Faced with the massive differences between classes under capitalism we highlighted in the last section, many supporters of capitalism still deny the obvious. They do so by confusing a caste system with a class system. In a caste system, those born into it stay in it all their lives. In a class system, the membership of classes can and does change over time.

Therefore, it is claimed, what is important is not the existence of classes but of social mobility (usually reflected in income mobility). According to this argument, if there is a high level of social/income mobility then the degree of inequality in any given year is unimportant. This is because the redistribution of income over a person's life time would be very even. Thus the inequalities of income and wealth of capitalism does not matter as capitalism has high social mobility.

Milton Friedman puts the argument in this way:

"Consider two societies that have the same distribution of annual income. In one there is a great mobility and change so that the position of particular families in the income hierarchy varies widely from year to year. In the other, there is great rigidity so that each family stays in the same position. Clearly, in any meaningful sense, the second would be the more unequal society. The one kind of inequality is a sign of dynamic change, social mobility, equality of opportunity; the other of a status society. The confusion behind these two kinds of inequality is particularly important, precisely because competitive free-enterprise capitalism tends to substitute the one for the other." [Capitalism and Freedom, p. 171]

As with so many things, Friedman is wrong in his assertion (and that is all it is, no evidence is provided). The more free market capitalist regimes have less social mobility than those, like Western Europe, which have extensive social intervention in the economy. As an added irony, the facts suggest that implementing Friedman's suggested policies in favour of his beloved "competitive free-enterprise capitalism" has made social mobility less, not greater. In effect, as with so many things, Friedman ensured the refutation of his own dogmas.

Taking the USA as an example (usually considered one of the most capitalist countries in the world) there is income mobility, but not enough to make income inequality irrelevant. Census data show that 81.6 percent of those families who were in the bottom quintile of the income distribution in 1985 were still there in the next year; for the top quintile, it was 76.3 percent.

Over longer time periods, there is more mixing but still not that much and those who do slip into different quintiles are typically at the borders of their category (e.g. those dropping out of the top quintile are typically at the bottom of that group). Only around 5% of families rise from bottom to top, or fall from top to bottom. In other words, the class structure of a modern capitalist society is pretty solid and "much of the movement up and down represents fluctuations around a fairly fixed long term distribution." [Paul Krugman, Peddling Prosperity, p. 143]

Perhaps under a "pure" capitalist system things would be different? Ronald Reagan helped make capitalism more "free market" in the 1980s, but there is no indication that income mobility increased significantly during that time. In fact, according to one study by Greg Duncan of the University of Michigan, the middle class shrank during the 1980s, with fewer poor families moving up or rich families moving down. Duncan compared two periods. During the first period (1975 to 1980) incomes were more equal than they are today. In the second (1981 to 1985) income inequality began soaring. In this period there was a reduction in income mobility upward from low to medium incomes of over 10%.

Here are the exact figures [cited by Paul Krugman, "The Rich, the Right, and the Facts," The American Prospect no. 11, Fall 1992, pp. 19-31]:

Percentages of families making transitions to and from middle class (5-year period before and after 1980)

Before After Transition 1980 1980 ——————————————————————— Middle income to low income 8.5% 9.8% Middle income to high income 5.8 6.8 Low income to middle income 35.1 24.6 High income to middle income 30.8 27.6

Writing in 2004, Krugman returned to this subject. The intervening twelve years had made things worse. America, he notes, is "more of a caste society than we like to think. And the caste lines have lately become a lot more rigid." Before the rise of neo-liberalism in the 1980s, America had more intergenerational mobility. "A classic 1978 survey found that among adult men whose fathers were in the bottom 25 percent of the population as ranked by social and economic status, 23 percent had made it into the top 25 percent. In other words, during the first thirty years or so after World War II, the American dream of upward mobility was a real experience for many people." However, a new survey of today's adult men "finds that this number has dropped to only 10 percent. That is, over the past generation upward mobility has fallen drastically. Very few children of the lower class are making their way to even moderate affluence. This goes along with other studies indicating that rags-to-riches stories have become vanishingly rare, and that the correlation between fathers' and sons' incomes has risen in recent decades. In modern America, it seems, you're quite likely to stay in the social and economic class into which you were born." [Paul Krugman, "The Death of Horatio Alger", The Nation, January 5, 2004]

British Keynesian economist Will Hutton quotes US data from 2000-1 which "compare[s] the mobility of workers in America with the four biggest European economies and three Nordic economies." The US "has the lowest share of workers moving from the bottom fifth of workers into the second fifth, the lowest share moving into the top 60 per cent and the highest share unable to sustain full-time employment." He cites an OECD study which "confirms the poor rates of relative upward mobility for very low-paid American workers; it also found that full-time workers in Britain, Italy and Germany enjoy much more rapid growth in their earnings than those in the US . . . However, downward mobility was more marked in the US; American workers are more likely to suffer a reduction in their real earnings than workers in Europe." Thus even the OECD (the "high priest of deregulation") was "forced to conclude that countries with more deregulated labour and product markets (pre-eminently the US) do not appear to have higher relative mobility, nor do low-paid workers in these economies experience more upward mobility. The OECD is pulling its punches. The US experience is worse than Europe's." Numerous studies have shown that "either there is no difference" in income mobility between the USA and Europe "or that there is less mobility in the US." [The World We're In, pp. 166-7]

Little wonder, then, that Doug Henwood argues that "the final appeal of apologists of the American way is an appeal to our legendary mobility" fails. In fact, "people generally don't move far from the income class they are born into, and there is little difference between US and European mobility patterns. In fact, the United States has the largest share of what the OECD called 'low-wage' workers, and the poorest performance on the emergence from the wage cellar of any country it studied." [Op. Cit., p. 130]

Indeed, "both the US and British poor were more likely to stay poor for a long period of time: almost half of all people who were poor for one year stayed poor for five or more years, compared with 30% in Canada and 36% in Germany. And, despite claims of great upward mobility in the US, 45% of the poor rose out of poverty in a given year, compared with 45% in the UK, 53% in Germany, and 56% in Canada. And of those who did exit poverty, 15% of Americans were likely to make a round trip back under the poverty line, compared with 16% in Germany, 10% in the UK, and 7% in Canada." [Doug Henwood, After the New Economy, pp. 136-7]

A 2005 study of income mobility by researchers at the London School of Economics (on behalf of the educational charity the Sutton Trust) confirms that the more free market a country, the worse is its levels of social mobility. [Jo Blanden, Paul Gregg and Stephen Machin, Intergenerational Mobility in Europe and North America, April, 2005] They found that Britain has one of the worst records for social mobility in the developed world, beaten only by the USA out of eight European and North American countries. Norway was the best followed by Denmark, Sweden, Finland, Germany and Canada.

This means that children born to poor families in Britain and the USA are less likely to fulfil their full potential than in other countries and are less likely to break free of their backgrounds than in the past. In other words, we find it harder to earn more money and get better jobs than our parents. Moreover, not only is social mobility in Britain much lower than in other advanced countries, it is actually declining and has fallen markedly over time. The findings were based on studies of two groups of children, one set born in the 1950s and the other in the 1970s. In the UK, while 17 per cent of the former made it from the bottom quarter income group to the top, only 11 per cent of the latter did so. Mobility in the Nordic countries was twice that of the UK. Only the US did worse than the UK in social mobility.

The puzzle of why, given that there is no evidence of American exceptionalism or higher social mobility, the myth persists has an easy solution. It has utility for the ruling class in maintaining the system. By promoting the myth that people can find the path to the top easy then the institutions of power will not be questioned, just the moral character of the many who do not.

Needless to say, income mobility does not tell the whole story. Increases in income do not automatically reflect changes in class, far from it. A better paid worker is still working class and, consequently, still subject to oppression and exploitation during working hours. As such, income mobility, while important, does not address inequalities in power. Similarly, income mobility does not make up for a class system and its resulting authoritarian social relationships and inequalities in terms of liberty, health and social influence. And the facts suggest that the capitalist dogma of "meritocracy" that attempts to justify this system has little basis in reality. Capitalism is a class ridden system and while there is some changes in the make-up of each class they are remarkably fixed, particularly once you get to the top 5-10% of the population (i.e. the ruling class).

Logically, this is not surprising. There is no reason to think that more unequal societies should be more mobile. The greater the inequality, the more economic power those at the top will have and, consequently, the harder it will be those at the bottom to climb upwards. To suggest otherwise is to argue that it is easier to climb a mountain than a hill! Unsurprisingly the facts support the common sense analysis that the higher the inequality of incomes and wealth, the lower the equality of opportunity and, consequently, the lower the social mobility.

Finally, we should point out even if income mobility was higher it does not cancel out the fact that a class system is marked by differences in power which accompany the differences in income. In other words, because it is possible (in theory) for everyone to become a boss this does not make the power and authority that bosses have over their workers (or the impact of their wealth on society) any more legitimate (just because everyone — in theory — can become a member of the government does not make government any less authoritarian). Because the membership of the boss class can change does not negate the fact that such a class exists.

Ultimately, using (usually highly inflated) notions of social mobility to defend a class system is unconvincing. After all, in most slave societies slaves could buy their freedom and free people could sell themselves into slavery (to pay off debts). If someone tried to defend slavery with the reference to this fact of social mobility they would be dismissed as mad. The evil of slavery is not mitigated by the fact that a few slaves could stop being slaves if they worked hard enough.