WHY THE SUPER-RICH NEED GOVERNMENTS
Dani Rodrik
The very rich, F. Scott Fitzgerald famously wrote,
“are different from you and me.” Their wealth makes them “cynical where
we are trustful,” and makes them think “they are better than we are.”
If these words ring true today, perhaps it is because when they were
written, in 1926, inequality in the United States had reached heights comparable to today.
During
much of the intervening period, between the end of World War II and the
1980s, inequality in the advanced countries was moderate. The gap
between the super-rich and the rest of society seemed less colossal –
not just in terms of income and wealth, but also in terms of attachments
and social purpose. The rich had more money, of course, but they
somehow still seemed part of the same society as the poor, recognizing
that geography and citizenship made them share a common fate.
As the University of Michigan’s Mark Mizruchi points out in a recent book,
the American corporate elite in the postwar era had “an ethic of civic
responsibility and enlightened self-interest.” They cooperated with
trade unions and favored a strong government role in regulating and
stabilizing markets. They understood the need for taxes to pay for
important public goods such as the interstate highway and safety nets
for the poor and elderly.
Business
elites were not any less politically powerful back then. But they used
their influence to advance an agenda that was broadly in the national
interest.
By contrast, today’s super-rich are “moaning moguls,” to use James Surowiecki’s evocative term.
Exhibit A for Surowiecki is Stephen Schwarzman, the chairman and CEO of
the private equity firm the Blackstone Group, whose wealth now exceeds
$10 billion.
The venture capitalist Tom
Perkins and Kenneth Langone, the co-founder of Home Depot, both compared
populist attacks on the wealthy to the Nazis’ attacks on the Jews.
Schwarzman
acts as if “he’s beset by a meddlesome, tax-happy government and a
whiny, envious populace.” He has suggested that “it might be good to
raise income taxes on the poor so they had ‘skin in the game,’ and that
proposals to repeal the carried-interest tax loophole – from which he
personally benefits – were akin to the German invasion of Poland.” Other
examples from Surowiecki: “the venture capitalist Tom Perkins and
Kenneth Langone, the co-founder of Home Depot, both compared populist
attacks on the wealthy to the Nazis’ attacks on the Jews.”
Surowiecki
thinks that the change in attitudes has much to do with globalization.
Large American corporations and banks now roam the globe freely, and are
no longer so dependent on the US consumer. The health of the American
middle class is of little interest to them these days. Moreover,
Surowiecki argues, socialism has gone by the wayside, and there is no
need to coopt the working class anymore.
Yet
if corporate moguls think that they no longer need to rely on their
national governments, they are making a huge mistake. The reality is
that the stability and openness of the markets that produce their wealth
have never depended more on government action.
The super rich are now more separated from the rest of society than ever before (photo: CC 4WheelsofLux Photography on Flickr)
In
periods of relative calm, governments’ role in writing and upholding
the rules by which markets function can become obscured. It may seem as
if markets are on autopilot, with governments an inconvenience that is
best avoided.
As former Bank of England
Governor Mervyn King aptly put it in the context of finance, “global
banks are global in life, but national in death.”
But
when economic storm clouds gather on the horizon, everyone seeks
shelter under their home government’s cover. It is then that the ties
that bind large corporations to their native soil are fully revealed. As
former Bank of England Governor Mervyn King aptly put it in the context
of finance, “global banks are global in life, but national in death.”
Consider
how the US government stepped in to ensure financial and economic
stability during the global financial crisis of 2008-2009. If the
government had not bailed out large banks, the insurance giant AIG, and
the auto industry, and if the Federal Reserve had not flooded the
economy with liquidity, the wealth of the super-rich would have taken a
severe blow. Many argued that the government should have focused on
rescuing homeowners; instead, the government chose to support the banks –
a policy from which the financial elite benefited the most.
Even
in normal times, the super-rich depend on government support and
action. It is largely the government that has financed the fundamental
research that produced the information-technology revolution and the
firms (such as Apple and Microsoft) that it has spawned.
It
is the government that enacts and enforces the copyright, patent, and
trademark laws that protect intellectual property rights, guaranteeing
successful innovators a steady stream of monopoly profits. It is the
government that subsidizes the higher-education institutions that train
the skilled work force. It is the government that negotiates trade
agreements with other countries to ensure that domestic firms gain
access to foreign markets.
If
the super-rich believe that they are no longer part of society and have
little need of government, it is not because this belief corresponds to
objective reality. It is because the prevailing story line of our time
portrays markets as self-standing entities that run on their own fuel.
This is a narrative that afflicts all segments of society, the middle
class no less than the rich.
There
is no reason to expect that the super-rich will act less selfishly than
any other group. But it is not so much their self-interest that stands
in the way of greater equality and social inclusion. The more
significant roadblock is the missing recognition that markets cannot produce prosperity for long – for anyone – unless they are backed by
healthy societies and good governance.
