Use plutocracy to broaden our economic debate
This is the fifth response to an excerpt from Chrystia Freeland’s Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else, published this week by Penguin Press. The first response can be read here, the second here, the third here and the fourth here.
When historians write the story of the presidential campaign of 2012, it is a fair bet they will focus on how the candidates approached the question of wealth, taxation and the responsibilities of America’s richest citizens. In fact, 2012 may be the year that class – long unspoken and unacknowledged in American life – finally became an explicit issue, the year when the illusion that America is a land of universal economic opportunity and relative equality was at last shattered.
The United States as a whole is one of the wealthiest societies the world has ever known. But aggregate wealth is not individual wealth. Per capita income may look good, but it’s a number and an average, easily distorted in a society with a handful of plutocrats. It brings to mind the old joke that when Bill Gates walks into a bar, per capita everyone suddenly becomes a millionaire.
In short, the U.S. may be rich but few of its citizens are – at least in terms of net worth. Wealth is not evenly distributed, and the gap between the super-rich and the rest has never yawned wider. Chrystia Freeland addresses the causes and consequences of that gap, not just in the United States but also throughout the world. And her conclusions are that the new plutocracy is not good for democracy or the future of free-market capitalism.
The lives of the rich and occasionally famous have always drawn fascination, and today’s plutocrats are no different. CNBC has a full-time reporter focused on the super-rich, and a host of reality shows festoon the cable universe charting various aspects of wealth. That the U.S. presidential campaign is so focused on what the very wealthy owe to the common good is simply the political aspect of a cultural obsession.
But is the concern warranted? Is the rise of a global plutocracy endangering open societies and keeping others – China, Saudi Arabia – from opening further? This is where we have a classic challenge of causation and correlation. Yes, mobility has declined, wages have stagnated and the gap between the very rich and the rest has rarely yawned wider. And yes, America is no longer an egalitarian society, though most Americans seem to retain a vestigial conviction that it is. But as Freeland describes, over American and in fact world history these gaps expand and contract, almost organically, and over time tend to self-correct.
So has the rise of today’s plutocracy caused or contributed to the current system’s inequities? That is hard to prove, which Freeland concedes, but she wisely cautions that t would be unwise to wait till all the evidence is in, since by that point it would likely be too late to do much about it.
That leaves open the question of whether the plutocrats’ rise is a cause or an effect of the challenges we face today. In some countries – especially Russia, with its resource-capture oligarchs ( the topic of Freeland’s previous book) – the case is easier to make that the super-rich are undermining the middle class and civil society. Economists such as Joseph Stiglitz and James Galbraith have argued rigorously and passionately that income inequality is a prime cause of the hollowing out of the middle class and the fraying bonds of civil society that once made the United States at least an unusually potent and successful experiment.
The rise of the plutocrats, however, is directly linked to the waves of globalization that have buffeted nation-states and the middle class in the past 20 years. Their wealth is also one by-product of the vast profits accrued by global corporations, which continue to register double-digit growth even as global economic growth barely registers a pulse. Companies have been able to externalize or outsource costs that once would have showed up on balance sheets, such as pensions, healthcare and disability and environmental consequences, not to mention some commitment to employees. The result is that nation-states have been saddled with costs, while corporations have been graced with profits.
Many plutocrats are simply the individual beneficiaries of that trend. Freeland exposes their unwillingness to see themselves as citizens of any one country and their troubling hostility toward taxes, which of course provide for the commons that they profit from. But it’s not evident what can be done here. Because capital has gone global and governments are increasingly unable to reestablish the controls that once existed, raising taxes can have as much effect as bad levees do in the face of a flood. The money, and the plutocrats, just go elsewhere. Until there is global governance able to tax and enforce on a global scale, that is unlikely to change.
For now, the rise of the plutocrats is a challenge with no evident response, or at least no evidently effective response. But rather than depressing, that could be liberating. Leave the plutocrats to their playgrounds and fantasies, and the rest of society can attend to the pressing issues of constructing a viable future. That may mean assessing what levels of growth and wealth are necessary and what are not; what quality of life, rather than per capita income alone, is imperative; and what constitutes a good society. It has been a long time since Americans asked those questions. Now would be a good time to begin asking them again.