On Income Inequalities and Global Capitalism

How To Combat Inequalities Produced By Global Capitalism

12/05/2014 by Guy Standing

Guy Standing

Rising inequality is one of the most salient issues in global and European politics. Guy Standing writes that what we have witnessed in recent decades is not simply an increase in inequality, but also the emergence of a new globalised class structure. A key component of this structure is what he terms ‘The Precariat’: a new class comprising those who lack economic security and stable occupational identities, which has systematically been deprived of some of the fundamental rights afforded to citizens. He argues that a new ‘Precariat Charter’ is required to combat these insecurities, including provision for a basic income as a right of citizenship.

Next year is the 800^th anniversary of the Magna Carta, the first class-based charter of liberties against the state. Today, we need a Precariat Charter to advance the rights of the precariat and substantially reduce the inequalities and insecurities in society. This is the theme of my new book, A Precariat Charter: From Denizens to Citizens (Bloomsbury).

The context is clear. We are in the midst of a Global Transformation, in which a globalised market system is under painful construction. In its dis-embedded phase, the transformation was dominated by the interests of financial capital, just as was Karl Polanyi’s Great Transformation. Inequalities multiplied, economic insecurity became pervasive. Above all, a new globalised class structure took shape. All economic and social analysis of the growth of inequality that ignores the class dimension is like trying to play Hamlet without the Prince.

The emerging mass class is the precariat, looking up in income terms to a tiny plutocracy-cum-oligarchy striding the world, manipulating democracy and raking in rental income, and looking up to the salariat between them, receiving more and more of its income from capital and the state. The old proletariat, the old working class in numerical decline is rapidly losing its labour securities and non-wage forms of economic security.

The precariat has distinctive relations of production (unstable labour, lack of occupational identity, a high ratio of work-for-labour to labour, and so on), distinctive relations of distribution (depending on money wages that are stagnant at best, and volatile as the norm, living on the edge of unsustainable debt), and distinctive relations to the state. This last aspect has received too little attention. The precariat is the first mass class in history that has been systematically losing the acquired rights of citizenship – civil, cultural, political, social and economic. The precariat consists of supplicants, being forced to beg for entitlements, being sanctioned without due process, being dependent on discretionary charity.

More and more people, not just migrants, are being converted into denizens, with a more limited range and depth of civil, cultural, social, political and economic rights. They are increasingly denied what Hannah Arendt called ‘the right to have rights’, the essence of proper citizenship.

This is key to understanding the precariat. Its essential character is being a supplicant, a beggar, pushed to rely on discretionary and conditional hand-outs from the state and by privatised agencies and charities operating on its behalf. For understanding the precariat, and the nature of class struggle to come, this supplicant status is more important than its insecure labour relations.

Guy Standing argues in favour of a ‘Precariat Charter’ for workers. (photo: CC Zoriah on Flickr)

 The Precariat And Global Capitalism

The precariat’s position must be understood in terms of the changing character of global capitalism and its underlying distribution system, something that Thomas Piketty did not address. In the 20^th century, uniquely in human history, the distribution of income was primarily between capital and labour, between profits and wages, mediated by the state with its taxation, subsidies and benefits. The bargaining over the respective shares was won on points by the representatives of employees in the post-1945 period, but after the late 1970s was won decisively by capital. Everywhere the functional distribution of income became more unequal, with labour’s share of national income dropping dramatically, nowhere more so than the emerging market economies, including China most of all.

However, the key to understanding the challenge ahead is that two factors have changed the context completely. Historically speaking, from the 1980s onwards the labour supply to the global open labour market quadrupled, with all the newcomers being habituated to labouring at one-third or less of the median income of the workers in OECD countries. This led to the start of the Great Convergence. It was facilitated by the new technological revolution, which among other things allowed the corporation to unbundle, shifting production and tasks to wherever costs were lowest.

In this new context, rental income has become a major and growing component of total income. This is far more important than patrimonial capitalism, which Piketty identifies as the main feature of modern capitalism. Rent comes in several forms, notably by possession of so-called intellectual property, through patents, and through privileged possession of scarce commodities and natural resources. Last year was the first year in which over two million patents were registered, guaranteeing trillions of dollars to their owners stretching on average twenty years.

The rental economy extends all the way down to pay-day loans, whereby members of the precariat are exploited by disgustingly high interest rates, often exceeding 5,000 per cent. It includes the vast array of subsidies given by the state to corporations and the affluent in the salariat and elite.

What the precariat must demand now is little less than a new distribution system, not just a tinkering on marginal or average tax rates. Indeed, the weakest aspect of Piketty’s analysis is his prognosis. The likelihood of very high marginal direct tax rates is remote. Structural changes are required.

A Precariat Charter must start from understanding the nature and depth of insecurities faced by the precariat, and also from understanding the aspirations that exist in the more educated component of the precariat. It would be quite wrong to imagine that the precariat wants a return to the old norms of full-time stable wage labour.

It wants to build a good society, resurrect a sense of “a future” and create institutional networks that would enable more and more to pursue a life of work, labour and leisure. That means building their own sense of occupation, in which ecological values of reproductive work predominate over the resource-depleting values of labour.

The assets that need to be redistributed are not like the old socialist project of a hundred years ago, when the proletariat was emerging as the mass class. The assets underpinning a Precariat Charter are basic security, control of time, quality space, education, financial knowledge and financial capital. A key demand is for moves towards the realisation of a basic income as a right of citizenship. Without basic security, none of us can be expected to be rational and socially responsible. Let us find ways of going on that road.

For a longer discussion of this topic, see Guy Standing’s latest book, A Precariat Charter: From Denizens to Citizens (Bloomsbury). This column was first published by EUROPP@LSE.

On the myth of the Job Creators.

In recent weeks the writings of Thomas Piketty have excited economists around the world and caused alarm among those who own the greatest wealth but create no jobs or production.
This article from The Social Journal Europe are pointers to how a more equitable distribution of wealth would benefit the total economy of any country and thus create employment and jobs.
Why a Global Wealth Tax would help address inequality.

Inequality and the Left- From Social Europe Journal. A view that resonates in New Zealand.

Inequality And The Left

16/12/2013 by Simon Wren-Lewis 2 Comments

Simon Wren-Lewis

In the debate over inequality and priorities set off by Ezra Klein’s article, Kathleen Geier writes (HT MT) “the policy fixes for economic inequality are fairly clear: in no particular order, they include a higher minimum wage, stronger labor unions, a more progressive tax system, a more generous social welfare state, macroeconomic policies that promote a full employment economy, and much more powerful government regulations, particularly in the banking and finance sector.” And part of me thought, do we really want to go back to the 1970s?
Maybe this is being unfair for two reasons. First, in terms of the strength of unions, or the progressivity of taxes, the 1970s in the UK was rather different from the 1970s in the US. Second, perhaps all we are talking about here is swinging the pendulum back a little way, and not all the way to where it was before Reagan and Thatcher. Yet perhaps my reaction explains why inequality is hardly discussed in public by the mainstream political parties – at least in the UK.
The 1997-2010 Labour government was very active in attempting to reduce poverty (with some success), but was “intensely relaxed about people getting filthy rich as long as they pay their taxes.” This was not a whim but a strategy. It wanted to distance itself from what it called ‘Old Labour’, which was associated in particular with the trade unions.  Policies that were explicitly aimed at greater equality were too close to Old Labour [1], but policies that tackled poverty commanded more widespread support. Another way of saying the same thing was that Thatcherism was defined by its hostility to the unions, and its reduction of the top rates of income tax, rather than its hostility to the welfare state.
I think these points are important if we want to address an apparent paradox.

As this video illustrates (here is the equivalent for the US), growing inequality is not popular. Fairness is up there with liberty as a universally agreed goal, and most people do not regard the current distribution of income as fair. In addition, evidence that inequality is associated with many other ills is becoming stronger by the day. Yet the UK opposition today retains the previous government’s reluctance to campaign on the subject.
This paradox appears all the more perplexing after the financial crisis, for two reasons. First the financial crisis exploded the idea that high pay was always justified in terms of the contribution those being paid were making to society. High paid bankers are one of the most unpopular groups in society right now, and it would be quite easy to argue that these bankers have encouraged other business leaders to pay themselves more than they deserve. Second, while Thatcherism did not attempt to roll back the welfare state, austerity has meant that the political right has chosen to paint poverty as laziness. As a result, reducing poverty is no longer an uncontroversial goal.[2]
What is the answer to this paradox? Why is tackling inequality not seen as a vote winner on the mainstream left? I can think of two possible answers, but I’m not confident about either. One, picking up from the historical experience I discussed above, is that reducing inequality is still connected in many minds with increasing the power of trade unions, and this is a turn-off for voters. A second is that it is not popular opinion that matters directly, but instead the opinion of sections of the media and business community that are not forever bound to the political right. Politicians on the left may believe that they need some support from both sectors if they are to win elections. Policies that reduce poverty, or reduce unemployment, do not directly threaten these groups, while policies that might reduce the incomes of the top 10% do.
This leads me to one last argument, which extends a point made by Paul Krugman. I agree with him that “we know how to fight unemployment — not perfectly, but good old basic macroeconomics has worked very well since 2008…. The causes of soaring inequality, on the other hand, are more mysterious; so are the channels through which we might reverse this trend. We know some things, but there is much more room for new knowledge here than in business cycle macro.” My extension would be as follows. The main reason why governments have failed to deal with unemployment are accidental rather than intrinsic: the best instrument available in a liquidity trap (additional government spending) conflicts with the desire of those on the right to see a smaller state. (Those who oppose all forms of stimulus are still a minority.) In contrast, reversing inequality directly threatens the interests of most of those who wield political influence, so it is much less clear how you overcome this political hurdle to reverse the growth in inequality.
[1] This association is of course encouraged by the political right, which is quick to brand any attempt at redistribution as ‘class war’.
[2] The financial crisis did allow the Labour government to create a new top rate of income tax equal to 50%, but this was justified on the basis that the rich were more able to shoulder the burden of reducing the budget deficit, rather than that they were earning too much in the first place.
This post was first published on Mainly Macro

Neo-Liberal Economics survives because politicians believe inthe Easter Bunny and other Fairy stories.

Why Are Neo-liberal Ideas So Resilient?

30/10/2013 by Vivien A. Schmidt and Mark Thatcher Leave a Comment

Vivien A. Schmidt

Given the abject failure of the Neo-liberal policy offer, why has it persisted as the dominant approach to European policymaking and is there any way out?

Despite the economic crisis that hit the US and Europe full force in 2008, political leaders have made little attempt to rethink the neo-liberal ideas that are in large part responsible for the boom and bust, let alone to come to terms with how immoderate the ‘Great Moderation’ really was. Much the contrary, neo-liberal ideas continue to be the only ideas available.  In the financial markets, where the crisis began, reregulation remains woefully inadequate, while the only ideas in play are neo-liberal, either for more ‘market-enhancing’ regulation or in favor of greater laissez-faire. The biggest puzzle, however, is the response to the crisis by Eurozone countries that have embraced ‘market discipline’ through austerity and, in so doing, have condemned themselves to slow or no growth.   This is in contrast to the US, which has posted better economic results, despite being torn between Republican fundamentalists advocating austerity and a more pragmatic leadership focused on growth.

Mark Thatcher

Our question, then, is:  How do we explain the resilience of neo-liberal economic ideas?  Since the 1980s, why have such ideas not just survived but continued to be dominant? Neo-liberalism entails belief in competitive markets enhanced by global free trade and capital mobility, backed up by a pro-market, limited state that promotes labor market flexibility and seeks to reduce welfare dependence while marketizing the provision of public goods.  The watchwords for such neo-liberalism are liberalization, privatization, deregulation, and delegation to non-majoritarian institutions such as ‘independent’ regulatory agencies and central banks.  The touchstones highlight the importance of individual responsibility, the value of competition, and the centrality of market allocation.  The neo-liberal mantra presents the state as the perennial problem, the market as the solution – even today, despite the fact that the crisis was caused by the markets, not the state.

So why, in light of the crisis, has there been no major shift in ideas, either back to the neo-Keynesianism that brought the postwar ‘Golden Era’ or forward to something new? How do we explain the fact that neo-liberalism continues to permeate how people think and talk about state and market?  We propose five lines of analysis to explain such resilience:  the flexibility of neo-liberalism’s core principles; the gaps between neo-liberal rhetoric and reality; the strength of neo-liberal discourse in debates; the power of interests in the strategic use of ideas; and the force of institutions in the embedding of neo-liberal ideas.

First, the generality of neo-liberalism’s core principles, focused on competitive markets and a limited state, make it highly adaptable to changing circumstances and needs.  Thus, neo-liberalism has been able to move from ideas focused on the ‘rollback’ of the state to free up the markets in the 1980s under conservative leaders to the ‘rollout’ of the state to make markets work more freely under progressives in the 1990s.  It has also been able to absorb seemingly contradictory ideas, as in the case of the welfare state, where after an initial clash with social democratic ideas, through attempts at passive reduction of social spending and job protections, it incorporated such ideas in programs that sought to make active use of the welfare state to promote market efficiency via ‘active labor market policies.’ Finally, it has equally been able to undergo metamorphoses such that ideas discredited in previous periods recur, returning in new guises, such as the 1920s discourse of ‘sound money’ reappearing in the 1970s as monetarism and in the late 2000s as ‘sustainable debt.’

Second, neo-liberalism often works only in the rhetoric, not in the reality of implementation.  Notably, many neo-liberal policies – such as cutting public spending, reforming welfare, and reducing regulatory protection – are difficult to implement and extremely unpopular politically.  This helps explain why promises to cut back the state for the most part turned out to be hollow, in particular as state restructuring did not lead to a decrease in its size, nor did it necessarily reduce public spending.  Deregulation, rather than getting rid of the state, simply led to reregulation of a different kind.  But rather than a weakness, this can be seen as a strength, since lack of implementation can serve neo-liberal politicians also as a rallying cry, to call for more neo-liberalism.

Third, neo-liberal ideas have generally been more successful in policy debates and political discourse, winning in the ‘battle of ideas’ against weaker alternatives.  In some cases, that strength may come from the seemingly common sense nature of neo-liberal arguments.  For example, appeals to the ‘virtue’ of sound finances using the metaphor of the household economy—extrapolating from the need to balance one’s household budget to the need to do the same for the state budget—may resonate better with ordinary citizens than the Keynesian counterintuitive proposition to spend more at a time of high deficits and debts.  In other cases, neo-liberal success can be attributed to the reframing of current problems—say, as a crisis of public debt rather than of the banks; to the narratives—about public profligacy being the problem, belt-tightening the solution; and to the myths—for the Germans, that belt-tightening is the only way to avoid the risks of hyperinflation of the early 1920s, thereby ignoring the risks of deflation and unemployment of the early 1930s that led to the rise of Hitler. Equally importantly, it may be that neo-liberals are not so strong but their opponents are weak.  Where, after all, have the center-left parties been in all of this, in particular in Europe throughout the Eurozone crisis?  Notably, only very recently have European social democratic leaders called for growth, even as they continue to dole out austerity.

Fourth, powerful coalitions of interests often take up neo-liberal ideas for their own strategic purposes, whether they believe in them or not.  Economic actors may benefit materially, notably through lower taxes or the new opportunities opened up by ‘deregulation’ and privatization. Bankers have been laughing all the way to the bank.  Politicians also can benefit by using neo-liberal ideas to gain or retain political power while institutional actors—regulators, central bankers, and the like—gain autonomy and increasing power.  All of this, moreover, tends to be self-reinforcing, since the more neo-liberalism takes hold, the more it is likely to consolidate such actors’ commitment to neo-liberal ideas, as well as to create an attitude of ‘if you can’t beat them, join them,’ as in the center-left’s adoption of neo-liberal ideas beginning in the 1990s.

Fifth, the neo-liberal ideas gain force from their institutionalization in rules and regulations, as well as in the organisations, including the ‘non-majoritarian’ independent regulatory bodies such as the independent central banks, the international credit-rating agencies, and the standard-setting bodies that are out of the reach of national state control.  Moreover, in the EU, the successive pacts for stability in the Eurozone – beginning with the Stability and Growth Pact that consecrated the 1990s Maastricht criteria for monetary union and culminating with various pacts during the Eurozone crisis – ensure that neo-liberal ideas about fiscal consolidation will be difficult to reverse, regardless of their failure to solve the crisis.

These five lines of analysis leave us with one final question: given all this resilience, is there any way out of neo-liberalism? One pathway could be collapse from within, as the contradictions inherent in neo-liberalism become increasingly clear—such as between the ideal of a limited state and the practice of the state playing a strong role to enhance markets.  Another could be rejection from without, as the broken promises, indeed the failures, of neo-liberalism become ever more apparent to citizens.   Yet another is that strong ideational alternatives to neo-liberalism gain strength, say, with new approaches to economic governance that put the polity before, rather than after, the economy.  It is also possible that neo-liberalism loses the support of powerful interests, or that new coalitions emerge.  Perhaps the social democrats will begin to coalesce behind a new set of ideas.  Finally, it may very well be that the institutions of neo-liberalism break down, are replaced, or evolve as a result of new coalitions of interests with new ideas about how to solve the problems.  But for any of these eventualities, things are likely to become much worse, before we see any new light at the end of the tunnel.

We ignore Keynesian economics at our peril- Social Europe Journal analysis

Overlooking Thirty Years Of Economic History And Downplaying Keynesian Economics

04/10/2013 by Andrew Watt Leave a Comment

Andrew Watt

Brad Delong is an extremely smart, trenchant and witty economist. He has just published a piece comparing the Great Depression of the 1930s with the ongoing Great Recession of today and drawing lessons from the experiences of both episodes. It is typically erudite and deals with complex issues in a clear and concise way. However, being trenchant and concise has its dangers, not least of which is missing things out. This can happen, and the costs will often be small relative the benefits of maintaining focus on the key issues (and not boring readers). What is surprising and worrying in this case is that Brad Delong – a renowned economic historian and one very open to Keynesian views – has missed out the thirty important years of economic history and very much downplays Keynesian economics in that period and also since.
In a nutshell – you really should read the whole article – Delong argues the following:

• The Great Depression happened because policy makers didn’t understand the problem and thus failed to do what was necessary (or made things worse): they lent freely to banks in bad shape, but the insisted on sound finance and balanced budgets.
• Milton Friedmann and Anna Schwarz said in the 1960s that the problem had been that the Fed focused on the interest rate (the price of money), rather than the quantity of money. The Great Depression would have been avoided had the Fed prevented the money supply contracting.
• Economists in general and Ben Bernanke in particular accepted this view and so the Fed kept up the money supply when the Great Recession hit.
• This was partially successful (performance was better than the Great Depression), but not nearly enough. This reason is that pumping money into the system doesn’t help if people do not crave liquidity so much as safety (lower debt and fewer risky assets).
• What actually got countries out of the Great Depression was some combination of devaluation (getting off the Gold Standard), creating expectations of higher inflation and deficit spending.

There is nothing actually wrong with this line of reasoning, but:
a) what about the “trentes glorieuses” from 1945-1975?
Brad Delong starts the post-war story with Friedman/Schwarz in the 1960s, whose doctrines were not accepted until the late 1970s, and then radicalised by the likes of Lucas to the extent that the problem of cyclical demand management was believed to have been solved: all you have to do is ensure steady growth of the money supply. But he overlooks the preceding period which was characterised by steady and strong growth and a lack of (financial) crises in the advanced capitalist countries. It was also characterised by strict regulation of the financial sector, an expansion of the welfare state (and thus also of automatic fiscal stabilisers) and a belief in the use of both monetary and fiscal policy for counter-cyclical purposes. Which brings me to:
b) what about Keynesian economics?
Brad only mentions Keynes in the context of the debate about the Great Depression, not subsequently. But the predominance of Keynesian theories at least coincided temporally with (and I would argue was a causal factor behind) thirty years of crisis-free growth. Post-war Keynesianism was replaced by the doctrines of, yes, Milton Friedman and Robert Lucas. While Friedman, at least, believed in the counter cyclical use of monetary policy, increasingly his followers, and notably Lucas, focused on market-promoting supply side reforms as the Holy Grail of economic policy. Three important components and consequences of this approach were: Reduction in the size of (and the increased marketisation of) welfare-spending and government “meddling” in the economy, which reduced the size of the automatic stabilisers. Financial market liberalisation: supposedly efficiency-enhancing, this made the economic system far more fragile for reasons that had been long understood – not just by Minsky and Koo, whom Brad approvingly cites – but also people like Kalecki and Keynes himself. And exchange-rate and capital account liberalisation which presaged a series of boom-bust episodes in emerging markets.

 (Inserted comment: The neo-liberal asset stripping policies being practiced in New Zealand by the National-ACT govt lead by money speculator John Key are based on the same faulty Friedmanite economic logic which has been demonstrated by BERL as damaging for the economy as a whole and grossly economocally irresponsible.)

Missing all this out, it seems to me, is taking concision and parsimony rather too far. It is certainly true that much of the economic profession bought into monetarist and market-radical ideas. But the fact is that these had driven out theories and policy convictions that continued to be held by a minority of Keynesians and that were – perhaps not in all respects, but in many – much superior. It is not that the Friedmanite counter-revolution and what followed did not contain any useful ideas (expectations; problems of using fiscal policy effectively). But much that was useful was buried.
In short, we didn’t actually need to go through the Great Recession to see that Friedman and Schwarz were wrong.

Coincidentally, today I saw a nice example of the fact that – let us be generous – scientific progress is not linear. Economists at the European Commission – a champion of pre-crisis financial liberalisation in Europe – are now experimenting with enriching their DSGE model with the path-breaking idea that investors cannot simply borrow without limit at the prevailing rate of interest but normally require collateral. The availability of credit depends on the (expected market) value of that collateral. This creates the potential for self-reinforcing booms and subsequent slumps. This path-breaking idea was set out (at the latest) by Michal Kalecki in 1937. Needless to say he is not included in the list of references.