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Thursday, October 27, 2011

Inequality in Corporate Capitalism: Beyond Redistribution

I contend that a concern that too much income or wealth is concentrated “at the top” in the U.S. does not necessarily translate into a demand for redistribution; rather, the inequality itself may be thought dangerous to the viability of a representative democracy (i.e., a republic form of government) and inherently unfair. Even though redistribution may be entailed as large banks and business corporations are dismembered, ridding the system of the concentrations of wealth does not in itself mean that those “at the bottom” should or would necessarily become richer. For example, to say that CEOs should not be allowed to make millions of dollars, especially when their companies or banks lose money, does not imply redistribution because there is no claim that the compensation be directed to others for their benefit. The point is that the compensation itself is unfair. Indeed, saying that corporate capitalism is itself unfair because some people benefit beyond what they deserve is not to say that their benefits should be redistributed; rather, the point is simply that such benefits should not be allowed.

The Occupy Wall Street protesters should have started out by demanding that corporate capitalism be extirpated or expunged from the American society and polities without demanding redistribution. Neither corporate downsizing nor selling off businesses or divisions would necessarily entail redistribution to the lower and middle classes. I suspect the beneficiaries of the transition would be stockholders (while upper echelon executives see less almost immediately in cash and stock income). Even though lower and middle income people could gain, the real driver behind the decrease in the economic inequality would be that the super-rich are not so rich. This is not to say that economic equality would be the goal; talent and effort justify more compensation. The problem is when the system is tilted so the inequality in compensation is allowed to far beyond its legitimate basis. To the extent that the system of corporate capitalism was itself in the protesters’ crosshairs, then simply redistributing wealth to momentarily mitigate the amount of economic inequality would fall short.

In fact, the protesters would have been more credible (and successful) were they to have distanced themselves from the topic of redistribution because they would quite obviously stand to gain from it. In refusing to police the “redistribution” signs opened the protesters up to a conflict of interest wherein their own private interests could be seen to bias their claim to acting for the good of the whole.

Sadly, the protests were enervated from within by a lack of resolve to focus on a few key points; the movement’s own failure to delimit itself in terms of demands allows for such competing agendas as redistribution to emerge and gain a footing. The Wall Street Journal dispatched reporters in five cities to interview over 100 protesters. “The picture that emerged is a motley conglomeration of people with widely varying goals—and some with no clear-cut goals at all other than to denounce greed.” There is “a tolerance—and, sometimes, sympathy—for causes well outside of the mainstream.” Inside the demonstrations, “there is broad acceptance of a wide range of opinions and agendas—even those that occasionally border on the absurd.” This atmosphere provided the context in which redistributive agendas could encroach on the more fundamental point that corporate capitalism itself should be replaced with something perhaps more akin to Adam Smith’s version (i.e., not necessarily with socialism).

Douglas Schoen, a former strategist for Bill Clinton, surveyed 198 protesters in New York City. Schoen reports his results as the following: “The demonstrators believe in redistribution of wealth, government-provided health care and education no matter what it costs, increased regulation and protectionist trade legislation.” Schoen concluded the protesters were well to the left of the independents needed by the Democrats to win the White House in 2012, so his summary may be biased to show the movement in a less than favorable light. For instance, he missed the objectives voiced by some of the protesters to eliminate the “legal person” status of a corporation—and, indeed, corporate capitalism itself. Even so, his survey shows that it redistributive goals were among the protesters’ agendas. The same thing can be seen in a report in the Huffington Post.

According to the Post “The gap separating the richest 1 percent of Americans from the rest of the country has emerged as arguably the single most prominent rallying cry of the Occupy Wall Street movement. . . . The Occupy protesters identify themselves as "the 99 percent" —referring to the majority of the population that has had to contend with limited economic and social opportunities while money continues to accrue to the very wealthiest citizens.” The “limited economic and social opportunities” intimate a desire for redistribution from “the very wealthiest citizens.”

To be sure, if the economic/political power of “the very wealthiest citizens” is a threat to the republics (and unfairly gotten), a tax on them would be justified and this implies redistribution through government spending. Even so, that spending can be for the good of the whole rather than funneled to the poor exclusively means that the redistribution can be to the whole rather than from X to Y within the whole. Furthermore, the redistribution itself would not be the point, and as such would only be a temporary byproduct as the concentrations of excessive private wealth that constitute an inherent threat to the viability of representative democracy are rendered innocuous to the body politic (and the economy). 

While not without merit, the ancillary “redistributionist” demands brought with them a certain opportunity cost in foregone focus. In fact, I would not be surprised to find that pro-business groups funded “redistribute” signs amid the protests; it was undeniably in the business interest to discredit the demand that the modern corporate form itself (including the “legal person” doctrine) be made illegal beyond a certain cut-off in assets and/or revenues. This demand is particularly toxic to American business because both corporate capitalism and its sordid impact on the American system of representative democracy are front and center, and thus at risk in themselves. It is not about limiting a CEO’s bonus or taxing corporations more for entitlement programs; rather, the mega-corporation itself—as an economic template—is the target. In short, the protesters missed a great opportunity to make the focused claim that extreme economic inequality itself is inherently unfair (i.e., without adding into the mix the virtues in redistribution) and that modern corporate capitalism itself causes it and leverages it in corrupting the halls of government with still greater inequality as a result.

It is the inherent unfairness of extreme economic inequality, rather than any of the benefits from redistribution, that lies at the root of the rise again to populism and is the basis of the complaint; the system of modern corporate capitalism is culpable too as the structure or conduit through which the inequality is magnified. The extent of the inequality can be seen in the following comparisons: the total income of the top 1% is the same as the total income of the bottom 60 percent, and the total wealth of the top 1% is the same as the total wealth of the bottom 90 percent. That is, one percent of the population has as much wealth as ninty percent have.The wealth of the one percent is thus extremely concentrated. 

On October 26, 2011, the Huffington Post reported some statistics on the degree of economic inequality in the U.S. at the time. The report is worth quoting at length:   

“Income for the wealthiest Americans has nearly tripled since 1979, while remaining relatively stable for the rest of the country, according to figures released this week by the Congressional Budget Office. The numbers offer a striking illustration—the latest one in a long series—of how wide the gap has grown between America's richest citizens and everyone else. For the richest 1 percent of Americans, income rose a full 275 percent between 1979 and 2007, —accounting for inflation—according to the CBO. For the poorest 20 percent of Americans, meanwhile, income rose just 18 percent in the same time period. For the middle 60 percent of earners—that is, the 21st through 80th percentile—income grew by just under 40 percent. And for the 80th through 99th percentile, income grew by 65 percent. That's a rapid climb, but the top 1 percent experienced a rate of growth more than four times as fast.”


“Above all else, the CBO's figures suggest that the richer you are, the richer you'll get over time. But this is far from the first report to reach that conclusion: Numerous studies have shown that America's very highest earners have been steadily pulling away from the rest of the population for a generation. Even as income for the richest 1 percent has nearly tripled since 1979, wages for the lower and middle classes have hardly moved. . . . Today, the 400 richest people in the country control more wealth than the bottom 50 percent of households, and the U.S. ranks roughly alongside countries like Uganda, Cameroon, Ecuador and Rwanda  in terms of the gap between its poorest and wealthiest citizens.”

It is highly probable that the extent of the inequality in wealth had arguably surpassed that which could be justified in terms of fairness (i.e., from more compensation for greater effort and talent). Behind the figures lay a system of corporate capitalism that had furtively rendered the republican form of government into a plutocracy (i.e., ruled by and in the interest of wealth). This is the point—not that more income should be redistributed within the existing system.

In conclusion, redistribution short-circuits the more fundamental demand that the political economy itself be re-configured—rid of the mega-corporations and the billionaires—because the system itself has become inherently unfair as evinced by the extreme inequality in income and wealth. Besides being unfair in terms even of Adam Smith’s moral sentiment, mega-corporate (rather than small and medium business) capitalism engenders or facilitates concentrations of wealth even after they have become dangerous to both the economy and democracy. The systemic risk to which the market is vulnerable is that the system itself is geared predominately to further increase those concentrations at the expense of economic justice and political democracy. In other words, corporate capitalism knows no limits within itself concerning concentrations of capital. Regarding externally-imposed limitations, the large corporation inherently seeks to enervate any extrinsic obstacle, including legislatures and regulatory agencies. The mega-machines will continue to amass capital unless the large corporation itself becomes the target and is found by a threshold of people in a society to be irreconcilable with fairness and accountability. Efforts to merely refine the existing system will surely founder. In other words, the point is not increased redistribution, even if that is a byproduct in the transition.


See related essays: "Occupying Wall Street: A Self-Regulated Protest?" and "Protest Movements 101"

Sources:

Alexander Eichler, “One Percenters’ Income Nearly Tripled In Last Three Decades: CBO,” The Huffington Post, October 26, 2011. http://www.huffingtonpost.com/2011/10/26/income-inequality_n_1032632.html

Douglas Belkin, Tamara Audi, and Danny Yadron, “Protests Put Democrats in Bind,” The Wall Street Journal, October 25, 2011. http://online.wsj.com/article/SB10001424052970203911804576651410222669534.html