Business

Cents and Invisibility – the new debate about power, inequality and money

By J Brooks Spector 24 April 2014

A new book by a French economist and a nearly-book length report by two American political scientists, the first on who controls the wealth of the world and the second why the powerful are, well, powerful, have catapulted into the limelight in both academic and public discourse on who runs what and why. J. BROOKS SPECTOR takes a first look at this evolving debate.

Over the past couple of years or so, a debate over the relationship between money and influence over political decisions has come back into a sharper focus than it has been for many years. Partly as a result of the bitter after-effects of the Great Recession/financial crisis of 2008 and the flatlining of any growth in individual incomes for many people after the immediate crisis was over, even as the reimbursement of senior corporate officers around the world reaches stratospheric heights, inequality has become a new buzzword for politicians, academics and activists. Simultaneously, the locus of real political influence has come under closer scrutiny as well.

The recent publication (in English) of Thomas Piketty’s study, “Capitalism in the Twenty-First Century” and the research report, “Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens,” by political scientists Martin Gilens of Princeton and Benjamin Page of Northwestern University, have, together, become the an important part of the public discussion. Coming together, they are at the centre of this growing debate about inequality.

Piketty’s book has been frequently spotted in the hands of Washington’s most powerful figures and it has been the subject of an extended, rapturous review by Nobel Prize-winning economist Paul Krugman in the most recent issue of The New York Review of Books, among many other critiques – both pro and con. Meanwhile, Gilens and Page’s article has quickly become a near-sacred text in the hands of numerous critics of America’s democratic life.

Moreover, this debate has important analogues in congressional debate and in Washington more generally about how the federal budget will be reoriented (and cut). Concurrently, there is also a push by Republican politicians to draw the line around voter eligibility ever more tightly, effectively becoming an effort to disenfranchise the poorest, most marginalised citizens for the evident benefit of Republicans in future elections – and the parallel discomfiture of Democratic candidates.

And, of course, this discussion about rising inequality and its democratic discontents has a South African dimension as well. Increasingly strong feelings about economic inequality have fuelled the discontent that is exemplified by the rise of the Economic Freedom Fighters and the continuing pace of service delivery protest, among many other things.

Piketty’s tome is a massive work of history combined with some serious econometrics. It mines tax records and property data for hundreds of years in the US, France and England so as to assemble the case that over the really long haul, the rich classes have – primarily – kept the bulk of their hold on wealth by conserving it and passing it along largely by inheritance, rather than earning it by hard work in each new generation. (Of course there will always be new zillionaires like Bill Gates, but we’re speaking here of the entire yacht-owning class, rather than a few sports of business nature.)

In describing this book, Krugman has written in his review, “It therefore came as a revelation when Piketty and his colleagues showed that incomes of the now famous ‘one percent,’ and of even narrower groups, are actually the big story in rising inequality. And this discovery came with a second revelation: talk of a second Gilded Age, which might have seemed like hyperbole, was nothing of the kind. In America in particular the share of national income going to the top one percent has followed a great U-shaped arc. Before World War I the one percent received around a fifth of total income in both Britain and the United States. By 1950 that share had been cut by more than half. But since 1980 the one percent has seen its income share surge again—and in the United States it’s back to what it was a century ago.”

Krugman adds that at its core, “The big idea of Capital in the Twenty-First Century is that we haven’t just gone back to nineteenth-century levels of income inequality, we’re also on a path back to ‘patrimonial capitalism,’ in which the commanding heights of the economy are controlled not by talented individuals but by family dynasties.”

For those who have assumed a gradual evening out of income (and wealth) in first world, developed economies as the working class became increasingly middle class, Picketty’s analysis points to that “U-shaped” equality pattern as growing income tax regimens, income transfers, growing per capita income and even declining family wealth from the vicissitudes of 20th century warfare all drove the Gini coefficient towards more equality for some years. But, then, over the past generation or so, the pattern has gone the other way again – this time with the emergence of a class of super-paid, senior investment bankers, corporate managers and the like, what Piketty terms the super-managers. Or in short, the real, actual Gordon Gekkos (and Bernie Madoffs) of the present era.

(To be fair, while this writer has yet to read the book and is so far relying on reviews and excerpts, it does seem that seriously underplayed in Piketty’s analysis is the growing importance of the very large amounts of wealth that are now locked up – and still growing – in those ultra-large retirement and pension plans like Cal-pers or TIAA-CREEF, operating on behalf of tens of millions of Americans. These plans are managed by much more conservative versions of the go-go investment bankers who brought us the 2008 financial crisis through their love affairs with those collateralised debt obligations built on shifting financial sand and so these funds have not gone the way of Lehman Brothers.)

Meanwhile, in some real heavy-duty political science language, the two political scientists explain their basic thesis, saying, “Each of four theoretical traditions in the study of American politics – which can be characterised as theories of Majoritarian Electoral Democracy, Economic Elite Domination, and two types of interest group pluralism, Majoritarian Pluralism and Biased Pluralism – offers different predictions about which sets of actors have how much influence over public policy: average citizens; economic elites; and organised interest groups, mass-based or business-oriented. A great deal of empirical research speaks to the policy influence of one or another set of actors, but until recently it has not been possible to test these contrasting theoretical predictions against each other within a single statistical model. This paper reports on an effort to do so, using a unique data set that includes measures of the key variables for 1,779 policy issues. Multivariate analysis indicates that economic elites and organised groups representing business interests have substantial independent impacts on U.S. government policy, while average citizens and mass-based interest groups have little or no independent influence. The results provide substantial support for theories of Economic Elite Domination and for theories of Biased Pluralism, but not for theories of Majoritarian Electoral Democracy or Majoritarian Pluralism.” Read that paragraph slowly, perhaps.

And the two researchers conclude, “The central point that emerges from our research is that economic elites and organised groups representing business interests have substantial independent impacts on U.S. government policy, while mass-based interest groups and average citizens have little or no independent influence. Our results provide substantial support for theories of Economic Elite Domination and for theories of Biased Pluralism, but not for theories of Majoritarian Electoral Democracy or Majoritarian Pluralism.”

In effect, using various statistical methodologies, Gilens and Page re-examine the long tradition of political-economic analysis of American elite power and influence that pretty much began with Charles Beard’s 1913 book, “An Economic Interpretation of the Constitution of the United States”. Beard’s study built significantly on a Marxist approach when he had argued that the drafters of the US Constitution had come from the new country’s elite, its landholding class, and they were determined to protect the property from a more thorough-going agrarian revolution than the one they had already led against British colonial authorities in the Revolutionary War.

Traditionally, most consensus American historians have argued the US economy and society has evolved as a product out of struggles between competing interest groups – the new populist West versus the old Eastern elite as with Andrew Jackson’s ascendancy in the 1830s; or labour versus the industrialists during the New Deal that yielded significant labour victories. But Gilens and Page, in effect, are arguing that regardless of prior views about the struggles over policy, important government decisions on the broad range of central policy issues are consistently resolved in accord with the interests of the country’s elite, rather than the result of struggles between interest groups or the evolution of a broad national consensus on things. Left unstated by this analysis seems to be the possibility there often is a broad concurrence on economic policies among most Americans regardless of class – or that the country’s inhabitants continue to have a still-broad consensus on government economic policies so that extreme views – whether on the right or left – are ultimately blocked by the political system.

Both Piketty’s and Gilens and Page’s arguments are already being used by a growing number of commentators who are advancing a view that American society is becoming increasingly unequal economically and, simultaneously, increasingly in thrall to the agenda of the elite. And, moreover, these agendas are largely inimical to the interests of the poor, the working – or even the middle class.

Such interpretations of things have real consequences, of course. Mitt Romney’s infamous remark about the 47% of Americans who pay no taxes and who depend on government largesse was effectively a Republican political campaign’s evocation of such perceptions. It bought into the idea there were stark differences in interests, but that the elite needed to stay on top so as to protect its position and interests. It follows from such a view that access to the voting franchise needs to be drawn as tightly as possible to exclude those with no tangible stake in the country’s economic or political system. And in fact, such efforts appear to be underway on a number of fronts in various Republican-controlled states.

Contra-wise, if one’s goal is achieve a stronger national comity or broad social agreement on economic policy, this means the increasing income inequality in the country urgently needs to be rolled back. Whether it is via efforts to improve transfer payments or an improvement of economic and entrepreneurial opportunities would matter less than that the trend be reversed as soon as possible. For this reason, improving equality seems to have become the economic underpinning for the legislative ideas of the current Democratic administration.

The Nation, that durable icon of the left, for example, has explained this by saying, “To be sure, Democrats have ramped up the rhetoric. Bill Clinton ran for president in 1992 complaining that Americans were ‘working harder for less.’ Over two decades later, they still are. Five years into his presidency, Barack Obama now tells us that inequality is the ‘defining issue of our time.’ But even if Congress passed his modest agenda of an increase in the minimum wages, tax credits for the poor and a marginal boost in funds for education and training, it would just slow down the ongoing upward redistribution of wealth. Other Obama proposals, such as more free trade and continued fiscal austerity, will accelerate it.”

Curiously the anger and frustration evident in both the Occupy Wall Street and the Tea Party movement drew much of their wild energies from this growing inequality, as those super-rich continue to do well while the incomes of so many others (including, importantly, retirees) continues to stagnate. What this means for American politics, of course, is the way this fundamental argument will end up being expressed in various ways for both the 2014 congressional election as well as the next presidential election two years later.

Will candidates choose to excoriate the elite that manages things to its singular benefit; will they speak towards aiming for broad national agreement on what must be done to re-energise the country; or will they argue that the government must somehow reverse the growing inequality that poses a deep threat to democracy? And, of course, how the disaffected – and voters more generally – respond to all of these ideas will likely determine a good share of the shape of American politics for years to come. DM

Read more:

  • “Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens” Martin Gilens and Benjamin Page, issued on  Princeton University’s website
  • Do the Rich Call the Shots? – A “Room for Debate” colloquy at the New York Times
  • Why We’re in a New Gilded Age by Paul Krugman, a review of Thomas Piketty’s “Capital in the Twenty-First Century” in the New York Review of Books.

Photo: Sheldon Adelson, Chairman of Las Vegas Sands Corp, is pictured after attending U.S. Republican Presidential candidate Mitt Romney’s foreign policy remarks at Mishkenot Sha’ananim in Jerusalem, July 29, 2012.   REUTERS/Jason Reed.

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