Saturday, October 21, 2017

Can mass mobilization wars increase income inequality?

It has  become somewhat of a truism to hold that big mass mobilization cause income inequality to decrease. I think we may date it to Max Beloff “Welfare and warfare” or perhaps to the Beveridge commission, or perhaps even earlier. The logic is not hard to understand. Big wars, like the First and Second World Wars, were fought by millions of people who had to be clothed, shed, fed, armed and thus kept at least above subsistence while not contributing any marketable goods and services. Workers in factories too would not be let to starve, as Avner Offer reminds us in his “The First World War: An agrarian interpretation”. For that was a constant fear of the ruling classes: if domestic labor rebels, the war is lost. Somebody obviously had to pay for all that: and who else but the rich. Hence inequality had to go down. On top of that, countries on whose territory wars were fought were devastated, and losses were more than proportionately borne by the rich factory owners, land proprietors and the like.

In this explanation, we have to distinguish two parts. The part which is connected directly with redistribution (higher taxes to pay for soldiers) and the part which is connected with destruction and reduction of overall income. If overall income declines substantially, it is hard to maintain real incomes of the rich without courting the danger of regime overthrow or defeat in war (or both). So, in part the decrease in inequality comes from impoverishment.

(It is here that it is useful to add to the usual Gini or top share statistics, the Inequality Extraction Ratio which measures how close to the maximum possible inequality a country is. It could easily happen that the measured inequality goes  down during a war while the Inequality Extraction Ratio goes up—I other words, the elite has, in relative terms, become even more rapacious.  But  we shall leave this part for the specialists.)

War as a great leveler hypothesis has recently received further support from the discussion in Thomas Piketty’s “Capitalin the Twenty First Century”, and even more explicitly in Walter Scheidel’s “The Great Leveler”. There mass conscription wars are one of the four horsemen of the apocalypse who alone are able to bring inequality down (“the cure is worse than the disease” as Scheidel’s  book epigraph states it). I have argued along the similar lines in my “Global inequality”.

But is it always so? It has been hinted  in some books about the World War I (notably in Niall Ferguson’s “Pity of War”) that inequality in Germany might have increased during the 1914-18 period (i.e. prior to the  November collapse) because the tax system continued being unfair or regressive.  Junkers and big industrial capitalists, Ferguson argued, were unwilling to pay for the war—even if they wanted it won. Similar observations are present, in a dispersed form, in the already mentioned Offer’s book and in Adam Tooze’s recent “Deluge”.  

Now come two economic historians, Maria Gomez-Leon and Herman de Jong who using detailed data on social structure of England and Germany, and on the evolution of occupational wages and income from property for dozens of categories, calculate the so-called “dynamic social tables” for the two countries for the period 1900-1950. And what they find is that German inequality indeed increased during the Great War while English went down (see the graph).

This could provide in part the explanation for who lost and who won the war, and thus might have political significance. But for people who deal with inequality it sends a message about contingencies and human agency: even things that appear to be very logical (that the war needs to be financed by the rich) and find strong empirical support in many cases, need not hold in all cases. That is, even a modern (20th century) mass mobilization wars may be accompanied by rising inequality—during the war years themselves.

(Incidentally, Gomez-Leon and de Jong show similar evolution of German inequality during the Second World War but the mechanism there was different. It consisted of  forced foreign labor, pillage of conquered territories and their populations all in order to desperately try to maintain food consumption and real incomes  of the German population from collapsing during the war—an objective that the Nazi authorities achieved until approximately 1944. But, this is a somewhat different story.)

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