Tuesday, October 21, 2014
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Feeling Rich

Who is richer, you or I? As long as we both have enough to live comfortably, it shouldn’t matter much. Many of us try not to let it matter. But sometimes such comparisons gnaw at us. In an era of globalization, with rapid economic growth in some areas and stagnation in others – and with television and the internet allowing us to see how others live – these comparisons are an increasingly important factor in the world economy.

The late social psychologist Leon Festinger argued that interpersonal comparisons of success, whatever our moral qualms about them, constitute a fundamental – and thus irrepressible – human drive, one that is present in every society and all social groups. Festinger argued that for any measure of success, whether wealth, ability, or merely personal charm, people tend to be most concerned about comparisons with others whom they see regularly and who are at a similar level of attainment. We tend not to be bothered by people who are either vastly more successful or vastly less successful. We consider them so different from us that we just don’t care.

Harvard professor Benjamin Friedman’s important new book The Moral Consequences of Economic Growth details what the feelings generated by these comparisons mean for social harmony and the success of our economies.

Friedman argues that comparisons of wealth are more dangerous to a society if it appears that the rich are members of a different race or ethnic group. In that case, the comparisons become politicized, contributing to social conflict and thus tending to reduce economic success.

For example, South Korea’s spectacular economic growth in recent decades owes much, according to Friedman, to the country’s ethnic homogeneity, which dampens resentment of others’ relative progress. By contrast, economic development in Sri Lanka, with a standard of living 40 years ago that was similar to that of Korea, was stymied by its Tamil minority’s perception that their opportunities and advancement were blocked by the Sinhalese majority. The resulting ethnic violence has left real per capita income at just one-fifth the level of Korea today.

The economist Albert Hirschman once likened a society with recognizably distinct groups to a multilane highway where people are unable to change lanes. If traffic is stalled for hours and no one else is making progress, we tend to relax and accept the situation resignedly. If the traffic then starts moving in another lane, everyone will greet the change with elation. Even if we are still stopped, we sympathize with those getting ahead, imagining that we, too, will soon be moving forward. But if the other lane keeps moving and we do not, our elation is eventually replaced by annoyance and anger.

The same is true of economies that are starting to grow rapidly. People must feel that their own social group, however they define it, will eventually benefit.

A key insight in Friedman’s book is the fundamental importance of two kinds of comparisons that people make when judging their own success: comparisons with their own (or their own family’s) past experience and comparisons with others that they see around them. When economic growth falters and people no longer see improvement over their past experience, the first comparison becomes more important – and comes to be shared by millions of people.

But when the downturn affects distinct groups differently, especially when members of some groups are (rightly or wrongly) perceived as doing better than the others, the second comparison gains significance as well. Consider the rampant anti-Semitism – some of it ultimately genocidal – that arose during the Great Depression of the 1930’s.

Of course, that is the most extreme example, and Friedman does not show that a decline in economic growth rates necessarily leads to social turmoil. Indeed, many historical episodes of diminished or even negative growth have gone by without any unusual social problems.

Historical forces are complex; they defy any simple economic theory. Friedman is right that social comparison drives human anxieties, if not conflict, but this is equally true when economies are growing. In some parts of the world, rising expectations, if unfulfilled, could make the kinds of effects that Friedman describes especially strong.

For example, many people in China today feel great psychological pressure to live up to the expectations created by all the talk about their country’s “economic miracle” – and the sight of others in their midst with significant wealth – and they express anxiety about their own individual success.

As growth and development in emerging economies like China continues, people will increasingly compare themselves to the richer people in their countries’ urban centers. These countries’ successful people will increasingly compare themselves to people in other countries who are perceived as even more successful.

If Festinger and Friedman are right, little can be done about this, because such comparisons are a part of human nature. But, regardless of whether these comparisons occur in an economy that is growing or contracting, the anxiety that they engender clearly represents a potential risk of unrest and instability. So the question is whether anything can be done to minimize that risk.

Obviously, a measured pace of economic growth in the developing world – neither so high that it sets the stage for later collapse nor so low that it weakens the public’s sense of solid progress towards a better life – would help ensure social and political stability, thereby fostering further growth. But, perhaps more importantly, people must believe that they live in a society that allows them to change lanes and move ahead faster when the route is clear.

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