Capitalism Has a Lot of Room to Redistribute Wealth Right Now
Some on the Left believe that the capitalist system will not tolerate any greater interventions in its operation or redistribution of its spoils. There is no good evidence that this is true.
The feasibility of a broader set of redistributive policies under capitalism today is far larger than is commonly assumed. (Tasos Katopodis / Getty Images for SEIU)
Over the past four decades, a pervasive pessimism has taken hold on the Left regarding the prospects for meaningful redistribution within capitalist economies. This pessimism has been shared not only by centrist social democratic parties but also by more radical democratic socialists, many of whom have come to regard redistributive reform as either futile or self‑defeating.
At the core of this outlook lies a belief that capitalism imposes tight structural constraints on democratic politics — constraints that sharply limit how far governments can push redistribution or regulate markets without triggering capital flight, investment strikes, or economic crisis. In other words, people have come to believe that the capitalist system will not tolerate any greater interventions into its operation. The good news is that we have not found any good evidence that this is true.
The belief that we are near the limits of reform is often justified by appeal to what has become known as the structural dependence thesis (SDT): the idea that because capitalists control investment decisions, states are structurally dependent on their confidence and therefore cannot substantially shift income shares in favor of labor for more than brief periods. In its strongest form, SDT implies that any attempt to push redistribution beyond a narrow corridor will inevitably be punished by markets, leading to unemployment, stagnation, and political backlash. In this view, the apparent exhaustion of social democracy is not contingent or political; it is structural and unavoidable.
Yet this diagnosis rests on shaky empirical and theoretical foundations. Our research shows that capitalist economies have historically sustained a far wider range of distributive outcomes than the strong version of SDT allows. Income shares are not tightly anchored to an equilibrium determined by the “inner logic” of capitalism. Rather, they vary substantially over the long run, and these variations are closely associated with shifts in class power, institutions, and political choices.
If this is correct, then a crucial implication follows: we have little reason to believe that contemporary capitalist democracies are anywhere near the feasible limits of redistribution or state intervention. The retreat of social democracy since the 1980s reflects not an exhaustion of policy space but a transformation in the balance of power between classes and a political acceptance — often internalized by the Left itself — of an unduly restrictive conception of what is possible. Reassessing this mistaken pessimism is essential if democratic socialist politics is to regain strategic clarity and ambition.
The Appeal and Limits of Structural Pessimism
The intuitive appeal of the structural dependence thesis is undeniable. Capitalist economies do rely on private investment for employment, growth, and fiscal capacity. When governments antagonize powerful economic actors, negative reactions can and do occur. Episodes such as the crises faced by left governments in Chile in the early 1970s, France in the early 1980s, or Greece after 2010 are frequently cited as cautionary tales confirming the iron grip of structural constraints.
However, it is crucial to distinguish between some constraints and severe constraints. The weak version of SDT — that not all income distributions are feasible within capitalism — is trivially true. Wages cannot be pushed to levels incompatible with production nor profits eliminated entirely without undermining accumulation. But this weak claim is entirely compatible with a broad range of distributive outcomes. It does not justify the stronger conclusion that capitalism tightly fixes income shares or renders ambitious redistribution futile.
The strong version of SDT goes much further. It claims that capitalist economies gravitate toward a specific equilibrium distribution and that attempts to push the wage share above this equilibrium will trigger profit-squeeze dynamics that ultimately restore the status quo. In this view, social democratic reforms can at best achieve temporary gains, which are eventually reversed by market forces.
Yet the empirical record does not support this claim. Long‑term data from the United States and the United Kingdom show large and persistent shifts in income distribution that cannot be explained by cyclical deviations around a stable equilibrium. Wage shares have risen and fallen by substantial margins over decades, often without corresponding collapses in investment or growth. These movements are inconsistent with the idea that capitalism enforces a narrow distributive corridor.
Historical Variation and the Myth of Natural Limits
One of the most striking implications of the evidence is how much historical variation capitalist economies have tolerated. The postwar “golden age” of capitalism in the United States and Western Europe featured high union density, strong welfare states, progressive taxation, extensive regulation, and relatively compressed income distributions. Far from collapsing under the weight of redistribution, these economies delivered rapid growth, rising productivity, and broadly shared prosperity.
By contrast, the neoliberal era since the late 1970s has been marked by a declining labor share
(which refers to the portion of total GDP that goes to workers), exploding inequality, weakened unions, deregulated finance, and reduced social protection. Yet there is no reason to believe that the latter configuration represents a more “natural” or economically necessary equilibrium than the former. Both were politically constructed and institutionally sustained.
Crucially, the transition from the postwar settlement to neoliberalism was not driven by immutable economic laws but by deliberate political choices and shifts in class power. Central banks were reoriented toward anti‑inflationary priorities, capital controls were dismantled, labor law was rewritten or neutered, and unions were systematically weakened. These changes expanded the power resources of capital while eroding those of labor, thereby reshaping income distribution over the long run.
If capitalism could sustain the distributive outcomes of the postwar decades, it follows that the feasible set of redistributive policies today is likely far larger than is commonly assumed. The claim that “globalization” or “financialization” has permanently foreclosed ambitious redistribution is itself a political argument masquerading as economic necessity.
Power, Not Markets Alone, Shapes Distribution
Class power should be re-centered as a determinant of long‑term income distribution. Our findings show a robust long‑term association between union density and the wage share of production and nonsupervisory workers — arguably, a reasonable proxy for the working class in the United States. When unions are strong, labor captures a larger share of income; when unions are weak, that share declines, while supervisory and capital incomes rise.
This evidence directly contradicts the strong SDT. If capital’s control over investment strictly constrained redistribution, then union strength should have little or no long‑term effect on income shares. At most, it should generate short‑term fluctuations that are eventually neutralized. Instead, the data suggest that changes in power resources have durable distributive consequences.
This insight has profound implications for democratic socialist strategy. It suggests that redistribution is not merely a matter of technocratic policy design but of political organization and power-building. Markets do not mechanically enforce a fixed distribution; they operate within institutional frameworks shaped by law, politics, and struggle. Altering those frameworks can — and historically has — shift the balance of income between classes.
Are We Near the Limits of Redistribution?
Given this historical and empirical background, the widespread belief that contemporary societies are already near the limits of redistribution appears implausible. In most advanced economies today, tax systems are significantly less progressive than they were in the mid‑twentieth century; top marginal rates are far lower; wealth taxes are minimal or nonexistent; and corporate taxation has been eroded by international competition and political choice. Public ownership and industrial policy are far more limited than in earlier periods, while labor protections have been significantly weakened.
At the same time, inequality has reached levels not seen since the early twentieth century. The top 1 percent now capture a vastly disproportionate share of income and wealth, while real wages for large segments of the working class have stagnated or declined. These outcomes are not the result of hitting redistributive ceilings but of moving decisively away from them.
From this perspective, the relevant question is not whether further redistribution is “possible” but why it has been politically abandoned. The answer lies less in objective economic constraints than in political and ideological defeat, institutional erosion, and the internalization by the Left of a pessimistic narrative about feasibility. Once social democratic parties accepted the premise that markets must be appeased rather than shaped, their policy ambitions narrowed accordingly.
Implications for Democratic Socialist Strategy
If we accept that the feasible space for redistribution is wider than commonly believed, then the strategic implications for democratic socialism are significant. First, it suggests that the social democratic component of a democratic socialist agenda — progressive taxation, expansive welfare provision, labor market regulation, public investment, and selective decommodification — remains not only relevant but indispensable.
Second, it underscores that redistributive policies cannot be evaluated in isolation from the power relations that sustain them. Durable redistribution requires institutions that enhance the bargaining power of labor, limit the structural power of capital, and embed egalitarian norms in political life. This includes labor law reform, support for collective bargaining, regulation of finance, and constraints on capital mobility.
Third, it cautions against false dichotomies between “reform” and “transformation.” Expanding social democratic policies is not a retreat from socialist ambition but a necessary terrain of struggle within capitalism. Far from exhausting transformative potential, such policies can shift power balances, reshape expectations, and create conditions for deeper structural change.
Rethinking State Intervention and Markets
A related implication concerns the scope of state intervention in markets. Neoliberal ideology has long insisted that markets are efficient, self‑regulating mechanisms that states can only distort at great cost. Yet the historical record tells a different story. States have always been deeply involved in structuring markets — through property rights, contract law, regulation, monetary policy, and public investment.
The question, therefore, is not whether the state should intervene, but how and in whose interest. Industrial policy, public banking, strategic investment, and price regulation are not radical departures from capitalism’s historical norms but recurrent features of successful development strategies. Their marginalization in recent decades reflects political choices, not functional impossibilities.
If anything, contemporary challenges — climate change, demographic aging, technological transformation — make more extensive state coordination unavoidable. The idea that such coordination must stop short of meaningful redistribution is a political constraint, not an economic one.
Recovering Political Imagination
The belief that social democracy has reached its limits is best understood as a symptom of political defeat rather than an accurate diagnosis of economic reality. The strong structural dependence thesis, which underwrites this belief, lacks empirical support and obscures the historical variability of capitalist income distributions. Capitalism does impose constraints, but those constraints leave ample room for ambitious redistribution and market‑shaping state action.
Recognizing this matters not only for analytical clarity but for political strategy. When the Left treats its own defeats as proof of impossibility, it forecloses the very struggles through which limits are tested and expanded. By contrast, understanding redistribution as a function of power, institutions, and political will reopens the space for collective agency.
There is, therefore, no compelling reason to believe that the social democratic side of the democratic socialist agenda cannot be pushed much further than it has been in recent decades. On the contrary, the evidence suggests that we are likely far from the boundaries of what is economically feasible. The challenge is not discovering new economic laws but rebuilding the political forces capable of acting on this knowledge. Now is a time for socialists to be ambitious.