More than a century later, some experts say, a terrible institution is still exacting its price.
By Stephen Mihm AUGUST 24, 2014
EARLIER THIS MONTH, Standard and Poor’s Rating Services, a credit rating firm that rarely weighs in on social issues, published a scathing report on income inequality and social mobility in the United States. The firm warned that current levels of inequality were “dampening” growth, and predicted that “inequalities will extend into the next generation, with diminished opportunities for upward social mobility.”
This unusual report on inequality, like Thomas Piketty’s best-selling book on the same subject, addresses unequal fortunes, declining mobility, and stagnating economic growth as national or even global problems, which demand similarly large-scale solutions. But scholars are also well aware that these problems vary greatly from place to place. Consider a recent, much-publicized study of social mobility by economist Raj Chetty and his colleagues at Harvard and Berkeley. As the illuminating map generated by that study shows, children born in some regions—Salt Lake City and San Jose, Calif., for example—have a reasonable shot of moving up the social ladder. By contrast, many parts of the former Confederacy, it seems, are now the places where the American dream goes to die.
Why is that true? At first blush, you might guess race could explain the variation. When the study’s authors crunched the data, they found that the larger the black population in any given county, the lower the overall social mobility. But there was more to the story than blacks unable to break the cycle of poverty. In a passing comment, Chetty and his co-authors observed that “both blacks and whites living in areas with large African-American populations have lower rates of upward income mobility.” Far from being divergent, the fates of poor blacks and poor whites in these regions are curiously, inextricably, intertwined.
Institutions are Built to Maintain, Automate Collective Action
Slavers Built Inegalitarian Institutions
Instead of chalking it up to race, recent research points toward a more startling and somewhat controversial explanation: When we see broad areas of inequality in America today, what we are actually seeing is the lingering stain of slavery. Since 2002, with increasing refinement in the years since, economic historians have argued that the “peculiar institution,” as it was once called, is dead but not gone. Today, in the 21st century, it still casts an economic shadow over both blacks and whites: “Slavery,” writes Harvard economist Nathan Nunn, “had a long-term effect on inequality as well as income.”
His work is representative of a new, more historical direction within economics. Its proponents believe that institutions devised centuries ago tend to persist, structuring economic reality in the 21st century in ways that are largely invisible. Their hope is that, by tracing these connections between past and present, they may be able to point the way toward more effective solutions to today’s seemingly intractable economic problems.
Engerman & Sokoloff’s (2002) Institutional-econ Hypothesis Explains Inequality and Economic Stagnation
IN 2002, two economic historians, Stanley Engerman and Kenneth Sokoloff, published an influential paper that tried to answer a vexing question: why are some countries in the Americas defined by far more extreme and enduring levels of inequality—and by extension, limited social mobility and economic underdevelopment—than others?
The answer, they argued, lay in the earliest history of each country’s settlement. The political and social institutions put in place then tended to perpetuate the status quo. They concluded that societies that began “with extreme inequality tended to adopt institutions that served to advantage members of the elite and hamper social mobility.” This, they asserted, resulted in economic underdevelopment over the long run.
More specifically, they observed that regions where sugar could be profitably grown invariably gave rise to societies defined by extreme inequality. The reason, they speculated, had to do with the fact that large-scale sugar plantations made intensive use of slave labor, generating institutions that privileged a small elite of white planters over a majority of black slaves. These institutions, their later work suggested, could encompass everything from property rights regimes to tax structures to public schools.
Harvard economist Nathan Nunn offered a more detailed statistical analysis of this “Engerman-Sokoloff hypothesis” in a paper first published in 2008. His research confirmed that early slave use in the Americas was correlated with poor long-term growth. More specifically, he examined county-level data on slavery and inequality in the United States, and found a robust correlation between past reliance on slave labor and both economic underdevelopment and contemporary inequality. He disagreed with Engerman and Sokoloff’s claim that it was only large-scale plantation slavery that generated these effects; rather, he found, any kind of slavery seemed to have begotten long-term economic woes.
Nunn also offered a more precise explanation for present-day troubles. In Engerman and Sokoloff’s narrative, slavery led to inequality, which led to economic underdevelopment. But when Nunn examined levels of inequality in 1860—as measured by holdings of land—these proved a poor predictor of future problems. Only the presence of slavery was a harbinger of problems. “It is not economic inequality that caused the subsequent development of poor institutions,” wrote Nunn. “Rather, it was slavery itself.”
Soares, Assuncao & Goulart (2012) clarify that not race but slavery intensity begets long-term economic inequality
This finding was echoed in a study by Brazilian economists Rodrigo Soares, Juliano Assunção, and Tomás Goulart published in the Journal of Comparative Economics in 2012. Soares and his colleagues examined the connection between historical slavery and contemporary inequality in a number of countries, largely in Latin America. The authors found a consistent correlation between the existence—and intensity—of slavery in the past and contemporary inequality. Moreover, this relationship was independent of the number of people of African descent living there today. As Soares said in an interview, “Societies that used more slavery are not more unequal simply because they have relatively more black people.”
The question, then, is how exactly did slavery have this effect on contemporary inequality? Soares and his colleagues speculated that limited political rights for slaves and their descendants played a role, as did negligible access to credit and capital. Racial discrimination, too, would have played a part, though this would not explain why whites born in former slaveholding regions might find themselves subject to higher levels of inequality.
Inequality-transmission Mechanism: Public Institutions are Stunted in Slavery Zones
The Toll of Inegalitarian Anti-public Institutions Over Time: A Dearth of Public Infrastructure Translates Inegalitarian Economic Growth into Economic Stagnation
Nunn, though, advanced an additional explanation, pointing to an idea advanced by Stanford economic historian Gavin Wright in 2006.
In lands turned over to slavery, Wright had observed, there was little incentive to provide so-called public goods—schools, libraries, and other institutions—that attract migrants. In the North, by contrast, the need to attract and retain free labor in areas resulted in a far greater investment in public goods—institutions that would, over the succeeding decades, offer far greater opportunities for social mobility and lay the foundation for sustained, superior economic growth.
As it happens, a contemporary critic of slavery took it upon himself to measure some of these differences between North and South. In 1857, a Southerner named Hinton Rowan Helper published an incendiary book titled “The Impending Crisis.” Though a virulent racist, Helper was no friend of slavery, and he quantified in excruciating detail the relative number of schools, libraries, and other institutions in both free and slaveholding states, finding time and again that his region failed to measure up to the North.
In Pennsylvania he found 393 public libraries, but in South Carolina, a mere 26. In the South, he observed, “the common school-house, the poor man’s college, is hardly known, showing how little interest is felt in the chief treasures of the State, the immortal minds of the multitude who are not born to wealth.”
Antisociological Denouement, or Even Institutional Economists are Professionally, Dogmatically Adverse to Admitting Preferences Are Socially-constructed through History
Institutionalized Hegemony Can Divorce People from Their Own Interests: Southern Whites Surprised to Find They Benefit When Public Institutions Imposed
WHAT SOMEONE like Helper may not have foreseen is that the abolition of slavery would not cure these ills. The destruction of slavery did not destroy all the political institutions, social mores, and cultural traditions that sustained it. Nor did it make public institutions, of the kind that the north had been building for decades, suddenly come into being.
This notion about the “persistence” of economic institutions is part of a larger dialogue within economics. Economists ranging from MIT’s Daron Acemoglu to Harvard’s Melissa Fisher have examined how institutions and practices adopted centuries ago can shape economic reality. But not everyone buys the idea that the past can structure the present in such an enduring, predictable fashion. Wright is among the critics of this approach; he is skeptical of Engerman and Sokoloff’s hypothesis. “The persistence of inequality per se is a myth,” he says, pointing to research that highlights the degree to which inequality has ebbed and flowed in Latin America.
Wright counts himself “unconvinced” regarding comparable claims about the United States. “No doubt slavery has played some kind of background role,” he concedes. But he sees the relationship between historical slavery and contemporary inequality as an interesting correlation, not a directly causal one. Correlating one variable with another across the centuries “isn’t the same as writing history,” he notes. “If you don’t connect the dots, you’re just groping.”
Another criticism of the “persistence” school is that it may justify passivity. If counties or countries have always been poor or unequal because of something that happened so long ago, what chance do contemporary policy makers have at deflecting the dead hand of the past?
But there is room for hope, as Wright’s own research would suggest. In “Sharing the Prize,” an economic history of the civil rights movement published in 2013, Wright found that efforts to end discrimination paid substantial, enduring benefits to black Southerners. Perhaps more surprisingly, he found that the movement benefited whites, too. Many poorer whites found that that the destruction of the old order—the end of poll taxes, for example—ushered in increased levels of public funding for schools, newfound political power, and a host of other economic, political, and educational benefits, particularly in the years immediately following the passage of the Civil Rights Act.
Positive Affirmations for Liberals
That revolution, of course, is still a work in progress. As we’ve been reminded over the last two weeks by the clashes in Ferguson, Mo., between mostly black protesters and a mostly white police force, there’s a long way to go before the vestiges of slavery are fully and finally made a thing of the past. But this new body of research may help us grasp that solutions to persistent inequality will require more focused policies. Increasing the level of food stamps, as economist Paul Krugman has suggested, might help, but it is perhaps too diffuse and indiscriminate a solution.
Instead, the best way to deal with the lingering effects of dead institutions like slavery may be to create regional institutions aimed to promoting social mobility and economic growth. Georgia, for example, has tried to level the field with the “HOPE Scholarship,” which enables high schoolers with a “B” average or higher to attend in-state public colleges and universities for free and private in-state schools at a heavy discount.
Such programs, with some modifications, could go a long way toward promoting social mobility in the former slaveholding regions of the United States. That’s not to say that the problems will be easy to solve. But the progress we’ve already made, both politically and economically, would suggest that while we may live in slavery’s shadow, we are not prisoners of the past, either.
Stephen Mihm is an associate professor of history at the University of Georgia, and co-author, with Nouriel Roubini, of “Crisis Economics: A Crash Course in the Future of Finance” (2010).
This article was published online in the Boston Globe in 2014; but as of 2019 it is no longer available online, so I have added it here. I have added my own subtitles to help Sociologists navigate through Mihm’s disciplinary metaphysics and personal politics.
(Note for Community Economic Development research: Patrick Kline is the econometrician in this group. He also publishes comparative economic assessments of “place-based policies.”)
Engerman, Stanley and Kenneth Sokoloff. 2002. “Factor Endowments, Inequality, and Paths of Development Among New World Economics.” NBER Working Paper 9259.
Helper, Hinton Rowan. 1857. The Impending Crisis of the South. New York.
Mihm, Stephen. 2007. A Nation Of Counterfeiters: Capitalists, Con Men, And The Making Of The United States. Harvard.
Piketty, Thomas. 2014. Capital in the 21st Century.
Soares, Rodrigo, Juliano Assunção, and Tomás Goulart. 2012. “A Note on Slavery and the Roots of Inequality.” Journal of Comparative Economics 40(4):565–580.
Wright, Gavin. 2006. (Note: Berkeley’s Wright is retired. I cannot locate this reference. Might have to email Mihm.)
Wright, Gavin. 2013. Sharing the Prize: The Economics of the Civil Rights Revolution in the American South. Cambridge, MA: Belknap.