact that decreased social mobility but not income inequality predicts populism indicates that focusing on the latter is wrong-headed. France, Hungary and Poland, for example, are within the bottom third of Organisation for Economic Cooperation and Development (OECD) countries with the lowest income inequality yet are all afflicted by fierce illiberal politics. 

New Zealand's income inequality is roughly the same as the Brexit-beset United Kingdom, yet it is led by an extremely moderate prime minister, Jacinda Ardern.

What is more, the best available evidence indicates that cracking down on income inequality is the wrong way to approach social mobility. Gerbaudo points to economist Miles Corak's Great Gatsby curve, which shows that among 13 high-income countries, income inequality and poor social mobility are correlated. But as we explain in Reclaiming Populism, this simple correlation is too often vastly overinterpreted.

In fact, causal evidence from Harvard University economist Raj Chetty, perhaps the world's leading social mobility expert, shows that income inequality does affect social mobility. But so do at least half a dozen other independent factors, each with about the same strength. For example, increasing the prevalence of colleges in a certain place would, proportionally, have about as much impact on social mobility as equalising income levels.

So would improving commuting times, reducing the frequency of single parenthood, improving test scores in schools and so on. This paints a far more complex picture than the standard "soak the rich" narrative; social mobility results from a confluence of public goods and social factors that have effects independent from sheer income inequality.

The consequence is that if you focus solely on income inequality, you actually miss the vast majority of what contributes to social mobility and will accordingly land on misguided policy prescriptions.

Social mobility is not quintessentially about eliminating the possibility of success by equalising outcomes; it is about expanding paths to success for more people. It critically relies on public goods that support equal opportunity like education, health care and more. This certainly requires taxing the fruits of success but not eradicating them.

The French state is an important example of how focusing too much on inequality and redistribution can actually undermine social mobility. France has one of the largest, most interventionist governments of any high-income country and it certainly has lower income inequality than most of its peers. 

But its social mobility is remarkably low, far closer to the free marketeer United States than its Nordic neighbours.

France suffers from low social mobility not despite but because of its overbearing state. For example, the Economist noted in 2017 that some Parisian barbers must complete 200 haircuts a month just to pay their taxes and social security charges before earning any take-home pay. 

One pertinent issue is that France's tax and social security charges are lofty to begin with, which generate one of the highest tax wedges — a measure of the extent to which tax on labour income discourages employment — on labour in the OECD.

Another, which French President Emmanuel Macron has attempted to tackle, is excessive and highly litigious worker protections. Too many small businesses in France have been burned by lawsuits from and expensive payouts for ex-employees — and thus do not entertain the possibility of expanding.

It is not hard to see how problems like these could undermine the life chances of someone struggling to work their way up the income ladder. Take-home pay can be underwhelming, limiting how much citizens can invest in their own futures. 

Disincentives to hire keep people out of work and hold back business growth for would-be entrepreneurs. A freer market with less onerous taxes, social security contributions and labour regulations would undoubtedly boost French social mobility.

This collection of problems illustrates why calls to aggressively equalise outcomes have repeatedly failed so badly with voters. They are not just irrelevant but actually counterproductive if the goal is greater economic fairness and social mobility.

Sadly, there remains deep misunderstanding among the left about government intervention to equalise outcomes and government intervention to create equal opportunity. In the 2018 US midterm elections, for instance, health care was a tremendously popular issue with swing voters that Democrats rode to the bank. 

And rightly so: Medical issues are the leading cause of personal bankruptcy in the United States, which by cutting off a person's future massively undermines equal opportunity.

But far-left Democrats misinterpreted this signal as support for big government of any kind, including forms aimed at equalising outcomes. Figures like Sen. Bernie Sanders and Rep. Alexandria Ocasio-Cortez accordingly espoused radical policies like universal job guarantees and enormous wealth taxes. These contributed to perceptions of socialism that ultimately pushed many voters toward Trump in 2020.

Gerbaudo does not accurately represent our arguments that separate social mobility from income inequality or our policy prescriptions to build a fairer, more socially mobile economy. He claims we propose an "updated version of [the] Third Way liberalism of [former US President] Bill Clinton and [former British Prime Minister] Tony Blair," and notes that "Third Way policies … attempted to marry low taxation of the rich and social welfare spending." 

Yet Reclaiming Populism's oft-repeated role models are not particularly low-tax countries; they are places with high social mobility, such as Canada, Australia, New Zealand and the Nordic states.

In fact, we excoriate how Third Way thinking was partly captured by neoliberalism. Consider the famous Tony Blair quote: "I hear people say we have to stop and debate globalisation. You might as well debate whether autumn should follow summer."

This market-is-always-right sentiment neglected the possibility of unfair economic outcomes and took for granted that there would be natural losers from globalisation. 

This strongly contributed to ongoing underinvestment in the British industrial regions outside of London that were most exposed to globalisation. The affected citizens were not given the tools they needed to compete on a footing of equal opportunity and fair reward — and were thus left far behind. When the chance arose, they largely backed Brexit.

The problem with Third Way thinking, as with much of centrist politics today, is that it sees economic policy as basically a choice between lots of government intervention or little government intervention. Accordingly, too many centrists muddle through by arguing for some government intervention without especially clear reasons why.

We argue instead that government intervention should specifically support equal opportunity through public goods like education, health care, infrastructure, unemployment insurance and more. 

It should also use regulation and the justice system to ensure that people cannot get rich in ways that are unfair, such as through monopolisation or high-risk financing. But the state should expressly not equalise economic outcomes and instead permit a competitive private sector.

This approach, we argue, is why countries like Canada, Australia and the Scandinavian nations enjoy high social mobility when France does not. They employ substantial but not overbearing levels of taxation to fund equal opportunity and then let citizens get on with their economic lives in a free market.

Leftists are perennially confused about the difference between strong state interventions that seek to equalise opportunity and those that aim to equalise outcomes. The former support social mobility and economic fairness, whereas the latter do not. That is why they keep losing to populists at the ballot box.

Eric Protzer is a research fellow at Harvard University's Growth Lab. He is a co-author of Reclaiming Populism: How Economic Fairness Can Win Back Disenchanted Voters.

Paul Summerville is an adjunct professor at the University of Victoria's Gustavson School of Business. He is a co-author of Reclaiming Populism: How Economic Fairness Can Win Back Disenchanted Voters.

Disclaimer: This article first appeared on Foreign Policy, and is published by special syndication arrangement.