Chapter 01 of 08
The late 20th century manifestation of welfare capitalism spread outwards from post-war America into western democracies across the world.
This system of merit-based mobility, which concerned itself with ensuring corporate productivity whilst also maintaining a social safety net, improved the standard of living for so many, boosting both prosperity and productivity, whilst also reducing economic inequality to the lowest levels in recorded history. It ushered in an age of modernisation, liberalisation, labour rights and technological democratisation all justified by extraordinary economic growth.
The new era of distributed prosperity relied on the idea thatwas effectively guaranteed to those who were educated, worked hard and abided by the laws of the land. Income became a proxy for economic value, work ethic, effectiveness, ingenuity, knowledge and influence. It was through the creation of economic value that people ascended the social ladder.
The new era of distributed prosperity relied on the idea that social mobility was effectively guaranteed to those who were educated, worked hard and abided by the laws of the land.
The corporation was the vehicle through which the worker could achieve social mobility. Notionally, the corporation should ignore prevailing societal prejudice and discrimination in search of profits so it was well placed to assess those characteristics. It was effective for 60 years. For the first time in history, a person born poor had no restrictions placed on their potential. The social contract that the leaders of the early 20th century had begun to embroider was flourishing. Welfare capitalism had proven to be both the most effective and equitable economic system ever created.
The system was not without faults. Systemic misogyny and malignant racism were baked into the institutions tasked with administering, regulating and managing the economy. This manifested in such profound and extreme levels of social and economic exclusion that it has shaped much of the social discourse of today.
Welfare capitalism was severely flawed but it provided a basis upon which a more equitable society could exist. One where the interests of citizen and corporation could cohabitate. But wars, recessions and rapid financial internationalisation created unstoppable momentum in another direction.
The 80’s brought with it an era of political ideology called neoliberalism. Neoliberal doctrine argues that humanity flourishes most when the owners of capital maximise profits. The resulting policy decisions included enormous deregulation of financial markets, the widespread privatisation of state-owned assets and the minimisation of labour representation. Corporations were more profitable than ever, but those profits were no longer distributed in an equitable manner, causing a rapid worsening of economic inequality. Investors, the providers of capital, were being disproportionately rewarded when compared to employees, the creators of value.
Massive quantitative easing post 2008 exacerbated that dynamic. Inflation manifested principally in asset prices. Real estate prices, stock markets, venture capital and private equity experienced a decade of extraordinary growth. Those who owned assets benefited, whilst those who did not saw them become less accessible.
At the same time as this vast recalibration of the distribution of wealth within advanced industrial economies, taxation regimes in many nations have grown increasingly regressive and imbalanced. In particular, the taxation of high earners has evolved dramatically since the end of the 1970s.
The top marginal income tax rates in the United States and the United Kingdom in the 1970s were above 70 percent. The Reagan and Thatcher regimes led to rate cuts of 40 percentage points for the wealthiest citizens within a decade. Equitable systems of taxation ensure that those at the bottom can more rapidly ascend economic classes through access to better infrastructure and resources.
The consequence of these economic measures has, generally, been very high levels of employment, demand and profits but also high levels of dissatisfaction across society. Limited wage inflation, an inability to own a home and a sense that the system is unfair have resulted in anger, protest and political activism.
What people are realising is that social mobility is now predicated on wealth more than income and whilst income depends on employment, wealth depends on the ownership of assets. Those assets are no longer affordable to the average earner.
This has profound implications for modern economies. The social contract and democracy more broadly are dependent on an economic system that ensures upward mobility for those who observe established social mores. Social mobility is the promise that binds us to a system that allows both billionaires and the bankrupt to coexist. A failure to resolve the root causes of economic inequality and specifically social mobility will inevitably lead to sustained civil unrest.
Chapter 02 of 08
Economic class is a concept familiar to many. Most people identify as part of a particular class, be it poor, working class, middle class, upper-middle class or upper class.
It is an identifier that shapes the way we view the world and the opportunities and challenges it presents. It often determines the company we keep, the employment we pursue, the values we hold close and the environments in which we feel comfortable. Few social constructs influence the parameters we construct around ourselves and our potential more than economic class.
This traditional class framework becomes increasingly redundant as the gap between rich and poor grows and upward social mobility decelerates. There is less to distinguish poor from working class from middle class than there has been at any point in the last century. These three classes in particular are significantly less distinct.
The internet and entertainment media have degraded the knowledge gap between these groups.. We can see how “the other half” lives. Education has diminished the skills gap and the economy has degraded the pay gap to the extent that a college degree will no longer entitle someone to higher lifetime earnings than someone without.
Heritage and inherited status means less for class than ever before. The primary determinants of contemporary class are income and wealth. Do you have sufficient income that you can acquire wealth and do you have sufficient wealth that you do not require income generated through work? Will you accumulate debt or wealth over the course of a working life?
Traditional socio-economic divisions, determined by heritage, race and geography, are far less pronounced than they once were. In their place have risen new economic classes defined by wealth alone. We have tried to classify this new economic framework in terms of income and wealth, showcasing how wealth accumulation at the top makes social mobility more difficult for those at the bottom.
CLASS 6 of 6
This class works or requires work. Their income is insufficient to cover the cost of living. They have no access to regulated debt. The opportunity cost of purchasing necessities is all other necessities.
CLASS 5 of 6
This class works. Their income is insufficient to cover the cost of living. They accrue debt to purchase necessities. This debt accumulates over time. Income or cost shocks are catastrophic. The opportunity cost of purchasing necessities is some other necessities.
CLASS 4 of 6
This class works. Their income is sufficient to cover the cost of living but no more. They are not capable of coping with income or cost shocks using their own resources. The opportunity cost of purchasing luxuries is necessities.
CLASS 3 of 6
This class works in higher income jobs. The income received exceeds the cost of living allowing the purchase of luxuries and status symbols. They are capable of coping with income and cost shocks. The opportunity cost of purchasing luxuries is other luxuries.
CLASS 2 of 6
This class does not need to work. The assets owned by this class generate sufficient income to cover cost of living. The opportunity cost of purchasing luxuries is assets.
CLASS 1 of 6
This class does not need to work. The assets owned by this class generate income in excess of cost of living, accruing more assets and more income over time. The opportunity cost of purchasing luxuries is nil.
Chapter 03 of 08
The belief that hard work leads to success is a powerful and seductive ideology.
The truth is that intellect, work ethic and character have significantly less to do with social ascent than gender, race and circumstantial privilege bestowed at birth. The idea that opportunity in life is linked to individual merit has been used as a mechanism for explaining away class inequality and has often functioned to reproduce structures of social exclusion rather than to work against them.
Research repeatedly has shown that the income category of one’s parents is likely to have a significant impact on the probability that one will experience social mobility
This is the “myth of meritocracy”: a powerful, persistent narrative that is often used to validate the prominence of inherited influence and justify the discriminatory oppression of people more often confined to lower rungs of the social ladder due to circumstances of geography or birth. Research repeatedly has shown that the income category of one’s parents is likely to have a significant impact on the probability that one will experience social mobility, meaning that in spite of the dominance of meritocratic myths, it is primarily the wealthy who are most likely to enter into the elite.
We see this in particular with respect to education, which is a key driver of one of the main indicators of social mobility – intergenerational persistence in wages. Studies of the relationship between education and social mobility tend to challenge “utopian” functionalist theories of industrialism, which assume that “the complementary demands of efficiency and justice result in more ‘meritocratic’ societies, characterised by high rates of social mobility”.
Class status also interacts with other dimensions of social exclusion. Research from the UK, for example, demonstrates the powerful intersections between class background and other demographic factors, including race, disability and gender. We can also interpret a relation between social stratification and LGBTQIA+ identities. However, the differing ways in which sexualities are articulated and perceived over time and across geographies make them more difficult to analyse with respect to class.
One of the most notable areas where we see a contradiction of meritocratic myths is with respect to race. Racial and ethnic background have an important mediating role on the impact of qualifications on social mobility. Members of ethnic minorities experience an “ethnic penalty” in the UK labour market, even with strong educational qualifications.
The result of these distinctions is that the negative trends we see in social mobility are multiplied when race is considered as a factor, with race gaps in upward and downward mobility manifesting across income categories. When life shocks occur, like unemployment, people of colour are harder hit and slower to recover, as has happened in the U.S. during the COVID-19 pandemic. The “American Dream” does not apply equally to all.
Disability also leads to disadvantage in key areas linked to social mobility. Disability can be acquired over the lifecourse and can be physical or cognitive. Both dimensions of disability have been shown to correlate with decreased earnings in employment. One study of US data showed young adults with cognitive disabilities earned USD 10,419.05 less annually and USD 5.38 less hourly than those without disabilities.
Social protection for persons with disabilities is a defining indicator of the World Economic Forum concept of the social safety net. At the same time, those with disabilities who are economically active frequently find themselves in a marginalised position in the labour market at the bottom of the occupational ladder. In a society where economic activity is equated with moral worth, the relation between disability and occupational outcomes has major implications for social membership more generally.
This is underlined by the fact that, between 2008 and 2018 in the US, for example, individuals with disabilities had drastically lower employment rates than those without disabilities. Employment rates were lowest for Black people with disabilities, pointing once again to the intersection of inequalities that defines horizons of opportunities. Data from the UK underline this intersection of class and disability. A recent report revealed people with disabilites who are from a working class background are half as likely to end up in the most high-paid roles as people with disabilities whose family backgrounds are in professional and managerial occupations.
Historically, women have been overlooked in studies of social mobility. For example, one dominant measure of mobility has primarily focused on the intergenerational transmission of occupational status from fathers to sons. This was seen as a relatively straightforward task given the gendered dimensions of work. A historical study of West Germany showed differences in terms of occupational class destinations, with gender segregation in vocational training channeling women into comparatively unfavourable class positions. This resonates with research that finds work placements to be highly gender-stereotyped.
Labour mobility, too, is gendered in specific ways. The dynamic movement of Southeast Asian female migrants to fulfil service sector positions, including domestic work, in North America and Europe is one example of this. Such transnational movements are intimately linked to class, insofar as they have been associated with attempts to maintain one’s class position.
Pew Charitable Trusts, Women’s work: The economic mobility of women across a generation
Most daughters make more than their mothers did but less than their fathers.
In spite of intergenerational gains for women, the enduring social and economic importance of men’s wages means they have a significant ongoing impact on not only family income but also family formation, particularly in the case of families with lower incomes. And whilst daughters in the US now work more hours and earn more than their mothers did, they still earn less than their fathers did at the same level 30 years ago. Additionally, a stall in maternal labour force participation over the past decade means that many lower income families are unlikely to gain economically from this shift towards an increase in paid work for women – a trend that has been exacerbated by the COVID-19 pandemic, particularly demands made on mothers by the imposition of remote learning.
As with race, relations between class and gender are not simply additive. Rather, studies of education in the UK bear out the contention that race, gender, and class intersect in complex ways.
Chapter 04 of 08
They’d been let down so often, Their brow was on the floor, But then they found a small hole, And let them down some more.
When looking for the drivers of downward social mobility, a recurring theme arises: both economists and sociologists agree on the fact that it is usually the result of “unexpected stressful life events”.
If the social contract of welfare capitalism were being upheld, the negative impact of unexpected life events should be mitigated by a safety net that ensures one can quickly return to being a net contributor to the economy.
However, the evidence clearly shows that these unexpected shocks, typically unrelated to individual merit, are the primary drivers of downward mobility. Jessi Streib writes, “The common story about downward mobility is one of bad luck: recent generations have the misfortune of coming of age during an economic downturn, a student debt crisis, declining job security, and, now, a pandemic.”
The above examples focus on social disruptions, but stressful life events can also come from a personal situation. For instance, divorce or health problems can also be drivers of downward social mobility. More precisely, a stressful life event on its own won’t necessarily result in downward social mobility, given that not everyone is affected by stressful life events in the same way. Rather, it has to come with the lack of a financial safety net. Faced with these challenges, many turn instead to a “debt safety net”, which becomes essential to household functioning but which can lead to a cycle of compounding losses.
Bad luck can be exacerbated or mitigated by demographic factors. It is clear that intellect, work ethic and attitude have far less to do with social mobility than do race, gender, disability or inheritance.
The promise of welfare capitalism, oft-referred to as the “American Dream” is the idea that any citizen, regardless of birth, can climb to the highest perch of politics, commerce or professional life based on merit alone. This concept spread throughout the developed world, validating the economic ascent of millions who had climbed the social ladder from lower classes.
This has become a central tenet of contemporary democracy. Discriminatory systemic or cultural barriers to upward social mobility are seen as anathema to civil society. Yet despite that, we continue to facilitate massive transfers of wealth through inheritance.
Discriminatory systemic or cultural barriers to upward social mobility are seen as anathema to civil society. Yet despite that, we continue to facilitate massive transfers of wealth through inheritance.
Most wealth is inherited – up to 65% in the US, by some accounts. This is determinative in a world where assets, not income, define economic class. It also has a material impact on those from lower classes who exhibit merit, work ethic and positive attitude. The likelihood that they will experience upward social mobility is significantly reduced due to their inability to access assets through income alone. In the UK, for example, whilst some may have the educational credentials and occupational prospects that correspond to established understandings of what constitutes the middle class, an explosion in property prices relative to income means there is little prospect of owning a middle-class home without access to family wealth.
It is increasingly the case that the income category of one’s parents is likely to have a significant impact on the probability that any one individual will experience social mobility. The relation between income inequality and social mobility is a longitudinal concern, the fear being that those with more significant incomes will have a greater capacity to accrue wealth (e.g. savings, assets) whilst those on lower incomes will be unable to do so. As with the impact of education, this would imply a disruption of social mobility through mechanisms of inherited wealth when taken to an intergenerational scale. This process is a demonstration of how differences in income or asset value can compound over time.
The role of inherited wealth is forecast to become even more important in the future. According to the Nuffield Foundation, inheritance will represent 8% of average lifetime earnings for those born in the 1960s, whereas this will rise to 14% for those born in the 1980s. However, inheritance alone is not the only answer, given that inheritance primarily serves to benefit those who are already wealthy. As argued by Marc Szydik, “Future inheritances will continue to substantially increase the discrepancies between economic classes”.
Life deals us cards face down. The privileges and disadvantages bestowed upon us may not have been our choices to make, but they establish rigid parameters within which society expects us to live our lives.
Each card contributes to your earning potential, either accelerating or decelerating the rate at which you are accumulating wealth or debt. It can all change in a moment. An unexpected health event, job loss, child or inheritance can have a long term material impact on your ability to retire comfortably or even climb into a new economic class.
The following simulation is driven by chance. It’s based on a simple model, and is not intended to accurately describe the complex systems that shape people’s lives. However, we have used OECD reporting on wages, living costs and interest rates at the time of writing, and made educated assumptions about the costs of certain life events. To play the simulation, you’ll be dealt three random cards from a deck of Starting Conditions. You’ll turn over a new Chance Card for each decade of your life. Because life events impact people differently, the Starting Conditions you drew will define how Chance Cards impact your earning potential. Scroll through to play the hand you’re dealt. Good luck!
The graph on the left records the total wealth of your character as you progress through a life from age 18 to retirement at 65. Its course will be influenced by your income, expenses and interest rates, which for simplicity we assume to be fixed.
Every decade, you’ll draw a Chance Card. These cards are randomly assigned. Scroll to discover where you end up at retirement, given the hand you must play..
Chapter 06 of 08
Declining social mobility has a severe and cumulative impact on all of those who hoped, one day, for something better.
People are coming to terms with the idea that life is unlikely to improve substantially with age, retirement is likely to be very challenging and their kids are unlikely to be better off than they are. This is cultivating higher levels of social malcontent, frustration and inequity, which is manifesting as activism and protest.
Research demonstrates that people who have experienced social mobility are more likely to justify or support the status quo. The same also holds true for those who perceive social mobility to be possible.
The converse is also the case. In the US, for example, perceived stagnation in upward social mobility is rising and is seen as a motivator for former President Donald Trump’s victory in 2016, as well as for the storming of the US Capitol in January 2021. Elsewhere, surveys reveal that 87% of French “Yellow Vest” protestors express the feeling of living in an unfair society. In the UK, an increase in intergenerational immobility has been linked to transformative political schisms, such as the country’s 2016 Brexit vote.
These patterns are reproduced on a global scale, a key indicator of the fact that declining beliefs about the possibility of social mobility open up a space for political turbulence and for societal change. Although there may be variations in the suggested routes to achieving increased social mobility, commentary and insights from across the political spectrum and in various national contexts come to the same conclusions: ensuring a freely moving social elevator is one of the most powerful mechanisms for ensuring social cohesion and political stability.
A sample of economic protests in major global economies since 2008
Chapter 07 of 08
For most of human history, the worker was an itinerant, constantly mobile, moving between towns in search of employment. Farmers, masons, manual labourers, teachers, cooks, miners and hired swords all moved about in search of income that could get them through the winter. There were exceptions: blacksmiths, for instance, have always been highly valued. Soldiers or senior house staff might have something akin to tenure within a lord’s house, but the notion of geographical permanence is relatively new.
The idea of multiple generations living in the one place had for decades been the privilege of the gentry. The introduction of the social contract of the 20th century changed that. Pensions, five day working weeks, unions, the minimum wage, women in the workplace and vacations resulted in the first generation of a landed proletariat. The ownership of a major asset like a house and adjoining land transformed the dynamics of the relationship between rich and poor. For the first time, the poor had the means through which they could become rich.
The privilege of permanence of place for labour has been an anomaly in human civilisation. We have come to take it for granted despite it being only a single century in 100. It is the consequence of a political system and social contract predicated on the promise of social mobility. That privilege evaporates as social mobility erodes. Manual labour, in particular, becomes far more susceptible to labour transience, chasing jobs wherever they may be, never laying roots or prospering from the social benefits that come from living within a single geography for a prolonged period.
Like the young fleeing a recession, low-income workers will be forced to move constantly or upskill into employment that still provides opportunities for permanence. Regions that provide freedom of movement and consolidated benefits systems will make it easier for these workers, but ultimately it will become so unappealing that virtually all will be replaced by automatons and code.
The social contract is a political philosophy that implies that if citizens partially surrender their individual rights and adhere to established social norms then the government will provide them with both prosperity and security. Much of the modern social contract was negotiated between unionised labour and the capital-owning class, overseen by government. The outcomes of that negotiation include, but are not limited to, enfranchisement of non-land owners and women, the five day work week, holidays, state and contributory pensions, social insurance, safer workplace standards and workers rights enshrined in legislation. Governments are intended to act as an arbiter ensuring the good faith participation of both sides.
The modern political contract between labour and capital is predicated on the idea that the rich, the owners of capital, need the poor, the servicers of capital, in order to produce products and services and provide military service. This detente, which has held for almost a century, is now at risk due to the rise of technology capital. Technology capital includes robotics, artificial intelligence and algorithmic data analysis and is replacing the need for labour in areas of military, manual labour and service.
This is not the first time that technology has replaced labour. Typically, the introduction of new technology creates frictional unemployment and some structural unemployment that is offset by a rise in productivity and profits that, in turn, create more demand which creates more labour.
The wholesale replacement of low-income labour by technological capital undermines the need for a social contract. Why do the owners of capital need labour to service their capital if technology can do that more effectively? For what purpose should the owners of capital maintain their side of the bargain? This has the potential to create an unsurmountable chasm between rich and poor, a chasm for which the bridge of social mobility has been torn down.
The rise of 20th century western political and economic systems necessitated a symbiosis between welfare-capitalism and participatory universal suffrage. These two systems were superimposed in the 20th century to create the most prosperous, productive and freest countries in history.
The link that connected these two systems and their related ideologies was social mobility. Welfare capitalism was supposed to ensure that the economy incentivised ingenuity and rewarded merit. Equitable universal suffrage ensured that economic capacity didn’t translate to augmented or diminished franchise.
In this hybrid system, the company is the vehicle through which the worker achieves social mobility. The employee is the vehicle through which the company becomes profitable. The government oversees both and ensures equanimity between the two. The system becomes compromised only if the government does. The government becomes compromised only if equitable universal suffrage does. The deconstruction of the social contract due to a diminishment of social mobility will ultimately undermine universal suffrage by removing the incentives that the owners of capital have to treat labour equally.
Chapter 08 of 08
Keynes was correct. The accumulation of capital and scientific advances has indeed afforded people the opportunity to live a life in pursuit of leisure, without obligation or necessity for labour, but that reality extends to only a small few within an emerging economic aristocracy.
Keynes, wrongly, assumed that nations would act collectively to ensure that the pursuit of capital for satisfaction alone would be disabused until the burden of necessity was lifted for all. Instead, the system has facilitated the accumulation of extreme wealth for a small minority, for whom the contribution of labour is now optional.
For those without capital, salaried income is now considerably less effective as a mechanism for prosperity. Nevertheless, it has now been clearly established that technology and the compounded accumulation of capital can actually relieve people of the necessity of work and provide to them the opportunity for a life free of laborious obligation.
Technology was to be our saviour. The vehicle through which “we would come to value ends above means and prefer the good to the useful”. Perhaps it will yet be. For now, the uneven distribution of technology, technological capital and technological skills has created unprecedented opportunities for individuals and challenges for an economic system predicated on a social contract that is no longer effective. The next section will explore the ways in which new economies are forming around digital endeavour and the consequences for economic class in the digital age.
JOHN MAYNARD KEYNES.
“The time for all this is not yet. For at least another hundred years we must pretend to ourselves and to every one that fair is foul and foul is fair; for foul is useful and fair is not. Avarice and usury and precaution must be our gods for a little longer still. For only they can lead us out of the tunnel of economic necessity into daylight.”