Posts Tagged ‘capitalism’

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One of the most important stories I read, but did not write about, while I was away was the launch of the World Inequality Report 2018.*

The authors of the report confirm what Branko Milanovic and others had previously discovered: that a representation of the unequal gains in world economic growth in recent decades looks like an elephant. Thus, the real incomes of the bottom 50 percent of the world’s population (except the poorest, at the very bottom) have increased, the incomes of those in the middle (especially the working-class in the United States and Western Europe) have decreased, and the global top 1 percent has captured an outsized portion of world economic growth since 1980.**

As I explained back in 2016, the “elephant curve” makes sense of some of the significant changes within global capitalism:

At one time (especially in the nineteenth century), [capitalist globalization] meant industrialization in the global north and deindustrialization in the mostly noncapitalist global south (which were, in turn, transformed into providers of raw materials, which became cheap commodity inputs into northern capitalist production). Later, especially after decolonization (following World War II), we saw the beginnings of capitalist development in the south (under the aegis of the state, with a set of policies we often refer to as import-substitution industrialization), which involved a reindustrialization of the south (producing consumer goods that were previously imported) and a change in the kinds of industry prevalent in the north (which both exported consumer goods to the rest of the world, which after the first Great Depression and world war were once again growing, and often provided inputs into the production of consumer goods elsewhere). Later (especially from the 1980s onward), with the accumulation of capital in India, China, Brazil, and elsewhere, noncapitalist economies were disrupted and millions of peasants and rural workers (and their children) were forced to have the freedom to sell their ability to work in urban factories and offices. As a result, their monetary incomes rose (which is not to say their conditions of life necessarily improved), which is reflected in the growing elephant-body of the global distribution of income.

But that’s not the real elephant in the world. The big issue that everyone is aware of, but nobody wants to talk about, is the obscene degree of economic inequality in the United States.

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As it turns out, if the global distribution of income in the future followed the trajectory set by the United States, inequality would significantly increase. As is clear in the chart above, the share of income going to the top 1 percent would rise dramatically (from less than 21 percent today to close to 28 percent of global income by 2050) and that of the bottom 50 percent would fall off precipitously (from approximately 10 percent today to close to 6 percent).

The grotesque level of inequality in the United States—now and as it worsens looking forward, with stagnant wages and enormous tax cuts for large corporations and wealthy individuals—is the real elephant in the world.

 

*The World Inequality Report, created by the World Inequality Labis the latest in a series of major surveys of the world economy, which includes the World Bank’s World Development Report (beginning in 1978), the International Monetary Fund’s World Economic Outlook (beginning in 1980, first published annually, then biannually), and the United Nation’s Human Development Report (beginning in 1990). Each, of course, uses a different lens to make sense of what is going on in the world economy.

**The elephant curve combines two different scaling methods of the horizontal axis: one by population size (meaning that the distance between different points on the x-axis is proportional to the size of the population of the corresponding income group), the other by the share of growth captured by income group (such that the distance between different points on the x-axis is proportional to the share of growth captured by the corresponding income group), as in the charts below:

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For years now, I’ve been writing about the various ways capitalism inflicts its punishments—including killing people (see, e.g., here, here, and here).

It’s as if capitalism is Dostoyevsky’s Rodion Raskolnikov, who formulates and executes a plan to kill a pawnbroker for her cash—and, in an attempt to defend his actions, argues that with the pawnbroker’s money he can perform good deeds to counterbalance the crime.

The question is, what are the good deeds capitalism performs to counterbalance its crimes? Because we now have more evidence that, like Raskolnikov, capitalism kills.

According to Maia Szalavitz, capitalist “inequality raises the stakes of fights for status among men.”

Obviously, potential murderers don’t check the local Gini Index – the most commonly used measure of inequality that looks at how wealth is distributed – before deciding whether to get a gun. But they are keenly attuned to their own level of status in society and whether it allows them to get what they need to live a decent life. If they can’t, while others visibly bask in luxury that seems both impossible to attain and unfairly won, those far from the top often become desperate.

And so, as capitalist inequality rises, men at the bottom are more inclined to kill other men—all in the name of honor and respect.

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That conclusion is supported by a 2002 comparative cross-country study, published in the Journal of Law and Economics (pdf), whose main conclusion is that an increase in income inequality has a “significant and robust effect” of raising violent crime rates.

Perhaps those who defend capitalism think it possesses enough fortitude to deal with the ramifications of its crimes against humanity—that it even might have the right to perform those crimes. And the ability to get away with them.

Dostoyevsky, of course, suggested it’s better to confess and accept the appropriate punishment—which is exactly what Raskolnikov, at Sonya’s urging, finally does. But, alas, we don’t live in a nineteenth-century Russian novel.

In fact, in the United States, we are witnessing rising inequality and, for the first time in decades, rising homicide rates.

no one knows what time lag to expect between a rise in inequality and a rise in murder – but if it does take a few decades, this could be the start of a troubling trend, not a blip.

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Liberals have a problem: the kinds of redistribution they advocate and support just don’t do a lot to fundamentally alter the profoundly unequal distribution of income in the United States.

Consider the chart above, which illustrates the cash-income effects of the U.S. tax system (with dark colors marking the pre-tax distribution of income and the lighter colors the post-tax distribution). The results are quite meager: in 2014, the share of the top 1 percent (blue lines, measured on the right) was only lowered from 20.2 percent to 17 percent, while the share of the bottom 90 percent (plum lines, measured on the left) rose from 53 percent to just 59.2 percent.

So, even after all the tax-based redistributions are completed, the top 1 percent still ends up with a larger and larger share of income—and the share left over for the bottom 90 percent continues to fall.

All of that political fighting over tax rates and government programs to ameliorate the unequalizing effects of American capitalism and that’s all we end up with.

It should come as no surprise then that Isabel Sawhill [ht: ja] concludes that changing the tax structure, even radically, won’t really change much.

Sawhill’s analysis of both the political hurdles and the limited benefits of progressives’ favorite tax-and-spend schemes is certainly accurate. Existing economic institutions produce such an obscenely unequal distribution of income in the United States that it’s difficult to envision any political feasible changes in the tax structure that will bring down inequality into a region that progressives would consider fair and just.

So, what’s the alternative? Sawhill favors “stakeholder capitalism” (or what others have called “shared capitalism”):

It means paying attention not just to shareholders but also to workers, customers, and the community. It has proven to be a successful strategy for many companies. They have showcased what can be accomplished when the private sector takes greater responsibility for helping workers—whether in the form of profit sharing, training, or providing benefits such as paid leave and flexible hours. The fact is that without such an approach, it will be difficult to achieve broadly based economic growth. It would simply require too much redistribution after the fact. We need instead to test the limits of equalizing the distribution of market incomes before taxes and benefits enter the picture.

And perhaps Sawhill and other American liberals can convince employers to become “high-road,” stakeholder employers instead of taking the “low-road” of the shareholder economy.

Perhaps. But why does Sawhill limit the discussion to the choices existing employers might or might not want to make? Why not open up the discussion to consider other ways of organizing enterprises?*

I’m thinking, for example, of worker cooperatives and other kinds of enterprises owned by workers and the communities in which they live. If we think the existing distribution of income is fundamentally unjust and redistributive efforts are generally limited and ineffective—both of which are arguments that Sawhill herself makes—then why not focus on ways of actually improving the initial distribution without requiring the assent of existing employers?

The advantage of worker- and community-owned enterprises is they include the stakeholders from the very start. The stakeholders are the ones who decide how the firms will be organized, what the workers will be paid, how the surplus funds will be allocated, and so on. And from all the existing examples we have, from Cleveland’s Evergreen to Spain’s Mondragón, the initial distribution of income would be much more equal than anything we’ve seen, not only in the past few decades, but over the entire modern history of the United States.

Then, on top of that, people might want to have a tax-based redistributive scheme—for example, to correct for differences in enterprise success, regional discrepancies, and so on. But such redistribution would be much easier and more effective than anything Sawhill and others envision for the United States today. It just wouldn’t have an enormous mountain of inequality to dismantle.

So, while I agree with Sawhill that “our failure to achieve anything close to broadly based economic growth in the United States is very troubling,” I want to expand the discussion and see a much bigger role for alternatives to capitalism in distributing the rewards to workers and the members of the communities in which they live.

That one change, in the direction of more worker- and community-owned enterprises, can serve as the basis of an economy that would produce an array of incomes that brings us much closer to an initial distribution that many progressives consider fair and just.

 

*As Penn Loh explains,

Too often “the economy” is equated with markets where corporations compete to make profits for the wealthiest 1 percent and the rest work for a wage or salary (or don’t make money at all). . .

When everything that we label “economic” is assumed to be capitalist — transactional and market-driven — then it is no wonder that we run short on imagination.

To escape this “capitalocentrism,” we need to broaden the definition of economy beyond capitalism.

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