Why Social Mobility Is Crucial to America's Economy
Something extraordinary happened to the American economy in the 1780s and '90s. There were no big technological changes — factories, steamships, and railroads were still largely in the future. Yet a burst of entrepreneurial activity led to a jump in productivity.
What brought on the improvement? A single great event: the overthrow of colonial rule. But not the economic policies of the empire, since British control in that area had not been so onerous.
The key change lay elsewhere. After all, the overthrow wasn't just a war for independence. It was also a revolution — a major change in social as well as political relations. Most colonists had seen themselves within a great hierarchical order where everyone knew their rank in society. The vast majority of people were "the vulgar" expected to show deference to their betters. Largely stuck in their positions, they sought protection in personal ties, and only noblesse oblige kept many from falling into utter poverty. The wealthy classes also sought stability over market-oriented efficiency and growth, not unlike Lord Grantham in the television show "Downton Abbey."
After overthrowing that order, Americans realized more than ever before that they could change their station in life. Many farmers took up home manufacturing on the side, hoping to afford the luxuries once deemed appropriate only for gentlemen. Marginal lands fell under the plow, and what had been a trickle of migrants going west became a flood. Literacy shot up as the masses started taking education seriously for their children. The new commercial mindset helped unite the previously fractured colonies into a national economy, with open state borders and a growing network of banks.
That new mindset in turn did much to spur the speedy adoption of technologies in later decades. As historians have increasingly appreciated, technology is usually a secondary cause in economic development. It requires a good many people willing to do the hard and risky work of developing early advances into something that truly works in the marketplace. Just look at how long it has taken elite-dominated countries to industrialize even with mature technology and ready funding.
Britain itself shows the damage that class divisions can wreak on an economy. It may have led the world in the industrial revolution based on steam power, but it fell behind in the second revolution based on electricity and chemistry. A major reason was its failure to develop a deep-seated culture of entrepreneurship and technology. While the United States was building agricultural and technical colleges for the masses in the 1800s, Britain's industrial leaders encouraged their sons to go to Oxbridge and gain the trappings of gentlemen. Indeed, even as late as the 1920s, the fictional Lord Grantham's ignorance about business and investing is all too believable — it was no part of the training for his generation and class.
The Revolution of 1776 turned America into a land of opportunity. Now, however, there are growing signs of movement in the opposite direction. Rates of social mobility have fallen and now lag many of the former monarchies of Western Europe. Income and wealth inequality has risen to heights not seen in a century — a time when most of the poor were immigrants on the way up. With governments struggling with debt, college education increasingly costly, and jobs still scarce, ordinary people are finding it harder to imagine a future of improvement. Many have given up and sought protection outside the marketplace, fueling a surge in disability claims.
Within companies, rising executive pay and prestige has distanced senior leaders from the rest of the organization. Despite talk of "the age of the knowledge worker," there are growing references to "HiPPO" — the highest paid person's opinion, to which everyone else is to show deference.
The United States is a long, long way from "HiPPO" to "your lordship." But it needs entrepreneurial energies more than ever now. The economy is entering dangerous times. Information technologies are replacing human workers at an unprecedented rate, and that's likely to keep unemployment high for a decade or more. We need energetic innovators to turn the magic of artificial intelligence into benefits for a great many people.
That's going to be difficult, as innovators will look at strapped governments and consumers and see an uncertain payoff. They'll be tempted to go after the money, which means serving the wealthy with ever-expanding conveniences and delights. The grandeur of wealth — whether it's a landed estate or an exclusive hedge fund — has always been seductive. Already we're seeing the spread of butlers, "Lexus lanes," special lines at amusement parks and other encroaching marks of economic status.
Those innovations are fueling a reversal of the progress America saw in the 1790s and Britain saw in the 1920s, where class distinctions are hardening rather than softening. The more it continues, the harder it will be to generate broad-based entrepreneurship — and perhaps prosperity as a whole.