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Eighteenth century philosopher Adam Smith, sometimes referred to as the godfather of capitalism, insightfully analyzes this system in An Inquiry into the Nature and Causes of the Wealth of Nations. Smith, who recognized equality of condition as an important feature of a free and just society, observed that "wherever there is great property there is great inequality."¹ Smith recognized class-biased policy or government run by mercantilists to be detrimental to the democratic masses when he acknowledged two centuries ago "the very end of [government] is to secure the rich from the poor."² Smith argued the "masters" (capitalists) with greater power will conspire to pay the less advantaged class of workers as little as possible.³ Yet, Smith was convinced that capitalism would advance "the wants of man" because he thought market competition would de-concentrate wealth and result in greater economic equality.⁴

What is the socio/economic significance of inequality or economic polarization? In classical economic theory the free market is seen as a equalizer: when there is expansion, there will be prosperity for all.⁵ Some economists and libertarians who subscribe to laissez faire Law and Economics theories might argue that rising inequality is indifferent; a natural part of the business cycle, good for the market and society at large because it promotes efficiency.⁶ Liberalism and radical theory reject the notion that inequality is a necessary evil and aver that sustained economic equality is desirable for myriad reasons: to maintain social stability, to promote justice, and to sustain political democracy. Liberalism posits that the market is not self-regulating seeks to counterbalance the negative effects of supply and demand. Such efforts include government spending⁷ to create more jobs, market intervention measures (such as government spending) to equalize skills, increase job training and legislation mandating equal access to jobs though civil rights and affirmative action.⁸ Radical theory, by contrast, maintains inequality is systemic in a capitalist economy.⁹ Recognizing that more equitable systems of market capitalism have emerged (e.g. in social democratic countries like Sweden), it asserts that markets are a social construction, the result of public policies fostered by a dominate class over a subordinate less economically advantaged class. An inequitable society favoring the powerful's interests is the inevitable result.¹⁰

Examination of the extent of economic inequality provides a context for gauging power relations in our society. What is the state of inequality in the 1990s, a decade of overall economic expansion? By any hard measure - wages, income, wealth - the gap between rich and poor has grown in the industrialized nations. The United Nations Human Development Report shows that between 1960 and 1990, the income share of the world's richest fifth climbed from 70 percent to 85 percent and continues to rise. During the same period, the share of the lowest fifth dropped from 2.3 percent to 1.4 percent and by 1994 had declined to 1.1 percent. ¹¹In other words, the ratio of the income of the top 20 percent to that of the bottom 20 percent rose from 30-1, to 78-1. Wealth; measured by ownership (stocks, bonds, savings accounts, real estate), is by far the dominant measure of real power in any society. UNHDR's 1996 report found that the world's billionaires - a total of 358 - have consolidated assets worth more than the annual combined incomes of 45 percent (2.5 billion of the world's people); by the next year the figure rose to 47 percent.¹²

For the better part of the1990's, the U.S. economy has expanded. However, national reports of low unemployment and rhetoric about the "strong new economy" obscure the fact that overall wealth and income disparities are greater today than at any time since 1947 when such information was first collected.¹³ An overview of the distribution of wealth in the world economy reveals that the U.S. remains the richest, most influential country in the world but has the greatest wealth and poverty polarization of any "first world" nation. John Coder of the U.S. Bureau of the Census analyzed the 1989 Luxembourg Income Study(LIS), a 1989 international effort to compare income distribution and poverty in about a dozen countries, and found the U.S. to have the largest share of poor to rich as well as the smallest middle class; it had the highest number of poor of any nation studied, ranked third in the highest number of rich, and eighth in the numbers of the middle class.¹⁴ Translated, the U.S. ranking reveals that about 10 percent of the U.S. population own or control 77 percent of the nation's total net wealth (nonresidential), inclusive of all stocks, bonds, real estate, and assets of any kind, the top 1 percent has 43 percent.¹⁵ The top 1 percent of the U.S. population maintains a larger share of wealth than the bottom 90 percent of the population, with the top 10 percent owning over twice as much as the rest of the citizenry.¹⁶

Disparities between Americans of different means remain wider today than at any time since the end of World War II.¹⁷ The income gap is greater than at any time since the Great Depression,¹⁸ U.S. income distribution has become increasingly more unequal for almost thirty uninterrupted years, and wealth inequality has grown greater in the 1990s.¹⁹ During the economic recovery (between 1989 and 1997), the share of wealth held by the top 1 percent of U.S. households grew from 37.4 percent of the national total to 39.1 percent.²⁰ Over the same period, the share of all wealth held by families in the middle fifth of the population fell from 4.8 percent to 4.4 percent.²¹

Uncritical glowing reports of the strong new economy conceal the fact that between 20 and 30 million Americans suffer from hunger, that hunger has increased by 50 percent since 1985,²² and that over 40 percent of those being served in soup kitchens are working poor or those who work but do not earn enough to pay for food.²³ Such rhetoric eclipses the U.S. Census Bureau's findings that in 1995, about 49 million people, one in five, lived in a household whose members had difficulty satisfying basic needs. These households didn't make mortgage or rent payments, failed to pay utility bills and/or had service shut off, didn't get enough to eat, needed to see a doctor or dentist but didn't or otherwise could not meet essential expenses.²⁴

The strong new economy has delivered for capital, which has grown by leaps and bounds. Corporations and investors are making record profits. The stock market rose, for example, by a staggering 60 percent in 1995 and 1996 alone.²⁵ But the contrast between the advances of capital and the material reality of most working Americans is striking. Over the past twenty years, real wages have fallen for 60 percent of the work force.²⁶ Seven years into the recovery, the inflation-adjusted earnings of the median worker in 1997 were 3.1 percent lower than in 1989.²⁷ Over the same "recovery" period, real hourly wages stagnated or fell for the bottom 60 percent of workers, except for low-wage workers, whose wages rose 1.4 percent during that time²⁸ the worst performance since the Great Depression. The typical family now works six weeks more per year to keep pace, yet the median American family income was only slightly higher ($285) than it was at the peak of the last business cycle in 1989.²⁹ Meanwhile, CEOs have seen their incomes skyrocket. In 1965, the average CEO made 20 times more than the average production worker; by 1989, the ratio had almost tripled to 56. By 1997, CEO pay had more than doubled again to 116 times the pay of the average worker.³⁰ Salary, bonus and returns from stock plans of the average CEO grew 100 percent between 1989 and 1997.³¹

Conservatives might pose that while wages for the bottom 80 percent of workers may be down,³² the stock market boom has generally benefited the working class so that has contributed to a rise in standard of living. The reality, however, is that although four out of ten households may own some stock directly or indirectly through pension plans, almost 90 percent of the value of all stocks and mutual funds are controlled by the top ten percent of the population.³³ According to economist Edward Wolff of New York University, an estimated 42 percent of the benefits of the increase in the stock market between 1989 and 1997 went to the richest 1 percent.³⁴ In addition, the Economic Policy Institute reports that by 1997 the average net worth of the top 1 percent was about $10 million, up 11.3 percent from 1989. Over the same period, the net worth of middle-class families fell by 2.9 percent.³⁵ The richest have clearly profited more from this stock market version of an economic boom than the average worker (those who do not share in the ownership of the means of production).

There are other indications that workers are not holding their own in this economy. Personal debt levels are at historic highs.³⁶ After adjusting for inflation, the value of middle class wealth holdings actually fell between 1989 and 1997, due primarily to a rise in indebtedness.³⁷ Between 1989 and 1995, for example, the share of households with zero or negative wealth increased from 15.5 to 18.5 percent of all households.³⁸

Another marker of economic polarization is the U.S. poverty count.³⁹ Since the mid-1980s, poverty rates have failed to respond to economic growth. Despite some increase in income, the number of poor remained statistically unchanged. The number of poor reached 35.6 million people in 1997,⁴⁰ 3.2 million above 1989 levels when 32.4 million people were poor and the poverty rate was 13.1 percent.⁴¹

America also holds the dubious distinction of having the worst childhood poverty of any industrialized country; in 1997, 20.5 percent of the nation's children lived in poverty.⁴² More than one in five children were poor in 1996, up from 19.6 percent in 1989 and 16.4 percent in 1979.⁴³ Astoundingly, the number of American children living in families with incomes below one-half of the poverty line rose to 2.7 million in 1997, up by 426,000 from the previous year.⁴⁴

Left Business Observer editor Doug Henwood points out that low unemployment, usually a powerful deterrent to poverty rates, isn't working as powerfully as it has in the past. 1997's unemployment rate (4.5 percent) was less than it had been at earlier cyclical poverty lows, but low employment (though it has pushed up real wages somewhat) still couldn't bring the poverty rate down with it at corresponding levels.⁴⁵

One possible explanation is that having a full time job no longer translates into an existence above poverty level. A group of impoverished called the "working poor" - about 9.5 million people - work but remain in poverty.⁴⁶ 10.3 percent of these persons worked full time in 1997 but were not able to rise above the poverty line.⁴⁷ Put another way, these worker's full time wages fell below a "living wage," or the level of income necessary to provide the most basic personal needs: food, housing, transportation, utilities, clothing, taxes, and co-payments for health care and child care. What is rarely noted is that the percentage of working poor has grown over the past two decades: 7.7 percent of workers working full time lived in poverty in 1978; and by 1997 the figure had climbed to 9.3 percent.⁴⁸

Henwood explains further that those in poverty in 1997 were poorer than their predecessors as a result of the widening of the income deficit, the amount by which the incomes of the poor fall short of the poverty threshold. In addition, the number of very poor or those with incomes less than half the poverty line rose.⁴⁹ The poor are poorer today than at any time in the last 20 years.

Although black poverty fell to its lowest level in 1997, it still hovers at 25.6 percent and little long term progress has been made in overall poverty reduction.⁵⁰ The number of women living in poverty remains higher than the number of men. 14.9 percent of women lived in poverty in 1997 (20,387,000 women), compared to 11.6 percent of men (15,187,000), though poverty has diminished slightly for women (16.3 percent of women lived in poverty in 1966).⁵¹

Poverty is disproportionate amongst the 54 million Americans who have some level of disability. Statistics tabulated by John McNeil of the Census Bureau (1994-1995 data) show the poverty rate for people with no disability to be 13.5 percent compared to a poverty rate of 20.2 percent for those with disabilities.⁵² The 1998 National Organization on Disability (NOD)/Louis Harris Survey, found that fully a third (34 percent) of adults with disabilities live in a household with an annual income of less than $15,000 compared to one in eight (12 percent) of those without disabilities - a 22 point gap.⁵³ Furthermore, the gap between disabled and nondisabled persons living in very low income households has remained virtually constant since 1986 (four years prior to passage of the ADA).⁵⁴

But the NOD/Harris Survey annual income cutoff at $15,000 doesn't paint a complete picture of the depth of poverty some disabled persons endure. For example, since $720 is the average per month benefit that a disabled worker received in 1998 from Social Security Disability Insurance (SSDI) and $480 is the average federal income for the needs-based Supplemental Security Income (SSI), the real income of over 10 million disabled persons⁵⁵ on these programs is between $5,000 and $10,000 - far below the $15,000 mark.

What may be projected for the future? The Economic Policy Institute concludes that there is little evidence of a "New Economy" in the 1990s.⁵⁶ Amidst positive overall growth, significant economic disparities persist as trends in wages, income and inequality continue to follow patterns set in the 1980s.⁵⁷

Growing inequality in a time of overall economic growth dispels the classical economic position that when the economy expands, everyone shares in the prosperity. Similarly, persistent inequality grounded in two hundred years of various forms of capitalist practices (and business cycles) challenges Adam Smith's postulation that a capitalist economy will deconcentrate societal wealth. Persistent and growing inequality in an expanding economy destroys the myth that capitalism will equalize incomes and thus bring everyone into the middle class. Inequality is not vanishing. Economic equality, or an equitable distribution of societal wealth, has not materialized in any sustained or stable manner. Persistent and growing inequality during an economic expansion suggests that neoliberal forces have managed to promote the interests of capital despite the efforts of liberal interventionists who sought to narrow inequality by balancing power between capital and labor.⁵⁸