Archive for April, 2022
Oligarchs—American style
Posted: 26 April 2022 in UncategorizedTags: capitalists, inequality, oligarchy, rich, Russia, surplus, United States, workers
There’s been a lot of talk about oligarchs these past couple of months. Russian oligarchs, that is—the billionaires who have accumulated vast amounts of wealth, including large stakes in Russian industries, mines, and banks, as well as superyachts, private jets, investment accounts, and real estate in the West. We’ve even learned their names: Vladimir Potanin, Leonid Mikhelson, Alexey Mordashov, and so on.*
They’re a pretty easy target, given Russia’s savage war on Ukraine. But what about the other oligarchs out there, why aren’t we talking about them? They also capture and keep massive amounts of the surplus produced by workers around the globe, and then accumulate even larger amounts of wealth, which they can live off of and utilize as they see fit. Why aren’t they on our radar?
Oh, they do pop up periodically. When Telsa founder Elon Musk engages in a hostile takeover of Twitter or workers manage to organize a union in one of Jeff Bezos’s Amazon warehouses or Michael Bloomberg decides to run for president. But there’s really no sustained attention paid to them or how they have managed to become billionaires. Which is why ProPublica’s recent investigation into the finances of the wealthiest Americans is so important.
The report is the latest in a series ProPublica started in June 2021 that examines the tax records of the top 0.001-percent wealthiest Americans—400 individuals all of whom earn more than $110 million a year.** In this installment, they show that U.S. oligarchs contrive to pay taxes at a lower rate than other Americans, even very wealthy ones just below them on the economic pyramid, for two reasons: first, because much of their income is derived from investments, like stocks, which is taxed at a lower rate; and second, they are able to use large charitable donations to obtain huge deductions. Most American workers don’t own much in the way of stocks, and their gifts to charity do little to lower their taxable incomes.
So, who are these oligarchs? Some of them (10 of the top 15) are tech billionaires, whose incomes generally came from selling stock—including the usual suspects like Bill Gates, Jan Koum, and Larry Ellison. About one fifth of the top 400 earners are managers of hedge funds—with names perhaps less familiar for those of us outside financial circles, people like Ken Griffin, Jeffrey Yass, and David Siegel—whose income comes from trading stocks, options and other financial instruments that flows directly to them. Executives and founders of private-equity firms also stand out: people like Stephen Schwarzman, Stephen Feinberg, and George Roberts, who generally make their money by buying companies and reselling them for a profit. And then there are the heirs of large fortunes, including the eleven heirs of Walmart founders Sam and Bud Walton and four of Amway founder Richard DeVos; these inheritors of great wealth generally receive their income from dividends or other forms of investment income.
All of them, in one way or another, have figured out how to capture portions of the surplus produced by workers in the United States and around the world. They’re not necessarily capitalists (in the sense of directly appropriating the surplus through a process of exploitation)—although some of them clearly are, such as Jeff Bezos (who sits on and is the Executive Chairman of the board of directors of Amazon)—but they do occupy positions that allow them to capture distributions of the surplus produced and appropriated by others. And they did quite well in sharing in the capitalist booty: each of the top eleven averaged over $1 billion in income annually from 2013 to 2018!
Not only do these oligarchs manage to capture distributions of the surplus. As ProPublica explains, they also get to keep a higher portion than many other wealthy people. Thus, for example, the top 400 paid an average tax rate of 22 percent, while those who “only” took home $2-5 million were taxed at a higher rate, 29 percent. In other words, those in the top 400 (and their armies of accountants and financial advisers) have managed to find the “sweet spot” of high incomes and low taxes.
How do they manage to do that? One reason is because much of their income is derived from business investments, not wages or salaries, and in the United States income from financial assets (including, starting in 2003, most stock dividends) is generally taxed at a lower rate.*** Thus, the top 400 saved an average of $1.9 billion in taxes each year—due solely to the lower rate on dividends. The second reason is because U.S. oligarchs often take huge charitable deductions that reduce their income subject to tax. A particularly generous provision of the U.S. tax code allows them to deduct the full value of any stock they donate at its current price—without ever having to sell it and pay capital gains tax. According to ProPublica,
Those two factors—the amount of income taxed at the advantageous rate and the ability to muster large deductions—are the main drivers of lower tax rates for those with the highest incomes.
Now, of course, that 22-percent tax rate is still much higher than the 5-percent effective income tax rate on people who earn $40-50 thousand per year. Except. Workers actually pay more in taxes for Social Security and Medicare than income taxes. The oligarchs, meanwhile, tend to pay proportionally little of these types of taxes because wages are a tiny portion of their total incomes. Factor those payments in and the rates are almost equal: a 21-percent total tax rate for a single worker earning $45 thousand and 23 percent for those in the top 400 (by income).****
The U.S. tax system is often referred to as progressive, meaning the tax rate rises the further you go up the income ladder. As it turns out, it is anything but. The few at the top who occupy positions that allow them to receive distributions of the surplus end up paying taxes at just about the same rate as all those people at the bottom who actually work for a living.
And the result of U.S. oligarchs’ ability to capture and keep their share of the surplus? Well, the gap between them and workers at the bottom of the economic pyramid continues to grow.
As is clear from this chart, the shares of pre-tax national income captured by those in the top .001 (the red line in the chart) and bottom 50 percent (the blue line) have been steadily moving in opposite directions since 1980. And the linear trend lines show that their respective shares continue to diverge. By 2021, the oligarchs’ share had soared to 1.7 percent, while the share of all the workers in the bottom 50 percent had fallen to 13.6 percent.
And the American oligarchs’ response to criticisms of this obscene inequality? Well, at least one of them—Musk, during a fawning interview with Chris Anderson, the head of Ted—offers a simple response: “At this point, it’s water off a duck’s back.”*****
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*The fifth-richest man in Russia, Alisher Usmanov, owns Dilbar, the largest motor yacht in the world by gross tonnage. The boat is 512-feet long and reportedly cost $800 million, employing 84 full-time crew members.
**Just to put things in perspective, a typical American worker making $40,000 a year (a dot smaller than a pixel in the chart at the top of the post) would have to work for 2,750 years to make what the lowest-earning person in this group made in just one.
***Since 2013, the long-term capital gains tax rate has been 20 percent, just under half the top rate on ordinary income (37 percent in 2018).
****The tax rate for the 25 richest oligarchs (by wealth) is even lower: just 16 percent.
*****Musk’s income tax bill in 2018 was exactly zero. He responded to ProPublica’s request for comment with a lone punctuation mark—“?’’—and did not answer any detailed follow-up questions.
What is the war in Ukraine all about?
The dominant narrative (in the United States and elsewhere, to judge by the international press I read) is that Putin, the power-hungry leader of Russia, is hellbent on expanding his control into and over a former-Soviet republic—and he is turn being undermined by a combination of his own isolation and ineptness and the resistance of the pro-Western government and citizenry of Ukraine. It’s a story that is repeated on a daily basis, replete with and reinforced by gory photos of dead citizens and soldiers, seemingly in a concerted attempt to tell a simple story of villains and victims. Literally, the black and white hats of classic American westerns.*
And it works. The fact that the extremist center or mainstream media has been telling that same story, day after day, since the beginning of the invasion almost two months ago, means that that’s what most people think and believe about the war. There’s barely any letup or any space for dissenting views to be seen or heard. So much for freedom of the press, which has come to mean the owners of the media are free to formulate and disseminate whatever story they choose—but not that we, as readers, viewers, and listeners, are free to receive a wide range of analyses of what might be going on.
That’s one problem. A second is that, notwithstanding the Cold War insinuations and resonances of many versions of the prevailing story, it fails to recognize that Putin himself could not be more anti-communist, a vociferous critic of anything and everything that had to do with the Soviet Union. In fact, on the eve of the invation, he notoriously blamed “Bolshevik, Communist Russia” for creating Ukraine, in a process that began “practically right after the 1917 revolution.”
A third problem with the story is that it essentializes particular motives or behaviors on behalf of the belligerents—as if things could not be otherwise, and such that they remain distant from “our” own beliefs and actions.** That’s exactly the point Branko Milanovic raises with respect to attempts to explain Russian aggression in terms of an “age-old national culture”:
I don’t like such explanations in economics and I don’t like them in political science. They are always wrong because they are basically a distillation of whatever is commonplace at a given time. Thus, they always seem correct at a given point in time, but they are always wrong when you look at them ex post. . .
People also like to offer such explanations because they are profitable. You get your book published, and when people read it, precisely because such stories are a compilation of commonplaces, they say, “Wow, this really is phenomenal; it fits beautifully with what I thought.” But it fits beautifully because it gives the slice of today interpreted as a somehow inevitable outcome. But things change. Then you take another slice of history, and claim another essentialist explanation really matters.
That’s where capitalism comes in. It serves to challenge essentialist explanations of the war, since it locates what is going on in an ever-changing historical and social context.*** It also calls into question the narrow terms of the mainstream story, precisely because it forces us to ask questions about the economic and social causes of the war within both of the warring countries as well as the existing global system. Finally, it forces us to reconsider the idea that Putin wants to restore some previous Soviet (or even pre-Soviet) glory, if for no other reason than that the Russian Federation today is as capitalist a country as Ukraine and, for that matter, the members of the alliance that are attempting to stop Putin’s aggression and end the war.****
Now, to be clear, I don’t think introducing capitalism into the analysis serves—in any way, shape, or form—to absolve Putin and his regime for the monstrous invasion of Ukraine or for the atrocities they’ve committed during the course of the war. Nor does it undermine the idea that, as the members of a sovereign nation, Ukrainians have every right to defend their territory and to call upon other nations and peoples for assistance. As long as the goal is to put an end to the war and to establish a lasting and just peace. And if we don’t consider the role of capitalism, we’re left in a situation where, as Mike Small describes it,
It’s easy to feel helpless and hopeless, indeed the system is dependent on us feeling this way, but the system. . .is more fragile and exposed than we might imagine.
So, where does capitalism figure into the analysis of the current war in Ukraine? Fortunately, there have been a variety of attempts to introduce capitalism into the analysis outside mainstream media outlets. These are contributions others can build on as the war continues to intensify.
As Slavoj Žižek sees it, capitalist markets have served both to fuel the Russian war machine and limited Western (especially Western European) solidarity with Ukraine, a point that Ukrainian president Volodymyr Zelenskyy has clearly understood: providing oil (along with fertilizers and food) to the West is more important than saving Ukrainian lives. And in both Russia and the West, the goal is to protect those markets—to finance the war (and offer in return “cheap patriotic pride”) and to avoid any serious attempt to restructure the existing energy system (not to mention solving the global food crisis, which threatens the lives and livelihoods of millions of people across the world).*****
Richard Wolff approaches the issue from a different angle. His view is that the history of capitalism leads, more or less inevitably, to wars—since capitalist enterprises expand globally and pit nations against each other, thus creating (for nations just as with enterprises) both winners and losers. The resulting empires (British, German, U.S., etc.) are then challenged, both within and from outside, leading to smaller and larger wars. In the case of Ukraine, Wolff argues, the United States expanded its empire into Eastern Europe after the fall of the Wall but was then challenged by other capitalist powers, especially the alliance between a resurgent Russia and a fast-growing People’s Republic of China. The result was Russia’s invasion of Ukraine:
In Ukraine, on one side is an effort led by nationalists who would bring another nation further back into the U.S.-led global capitalist empire. On the other side is Russia and its allies determined to challenge the U.S. empire’s growth project in Ukraine and pursue their own competitive agenda for part or all of Ukraine. China stays with Russia because its leaders see the world and history in much the same way: They both share a common competitor in the United States.
That leaves the country Russia invaded. According to John Lough, Ukraine is based on a system of crony capitalism—systema, known more commonly in Ukraine as oligarkhiya—which includes that absence of a strong state, and a close relationship between big business and the country’s political class “that puts their own interests before those of society.” Systema was in fact created after the privatization of state enterprises and through a process that can best be described as a primitive or original accumulation of capital. The oligarchs-in-the-making created diversified, highly concentrated financial-industrial groups that are vertically integrated across many economic sectors (including banking, energy production and transmission, media, mining and steel, with agriculture being the one notable exception) and reach deep inside the state (through a variety of means, from paid support for members of parliament to ownership of the main outlets that provide a platform for certain politicians). Expanding on that, Yuliya Yurchenko has explained that it was the growing division between oligarchic groups that led to the emergence of the battle between far-right Ukrainians and Russian separatists, who in turn made things out to be a civilizational choice between the West and Russia. Zelenskyy himself was backed by a particular fraction of pro-Western oligarchics but, once elected, oversaw ongoing corruption and continued plunder—and, as the head of a poorly equipped and organized state, Zelenskyy proved to be incompetent at actually ruling. His approval ratings went down as people’s standards of living plummeted. Unfortunately, the growing movement to dismantle systema and to chart a different path of development for Ukraine has been stopped, at least for now, by the invasion.
Much more of course needs to be done to analyze the role of capitalism in creating the conditions for Russia’s invasion of Ukraine and the conduct of the war itself. Not to mention the aftermath. But for now we can at least conclude that, as Harold Meyerson has argued, the myth that capitalist globalization will deter wars can finally be put to rest.
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* The most significant counter-narrative—which is mainstream within foreign policy circles but has received relatively little attention within major media channels—is the realist perspective offered by John Mearsheimer. For many years, he has argued that the United States, in pushing to expand NATO eastward (to eventually include Ukraine) laid the groundwork for Vladimir Putin’s aggressive position toward Ukraine. Thus, one month ago, Mearsheimer wrote, “The West, and especially America, is principally responsible for the crisis which began in February 2014. It has now turned into a war that not only threatens to destroy Ukraine, but also has the potential to escalate into a nuclear war between Russia and NATO.”
** Without any regard for history, of course, such as the determined attempt not to publish photos of dead bodies in the same extremist mainstream media in the United States during the Gulf War.
*** I understand, capitalism itself can be utilized as an essentialist explanation in its own right. Clearly, that’s something we have to be on the lookout for, and to avoid whenever possible. My own view, for what it’s worth, is that capitalism is one—but only one—of the conditions leading to the Russian invasion of Ukraine.
**** They are as capitalist but certainly not the same capitalism—and, for that matter, a capitalism combined with and conditioned by all the various forms of noncapitalism that exist within and across the countries that are currently participating in the conflict.
***** Or, for that matter, to curb or tax the wartime profits of Big Oil, which according to a recent report by Friends of the Earth, Public Citizen and BailoutWatch have been used to reward stockholders (including corporate executives), by repurchasing shares and increasing dividends
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