Musings on Plutocracy

Yves Smith-One nagging question is how the increased concentration of income and wealth in the top strata came to pass. The story that this group and their hangers-on would have us believe is that it is all the result of merit and hard work. Two offerings raise doubts about that line of argument.
One is from Robert Scheer in “The New Corporate World Order,” which points out the too-often-ignored fact that US taxpayers support a very high level of military spending, which makes the world safe for US corporations. Do you think US companies would have put plants in China in the absence of a strong US military? Expropriation is always a possibility with an authoritarian government, particularly since they can use trumped up charges to make the process look legitimate (labor or environmental violations that lead a plant to be seized and auctioned to locals, for instance). As Scheer notes,

General Electric, which was bailed out by taxpayers and which stored so much of its profit abroad that it paid no taxes for the past two years, was forced to tighten up, but while cutting its foreign workforce by 1,000 it cut a far more severe 28,000 in the United States….consumer purchasing power is down in the U.S. thanks to the devastating collapse of a housing bubble GE Capital fed with suspect mortgage financing that provided the company with well over half of its profits before the crash…
Of course it will be argued that multinational corporations have the right to arrange their business as they see fit in order to maximize profit. But if that is the case, do beleaguered American taxpayers have to foot the bill? When those corporations run into trouble overseas because of financial hustles or hostile locals and need the diplomatic and military might of the U.S. government to protect their interests abroad, it is again the U.S. taxpayer who must pay to maintain this new world order….. If the companies don’t feel that way, let them operate under the flag of Liberia or the Cayman Islands.
No less important than U.S. military muscle is the power of the American government to construct and enforce a worldwide trade and finance structure to the advantage of U.S.-based multinational corporations. That is why the companies spend so much money lobbying Congress on matters ranging from regional trade agreements to international banking regulations. It is precisely the impact of trade agreements like NAFTA that has facilitated the erosion of well-paying jobs. And it was the deregulation of international banking standards, led by the U.S. Treasury Department under the past five presidents, that created the conditions for the recent disastrous housing and banking meltdown…
Corporate lobbyists attest with their every breath that big government and big business are bedmates in a bountiful venture that impoverishes the rest of us. It is time to admit that we are, in practice if not surface appearance, close to the Chinese communist model of state-sponsored capitalism that sacrifices the interests of ordinary workers, be they in the public or private sector, for the exorbitant profits of the uber rich.

Many readers probably agree with Scheer’s assessment. But it does not tell us how we got into this situation where the very richest have gotten such a stranglehold on policy. The recent book Winner-Take-All Politics by Jacob Hacker and Paul Pierson offers an explanation. Per David Runciman in the London Review of Books (hat tip Michael Thomas):

The real beneficiaries of the explosion in income for top earners since the 1970s has been not the top 1 per cent but the top 0.1 per cent of the general population. Since 1974, the share of national income of the top 0.1 per cent of Americans has grown from 2.7 to 12.3 per cent of the total, a truly mind-boggling level of redistribution from the have-nots to the haves. Who are these people? As Hacker and Pierson note, they are ‘not, for the most part, superstars and celebrities in the arts, entertainment and sports. Nor are they rentiers, living off their accumulated wealth, as was true in the early part of the last century. A substantial majority are company executives and managers, and a growing share of these are financial company executives and managers.’
Hacker and Pierson believe that politics is responsible for this. It happened because law-makers and public officials allowed it to happen, not because international markets, or globalization, or differentials in education or life-chances made it inevitable. It was a choice, driven by the pressure of lobbyists and other organizations to create an environment much more hospitable to the needs of the very rich.
The push to the right, meaning for deregulation, less progressive taxation, a reduction in social welfare programs and weakening of labor bargaining power, was the result of an orchestrated effort by an extreme right wing long keen to dismantle the New Deal, and also got some support from large corporations.
It is easy to assume that if the rich have been winning in recent decades, the process must have started with the election of the pro-big business, anti-big government Ronald Reagan in 1980 (and concomitantly, Margaret Thatcher in Britain in 1979). But Hacker and Pierson argue that the real turning point came in 1978, during the presidency of Jimmy Carter. This was the year the lobbyists and other organized groups who were pushing hard to relax the burden of tax and regulation on wealthy individuals and corporate interests discovered that no one was pushing back all that hard. Despite Democratic control of the White House and both Houses of Congress, 1978 saw the defeat of attempts to introduce progressive tax reform and to improve the legal position of trade unions. Democracies are meant to favor the interests of the many over those of the few. As Hacker and Pierson put it, ‘Democracy may not be good at a lot of things. But one thing it is supposed to be good at is responding to problems that affect broad majorities.’ Did the majority not actually mind that they were losing out for the sake of the super-rich elite?….Hacker and Pierson….see strong evidence that the American public do still want a fairer tax system and do still see it as the job of politicians to protect their interests against the interests of high finance. The problem is that the public simply don’t know what the politicians are up to. They are not properly informed about how the rules have been steadily changed to their disadvantage. ‘Americans are no less egalitarian when it comes to their vision of an ideal world,’ Hacker and Pierson write. ‘But they are much less accurate when it comes to their vision of the real world.’

The best hope is that eventually the public might wake up to what is going on and join in. But that will take time. As Hacker and Pierson admit, ‘Political reformers will need to mobilize for the long haul.’
Yet time may be one of the things that the reformers do not have on their side…This, again, is one of the traditional critiques of democracy: while decent-minded democrats are organizing themselves to make the world a better place, the world has moved on. In a fast-moving financial environment, it is usually easier to assemble a coalition of interests in favor of relaxing the rules than one in favor of tightening them. Similarly, it’s easier not to enforce the rules you have than to enforce them: non-enforcement is the work of a moment – all you have to do is turn a blind eye – whereas enforcement is a slow and laborious process.
Crossposted w/permission via: Naked Capitalism.com