The Difference Principle, Capitalism and “Property-Owning Democracy”

I recently gave a talk to the online seminar “The predistributive politics of a property-owning democracy” (PREPOD), based on my 2018 paper “The Difference Principle, Capitalism, and Property-Owning Democracy” in the journal Moral Philosophy and Politics. The talk provides the context for the paper and explains its main idea, with some new visuals and a few new details. Thanks very much to Catarina Neves for the invitation, and to everyone who attended for the questions and comments I got. A video of the presentation and subsequent discussion is available online. The paper is available on my departmental webpage.

The paper addresses the longstanding question of how right-wing or left-wing is Rawls’s theory of "justice as fairness", focusing on the "difference principle," which is roughly the idea that inequalities (i.e. differences) between social positions must raise the lowest position. Rawls himself called this principle "strongly egalitarian" (at least one version of it; §13 of A Theory of Justice, p.65 in Revised edition), and he argued that it would lead to either "liberal socialism" or "property-owning democracy" but not "welfare-state capitalism".

Definitions (which ought to be in a footnote below but WordPress’s Markdown is not working as it should):

  • Welfare-state capitalism = private property and free markets with a minimal safety net.
  • Liberal socialism = common ownership of the means of production, but using the market for the sake of economic efficiency.
  • Property-owning democracy = private ownership of the means of production + traditional welfare and social insurance policies + government uses inheritance taxes and subsidies for education and training to make sure that financial and human capital is widely distributed, instead of being concentrated in the hands of a few. The result is meant to be that pre-tax incomes will be more equal, before government gets involved in redistribution (hence the term "predistribution").

However, socialists from the left and classical liberals from the right have argued that the difference principle really does support welfare-state capitalism, with the emphasis on "capitalism." When taken in isolation from the prior requirement of equal opportunity (for having a political say, and for social advancement), the difference principle does justify inequality, even if this inequality has to be justifiable to the worst off. Hayek once said the differences between himself and Rawls were more verbal than substantial, and he did think that societies based on private property and free markets generated prosperity that raised up the worst off, over time. Writing from the vantage point of the early 1970s in The Mirage of Social Justice, looking back over the post-war period, it was plausible that capitalism (with its edges softened by social insurance, and some kind of income support for those without any means) had raised incomes across the board, in Europe and North America.

Extending Hayek, Jason Brennan and John Tomasi (Chapter 8) have recently argued:

  1. that income growth in the bottom 20% of the income distribution tends to track average income growth (citing Dollar and Kray 2002, see also Dollar, Kleineberg and Kraay 2016);
  2. that overly generous, redistributive welfare-state policies and POD-policies that aim to prevent the concentration of wealth and human capital will tend to slow growth…
  3. …therefore (1 + 2) also slowing income growth for the worst off, such that;
  4. these policies will eventually leave the worst-off in an aspirationally-egalitarian society (Brennan calls it "Fairnessland") worse off than they would have been had the society opted for a purer, more freewheeling form of capitalism that maximizes long-run income growth for the worst off ("ParetoSuperiorland").

If Brennan and Tomasi are right, the difference principle taken by itself does not support Rawls’s preferred institutional scheme. If so, the case for ranking property-owning democracy above (welfare-state) capitalism would rest on the importance of securing the fair value of political liberties, and of ensuring fair equality of opportunity, and on expanding the index of advantage used for measuring the level of different positions so as to include workplace autonomy and authority along with income and wealth (Freeman 2007, Chapter 3; Freeman 2011).

My paper focuses on the intergenerational implications of Brennan and Tomasi’s position. The main idea is that if the gap between the bottom-20% income growth rates in Fairnessland and ParetoSuperiorland isn’t big enough, then the present worst off, who are the ones doing the sacrificing, and the future worst off, who are the ones benefitting, won’t be the same people. In that case, the worst off today will be accepting extra inequality that doesn’t benefit them, for the sake of benefitting the future worst off, who will be better off anyway. My paper argues that this form of reasoning is inconsistent with the difference principle. Those who will in any case have less should not be expected to accept even less, just so that those who will in any case have more can have even more – and this, even where the gains to the better off would be larger than the losses to the worse off.

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