Category Archives: Ending Neoliberalism

Jacinda Ardern is the very hero the global left needs right now – Van Badham.

“The signal this sends is that this is life in the 21st century.” former NZ Labour Prime Minister Helen Clark.

The achievement here is Ardern’s marriage of the old left economic programme with the new explicitness of identity politics and it resonates because it’s sincere. Failure to bridge these positions will doom all of us.

The future of the left is bright if it looks like Jacinda Ardern and Alexandria Ocasio-Cortes.

“The people closest to the pain should be closest to the power and they should pursue power, without shame.” Alexandria Ocasio-Cortes.

As social media birth announcements go, Jacinda Ardern’s handheld Facebook Live of herself and her newborn Neve Te Aroha Ardern Gayford is charming.

New Zealand’s prime minister introduces her new baby with radiant sincerity. She thanks her midwife and the hospital staff for their generous professionalism, and New Zealanders for their kindness and gifts. With a quick cutaway, she even jokes with the baby’s father about his “dad jumper”.

But as a political communication, the video is matchless. In an epoch overcast by growing shadows of reenergised rightwing authoritarianism, Ardern’s public hospital nativity offers a luminous symbolic affirmation of her leadership not just of New Zealand, but of the western electoral left.

The leader of the first Labour government in New Zealand for a decade shares the explicit left agenda for investment in health, education and climate action, public housing, social justice. Ardern’s pledge to build “a kind and equitable nation where children thrive, and success is measured not only by the nation’s GDP but by better lives lived by its people” is the ancient standard of our side.

Yet while recent celebrity left leaders have failed to win elections, or even nominations, Ardern gained the leadership of her party seven weeks out from an election, and she won.

She nearly doubled the Labour vote, wrangled herself into office with a complex multiparty coalition, and just passed a social democratic budget. Polls have held. The most recent gives her party and one coalition partner, the Greens, enough votes to govern between them. Her personal approval rating is a thumping 76%.

To understand why is to look beyond policy and into her representation of it. What distinguishes Ardern is her active embrace of what Walter Benjamin referred to as “the time of the now” and the diverse and complex identities of a community that no longer sees itself as by, for and of propertied, straight white men. Doing so shatters a traditionalism that imprisons the left even as much as it inspires today’s right.

Ardern is the first elected world leader to ever go on maternity leave. Of this, former NZ Labour prime minister Helen Clark noted:

“These are the kinds of practical arrangements working women make the world over, the novelty here is that it is a prime minister who is making them. The signal this sends, however, is that this is life in the 21st century.”

But the insight is enhanced by considering theorist Stuart Hall’s old observation that “Politics does not reflect majorities, it constructs them”. Local NZ commentator, Michelle Duff, lauded the events of Ardern’s maternity as a national achievement, writing, “Let’s just take a moment to appreciate that we, as a nation, have pushed the boundaries and created an environment where this can happen.” Clark said for New Zealand, this was merely “evolution”.

Observe, also Ardern who is Pakeha, not Maori meeting the British queen wearing a Kahu huruhuru: a Maori feathered cloak “bestowed on chiefs and dignitaries to convey prestige, respect and power”. It was a demonstration of a status conferred, and not stolen, and a representation of a New Zealand unafraid to show pride in its indigenous past even as it engaged in diplomatic pleasantry with its colonial one.

Little wonder that “the prime minister’s empathy with and interest in the indigenous people of New Zealand (is) improving relations between Pakeha [European] and Maori faster than at any other point in history,” a spokeswoman for Ngati-Haua, of the Tainui federation of tribes, has said.

In this case, the spokeswoman was responding to Ardern’s choice of “Te Aroha” as her newborn’s middle name, which refers both to a mountain where Ardern grew up and a Maori language word for love. “Everybody knows what aroha means,” says Ardern in her baby Video. Even though“everybody” doesn’t, every New Zealander certainly does. Ardern’s grasp of the local from giving birth in a public hospital, to announcing her pregnancy on Instagram is exemplary. The town of Te Aroha is planning a celebration of their namesake baby’s birth; plans are to paint its buildings pink.

The achievement here is Ardern’s marriage of the old left economic programme with the new explicitness of identity politics and it resonates because it’s sincere. Failure to bridge these positions will doom all of us.

Theorist Wendy Brown explained this in her 1999 essay of prophetic relevance to today’s particular political moment. Brown writes of a “left melancholy” as a state of wilful, purist political nostalgia, in which the left “has become more attached to its impossibility than to its potential fruitfulness, a Left that is most at home dwelling not in hopefulness but in its own marginality and failure, a Left that is thus caught in a structure of melancholic attachment to a certain strain of its own dead past.”

It’s hard not to see this melancholy in the celebration of electoral defeats as somehow moral victories, when across the world the present, visible reality for women, indigenous people, the LGBTQIA+ community, refugees and so many others is that electoral outcomes represent life and death stakes.

The alternative proposition is to remember “that the people closest to the pain should be closest to the power” and they should pursue power, without shame. This statement was quoted by the victorious Alexandria Ocasio Cortes, who delivered a shock upset to the established order when she won a Democratic primary in New York this week.

In a party where the top three positions are held by septuagenarians, commentator Dana Milbank saw Ocasio-Cortes’s election not as a disruption to the Democratic trajectory but an event of happy augury. “The emerging electoral majority that already dominates the party and will soon dominate the country,” he observed “is progressive, young, female and nonwhite. It is no accident that Ocasio-Cortez, a 28-year-old Latina, is all four.”

If today’s left is going to stand a chance against an ascendant, muscular right, my hope is that she and other avowed socialists emerging within her electoral generation eschew the stale temptations of left melancholy for energising examples of a visionary left that looks as different to its past as a pregnant woman in a feathered cloak does to a room of suited men.

“Strong men” of the right are now lining up governments from Italy to Turkey to the USA. The times of the now are ones in which we can construct majorities of a diversity they cannot and do not wish to represent.

We can hope the influence of Jacinda Ardern and Alexandria Ocasio-Cortes spread, or we can ensure that it does. The stakes for the marginalised remain life and death.

Why even supply-siders know Trickle Down is rubbish. Even if you build it, the poor can’t come – Mark R Reiff.

Supply creates its own demand?

Wrong!

When you build more stuff, it is not true that all the costs of production are introduced into the economy as new money. You have merely injected new money to the extent you have incurred additional marginal costs, labour and materials mostly. Most fixed costs don’t rise with the increased production.

And it is unlikely that a producer would take the risk of ramping up production in a troubled economic environment if all that could be recovered was the marginal costs.

And no reasonable business person thinks that enough new money can be introduced by increasing production alone. If they did, record amounts of cash wouldn’t be sitting in corporate bank accounts doing nothing.

Obviously, the people who control this cash don’t believe that supply creates its own demand. They think that increasing production without first seeing an increase in demand would be foolhardy.

‘If you build it, they will come.’

It’s a Latin saying, Si tu id aeficas, ei venient, but it’s probably more recognisable because it sounds like what that disembodied voice says to Kevin Costner in the film Field of Dreams (1989). And in the film, Costner does build it, a baseball field, and people do come. In either case, it’s a good way of summing up the case for supply-side economics.

But to understand that case, we need to break it down into its constituent elements. And the thinking behind it goes like this: if you want to stimulate the economy, then cut taxes on the rich, those who invest in and build things, and they will use this extra money to produce more stuff. Why? Because supply creates its own demand, so if they produce more they will sell more, and the economy will expand. An expanding economy, in turn, benefits everybody. There will be more jobs, wages will be higher, and government budget deficits will shrink.

This latter effect, of course, might seem counterintuitive. But the argument is that even though tax rates go down, the amount of economic activity these cuts unleash will grow everyone’s income to such an extent that the total tax collected by the government, even at these lower rates, will actually go up.

That’s what the supply-siders contend.

Given that the supply-side approach has been the policy of the Republican Party for decades, this argument has proved convincing to a lot of people. But let’s look at it a little more carefully.

The notion that supply creates its own demand is known as Say’s law, after the French economist Jean Baptiste Say (1767-1832) who is credited with its formulation. The thought is that when you produce more, you have to spend additional money to do so. This additional spending, in turn, provides people with extra income, and therefore the wherewithal to buy the additional goods you have created.

Of course, you cannot just build anything. To sell more of something, it has to be something that people actually want. Say himself acknowledged this. But let’s focus on the mechanics of how increasing production is supposed to give people the wherewithal to purchase more of what they do want. Unfortunately, the presumptions here just don’t make sense.

First, at most, building more goods simply introduces funds equivalent to their cost of production into the economy. But things don’t sell for their cost of production no one builds anything unless they think they can price it at a profit. And if you don’t think people will have enough new money to pay this price, why would you increase production?

Second, a lot of the costs of production are what economists call ‘fixed’ costs; that is, the cost of big things such as factories and office buildings and expensive machines and equipment, rather than the costs of the additional labour and supplies necessary to build one extra thing, which are called ‘marginal’ costs. The total cost of production combines fixed and marginal costs, and fixed costs usually represent the far greater share. This means that when you build more stuff, it is not true that all the costs of production are introduced into the economy as new money.

You have merely injected new money to the extent you have incurred additional marginal costs.

And it is unlikely that a producer would take the risk of ramping up production in a troubled economic environment if all that could be recovered was the marginal costs.

Third, producers receive many of the goods needed in the production of further goods from their suppliers on credit. Why presume that all the marginal costs of additional production have actually been paid at the time the goods hit the shelves? Or that the ultimate consumer is going to be willing to use credit to increase consumption in troubled times, even if those higher up the chain have used credit to increase production?

More concerning still, if consumers do use credit, unless we later provide them with more income, we will have simply set ourselves up for another financial collapse when the teaser rates on their loans time out and further payments become unaffordable, as happened in 2008.

None of these problems with supply-side thinking will come as a surprise to anyone who runs a business. They are happy to see their taxes cut, sure, but they are not going to use this extra money to increase production unless they think that their customers will have enough new money to buy these additional goods. And no reasonable business person thinks that enough new money can be introduced by increasing production alone. If they did, record amounts of cash wouldn’t be sitting in corporate bank accounts doing nothing, which is what has been happening for years now. Obviously, the people who control this cash don’t believe that supply creates its own demand. They think that increasing production without first seeing an increase in demand would be foolhardy.

History is also not on the supply-siders’ side. To see the failure of the supply-side approach at the national level, all we need do is look at the 2001 and 2003 tax cuts signed into law by the then president of the United States, George W Bush.

These tax cuts did not increase investment or production. Rather, the rich either hoarded this additional money or used it to bid up the price of existing assets, creating asset bubbles and exponentially increasingly economic inequality. And because economic activity did not increase enough to offset the loss of government revenue from reduced taxes, the deficit exploded. To see a similar result on the state level, in turn, we can look at the recent supply-side ‘Kansas experiment’. There, massive tax cuts on the rich and corporations almost bankrupted the state.

Remember also that in the 19th century, when Say devised his law, there was a huge amount of untapped demand for new goods; most costs were marginal costs; and most transactions were for cash, not credit. At that time, perhaps it seemed like supply did create its own demand. But not today.

Today, to stimulate the economy, we need to increase demand first. And the best way to do this is by putting more money in the hands of the people whom the economist John Maynard Keynes described in 1936 as having the highest ‘marginal propensity to consume’.

These are not the rich, but rather the poor and middle-class. For, as a group, these are the people who can be counted on to spend all their income whereas, as we have already seen, the rich are likely to keep a chunk of it in cash.

Once demand is increased among the poor and middle class, Keynes argued, production will rise to meet it.

In deciding whether to go with the supplyside or the Keynesian approach to stimulating the economy, there is one more consideration that is relevant.

Recent history has shown that we can’t be sure that economic expansion alone will solve our wider economic problems. Almost all of the benefits of economic growth during the past 30 years or so have accrued to the rich, and mostly to the super-rich. Real income for most people has been stagnant or even declined. The new jobs that have been created are mostly temporary, low-wage, nobenefit jobs. Permanent, good-wage jobs with benefits have continued to disappear.

Rather than giving money to the rich in these circumstances and hoping that it trickles down to the rest of us, as the supply-siders suggest, it would be better to give money to the poor and middle-class, as the Keynesians suggest. The Keynesian approach, after all, has worked many times in the past. Indeed, it’s how the West emerged from the Great Depression. But most importantly, if for some reason it doesn’t work, at least we will have made the right people better off.

Mark R Reiff has taught political, legal and moral philosophy at the University of Manchester, the University of Durham and the University of California, Davis, and he was a Faculty Fellow at the Safra Center for Ethics at Harvard University.

Common sense on Tax. Who said it was meant to be fair? – Brian Fallow.

The major part of a homeowner’s return on investment is the avoided cost of renting a similar property. It falls within the purist definition of income.

But perhaps the most unfortunate restriction on the scope of the Tax Working Group’s task, from the standpoint of fairness, is that it has been instructed not to consider the interaction between the tax system and the transfer (welfare) system.

It is the net effect of both tax and transfers which reduces the stark inequality of market incomes into the (still substantial) inequality of disposable incomes.

The OECD says New Zealand has the fourth least redistributive tax and transfer system among 30 rich countries it looked at.

The Government has given the Tax Working Group chaired by Sir Michael Cullen a well nigh impossible task.

Its terms of reference are peppered with the word “fair”. It occurs seven times. How can the tax system be made ”fair, balanced and efficient”?

But the terms of reference go on to rule out all the obvious ways of making it fairer.

For a start, the working group is not allowed to recommend any increase in income tax rates.

Yet there might well be a case for a more progressive income tax scale on vertical equity grounds. That is, the principle that those with higher incomes, or ability to pay, should pay a greater amount of tax.

And if they wanted to reduce the impact of bracket creep in the middle of the income distribution, the revenue cost could be reduced by introducing a new top rate for those with most ability to pay. Too bad, it is forbidden.

Inheritance tax is also ruled out of consideration, despite the obvious equity argument for having one. Yet legacies fall within economists’ conception of income what can be consumed in a given period while keeping real wealth intact and if you have an income tax, you should tax income. The broader the base, the lower rates can be.

Real capital gains are also income, and the Government has clearly pointed the tax working group’s gaze in that direction.

But the family home is off limits for any capital gains tax, and the ground under it for any land tax.

That is despite the fact that housing equity represents the lion’s share of household wealth, which is distributed even more unequally than income is.

The “third rail” (touch it and you die) status of owner-occupied housing would also rule out any attempt to tax imputed rents, which also count as economic income.

The major part of a homeowner’s return on investment is the avoided cost of renting a similar property. It falls within the purist definition of income, but the electoral fate of Gareth Morgan’s party last year suggests that persuading voters of the merits of such a reform is a forbidding challenge.

But perhaps the most unfortunate restriction on the scope of the Tax Working Group’s task, from the standpoint of fairness, is that it has been instructed not to consider the interaction between the tax system and the transfer (welfare) system.

Victoria University of Wellington economists Simon Chapple and Toby Moore, in a wide ranging and trenchant submission to the Tax Working Group, argue that this makes no sense.

It is the net effect of both tax and transfers which reduces the stark inequality of market incomes into the (still substantial) inequality of disposable incomes.

And, it turns out, less so here than in most other developed countries. Officials, in a background paper for the working group on tax and fairness, point out that the OECD reckons New Zealand has the fourth least redistributive tax and transfer system among 30 rich countries it looked at.

As one example of the incoherence of the tax benefit system, Chapple and Moore cite child support payments.

For someone on one of the main benefits, like Sole Parent Support, every dollar of child support reduces their benefit by $1, an effective tax rate of 100 per cent until the benefit payment is entirely clawed back by the Government.

For someone else who has a job well enough paid not to need a benefit, the same child support is tax-free income. How fair is that?

The tax welfare interface is riddled with such anomalies and perverse incentives.

Research by Patrick Nolan at the Productivity Commission, into the effective marginal tax rates which arise from the targeting of income support policies, indicates it is not uncommon for people to find themselves facing rates as high as 100 per cent. That is, they could significantly increase the number of hours they work and be not one dollar better off, because ofthe thresholds and abatement rates which apply.

These poverty traps are not so much a ditch as a crevasse.

Chapple and Moore also highlight the inconsistency between the tax and benefit systems in terms of the units they apply to individuals or families: “The benefit (or negative tax) system assesses need on the basis of family income. The income tax system assesses ability to pay on the basis of individual income.” We assess fairness or equity issues in terms of families, not individuals’ circumstances.

“Yet we have a tax system which bases income tax, which has as an important goal equity on individuals rather than families.”

They urge the Tax Working Group to look into the pros and cons of a family-based tax system.

“A lot of OECD countries, including the United States, adjust income tax to family circumstances,” says Chapple, a former chief economist at the Ministry of Social Development who now heads the Institute for Governance and Policy Studies.

All this would not be so bad if the newly formed Welfare Expert Advisory Group was going to get to grips with the complexities of the tax/welfare interface.

But it is not clear that it will.

Its brief does include giving “high level” recommendations for improving Working for Families.

And it is instructed to give ”due consideration to interactions between the welfare overhaul and related Government work programmes such as the Tax Working Group”.

So it arguably does have a mandate, should it wish, to get to grips with the often toxic interaction between the tax and welfare systems.

But it is far from clear that the Welfare Expert Advisory Group has the expertise, or for that matter the budget, to do so.

More likely, the issue will fall between the two stools.

For a Government that proclaims the reduction of child poverty to be a central goal, it is a striking omission.

Millennials are struggling. Is it the fault of the baby boomers? – Yvonne Roberts.

The postwar generation, now retiring in luxury, stands accused of a wilful failure to safeguard young people’s interests.

The late 1940s were about bombsites, rationing, loss and mourning, but amid the gloom a new generation was emerging. In the grim, grey aftermath of war, children were born on an unprecedented scale in a population explosion: the baby boomers born between 1946 and the mid 60s had arrived. It was time for a new life. It was time for the young to grow up with faith in a better tomorrow.

When we baby boomers reached adolescence, creating the teenager in the process, it was as if the floodlights had been switched on, revealing a colourful, contrary, anti authoritarian Britain. In our teens, with rock’n’roll if not much cash, we were the lucky, cocky generation.

Anthropologist Helen Fisher inelegantly described the maturing of this huge postwar bulge in the population as “like a pig moving through a python”, changing society as we grew older on a scale never known before. We challenged the Victorian puritanism, censorship, class snobbery and inhibitions of the establishment. Full employment put money in the pockets of managers and factory workers alike. In spanking new houses with inside lavatories and proper bathrooms, hire purchase allowed him (and less so, her) to spend, spend, spend as if, overnight, everyone had become a toff. It could only get better.

Yet today, “baby boomer” is a toxic phrase, shorthand for greed and selfishness, for denying the benefits we took for granted to subsequent generations, notably beleaguered millennials, who reached adulthood in the early years of this century. So, where did it all go so very wrong?

It may have been due partly to our irritating habit of hogging the cultural limelight, with constant references to the swinging 60s serenaded by endless revivals of Lazarus like pop groups who refuse to die. But there are a much more serious set of charges, too. We were and are accused of sabotaging our children’s future, hoarding power and money while expecting those with the least to foot the potentially hefty bills as we march towards our 90s.

Leading the flood of critics has been David Willetts, author in 2010 of The Pinch, a book that sparked a flood of furious debate. Lord Willetts, then a Conservative minister, is now chair of the Resolution Foundation think tank.

“The charge,” he declared, “is that the boomers have been guilty of a monumental failure to protect the interests of future generations.”

Next week, one jury will deliver its verdict: the Resolution Foundation’s intergenerational commission publishes its groundbreaking two -year investigation into millennial Britain on 8 May. The commission rightly says that intergenerational fairness is a major issue, but so too are the troubling inequalities within the generations. “Intergenerational war doesn’t reflect how people feel about the issues or how they live their lives as families,” says Torsten Bell, director of the foundation.

The commission signals that it is time to remodel the welfare state, which was crafted at a time when a pension was only expected to last a handful of years before death took its toll. Young people are deeply anxious about housing, jobs and pensions, while those who are older are concerned about health, social care, the fragility of the welfare state and the future of their own children.

“Everybody wants to fix this,” says Bell. “If we want to keep our promises to the different generations and maintain the welfare state we have to think radically about how we do this.”

The commission has already revealed a profound cross generational pessimism about the prospects of the young. The escalator that for decades ensured the younger generation had a better standard of living than their parents has stalled and that has ramifications for life. Britain along with Greece is now the most pessimistic among the advanced economic countries, a mood that has potentially catastrophic implications for a country’s wellbeing and resilience.

“When an entire cohort is not succeeding, everyone understandably feels a real need to fight tooth and nail to keep what they’ve got. The rich are much better suited to win that war,” Bell warns. “That’s a real challenge for social mobility, and a disaster for politics.”

Pessimism is not new. In the 1970s and 80s, inflation reached 21%, three million people were on the dole, poverty was soaring and Thatcherism had laid waste to manufacturing and industry. On a full grant, and from a working class background, I was one of the 8% who went to university, charged up with notions of (women’s) liberation, revolution and an envy of Mary Quant’s unaffordable wardrobe.

My best friend had left school at 16 and moved up the managerial ladder, earning what our mothers called “a good wage”. Pessimism was the national trait but we all had hope. I was 28 and single when I put a deposit on a tiny flat; my parents were in their late 40s before they took out a hefty mortgage on a modest bungalow. That escalator in action.

Life, money and opportunities had an elasticity that they lack today. A minority of millennials are rich but the majority are definitely not, while almost two million older pensioners, mainly female, the silent generation live in deep poverty.

The Resolution Foundation has provided forensic detail of how this has come about and why. A complex mix of reasons includes the financial crisis, austerity and reluctance by successive governments (albeit ones filled with baby boomers) to radically tackle the challenges of housing, health, social care, employment and a woefully deregulated market at a time when people are living so much longer, but no baby boomer banditry. Politicians have failed to decide equitably, in this different climate, who pays and how and what they receive in return.

We are facing a new set of problems,” says Frances O’Grady, general secretary of the TUC and a member of the commission. “We have people with degrees doing Mickey Mouse jobs and young people who will have no occupational pension and no house to sell to see them through old age. That’s not the fault of mum and dad. If we think that, we are tackling the wrong problems. It’s not about redistributing the crumbs from the rich man’s table but restoring fairness.”

So, according to the foundation, what is life like for the average millennial, in and outside London? For some, including women, ethnic minorities and LGBT groups, progress has come in terms of rights and personal freedoms. However, even at a time when unemployment is at its lowest and inflation minimal, aspirations of having a home, a fulfilling job and a higher income than the generation before are being extinguished.

Only a third of millennials own their own home, compared with almost two thirds of baby boomers at the same age. It will take a millennial on average 19 years to save for a deposit, compared with three years in the 1980s. A third of millennials will, it is predicted, have a lifetime of renting with less space, poorer conditions, longer commutes and more insecurity than the baby boomers experienced.

In the 1960s, those born before the second world war spent 8% of their income on housing that has risen to almost a quarter of net income for millennials. Right to buy has reduced social housing stock 55,000 homes sold in 10 years and house building is at half the annual need required. At the same time, private landlords lack proper regulation, so families can be evicted at two months’ notice, and rents can be astronomic.

Low wages are also endemic. Two out of five non graduate jobs are filled by people with degrees, so the less qualified, who formerly went into proper apprenticeships, are pushed into self employment, zero hours and agency work that suits some but not all. The proportion of low paid work done by young men increased by 45% between 1993 and 2015. Millennials who changed jobs in their mid 20s enjoyed 14% pay rises, higher still if they moving around the country for work. But insecurity reduces the appetite for risk, so many are staying put, receiving minimal salary increases.

“More and more young men have moved into the low paid, part time, service sector jobs that women have traditionally done,” Bell says. “They never expected to do that, and their dads didn’t do it. If a measure of your self esteem is how well you have done compared with your parents, that’s a blow. The good news is that women’s full time employment prospects have significantly improved but the goal wasn’t to improve poor job options for women while making them bad for young men.”

On current trends, given high rents, low wages, Brexit and, for some, the debt of university tuition fees, will millennials have sufficient funds in retirement? Under auto enrolment, 5% of a wage by 2019 will go into a pension pot, but on a low income, will increasing numbers of millennials opt out? In several decades’ time, millions of older people may be dependent on housing benefit, living in rented accommodation, and surviving on a state pension, which currently at £7,000 a year, is already not fit for purpose.

In contrast, some of us baby boomers, newly retired, are apparently living in an experiential paradise cruising the globe, contemplating buying a second home albeit dazed at how good pensions, secure employment and the fluke of buying at the outset of a period of rapid house inflation has catapulted us so much further, financially, than many of us expected to travel.

Some baby boomers are extremely wealthy in assets. We have power insofar as, currently, we are more likely to vote than the young. But we also pay taxes, help with childcare, volunteer and subsidise our grown up children. “Families are doing their bit,” says Lord Willetts. “The state needs to as well.”

The commission heard research carried out by Professor Karen Rowlingson, from the University of Birmingham, on the scale of support given by families. The middle classes, she says, pay for their grandchildren’s education and children’s housing; the working class take out loans and sell possessions to help with their children’s debts and day to day living. It’s self help that further entrenches deep inequality.

“The younger generations, aged 20-45, make up the majority of the electorate. The older voters are dying off,” says Rowlingson. “We can change policies and tackle this as a partnership between the generations.”

According to the Resolution Foundation, the cost of education, health and social security as a slice of GDP is predicted to rise at today’s prices by £24bn each year to 2030 and by £63bn a year to 2040. It’s plain that the tax burden on young people, already struggling to match the living standards of older generations, has to ease.

Ending the triple lock that updates the state pension by the highest of annual inflation, earnings or 2.500 could see 700,000 more pensioners living in poverty by 2040, Age UK has warned. “It’s not who gets the bigger pension,” O’Grady says. “It’s why no state pension is sufficient.”

The report’s proposals will be revealed next month. Options being considered include help with rental deposits, better regulation of the private rented sector, a re-evaluation of council tax (a family in a £100,000 house may pay five times more than a person living in a E 1m property); a look at inheritance and a radical reform of property taxation to help first time buyers.

The intergenerational commission’s invaluable work exposes how urgently capitalism has to be brought under control. It’s time to restore fairness to the contributory principle at the heart of a renewed welfare state, re-establish social justice and repair the damage done to confidence, trust, wellbeing and optimism by a situation where 90% of people manage on increasingly less, while the other 10% rapidly accrue more and more.

“Wealth differences also risk bleeding into other areas of life where they do not belong,” Bell warns. “Wealth status could determine not only where you can live, but the education you can get, the risks you can take and the job you can do. Wealth is profoundly reshaping Britain.”

Powerless: How Lax Antitrust and Concentrated Market Power Rig the Economy Against Workers, Consumers, and Communities.

Marshall Steinbaum, Eric Harris Bernstein and John Sturm.

As workers, as consumers, and as citizens, Americans are increasingly powerless in today’s economy. A 40 year assault on antitrust and competition policy, the laws and regulations meant to guard against the concentration of power in private hands has tipped the economy in favor of powerful corporations and their shareholders. Under the false assumption that the unencumbered ambitions of private business will align with the public good, the pro-monopoly policies of the “Chicago School” of antitrust lurk behind today’s troubling trends: high profits, low corporate investment, rising markups, low wages, declining entrepreneurship, and lack of access to unbiased information. Market power and lax competition policy ensure our economy serves the few over the many.

In a new report, Marshall Steinbaum, Eric Harris Bernstein and John Sturm build on the growing progressive consensus that the economic threat of market power goes far beyond prices. The paper demonstrates the disastrous consequences that unrestrained market power has had on workers, communities, and democracy.

The authors begin by explaining the dangers of market power and the role of competition policy in maintaining a level playing field. They then outline how lax competition policy has handed incumbent corporations and their shareholders an unfair advantage and a more generous slice of the economic pie. They document the consolidation and exploitation of market power that has occurred in this environment and highlight key pieces of evidence that illustrate how weak competition is harming the economy, holding back new businesses, investment, wages, and growth.

The subsequent section reviews recent research that shows how concentrated corporate power impacts the everyday lives of Americans, surveying these effects through three lenses: the effects on consumers, on workers, and on society at large. In the final section, the authors propose policy remedies that could help rebuild inclusive growth, foster economic innovation, and restore an equitable economy that serves all of its stakeholders.


Executive Summary

As workers, as consumers, and as citizens, Americans are increasingly powerless in today’s society. Rhetoric extolling the virtues and power of free markets belie this fact, but instinctively, Americans understand that something is wrong:

The vast majority of Americans believe the economy is “rigged” in favor of corporations. And they are correct: A 40 year assault on antitrust and competition policy, the laws and regulations meant to guard against the concentration of power in private hands has helped tip the economy in favor of powerful corporations under the false pretense that the unencumbered ambitions of private business will align with the public good.

The single biggest problem with this simplistic view of “free” markets is that it ignores power dynamics and implies the existence of some natural state in which markets flourish without oversight.

In reality, no state of natural market equilibrium exists. Healthy markets depend on rules to create an equitable balance of market power between workers, consumers, and businesses. And when those rules skew the balance of power, markets favor the most powerful to the detriment of others.

In reality, firms use market power to extract from other participants rather than compete to create the best products. This not only hurts those targeted, but also results in less growth and innovation overall. Accordingly, while corporate profits have risen, wages and investment have stagnated; rather than investing in research and development (R&D) to generate innovative products, corporations have relied on lax merger regulation to buy out competitors, or they have employed a litany of anti competitive practices to prevent them from entering markets in the first place.

Knowing that consumers and workers have few alternatives, powerful corporations have jacked up prices and lowered wages. Additionally, in many instances, technological developments, free of regulatory oversight, have exacerbated these problems, allowing companies like Google, Facebook, and Amazon to achieve market dominance by collecting reams of data and acting as an all knowing middleman between customers and upstream suppliers.

The pro monopoly ideology of the so called “Chicago School” lurks behind all of these trends, ceding already dominant incumbent firms and their shareholders more and more power that they can wield to their sole benefit and at the expense of society at large.

Although the evidence of rising market power and its impact on the economy are often found in broad economic data, the consequences of market power are anything but theoretical. From rising prices, to low wages, to the way we access information, market power and lax competition policy are entrenching the intrinsic advantages of wealth and power in society. Private interests increasingly determine access to critical goods and services, prioritizing privileged groups and thus exacerbating existing inequities of race, gender, and class.

In this paper, we provide evidence supporting our thesis, as well as illustrative examples of how this behavior has manifested itself in the lived experiences of regular Americans.

Finally, we discuss the antitrust reforms that can begin to rebalance the economy in favor of equity, inclusion, and democratic rule.

Introduction

In Massachusetts, a 19 year old is forced to forego her summer job as a camp counselor because of a non compete clause she unknowingly signed with a different summer camp the year before.‘

In Chicago, a 69 year old United Airlines passenger is beaten and forced off a plane for refusing to give up his seat to a United Airlines employee.

In Hedgesville, West Virginia, two parents overdose on heroin at their daughter’s softball practice. Like millions of Americans, they became addicted to opioids after being prescribed OxyContin, a painkiller manufactured and marketed under false pretenses by Purdue Pharmaceuticals. OxyContin part of a class of drugs responsible for 33,000 US. deaths in 2015, according to the American Society of Addiction Medicine (2016) has churned out $35 billion in revenue for Purdue. The company has yet to face legal repercussions.‘

Despite calls for disaster relief and gun control in the fall of 2017, as citizens in Puerto Rico were without water and electricity following the devastation of Hurricane Maria and the city of Las Vegas was reeling after yet another mass shooting, Congress’s attention was elsewhere: Heeding Wall Street lobbyists, the Senate voted to strip Americans of their right to hold banks and credit providers accountable for malfeasance.

As workers, as consumers, and as citizens, Americans are increasingly powerless in today’s society. Rhetoric extolling the virtues and power of free markets belie this fact, but instinctively, Americans understand that something is wrong: The vast majority of Americans believe the economy is “rigged” in favor of corporations, according to a poll by Edison Research (2016). And they are correct: A 40 year assault on antitrust and competition policy, the laws and regulations meant to guard against the concentration of power in private hands, has helped tip the economy in favor of powerful corporations and wealthy shareholders over regular Americans

Beginning in the 1970s, a concerted movement referred to as the “Chicago School” of antitrust beat back anti monopoly policy through like minded executive and judicial appointments, court rulings, and agency actions. The Chicago School argued that large corporations were large because they were efficient and because the free market incentivized them to operate in the best interest of consumers, If they didn’t, so the story went, then new entrants were always at hand to ensure the economy “naturally” served the broad public interest. Government action to break up or regulate corporations, the Chicago School argued, would only impede their efficiency or protect incumbents at the expense of entrants.

Under this regime, corporations and corporate conduct were presumed pro competitive, or economically efficient. Even for potentially anti competitive behavior, the burden of proof was raised high enough to forestall regulatory relief.

This created a dramatic departure from vigorous antitrust protections that helped make the United States the world’s most robust economy, and among the most equitable, during the postwar era. Prior to the 1970s, dating back to the age of Teddy Roosevelt and railroad robber barons, but especially after the late 1930s, regulators took an active role in ensuring equal footing for workers, consumers, and small businesses. Authorities blocked mergers that would result in dominant businesses, broke up monopolies, and closely regulated networked industries like telecommunications, banning restrictive contractual arrangements likely to benefit incumbents at the expense of consumers and new entrants. In combination with a comprehensive social safety net and powerful labor unions, antitrust protections fostered healthy competition in which firms could succeed only by offering valuable products at reasonable prices and by attracting good workers with fair wages; firms that failed to innovate or satisfy customers were out competed by new entrants. In this environment, wages and investment boomed and small businesses fueled strong employment.

In stark contrast, the results of the 40 year experiment in Chicago School antitrust have spelled disaster for the American workforce, middle class, and economy overall. While corporate profits have risen, wages and investment have stagnated.

A recent study by De Loecker and Eeckhout (2017) shows that average firm level markups, the amount charged over the cost of production, have more than tripled since 1980. And while waves of mergers have led to larger and more powerful corporations, small businesses form less often and struggle to survive. Recovery from the 2008 financial crisis hastened by government bailouts for those at the top has yet to benefit those at the middle and the bottom of income distribution.

The pro monopoly policies of the Chicago School lurk behind all of these trends, ceding already dominant incumbent firms and their shareholders more and more power that they can wield to their sole benefit and at the expense of society at large. Rather than investing in research and development (R&D) to generate innovative products, corporations have relied on lax merger regulation to buy out competitors, or they have employed a litany of anti competitive practices to prevent them from entering the market in the first place. Knowing that consumers and workers have few alternatives, powerful corporations have jacked up prices and lowered wages. In many instances, technological developments, free of regulatory oversight, have exacerbated these problems, allowing companies like Google, Facebook, and Amazon to achieve market dominance by collecting reams of data and acting as an all knowing middleman between customers and upstream suppliers. When firms achieve such power, their incentive to produce better products and services disappears, and they act instead to maintain their market stranglehold by any means necessary.

We define “market power” as the ability to skew market outcomes in one’s own interest, without creating value or serving the public good.

We argue that market power, and the anti competitive behavior that it enables, is a negative sum game: Anti competitive economies, like the one we have today, produce fewer jobs at lower wages, with more expensive goods and less innovation. We aim to both document the rise of market power and illustrate how it has affected the day to day lives and general well being of American workers, consumers, and the productivity of the economy overall. In short, we show that Chicago School inspired deregulation has enabled the rich and powerful to profit by taking a larger share of the economic pie, rather than making the pie bigger by offering valuable products and services at better prices.

Increased market power of consolidated firms is especially threatening to marginalized communities, which tend to have the fewest alternatives to exploitative goods and services providers. ACA exchanges in large swathes of rural America have only one health insurance provider, and that provider is free to charge exorbitant rates. For many urban neighborhoods, gentrification is the only hope of attracting a decent broadband connection, in which case the threat of rising rent sours the payoff. In markets for labor, consumer goods, or financial services, the first victims of predatory practices are the most vulnerable, be they young people, women, or people of color.

The Chicago School has championed the benefits of “free markets” but has in fact worked to thwart them. Conflating power with freedom, the Reagan era ideology has used the free market as a rallying cry to justify policy changes that in reality benefit wealthy incumbent businesses at the expense of all others. This is the antithesis of the diffusion of economic power that is required to ensure that the economy rewards honest work, erodes privileged rent extraction in all of its forms, and ultimately operates in the public interest.

While professing to champion competition, the Chicago School has acted only to protect the unearned profits of monopolists while stifling entrepreneurship.

A recommitment to active antitrust policy is key not only to overturning the accumulations of wealth and power we see today, but also to reaping all of the societal benefits that come from undoing market power.

This report begins by explaining the dangers of market power and the role of competition policy in maintaining a level playing field. We then outline how lax competition policy has handed incumbent corporations and their shareholders an unfair advantage and a more generous slice of the economic pie. We document the consolidation and exploitation of market power that has occurred in this environment and highlight key pieces of evidence that illustrate how weak competition is harming the economy holding back new businesses, investment, wages, and growth. In the subsequent section, we review recent research that shows how concentrated corporate power impacts the everyday lives of Americans. We survey these effects through three lenses: the effects on consumers, on workers, and on society at large. In the final section, we discuss policy remedies that could help rebuild inclusive growth, foster economic innovation, and restore an equitable economy that serves all of its stakeholders.

SECTION ONE

The Theoretical and Institutional Background for Antitrust and Competition Policy

THE “FREE” MARKET IN THEORY

Market economies rest on the theory that private self interest can be aligned with the public good. In its simplest form, this theory holds that, because market interactions require the willing participation of workers, consumers, and businesses, each party will only participate in an interaction if it makes that party better off. If a worker is paid a satisfactory wage, a business owner receives a return on his or her investment, and a consumer is able to purchase a product they value at an acceptable price, then each individual benefits. In this context, firms that develop better products or reduce prices are rewarded with a larger share of the market and are thus incentivized to innovate; similarly, firms that offer a higher quality of life for employees through better pay and working conditions will attract the most productive workers and are therefore encouraged to raise wages. Competition among firms thus drives productive innovation and higher standards of living. Conversely, firms that overcharge for their products, fail to innovate, or pay low wages will lose out.

It is an elegant and important theory, but it is also just that: theory.

THE RULES MATTER

The single biggest problem with this simplistic view of markets is that it ignores power dynamics and implies the existence of some natural state in which markets flourish without oversight. In reality, no state of natural market equilibrium exists, and the entrenched power of wealth poses an omnipresent threat to the equity of outcomes;

healthy markets depend on rules to create an equitable balance of market power between workers, consumers, and businesses,

and when those rules skew the balance of power, markets favor the most powerful to the detriment of others. Thus, an economy with no labor protections will favor employers over workers, while a society with confiscatory tax rates on investment returns will make it difficult for shareholders to exercise power over the businesses they own.

As this analysis implies, setting the rules to achieve an equitable balance of power between market participants is crucial. Furthermore, beyond laws and regulations, the rules include all manner of social, cultural, and political factors, from the things we invest in and the things we neglect, to which groups are discriminated against and which are privileged. When rules preference one group over another, that group may skew transactions in their own favor, driving up profits at others’ expense. For example, redlining policies of the New Deal’s federal housing finance agencies made it impossible for black communities to accumulate wealth through homeownership.

Historically, marginalized communities have been underserved by public goods, including transportation and communications infrastructure. Physically and economically isolated, these populations became prey for firms that could get away with offering poor service and high prices due to a lack of alternatives, leading to today’s discriminatory, segmented markets. Examples like this illustrate how the rules bear a deep and complex relationship to market outcomes.

We define market power as the ability to skew market outcomes in one’s own interest, without creating value or serving the public good.

This definition acknowledges that harm to workers, consumers, or other businesses can be wrought in a number of ways not connected directly to price. For example, if a firm eliminates the threat of competition by raising barriers to entry, consumers can feel the negative impact through the reduction in service, even if quoted prices remain the same. This definition allows us to consider the broader impact that market power has on innovation, wages, and other considerations beyond consumer price.

MARKET POWER AND MARKET FAILURE

When firms possess market power and use it to extract from other participants rather than compete to create the best products, it not only hurts those targeted, but also results in less growth and innovation overall. In the 1990s, for example, Microsoft sought to dominate the software market by leveraging its ubiquitous operating system, Windows.

At the time, Microsoft made its Office software compatible only with its Windows operating system, and Microsoft also ensured that Windows was the exclusive option for newly purchased desktop hardware. Crucially, it tied licensing contracts for Windows to its proprietary web browser, Internet Explorer. Thus, the company attempted to systemically eliminate competition in every market where it competed. This drove up Microsoft’s share of the market for both operating systems and software-at the direct expense of its competitors. Since it sought to exclude rather than out perform competitors, at every level of the supply chain, and because it interfered with healthy competition, this sort of behavior is referred to as “predatory” or “anti competitive”, behavior that the federal government sought to address in its eventual antitrust suit against Microsoft in the late 1990s and early 2000s.

Anti competitive behavior redistributes the surplus from market transactions away from less advantaged firms, customers, and workers and toward the wealthy and powerful. Taking the analogy of a basketball game, we can liken anti competitive behavior to repeatedly elbowing an opponent in the face, bribing referees, or rigging the scoreboard. Such strategies can lead to victory in a narrow sense, but to anyone with an understanding of basketball, it is anathema to the sport and defeats the purpose of the game. If a basketball game turns into a brawl, it’s not “bad basketball” or “tough basketball”, it’s not basketball at all.

It bears repeating that market power and the exercise of anti competitive strategies shrink the economic pie overall. When firms like Microsoft erect barriers to entry, they prevent new competitors from entering the market, strangling new businesses and depriving the economy of the benefits of those businesses namely, jobs and innovation. Thus, “anti-competitive” strategies do not simply result in higher prices for consumers, but in a slower pace of innovation and growth for the economy as a whole, notwithstanding empirically questionable research that ostensibly shows monopoly power promotes innovation. In short, when firms exercise market power, everyone else loses. Markets are only valuable when the rules provide for an even playing field between market participants.

MAKING MARKETS WORK: COMPETITION POLICY AND ITS ORIGINS

Recognizing the threat that disproportionate corporate power posed to the economy and our society, policymakers sought tools to combat market domination by large firms as early as the late 19th century. When the monopoly power of trusts like Standard Oil and the Pennsylvania Railroad sparked public outrage over high prices and poor service, Congress passed the Sherman and Clayton Antitrust acts, providing the legal means by which to regulate firms so that their size and power, and their use of predatory behavior, would not upend markets.

This new body of laws and regulations dubbed antitrust in the United States and, more generally and in an international context, “competition policy” was intended to guarantee that firms competed with one another on a level playing field, and that they did not become so powerful as to dominate workers, consumers, or smaller firms. In concert with labor and consumer protections, antitrust laws are one of three policy prongs intended to create an equitable balance of power between market actors. So, while competition policy cannot wholly eliminate market power from the economy, it is an important tool in limiting the ways in which market power can be deployed. Antitrust laws seek do this through three primary objectives:

1. Limiting the consolidation of power by regulating market structure.

Market structure generally refers to the number of firms in a given market, as well as their relationship to consumers and suppliers. The structure of a market plays a large part in determining how much influence certain firms have over a market and how they are able to use it. So, in some ways, regulating market structure is the most foundational component of competition policy.

In the era of active antitrust regulation, this was accomplished by policing a range of factors that included:

Merger enforcement: Regulating concentration was primarily accomplished by reviewing the impact of mergers. If authorities deemed that a merger resulted in a detrimental reduction in competition, they would seek to block or undo it.

Monopoly regulation: When a firm becomes the sole seller of a given good or service, it is a monopoly. When a firm achieved a monopoly, authorities would either attempt to break up the firm or begin to closely regulate its practices to ensure it did not abuse its powerful position.

Vertical integration: Firms active in more than one market, especially when they compete with their own suppliers or customers, were once considered anti competitive due to the ability to favor themselves and exclude entrants, leveraging market power in one market to dominate others. But under the influence of the Chicago School, scrutiny of vertical integration was reduced almost to nonexistence; consequently, vertically integrated firms and even whole industries are far more prevalent today.

2. Curtailing anti-competitive behaviors.

Firms are often able to engage in anti competitive practices when structural regulation fails to eliminate market power or when firms simply break the rules. Collusion, for example through which would be competitors collaborate to set prices artificially high, is always possible, even in a theoretically competitive market. In Microsoft’s case, its attempt to limit competition in software markets was based, in part, on the fact that it held a large share of the market for operating systems, but it was also based on the technological advantage that competing software companies depended on the same operating systems to run, an example in which market structure creates the scope for anti competitive conduct.

So, while anti competitive practices are often enabled by some market power advantage, which structural regulation failed to address, they must sometimes be dealt with on a sectoral or case by case basis. Antitrust laws, therefore, made anti competitive practices expressly illegal, and agencies tasked with identifying and prosecuting violations were created. Some key concerns included:

Collusion or “price fixing”: As described above, collusion is when multiple ostensibly competing firms conspire to create a defacto monopoly and set prices artificially high.

Predatory pricing: In order to drive out would be competitors, powerful firms sometimes sold goods and services under the cost of production. Seeing how such behavior threatened entrepreneurship and robust competition, authorities prohibited this practice.

Vertical restraints: This involves imposing restrictive contractual arrangements on counterparties (e.g., Microsoft requiring any hardware equipped with its Windows operating system to also carry Internet Explorer).

Barriers to entry: Once they are established, firms may seek to prevent competition by erecting barriers to entry. Such strategies can vary enormously, but some popular methods include: aggressive patent protections, leveraging relationships with federal regulators responsible for approving products, or collaborating with outside businesses to squeeze out new entrants.

3. Establishing public utility regulation of essential industries and “natural monopolies.”

Certain goods, such as water or electricity, are necessities of modern life. Consumers cannot simply choose to eschew these goods or find substitutes like they can with other products. This places firms that sell these goods and services at an enormous advantage. In many instances, the need for universal provision, combined with the cost of the infrastructure necessary to supply them, naturally lends these industries to monopoly, especially within a given region. Recognizing this, and also recognizing that limited private sector competition for the provision of utilities could be positive, authorities established laws to more strictly regulate these markets. This guaranteed access and prevented firms from exploiting the widespread need for their products or services essentially holding consumers hostage, in order to extract undue profits. Some key industries included: Telephone networks, Railroads and Electricity.

Beyond these economic concerns, 20th century antitrust was founded on the notion that the concentration of private power threatens not just economic equality, but democratic legitimacy as well. This view was perhaps best articulated and championed by Supreme Court Justice Louis Brandeis, who argued that, if left unchecked, wealthy firms and individuals would leverage their power to exert disproportionate influence over government decision making. The danger of lax protections was not just the potential for runaway economic inequality, but also for the deterioration of democratic governance.

THE LIMITS OF ANTITRUST

Though antitrust protections of the mid 20th century were crucially important, recent history has proven that they were not enough. The success of these laws hinged on how they were interpreted and enforced by regulators and the judiciary. As interpretations have grown more lax, unanticipated threats have multiplied. Data aggregation and the proliferation of digital platforms like Google and Amazon, for example, pose new, unforeseen threats to workers, consumers, and society as a whole that remain completely unaddressed by existing competition policy. These challenges will require new laws, as well as new applications of existing ones.

Although antitrust reform is essential to limiting the consolidation of power by the wealthiest corporations and individuals, it will by no means ensure a just and equitable society on its own. Reining in dominance of those at the top will be impossible without also building power to oppose it through worker organizing. Political reform, to curtail or outlaw the sort of big money lobbying and advocacy that currently dominates our political system is also essential, as is a stronger social safety net, to ensure that the price of economic competition is not widespread poverty. So, although this report is focused on the evolution and challenges presented by market power, stronger antitrust is by no means a panacea to all economic challenges. Reform in these and many other areas, including on issues of gender and race inequality, is essential to the health of the economy and American society.

ANTITRUST IN PERIL

As early as the 1940s despite the clear success of revolutions in antitrust and pro labor policies wealthy firms and conservative political interests began a concerted effort to roll back strong competition policies in the hopes of taking a larger share of the economic pie for themselves. Ultimately, these interests hit on a novel argument: Private firms were naturally inclined to innovate, so any regulation only impeded growth and efficiency; rules that favored large firms would benefit consumers through lower prices; and any price markups in the event of reduced competition would be more than offset by cost savings in production.

But what this theory offered in novelty and an appealing sort of counter intuitive logic, it lacked in empirical support and rigor. The pro business camp placed enormous faith in optimistic predictions of firm behavior based on theoretical assumptions that were never tested. In doing so, it wholly ignored the importance of an equitable balance of power between market participants.

Despite the lack of evidence for the theories they articulated, the Chicago School’s intellectual proponents, academics like George Stigler, Harold Demsetz, and Robert Bork benefitted from an air of scholarly and technocratic authority. Emanating from reputable institutions and influential think tanks in Washington, proponents of this new laissez faire competition policy claimed superior insight on the basis of their original work in economic theory. They downplayed the risks of consolidated private power and labeled Brandeis’s approach to antitrust as dated and simplistic. (in reality, Brandeis himself had been noted for his introduction of empirical research into his jurisprudence?)

Bork and others from the Chicago School hoped to cast out all but the most minimal of antitrust enforcements. As Baker (2015) summarizes, they held that “law should be reformed and refocused to strike at only three classes of behavior: ‘naked’ horizontal agreements to fix prices or divide markets, horizontal mergers to duopoly or monopoly, and a limited class of exclusionary conduct.” This view reflected the Chicago School’s founding assumption that other than in the most extreme cases, firms would only ever work to increase market share through price reduction, and that, thus, regulation of all but the most blatant forms of anti competitive conduct could be eliminated.

Starting in the 1980s, this formed the dominant view of competition policy in the United States, and with the election of the enthusiastically supportive Ronald Reagan, the Chicago School’s vision began a swift conversion to reality.

Soon, a wave of executive and judicial appointees beholden to its core beliefs set to work, regulating markets in the mold of the philosophy’s pro corporation, anti statist beliefs, benefiting large incumbent firms over consumers, workers, and small businesses.

The success and prevalence of this ideology has been so profound that today, even Democratic Party appointed senior antitrust regulators assert “we are all Chicago School now” in their public appearances. The economic impact of that elite consensus is clear.

KEY CHANGES IN ANTITRUST UNDER THE CHICAGO SCHOOL:

Relaxed merger guldelines: Under this new regime, mergers that may once have been deemed anti competitive were increasingly permissible. leading to higher levels of consoiidation along with the proliferation of market power.

An end to the scrutiny of vertical Integration: Mergers, in which the parties did not compete directly, were presumed to be motivated by efficiences in production rather than the ability to exclude rivals from the market and siphon their market share.

Elevated burdens of proof: Very broadly, the Chicago School raised the burdens of proof for a range of predatory behavior. Thus, while the behaviors remained potentially illegal, it became increasingly difficult to prevent or punish harmful practices because spurious defenses were given undue credence, eg, that through some convoluted and empirically unproven mechanism, exclusionary conduct benefited consumers.

SECTION TWO

The Market Power Economy

In this lax regulatory environment, we have seen precisely the sort of economic outcomes that we would expect from a lopsided economy. A growing body of evidence indicates that whatever mechanism once translated economic surplus into shared growth is now broken. As seen in Figure 1, corporate profits when measured as a share of the economy-are at a historic peak. And even though the cost of borrowing is low, incumbents are not investing or expanding operations to out compete one another (Furman and Orszag, 2015; Barkai 2016; Gutierrez and Phillippon, 2017).

This suggests that powerful firms, operating with little competition, have been able to profit by raising prices and cutting wages, rather than by investing in new, valuable products. Recent work by De Loecker and Eeckhout (2017) finds that firm level markups have increased from 18 percent to 67 percent since 1980 a pattern that holds across all industries.

In keeping with the market power hypothesis, we also see that profits have increased most in the industries that have become more concentrated, and that wage growth has been most stagnant in these same concentrated industries (Barkai 2016; Gutierrez and Philippon, 2017; Grullon, 2016).

Of course, concentration is not synonymous with market power, but when combined with substantial policy changes at the federal level and a host of qualitative observations, the case that rising market power and anti competitive behavior have caused our current growth and wage stagnation looks compelling. Below we present six pieces of evidence that, when taken together, strongly support this view:

Fact 1: Fewer firms, less competition

Since the rise of the Chicago School antitrust policy, US. markets have consolidated dramatically. The number of mergers and acquisitions has skyrocketed, increasing from less than 2,000 in 1980 to roughly 14,000 per year since 2000. As a result, Grullon et al. (2016) found that between 1997 and 2012. more than 75 percent of U.S. industries became more concentrated, meaning a smaller number of larger firms account for most of the revenues. The number of publicly traded corporations and their share of the total market are also lower than at any time in the last 100 years.

Furthermore, conventional measures of concentration do not even capture concerns over common ownership: As institutional investors have come to dominate stock markets, they have bought shares of multiple firms in the same industry. Azar et al. (2016) document that individual institutional investors, firms like Vanguard and Blackrock, own large fractions of all main “competitors” in the technoloy, drug store, banking, and airlines industries.

It is increasingly apparent that this consolidation has had detrimental effects on the overall economy. Recent research highlights several key indicators.

Fact 2: Higher prices

A spate of recent studies shows consumer prices rising in conjunction with consolidation. Gutierrez and Philippon (2017) document that markups of prices over the cost of production have increased in line with aggregate trends in consolidation, and that these shifts are driven by large firms and concentrating industries.

Kwoka (2013) conducts a meta analysis of merger retrospectives studies comparing prices that companies charged before and after they merged. Combining the data from retrospectives on 46 mergers since 1970, Kwoka finds an average price increase of 729 percent. This study doesn’t include enough mergers to conclusively settle the debate, but it’s enough to cast serious doubt on the theory that underlies the past 40 years of competition policy.

Most recently, De Loecker and Eeckhout (2017) use a database of publicly traded firms to find that markups, the amount a firm charges above its costs, have risen to an astounding average of 67 percent, compared to just 18 percent in 1980. Although De Loecker and Eeckhout do not offer a causal analysis, other studies of markups and consolidation lend credence to the link between consolidation, market power, and rising prices.

But consolidation is not the only way that market power can impact prices in today’s economy. The increasing role of institutional investors in capital markets has exacerbated the lack of competition and the rise of prices in consumer markets. As previously noted, investors like Vanguard and BlackRock own large shares of multiple businesses within an industry. In terms of competition and price, this “common ownership” can have similar, or even more severe, ramifications as a merger.

In a recent paper, Azar, Schmalz, and Tecu (2016) measure the effects of common ownership in the airline industry. Comparing routes of independent airlines to those owned by similar shareholders, the economists find that prices would be 3 to 7 percent lower if all airlines were owned independently Importantly, these studies did not count the much documented rise of ancillary fees, which, in addition to being a thorn in the side of cash strapped flyers, have grown appreciably in recent years.“ In other work, Azar, Raina, and Schmalz (2016) show that common ownership of banks decreases interest rates and increases fees for depositors.

Fact 3: New and small businesses are struggling while large incumbents thrive

Furman (2016) documents that for 40 years, the rate of firm entry has decreased, as has the share of sales and employment corresponding to young businesses. This suggests that it has become harder for new companies, facing larger, often predatory incumbents, to overcome barriers to entry. This is especially problematic, given that new businesses, as disproportionate creators of jobs, are essential to a healthy economy.

At the same time, the largest firms are thriving: Gutierrez and Phillipon (2017) document that since 1980, measures of profitability have increased for the largest firms while remaining constant for small ones. Other data shows that the gap between the profitability of median and high performing firms has increased dramatically with time, and that the most profitable firms tend to maintain their high returns year after year.

Fact 4: Corporate investment is low, especially in concentrated industries

If barriers to entry and other predatory practices are indeed isolating incumbents from competition, then we would expect them to exercise their monopoly power by producing less and charging more, rather than by making new investments to scale up operations or develop cost cutting technologies. And indeed, evidence shows this is precisely what is occurring. Gutierrez and Philippon (2016) document that corporate investment is low compared to what firms’ market values would predict, and that this lowered investment corresponds to more consolidated industries.

In a 2017 paper, the same authors go a step further, using two methods to show that this relationship is causal. First, they demonstrate that leading manufacturing firms invested and innovated more in response to increases in Chinese competition. Second, they document higher levels of investment in industries that, likely due to bubbles or optimistic venture capitalists in the 1990s were less concentrated during the 2000s.

Fact 5: Workers are more productive, but their pay has stagnated

For 40 years, median wages have stagnated, even as workers become more productive, and the share of GDP paid as income to workers has declined since 2000. While economists have tested many explanations for these shifts technological change and automation, global competition between workers, the rising cost of benefits, none of the factors considered explains why corporate profits have grown over the same period. Indeed, Barkai (2016) documents that while corporations have paid out less of their revenue as wages, they have also spent less on capital assets like machines, offices, and software, further increasing their profits. Barkai’s work points to a different theory: The labor share of income has decreased most in consolidating industries, suggesting that corporations are paying low wages simply because their power and the lack of competition with other firms allow them to.

Even as the total share of private sector revenue paid as wages has declined, the rise of market power has increased wage inequality, by contributing to median wage stagnation and enabling runaway gains at the top. For example, the ratio of a top CEO’S compensation to that of an average worker has increased roughly ten fold, from 30 to 1 in 1978, to 271 to 1 in 2016. This relates to market power because, rather than simply paying employees less, large firms have sought to lower labor costs by pushing workers out of direct employment altogether, outsourcing them instead. Powerful “lead firms” are thereby able to avoid liability under substantial components of US. labor law, while leveraging their market power to drive down wages through a litany of extractive tactics aimed at the outside firms employing their former workers. This is related both to the “tissured workplace,” described by David Wei] (2014), and to interfirm inequality, described by Song et al. (2016) and Furman and Orszag (2015).

Fact 6: Workers have a harder time changing and accessing jobs

Trends of consolidation and declining wage growth coincide with decreases in geographic, job, and occupational mobility. Konczal and Steinbaum (2016) argue that with fewer alternative employers, workers are receiving fewer offers to work at other firms, thus forcing them to stay at the same job and tolerate lower wage growth.

Song et al. (2016) compare wages across firms and reveal that workers with similar levels of education and experience receive starkly different pay depending on their employers, and that the degree of wage segregation by firm has increased starkly over the same period in which inequality has risen (since 1980) In a competitive labor market, firm pay differentials for similar work done by similar workers should be driven to zero. Therefore, inequality in interfirm earnings suggests that pay may have less to do with an individual’s productivity and more to do with their ability to bargain or to gain access to particular firms and individuals and benefit from those personal connections. The idea that worker side variables cannot explain observed wage inequality is a fundamental challenge to the notion that the labor market is competitive.

On their own, these aggregate trends cannot establish individual instances of anti competitive behavior, but they do imply that there is a significant and growing problem of consolidated market power.

In the following sections, we delve deeper into this body of research, considering evidence of market power and exploring how it affects the everyday lives of American consumers and workers, as well as society at large.

SECTION THREE

Market Power in Everyday Life

Economic data on rising prices and stagnating wages helps to drive home the point that the ill effects of market power and Chicago School policies are anything but theoretical. Corporations increasingly exert unopposed influence over the lived experience of American consumers, workers, and citizens.

From rising prices, to low wages, to the way we access information, market power and lax competition policy are entrenching the intrinsic advantages of wealth and power in society.

Private interests increasingly determine access to critical goods and services, prioritizing privileged groups and thus exacerbating existing inequities of race, gender, and class.

In this section, we aim to illustrate how the broad policy changes discussed above result in poor outcomes for American consumers, workers, and society. We show how consolidation and predatory behavior lead not only to higher prices, worse service, and less choice for consumers, but also threaten the pace of innovation. We show how consolidation results in fewer jobs and lower pay for workers, and how firms are using anti competitive and predatory practices in order to further entrench their labor market dominance. Finally, we provide a broader view on the impacts of market power and Chicago School antitrust, showing how the consolidation of power affects geographic inequality, the flow of information, and the long term health of our democratic system.

MARKET POWER AND CONSUMERS: LESS INNOVATION, HIGHER PRICES

Although it has hinged on alleged benefits to consumers, the Chicago School’s lax approach to competition policy has allowed corporations to pursue promarket making strategies through which consumers lose twice: first, because powerful firms facing little competition are able to raise prices at will; second, because these firms choose to reinvest profits in attaining more market power, which not only reduces consumer choice, but also detracts from investment and competition aimed at developing better products and lowering prices.

In this predatory environment, the most significant innovations have been new methods of obtaining unfair gains, by misleading customers, entrapping them, or discriminating to extract consumer surplus. Even when the resulting conglomerates do invest in new technology and gain an innovative edge, weak competition means they face no pressure to pass the value created along to consumers. Across the board, market power enables corporations to profit by taking advantage of consumers, rather than by serving them.

Fewer choices, worse service, less innovation

Massive consolidation has left consumers with fewer choices and firms with less incentive to compete for customers. Walk into a retailer to buy a new pair of eyeglasses and you will likely find yourself overwhelmed with options. Upon closer inspection, however, you may notice striking similarities between models. You may also notice prices that are similarly high. That is because, whether buying from Prada, Oakley, or Target brand, you actually have a 4 in 5 chance of buying Luxottica, the Italian monopoly that owns 80 percent of major eyewear brands. Likewise, think of every food brand you have ever seen on the shelves of any major grocery store. Chances are these products are owned by one, often international conglomerates like Unilever, Kellogg’s, and General Mills.

Until the Chicago School successfully beat back regulatory standards, competition authorities closely monitored such market dominance.

Today, we are left to ask: With such large shares in their respective markets, how hard will companies work to develop new, appealing products and win over new consumers? The ramifications of such broad consolidation and the erosion of competition are severe.

Fewer firms holding more and more power not only means fewer choices for consumers, but also creates less of an incentive for firms to focus on providing the best products and service. Tim Wu (2012) points out that a firm can invest in stifling competitors directly by erecting barriers to entry or acquiring other firms, rather than investing in capital or R&D that would help it outcompete them in the marketplace. Indeed as mentioned in the previous section recent research shows that corporations are investing at record low levels, especially in the most consolidated markets. The outcome for consumers can range from irksome to deadly.

Instead of investing in R&D, many pharmaceutical companies plan their business models around their ability to purchase smaller firms that have shouldered the burden of developing new products. Strategies like these are predicated on the notion that lax competition policy will green light mergers with minimal scrutiny, even though this environment holds innovation back: Ornaglu’ (2009) finds that after merging, pharmaceutical companies have lower R&D spending, fewer new patents, and fewer patents per R&D spending, compared to non consolidated competitors. Among pharmaceutical firms in Europe, Haucup and Stiebale (2016) find that even competitors of merged companies innovate less, Nowhere else could the costs of market power and anti competitive behavior be more clear or more severe:

Even when the discovery of a new product could save thousands of lives, powerful pharmaceutical companies have based their business strategies on acquiring and maintaining market power.

Even in more benign examples, we can observe that less competition has translated into worsening consumer experience. A regular survey conducted by Arizona State University’s W.P. Carey School of Business (2017) found that customer dissatisfaction in the US. has climbed 20 percentage points over the past 40 years, while customer satisfaction has fallen. Comporting with the thesis that much of this is driven by consolidation and lacking competition, we observe that the decline in service has been led by TV, phone, and Internet service providers, some of the most concentrated industries in the country, with customer satisfaction ratings routinely below that of the IRS. As firms become more powerful, their incentive to please customers will almost always decrease.

Amazon’s activity in shoe retail serves as another good illustration of the connection between competition policy, market power, and threats to consumer well being. When Zapposcom executives refused to sell the company to Amazon in 2007, Amazon began lowering its prices on Zappos shoes and offering additional services like free express shipping in an effort to out compete the popular online shoe retailer. Normally, this sort of competition would be a good thingfor consumers, since it results in lower prices. Amazon’s strategy, however, was based on power not innovation:

Over the course of a two year battle with Zappos, Amazon drew on its vast wealth, pre existing distribution network, and large customer base, running up losses of $150 million in an effort to eliminate its competitors. Lacking Amazon‘s vast wealth and power, Zappos capitulated and sold to Amazon in 2009. The tactic of lowering prices below cost in order to starve competitors known as predatory pricing is technically illegal, but Chicago School policymakers have raised the burden of proof so high that companies can employ this strategy without fear of triggering regulatory scrutiny. Amazon alone has used this precise tactic in several high profile cases, including with Diapers.com, which Amazon purchased and shut down in 2017.

Given Amazon’s professed commitment to service in the Zappos example, some may assume that consumers, despite having lost a popular vendor, are not much worse off; this, however, is shortsighted. In the long run, anti competitive behavior not only reduces the incentive to improve products and services, but also may deter entrepreneurs from entering consolidated industries to begin with. With the disappearance of customer first firms like Zappos, Amazon lacks the competitive pressure to maintain the high level of service and low prices it offered in the effort to drive them out of business. And while Amazon’s customer satisfaction ratings remain high, there is no guarantee that this behavior won’t fade as competition dries up. The decision to offer good service, in other words, has been left entirely to the good graces of Amazon’s management. This dynamic is true wherever competition is appreciably reduced and should weigh heavily on the minds of consumers and regulators alike.

Examples of the slowed pace of innovation and evaporating consumer choice suggest that lax antitrust may be far from optimal, even if consolidation does drive lower prices, as Chicago School dogma suggests it should. Even in the narrow category of consumer prices, however, we find ample evidence that our anti competitive economy has actually led to higher prices.

Higher prices

If Chicago School antitrust deregulation purported one thing for Americans, it was a dramatic reduction in the costs of the goods and services they rely on to survive. And yet, as described in Fact 2, numerous studies across many industries suggest that consolidation and other anti competitive practices have actually caused prices to rise for American consumers.

Although undetected by most Americans, the issues of market power and anti competitive behavior have dramatic consequences in daily life. If less competition results in an additional 5 percent markup on grocery prices, that increase can be enough to break the bank for a working class family. Lower prices can give consumers flexibility, relieve financial burdens, and make it possible to save for investments like college tuition, but the alleged cost benefits of consolidation, if they do arise, must also be considered. Meanwhile, higher prices seen today mean higher profits for shareholders and CEOs.

The realization that markups might actually be rising elevates the false promise of Chicago School policies: The implicit trade off offered by the Chicago School antitrust authorities was one of lower prices for less competition. But if less competition actually results in higher prices, as the data suggests it does, then American consumers are being subjected to a lose lose agreement.

TARGETED PREDATORY BEHAVIOR

Firms also exercise their market power by charging different prices to different customers a practice called price discrimination. This can be benign, as in the case of discounted movie tickets for children and the elderly, but price discrimination can also serve as a tool for corporations to exploit the most desperate and least informed consumers With the fewest alternatives.

Price discrimination often targets neighborhoods of color, whose populations are disproportionately low income and where firms make use of the structural absence of market access. Bayer, Ferreira. and Ross (2016) show that after controlling for credit scores and other risk factors, African American and Hispanic borrowers are roughly twice as likely to have high cost home mortgages because they are served by higher cost mortgage providers, so called “market segmentation.”

A recent analysis by Angwin et al. (2016) of ProPublica finds similar trends In auto insurance. Across several states, auto insurers charge higher premiums in minority neighborhoods, relative to the actual cost of paying out liability claims. ProPublica also discovered a similar trend within the test prep industry. Princeton Review clients of Asian descent are almost twice as likely to be offered a higher price as their non Asian counterparts (Angwin and Larson 2015).

Price discrimination is an especially pertinent risk online, where sellers can use IP addresses and browsmg data to differentiate between consumers, and where dominant platforms like Amazon may be able to corner whole markets, thus allowing them to target prices individually, without fear of being undercut by competition. Hannak et al (2014) find instances where major retailers and travel websites show different results and prices depending on a customer’s digital activity. Due to their private and algorithmic nature these practices are difficult to regulate and are likely to proliferate as companies develop new ways to gather and analyze data.

Crucially, the theoretical possibility of online alternatives has not proven sufticient to discipline behavior and prevent these explotative practices.

MARKET POWER AND WORKERS: FEWER JOBS, LOWER WAGES, AND LESS POWER

Contemporary antitrust policy mostly ignores the plight of American workers and, as a result, has spelled fewer jobs, lower pay, and worse conditions. For much of the 20th century, American wages grew in accordance with the productivity of American workers. But around the start of the Reagan era, the growth of workers’ wages and worker productivity began to diverge. Despite productivity having climbed nearly 75 percent from 1973 to 2016, wages only climbed by 12 percent. As consolidation, corporate profits, and top incomes skyrocketed, workers were left behind; the typical male worker made more in 1973 than he did in 2014. And while declining worker protections and union density explain a substantial portion of this stagnation, the runaway power of employers can be seen as the other side of the same coin.

Modern antitrust policy does little to protect and in fact actively hurts the standing of the American workforce. Ignoring the impact that market power and anti competitive behavior has on workers is a feature, not a defect, of Chicago School antitrust policies. Today, in addition to merger related job loss, we see ample evidence of just how effective these policies have been at weakening worker standing. Firms engage in predatory wage suppressing collusion across industries with “no poaching” agreements, and they have standardized anti competitive contracts designed to strip workers of their mobility and bargaining power. These tactics, endorsed by permissive antitrust policy when it comes to non price vertical restraints, are remaking the American labor market to resemble indentured servitude. Part of the solution must come from antitrust, specifically, a ban on such exploitative contract provisions.

Structurally, powerful firms have abused poor antitrust enforcement in order to restructure labor markets to their own liking. Since the consumer welfare paradigm ignores upstream “monopsony”, the power a firm can wield over its suppliers, including suppliers of labor, firms outsource workers into upstream contractors, which they could more easily dominate thanks to the weakening of antitrust scrutiny for vertical contractual provisions, both price and non price. Outsourcing labor into subservient contractors not only enabled so called “lead firms” to avoid meaningful negotiation, but has also turned wage setting into competitive bidding.

In this sub section, we document how corporate consolidation and the rise of market power hurt the labor market. We discuss three primary mechanisms: First, we analyze the reduction of wages, employment, and worker power that has occurred as a result of general consolidation and decreased economic activity. Second, we outline a number of discrete anti competitive strategies used by employers to stifle worker mobility and power. And finally, building on our description of predatory labor market practices, we outline the antitrust implications of corporate disaggregation and the so called “fissured workplace,” showing how this trend places workers at a systematic disadvantage.

Fewer jobs, lower wages

As firms accrue market power and consolidate, employment and wages decrease through two mechanisms. First, firms in concentrated industries tend to lower production and raise prices, reducing the demand for labor. Second, less competition between firms means fewer options and less mobility for workers.

Just like reducing consumers’ options allows businesses to charge more, reducing workers’ options allows businesses to payless.

Such power is referred to as monopsony, the labor market equivalent of monopoly power in product markets. As Jason Furman and Peter Orszag explain in a 2015 paper, “firms are wage setters rather than wage takers in a less than perfectly competitive marketplace.” The same is true for working conditions: In a concentrated economy, workers are forced to take what they are given. Monopsonistic firms, then, are no less a threat to America’s economic well being than monopolistic ones.

These theories are easy to square with the experiences of working Americans: In 2009, pharmaceutical giant Pfizer acquired Wyeth and announced it would cut 20,000 jobs worldwide; after combining in 2015, Kraft Heinz announced plans to cut 5 percent of its workforce; most recently, rumors swirled about cuts to Whole Foods’s workforce following its sale to Amazon. And while Chicago School advocates claim that consolidation brings cost savings for consumers, something we called into question in the previous section, the concurrent claim that such savings stimulate enough demand to create more jobs than they destroy is an even greater stretch.

While the impact of consolidation and competition policy on labor markets is a relatively new question for economists, evidence that consolidation is leading to fewer jobs is already mounting. Barkai (2016) shows that the largest decreases in the labor share of income, that is, the total fraction of private sector revenue paid to workers, have come in industries with the largest increases in concentration. This suggests that weak competition causes firms to cut jobs and reduce wages. Konczal and Steinbaum (2016) relate low wage growth to patterns of low job to job mobility, scarce outside job offers, and low geographic mobility. They argue that these trends are all indicative of weak labor demand and monopsony power.

The impact of such monopsony power can be every bit as economically damaging as monopoly power, and it is only due to the Chicago School’s myopic focus on consumer welfare that policymakers and the public more broadly eschewed such considerations. In our current environment, the anti competitive threats to labor markets have multiplied and intensified.

Again, addressing the loss of worker standing will largely rely on rebuilding worker power, but allowing large firms to accrue and wield unlimited market power is a substantial contributor to existing labor market power disparities, which require a multi faceted solution.

MARKET POWER AND LABOR MARKET DISCRIMINATION

Similar monopsonistic wage setting effects also help to explain pay gaps between demographic groups. Several studies document that wage gaps between employees of the same business can be explained by assuming that employers systematically pay workers less who they know are less likely to quit as a result, a practice called wage discrimination. If systemically disadvantaged workers tend to be less sensitive to wages, then they may sort into industries that underpay all of their workers, possibly contributing to the concentration of women of color in the low paying care industry, as discussed In Folbre and Smlth (2017) Looking at data from the Portuguese workforce, Card et al. (2016) show that the combined effects of within firm wage discrimination and between firm sorting, account for about one fifth of the gender pay gap.

In perfectly competitive labor markets where workers are pald according to the value they create, such effects would not exist.

Antitrust policies that examine the effects of monopsony would not only be good for all workers but would be best for society’s most vulnerable workers.

Strategic attacks on worker standing

In addition to increased leverage over workers gained from consolidation, employers use other anti competitive tactics to increase their labor market power. The tactics we describe here are expressly anti competitive, intended to prevent positive competition among employers in order to reduce labor costs and suppress workers. Despite the seeming conflict with the core principles of antitrust policy, the brazen use of anti competitive practices in labor markets has become increasingly widespread in the Chicago School era.

Non compete contracts, for instance, prevent workers from joining competing firms until after they have left their employer and waited, presumably unemployed, for extended periods of time. While non competes have some merit in protecting trade secrets and incentivizing investment in workers, the Treasury Department (2015) points out that they are used with startling frequency among low income workers and those without a college degree, less than half of whom profess to possess trade secrets.

Far from promoting innovation and investment, these agreements simply discourage workers from searching for new jobs, allowing their employers to pay less and demand more. Crucially, they are best understood as both a symptom and a cause of declining labor market mobility and worker power: A symptom because in an earlier era, employers would never have been able to get away with inserting such terms in employment agreements; and a cause because any worker who signs one has effectively voided their ability to attract a higher wage or better job in the industry of their choice

The tactics we describe here are expressly anti-competitive, intended to prevent positive competition among employers in order to reduce labor costs and suppress workers.

Mandatory arbitration is another combination symptom and cause of low worker standing. Gupta and Khan (2017) discuss the severe impact of contractual clauses which force workers to surrender their right to sue their employer, insisting instead that employees enter into confidential arbitration in the event of a dispute. Depriving workers of this core democratic right is a win for powerful corporations, who are able to keep misdeeds out of the media and away from the eyes and ears of other employees. Like non compete clauses, mandatory arbitration is both a cause and an effect of labor market monopsony. Indeed, it would be difficult to think of a tactic more indicative of massive monopsony power than a firm forcing workers to surrender their legal rights as a condition of employment; as with non compete agreements, such a clause would never have proliferated in a more pro worker environment. Meanwhile, mandatory arbitration diminishes worker power by curtailing a worker’s ability to push back against unfair labor practices in cases of abuse.

Labor market power and the fissured workplace

These more granular examples of anti competitive labor market practices are only part of a broader pattern of firms leveraging their market power to circumvent labor protections and obtain a structural advantage over workers. In his landmark book, The Fissured Workplace, David Weil shows how powerful corporations shifted workers out of formal employment and into alternate arrangements, such as subcontracting and franchising, in order to lessen their obligations to workers. By pushing low pay workers into separate subcontracting firms, lead firms are able to wield their market power over other firms, rather than having to do so directly over workers, which could raise issues of liability under labor law.

Once pushed outside of the firm ’s organizational structure, workers receive a smaller share of the company’s revenue and face steep barriers to bargain for more.

Whereas direct employees simply receive a regular salary, outsourced workers are forced to competitively bid against one another for every contract, driving costs down for the lead firm and wages for subcontracted workers. Once pushed outside of the firm’s organizational structure, workers receive a smaller share of the company’s revenue and face steep barriers to bargain for more.

With less power and wealth than the firms that ultimately pay them, and with competing contractors threatening to under cut them, outsourced workers are driven to the lowest common denominator for workplace standards. Indeed, Dube and Kaplan (2008) find that subcontracted security guards and janitors suffer a wage penalty of up to 8 and 24 percent, respectively, while a 2013 study by ProPublica found that temp workers, another large category of outsourced Labor, were between 36 and 72 percent more likely to be injured on the job than their full time counterparts.

Weil’s analysis shows how powerful lead firms place the onus of maintaining brand standards on franchisees and their employees even as they squeeze them to reduce costs otten resulting in the low wages, dangerous work conditions, and labor law violations that are widely observed today. Outsourcing strategies are utilized up and down the supply chains of large companies from Walmart, which outsources its shipping and logistics operations, to Verizon, which outsources the sale and installation of broadband services. This system allows corporations to have their cake and eat it too; they can secure favorable contracts with suppliers while maintaining a high degree of control over an outsourced workforce.

The National Labor Relations Board’s (NLRB) recent ruling in Browning Ferris supports this view, by asserting that firms contracting out workers from external partners may be considered joint employers. But until this view is more widely embodied in the economy, standards will continue to sink as powerful firms subjugate the workers of less powerful firms.

All of these practices are predicated on the immense power of lead firms, from internationally recognized franchises like McDonald’s, to retail powerhouses like Walmart, that are only able to get away with such broad wage and condition setting power because they each represent such large shares of their industries. Although the topic is still nascent among economists, it is not a stretch to say that lax antitrust protection is largely to blame for the fissuring practices of powerful firms.

In fact, hard evidence linking anti competitive behavior and poor labor market outcomes continues to emerge. In addition to non compete and mandatory arbitration clauses, Krueger and Ashenfelter (2017) call attention to the negative wage and employment effects of “no poaching” agreements through which franchises have agreed not to hire workers from rival businesses, in order to suppress wages and worker power. These agreements are plainly anti competitive, created expressly to disrupt healthy competition in the labor market.

The ill effects of weak antitrust and disaggregation are echoed in the gig economy: Workers who would once have operated either as employees or as truly independent businesses are now finding work in a quasi independent role for centralized tech firms like Uber and TaskRabbit. Legally, they remain independent contractors without employee benefits; however, they lack the degree of control over their own operations that independent contractors are typically afforded. In fact, research shows these platforms exercise substantial control over participant behavior, disciplining workers for undesirable behavior and controlling the prices they set, despite their lack of employer status.

Like the franchising and subcontracting firms in Weil’s fissured workplace, these firms are leveraging market power, as well as proprietary technology, to have it both ways, controlling their labor supply without shouldering responsibility for it. Much has been said about misclassification of Uber drivers, but few have made the opposite point: If Uber drivers are not employees, then they are businesses, and thus Uber’s price setting amounts to a cartel, an organizational structure that is illegal under existing antitrust policy.

Addressing deficiencies in competition policy will be essential in combatting the structural abuse of workers. As we have stated, pro big business deregulatory competition policies were sold on the explicit grounds that consumer effects were the only effects that should be considered with regard to competition policy. As long as the consumer came out ahead, in other words, any negative ramifications for small business, and especially for workers, could be tolerated. To anyone concerned with the overall health of the American economy, this begs a simple question, which the Chicago School is unprepared to answer: What good are consumer savings if consumers have no income to save?

AMAZON’S ANTITRUST THREAT

Founded In 1994 as an onllne book retailer, Amazon has grown into the world’s fourth most valuable company, commanding a sprawling supply chain that offers everythmg from cloud computing services to audlo books. Amazon’s recent purchase of Whole Foods for $14.3 billion reignited concerns about the company‘s immense size, and yet policymakers and journalists find It dlflicult to grasp the precise threat that the tech giant poses to competition.

Through Amazon’s example, we aim to illustrate how such powerful tech firms imperil healthy competition in ways that do not align with the Chlcago School’s conception of the role of competition policy.

In some respects Amazon’s devotion to growth and investment is laudable. Rather than passing what would be enormous profits from existing business lines back to its shareholders, the company largely reinvests the proceeds into new product lines and technologIes.

The fact that Amazon employs over 1,000 people working on far off AI technology, for example, is potentially good for the economy. This is to say nothing of the fact that Amazon is wildly popular with a large, devoted user base, compelled by its low prices, streamlined service and delivery system, and wide product offerings. Indeed, it has been evident on many occasions that not only do consumers value the company, but so do the competition authorities, for they have used their regulatory and enforcement powers to put would be competitors out of business. Despite investments in innovation and consumer favorability, the fact remains many aspects of Amazon’s conduct are deeply problematic.

To see the threat posed by Amazon, it’s important to understand how the company has risen to its current status. With nearly half of all ecommerce passing through the platform, Amazon’s success is predicated by what economists call “network effects”: The more vendors sell through Amazon, the more customers will want to use it; and the more customers use Amazon, the more vendors will be forced to sell through It.

Even if a new platform were to offer a superIor service, say, by taking a smaller cut of sales no one would use it, simply because no one else was. And to compete with Amazon’s unparalleled logistics network at this point would require an unimaginable upfront investment, one that Amazon could quickly make into a debacle by further cutting its prices and denying placement to suppliers who did business with the competitor.

This special barrier to entry affords Amazon the ability to set the terms for consumers and vendors. Amazon is able, for instance, to keep 15 percent of every sale on its platform and to attract even reluctant vendors like Nike, who after resisting to sell directly on Amazon due to copyright infringement that occurs through the sale of unlicensed products on their website, eventually caved in 2017. In another prominent example of Amazon flexing its power, the retailer suspended pre-orders of all books published by Hatchett, including House Speaker Paul Ryan’s The Way Forward in order to gain leverage and secure better terms in its ebook agreements.

The Institute for Local Self Reliance (2016), among others, has underscored Amazon’s use of predatory pricing, as is commonly understood, though impossmle to prove under existing antitrust, precedent to eliminate competitors such as Zappos.com and Diapers.com.

If established firms are powerless to resist Amazon’s platform, the implications for small businesses selling on Amazon‘s Marketplace are enormous. Satirically attributed to Amazon CEO Jeff Benzos, a recent article from The Onion captured the problem well. “My advice to anyone starting a business is to remember that someday I Will crush you.”

Amazon compounds its platform advantage with a technological one. Since Amazon both runs a retail platform and sells goods. It not only competes With its own partners. but also unilaterally sets the terms of that competition. Amazon preferences its own goods in search results, and, by collecting data on all of its transactions and customers, knows both buyers and sellers, including the stategic use of its dominant cloud computing bussiess, Amazon Web Services, to monitor profitable third party vendors and consumer behavior that lets Amazon plan future acquisitions. It’s well established that Amazon uses this data to make personalized recommendations to induce customers to make purchases.

More alarming is that the company reorders options so as to extract more from customers whose past purchases and other characteristics indicate a wlllingness to pay more. This is not the kind of price discrimination that can be found in a grocery store, where quantities are priced differently in order to entlce different buyers (e g . moms and dads opting for a gallon of milk for an additional $1 instead of a quart), but a secretive and personalized form that ensures each consumer pays their maximum and that Amazon captures the difference.

Jeff Bezos, Amazon founder, 1998

MARKET POWER AND SOCIETY: SEGREGATION, CONTROL OF INFORMATION, AND POLITICAL MANIPULATION

Although market power’s impact on workers, consumers, and businesses is severe, the narrow economic analyses can overlook the dangers it poses for society as a whole. Franklin D. Roosevelt recognized these threats in 1938 when he said:

“The first truth is that the liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself. That, in its essence, is Fascism, ownership of Government by an individual, by a group, or by any other controlling private power.”

As relevant now as they were then, FDR‘s comments suggest that beyond lost jobs, innovation, and businesses, concentrated market power poses a threat to our democracy and national sovereignty. Today, this threat manifests in a number of ways, ranging from the obvious, such as the consequences of corporate lobbying on democracy, to the more subtle, such as the massive power a small number of tech platforms now hold over the distribution of information. In this section, we discuss three broad societal threats posed by market power.

Geography and economic segregation

Increasingly, the wealthy and powerful have isolated themselves geographically and used their market power to prey on vulnerable areas and populations. The stark divide between urban and rural voting patterns in the 2016 election is just one recent example of how economic, social, and political divisions manifest geographically. Market power reinforces this new geography, threatening to calcify a class stratification that is anathema to American values.

Market power redistributes wealth and opportunity away from disadvantaged communities, be they poor, minority, or physically isolated. Wealthy Americans, clustered in wealthy suburbs and a few large cities, do not patronize local businesses, pay taxes, or otherwise engage with the economies of poor rural or urban communities.“ Nonetheless, they are able to extract profits from them. A merger may result in windfall profits, but Wall Street and Silicon Valley will absorb that money as distant plants close and local economies across the country are decimated from the deal.

In Hanover, Illinois, for example, the purchase of machine pan manufacturer Invensys spelled the end of a 50 year old factory, despite its 18 percent profit margin. The jobs were sent to Mexico, and the profits were shifted to Sun Capital in New York City.

Today, many hollowed out cities and towns remain trapped in a cycle of dependence on the very same corporate giants that eroded their communities.

Unbridled market power threatens locally owned businesses, which play an essential role in their communities, and which cannot be replaced by externally owned and managed corporations. Writing for Washington Monthly, Brian S. Feldman (2017) presents numerous examples of black owned businesses that were consumed by larger competitors as a result of the relaxed antitrust regime. Not only had these businesses provided jobs and wealth to black workers, but they also served as pillars of the community in a time when many larger, white-owned businesses were either indifferent or actively hostile to the priorities of the black community. Black business owners in Selma, Alabama, for example, provided a physical foothold for civil rights activities in the 1960s. But without antitrust protections, these small businesses could not withstand the power of consolidating giants like Walmart, which used anti competitive practices, including predatory pricing, to drive small competitors out.

Meanwhile, Bentonville, Arkansas, home of Walmart’s Walton family flourishes, with a plethora of privately funded parks and schools.

To make matters worse, weak local economies are self reinforcing: Less economic activity means less tax revenue for schools, public transportation, and other basic needs, which, as shown by Chetty and Hendren (2017), results in less economic mobility for future generations. As geographic segregation becomes more entrenched, it has become easier and easier for firms to identify and prey on vulnerable populations. As Hwang et al. (2015) demonstrate, this predatory behavior has been prevalent in both home mortgages and car insurance, where providers charge high prices and provide restricted service in areas with large minority populations. If areas continue to segregate racially and economically, this behavior will only intensify.

Nowhere is the self reinforcing mechanism of geographic segregation more evident than in the contemporary struggle to expand broadband coverage to underserved communities, both rural and urban. Many Internet service providers (ISPs) have avoided expanding service to such areas because doing so is less profitable. Through economic, political, and legal means, they have blocked efforts to provide multiple options directly. As Internet access becomes an effective (even necessary) prerequisite to entering the job market, underserved populations remain economically isolated and exploitable by powerful local monopolists. Market power compounds these issues: ISPs spend millions of dollars lobbying against the creation or expansion of proven municipal broadband networks (see introduction). In protecting their market share, entrenched incumbents not only reinforce social inequities but also actively prevent some of the least privileged Americans from accessing the modem economy.

Market power and the flow of information

Recognizing that access to unbiased information was no less essential to a democracy than water is to survival, and seeing the threat that industry consolidation and market power posed to that freedom of information, antitrust regulators once closely monitored the structure and content of newspapers and other media. Ownership of multiple competing news outlets was capped, and the Federal Communications Commission’s (FCC) Fairness Doctrine required media outlets to fairly cover issues of national importance. In the wake of the Chicago School revolution, many of these regulations fell by the wayside with severe consequences for society and our democracy.

Just as the decline of antitrust protections altered the flow of firm revenue, it has also altered the flow of information with grave ramifications for society. The weakening, and in some cases the repeal, of key protections have greatly contributed to the obstruction of quality information that was so evident during the 2016 election. In print, radio, TV, and online, our sources of information have consolidated under openly biased ownership; media conglomerates have purchased local newsrooms en masse and geared them for profit over quality; online news is increasingly filtered by social media giants, with no eye for credibility or fairness, but with ultimate discretion as gatekeepers between readers and journalists; and television and radio stations held by politically biased media companies spew false information with little oversight.

After decades of consolidation, local news, a key source of information for nearly half of all Americans, according to Pew Research (2017) can scarcely be described as such. In 2016, the five largest local TV companies owned 37 percent of all stations. This pattern will likely worsen under Trump’s FCC Chairman, Ajit Pai, who hinted that he would further relax merger scrutiny shortly after his appointment.

As consumers of media, the information we receive is increasingly controlled by a small select group of very powerful corporations. The decline of quality local reporting is problematic alone, but, as the Knight Commission (2009) points out, will be even more harmful if the loss contributes to the further erosion of community engagement, helping to worsen already substantial distrust of local institutions.

The erosion of decades old antitrust protections has had serious ramifications for the freedom and quality of journalistic institutions, but online, there is doubt as to whether antitrust authorities will address emerging threats at all. Gatekeepers like Google and Facebook threaten to end the era of democratized information that the Internet was supposed to create. Every day, millions log on to Facebook to see which stories their friends are sharing, creating advertising revenue for Facebook but not for the organizations that created the content. Likewise, Google’s “Incognito Window” feature enables users to avoid pay walls put in place by publishers to protect copyrighted material. This is to say nothing of outright discrimination within search results, which recently drew the ire of European authorities.

Platforms not only capture profits of journalism, they also control who sees what. Emily Bell, Director of the Tow Center for Digital Journalism, discussed this concern in a 2016 piece for the Columbia Journalism Review.

“In truth, we have little or no insight into how each company is sorting its news. If Facebook decides, for instance, that video stories will do better than text stories, we cannot know that unless they tell us or unless we observe it. This is an unregulated field. There is no transparency into the internal working of these systems… We are handing the controls of important parts of our public and private lives to a very small number of people, who are unelected and unaccountable.”

Examples of the problems created by this centralized, unaccountable control of information are everywhere: During the 2016 election, the proliferation of fake news articles on Facebook and automated “bots” on Twitter interfered with the honest and free exchange of information. Unregulated “news” sharing on Facebook and Twitter popularized numerous conspiracy theories. And since Facehook has no obligation to provide a neutral platform, electoral campaigns, interest groups, and repositories of outside “dark money” are free to spend whatever it takes to not only get their content in front of targeted users but also prevent the opposition’s content from reaching its intended audience. Meanwhile, Woolley and Guilbeault (2017) show how Twitter bots sought to obstruct social media messaging of supporters on both sides.

When it comes to something as essential for democracy as the free flow of accurate information, the power is simply too great to be left unregulated, in the hands of a few powerful corporations.

By keeping revenue from content creators, by lending a voice to biased and false news outlets, and by artificially amplifying chosen content, powerful platforms will reduce the amount of legitimate news produced (and shared) and will instead encourage the production of whatever content their opaque algorithms favor. Rather than democratizing the spread of information, many online platforms have consolidated this process for private gain. This is a new question for antitrust authorities, and one that must be addressed soon.

Compromising the political system

The influence of large campaign donors and highly paid corporate lobbyists on American politics is no secret, but bears repeating: Individual corporations and industry trade associations, not to mention a host of more secretive “dark money” pools, leverage their wealth to exert enormous influence on legislators, executives, and other government officials at all levels. This influence amplifies the voice of the powerful and, as Jacob Hacker (2011) discusses in Winner Take All Politics, was key in bringing about the Chicago School revolution in antitrust policy in the first place.

Less discussed than the influence of money in politics is how economic policy reinforces the phenomenon. By creating larger firms and enabling them to generate excess profits, consolidation increases the number of businesses with the means necessary to invest in serious lobbying efforts, including the number of firms whose business models depend on doing so. Rather than attempting to satisfy broad constituencies of disparate interests, politicians are tempted to cater to a select few: those who can afford to both amplify their voices and offer campaign funds in exchange for political favors.

Close ties to large corporations not only help politicians fundraise, but also let them access the lucrative “revolving door” to high paying jobs in the private sector throughout or after a political career. Politicians, then, have a considerable incentive to demonstrate their usefulness to the large corporations that hold power over their political and professional wellbeing. The same goes for appointed public officials and bureaucrats.

By enhancing the ability of large corporations to win, not by innovating or improving, but by buying government favoritism, a compromised political system entrenches the concentration of corporate market power. That is why, at the dawn of an earlier revolution in antitrust, Louis Brandeis noted that we may have concentrations of wealth, or we may have democracy, but not both.

Indeed, today’s mega corporations are so large and so powerful that individual politicians may feel powerless to oppose them. Even those with enough integrity or personal wealth to avoid direct dependence on corporate funders still face pressure to conform to the views of their caucuses. And voters are watching, it’s hardly surprising that, according to Gallup polls, the percentage of Americans reporting a “great deal” or “fair amount” of confidence in the federal government has hit record lows in recent years.

Ultimately, the problem of money in politics, and its interplay with market power threatens to erode the possibility of effective government, both directly and through the trust of its citizens.

SECTION FOUR

Restoring Competition Policy to Build Healthy Markets and Inclusive Growth

This report has explained the theoretical threat of concentrated market power and demonstrated its real world consequences: Instead of creating shared value, powerful businesses, specifically their owners and executives, extract wealth from workers, consumers, disadvantaged competitors, and entire communities. This section describes the role that competition policy can play in realigning incentives and reshaping markets to create a level playing field and an equitable, inclusive economy.

Competition policy is the set of laws and institutions that aim to realign private and public interests by changing the structure of markets and governing the actions taken within them. It can be understood as serving three distinct roles:

(1) To regulate market structure and prevent the aggregation of private power, primarily by blocking mergers that concentrate too much power and breaking up pre existing, overly powerful firms

(2) To curtail anti competitive behavior by banning firms from and punishing firms for engaging in extractive practices like colluding to raise prices or deceiving consumers, including practices that may persist even without full monopolization

(3) To regulate “natural monopolies” as utilities and intervene when competition fails, either through more comprehensive regulation or the provision of public options, especially in key natural monopolies like telecommunications and energy with high fixed costs of doing business, where fierce private competition tends to give rise to boom and bust cycles that impair the steady provision of necessary services.

To limit the consolidation of power by regulating market structure, authorities should:

– Revise merger guidelines to scrutinize the potential for anti competitive behavior throughout supply chains, not merely targeting consumers

– Closely examine negative effects of vertical integration and vertical restraints that are likely to arise from proposed and consummated mergers

– Use Section 2 of the Sherman Act to break up existing monopolies and firms whose structure and business models threaten other market participants and the economy more broadly

– Scrutinize the many ways in which ownership and management have consolidated, including the common ownership of multiple firms in an industry by the same major shareholders

– Implement intellectual property (IP) reform to encourage entrepreneurship and weaken protections for incumbents, including by compelling free licensing of patent portfolios

In many instances, market power arises from the structure of a given market, that is, the number and size of firms and the ties between them. Consolidated markets lack competition, often allowing firms to charge high prices, offer bad service, and pay low wages. Such market power can therefore be addressed by preventing consolidation, either by limiting mergers between competitors or by breaking up excessively large firms. Merger review has always been a key facet of competition policy, but it is much less stringent today than it was prior to the 1980.

Under existing merger guidelines, antitrust agencies assess mergers primarily on their expected short run effect on price and output. But as we have discussed this narrow approach overlooks important effects on innovation, wages, jobs, and supply chains; even its track record on price effects is mixed at best. Congress should enact antitrust legislation that would require agencies to revise existing merger guidelines to consider the merging parties’ ability to engage in anti competitive behavior throughout the supply chain, to look for ways it may harm any and all market participants, not just consumers. That would enable the Department of Justice (DOJ) and the Federal Trade Commission (FTC) to scrutinize vertical consolidation as well as a merger’s effects on innovation, labor markets, data privacy, and discrimination by race, gender, and geography.

The agencies should also consider exercising their authority under Section 2 of the Sherman Act to break up existing firms whose structure and business models render them impossible to regulate in accord with the new standard. Finally, an increase in the antitrust resources of regulatory agencies would complement this agenda.

In some cases, market power arises not through consolidation but through intellectual property rights (IPRs) exclusive, government enforced rights to profit from an innovation. While IPRs are intended to incentivize investment in R&D, current laws may actually be hindering innovation by slowing the spread of existing knowledge and hindering knock on discoveries, new ideas built on previous innovations. Policymakers should consider weakening such protections; doing so can promote growth and simultaneously lower prices and expand access to goods, especially medicines.

While policies to prevent and reverse consolidation and restrict anti competitive behavior at the firm level are necessary to maintain competition, another aspect of our market power crisis is the combination of management with shareholders into one corporate interest, a relationship that is then used to profit at the expense of other stakeholders.

Examples of this broad phenomenon can be seen in the rise of private equity, the lifting of regulations on corporate stock buybacks, the use of dual classes of shareholders, the decline in initial public offerings (IP0s) and the reduction in the share of the economy accounted for by traditional publicly traded corporations, and the so called “common ownership” of multiple firms in an industry by the same small set of large institutional investors.

This issue is of sufficient concern to warrant an investigation by a temporary panel with representatives from a number of government agencies with access to the data that are necessary to understand the potential threat of shareholder management consolidation. These agencies include the IRS, the U.S. Census, the Bureau of Economic Analysis, and the Bureau of Labor Statistics, as well as the competition authorities at the FTC and DOJ. The core issue to investigate is whether the various mechanisms that shareholders have for influencing firm behavior and benefiting from firm profits are used for their private benefit (and at other stakeholders’ expense) versus for the public good. Such a panel should examine corporate structures, such as private equity, tiered shareholding, private partnerships, and common ownership, as well as behavior like labor outsourcing, stock buybacks, and dividend recapitalization, that arguably serve to benefit shareholders at the expense of everyone else.

To curtail anti-competitive behaviors, policy must:

– Increase enforcement at the state and federal level

– Increase funding of federal and state competition authorities

– Increase punishments for anti competitive behavior

– Expand the scope of antitrust action at the state level

– Use antitrust law against the fissured workplace

– Challenge the ability of tech platforms to extract rents from their supply chain

_ Scrutinize price discrimination enabled by “Big Data”

– Protect low skill workers from non compete and anti poaching clauses

– Reform the Federal Arbitration Act

While preventing the accumulation of market power through large scale consolidation is important, this tactic does not guarantee that firms will always compete fairly. Even in less concentrated markets, firms may seek an advantage through anti competitive tactics, especially where vertical integration enables them to exploit a strategic position in one market for advantage in another.

Businesses can collude to charge more, take advantage of workers with contracts they don’t understand and cannot litigate, and maneuver consumers into disadvantageous terms of service or discriminate among them using data consumers do not realize has been harvested from them. And although many of these tactics are illegal, weak enforcement and judicial precedents establishing impossibly high burdens of proof and excessively narrow theories about how conduct can be anti competitive encourage abuse among firms who see no threat of repercussion.

To deter anti competitive practices and realign market incentives with the public interest, we advocate strengthening the enforcement of existing antitrust law and broadening the application of that law in key areas, especially as it relates to the emergence of new and unregulated technology.

Ultimately, anti competitive practices will only be curbed when firms operate on the assumption that nefarious behavior will be discovered and duly punished. Therefore, more prosecutorial action against anti competitive behavior and harsher penalties are necessary to discourage firms from abusing power.

Larger regulatory budgets for the DOJ Antitrust Division and for enforcement at the FTC will help achieve this goal by providing regulators with more staff and resources to carry out investigations. Most importantly, the burden on plaintiffs for winning an anti competitive conduct case is far too high.

At the federal level, of course, neither more aggressive prosecution of private firms nor a significant increase in regulatory funding seems likely in the current political climate, so we also propose expanded activity and funding of these activities at the state level. Generally, state attorneys have a well established tradition of antitrust action, and in many cases, are unburdened by the ideological baggage that plagues federal agencies and judicial precedent. These activities should be expanded wherever possible.

While poor enforcement has permitted some anti competitive behaviors, narrow court interpretations have pushed others out from under regulation entirely. For example, predatory pricing has long been a violation of antitrust statutes, but under current jurisprudence, it can only be recognized when the defendant is found to have both intent to remove competition and the ability to recoup losses incurred by selling below cost. This extremely high legal hurdle has prevented the prosecution of predatory pricing, despite evident instances of it, such as Amazon‘s behavior towards Diapers.com.

The crucial issue for prosecuting conduct cases under Section 2 of the Sherman Act is the requirement to prove monopoly power, generally by a preponderant share of the relevant market. This means that conduct in which powerful companies use their domination of one market to extract concessions in another is very hard to prove. For example, Google has used its dominance in the search market to redirect advertising revenues from content companies back to itself, Those companies have to make their content available to Google for fear of losing all Internet traffic, which then means that Google is the market participant earning the ad revenue. Google claims that it is not a monopolist in Search, “competition is just a click away,” as the saying goes and yet the observed behavior of users of its mobile platform and the restrictions that Google places on third party applications all but guarantee the tech giant will control the flow of information. (And hence reaps the reward therefrom.)

Finally, the rise of digital platforms has revived concerns about the abuse of vertical consolidation and price discrimination, issues the Chicago School had rendered largely dormant. Because they not only host sellers but also compete with them directly, platforms like Google and Amazon have ample opportunity to profit by placing other firms at a disadvantage.

The European Commission recently fined Google 2.4 billion euros for prioritizing its own Comparison shopping service over that of competitors. Regulators must either bar firms from competing on their own platforms, in effect, enact a ban on vertical integration for platform companies, or at the very least closely regulate such behavior by imposing neutrality on crucial internet era utilities.

A similar principle applies to platforms like Uber who have used their power to extract gains from workers. Since Uber drivers are technically independent businesses, the competition authorities should regard Uber’s price setting as price fixing.

Finally, access to data has enabled a new wave of advanced price discrimination through which platforms are able to charge different customers different amounts based on past behavior and other factors. Antitrust authorities must pursue vigorous enforcement of existing price discrimination laws.

To establish public utility regulation of essential industries and “natural monopolies,” policymakers should:

– Explore public utility regulation to rein in Google, Facebook, Amazon

– Promote expansion of municipal broadband networks

– Consider creation of public options for financial services

Private markets are not always able to sustain competition. This can happen when there are high fixed costs to production, as with utilities or airlines or when firms experience “network effects” that make it more useful to have one large platform than several small competitors, as with Facebonk or Amazon. In these instances, it maybe impossible to generate competition by breaking up large corporations horizontally; at the same time, outright bans on abusive practices may be too blunt an instrument to properly regulate firms’ behavior. Such situations call for further intervention, either through more fine tuned “public utility” regulation or through the introduction of public market players.

Historically, public utility regulation has been used to ensure that essential goods and services are provided accessibly and at fair prices. In domains such as telecommunications, where network effects prevented robust competition, the imposition of a “common carrier” status required providers to serve all comers at reasonable rates and without unjust discrimination. More recently, the FCC harkened back to these principles in the context of net neutrality, preventing internet service providers from exercising bias based on the content (such as a competitor’s service) they are transmitting.

Looking forward, policymakers should consider a public utility approach to regulating prominent technology firms. As gatekeepers to essential economic and social goods, Google and Facebook to news and information, and Amazon to avast logistics and shipping architecture these businesses threaten to limit or influence participation in markets and civil society. Regulatory firewalls could prevent such platforms from privileging their own content (say, in search results), thus maintaining a level playing field for smaller competitors. Further oversight could require firms to respect the interests of the users whose data they collect and sell and could guard against discriminatory treatment, including as an “unintended” consequence of revenue optimizing algorithms.

In some instances, barriers to entry prevent competition in a market, even though there is no inherent advantage to consolidation. Here, the government can intervene by simply becoming a competitor, by offering a so called public option. This approach is not a new one: The Tennessee Valley Authority’s provision of rural electrification dates back to the New Deal.

Public options have three main advantages:

First, they offer an additional, straightforward option to consumers at reasonable rates and without discrimination.

Second, they increase market competition, encouraging pre existing businesses to lower prices and offer better service.

Third, they can expand subsidized access to consumers unable to afford essential goods at market prices.

Policymakers should promote this approach in key areas, such as municipal broadband and banking.

Conclusion

For roughly 40 years, the American economy has been remade to serve the powerful and the wealthy, with no regard for everyday consumers, workers, or the health of our society.

Today, we see just how effectively policymakers and regulators have championed the needs of the few over those of the many. Ironically, the policies that helped get us here were sold on the notion that they would deliver the most good to the most people, the precise opposite of what ultimately occurred.

Furthermore, Chicago School policies were predicated on the idea that providing for the public good is simple. This was a convenient view for policymakers and other parties whose key interest amounted to diminishing the role that government plays in administering society.

But Chicago School ideology was also, as ample evidence shows, precisely incorrect.

Robust competition is every bit as important for economic well being as scions of the Chicago School suggested, but this school of thought presented false and misleading ideas about how to best achieve it. Here, we have combined emerging research with historical narrative aimed at explaining how antitrust policy has been a key contributor to an increasingly top heavy economy.

In the simplest way possible, we aim to show that competition is as essential as it is delicate, and that economies work best when power is evenly distributed among market actors. In this regard, competition policy is an essential tool.

Inequality and Economic Growth – Joseph Stiglitz.

“Even if we act to erase material poverty, there is another greater task, it is to confront the poverty of satisfaction – purpose and dignity – that afflicts us all.

Too much and for too long, we seemed to have surrendered personal excellence and community values in the mere accumulation of material things. Our Gross National Product, now, is over $800 billion dollars a year, but that Gross National Product – if we judge the United States of America by that – that Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage.
It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl.

It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities. It counts Whitman’s rifle and Speck’s knife, and the television programs which glorify violence in order to sell toys to our children. Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials.
It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile.
And it can tell us everything about America except why we are proud that we are Americans.
If this is true here at home, so it is true elsewhere in the world

Bobby Kennedy, 1968

*

In the middle of the twentieth century, it came to be believed that ’a rising tide lifts all boats’: economic growth would bring increasing wealth and higher living standards to all sections of society. At the time, there was some evidence behind that claim. In industrialised countries in the 1950s and 1960s every group was advancing, and those with lower incomes were rising most rapidly.

In the ensuing economic and political debate, this ’rising-tide hypothesis’ evolved into a much more specific idea, according to which regressive economic policies, policies that favour the richer classes, would end up benefiting everyone. Resources given to the rich would inevitably ‘trickle down’ to the rest.

It is important to clarify that this version of old-fashioned ‘trickle-down economics’ did not follow from the postwar evidence. The ’rising-tide hypothesis’ was equally consistent with a ’trickle-up’ theory, give more money to those at the bottom and everyone will benefit; or with a ’build-out from the middle’ theory-help those at the centre, and both those above and below will benefit.

Today the trend to greater equality of incomes which characterised the postwar period has been reversed. Inequality is now rising rapidly. Contrary to the rising-tide hypothesis, the rising tide has only lifted the large yachts, and many of the smaller boats have been left dashed on the rocks. This is partly because the extraordinary growth in top incomes has coincided with an economic slowdown.

The trickle-down notion, along with its theoretical justification, marginal productivity theory, needs urgent rethinking. That theory attempts both to explain inequality, why it occurs, and to justify it, why it would be beneficial for the economy as a whole. This essay looks critically at both claims.

It argues in favour of alternative explanations of inequality, with particular reference to the theory of rent-seeking and to the influence of institutional and political factors, which have shaped labour markets and patterns of remuneration. And it shows that:

Far from being either necessary or good for economic growth, excessive inequality tends to lead to weaker economic performance.

In light of this, it argues for a range of policies that would increase both equity and economic well-being.

The great rise of inequality

Let us start by examining the ongoing trends in income and wealth. In the past three decades, those at the top have done very well, especially in the US. Between 1980 and 2014, the richest 1 per cent have seen their average real income increase by 169 per cent (from $469,403, adjusted for inflation, to $1,2b0508) and their share of national income more than double, from 10 per cent to 21 per cent. The top 0.1 per cent have fared even better. Over the same period, their average real income increased by 281 per cent (from $1,597, 080, adjusted for inflation, to $6,087,113) and their share of national income almost tripled, from 3.4 to l0 3 per cent.

Over the same thirty-four years, median household income grew by only 11 per cent. And this growth actually occurred only in the very first years of the period: by 2014 it was only .7 per cent higher than in 1989, after peaking in 1999. But even this underestimates the extent to which those at the bottom have suffered, their incomes have only done as well as they have because hours worked have increased. Median hourly compensation (adjusted for inflation) increased by only 9 per cent from 1973 to 2014, even though at the same time productivity grew by 72.2 per cent.

To understand how significant this divergence of productivity and wages is, consider that from 1948 to 1973 both increased at the same pace, about doubling over the period.

And these statistics underestimate the true deterioration in workers’ wages, for education levels have increased (the percentage of Americans who are college graduates has nearly doubled since 1980, to more than 30 per cent), so that one should have expected a significant increase in wage rates. In fact, average real hourly wages for all Americans with only a high school diploma have decreased in the past three decades.

In the first three years of the so-called recovery from the Great Recession of 2008-2009, in other words, since the US economy returned to growth, fully 91 per cent of the gains in income went to the top 1 per cent.

By 2014, the rest of the income distribution had experienced a bit more of a boost, but even accounting for that, 58 per cent of the gains in total income have gone to the top 1 per cent since 2009. During that period, the income of the bottom 99 per cent has grown by just 4 per cent.

Presidents Bush and Obama both tried a trickle-down strategy, giving large amounts of money to the banks and the bankers. The idea was simple: by saving the banks and bankers, all would benefit. The banks would restart lending: The wealthy would create more jobs. This strategy, it was argued, would be far more efficacious than helping homeowners, businesses or workers directly.

The US Treasury typically demands that when money is given to developing countries, conditions be imposed on them to ensure not only that the money is used well, but also that the country adopts economic policies that, according to the Treasury’s economic theories, will lead to growth. But no conditions were imposed on the banks, not even, for example, requirements that they lend more or stop abusive practices. The rescue worked in enriching those at the top; but the benefits did not trickle down to the rest of the economy.

The Federal Reserve, too, tried trickle-down economics. One of the main channels by which quantitative easing was supposed to rekindle growth was by leading to higher stock market prices, which would generate higher wealth for the very rich, who would then spend some of that, which in turn would benefit the rest.

As Yeva Nersisyan and Randall Wray argue in their chapter in this volume, both the Fed and the Administration could have tried policies that more directly benefited the rest of the economy: helping homeowners, lending to small and medium-sized enterprises and fixing the broken credit channel. These trickle-down policies were relatively ineffective, one reason why seven years after the US slipped into recession, the economy was still not back to health.

Wealth is even more concentrated than income, by one estimate more than ten times so. The wealthiest 1 per cent of Americans hold 41.8 per cent of the country’s wealth; the top 0.1 per cent alone control more than 22 per cent of total wealth. Just one example of the extremes of wealth in America is the Walton family: the six heirs to the Walmart empire command a wealth of $145 billion, which is equivalent to the net worth of 1,782,020 average American families.”

Wealth inequality too is on the upswing. For the four decades before the Great Recession, the rich were getting wealthier at a more rapid pace than everyone else. Between 1978 and 2013 the share of wealth owned by the top I per cent rose dramatically, from less than 25 per cent to its current level above 40 per cent; the share of the top 10 per cent from about two-thirds to well over three-quarters! By 2010, the crisis had depleted some of the richest Americans’ wealth because of the decline in stock prices, but many Americans also had had their wealth almost entirely wiped out as their homes lost value. After the crisis, the average wealthiest l per cent of households still had 165 times the wealth of the average American in the bottom 90 per cent, more than double the ratio of thirty years ago.

In the years of ‘recovery’, as stock market values rebounded (in part as a result of the Fed’s lopsided efforts to resuscitate the economy through increasing the balance sheet of the rich), the rich have regained much of the wealth that they had lost; the same did not happen to the rest of the country.

Inequality plays out along ethnic lines in ways that should be disturbing for a country that had begun to see itself as having won out against racism. Between 2005 and 2009, a huge number of Americans saw their wealth drastically decrease. The net worth of the typical white American household was down substantially, to $113,149 in 2009, a 16 per cent loss of wealth from 2005. But the recession was much worse for other groups.

The typical African American household lost 53 per cent of its wealth, putting its assets at a mere 5 per cent of the median white American’s. The typical Hispanic household lost 66 per cent of its wealth.”

Probably the most invidious aspect of America’s inequality is that of opportunities: in the US a young person’s life prospects depend heavily on the income and education of his or her parents, even more than in other advanced countries. The ’American dream’ is largely a myth.

A number of studies have noted the link between inequality of outcomes and inequality of opportunities. When there are large inequalities of income, those at the top can buy for their offspring privileges not available to others, and they often come to believe that it is their right and obligation to do so. And, of course, without equality of opportunity those born in the bottom of the distribution are likely to end up there: inequalities of outcomes perpetuate themselves. This is deeply troubling: given our low level of equality of opportunity and our high level of inequality of income and wealth, it is possible that the future will be even worse, with still further increases in inequality of outcome and still further decreases in equality of opportunity.

A generalised international trend

While the US has been winning the race to be the most unequal country (at least within developed economies), much of what has just been described for it has also been going on elsewhere. In the past twenty-five to thirty years the Gini index, the widely used measure of income inequality, has increased by roughly 29 per cent in the United States, 17 per cent in Germany, 9 per cent in Canada, 14 per cent in UK, 12 per cent in Italy and ll per cent in Japan.”

The more countries follow the American economic model, the more the results seem to be consistent with what has occurred in the United States. The UK has now achieved the second highest level of inequality among the countries of Western Europe and North America, a marked change from its position before the Thatcher era. Germany, which had been among the most equal countries within the OECD, now ranks in the middle.

The enlargement of the share of income appropriated by the richest 1 per cent has also been a general trend, and in Anglo-Saxon countries it started earlier and it has been more marked than anywhere else. In rich countries, such as the US, the concentration of wealth is even more pronounced than that of income, and has been rising too. For instance, in the UK the income share of the top 1 per cent went up from 5.7 per cent in 1978 to 14.7 per cent in 2010, while the share of wealth owned by the top 1 per cent surged from 22.6 per cent in 1970 to 28 per cent in 2010 and the top 10 per cent’s wealth share increased from 64 per cent to 70.5 per cent over the same period.

Also disturbing are the patterns that have emerged in transition economies, which at the beginning of their movement to a market economy had low levels of inequality in income and wealth (at least according to available measurements). Today, China’s inequality of income, as measured by its Gini coefficient, is roughly comparable to that of the United States and Russia. Across the OECD, since 1985 the Gini coefficient has increased in seventeen of twenty two countries for which data is available, often dramatically.

Moreover, recent research by Piketty and his co-authors has found that the importance of inherited wealth has increased in recent decades, at least in the rich countries for which we have data. After displaying a decreasing trend in the first postwar period, the share of inheritance flows in disposable income has been increasing in the past decades.

Explaining inequality

Marginal Productivity Theory

How can we explain these worrying trends? Traditionally, there has been little consensus among economists and social thinkers on what causes inequality. In the nineteenth century, they strived to explain and either justify or criticise the evident high levels of disparity. Marx talked about exploitation. Nassau Senior, the first holder of the first chair in economics, the Drummond Professorship at All Souls College, Oxford, talked about the returns to capital as a payment for capitalists’ abstinence, for their not consuming. It was not exploitation of labour, but the. just rewards for their forgoing consumption. Neoclassical economists developed the marginal productivity theory, which argued that compensation more broadly reflected different individuals’ contributions to society.

While exploitation suggests that those at the top get what they get by taking away from those at the bottom, marginal productivity theory suggests that those at the top only get what they add. The advocates of this View have gone further: they have suggested that in a competitive market, exploitation (eg. as a result of monopoly power or discrimination) simply couldn’t persist, and that additions to capital would cause wages to increase, so workers would be better off thanks to the savings and innovation of those at the top.

More specifically, marginal productivity theory maintains that, due to competition, everyone participating in the production process earns remuneration equal to her or his marginal productivity.

This theory associates higher incomes with a greater contribution to society. This can justify, for instance, preferential tax treatment for the rich: by taxing high incomes we would deprive them of the ’just deserts’ for their contribution to society, and, even more importantly, we would discourage them from expressing their talent?‘ Moreover, the more they contribute, the harder they work and the more they save, the better it is for workers, whose wages will rise as a result.

The reason why these ideas justifying inequality have endured is that they have a grain of truth in them. Some of those who have made large amounts of money have contributed greatly to our society, and in some cases what they have appropriated for themselves is but a fraction of what they have contributed to society.

But this is only a part of the story: there are other possible causes of inequality. Disparity can result from exploitation, discrimination and exercise of monopoly power. Moreover, in general, inequality is heavily influenced by many institutional and political factors: industrial relations, labour market institutions, welfare and tax systems, for example, which can both work independently of productivity and affect productivity.

That the distribution of income cannot be explained just by standard economic theory is suggested by the fact that the before-tax and transfer distribution of income differs markedly across countries. France and Norway are examples of OECD countries that have managed by and large to resist the trend of increasing inequality. The Scandinavian countries have a much higher level of equality of opportunity, regardless of how that is assessed.

Marginal Productivity Theory is meant to have universal application. Neoclassical theory taught that one could explain economic outcomes without reference, for instance, to institutions. It held that a society’s institutions are simply a facade; economic behaviour is driven by the underlying laws of demand and supply, and the economist’s job is to understand these underlying forces. Thus, the standard theory cannot explain how countries with similar technology, productivity and per capita income can differ so much in their before-tax distribution.

The evidence, though, is that institutions do matter. Not only can the effect of institutions be analysed, but institutions can themselves often be explained, sometimes by history, sometimes by power relations and sometimes by economic forces (like information asymmetries) left out of the standard analysis.

Thus, a major thrust of modern economics is to understand the role of institutions in creating and shaping markets. The question then is: what is the relative role and importance of these alternative hypotheses? There is no easy way of providing a neat quantitathe answer, but recent events and studies have lent persuasive weight to theories putting greater focus on rent-seeking and exploitation. We shall discuss this evidence in the next section, before turning to the institutional and political factors which are at the root of the recent structural changes in income distribution.

Rent-seeking and top incomes

The term ’rent’ was originally used to describe the returns to land, since the owner of the land receives these payments by virtue of his or her ownership and not because of anything he or she does. The term was then extended to include monopoly profits (or monopoly rents), the income that one receives simply from control of a monopoly and, in general returns due to similar ownership claims.

Thus, rent-seeking means getting an income not as a reward for creating wealth but by grabbing a larger share of the wealth that would have been produced anyway. Indeed, rent-seekers typically destroy wealth, as a by-product of their taking away from others. A monopolist who overcharges for her or his product takes money from those whom she or he is overcharging and at the same time destroys value. To get her or his monopoly price, she or he has to restrict production.

Growth in top incomes in the past three decades has been driven mainly in two occupational categories: those in the financial sector (both executives and professionals) and non-financial executives.” Evidence suggests that rents have contributed on a large scale to the strong increase in the incomes of both.

Let us first consider executives in general. That the rise in their compensation has not reflected productivity is indicated by the lack of correlation between managerial pay and firm performance. As early as 1990 Jensen and Murphy, by studying a sample of 2,505 CEOs in 1,400 companies, found that annual changes in executive compensation did not reflect changes in corporate performance. Since then, the work of Bebchuk, Fried and Grinstein has shown that the huge increase in US executive compensation since 1993 cannot be explained by firm performance or industrial structure and that, instead, it has mainly resulted from flaws in corporate governance, which enabled managers in practice to set their own pay. Mishel and Sabadish examined 350 firms, showing that growth in the compensation of their CEOs largely outpaced the increase in their stock market value. Most strikingly, executive compensation displayed substantial positive growth even during periods when stock market values decreased?“

There are other reasons to doubt standard marginal productivity theory. In the United States the ratio of CEO pay to that of the average worker increased from around 20 to 1 in 1965 to 354 to 1 in 2012. There was no change in technology that could explain a change in relative productivity of that magnitude, and no explanation for why that change in technology would occur in the US and not in other similar countries. Moreover, the design of corporate compensation schemes has made it evident that they are not intended to reward effort: typically, they are related to the performance of the stock, which rises and falls depending on many factors outside the control of the CEO, such as market interest rates and the price of oil. It would have been easy to design an incentive structure with less risk, simply by basing compensation on relative performance, relative to a group of comparable companies. The struggles of the Clinton administration to introduce tax systems encouraging so-called performance pay (without imposing conditions to ensure that pay was actually related to performance) and disclosure requirements (which would have enabled market participants to better assess the extent of stock dilution associated with CEO stock option plans) clarified the battle lines: those pushing for favourable tax treatment and against disclosure understood well that these arrangements would have facilitated greater inequalities in income.

For specifically the rise in top incomes in the financial sector, the evidence is even more unfavourable to explanations based on marginal productivity theory. An empirical study by Philippon and Reshef shows that in the past two decades workers in the financial industry have enjoyed a huge ’pay-premium’ with respect to similar sectors, which cannot be explained by the usual proxies for productivity (such as the level of education or unobserved ability). According to their estimates, financial sector compensations have been about 40 per cent higher than the level that would have been expected under perfect competition.

It is also well documented that banks deemed ’too big to fail’ enjoy a rent due to an implicit state guarantee. Investors know that these large financial institutions can count, in effect, on a government guarantee, and thus they are willing to provide them funds at lower interest rates. The big banks can thus prosper not because they are more efficient or provide better service but because they are in effect subsidised by taxpayers.

There are other reasons for the super-normal returns to the large banks and their bankers. In certain of the activities of the financial sector, there is far from perfect competition. Anti competitive practices in debit and credit cards have amplified pro-existing market power to generate huge rents. Lack of transparency (e.g. in over-the-counter Credit Default Swaps (CD55) and derivatives too have generated large rents, with the market dominated by four players. It is not surprising that the rents enjoyed in this way by big banks translated into higher incomes for their managers and shareholders.

In the financial sector even more than in other industries, executive compensation in the aftermath of the crisis provided convincing evidence against marginal productivity theory as an explanation of wages at the top: the bankers who had brought their firms and the global economy to the brink of ruin continued to receive high rates of pay compensation which in no way could be related either to their social contribution or even their contribution to the firms for which they worked (both of which were negative).

For instance, a study that focused on Bear Stems and Lehman Brothers in 2000-2008 has found that the top executive managers of these two giants had brought home huge amounts of ‘performance-based’ compensations (estimated at around $1 billion for Lehman and $1.4 billion for Bear Stearns), which were not clawed back when the two firms collapsed.

Still another piece of evidence supporting the importance of rent-seeking in explaining the increase in inequality is provided by those studies that have shown that increases in taxes at the very top do not result in decreases in growth rates. If these incomes were a result of their efforts, we might have expected those at the top to respond by working less hard, with adverse effects on GDP.

The Increase in rents

Three striking aspects of the evolution of most rich countries in the past thirty-five years are (a) the increase in the wealth-to-income ratio; (b) the stagnation of median wages; and (c) the failure of the return to capital to decline.

Standard neoclassical theories, in which ’wealth’ is equated with ’capital’, would suggest that the increase in capital should be associated with a decline in the return to capital and an increase in wages. The failure of unskilled workers’ wages to increase has been attributed by some (especially in the 1990s) to skill-biased technological change, which increased the premium put by the market on skills. Hence, those with skills would see their wages rise, and those without skills would see them fall. But recent years have seen a decline in the wages paid even to skilled workers. Moreover, as my recent research shows,” average wages should have increased, even if some wages fell. Something else must be going on.

There is an alternative, and more plausible, explanation. It is based on the observation that rents are increasing (due to the increase in land rents. intellectual property rents and monopoly power). As a result, the value of those assets that are able to provide rents to their owners-such as land, houses and some financial claims, is rising proportionately. So overall wealth increases, but this does not lead to an increase in the productive capacity of the economy or in the mean marginal productivity or average wage of workers. On the contrary, wages may stagnate or even decrease, because the rise in the share of rents has happened at the expense of wages.

The assets which are driving the increase in overall wealth, in fact, are not produced capital goods. In many cases, they are not even ’productive’ in the usual sense; they are not directly related to the production of goods and services?” With more wealth put into these assets, there may be less invested in real productive capital. In the case of many countries where we have data (such as France) there is evidence that this is indeed the case:

A disproportionate part of savings in recent years has gone into the purchase of housing, which has not increased the productivity of the ‘real’ economy.

Monetary policies that lead to low interest rates can increase the value of these ’unproductive’ fixed assets, an increase in the value of wealth that is unaccompanied by any increase in the flow of goods and services. By the same token, a bubble can lead to an increase in wealth, for an extended period of time, again with possible adverse effects on the stock of ’real’ productive capital Indeed, it is easy for capitalist economies to generate such bubbles (a fact that should be obvious from the historical record, but which has also been confirmed in theoretical models.) While in recent years there has been a ’correction’ in the housing bubble (and in the underlying price of land), we cannot be confident that there has been a full correction. The increase in the wealth-income ratio may still have more to do with an increase in the value of rents than with an increase in the amount of productive capital. Those who have access to financial markets and can get credit from banks (typically those already well off) can purchase these assets, using them as collateral. As the bubble takes off, so does their wealth and society’s inequality. Again, policies amplify the resulting inequality: favourable tax treatment of capital gains enables especially high after-tax returns on these assets and increases the wealth especially of the wealthy, who disproportionately own such assets (and understandably so, since they are better able to withstand the associated risks).

The role of institutions and politics

The large influence of rent-seeking in the rise of top incomes undermines the marginal productivity theory of income distribution, The income and wealth of those at the top comes at least partly at the expense of others, just the opposite conclusion from that which emerges from trickle-down economics. When, for instance, a monopoly succeeds in raising the price of the goods which it sells, it lowers the real income of everyone else. This suggests that institutional and political factors play an important role in influencing the relative shares of capital and labour.

As we noted earlier, in the past three decades wages have grown much less than productivity, a fact which is hard to reconcile with marginal productivity theory” but is consistent with increased exploitation. This suggests that the weakening of workers’ bargaining power has been a major factor. Weak unions and asymmetric globalisation, where capital is free to move while labour is much less so, are thus likely to have contributed significantly to the great surge of inequality.

The way in which globalisation has been managed has led to lower wages in part because workers’ bargaining power has been eviscerated. With capital highly mobile and with tariffs low, firms can simply tell workers that if they don’t accept lower wages and worse working conditions, the company will move elsewhere. To see how asymmetric globalisation can affect bargaining power, imagine, for a moment, what the world would be like if there was free mobility of labour, but no mobility of capital. Countries would compete to attract workers. They would promise good schools and a good environment, as well as low taxes on workers. This could be financed by high taxes on capital. But that’s not the world we live in.

In most industrialised countries there has been a decline in union membership and influence; this decline has been especially strong in the Anglo-Saxon world. This has created an imbalance of economic power and a political vacuum.

Without the protection afforded by a union, workers have fared even more poorly than they would have otherwise. Unions’ inability to protect workers against the threat of job loss by the moving of jobs abroad has contributed to weakening the power of unions. But politics has also played a major role, exemplified in President Reagan’s breaking of the air traffic controllers” strike in the US in 1981 or Margaret Thatcher’s battle against the National Union of Mineworkers in the UK.

Central bank policies focusing on inflation have almost certainly been a further factor contributing to the growing inequality and the weakening of workers’ bargaining power. As soon as wages start to increase, especially if they increase faster than the rate of inflation, central banks focusing on inflation raise interest rates. The result is a higher average level of unemployment and a downward ratcheting effect on wages: as the economy goes into recession, real wages often fall; and then monetary policy is designed to ensure that they don’t recover.

Inequalities are affected not just by the legal and formal institutional arrangements (such as the strength of unions) but also by social custom, including whether it is viewed as acceptable to engage in discrimination.

At the same time, governments have been lax in enforcing anti-discrimination laws. Contrary to the suggestion of free-market economists, but consistent with even casual observation of how markets actually behave, discrimination has been a persistent aspect of market economies, and helps explain much of what has gone on at the bottom. The discrimination takes many forms-in housing markets, in financial markets (at least one of America’s large banks had to pay a very large fine for its discriminatory practices in the run-up to the crisis) and in labour markets. There is a large literature explaining how such discrimination persists.

Of course, market forces, the demand and supply for skilled workers, affected by changes in technology and education, play an important role as well, even if those forces are partially shaped by politics. But instead of these market forces and politics balancing each other out, with the political process dampening the increase in inequalities of income and wealth in periods when market forces have led to growing disparities, in the rich countries today the two have been working together to increase inequality.

The price of inequality

The evidence is thus unsupportive of explanations of inequality solely focused on marginal productivity. But what of the argument that we need inequality to grow?

A first justification for the claim that inequality is necessary for growth focuses on the role of savings and investment in promoting growth, and is based on the observation that those at the top save, while those at the bottom typically spend all of their earnings. Countries with a high share of wages will thus not be able to accumulate capital as rapidly as those with a low share of wages. The only way to generate savings required for longterm growth is thus to ensure sufficient income for the rich.

This argument is particularly inapposite today, where the problem is, to use Bernanke’s term, a global savings glut. But even in those circumstances where growth would be increased by an increase in national savings, there are better ways of inducing savings than increasing inequality. The government can tax the income of the rich, and use the funds to finance either private or public investment; such policies reduce inequalities in consumption and disposable income, and lead to increased national savings (appropriately measured).

A second argument centres on the popular misconception that those at the top are the job creators, and giving more money to them will thus create more jobs. Industrialised countries are full of creative entrepreneurial people throughout the income distribution. What creates jobs is demand: when there is demand, firms will create the jobs to satisfy that demand (especially if we can get the financial system to work in the way it should, providing credit to small and medium-sized enterprises).

In fact, as empirical research by the IMF has shown, inequality is associated with economic instability. In particular, lMF researchers have shown that growth spells tend to be shorter when income inequality is high. This result holds also when other determinants of growth duration (like external shocks, property rights and macroeconomic conditions) are taken into account:

On average, a 10 percentile decrease in inequality increases the expected length of a growth spell by one half.

The picture does not change if one focuses on medium-term average growth rates instead of growth duration. Recent empirical research released by the OECD shows that income inequality has a negative and statistically significant effect on medium-term growth. It estimates that in countries like the US, the UK and Italy, overall economic growth would have been six to nine percentage points higher in the past two decades had income inequality not risen.”

There are different channels through which inequality harms the economy:

First, inequality leads to weak aggregate demand. The reason is easy to understand: those at the bottom spend a larger fraction of their income than those at the top. The problem may be compounded by monetary authorities’ flawed responses to this weak demand. By lowering interest rates and relaxing regulations, monetary policy too easily gives rise to an asset bubble, the bursting of which leads in turn to recession.

Many interpretations of the current crisis have indeed emphasised the importance of distributional concems. Growing inequality would have led to lower consumption but for the effects of loose monetary policy and lax regulations, which led to a housing bubble and a consumption boom. It was, in short, only growing debt that allowed consumption to be sustained. But it was inevitable that the bubble would eventually break. And it was inevitable that, when it broke, the economy would go into a downturn.

Second, inequality of outcomes is associated with inequality of opportunity. When those at the bottom of the income distribution are at great risk of not living up to their potential, the economy pays a price not only with weaker demand today, but also with lower growth in the future. With nearly one in four American children growing up in poverty?” many of them facing not just a lack of educational opportunity but also a lack of access to adequate nutrition and health, the country’s long-term prospects are being put into jeopardy.

Third, societies with greater inequality are less likely to make public investments which enhance productivity, such as in public transportation, infrastructure, technology and education. If the rich believe that they don’t need these public facilities, and worry that a strong government, which could increase the efficiency of the economy, might at the same time use its powers to redistribute income and wealth, it is not surprising that public investment is lower in countries with higher inequality. Moreover, in such countries tax and other economic policies are likely to encourage those activities that benefit the financial sector over more productive activities.

In the United States today returns on long-term financial speculation (capital gains) are taxed at approximately half the rate of labour, and speculative derivatives are given priority in bankruptcy over workers. Tax laws encourage job creation abroad rather than at home. The result is a weaker and more unstable economy. Reforming these policies-and using other policies to reduce rent-seeking would not only reduce inequality; it would improve economic performance.

It should be noted that the existence of these adverse effects of inequality on growth is itself evidence against an explanation of today’s high level of inequality based on marginal productivity theory. For the basic premise of marginal productivity is that those at the top are simply receiving just deserts for their efforts, and that the rest of society benefits from their activities. lf that were so, we should expect to see higher growth associated with higher incomes at the top. In fact, we see just the opposite.

Reversing inequality

A wide range of policies can help reduce inequality. Policies should be aimed at reducing inequalities both in market income and in the post-traumatic and-transfer incomes. The rules of the game play a large role in determining market distribution, in preventing discrimination, in creating bargaining rights for workers, in curbing monopolies and the powers of CEOs to exploit firms’ other stakeholders and the financial sector to exploit the rest of society. These rules were largely rewritten during the past thirty years in ways which led to more inequality and poorer overall economic performance. Now they must be rewritten once again, to reduce inequality and strengthen the economy, for instance, by discouraging the short-termism that has become rampant in the financial and corporate sector.

Reforms include more support for education, including pre-school; increasing the minimum wage; strengthening earned-income tax credits; strengthening the voice of workers in the workplace, including through unions; and more effective enforcement of anti-discrimination laws. But there are four areas in particular that could make inroads in the high level of inequality which now exists.

First, executive compensation (especially in the US) has become excessive, and it is hard to justify the design of executive compensation schemes based on stock options. Executives should not be rewarded for improvements in a firm’s stock market performance in which they play no part. If the Federal Reserve lowers interest rates, and that leads to an increase in stock market prices, CEOS should not get a bonus as a result. If oil prices fall, and so profits of airlines and the value of airline stocks increase, airline CEOs should not get a bonus.

There is an easy way of taking account of these gains (or losses) which are not attributable to the efforts of executives: basing performance pay on the relative performance of firms in comparable circumstances, the design of good compensation schemes that do this has been well understood for more than a third of a century, and yet executives in major corporations have almost studiously resisted these insights. They have focused more on taking advantage of deficiencies in corporate govemance and the lack of understanding of these issues by many shareholders, to try to enhance their earnings, getting high pay when share prices increase, and also when share prices fall. In the long run, as we have seen, economic performance itself is hurt?

Second, macroeconomic policies are needed that maintain economic stability and full employment. High unemployment most severely penalises those at the bottom and the middle of the income distribution. Today, workers are suffering thrice over: from high unemployment, weak wages and cutbacks in public services, as government revenues are less than they would be if economies were functioning well.

As we have argued, high inequality has weakened aggregate demand. Fuelling asset price bubbles through hyper-expansive monetary policy and deregulation is not the only possible response. Higher public investment, in infrastructures, technology and education, would both revive demand and alleviate inequality, and this would boost growth in the long-run and in the short-run. According to a recent empirical study by the IMF, we’ll designed public infrastructure investment raises output both in the short and long term, especially when the economy is operating below potential. And it doesn’t need to increase public debt in terms of GDP: well implemented infrastructure projects would pay for themselves, as the increase in income (and thus in tax revenues) would more than offset the increase in spending.

Third, public investment in education is fundamental to address inequality. A key determinant of workers’ income is the level and quality of education. If govemments ensure equal access to education, then the distribution of wages will reflect the distribution of abilities (including the ability to benefit from education) and the extent to which the education system attempts to compensate for differences in abilities and backgrounds. If, as in the United States, those with rich parents usually have access to better education, then one generation’s inequality will be passed on to the next, and in each generation, wage inequality will reflect the income and related inequalities of the last.

Fourth, these much needed public investments could be financed through fair and full taxation of capital income. This would further contribute to counteracting the surge in inequality: it can help bring down the net return to capital, so that those capitalists who save much of their income won’t see their wealth accumulate at a faster pace than the growth of the overall economy, resulting in growing inequality of wealth. Special provisions providing for favourable taxation of capital gains and dividends not only distort the economy, but, with the vast majority of the benefits going to the very top, increase inequality.

At the same time they impose enormous budgetary costs: 2 trillion dollars from, 2013 to 2023 in the US, according to the Congressional Budget Office. The elimination of the special provisions for capital gains and dividends, coupled with the taxation of capital gains on the basis of accrual, not just realisations, is the most obvious reform in the tax code that would improve inequality and raise substantial amounts of revenues. There are many others, such as a good system of inheritance and effectively enforced estate taxation.

Conclusion: redefining economic performance

We used to think of there being a trade-off: we could achieve more equality, but only at the expense of overall economic performance. It is now clear that, given the extremes of inequality being reached in many rich countries and the manner in which they have been generated, greater equality and improved economic performance are complements.

This is especially true if we focus on appropriate measures of growth. If we use the wrong metrics, we will strive for the wrong things. As the international Commission on the Measurement of Economic Performance and Social Progress argued, there is a growing global consensus that GDP does not provide a good measure of overall economic performance. What matters is whether growth is sustainable, and whether most citizens see their living standards rising year after year.

Since the beginning of the new millennium, the US economy, and that of most other advanced countries, has clearly not been performing. In fact, for three decades, real median incomes have essentially stagnated. Indeed, in the case of the US, the problems are even worse and were manifest well before the recession: in the past four decades average wages have stagnated, even though productivity has drastically increased.

As this chapter has emphasised, a key factor underlying the current economic difficulties of rich countries is growing inequality. We need to focus not on what is happening on average, as GDP leads us to do, but on how the economy is performing for the typical citizen, reflected for instance in median disposable income. People care about health, fairness and security, and yet GDP statistics do not reflect their decline. Once these and other aspects of societal well-being are taken into account, recent performance in rich countries looks much worse.

The economic policies required to change this are not difficult to identify. We need more investment in public goods; better corporate governance, antitrust and anti-discrimination laws; a better regulated financial system; stronger workers’ rights; and more progressive tax and transfer policies. By ’rewriting the rules’ goveming the market economy in these ways, it is possible to achieve greater equality in both the pre and post tax and transfer distribution of income, and thereby stronger economic performance.

Joseph Stiglitz

Inequality gap widens as 42 people hold same wealth as 3.7bn poorest – Larry Elliott.

Oxfam calls for action on gap as wealthiest people gather at World Economic Forum in Davos.

The development charity Oxfam has called for action to tackle the growing gap between rich and poor as it launched a new report showing that 42 people hold as much wealth as the 3.7 billion who make up the poorest half of the world’s population.
In a report published on Monday to coincide with the gathering of some of the world’s richest people at the World Economic Forum in Davos, Oxfam said billionaires had been created at a record rate of one every two days over the past 12 months, at a time when the bottom 50% of the world’s population had seen no increase in wealth. It added that 82% of the global wealth generated in 2017 went to the most wealthy 1%.

The charity said it was “unacceptable and unsustainable” for a tiny minority to accumulate so much wealth while hundreds of millions of people struggled on poverty pay. It called on world leaders to turn rhetoric about inequality into policies to tackle tax evasion and boost the pay of workers.

Mark Goldring, Oxfam GB chief executive, said: “The concentration of extreme wealth at the top is not a sign of a thriving economy, but a symptom of a system that is failing the millions of hardworking people on poverty wages who make our clothes and grow our food.”

Booming global stock markets have been the main reason for the increase in wealth of those holding financial assets during 2017. The founder of Amazon, Jeff Bezos, saw his wealth rise by $6bn (£4.3bn) in the first 10 days of 2017 as a result of a bull market on Wall Street, making him the world’s richest man.

Oxfam said it had made changes to its wealth calculations as a result of new data from the bank Credit Suisse. Under the revised figures, 42 people hold as much wealth as the 3.7 billion people who make up the poorer half of the world’s population, compared with 61 people last year and 380 in 2009. At the time of last year’s report, Oxfam said that eight billionaires held the same wealth as half the world’s population.

The charity added that the wealth of billionaires had risen by 13% a year on average in the decade from 2006 to 2015, with the increase of $762bn (£550bn) in 2017 enough to end extreme poverty seven times over. It said nine out of 10 of the world’s 2,043 dollar billionaires were men.

Goldring said: “For work to be a genuine route out of poverty we need to ensure that ordinary workers receive a living wage and can insist on decent conditions, and that women are not discriminated against. If that means less for the already wealthy then that is a price that we – and they – should be willing to pay.”

An Oxfam survey of 70,000 people in 10 countries, including the UK, showed support for action to tackle inequality. Nearly two-thirds of people – 72% in the UK – said they want their government to urgently address the income gap between rich and poor in their country.

In the UK, when asked what a typical British chief executive earned in comparison with an unskilled worker, people guessed 33 times as much. When asked what the ideal ratio should be, they said 7:1. Oxfam said that FTSE 100 bosses earned on average 120 times more than the average employee.

Goldring said it was time to rethink a global economy in which there was excessive corporate influence on policymaking, erosion of workers’ rights and a relentless drive to minimise costs in order to maximise returns to investors.

Mark Littlewood, director general at the Institute of Economic Affairs, said: “Oxfam is promoting a race to the bottom. Richer people are already highly taxed people – reducing their wealth beyond a certain point won’t lead to redistribution, it will destroy it to the benefit of no one. Higher minimum wages would also likely lead to disappearing jobs, harming the very people Oxfam intend to help.”

The Guardian

Reclaiming the State. A Progressive Vision of Sovereignty for a Post-Neoliberal World –  William Mitchell and Thomas Fazi. 

Introduction: 

Make the Left Great Again 

The West is currently in the midst of an anti-establishment revolt of historic proportions. The Brexit vote in the United Kingdom, the election of Donald Trump in the United States, the rejection of Matteo Renzi’s neoliberal constitutional reform in Italy, the EU’s unprecedented crisis of legitimation: although these interrelated phenomena differ in ideology and goals, they are all rejections of the (neo) liberal order that has dominated the world –and in particular the West –for the past 30 years. 

Even though the system has thus far proven capable (for the most part) of absorbing and neutralising these electoral uprisings, there is no indication that this anti-establishment revolt is going to abate any time soon. Support for anti-establishment parties in the developed world is at the highest level since the 1930s –and growing. At the same time, support for mainstream parties –including traditional social-democratic parties –has collapsed. 

The reasons for this backlash are rather obvious. The financial crisis of 2007–9 laid bare the scorched earth left behind by neoliberalism, which the elites had gone to great lengths to conceal, in both material (financialisation) and ideological (‘the end of history’) terms. 

As credit dried up, it became apparent that for years the economy had continued to grow primarily because banks were distributing the purchasing power –through debt –that businesses were not providing in salaries. To paraphrase Warren Buffett, the receding tide of the debt-fuelled boom revealed that most people were, in fact, swimming naked

The situation was (is) further exacerbated by the post-crisis policies of fiscal austerity and wage deflation pursued by a number of Western governments, particularly in Europe, which saw the financial crisis as an opportunity to impose an even more radical neoliberal regime and to push through policies designed to suit the financial sector and the wealthy, at the expense of everyone else. 

Thus, the unfinished agenda of privatisation, deregulation and welfare state retrenchment –temporarily interrupted by the financial crisis –was reinstated with even greater vigour. Amid growing popular dissatisfaction, social unrest and mass unemployment (in a number of European countries), political elites on both sides of the Atlantic responded with business-as-usual policies and discourses. 

As a result, the social contract binding citizens to traditional ruling parties is more strained today than at any other time since World War II –and in some countries has arguably already been broken. 

Of course, even if we limit the scope of our analysis to the post-war period, anti-systemic movements and parties are not new in the West. Up until the 1980s, anti-capitalism remained a major force to be reckoned with. The novelty is that today –unlike 20, 30 or 40 years ago –it is movements and parties of the right and extreme right (along with new parties of the neoliberal ‘extreme centre’, such as the new French president Emmanuel Macron’s party En Marche!) that are leading the revolt, far outweighing the movements and parties of the left in terms of voting strength and opinion-shaping. 

With few exceptions, left parties –that is, parties to the left of traditional social-democratic parties –are relegated to the margins of the political spectrum in most countries. 

Meanwhile, in Europe, traditional social-democratic parties are being ‘pasokified’–that is, reduced to parliamentary insignificance, like many of their centre-right counterparts, due to their embrace of neoliberalism and failure to offer a meaningful alternative to the status quo –in one country after another. 

The term refers to the Greek social-democratic party PASOK, which was virtually wiped out of existence in 2014, due to its inane handling of the Greek debt crisis, after dominating the Greek political scene for more than three decades. A similar fate has befallen other former behemoths of the social-democratic establishment, such as the French Socialist Party and the Dutch Labour Party (PvdA). Support for social-democratic parties is today at the lowest level in 70 years –and falling. 

How should we explain the decline of the left –not just the electoral decline of those parties that are commonly associated with the left side of the political spectrum, regardless of their effective political orientation, but also the decline of core left values within those parties and within society in general? 

Why has the anti-establishment left proven unable to fill the vacuum left by the collapse of the establishment left? More broadly, how did the left come to count so little in global politics? Can the left, both culturally and politically, become a major force in our societies again? And if so, how? 

These are some of the questions that we attempt to answer in this book. Though the left has been making inroads in some countries in recent years –notable examples include Bernie Sanders in the United States, Jeremy Corbyn in the UK, Podemos in Spain and Jean-Luc Mélenchon in France –and has even succeeded in taking power in Greece (though the SYRIZA government was rapidly brought to heel by the European establishment), there is no denying that, for the most part, movements and parties of the extreme right have been more effective than left-wing or progressive forces at tapping into the legitimate grievances of the masses –disenfranchised, marginalised, impoverished and dispossessed by the 40-year-long neoliberal class war waged from above. 

In particular, they are the only forces that have been able to provide a (more or less) coherent response to the widespread –and growing –yearning for greater territorial or national sovereignty, increasingly seen as the only way, in the absence of effective supranational mechanisms of representation, to regain some degree of collective control over politics and society, and in particular over the flows of capital, trade and people that constitute the essence of neoliberal globalisation. Given neoliberalism’s war against sovereignty, it should come as no surprise that ‘sovereignty has become the master-frame of contemporary politics’, as Paolo Gerbaudo notes. 

After all, as we argue in Chapter 5, the hollowing out of national sovereignty and curtailment of popular-democratic mechanisms –what has been termed depoliticisation –has been an essential element of the neoliberal project, aimed at insulating macroeconomic policies from popular contestation and removing any obstacles put in the way of economic exchanges and financial flows. 

Given the nefarious effects of depoliticisation, it is only natural that the revolt against neoliberalism should first and foremost take the form of demands for a repoliticisation of national decision-making processes. 

The fact that the vision of national sovereignty that was at the centre of the Trump and Brexit campaigns, and that currently dominates the public discourse, is a reactionary, quasi-fascist one –mostly defined along ethnic, exclusivist and authoritarian lines –should not be seen as an indictment of national sovereignty as such. History attests to the fact that national sovereignty and national self-determination are not intrinsically reactionary or jingoistic concepts –in fact, they were the rallying cries of countless nineteenth- and twentieth-century socialist and left-wing liberation movements.

Even if we limit our analysis to core capitalist countries, it is patently obvious that virtually all the major social, economic and political advancements of the past centuries were achieved through the institutions of the democratic nation state, not through international, multilateral or supranational institutions, which in a number of ways have, in fact, been used to roll back those very achievements, as we have seen in the context of the euro crisis, where supranational (and largely unaccountable) institutions such as the European Commission, Eurogroup and European Central Bank (ECB) used their power and authority to impose crippling austerity on struggling countries. 

The problem, in short, is not national sovereignty as such, but the fact that the concept in recent years has been largely monopolised by the right and extreme right, which understandably sees it as a way to push through its xenophobic and identitarian agenda. It would therefore be a grave mistake to explain away the seduction of the ‘Trumpenproletariat’ by the far right as a case of false consciousness, as Marc Saxer notes; the working classes are simply turning to the only movements and parties that (so far) promise them some protection from the brutal currents of neoliberal globalisation (whether they can or truly intend to deliver on that promise is a different matter). 

However, this simply raises an even bigger question: why has the left not been able to offer the working classes and increasingly proletarianised middle classes a credible alternative to neoliberalism and to neoliberal globalisation? More to the point, why has it not been able to develop a progressive view of national sovereignty? 

As we argue in this book, the reasons are numerous and overlapping. For starters, it is important to understand that the current existential crisis of the left has very deep historical roots, reaching as far back as the 1960s. If we want to comprehend how the left has gone astray, that is where we have to begin our analysis. 

Today the post-war ‘Keynesian’ era is eulogised by many on the left as a golden age in which organised labour and enlightened thinkers and policymakers (such as Keynes himself) were able to impose a ‘class compromise’ on reluctant capitalists that delivered unprecedented levels of social progress, which were subsequently rolled back following the so-called neoliberal counter-revolution. 

It is thus argued that, in order to overcome neoliberalism, all it takes is for enough members of the establishment to be swayed by an alternative set of ideas. However, as we note in Chapter 2, the rise and fall of Keynesianism cannot simply be explained in terms of working-class strength or the victory of one ideology over another, but should instead be viewed as the outcome of the fortuitous confluence, in the aftermath of World War II, of a number of social, ideological, political, economic, technical and institutional conditions. 

To fail to do so is to commit the same mistake that many leftists committed in the early post-war years. By failing to appreciate the extent to which the class compromise at the base of the Fordist-Keynesian system was, in fact, a crucial component of that history-specific regime of accumulation –actively supported by the capitalist class insofar as it was conducive to profit-making, and bound to be jettisoned once it ceased to be so –many socialists of the time convinced themselves ‘that they had done much more than they actually had to shift the balance of class power, and the relationship between states and markets’. 

Some even argued that the developed world had already entered a post-capitalist phase, in which all the characteristic features of capitalism had been permanently eliminated, thanks to a fundamental shift of power in favour of labour vis-à-vis capital, and of the state vis-à-vis the market. Needless to say, that was not the case. 

Furthermore, as we show in Chapter 3, monetarism –the ideological precursor to neoliberalism –had already started to percolate into left-wing policymaking circles as early as the late 1960s. Thus, as argued in Chapters 2 and 3, many on the left found themselves lacking the necessary theoretical tools to understand –and correctly respond to –the capitalist crisis that engulfed the Keynesian model in the 1970s, convincing themselves that the distributional struggle that arose at the time could be resolved within the narrow limits of the social-democratic framework. 

The truth of the matter was that the labour–capital conflict that re-emerged in the 1970s could only have been resolved one way or another: on capital’s terms, through a reduction of labour’s bargaining power, or on labour’s terms, through an extension of the state’s control over investment and production. As we show in Chapters 3 and 4, with regard to the experience of the social-democratic governments of Britain and France in the 1970s and 1980s, the left proved unwilling to go this way. This left it (no pun intended) with no other choice but to ‘manage the capitalist crisis on behalf of capital’, as Stuart Hall wrote, by ideologically and politically legitimising neoliberalism as the only solution to the survival of capitalism. 

In this regard, as we show in Chapter 3, the Labour government of James Callaghan (1974–9) bears a very heavy responsibility. In an (in) famous speech in 1976, Callaghan justified the government’s programme of spending cuts and wage restraint by declaring Keynesianism dead, indirectly legitimising the emerging monetarist (neoliberal) dogma and effectively setting up the conditions for Labour’s ‘austerity lite’ to be refined into an all-out attack on the working class by Margaret Thatcher. 

Even worse, perhaps, Callaghan popularised the notion that austerity was the only solution to the economic crisis of the 1970s, anticipating Thatcher’s ‘there is no alternative’(TINA) mantra, even though there were radical alternatives available at the time, such as those put forward by Tony Benn and others. These, however, were ‘no longer perceived to exist’. 

In this sense, the dismantling of the post-war Keynesian framework cannot simply be explained as the victory of one ideology (‘neoliberalism’) over another (‘Keynesianism’), but should rather be understood as the result of a number of overlapping ideological, economic and political factors: the capitalists’response to the profit squeeze and to the political implications of full employment policies; the structural flaws of ‘actually existing Keynesianism’; and, importantly, the left’s inability to offer a coherent response to the crisis of the Keynesian framework, let alone a radical alternative. 

These are all analysed in-depth in the first chapters of the book. Furthermore, throughout the 1970s and 1980s, a new (fallacious) left consensus started to set in: that economic and financial internationalisation –what today we call ‘globalisation’–had rendered the state increasingly powerless vis-à-vis ‘the forces of the market’, and that therefore countries had little choice but to abandon national economic strategies and all the traditional instruments of intervention in the economy (such as tariffs and other trade barriers, capital controls, currency and exchange rate manipulation, and fiscal and central bank policies), and hope, at best, for transnational or supranational forms of economic governance. 

In other words, government intervention in the economy came to be seen not only as ineffective but, increasingly, as outright impossible. This process –which was generally (and erroneously, as we shall see) framed as a shift from the state to the market –was accompanied by a ferocious attack on the very idea of national sovereignty, increasingly vilified as a relic of the past. As we show, the left –in particular the European left –played a crucial role in this regard as well, by cementing this ideological shift towards a post-national and post-sovereign view of the world, often anticipating the right on these issues. 

One of the most consequential turning points in this respect, which is analysed in Chapter 4, was Mitterrand’s 1983 turn to austerity –the so-called tournant de la rigueur –just two years after the French Socialists’ historic victory in 1981. Mitterrand’s election had inspired the widespread belief that a radical break with capitalism –at least with the extreme form of capitalism that had recently taken hold in the Anglo-Saxon world –was still possible. By 1983, however, the French Socialists had succeeded in ‘proving’ the exact opposite: that neoliberal globalisation was an inescapable and inevitable reality. As Mitterrand stated at the time: ‘National sovereignty no longer means very much, or has much scope in the modern world economy. …A high degree of supra-nationality is essential.’ 

The repercussions of Mitterrand’s about-turn are still being felt today. It is often brandished by left-wing and progressive intellectuals as proof of the fact that globalisation and the internationalisation of finance has ended the era of nation states and their capacity to pursue policies that are not in accord with the diktats of global capital. The claim is that if a government tries autonomously to pursue full employment and a progressive/redistributive agenda, it will inevitably be punished by the amorphous forces of global capital. 

This narrative claims that Mitterrand had no option but to abandon his agenda of radical reform. To most modern-day leftists, Mitterrand thus represents a pragmatist who was cognisant of the international capitalist forces he was up against and responsible enough to do what was best for France. In fact, as we argue in the second part of the book, sovereign, currency-issuing states –such as France in the 1980s –far from being helpless against the power of global capital, still have the capacity to deliver full employment and social justice to their citizens. 

So how did the idea of the ‘death of the state’come to be so ingrained in our collective consciousness? 

As we explain in Chapter 5, underlying this post-national view of the world was (is) a failure to understand –and in some cases an explicit attempt to conceal –on behalf of left-wing intellectuals and policymakers that ‘globalisation’ was (is) not the result of inexorable economic and technological changes but was (is) largely the product of state-driven processes. All the elements that we associate with neoliberal globalisation –delocalisation, deindustrialisation, the free movement of goods and capital, etc. –were (are), in most cases, the result of choices made by governments. 

More generally, states continue to play a crucial role in promoting, enforcing and sustaining a (neo) liberal international framework –though that would appear to be changing, as we discuss in Chapter 6 –as well as establishing the domestic conditions for allowing global accumulation to flourish. The same can be said of neoliberalism tout court. 

There is a widespread belief –particularly among the left –that neoliberalism has involved (and involves) a ‘retreat’, ‘hollowing out’ or ‘withering away’ of the state, which in turn has fuelled the notion that today the state has been ‘overpowered’ by the market. However, as we argue in Chapter 5, neoliberalism has not entailed a retreat of the state but rather a reconfiguration of the state, aimed at placing the commanding heights of economic policy ‘in the hands of capital, and primarily financial interests’. 

It is self-evident, after all, that the process of neoliberalisation would not have been possible if governments –and in particular social-democratic governments –had not resorted to a wide array of tools to promote it: the liberalisation of goods and capital markets; the privatisation of resources and social services; the deregulation of business, and financial markets in particular; the reduction of workers’ rights (first and foremost, the right to collective bargaining) and more generally the repression of labour activism; the lowering of taxes on wealth and capital, at the expense of the middle and working classes; the slashing of social programmes; and so on. 

These policies were systemically pursued throughout the West (and imposed on developing countries) with unprecedented determination, and with the support of all the major international institutions and political parties. 

As noted in Chapter 5, even the loss of national sovereignty –which has been invoked in the past, and continues to be invoked today, to justify neoliberal policies –is largely the result of a willing and conscious limitation of state sovereign rights by national elites. 

The reason why governments chose willingly to ‘tie their hands’ is all too clear: as the European case epitomises, the creation of self-imposed ‘external constraints’ allowed national politicians to reduce the politics costs of the neoliberal transition –which clearly involved unpopular policies –by ‘scapegoating’ institutionalised rules and ‘independent’ or international institutions, which in turn were presented as an inevitable outcome of the new, harsh realities of globalisation. 

Moreover, neoliberalism has been (and is) associated with various forms of authoritarian statism –that is, the opposite of the minimal state advocated by neoliberals –as states have bolstered their security and policing arms as part of a generalised militarisation of civil protest. In other words, not only does neoliberal economic policy require the presence of a strong state, but it requires the presence of an authoritarian state (particularly where extreme forms of neoliberalism are concerned, such as the ones experimented with in periphery countries), at both the domestic and international level (see Chapter 5). 

In this sense, neoliberal ideology, at least in its official anti-state guise, should be considered little more than a convenient alibi for what has been and is essentially a political and state-driven project. Capital remains as dependent on the state today as it was under ‘Keynesianism’–to police the working classes, bail out large firms that would otherwise go bankrupt, open up markets abroad (including through military intervention), etc. 

The ultimate irony, or indecency, is that traditional left establishment parties have become standard-bearers for neoliberalism themselves, both while in elected office and in opposition. 

In the months and years that followed the financial crash of 2007–9, capital’s –and capitalism’s –continued dependency on the state in the age of neoliberalism became glaringly obvious, as the governments of the US, Europe and elsewhere bailed out their respective financial institutions to the tune of trillions of euros/dollars. 

In Europe, following the outbreak of the so-called ‘euro crisis’ in 2010, this was accompanied by a multi-level assault on the post-war European social and economic model aimed at restructuring and re-engineering European societies and economies along lines more favourable to capital. This radical reconfiguration of European societies –which, again, has seen social-democratic governments at the forefront –is not based on a retreat of the state in favour of the market, but rather on a reintensification of state intervention on the side of capital. 

Nonetheless, the erroneous idea of the waning nation state has become an entrenched fixture of the left. As we argue throughout the book, we consider this to be central in understanding the decline of the traditional political left and its acquiescence to neoliberalism. 

In view of the above, it is hardly surprising that the mainstream left is, today, utterly incapable of offering a positive vision of national sovereignty in response to neoliberal globalisation. To make matters worse, most leftists have bought into the macroeconomic myths that the establishment uses to discourage any alternative use of state fiscal capacities. 

For example, they have accepted without question the so-called household budget analogy, which suggests that currency-issuing governments, like households, are financially constrained, and that fiscal deficits impose crippling debt burdens on future generations –a notion that we thoroughly debunk in Chapter 8. 

This has gone hand in hand with another, equally tragic, development. As discussed in Chapter 5, following its historical defeat, the left’s traditional anti-capitalist focus on class slowly gave way to a liberal-individualist understanding of emancipation. Waylaid by post-modernist and post-structuralist theories, left intellectuals slowly abandoned Marxian class categories to focus, instead, on elements of political power and the use of language and narratives as a way of establishing meaning. This also defined new arenas of political struggle that were diametrically opposed to those defined by Marx. 

Over the past three decades, the left focus on ‘capitalism’ has given way to a focus on issues such as racism, gender, homophobia, multiculturalism, etc. Marginality is no longer described in terms of class but rather in terms of identity. The struggle against the illegitimate hegemony of the capitalist class has given way to the struggles of a variety of (more or less) oppressed and marginalised groups: women, ethnic and racial minorities, the LGBTQ community, etc. As a result, class struggle has ceased to be seen as the path to liberation. 

In this new post-modernist world, only categories that transcend Marxian class boundaries are considered meaningful. Moreover, the institutions that evolved to defend workers against capital –such as trade unions and social-democratic political parties –have become subjugated to these non-class struggle foci. What has emerged in practically all Western countries as a result, as Nancy Fraser notes, is a perverse political alignment between ‘mainstream currents of new social movements (feminism, anti-racism, multiculturalism, and LGBTQ rights), on the one side, and high-end “symbolic” and service-based business sectors (Wall Street, Silicon Valley, and Hollywood), on the other’. 

The result is a progressive neoliberalism ‘that mix[es] together truncated ideals of emancipation and lethal forms of financialization’, with the former unwittingly lending their charisma to the latter. 

As societies have become increasingly divided between well-educated, highly mobile, highly skilled, socially progressive cosmopolitan urbanites, and lower-skilled and less educated peripherals who rarely work abroad and face competition from immigrants, the mainstream left has tended to consistently side with the former. Indeed, the split between the working classes and the intellectual-cultural left can be considered one of the main reasons behind the right-wing revolt currently engulfing the West. 

As argued by Jonathan Haidt, the way the globalist urban elites talk and act unwittingly activates authoritarian tendencies in a subset of nationalists. In a vicious feedback loop, however, the more the working classes turn to right-wing populism and nationalism, the more the intellectual-cultural left doubles down on its liberal-cosmopolitan fantasies, further radicalising the ethno-nationalism of the proletariat. 

As Wolfgang Streeck writes: Protests against material and moral degradation are suspected of being essentially fascist, especially now that the former advocates of the plebeian classes have switched to the globalization party, so that if their former clients wish to complain about the pressures of capitalist modernization, the only language at their disposal is the pre-political, untreated linguistic raw material of everyday experiences of deprivation, economic or cultural. This results in constant breaches of the rules of civilized public speech, which in turn can trigger indignation at the top and mobilization at the bottom. 

This is particularly evident in the European debate, where, despite the disastrous effects of the EU and monetary union, the mainstream left –often appealing to exactly the same arguments used by Callaghan and Mitterrand 30–40 years ago –continues to cling on to these institutions and to the belief that they can be reformed in a progressive direction, despite all evidence to the contrary, and to dismiss any talk of restoring a progressive agenda on the foundation of retrieved national sovereignty as a ‘retreat into nationalist positions’, inevitably bound to plunge the continent into 1930s-style fascism. 

This position, as irrational as it may be, is not surprising, considering that European Economic and Monetary Union (EMU) is, after all, a brainchild of the European left (see Chapter 5). However, such a position presents numerous problems, which are ultimately rooted in a failure to understand the true nature of the EU and monetary union. 

First of all, it ignores the fact that the EU’s economic and political constitution is structured to produce the results that we are seeing –the erosion of popular sovereignty, the massive transfer of wealth from the middle and lower classes to the upper classes, the weakening of labour and more generally the rollback of the democratic and social/economic gains that had previously been achieved by subordinate classes –and is designed precisely to impede the kind of radical reforms to which progressive integrationists or federalists aspire to. 

More importantly, however, it effectively reduces the left to the role of defender of the status quo, thus allowing the political right to hegemonise the legitimate anti-systemic –and specifically anti-EU –grievances of citizens. This is tantamount to relinquishing the discursive and political battleground for a post-neoliberal hegemony –which is inextricably linked to the question of national sovereignty –to the right and extreme right. It is not hard to see that if progressive change can only be implemented at the global or even European level –in other words, if the alternative to the status quo offered to electorates is one between reactionary nationalism and progressive globalism –then the left has already lost the battle. 

It needn’t be this way, however. As we argue in the second part of the book, a progressive, emancipatory vision of national sovereignty that offers a radical alternative to both the right and the neoliberals –one based on popular sovereignty, democratic control over the economy, full employment, social justice, redistribution from the rich to the poor, inclusivity and the socio-ecological transformation of production and society –is possible. Indeed, it is necessary. 

As J. W. Mason writes: Whatever [supranational] arrangements we can imagine in principle, the systems of social security, labor regulation, environmental protection, and redistribution of income and wealth that in fact exist are national in scope and are operated by national governments. By definition, any struggle to preserve social democracy as it exists today is a struggle to defend national institutions.  

As we contend in this book, the struggle to defend the democratic sovereign from the onslaught of neoliberal globalisation is the only basis on which the left can be refounded (and the nationalist right challenged). However, this is not enough. 

The left also needs to abandon its obsession with identity politics and retrieve the ‘more expansive, anti-hierarchical, egalitarian, class-sensitive, anti-capitalist understandings of emancipation’ that used to be its trademark (which, of course, is not in contradiction with the struggle against racism, patriarchy, xenophobia and other forms of oppression and discrimination). 

Fully embracing a progressive vision of sovereignty also means abandoning the many false macroeconomic myths that plague left-wing and progressive thinkers. One of the most pervasive and persistent myths is the assumption that governments are revenue-constrained, that is, that they need to ‘fund’ their expenses through taxes or debt. This leads to the corollary that governments have to ‘live within their means’, since ongoing deficits will inevitably result in an ‘excessive’ accumulation of debt, which in turn is assumed to be ‘unsustainable’ in the long run. 

In reality, as we show in Chapter 8, monetarily sovereign (or currency-issuing) governments –which nowadays include most governments –are never revenue-constrained because they issue their own currency by legislative fiat and always have the means to achieve and sustain full employment and social justice. 

In this sense, a progressive vision of national sovereignty should aim to reconstruct and redefine the national state as a place where citizens can seek refuge ‘in democratic protection, popular rule, local autonomy, collective goods and egalitarian traditions’, as Streeck argues, rather than a culturally and ethnically homogenised society. 

This is also the necessary prerequisite for the construction of a new international( ist) world order, based on interdependent but independent sovereign states. It is such a vision that we present in this book. 

*

PART I 

The Great Transformation Redux: From Keynesianism to Neoliberalism –and Beyond 

1 Broken Paradise: A Critical Assessment of the Keynesian ‘Full Employment’ Era 

THE IDEALIST VIEW: KEYNESIANISM AS THE VICTORY OF ONE IDEOLOGY OVER ANOTHER 

Looking back on the 30-year-long economic expansion that followed World War II, Adam Przeworski and Michael Wallerstein concluded that ‘by most criteria of economic progress the Keynesian era was a success’. 

It is hard to disagree: throughout the West, from the mid-1940s until the early 1970s, countries enjoyed lower levels of unemployment, greater economic stability and higher levels of economic growth than ever before. That stability, particularly in the US, also rested on a strong financial regulatory framework: on the widespread provision of deposit insurance to stop bank runs; strict regulation of the financial system, including the separation of commercial banking from investment banking; and extensive capital controls to reduce currency volatility. 

These domestic and international restrictions ‘kept financial excesses and bubbles under control for over a quarter of a century’. 

Wages and living standards rose, and –especially in Europe –a variety of policies and institutions for welfare and social protection (also known as the ‘welfare state’) were created, including sustained investment in universally available social services such as education and health. Few people would deny that this was, indeed, a ‘golden age’ for capitalism. 

However, when it comes to explaining what made this exceptional period possible and why it came to an end, theories abound. Most contemporary Keynesians subscribe to a quasi-idealist view of history –that is, one that stresses the central role of ideas and ideals in human history. This is perhaps unsurprising, considering that Keynes himself famously noted: ‘Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.’ 

According to this view, the social and economic achievements of the post-war period are largely attributable to the revolution in economic thinking spearheaded by the British economist John Maynard Keynes. 

Throughout the 1920s and 1930s, Keynes overturned the old classical (neoclassical) paradigm, rooted in the doctrine of laissez-faire (‘let it be’) free-market capitalism, which held that markets are fundamentally self-regulating. The understanding was that the economy, if left to its own devices –that is, with the government intervening as little as possible –would automatically generate stability and full employment, as long as workers were flexible in their wage demands. 

The Great Depression of the 1930s that followed the stock market crash of 1929 –where minimal financial regulation, little-understood financial products and overindebted households and banks all conspired to create a huge speculative bubble which, when it burst, brought the US financial system crashing down, and with it the entire global economy –clearly challenged traditional laissez-faire economic theories. 

This bolstered Keynes’ argument –spelled out at length in his masterpiece, The General Theory of Employment, Interest, and Money, published in 1936 –that aggregate spending determined the overall level of economic activity, and that inadequate aggregate spending could lead to prolonged periods of high unemployment (what he called ‘underemployment equilibrium’). Thus, he advocated the use of debt-based expansionary fiscal and monetary measures and a strict regulatory framework to counter capitalism’s tendency towards financial crises and disequilibrium, and to mitigate the adverse effects of economic recessions and depressions, first and foremost by creating jobs that the private sector was unable or unwilling to provide. 

The bottom line of Keynes’ argument was that the government always has the ability to determine the overall level of spending and employment in the economy. In other words, full employment was a realistic goal that could be pursued at all times. 

Yet politicians were slow to catch on. When the speculative bubbles in both Europe and the United States burst in the aftermath of the Wall Street crash of 1929, various countries (to varying degrees, and more or less willingly) turned to austerity as a perceived ‘cure’ for the excesses of the previous decade. 

In the United States, president Herbert Hoover, a year after the crash, declared that ‘economic depression cannot be cured by legislative action or executive pronouncements’ and that ‘economic wounds must be healed by the action of the cells of the economic body –the producers and consumers themselves’. 

At first Hoover and his officials downplayed the stock market crash, claiming that the economic slump would be only temporary. When the situation did not improve, Hoover advocated a strict laissez-faire policy, dictating that the federal government should not interfere with the economy but rather let the economy right itself. He counselled that ‘every individual should sustain faith and courage’ and ‘each should maintain self-reliance’. 

Even though Hoover supported a doubling of government expenditure on public works projects, he also firmly believed in the need for a balanced budget. As Nouriel Roubini and Stephen Mihm observe, Hoover ‘wanted to reconcile contradictory aims: to cultivate self-reliance, to provide government help in a time of crisis, and to maintain fiscal discipline. This was impossible.’ In fact, it is widely agreed that Hoover’s inaction was responsible for the worsening of the Great Depression. 

If the United States’ reaction under Hoover can be described as ‘too little, too late’, Europe’s reaction in the late 1920s and early 1930s actively contributed to the downward spiral of the Great Depression, setting the stage for World War II. 

Austerity was the dominant response of European governments during the early years of the Great Depression. The political consequences are well known. Anti-systemic parties gained strength all across the continent, most notably in Germany. While 24 European regimes had been democratic in 1920, the number was down to eleven in 1939. 

Various historians and economists see the rise of Hitler as a direct consequence of the austerity policies indirectly imposed on Germany by its creditors following the economic crash of the late 1920s. Ewald Nowotny, the current head of Austria’s national bank, stated that it was precisely ‘the single-minded concentration on austerity policy’ in the 1930s that ‘led to mass unemployment, a breakdown of democratic systems and, at the end, to the catastrophe of Nazism’. 

Historian Steven Bryan agrees: ‘During the 1920s and 1930s it was precisely the refusal to acknowledge the social and political consequences of austerity that helped bring about not only the depression, but also the authoritarian governments of the 1930s.

*

from

Reclaiming the State. A Progressive Vision of Sovereignty for a Post-Neoliberal World

by

William Mitchell and Thomas Fazi.

get it at Amazon.com

The Tax Bill That Inequality Created – NYTimes. 

THE EDITORIAL Board, December 16, 2017

Most Americans know that the Republican tax bill will widen economic inequality by lavishing breaks on corporations and the wealthy while taking benefits away from the poor and the middle class. What many may not realize is that growing inequality helped create the bill in the first place.

As a smaller and smaller group of people cornered an ever-larger share of the nation’s wealth, so too did they gain an ever-larger share of political power. They became, in effect, kingmakers; the tax bill is a natural consequence of their long effort to bend American politics to serve their interests.

As things stand now, the top 1 percent of the population by wealth — the group that would primarily benefit from the tax bill — controls nearly 40 percent of the country’s wealth. The bottom 90 percent has just 27 percent, according to the economists Thomas Piketty, Emmanuel Saez and Gabriel Zucman.  Just three decades ago these numbers were almost exactly the reverse: The bottom 90 percent owned nearly 40 percent of all wealth. To find a time when such a tiny minority was so dominant, you have to go back to the Great Depression.

As kingmakers, rich families have supported candidates who share their hostility to progressive taxation, welfare programs and government regulation of any kind. These big-money donors have pushed the Republican Party in particular further to the right by threatening well-funded primary challenges against anybody who doesn’t toe the line on tax cuts for the rich and other pro-aristocracy policies. The power of donors has contributed to political polarization and made the federal government less responsive to the needs of most voters, a new book by Benjamin Page of Northwestern University and Martin Gilens of Princeton University argues.

The power of the one-percenters may help explain why President Trump, who ran as a populist, has not only abandoned any pretense of fighting for the working class but also joined Republicans in Congress in ripping up regulations that protect families and the environment — in order to help business tycoons. Together, they’ve tried to repeal the Affordable Care Act. Its repeal would have deprived millions of people of health insurance while trimming taxes for high-income families. Now, they want to cut taxes on corporations and offer new loopholes to the rich, even if that means hurting their own constituents by limiting the ability of middle-class families to deduct state and local taxes on their tax returns.

Most political campaigns now rely on a small group of wealthy donors who give tens of thousands of dollars or more per election cycle. About 40 percent of contributions to campaigns during the 2016 federal election came from an elite group of 24,949 donors, equivalent to 0.01 percent of the adult population. In 1980, the top 0.01 percent accounted for only 15 percent of all contributions, according to an analysis by Adam Bonica, a Stanford professor, and his collaborators.

Of course, the growing importance of wealthy donors is not exclusively a Republican phenomenon. Democratic candidates have also benefited from the largess of wealthy donors like George Soros, Tom Steyer and James Simons. But on economic and tax issues, big-money liberal donors have not really shoved their party to the far left. Donations from Wall Street and corporate America have, in fact, pushed many Democrats to the center or even to the right on issues like financial regulation, international trade, antitrust policy and welfare reform.

Further, liberal donors have been nowhere near as skillful at coordinating their giving as conservative donors have been. No liberal organization comes close to rivaling the network of donors and political activists created by the conservative Koch brothers, says Theda Skocpol, a professor at Harvard, who has written extensively about these issues. The Koch network has spent years methodically pushing state and federal lawmakers to cut regulations, taxes and government programs for the poor and the middle class. The leading donor network on the left, the Democracy Alliance, is smaller and much less successful.

Even allowing for money “wasted” on losing candidates and failed causes, the donor class has notched many impressive wins. Tax rates have fallen substantially, with the top marginal income tax rate now just below 40 percent, from 70 percent when Ronald Reagan won the presidency. The top corporate tax rate has dropped to 35 percent, from 46 percent in 1980, and many businesses pay an effective rate that is much lower than that. While supply-side economics remain mostly a Republican fiction, politicians from both parties have supported the effort to reduce taxes on capital — profits, capital gains and dividends — on the grounds that this would spur investment and make American businesses more competitive.

But the cuts have done little to bolster the economy or the working class. In fact, incomes have stagnated, and workers have been forced to part with a larger share of their pretax earnings in the form of payroll taxes.

Meanwhile, where are the political champions of poor Americans? Whoever they are, they haven’t been producing results. Wages for the poorest have languished, partly because Congress has been so slow to raise the minimum wage — $7.25 an hour since 2009 — that its purchasing power is now about 10 percent less than it was in 1968. Lawmakers and conservative judges have also undermined workers by making it harder for them to unionize, so they are not in a position to demand better pay and better working conditions.

This tax bill would exacerbate all these trends. The Urban-Brookings Tax Policy Centre and the Joint Committee on Taxation. both respected, both nonideological, say the bill would primarily benefit the wealthy and would leave most poor and middle-class Americans worse off over the long run. That’s without Congress doing anything else to widen the gap. But even now, Mr. Trump and Republicans in Congress are talking about cutting government programs like Medicare, Medicaid and Social Security next year to help make up for the more than $1 trillion the tax bill would add to the federal deficit.

Inequality in America does not have to be self-perpetuating. When people turn up at the polls, as they did recently in Alabama, they can produce unexpected results. That’s why Republican lawmakers might want to think again about whether they want to be the means through which their wealthy donors pull off this heist.

New York Times

Rescuing Economics from Neoliberalism – Dani Rodrik. 

As even its harshest critics concede, neoliberalism is hard to pin down. In broad terms, it denotes a preference for markets over government, economic incentives over social or cultural norms, and private entrepreneurship over collective or community action. It has been used to describe a wide range of phenomena—from Augusto Pinochet to Margaret Thatcher and Ronald Reagan, from the Clinton Democrats and Britain’s New Labour to the economic opening in China and the reform of the welfare state in Sweden. 

The term is used as a catchall for anything that smacks of deregulation, liberalization, privatization, or fiscal austerity. Today it is reviled routinely as a short-hand for the ideas and the practices that have produced growing economic insecurity and inequality, led to the loss of our political values and ideals, and even precipitated our current populist backlash.

We live in the age of neoliberalism, apparently. But who are neoliberalism’s adherents and disseminators—the neoliberals? Oddly, you would almost have to go back to the early 1980s to find anyone explicitly embracing neoliberalism. In 1982, Charles Peters, the longtime editor of The Washington Monthly, published an essay called “A Neo-Liberal’s Manifesto.” It makes for interesting reading thirty-five years later, since the neoliberalism it describes bears little resemblance to today’s target of derision. The politicians whom Peters names as exemplifying the movement are not Thatcher and Reagan, but Bill Bradley, Gary Hart, and Paul Tsongas. The journalists and academics whom he lists include James Fallows, Michael Kinsley, and Lester Thurow. Peters’s neoliberals are liberals (in the U.S. sense of the word) who have dropped their prejudices in favor of unions and big government and against markets and the military.

The use of the term “neoliberal” exploded in the 1990s, when it became closely associated with two developments, neither of which Peters mentions. One was financial deregulation, which would culminate in the 2008 financial crash—the first that the United States had experienced since the interwar period—and in the still-lingering euro debacle. The second was economic globalization, which accelerated thanks to free flows of finance and to a new, more ambitious type of trade agreement. Financialization and globalization have become the most overt manifestations of neoliberalism in today’s world.

That neoliberalism is a slippery, shifting concept, with no explicit lobby of defenders, does not mean that it is irrelevant or unreal. Who can deny that the world has experienced a decisive shift toward markets from the 1980s on? Or that center-left politicians—Democrats in the United States, Socialists and Social Democrats in Europe—enthusiastically adopted some of the central creeds of Thatcherism and Reaganism, such as deregulation, privatization, financial liberalization, and individual enterprise? Much of our contemporary policy discussion remains infused with norms and principles supposedly grounded in homo economicus.

But the looseness of the term neoliberalism also means that criticism of it often misses the mark. There is nothing wrong with markets, private entrepreneurship, or incentives—when deployed appropriately. Their creative use lies behind the most significant economic achievements of our time. As we heap scorn on neoliberalism, we risk throwing out some of neoliberalism’s useful ideas.

The real trouble is that mainstream economics shades too easily into ideology, constraining the choices that we appear to have and providing cookie-cutter solutions. A proper understanding of the economics that lies behind neoliberalism would allow us to identify—and to reject—ideology when it masquerades as economic science. Most importantly it would help us develop the institutional imagination we badly need to redesign capitalism for the twenty-first century.   

Neoliberalism is typically understood as based on key tenets of mainstream economic science. To see those tenets, without the ideology, consider a thought experiment.

A well-known and highly regarded economist lands in a country he has never visited and knows nothing about. He is brought to a meeting with the country’s leading policymakers. “Our country is in trouble,” they tell him. “The economy is stagnant, investment is low, and there is no growth in sight.” They turn to him expectantly: “Please tell us what we should do to make our economy grow.”

The economist pleads ignorance and explains that he knows too little about the country to make any recommendations. He would need to study the history of the economy, to analyze the statistics, and to travel around the country before he could say anything. But his hosts are insistent. “We understand your reticence and we wish you had the time for all that,” they tell him. “But isn’t economics a science, and aren’t you one of its most distinguished practitioners? Even though you do not know much about our economy, surely there are some general theories and prescriptions you can share with us to guide our economic policies and reforms.”

The economist is now in a bind. He does not want to emulate those economic gurus he has long criticized for peddling their favorite policy advice. But he feels challenged by the question. Are there universal truths in economics? Can he say anything valid (and possibly useful)?

So he begins. The efficiency with which an economy’s resources are allocated is a critical determinant of the economy’s performance, he says. Efficiency, in turn, requires aligning the incentives of households and businesses with social costs and benefits. The incentives faced by entrepreneurs, investors, and producers are particularly important when it comes to economic growth. Growth needs a system of property rights and contract enforcement that will ensure those who invest can retain the returns on their investments. And the economy must be open to ideas and innovations from the rest of the world.

But economies can be derailed by macroeconomic instability, he goes on. Governments must therefore pursue a sound monetary policy, which means restricting the growth of liquidity to the increase in nominal money demand at reasonable inflation. They must ensure fiscal sustainability, so that the increase in public debt does not outpace national income. And they must carry out prudential regulation of banks and other financial institutions to prevent the financial system from taking excessive risk.

Now he is warming up to his task. Economics is not just about efficiency and growth, he adds. Economic principles also carry over to equity and social policy. Economics has little to say about how much redistribution a society should seek. But it does tell us that the tax base should be as broad as possible and that social programs should be designed in a way that does not encourage workers to drop out of the labor market.

By the time the economist stops, it appears as if he has laid out a full-fledged neoliberal agenda. A critic in the audience will have heard all the code words: efficiency, incentives, property rights, sound money, fiscal prudence. Yet the universal principles that the economist describes are in fact quite open-ended. They presume a capitalist economy—one in which investment decisions are made by private individuals and firms—but not much beyond that. They admit—indeed they require—a surprising variety of institutional arrangements.

So has the economist just delivered a neoliberal screed? We would be mistaken to think so, and our mistake would consist of associating each abstract term—incentives, property rights, sound money—with a particular institutional counterpart. And therein lies the central conceit, and the fatal flaw, of neoliberalism: the belief that first-order economic principles map onto a unique set of policies, approximated by a Thatcher–Reagan-style agenda.  

Consider property rights. They matter insofar as they allocate returns on investments. An optimal system would distribute property rights to those who would make the best use of an asset and afford protection against those most likely to expropriate the returns. Property rights are good when they protect innovators from free riders, but they are bad when they protect them from competition. Depending on the context, a legal regime that provides the appropriate incentives can look quite different from the standard U.S. style regime of private property rights.

This may seem like a semantic point with little practical import; but China’s phenomenal economic success is largely due to its orthodox-defying institutional tinkering. China turned to markets, but did not copy Western practices in property rights. Its reforms produced market-based incentives through a series of unusual institutional arrangements that were better adapted to the local context. Rather than move directly from state to private ownership, for example, which would have been stymied by the weakness of the prevailing legal structures, the country relied on mixed forms of ownership that provided more effective property rights for entrepreneurs in practice. Township and Village Enterprises (TVEs), which spearheaded Chinese economic growth during the 1980s, were collectives owned and controlled by local governments. Even though they were publicly owned, entrepreneurs received the protection against expropriation they needed. Local governments had a direct stake in the profits of the firms and hence did not want to kill the goose that lays the golden eggs.

China relied on a range of such innovations, each delivering the economist’s higher-order economic principles in unfamiliar institutional arrangements. Dual-track pricing, which retained compulsory grain deliveries to the state but allowed farmers to sell excess produce in free markets, provided supply-side incentives while insulating public finances from the adverse effects of full liberalization. The so-called Household Responsibility System gave farmers the incentive to invest in and improve the land they worked on, while obviating the need for explicit privatization. Special economic zones provided export incentives and attracted foreign investors without removing protection for state firms (and hence safeguarding domestic employment). In view of such departures from orthodox blueprints, calling China’s economic reforms a neoliberal turn, as critics are inclined to do, distorts more than it reveals. If we are to call this neoliberalism, we must surely look more kindly on the ideas behind the most dramatic poverty reduction in history.

One might protest that China’s institutional innovations were purely transitional. Perhaps it will have to converge on Western-style institutions to sustain its economic progress. But this common line of thinking overlooks the diversity of capitalist arrangements that still prevails among advanced economies, despite the considerable homogenization of our policy discourse.

What, after all, are Western institutions? The importance of the public sector, for example, in the club of rich Organization For Economic Cooperation and Development (OECD) countries varies from a third of the economy in Korea to nearly 60 percent in Finland. In Iceland, 86 percent of workers are members of a trade union; the comparable number in Switzerland is just 16 percent. In the United States firms can fire workers almost at will; French labor laws require employers to jump through many hoops first. Stock markets have grown to nearly one-and-a-half times national income in the United States; in Germany, they are only a third as large, representing one-half of national income.

The idea that any one of these models of taxation, labor relations, or financial organization is inherently superior to the others is belied by the varying economic fortunes that each of these economies have experienced over recent decades. The United States has gone through successive periods of angst in which its economic institutions were judged inferior to those in Germany, Japan, China, and now possibly Germany again. Certainly comparable levels of wealth and productivity can be produced under very different models of capitalism. We might even go a step further: today’s prevailing models probably come nowhere near exhausting the range of what might be possible (and desirable) in the future. 

The visiting economist in our thought experiment knows all this and recognizes that the principles he has enunciated need to be filled in with institutional detail before they become operational. Property rights? Yes, but how? Sound money? Of course, but how? It would perhaps be easier to criticize his list of principles for being vacuous than to denounce it as a neoliberal screed.

Still, these principles are not entirely content free. China, and indeed all countries that managed to develop rapidly, demonstrate their utility once they are properly adapted to local context. Conversely, too many economies have been driven to ruin courtesy of political leaders who chose to violate them. We need look no further than Latin American populists or Eastern European communist regimes to appreciate the practical significance of sound money, fiscal sustainability, and private incentives.

Of course economics goes beyond a list of abstract, largely common sense principles. Much of the work of economists consists of developing stylized models of how actual economies work and then confronting those models with evidence. Economists tend to think of what they do as progressively refining their understanding of the world: their models are supposed to get better and better as they are tested and revised over time. But progress in economics happens differently.

Economists study a social reality that is unlike the physical universe of natural scientists. It is completely man-made, highly malleable, and operates according to different rules across time and space. Economics advances not by settling on the right model or theory to answer such questions, but by improving our understanding of the diversity of causal relationships. Neoliberalism and its customary remedies—always more markets, always less government—are in fact a perversion of mainstream economics. Good economists know that the correct answer to any question in economics is: it depends.

Does an increase in the minimum wage depress employment? Yes, if the labor market is really competitive and employers have no control over the wage they must pay to attract workers; but not necessarily otherwise. Does trade liberalization increase economic growth? Yes, if it increases the profitability of industries where the bulk of investment and innovation takes place; but not otherwise. Does more government spending increase employment? Yes, if there is slack in the economy and wages do not rise; but not otherwise. Does monopoly harm innovation? Yes and no, depending on a whole host of market circumstances.

In economics, new models rarely supplant older models. The basic competitive-markets model dating back to Adam Smith has been modified over time by the inclusion, in rough historical order, of monopoly, externalities, scale economies, incomplete and asymmetric information, irrational behavior, and many other real world features. Yet the older models remain as useful as ever. Understanding how real markets operate necessitates different lenses at different times.

Perhaps maps offer the best analogy. Just like economic models, maps are highly stylized representations of reality. They are useful precisely because they abstract from many real world details that would get in the way. Realistic full-scale maps would be hopelessly impractical artifacts, as Jorge Luis Borges described in a short story that remains the best and most succinct explication of the scientific method. But abstraction also implies that we need a different map depending on the nature of our journey. If we are traveling by bike, we need a map of bike trails. If we are to go on foot, we need a map of foot paths. If a new subway is constructed, we will need a subway map—but we wouldn’t throw out the older maps.      

Economists tend to be very good at making maps, but not good enough at choosing the one most suited to the task at hand. When confronted with policy questions of the type our visiting economist faces, too many of them resort to “benchmark” models that favor laissez-faire. Knee-jerk solutions and hubris replace the richness and humility of the discussion in the seminar room. John Maynard Keynes once defined economics as the “science of thinking in terms of models joined to the art of choosing models which are relevant.” Economists typically have trouble with the “art” part.

I have illustrated this too with a parable. A journalist calls an economics professor for his view on whether free trade is a good idea. The professor responds enthusiastically in the affirmative. The journalist then goes undercover as a student in the professor’s advanced graduate seminar on international trade. He poses the same question: Is free trade good? This time the professor is stymied. “What do you mean by ‘good?’” he responds. “And good for whom?” The professor then launches into an extensive exegesis that will ultimately culminate in a heavily hedged statement: “So if the long list of conditions I have just described are satisfied, and assuming we can tax the beneficiaries to compensate the losers, freer trade has the potential to increase everyone’s well being.” If he is in an expansive mood, the professor might add that the effect of free trade on an economy’s long-term growth rate is not clear either and would depend on an altogether different set of requirements.

This professor is rather different from the one the journalist encountered previously. On the record, he exudes self-confidence, not reticence, about the appropriate policy. There is one and only one model, at least as far as the public conversation is concerned, and there is a single correct answer regardless of context. Strangely, the professor deems the knowledge that he imparts to his advanced students to be inappropriate (or dangerous) for the general public. Why?

The roots of such behavior lie deep in the sociology and the culture of the economics profession. But one important motive is the zeal to display the profession’s crown jewels in untarnished form—market efficiency, the invisible hand, comparative advantage—and to shield them from attack by self-interested barbarians, namely the protectionists. Unfortunately, these economists typically ignore the barbarians on the other side of the issue—financiers and multinational corporations whose motives are no purer and who are all too ready to hijack these ideas for their own benefit.

As a result, economists’ contributions to public debate are often biased in one direction, in favor of more trade, more finance, and less government. That is why economists have developed a reputation as cheerleaders for neoliberalism, even if mainstream economics is very far from a paean to laissez-faire. The economists who let their enthusiasm for free markets run wild are in fact not being true to their own discipline.

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How then should we think about globalization in order to liberate it from the grip of neoliberal practices? We must begin by understanding the positive potential of global markets. Access to world markets in goods, technologies, and capital has played an important role in virtually all of the economic miracles of our time. China is the most recent and powerful reminder of this historical truth, but it is not the only case. Before China, similar miracles were performed by South Korea, Taiwan, Japan, and a few non-Asian countries such as Chile and Mauritius. All of these countries embraced globalization rather than turn their backs on it, and they benefited handsomely.

Defenders of the existing economic order will quickly point to these examples when globalization comes into question. What they will fail to say is that almost all of these countries joined the world economy by violating neoliberal strictures. China shielded its large state sector from global competition, establishing special economic zones where foreign firms could operate with different rules than in the rest of the economy. South Korea and Taiwan heavily subsidized their exporters, the former through the financial system and the latter through tax incentives. All of them eventually removed most of their import restrictions, long after economic growth had taken off. But none, with the sole exception of Chile in the 1980s under Pinochet, followed the neoliberal recommendation of a rapid opening­-up to imports. Chile’s neoliberal experiment eventually produced the worst economic crisis in all of Latin America. While the details differ across countries, in all cases governments played an active role in restructuring the economy and buffeting it from a volatile external environment. Industrial policies, restrictions on capital flows, and currency controls—all prohibited in the neoliberal playbook—were rampant.

By contrast, countries that stuck closest to the neoliberal model of globalization were sorely disappointed. Mexico provides a particularly sad example. Following a series of macroeconomic crises in the mid-1990s, Mexico embraced macroeconomic orthodoxy, extensively liberalized its economy, freed up the financial system, sharply reduced import restrictions, and signed the North American Free Trade Agreement (NAFTA). These policies did produce macroeconomic stability and a significant rise in foreign trade and internal investment. But where it counts—in overall productivity and economic growth—the experiment failed. Since undertaking the reforms, overall productivity in Mexico has stagnated, and the economy has underperformed even by the undemanding standards of Latin America.

These outcomes are not a surprise from the perspective of sound economics. They are yet another manifestation of the need for economic policies to be attuned to the failures to which markets are prone, and to be tailored to the specific circumstances of each country. No single blueprint fits all.

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Before globalization took a turn towards what we might call hyper-globalization, the rules were flexible and recognized this fact. Keynes and his colleagues viewed international trade and investment as a means for achieving domestic economic and social goals—full employment and broad-based prosperity—when they designed the global economic architecture in Bretton Woods in 1944. From the 1990s on, however, globalization became an end in itself. Global economic arrangements were now driven by a single-minded focus on reducing impediments to the flows of goods, capital, and money across national borders—though not of workers, where the economic gains in fact would have been much larger. 

This perversion of priorities revealed itself in the way trade agreements began to reach behind borders and remake domestic institutions. Investment regulations, health and safety rules, environmental policies, and industrial promotion schemes all became potential targets for abolition if they were deemed to stand in the way of foreign trade and investment. Large international firms, rendered footloose by the new rules, acquired special privileges. Corporate taxes had to be lowered to attract investors (or prevent them from leaving). Foreign enterprises and investors were given the right to sue national governments in special offshore tribunals when changes in domestic regulations threatened to reduce their profits. Nowhere was the new deal more damaging than in financial globalization, which produced not greater investment and growth, as promised, but one painful crash after another.

Just as economics must be saved from neoliberalism, globalization has to be saved from hyper-globalization. An alternative globalization, more in keeping with the Bretton Woods spirit, is not difficult to imagine: a globalization that recognizes the multiplicity of capitalist models and therefore enables countries to shape their own economic destinies. Instead of maximizing the volume of trade and foreign investment and harmonizing away regulatory differences, it would focus on traffic rules that manage the interface of different economic systems. It would open up policy space for advanced countries as well as developing ones—the former so they can reconstruct their social bargains through better social, tax, and labor market policies, and the latter so they can pursue the restructuring they need for economic growth. It would require more humility on the part of economists and policy technocrats about appropriate prescriptions, and hence a much greater willingness to experiment.

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As Peters’s early manifesto attests, the meaning of neoliberalism has changed considerably over time as the label has acquired harder-line connotations with respect to deregulation, financialization, and globalization. But there is one thread that connects all versions of neoliberalism, and that is the emphasis on economic growth. Peters wrote in 1982 that the emphasis was warranted because growth is essential to all our social and political ends—community, democracy, prosperity. Entrepreneurship, private investment, and removing obstacles (such as excessive regulation) that stand in the way were all instruments for achieving economic growth. If a similar neoliberal manifesto were penned today, it would no doubt make the same point.

Critics often point out that this emphasis on economics debases and sacrifices other important values such as equality, social inclusion, democratic deliberation, and justice. Those political and social objectives obviously matter enormously, and in some contexts they matter the most. They cannot always, or even often, be achieved by means of technocratic economic policies; politics must play a central role.

But neoliberals are not wrong when they argue that our most cherished ideals are more likely to be attained when our economy is vibrant, strong, and growing. Where they are wrong is in believing that there is a unique and universal recipe for improving economic performance to which they have access. The fatal flaw of neoliberalism is that it does not even get the economics right. It must be rejected on its own terms for the simple reason that it is bad economics.

Boston Review 

Winston Peters’ view on capitalism will challenge new Govt – Chris Trotter.

Crucial to the success of the “unfriendly capitalism” indicted by Winston Peters has been its stalwart bodyguard of “expert lies”.

Ever since 1984, when its unfriendliness began gathering pace, a seemingly endless procession of “experts” has been summoned to represent this new “unfriendly” capitalism’s cruelty as kindness.

Some of these so-called experts were paid for by the big corporations. Others were commissioned by government agencies to prepare the way for changes destined to place an ever-increasing number of New Zealanders at the mercy of private economic power.

None of the core institutions of the New Zealand State were exempted from this “restructuring” process. Health, education, social welfare, the trade union movement, the universities, local government: all fell victim to the “gleichschaltung” (co-ordination) demanded by an increasingly foe-like capitalist system. And, in each case, these government “reforms” were presented to the public as the only rational response to what was, after all, “expert” opinion.

In a tiny number of cases, the tendered “expert advice” was so extreme that the Government of the day simply balked at introducing reforms that seemed so patently politically unsaleable. For the most part, however, the experts’ findings were accepted and implemented.

That these arguments, for what can only be described as dramatic and socially-wrenching change, were received uncritically, and then promoted enthusiastically, by the news media was a crucial factor in their success. It encouraged the view that economic management had become such a complex business that “ordinary people” could not, realistically, be expected to play any useful role in the formulation of economic policy.

It required the system-threatening shock of the Global Financial Crisis of 2008-09 to set off a world-wide revolt against what we now call “neoliberal” economic orthodoxy – and the “experts” who have for so long expounded and defended its “principles”.

This revolt has come late to New Zealand because, through the worst years of the Global Financial Crisis, the Chinese economy’s absorption of so many of this country’s exports shielded it from the high levels of unemployment and the swingeing austerity programmes which have unsettled so many larger western nations.

On October 20, however, the NZ First leader, Winston Peters, from the stage of the Beehive Theatrette, told New Zealand that: “Far too many New Zealanders have come to view today’s capitalism, not as their friend, but as their foe. And they are not all wrong. That is why we believe that capitalism must regain its responsible – its human face. That perception has influenced our negotiations.”

In that moment, it was clear that the revolt against neoliberal economic orthodoxy and the lies of its “experts” had finally reached New Zealand’s shores. That, in his declaration for a Labour-NZ First-Green Government, New Zealand was experiencing its very own “Brexit” moment, would become even clearer when Peters declared that he and his party had rejected the option of a “modified status quo” in favour of “real change”.

Just how much “real change” Jacinda Ardern’s government is willing to countenance will be revealed in the people she chooses to advise her.

At the APEC summit in Vietnam in early November, where she is hoping to persuade the remaining 11 signatories to the Trans-Pacific Partnership to allow New Zealand to renegotiate the Investor State Dispute Settlement provisions of the agreement, who will Ardern include among her expert advisers? A prime minister whose ambitions extended no further than slightly modifying the status quo would limit her APEC entourage to all the usual MFAT and private sector suspects. A prime minister determined to signal her commitment to “real change”, however, would invite Professor Jane Kelsey to join her in Danang.

A “Real Change” Government, determined to reverse the draconian policies adopted by a Ministry of Social development advised by neoliberal “experts”, would call upon the experience and expertise of Sue Bradford and Metiria Turei. Those who find themselves astonished and/or offended by the thought of two such bitter opponents of this country’s actuarially inspired and excessively punitive welfare system being asked to advise Jacinda’s government on its root-and-branch reform should, perhaps, pause and consider just how radical (albeit from the opposite end of the political spectrum) was the “expert” advice that created it.

In his review of four recent books addressing the worldwide “rage against the elites”, Professor Helmut K Anheier, of Berlin’s Hertie School of Governance, writes: “It is well within elites’ power to make decisions that benefit all of society, rather than narrow interests. Elites have surely failed in this regard over the last quarter-century, but they need not continue to fail in the future.”

But, is it reasonable to expect “real change” advice from the same neoliberal elites whose ideologically-driven recommendations created the very problems our new government is pledged to solve?

Capitalism with a “human face” has no need of a bodyguard.

Out Of The Wreckage – George Monbiot. A story of our times, ‘The Politics of Belonging’.

We possess an unparalleled sensitivity to the needs of others, a unique level of concern about their welfare, and a peerless ability to create moral norms that generalise and enforce these tendencies.

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Our astonishing tendencies emerge so early in our lives that they seem to be innate. In other words, we appear to have evolved to be this way.

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We survived despite being weaker and slower than both our potential predators and most of our prey. We did so through developing, to an extraordinary degree, a capacity for mutual aid. As it was essential to our survival, this urge to cooperate was hard-wired into our brains through natural selection. It has not been lost.

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The emotional pain caused by isolation from other members of our group drove us to return to them, so that we did not get picked off by predators or die of starvation. Social pain and physical pain are processed in our brains by the same neural circuits (emotional pain, at some point in the evolution of social mammals, seems to have hijacked the physical pain network).

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Social contact reduces physical pain. This is why we hug our children when they hurt themselves: affection is a powerful analgesic. Opioids relieve both physical agony and the distress of separation, which might explain the link between social isolation and drug addiction.

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Social pain can be harder to bear than physical pain, which could be why some people self-harm in response to emotional distress: it could be interpreted as an attempt to replace emotional injury with physical injury. As the prison system knows too well, one of the most effective forms of torture is solitary confinement. We, the supremely social mammal, cannot cope alone: we need connection – togetherness – just as we need food and shelter.

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Our extraordinary capacity for altruism and our remarkably social nature are the central, crucial facts about humankind. Yet we remain, to an astonishing degree, unaware of them. This is partly because our minds – which are always on the lookout for signs of danger – emphasise the rare but spectacular acts of violence a small proportion of the population inflicts on others, but not the daily acts of kindness and cooperation the rest of us perform, often unconsciously. This tendency is reinforced today by news reports.

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We remember, for example, the two terrorists who murdered twelve people in Paris in January 2015, and our recollection of that horror persuades us that evil is a central feature of the human condition. Less prominent in our minds are the 3 million people in France and the millions elsewhere who gathered, lit candles and marched in public places in solidarity with the victims. These people, not the two terrorists, represent the human norm. Our innate tendency is to stand together against threats to our well-being, to treat an attack on one as an attack on all.

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This is what we are. But something has gone horribly wrong.

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An epidemic of loneliness is sweeping the world. Once considered an affliction of older people, it is now tormenting people of other generations. Our time is distinguished from previous eras by atomisation: the rupturing of social bonds, the collapse of shared ambitions and civic life, our unbearable isolation from each other. There are over 7 billion souls on Earth, but many people are unable to find anyone with whom they can connect.

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We live in an era of astonishing material wealth – albeit poorly distributed. But the great general advance in material conditions has not been accompanied, as our forebears might have expected, by general happiness. Instead, this age of atomisation breeds anxiety, discontent and dissatisfaction – conditions that afflict even the wealthiest classes.

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Craving contentment and a sense of connection, we succumb to compulsions that often find expression in a frenzy of consumption. We chase brief spikes of satisfaction, which soon subside, to be replaced by the urge for another hit.

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Consumerism – ever restless, never sated – threatens us with climate breakdown, helps catalyse a sixth great extinction, imperils global water supplies, and reduces the many wonders of the living world to the same grey waste. We rip the Earth’s living systems apart to fill the gap in our lives, yet the gap remains. This compulsive, joyless hedonism consumes not only the wonders of nature, but also ourselves.

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Society, the world’s living systems, our happiness, our self-control, our sense of belonging: all are falling apart. Why has this happened?

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The pursuit of material satisfactions dulls our concern for other people and for the living planet. It blinds us to our place in the world and the damage we impose on others. It propels us down a narrow corridor of self-interest, self-enhancement and immediate gratification.

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These tendencies are reinforced by an economic system that puts a price on everything and a value on nothing; a political system that promotes economic growth above all other aims, regardless of whether it enhances human welfare or damages it; and organisational and technological changes that could scarcely have been better designed to drive us apart. We were once brought together by work, travel and entertainment. Now these activities tend to estrange us.

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Globalisation has weakened our connections with our neighbours and neighbourhoods. Jobs are outsourced to cheaper workforces, causing, in some cases, the collapse of local economies and the communities that depended on them. Power is outsourced to global institutions we cannot influence, undermining our sense of self-ownership and political community. A globalised media creates the impression that, wherever we might be, life is elsewhere.

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But above all, I believe, the trend towards social breakdown is driven by the dominant political narrative of our times. This narrative is a reiteration of the story told by the philosopher Thomas Hobbes in 1651. He asserted that the default state of human relations is a war of everyone against everyone else. Life in the state of nature, he famously observed, was ‘solitary, poore, nasty, brutish, and short’.

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Competition and individualism are the values at the heart of the twenty-first century’s secular religion. Everywhere we are encouraged to fight for wealth and social position like stray dogs over a dustbin: competition, we are told, brutal as it may be, will enhance our lives to a greater extent than any other instrument. This story is supported by a rich mythology of rugged individualism, and advanced through an inspiring lexicon of lone rangers, sole traders, self-starters, self-made men and women, going it alone. The word ‘people’ has been widely replaced in the media by ‘individuals’. The most cutting insult we can throw at someone is ‘loser’.

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Seeing some people grab vast wealth while others go hungry (at the time of writing, the world’s eight richest people have the same net worth as the poorest half of its population) reinforces the sense that this is a dog-eat-dog world. We either join the fight in the hope of triumphing over others or face destitution.

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Many economists insist that we are typically selfish and self-maximising. They use a term to describe this perception of humanity that sounds serious and scientific: Homo economicus. Most of them seem to be unaware that the concept was formulated, by J. S. Mill and others, as a thought experiment. Soon it became a modelling tool. Then it became an ideal. Then it evolved into a description of who we really are.

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We have heard the story of our competitive, self-maximising nature so often, and it is told with such panache and persuasive power, that we have accepted it as an account of who we really are. It has changed our perception of ourselves. Our perceptions, in turn, change the way we behave.

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One result of this mistaken belief is the loss of common purpose. Our tendency is to stop seeing ourselves as people striving together to overcome our common problems, and to view ourselves instead as people striving against each other to overcome our individual problems. Never mind that these problems are often much bigger than we are, and arise from structural forces that no person acting alone can tackle. As individualism is the religion of our times, it must be the solution to whatever crisis we face.

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Everywhere we seem to hear the same low, insistent whisper: ‘You are on your own.’ Neither the state nor society will save us. They will not solve our problems, even if these problems – such as climate change or economic crises or public health disasters – cannot be addressed by other means. No solutions are proposed for insecurity, precarity and desperation. Indeed, as the cruel eighteenth-century doctrines of Thomas Malthus and Joseph Townsend – ‘it is only hunger which can spur and goad them on to labour’ – are disinterred, precarity and desperation are recast as the necessary incentives to encourage the poor to work harder.

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The loss of common purpose leads in turn to a loss of belief in ourselves as a force for change. Many, in recent years, lost their belief in the promise of democracy: that, through voting, mobilising and campaigning, we can make our political systems work for all of us, rather than just a select few. We have tended to face our crises with passivity and resignation. Faith in democratic norms is collapsing. A study published in the Journal of Democracy revealed that, while 72 per cent of those born before the Second World War in the United States believed it was essential to live in a democracy, this figure fell to just 30 per cent of those born in 1980. One in six of the people surveyed asserted that army rule would be a good or very good development – a proportion that has more than doubled in twenty years. A similar slump in political faith has taken place in other countries.

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If politics as usual no longer delivers, people look elsewhere for answers. This ‘elsewhere’ often means demagoguery: movements characterised by the extreme simplification of political choices, the abandonment of reasoned argument, and scapegoating. The reaction against democratic failure has licensed a clutch of suppressed hatreds – of women, immigrants, racial and religious minorities, difference of all kinds. We witness the resurgence of the kind of politics that until recently seemed to be everywhere in retreat.

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The potential consequences are grave. Governments founded on lies and exaggerations are making promises they cannot possibly keep, and blaming an ever wider array of scapegoats when they fail to materialise. If jobs are destroyed en masse by automation, this will enhance the need for distraction. As people become angrier and more alienated, the net of blame will be cast wider.

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Eventually the anger that cannot be answered through policy will be turned outwards, towards other nations. Lacking other means of disguising their failures or establishing legitimacy, governments will discover the potential of foreign aggression. Terrorism provides ample opportunities for justification. Major war, which seemed until recently a distant prospect, begins to look like a plausible threat.

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We are better than we are told we are, better than we are induced to be. By recognising our good nature and coming together to express it, we can overcome the multiple crises we face that cannot be solved alone. By reconnecting with each other we can conquer loneliness, unhappiness and the loss of our sense of meaning and purpose.

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Though we still need it, we can no longer rely only on the state. Nor can we rely on the workplace to supply either social connection or economic security. But we can find some of the help we seek in community. By reviving community, built around the places in which we live, and by anchoring ourselves, our politics and parts of our economy in the life of this community, we can recover the best aspects of our humanity. We can mobilise our remarkable nature for our own good and the good of our neighbours.

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We will no longer walk alone. We will no longer work alone. We will no longer feel alone. We will restore our sense of belonging: belonging to ourselves, belonging to our communities, belonging to our localities, belonging to the world. In turn, we will develop a politics and an economy that belong to us. By rebuilding community, we will renew democracy and the hope we invest in it. We will develop political systems that are not so big that they cannot respond to us but not so small that they cannot meet the problems we face. We will achieve something that, paradoxically, we cannot realise alone: self-reliance. By helping each other, we help ourselves.

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The strong, embedded cultures we develop will be robust enough to accommodate social diversity of all kinds: a diversity of people, of origins, of life experiences, of ideas and ways of living. We will no longer need to fear people who differ from ourselves; we will have the strength and confidence to reject attempts to channel hatred towards them.

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By rebuilding community, we become proud of our society, proud of our institutions, proud of our nations, proud of ourselves. By coming together we discover who we are. We ignite our capacity for empathy and altruism. Togetherness and belonging allow us to become the heroes of the story.

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We are astonishing creatures, blessed with an amazing capacity for kindness and care towards others. But this good nature has been thwarted by a mistaken view of our own humanity. We have been induced by certain politicians, economists and commentators to accept a vicious ideology of extreme competition and individualism that pits us against each other, encourages us to fear and mistrust each other, and weakens the social bonds that make our lives worth living.

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Though it is not the only factor, this has helped to usher in an age of loneliness, in which, on this crowded planet, we are disconnected from each other as never before. The result is an epidemic of unhappiness and of psychological and physical illness. The atomisation we suffer has eroded our sense of common purpose and sapped our belief that, by working together, we can change life for the better. It has undermined democracy, and allowed intolerant and violent forces to fill the political vacuum. We are trapped in a vicious circle of alienation and reaction.

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By coming together to revive community life, we, the heroes of this story, can break the vicious circle. Through invoking the two great healing forces – togetherness and belonging – we can rediscover the central facts of our humanity: our altruism and mutual aid.
Where there is atomisation, we will create a thriving civic life. Where there is alienation, we will forge a new sense of belonging: to neighbours, neighbourhood and society. Where we find ourselves crushed between market and state, we will develop a new economics that treats both people and planet with respect. Where we are ignored and exploited, we will revive democracy and retrieve politics from those who have captured it.

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In doing so, we can reclaim our happiness, reclaim our self-reliance, reclaim our pride, and reclaim our place. We will belong once more both to society and to ourselves.

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I propose a name for this story: ‘The Politics of Belonging’.

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Community, togetherness and belonging are values invoked across the political spectrum. Thomas Paine and Edmund Burke might have agreed on little else, but in this respect they seemed to be as one. Paine wrote: ‘The mutual dependence and reciprocal interest which man has upon man, and all the parts of civilised community upon each other, create that great chain of connection which holds it together.’ Burke famously insisted: ‘To be attached to the subdivision, to love the little platoon we belong to in society, is the first principle (the germ as it were) of public affections. It is the first link in the series by which we proceed towards a love to our country, and to mankind.’ Few people would disagree with either writer on this point.

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Many of those who have voted for demagogues and extremists have stumbled into this choice through disillusionment, alienation and the absence of stories that make sense of their lives. Most are not ill-intentioned. When they heard someone calling through the political void – someone who, instead of speaking in robotic platitudes, named their problems and promised solutions, however crude and unlikely those solutions were – they responded. A few years previously, they might have voted for parties that emphasised entirely different values.

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The task of effective politics today is to reach across the divides and find common ground.
*
I have sketched out the basic components of a new story. But if it is to help to catalyse change, we need to know more. We need a deeper understanding of the problems we confront.

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The central task of this book is to show how community can be rebuilt and how the politics of belonging might develop.

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I see this book as just one of the many building blocks required to construct a new politics. It sits upon the foundational work of many inspiring people, and I hope it will encourage others to contribute to a new political architecture. Like all the best things in life, this is something we should build together.
***
Out Of The Wreckage: A New Politics for an Age of Crisis
by George Monbiot

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get it from

Amazon.com

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Out Of The Wreckage, A New Politics for an Age of Crisis – George Monbiot.

Nations and peoples are largely the stories they feed themselves. If they tell themselves stories that are lies, they will suffer the future consequences of those lies. If they tell themselves stories that face their own truths, they will free their histories for future flowerings.
Ben Okri, A Way of Being Free
***

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You cannot take away someone’s story without giving them a new one. It is not enough to challenge an old narrative, however outdated and discredited it may be. Change happens only when you replace it with another. When we develop the right story, and learn how to tell it, it will infect the minds of people across the political spectrum.

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Those who tell the stories run the world. The old world, which once looked stable, even immutable, is collapsing. A new era has begun, loaded with hazard if we fail to respond, charged with promise if we seize the moment. Whether the systems that emerge from this rupture are better or worse than the current dispensation depends on our ability to tell a new story, a story that learns from the past, places us in the present and guides the future.

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Stories perform a fundamental cognitive function: they are the means by which the Emotional Brain makes sense of the information collected by the Rational Brain.

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A string of facts, however well attested, has no power to correct or dislodge a powerful story. The only response it is likely to provoke is indignation: people often angrily deny facts that clash with the narrative ‘truth’ established in their minds. The only thing that can displace a story is a story.

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Effective stories tend to possess a number of common elements. They are easy to understand. They can be briefly summarised and quickly memorised. They are internally consistent. They concern particular characters or groups. There is a direct connection between cause and effect. They describe progress – from a beginning through a middle to an end. The end resolves the situation encountered at the beginning, with a conclusion that is positive and inspiring.

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Our minds appear to be attuned not only to stories in general, but to particular stories that follow consistent patterns.

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In politics, there is a recurring story that captures our attention. It goes like this:

Disorder afflicts the land, caused by powerful and nefarious forces working against the interests of humanity. The hero – who might be one person or a group of people – revolts against this disorder, fights the nefarious forces, overcomes them despite great odds and restores order.

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Stories that follow this pattern can be so powerful that they sweep all before them: even our fundamental values.

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The two most successful political stories of the twentieth century – both of which have survived into the twenty-first – are diametrically opposed to each other, but follow the same narrative pattern.

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The social-democratic story explains that the world fell into disorder – characterised by the Great Depression – because of the self-seeking behaviour of an unrestrained elite. The elite’s capture of both the world’s wealth and the political system resulted in the impoverishment and insecurity of working people. By uniting to defend their common interests, the world’s people could throw down the power of this elite, strip it of its ill-gotten gains and pool the resulting wealth for the good of all. Order and security would be restored in the form of a protective, paternalistic state, investing in public projects for the public good, generating the wealth that would guarantee a prosperous future for everyone. The ordinary people of the land – the heroes of the story – would triumph over those who had oppressed them.

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The neoliberal story explains that the world fell into disorder as a result of the collectivising tendencies of the over-mighty state, exemplified by the monstrosities of Stalinism and Nazism, but evident in all forms of state planning and all attempts to engineer social outcomes. Collectivism crushes freedom, individualism and opportunity. Heroic entrepreneurs, mobilising the redeeming power of the market, would fight this enforced conformity, freeing society from the enslavement of the state. Order would be restored in the form of free markets, delivering wealth and opportunity, guaranteeing a prosperous future for everyone. The ordinary people of the land, released by the heroes of the story (the freedom-seeking entrepreneurs) would triumph over those who had oppressed them.

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Because of their narrative power and a disastrous failure to develop effective countervailing stories, they have yet to be replaced. The facts changed, but our minds did not. If the rupture is to be resolved for good rather than for ill, we need a new story. Our challenge is to produce one that is faithful to the facts, faithful to our values, and faithful to the narrative patterns to which we respond.

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Like many people who seek a generous, inclusive politics, I have been listening for such a story, waiting for its bugle call to resound, so that we can rally in the expectation of a better future. The wait continues. Most mainstream parties seek only to tweak existing narratives.

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Despair is the state we fall into when our imagination fails. When we have no stories that describe the present and guide the future, hope evaporates. Political failure is, in essence, a failure of imagination. Without a new story, a story that is positive and propositional rather than reactive and oppositional, nothing changes. With such a story, everything changes.

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In seeking to develop a restorative political story around which we can gather and mobilise, we should first identify the values and principles we want to champion. This is because the stories we tell propagate the beliefs around which they are built.

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When stories are designed for a political purpose and circulated to advance this purpose, they have the power to change or strengthen our values. The most grotesque doctrines can look like common sense when embedded in a compelling narrative, as Lenin, Hitler, Georges Sorel, Gabriele D’Annunzio and Ayn Rand discovered. The failure to tell a new story has been matched by an equally remarkable omission: the failure to discern and describe the values and principles that might inform our politics.

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Values are the bedrock of effective politics. They represent the importance we place on fundamental ways of being, offering a guide to what we consider to be good and worthwhile.

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Our values tend to cluster around certain poles. Social psychologists sometimes describe these poles as intrinsic and extrinsic. Intrinsic values, in their purest form, are expressed as compassion, connectedness and kindness towards all living beings, including oneself. Extrinsic values are expressed as a desire for self-enhancement, through gaining, for example, status or power.

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People with a strong set of intrinsic values and a weaker set of extrinsic values have high levels of self-acceptance, strong bonds of intimacy and a powerful desire to help other people. They are strongly inclined towards empathy, understanding, and independent thought and action. Research across seventy nations suggests that intrinsically motivated people are more open to change, have a stronger interest in universal rights and equality, and a stronger desire to protect and cherish both human beings and the natural world than more extrinsically motivated people.

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Surveys of both children and adults reveal that the value which tends to be favoured above all others is what psychologists call ‘benevolence’, by which they mean protecting or advancing the welfare of people we know.

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The smaller number of people at the extrinsic end of the spectrum are more attracted to prestige, status, image, fame, power and wealth. They are strongly motivated by the prospect of individual reward and praise. They have little interest in cooperation or community. People who emphasise these values tend to report higher levels of stress, anxiety, anger, envy, dissatisfaction and depression than those at the intrinsic end.

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We are not born with these values. They are strongly shaped by our social environment, by the cues and responses we receive from other people, and by the stories we tell ourselves and each other. They are also shaped by the political environment. If people live under a cruel and grasping political system, they tend to normalise and internalise it, absorbing its dominant trends and translating them into extrinsic values. This, in turn, permits an even crueller and more grasping political system to emerge. If, by contrast, people live in a country in which no one is allowed to fall out of the boat, in which social norms are characterised by kindness, empathy, community and freedom from want and fear, their values are likely to shift towards the intrinsic end. This process is known as policy feedback, or the Values Ratchet.

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If our purpose is to create a kinder world, we should embed within the political story we tell the intrinsic values that promote this aim: empathy, understanding, connectedness with other people, self-acceptance, independent thought and action.

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Those who promote this story should know what their values are and be able to name them without hesitation or embarrassment. In doing so, they help to develop a social environment that fosters their aspirations, turning the Values Ratchet in the right direction.

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Principles could be seen as the soil that derives from the bedrock of values. Political principles are the fundamental propositions at the heart of a political philosophy. In other words, they are a description of the world as we would like it to be. Again, they need to be expressed clearly and overtly, so that they can be explained and spread with pride and conviction.

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A Statement of Principles

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1.We want to live in a place guided by empathy, respect, justice, generosity, courage, fun and love.
2.We want to live in a place governed by judgements that are honestly made, supported by evidence, accountable and transparent.
3.We want to live in a place in which everyone’s needs are met, without harming the living world or the prosperity of future generations.
4.We want to live in a place in which the fruits of the work we do and the resources we use are fairly and widely distributed, in which shared prosperity is a general project, and the purpose of economic life is to enable universal well-being.
5.We want to live in a place in which all people have equal rights, in practice as well as in theory.
6.We want to live in a place in which all people can feel secure, confident, safe and cared for.
7.We want to live in a place in which, regardless of where they were born, everyone has a neighbourhood of which they feel proud, where they can freely participate in the life of the community.
8.We want to live in a place which, proudly and consistently, supports people in need of help, including those fleeing from danger and persecution abroad.
9.We want to live in a place in which a thriving natural world provides a refuge both for rich and abundant wildlife and for people seeking relief from the clamour of daily life.
10.We want to live in a place whose political system is fair and fully representative, in which everyone has a voice and every vote counts, and whose outcomes can neither be bought nor otherwise engineered.
11.We want to live in a place in which decisions are taken at the most appropriate level, to enhance democratic participation and connection.
12.We want to live in a place in which everyone has access to the information needed to make meaningful democratic choices, and in which political debate is honest, accessible and inclusive.
13.We want to live in a place in which education is a joyful process, encouraging children of all abilities to engage with enthusiasm, and adults to continue learning throughout their lives.
14.We want to live in a place in which good housing, fast and effective healthcare and a healthy, sufficient diet are available to everyone.
15.We want to live in a place that helps to build a safe, prosperous and resilient community of nations.
16.We want to live in a place that is open to new ideas and information, and that values creativity, research and discovery.

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A set of principles, important as it is, does not constitute a story. Nor can all the principles I have listed be incorporated into a story – they cover too much ground to create a coherent or satisfying narrative. But in seeking to develop one, we should be constantly aware of what we are trying to achieve. If the story succeeds, is it likely to advance these principles or clash with them? Is the political environment it creates likely to nurture the society they describe?

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***

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Out Of The Wreckage: A New Politics for an Age of Crisis
by George Monbiot

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get it from

Amazon.com

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Don’t let the rich get even richer on the assets we all share – George Monbiot.

Are you a statist or a free marketeer? Do you believe that intervention should be minimised or that state ownership and regulation should be expanded? This is our central political debate. But it is based on a mistaken premise.

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Both sides seem to agree that state and market are the only sectors worth discussing: politics should move one way or the other along this linear scale. In fact, there are four major economic sectors: the market, the state, the household and the commons. The neglect of the last two by both neoliberals and social democrats has created many of the monstrosities of our times.

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Both market and state receive a massive subsidy from the household: the unpaid labour of parents and other carers, still provided mostly by women. If children were not looked after – fed, taught basic skills at home and taken to school – there would be no economy. And if people who are ill, elderly or have disabilities were not helped and supported by others, the public care bill would break the state.

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There’s another great subsidy, which all of us have granted. I’m talking about the vast wealth the economic elite has accumulated at our expense, through its seizure of the fourth sector of the economy: the commons.

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That it is necessary to explain the commons testifies to their neglect (despite the best efforts of political scientists such as the late Elinor Ostrom). A commons is neither state nor market. It has three main elements. First a resource, such as land, water, minerals, scientific research, hardware or software. Second a community of people who have shared and equal rights to this resource, and organise themselves to manage it. Third the rules, systems and negotiations they develop to sustain it and allocate the benefits.

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A true commons is managed not for the accumulation of capital or profit, but for the steady production of prosperity or wellbeing. It belongs to a particular group, who might live in or beside it, or who created and sustain it. It is inalienable, which means that it should not be sold or given away. Where it is based on a living resource, such as a forest or a coral reef, the commoners have an interest in its long-term protection, rather than the short-term gain that could be made from its destruction.

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The commons have been attacked by both state power and capitalism for centuries. Resources that no one invented or created, or that a large number of people created together, are stolen by those who sniff an opportunity for profit. The saying, attributed to Balzac, that “behind every great fortune lies a great crime” is generally true. “Business acumen” often amounts to discovering novel ways of grabbing other people’s work and assets.

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The theft of value by people or companies who did not create it is called enclosure. Originally, it meant the seizure – supported by violence – of common land. The current model was pioneered in England, spread to Scotland, then to Ireland and the other colonies, and from there to the rest of the world. It is still happening, through the great global land grab.

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Enclosure creates inequality. It produces a rentier economy: those who capture essential resources force everyone else to pay for access. It shatters communities and alienates people from their labour and their surroundings. The ecosystems commoners sustained are liquidated for cash. Inequality, rent, atomisation, alienation, environmental destruction: the loss of the commons has caused or exacerbated many of the afflictions of our age.

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You can see enclosure at work in the Trump administration’s attempt to destroy net neutrality. Internet service providers want to turn salience on the internet – now provided freely by a system created through the work of millions – into something you have to pay for. To ensure there is no choice, they have also sought to shut down a genuine internet commons, by lobbying states to prohibit community broadband. In the crazy plutocracy the US has become, four states have made this form of self-reliance a criminal offence, while others have introduced partial bans.

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Communities should be allowed to take back control of resources on which their prosperity depends
Another example is the extension of intellectual property through trade agreements, allowing biotech companies to grab exclusive rights to genetic material, plant varieties and natural compounds. Another is the way in which academic publishers capture the research freely provided by communities of scientists, then charge vast fees for access to it.

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I’m not proposing we abandon either market or state, but that we balance them by defending and expanding the two neglected sectors. I believe there should be wages for carers, through which the state and private enterprise repay part of the subsidy they receive. And communities should be allowed to take back control of resources on which their prosperity depends. For example, anyone who owns valuable land should pay a local community land contribution (a form of land value tax): compensation for the wealth created by others. Part of this can be harvested by local and national government, to pay for services and to distribute money from richer communities to poorer ones. But the residue should belong to a commons trust formed by the local community. One use to which this money might be put it is to buy back land, creating a genuine commons and regaining and sharing the revenue. I expand on this idea and others in my recently published book Out of the Wreckage.

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A commons, unlike state spending, obliges people to work together, to sustain their resources and decide how the income should be used. It gives community life a clear focus. It depends on democracy in its truest form. It destroys inequality. It provides an incentive to protect the living world. It creates, in sum, a politics of belonging.

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To judge by the speeches at this week’s Labour conference, the party could be receptive to this vision. The emphasis on community and cooperatives (which in some cases qualify as commons), the interest in broadening ownership and fighting oppressive trade agreements, point towards this destination.

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I hope such parties can take the obvious step, and recognise that the economy has four sectors, not two. That’s the point at which it can begin: the social and environmental transformation for which so many of us have been waiting.

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The Guardian

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New Zealand Election. “It’s the Economy, Stupid!” – Bryan Gould. 

It was Bill Clinton who identified the main issue in his election campaign as “It’s the economy, stupid”.

And so it almost always is, and New Zealand’s 2017 election campaign will be no different.

Of course other issues will matter too, but it is the economy, and the impact its fortunes will have on individual voters, that will usually have the greatest impact on the greatest number.

That is not usually seen as a plus for parties of the left. It is usually thought to the extent that it is almost an article of faith for some voters, notwithstanding the evidence of their own experience, that parties of the right are best equipped to manage the economy, and that other contenders for power necessarily start therefore at a disadvantage in that regard.

So Jacinda Ardern showed commendable courage when she devoted part of the time she had available in the first leaders’ debate to an economic issue.  That issue was productivity, or the lack of it.

Many experts, whether on the left or right, will agree that productivity growth is the essential factor in a successful economy. And most will say that our record in this regard is not good enough.

Why does it matter? Because it measures how much each individual worker across the whole economy produces on average. If our productivity gains are sluggish, as they have been, and fall behind those of other countries, we slip further down the international ladder in terms of living standards and prosperity.

We have been able to increase national output over recent years, but that is almost all down to taking in more immigrants. That produces a larger cake overall, but it does nothing to raise individual living standards, indeed, the reverse, since there are more slices to be cut from only a slightly bigger cake and we have to share our existing capital equipment with that greater number.

So, if productivity growth is the only sure way of raising living standards and providing more resources to spend on essentials, like housing, health and the environment, why have we failed to produce a better performance?

Because, as Jacinda Ardern pointed out, we have failed to invest in the new skills, new techniques, and new equipment and technology needed to increase the productive capacity of each member of the workforce.

We have failed to provide young people as they join the workforce with the skills, the training and apprenticeships, that are needed in a modern and competitive economy. We have handicapped our workforce by saddling large numbers with poverty (engendered by inequality) so that they have to contend with poor housing, health care and educational opportunities.

We have failed to provide incentives so that the necessary investment in new productive capacity, especially in research and development, and new equipment, is made.

And we have refused, for ideological reasons, to use the power of government to make good all these deficiencies.

Perhaps less obviously, we have failed to do what more successful economies do as a matter of course, move resources to the growth points in the economy. Where are those growth points? They should be, and almost invariably are, in the export sector, which is where the biggest markets are and where economies of scale, and therefore productivity gains, can most easily be achieved.

So, has our focus been, as it should, on improving our export performance and improving our export returns?  No, quite the contrary. We have insisted on running an economic policy characterised by high interest rates (in international terms at least) and an overvalued dollar.

As a result, our exporters face a constant head wind, because they have to charge a premium on everything they sell. And that makes it difficult both to compete for sales and  to earn a proper return on what they do sell. Just ask the dairy farmers or the Manufacturers and Exporters Association what the high dollar has done to them. Little wonder that the return on investment is so low that there is little to spend on raising productivity.

These failures are the government’s Achilles heel in managing the economy.  It seems Jacinda Ardern picked the right issue to focus on.

Bryan Gould, 1 September 2017


If you think Basic Income is “free money” or Socialism, think again – Scott Santens. 

First, saying basic income is socialism is as absurd as saying money is socialism. It’s money. It’s all it is. What do people do with money? They use it in markets. In other words, basic income is fuel for markets. Markets are a wonderful invention that serve to calculate via a massively distributed computer comprised of people, what goods and services should be made, using what, going where, by whom, of what quantity, etc. It’s an incredible act of decentralization built upon supply and demand signaling.

When someone has money and wants to buy something, that is a demand signal. Businesses meet this signal with supply. Basically, buying is like voting. We vote on what we want using money as our ballots, and we do this over and over and over again, every day. Now imagine someone has no money in a system built around markets. How do they vote? They can’t. The market thus confuses this lack of a vote as a “no” vote. These two signals are of course very different. One is zero and one is null, but markets don’t know that. They can’t differentiate between them. This means markets containing people who don’t have enough money to signal their demand can’t function properly.

continued at ScottSantens.com

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Jacinda tsunami is looking very hard to halt – Richard Prebble. 

Occasionally New Zealand elections produce a tidal wave. I witnessed the tidal wave that swept the Lange government to power. The pre-conditions are in place.

It is very hard for any government to win four elections in a row. Replacing Prime Ministers, Bolger to Shipley, Lange to Palmer has led to defeat in the next election. The signs are it will be a tidal wave.

First the tide goes out for the minor parties as it has for the Greens, United Future and Maori Party. New Zealand First is also losing votes to Labour.

Then the wave sweeps in. Anecdotal evidence is urban “John Key” women voters are switching to Jacinda Ardern.

Each poll shows the wave is gaining momentum. When Labour’s support crosses National’s it is all over.

The wave started when the Greens defended benefit fraud. Peters repaying his overpayment reminds us that Metiria Turia, who is still a Green candidate, has not.

Conditions were ideal for Labour. They just had the problem of their leader, until he fell on his sword.

In Jacinda, Labour have the ideal candidate for a five week campaign. Her regular Breakfast TV appearances have made her an accomplished TV performer.

The Maori Party is leaking votes to Labour too. Instead of campaigning on Maori water rights the party is campaigning for an amnesty for overstayers. They have lost the plot.

The only way to stop a tidal wave is to prevent it starting. Bill English and National’s strategist Steven Joyce are just too cautious. National also underestimated Ardern. In Parliament she has been ineffective. In six years she has not landed a single attack on Paula Bennett. But none of this matters.

This is the age of celebrity politics. It is image not substance. Macron in France, Trudeau in Canada, Trump in America and now Ardern in New Zealand. The camera loves Jacinda.

The red T-shirt crowd we first saw on TV may have been Matt McCarten’s “rent-a-mob” imported from overseas but mania when it gets going is infectious. Now the crowds are real.

I saw the Lange tidal wave. People came into my electorate office and took away handfuls of enrolment cards. On election day people lined up to vote in record numbers. Big enrolment and high voter turnout benefits Labour. As of June, the Electoral Commission estimated 445,234 voters (nearly all young and overwhelmingly Labour) had not registered. Last election just 76.77 per cent of those who did register voted. Labour strategists believe if they can lift enrolment and turn out, the party has 600,000 extra votes, enough to win.

Labour could be elected to govern alone. If the Greens, United Future, Maori and TOP all fail to reach the threshold then with the votes redistributed, Labour could govern alone on as little as 45 per cent. Winston Peters, confident he would be kingmaker, pulled New Zealand First out of the minor party debates. Now he finds himself in the middle of a benefit overpayment and is railing against “dirty politics”. What is worse, when Labour does not need him Peters becomes irrelevant.

What could stop the Jacinda tidal wave? A major failure in the leaders’ debates. Not likely. The Opposition Leader usually wins the leaders’ debate.

Labour is doing its best to lose. The party is rolling out Andrew Little’s ill-thought manifesto of promises the party never thought it would have to implement. In any other election promising to tax water, fuel, capital and tourism would be fatal.

All of Labour’s new taxes are extra. Many of Labour’s promises are just silly, such as trams up Dominion Rd. Others are reckless. “Nationalising” Maori water rights will prove very divisive.

If Labour continues to issue massive tax and spend promises for the next four weeks it may alarm the voters, though it seems nothing will turn the media against their love affair with Jacinda.

Elections are won by the party that sets the agenda. National wanted to make the management of the economy the issue. National has lost confidence in its strategy. It feels it must match Labour’s spending promises with its own. If the election is not fought on who can best manage the economy but on Labour’s agenda of housing, health and education, nothing will stop the Jacinda tidal wave. Five weeks is not long enough to discover whether Jacinda is too inexperienced and three years is going to be three years too long to learn the answer.

NZ Herald 

Stealing From Our Children. The real dilemma of growth and the need for New Economics – Kamal K. Kothari & Chitra Chandrasekhar. 

“In a very rapidly changing scenario, with a burgeoning population, fast-changing demographic profile, and growth aspirations of people around the world putting pressure on natural resources, our economic thoughts and practices have to change.”

***

RE-THINKING ECONOMICS

In the beginning there was nothing, no human beings, no animals, no trees, no oceans, no earth, no sun, no stars, not even space or time. A quantum fluctuation leading to the Big Bang almost 14 billion years ago sowed the seeds of the Universe and space and time, as we know it. In the initial phase, stars, black holes, and galaxies were formed. The Earth, our home planet, was born almost 10 billion years later, about 4 billion years ago. It was then a fiery ball and took almost 1 billion years to cool down. Seeds of life sprouted about 3 billion years ago, some say spontaneously, while others hold a view through panspermia, no one knows for sure.

While the earth was cooling, life forms were evolving and the planet was undergoing cataclysmic changes. Continents were shifting and breaking apart, ocean floors were rising and sinking, volcanoes were erupting. Forests, animals, fishes, amphibians came and disappeared, so much so that according to some, 99.9% of the species in existence since beginning of life on Earth have ceased to exist. These changes, over a period of hundreds of millions of years, left us the legacy of natural resources—coal, crude oil, natural gas— and minerals so necessary for industrial processes and evolution of a technological civilisation.

Life forms continued to evolve. Humans came on the scene. No one is sure, but it is said that human sub-species evolved about half a million years ago in the African Savannah. With human civilisations, human aspiration too continued to develop and grow, perhaps slowly, if we were to compare it with the developments in the last 100 years.

The advent of the Industrial Revolution, which started in Europe around 1760, brought in its wake a transformation. Progress brought about by technology encouraged a shift from primarily an agricultural world to an industrial one. Rapid shifts took place in many parts of the world, mainly Europe and North America, and in the earlier part of the last century, in Japan. Such shifts are now taking place in parts of Asia, mainly India and China, Latin America, and Africa. These changes, by themselves great achievements for mankind, have led to a burgeoning population and major demographic changes. An off-shoot of this technological progress has been that more intensive and concentrated methods of food production are required for supporting technological societies and longer human life spans, stemming from better healthcare. 

About the time of the birth of Jesus Christ, the planet supported a population of about 200 million human beings, which, by the early 19th century i.e. in a period of about 1,830 years touched a billion people. In another 185 years, we have expanded 7-fold to over 7.2 billion people and we are still continuing to expand. The advent of technological changes and exploitation of natural resources has improved the living conditions of human beings, and on an average a human being lives better, is better fed, and better educated than any other time in the history of mankind.

All this has been brought about by scientific advances in different fields such as Quantum Physics, Relativity, Material Sciences, Chemistry, Agricultural Sciences, and so on and so forth.

The list is endless.

However, a large population and better living standards have created their own challenges in fields as diverse as economics, social sciences, ecology, and environment. At the heart of these is the rapid exploitation of natural resources, be it in the form of energy-generating resources like coal or crude oil, mineral resources like ores, or environmental resources, which are being degraded in the pursuit of economic growth.

These issues are well known, and have been discussed in various fora for decades now. The first Club of Rome report, Limits to Growth, which was published in 1972, raises many issues pertinent to these changes. That landmark report and subsequent Club of Rome reports, which generated extensive debates in the 1970s, now lie peacefully buried in the archives of libraries around the world. While these issues are still relevant, it is not the intent of this book to reiterate them. 

Along with technological progress, economic theories evolved as well. A key aspect of economic theories was better and more efficient utilisation of resources, be it capital, land or labour. These concepts and theories optimized utilisation of resources and went a long way in improving the living standards of mankind across the world.

These economic theories, which have served us well for many decades now, need a relook, particularly from the point of view of sustainability. If we lived in a world where resources were infinite or virtually limitless in relation to our consumption, we would have had no issues. But that is indeed not the case, more so, as our population and resource consumption have been expanding exponentially. Using current methods of economic analysis, capital allocation really promotes gross long-term inefficiencies in our resource utilisation. If we continue with these approaches, our societies would become unsustainable.

The authors have long held the view that not only do our economic theories lead to unsustainable development, but really amount to stealing from our future generations. We compare our society to a rich man who sells his family silver to sustain his lifestyle and in the end leaves practically nothing for his children. What is worse in our case is that we would leave our children a huge debt, which they would have to pay. This book will provide enough evidence that our economic and capital allocation models do the same thing: promote current consumption at the cost of future generations. The problem is further compounded by the short-sightedness of the political class in most nations of the world where the focus seems to be the next year, the next election, or in non-democratic societies, growth in personal wealth or stature. Similarly, the corporate world around us generally thinks of the next quarter, the next shareholders’ meet, and the bonuses, which the top managers can persuade the Boards and shareholders to pay them. Few think of the long-term strategies for the company, and fewer still about long-term sustainability issues.

Most businesses use capital allocation models to optimise their working. Similar concepts are, at least theoretically, used by countries (where their leaders are not driven by political considerations, which is not often) to utilise national resources. Few realise the pitfalls of such models.  So wide is the use of these models that working of all banks would come to a standstill if somehow these formulae were to be erased from their computers.

Capital allocation models are generally skewed in favour of current consumption. They place a premium on current consumption and earlier use of the resources vis-à-vis saving them for the future generations. For example, if we can pump a barrel of oil now and its price is US$100, our benefit (less the pumping out cost, which we for the sake of simplicity assume to be zero) is US$100. But if we leave the same barrel of oil underground so that someone else can use it 50 years later at a 10% cost of capital, the value of the same barrel of oil today is 85 cents. If we were more farsighted and do not use it for 100 years, the present value falls to 0.7 cents. So our incentive is in using the resource as fast as possible. Of course, in doing this analysis we conveniently forget that nature took several hundred million years to generate the same barrel of oil.

Another way of looking at the same situation is, if, for the sake of argument, through some technological breakthrough it is possible to extract 100 barrels of oil after 50 years, but if the field were to be exploited now, only 1 barrel could be extracted and the remaining 99 barrels are lost forever. Managers would still find it desirable to extract that one barrel of oil now, notwithstanding the fact that future generations would lose 99 barrels of oil. This example may sound extreme, but analogous decisions are routinely taken globally. As a result, the rate of consumption of natural resources is so high that the world reserves of many key resources would be exhausted in a couple of generations. As these resources get exhausted, their availability would decline, although this fall would be generally gradual. But a fall in resource availability would impact industrial production as well as all the consequences that would inevitably result from it.

Everybody would be impacted. No one would be spared. But youngsters in their twenties and thirties, with 30 to 40 years of working life remaining, would be most affected. Their hopes, aspiration and dreams of a comfortable and peaceful retirement after years and years of hard work would stand shattered as money, not backed by availability of goods and services, would lose value as its purchasing power falls.

The aim of this book is to bring out the deep lacunae in our economic thought and practices. The existing economic practices were developed when natural resources were plentiful, the global population small, and natural resource consumption minuscule in relation to the reserves. But in a very rapidly changing scenario, with a burgeoning population, fast-changing demographic profile, and growth aspirations of people around the world putting pressure on natural resources, our economic thoughts and practices have to change.

No change is without associated pain. We are all comfortable with the present thought processes, which predict steady and sustained growth based on the implicit assumption that resources are unlimited. But the reality is that we live in a finite world with limited resources, and after that reality is factored in, none of these projections hold true. And the sooner we realise this, the better it is and perhaps less painful too.

This book is divided into two sections. The first section, The Context, highlights the world we live in and how fast we are consuming our resources and impacting the environment. Some readers may find The Context grim and depressing, but we have painted the picture as we see it based on the best available information. We would request such readers bear with us or simply move on to the next part, The New Economic Paradigm, and then come back to The Context. In the second part, The New Economic Paradigm, we have suggested a new approach to our economic theories, which would lead to a more sustainable world.

***

“Humans are extremely intelligent and yet extremely foolish. They have failed to perceive the inter-linkages in the Web of Life; remove a few links and the Web could collapse, threatening their own existence.”

***

Stealing From Our Children. The real dilemma of growth and the need for New Economics – Kamal K. Kothari and Chitra Chandrasekhar. 

get it from Amazon.com


University of Otago’s Andrew Coleman looks at the intergenerational effects of the tax system on New Zealand’s housing markets. 

The tax system plays a crucial role in New Zealand’s housing markets. At the simplest level, the Goods and Services Tax is applied to new land development and new house construction, raising the price of new housing by 15%.

But the effects of the tax system are more complicated than this.

Since 1986 several tax changes have caused an intergenerational rift in New Zealand society by increasing the prices young people pay to purchase houses.

Some of these tax changes appear justifiable on efficiency grounds, but even these have made it more expensive for young people to purchase or rent property.

In conjunction with other tax changes that have artificially raised property prices, a generation of older property owners have become rich at the expense of current and future generations of New Zealanders.

The scale of the problem

The scale of the problem is seen by observing how average property prices have increased by over 220% in inflation-adjusted terms since 1989; the highest rate of increase in the developed world.

The average size of new houses has also increased more quickly than in Australia or the United States, the only two countries that publish this data.

The average size of a new dwelling in 2013 was 198 m2, up from 125 m2 in 1989, and nearly twice as large as the average new house in Europe.

The tax changes that have affected housing can be divided into those that affect the cost of supplying housing and those that affect the demand for housing.

Unfortunately, unravelling the effect of taxes on house prices and rents is challenging.

The effects depend on the extent that the supply of new housing is responsive to prices.

If the supply of housing is very responsive to prices, taxes that affect supply prices (such as GST) become fully reflected in prices, while taxes that affect demand (such as the relative size of taxes on housing income and other assets) do not. Conversely, if the supply of housing is not really responsive to prices, supply taxes like GST have little effect on prices but demand taxes have large effects.

The analysis is further complicated because the supply of land – particularly land in good locations – is less responsive to price than the supply of new houses.

It is quite possible that a particular tax can simultaneously lead to higher land prices but not much new land, and larger houses but not much of an increase in building costs.

Since 1989, the ways that the tax system affects the demand for housing has been the biggest problem.

The fundamental difficulty is that the returns from other classes of assets such as interest income are more heavily taxed than the returns from housing.

Because interest is more heavily taxed than the returns from owneroccupied housing – which are essentially the rent people get from their own home – people have an incentive to live in larger houses than otherwise, and pay more for well-located properties.

In the absence of this tax distortion, many people would choose to live in smaller houses and land prices in major cities would be a lot lower.

It is not unreasonable to suspect the premium people pay for well-located properties is twice as high as they would pay under a non-distortionary tax system.

Incentives

But this is not all. The tax system provides incentives for landlords to pay a much higher price/rent multiple for the houses they lease, largely because the absence of a capital gains tax.

Because the houseprice/ rent multiple could increase either because house prices increase or because rents decline (or some combination of both), the tax system could make buying more expensive or it could make renting more affordable. Most of the evidence suggests house prices have increased rather than rents have fallen; either way, the result is a tax-induced decline in home ownership rates.

When the tax system causes artificially high house prices, costs are imposed on current and future generations of young people, who have to borrow more and pay higher mortgage costs.

Why 1989? New Zealanders have never paid tax on the capital gains associated with house price increases, and the way housing is taxed was not fundamentally changed in 1989.

This is true. But the distortionary effects of taxation depend on the way houses are taxed relative to other asset classes, and in 1989 the government changed the way some other capital income is taxed.

Until 1989, money placed into retirement saving schemes was tax deductible, and the earnings from this money were not taxed as they accumulated.

Under this tax scheme – which is used in most developed countries including the United Kingdom, the United States, France, Germany, and Japan – the money placed in these savings schemes is taxed in a similar way to housing.

It reduces the incentive for owner-occupiers and landlords to overinvest in housing.

While the distortions in the current tax system could be eliminated by introducing a capital gains tax on housing and all other assets, and by taxing the rent you implicitly pay yourself when you own your home, most countries have found this too difficult to do.

As they have discovered, it is far simpler to change the way other savings are taxed.

On the supply side, in addition to GST, the Local Government Act (2002) has also affected the cost of supplying housing by changing taxes.

Instead of levying property taxes (rates) to fund the costs of developing new sections, local governments have progressively imposed development charges.

This change has improved efficiency by moving the costs of a larger city to the new people populating it, but it has also increased the price of housing right across cities.

People who bought before 2002 shifted the cost of new development to others, increasing the value of their houses, even though their development costs had been paid by other ratepayers.

For a long time, economists have pointed out that if you tax the income from housing less than other assets, you tend to increase land prices.

At the macroeconomic level, they have noted that this tends to increase national debt levels, and lower national income.

The first owners of land benefit from these schemes, but everyone else loses.

Perhaps this is a reason why other countries have been concerned to tax housing on a similar basis to other assets.

It is unfortunate New Zealand does not do so, even if the tax changes implemented since the late 1980s have proved very advantageous to middle-aged and older generations.

Interest.co.nz

The new American Dream: rent your home from a hedge fund – Simon Black. 

About a month ago I joined the Board of Directors of a publicly-traded company that invests in US real estate.

The position brings a lot of insight into what’s happening in the US housing market. And from what I’m seeing, the transformation that’s taking place today is extraordinary.

Buying and renting out single-family homes has long been the mainstay investment of small, individual investors.

The big banks and hedge funds pretty much monopolize everything else. They own the stock market. They own the bond market. They own all the commercial real estate. They even own the farmland.

Single-family homes were one of the last bastions of investment freedom for the little guy.

But all that’s changing now.

Last week a huge merger was announced between Invitation Homes (owned by private equity giant Blackstone Group) and Starwood Waypoint Homes (owned by real estate giant Starwood Capital).

If the deal goes through, the combined entity would be the largest owner of single-family homes in the United States with a portfolio worth over $20 billion.

And this is only the latest merger in an ongoing trend.

Three years ago, for example, American Homes 4 Rent bought Beazer Pre-Owned Rental Homes, creating another enormous player. A few months later, Starwood Waypoint bought Colony American Homes.

And of course, Blackstone was one of the first institutional investors to start buying distressed homes, forking over around $10 billion on houses since the Great Financial Crisis.

At one point, Blackstone was reportedly spending $150 million a week on houses.

There are some medium-tier players coming into the market as well. A friend of mine runs a fund that owns about 2,000 rental homes in Texas, and he’s buying every property he can find.

I called him for his perspective on what’s happening in the housing market. Here’s what he told me:

There are lots of little guys assembling portfolios of 10-100 homes. And I like to buy these guys out because they have much higher funding costs than us.

And, eventually, as we get larger, medium-sized funds like mine will get bought out by Blackstone and the other mega players.

In short, medium-sized funds are buying up all the little guys. And mega-funds like Blackstone are buying up all the medium-sized funds.

This means there’s essentially an ‘arms race’ building among the world’s biggest funds to control the market, squeezing small, individual investors out of the housing market.

Then there’s the situation for renters.

US Census Bureau statistics show that, over the past decade, the number of rental households has been rising steadily while the number of homeowner households has been falling.

In other words, the American Dream of owning your own home has been fading.

It’s easy to understand why:

US consumer debt is at an all-time high of over $1 trillion (mostly credit card debt), with an additional $1.3 trillion in federal student loans.

Americans… especially younger people, are far too heavily indebted to be able to save any money for a down payment.

Moreover, despite all the hoopla about the low unemployment rate in the US, wages are totally stagnant.

(Plus bear in mind that most of the jobs created have been for waiters and bartenders!)

So the average guy isn’t making any more money, or able to save anything… all while home prices soar to record levels as major funds gobble up the supply.

This means that the new reality in America, especially for young people, is that if you’re lucky enough to not be living in your parents’ basement, you’ll be relegated to renting your house from Blackstone.

But… there is some interesting opportunity in all of this.

With a supply of more than 17 million rental homes in the United States, there’s a LONG way to go for this trend to play out. We’re still in the early stages of the mega-fund consolidation.

And some savvy little guys are figuring out how to cash in on this trend.

Think about it: mega-funds don’t have the capacity to buy up homes one at a time. They just don’t have the time.

They need to buy homes in big volume… hundreds, even thousands at a time. And they’re willing to pay a premium if they can buy in bulk.

That’s why medium-sized funds like the one my friend runs in Texas are basically assembling large portfolios with the sole purpose of flipping everything to the mega-funds.

But smaller investors can play this game too.

Medium-sized funds need to buy in bulk as well. They don’t have the time or resources to buy up homes one at a time.

This creates a unique, niche opportunity for individual investors to assemble small portfolios, say, 10 properties, with the sole purpose of flipping to medium-sized funds.

We know some people already doing this. They essentially put several single-family homes under contract simultaneously (with only a small deposit on each home).

But, BEFORE they close, they make arrangements to flip the entire package of homes to a medium-sized fund through a double-escrow closing.

This structure guarantees a neat profit to the small investor while requiring limited up-front capital.

And like most great investment opportunities, it’s been very lucrative so far because very few people are doing it.

SovereignMan.com

The Opportunities Party Campaign Launch – Gareth Morgan. 

New Zealand was founded on the idea of a fair deal, the concept that peoples from different backgrounds could come together and work out their differences without resorting to warfare and hatred.

The idea of that deal was to allow everyone in this country the opportunity to pursue their dreams.

That deal hasn’t always been honoured, but it is at the very core of what we as a nation are all about, fairness and opportunity.

This land of egalitarianism and opportunities has seen Kiwis achieve some remarkable things in the past century and a half….

A scientist from Nelson became the first person to split the atom

A beekeeper from Auckland conquered the highest mountain in the world

A girl from a tough background in Rotorua became the greatest opera diva of her generation

Writers, artists, sportspeople, thinkers, inventors people from every walk of life in New Zealand have proved time and time again that given the opportunity Kiwis can be the best in the world.

We have led the way in woman’s rights, social welfare, anti-nuclear activism and gay rights……..we have much to be proud of.

The opportunities that allowed us to do that were also based on the notion that each generation would pass on to the next a better country than they were born into.

A country with better education, healthcare and economic openings.

A country that was fairer, more egalitarian more civilised……in short, a country that offered ever greater opportunity.

But something has gone terribly wrong with that idea… the current generation…..the baby boomers ….. may be the first to leave behind a New Zealand of shrinking opportunities, less fairness and more inequality than they were born into.

We are in the process of flicking an intergenerational hospital pass to our children and grandchildren

We’re leaving them loaded with debt for their education, while we ask them to pay for our retirement.

We’re pricing them out of the housing market so we can make tax free capital gains.

We’re importing cheap unskilled labour to cut them out of entering the job market..and turning the country into a low wage, treadmill economy.

And when they don’t conquer the massive hurdles we put in their way we make them jump through hoops for welfare payments while calling them lazy dope heads.

We’re screwing the environment they will have to live in, by tolerating farming practices that degrade our waterways…..paying lip service only to the idea of climate change and the solutions needed to overcome or adapt to it, while pandering to industry sector groups without regard to the sustainability of their businesses.

We are criminalising and locking up ever growing numbers of men and women who don’t even get a chance in this shrinking world of opportunity, and we are standing by as the gap between the haves and the have nots widens.

You don’t need me to tell you how wrong all this is, you hear about it every day when you read our suicide statistics, homeless numbers, real estate ads, and crime stories.

And what is our political establishment doing…..pretty well nothing. Stuck in outdated left versus right political ideology with a tax & targeted welfare regime that is obsolete, they trade insults and argue at the margins as New Zealand, the land of opportunity, slips away.

They fight, not to restore the fairness of our society but to perpetuate their own political power in some vain belief that an ideology is what’s needed to get this country back on track.

Let’s be very clear TOP doesn’t care who leads the next government.

Those who campaign to change from blue to red or right to left are like a bunch of kids screaming “DAD’s burnt the dinner…let’s get the dog to cook”.

What New Zealand desperately needs are ideas to restore opportunities…..policies that aren’t designed to get a party into power but to fix the problems we have, reduce inequality, and take us forward into a world where our children again have more opportunity than we did.

If we don’t, we’ll end up with a select few owning million dollar houses in a ten-cent economy.

We know what those policies are.

Fair tax reform to close the 11 billion dollar property loophole, and deliver income tax cuts to every worker.

A UBI to end witch hunt welfare, underwrite human dignity, and ensure that when any of us are at our most vulnerable, our society is backing us.

Tenancy reform to give renters real rights so they can build secure homes without the mission Impossible of property ownership.

Real action on cleaning up our waterways, and having polluters pay, while encouraging best environmental practice from all industries.

A democracy reset to give us all clear constitutional rights, curb the power of cabinet and recognise the Treaty of Waitangi.

Real commitment to confront and deal with the challenges of climate change and make the country resilient to its inevitable assault.

A justice policy that wages war on prisons not prisoners

Education reform that recognises schools should lie at the centre of communities, and that the role of education is to prepare New Zealanders for a world of ever-increasing automation and diminishing income from mundane work.

And health policies that stop us literally killing ourselves, be it through suicide, or the ever increasing consumption of deadly foodstuffs.

None of these policies are rocket science, they are based on expert, evidence-based analysis of what New Zealand needs and can achieve with the resources we have available right now.

The only thing lacking has been a political establishment with the will to see, and courage to embrace the way forward.

We are all here today as part of the TOP movement to make a change……… not a change of government, but a real change of direction and focus…to make a real change in the lives of all New Zealanders to restore opportunities for future generations.

We’ve come a hell of a long way since November, thousands have put up their hands to join TOP, hundreds have volunteered, and we have awesome candidates standing across the country.

It hasn’t been easy – we’re the new kids on the block, so we don’t get the sort of coverage or funding the old establishment parties have access to.

But we have one huge advantage, we are free of the hatred of old tribal politics, we know what we stand for, and we can work with anyone who is genuinely prepared to implement policies that restore opportunities to New Zealanders.

I want to thank all of you for putting your hands up and having the courage to be part of a real change for good in New Zealand.

For having the courage to leave behind the class warfare and name-calling that has dominated politics for so long.

For having the brains to know that more of the same-old-same-old isn’t going to cut it for future generations

And most of all, believing that good ideas and genuine dialogue will beat self-interest and political game playing any day of the week.

We have already moved the policy debate in this country without a single vote being cast for TOP.

Acceptance of the need for cannabis reform is now widespread, our tenancy reforms have been lauded for their foresight, the UBI is now an accepted part of this country’s welfare debate.

But there is a long way to go.

I know we will be in Parliament after September the 23rd……just how much we can change the direction of this country will be up to voters.

You are the people that will help them make the right decision, to restore the values this country was founded on, and give equal and growing opportunities for everyone no matter what their gender, age, social status or ethnicity.

You can do that by sharing our ideas, reaching out to the good in every Kiwi’s heart, and making sure every New Zealander makes the decision to

CARE, THINK, VOTE and TICK TOP

The Opportunities Party

Housing Affordability, The Opportunities Party.

The Opportunities Party has a bold new plan to address the major problems confronting New Zealand, housing affordability.

While TOP’s ground-breaking Fair Tax System will stop residential properties being misused as tax free investment vehicles for the wealthy and suppress rampant house price inflation, TOP believes structural reform of the rental and social housing markets is also needed to solve the country’s most pressing social issue.

TOP will adopt a German type model to vastly improve the rights of private market tenants while demanding minimum standards for all homes and gifting current state housing stocks to non-profit social housing organisations.

The Opportunities Party intends to develop a deep market for long term rental accommodation so that families can be secure knowing that investing in home ownership is not the only way that security is achievable.

Party Founder and Leader Dr Gareth Morgan says, “Homes not Houses will alter the profile of New Zealand home ownership so the modest and low incomed no longer need to climb the mountain of home ownership in order to create a stable long-term home for themselves and their families.”

The ability to evict tenants will be greatly reduced and rental properties will need to be sold with existing tenants in residence. While market rents will still apply there will be regulations to prevent existing tenants being priced out of their homes.

The benefits of this policy package do not accrue to tenants alone. Reducing the social disruption of constantly moving home will result in less stress on families, higher educational achievement and reduced spending on social services to address the problems caused by that disruption.

“Solving the housing crisis isn’t just about increased building or decreased prices” says Dr Morgan, “It’s about the way a civilised society should regard residential property as a social asset for an entire nation rather than a financial asset for a select few”.


How to Use Fiscal and Monetary Policy to Make Us Rich Again – Tom Streithorst. 

The easiest way to return to Golden Age tranquility and equality is to empower fiscal policy.

During the post war Golden Age, from 1950 to 1973, US median real wages more than doubled. Today, they are lower than they were when Jimmy Carter was president. If you want an explanation why Americans are pessimistic about their future, that is as good a reason as any. In a recent article, Noah Smith examines the various causes of the slide in labor’s share of national income and finds most explanations wanting. With a blind spot common amongst economists he doesn’t even investigate the most obvious: politics.

Take a look at this chart. From the end of World War II, productivity rose steadily. Until the 1972 recession wages went up alongside it. Both dipped, both recovered and then, right around the time Ronald Reagan became President, productivity continued its upward trajectory but wages stopped following. If wages had continued to track productivity increases, the average American would earn twice as much as he does today and America would undoubtedly be a calmer and happier nation.

Collectively we are richer than we were 40 years ago, as we should be, considering the incredible advances in technology since them, but today the benefits of productivity increases no longer go to workers but rather to owners of stocks, bonds, and real estate. Wages don’t go up, but asset prices do. Rising productivity, that is to say the ability to make more goods and services with fewer inputs of labor and capital should make us all more prosperous. That it hasn’t can only be a distributional issue.

The timing suggests Ronald Reagan had something to do stagnating wages. That makes sense. Reagan cut taxes on the rich, deregulated the economy, eviscerated the labor unions and created the neoliberal order that still rules today. But perhaps an even more significant change is the tiny, technical and tedious shift from fiscal to monetary policy.

Government has two ways of affecting the economy: monetary and fiscal policy. The first involves the setting of interest rates, the other government tax and spending policy. Both fiscal and monetary policy work by putting money in people’s pockets so they will spend and thereby stimulate the economy but fiscal focuses on workers while monetary mostly benefits the already rich. Since Ronald Reagan, even under Democratic presidents, monetary has been the policy of choice. No wonder wages stopped going up but real estate, stock and bond prices have gone through the roof. During the Golden Age we shared the benefits of technological progress through wages gains. Since Reagan, we have allocated them through asset price inflation.

Fiscal policy, by increasing government spending, creates jobs and so raises wages even in the private sector. Monetary policy works mostly through the wealth effect. Lower interest rates almost automatically raise the value of stocks, bonds, and other real assets. Fiscal policy makes workers richer, monetary policy makes rich people richer. This, I suspect, explains better than anything else why monetary policy, even extreme monetary policy remains more respectable than even conventional monetary policy.

During the Golden Age, fiscal was king. Wages rose steadily and everybody was richer than their parents. Recessions were short and shallow. Economic policy makers’ primary task was insuring full unemployment. Anytime unemployment rose over a certain level, a government spending boost or tax cut would get the economy going again. And since firms were confident the government would never allow a steep downturn, they were ready and willing to invest in new technology and increased productive capacity. The economy grew faster (and more equitably) than it ever has before or since.

During the 1960s, Keynesian economists thought they could “fine tune” the economy, using Philips curve trade offs between inflation and unemployment. Stagflation in the 1970s shattered that optimism. Inflation went up but so did unemployment. New Classical economists decided in the long run, Keynesian stimulus couldn’t increase GDP, it could only accelerate inflation. Keynesianism stopped being cool. According to Robert Lucas, graduate students, would “snicker” whenever Keynesian concepts were mentioned.

In policy circles, Keynesians were replaced by monetarists, acolytes of Milton “Inflation is always and everywhere a monetary phenomenon” Friedman. Volcker in America and Thatcher in Britain decided the only way to stomp out inflationary expectations was to cut the money supply. This, despite their best efforts, they were unable to do. Controlling the money supply proved almost impossible but monetarism gave Volcker and Thatcher the cover to manufacture the deepest recession since the Great Depression.

By raising interest rates until the economy screamed Volcker and Thatcher crushed investment and allowed unemployment to rise to levels unthinkable just a few years before. Businessmen, union leaders, and politicians pleaded for a rate cut but the central bankers were implacable. Ending inflationary expectations was worth the cost, they insisted. Volcker and Thatcher succeed in crushing inflation, not by cutting the money supply, but rather with an old fashioned Phillips curve trade off. Workers who fear for their jobs don’t ask for cost of living increases. Inflation was history.

The Federal Funds Rate hit 20% in 1980. Now even after a few hikes, it is barely over 1%. The story of the past 30 years is of the most stimulative monetary policy in history. Anytime the economy stumbled, interest rate cuts were the automatic response. Other than military Keynesianism and tax cuts, fiscal policy was relegated to the ash heap of history. Reagan of course combined tax cuts with increased military spending but traditional peacetime infrastructure stimulus was tainted by the 1970s stagflation and for policymakers remained beyond the pale.

Fiscal stimulus came back, momentarily, at the peak of the financial crisis. China’s investment binge combined with Obama’s stimulus package probably stopped the Great Recession from being as catastrophic as the Great Depression but by 2010, fiscal stimulus was replaced by its opposite, austerity. According to elementary macroeconomics, when the private sector is cutting back its spending, as it was still doing in the wake of the financial crisis, government should increase its spending to take up the slack. But Obama in America, Cameron in Britain and Merkel in the EU insisted that government cut spending, even as the private sector continued to retrench.

It is rather shocking, for anyone who has taken Econ 101 that in 2010, when the global economy had barely recovered from the worst recession since the Great Depression, politicians and pundits were calling for lower deficits, higher taxes and less government spending even as monetary policy was maxed out. Rates were already close to zero so central banks had no more room to cut.

So, instead of going to the tool box and taking out their tried and tested fiscal kit, which would have created jobs and had the added benefit of improving infrastructure, policymakers instead invented Quantitative Easing, which in essence is monetary policy on steroids. Central Banks promised to buy bonds from the private sector, increasing their price, thereby shoveling money towards bond owners. The idea was that by buying safe assets they would push the private sector to buy riskier assets and by increasing bank reserves they would stimulate lending but the consequence of all the Quantitative Easings is that all of the benefits of growth since the financial crisis have gone to the top 5% and most of that to the top 0.1%.

A feature or a bug? The men who rule the planet are happy that most of us think economics is boring, that we would much rather read about R Kelly’s sexual predilections than about the difference between fiscal and monetary policy but were we to remember that spending money on infrastructure or health care or education would create jobs, raise wages, and create demand which the economy craves, we would have a much more equitable world.

One cogent objection to stimulative fiscal policy is that it has the potential to be inflationary. Indeed the fundamental goal of macroeconomic policy is to match the economy’s demand to its ability to supply. If fiscal policy gets out of hand (as arguably it did in the 1960s when Lyndon Johnson tried to fund both his Great Society and the Vietnam war without raising taxes), demand could outstrip supply, creating inflation. But should that happen, we have the monetary tools to cure any inflationary pressure. Rates today are still barely above zero. Should inflation threaten, central banks can raise interest rates and nip it in the bud.

Fiscal and monetary policy both have a place in policymakers’ toolkits. Perhaps the ideal combination would be to use fiscal to stimulate the economy and monetary to cool it down. Both Brexit and Trump should have told elites that unless they share the benefits of growth, a populist onslaught could threaten all our prosperity. The easiest way to return to Golden Age tranquility and equality is to empower fiscal policy to invest in our future and create jobs today.

2017 August 6

Evonomics.com

Democracy in Chains: The Deep History of the Radical Right’s Stealth Plan for America – Nancy Maclean. 

In 1955 the U.S. Supreme Court issued its second Brown v. Board of Education ruling, calling for the dismantling of segregation in public schools with “all deliberate speed.”

Thirty-seven-year-old James McGill Buchanan liked to call himself a Tennessee country boy. No less a figure than Milton Friedman had extolled Buchanan’s potential. As Colgate Whitehead Darden Jr., the president of the University of Virginia reviewed the document, he might have wondered if the newly hired economist had read his mind. For without mentioning the crisis at hand, Buchanan’s proposal put in writing what Darden was thinking: Virginia needed to find a better way to deal with the incursion on states’ rights represented by Brown.

States’ rights, in effect, were yielding in preeminence to individual rights. It was not difficult for either Darden or Buchanan to imagine how a court might now rule if presented with evidence of the state of Virginia’s archaic labor relations, its measures to suppress voting, or its efforts to buttress the power of reactionary rural whites by underrepresenting the moderate voters of the cities and suburbs of Northern Virginia. Federal meddling could rise to levels once unimaginable.

What the court ruling represented to Buchanan was personal. Northern liberals—the very people who looked down upon southern whites like him, he was sure—were now going to tell his people how to run their society. And to add insult to injury, he and people like him with property were no doubt going to be taxed more to pay for all the improvements that were now deemed necessary and proper for the state to make.

Find the resources, he proposed to Darden, for me to create a new center on the campus of the University of Virginia, and I will use this center to create a new school of political economy and social philosophy. It would be an academic center, rigorously so, but one with a quiet political agenda: to defeat the “perverted form” of liberalism that sought to destroy their way of life, “a social order,” as he described it, “built on individual liberty,” a term with its own coded meaning but one that Darden surely understood. The center, Buchanan promised, would train “a line of new thinkers” in how to argue against those seeking to impose an “increasing role of government in economic and social life.”

Buchanan fully understood the scale of the challenge he was undertaking and promised no immediate results. But he made clear that he would devote himself passionately to this cause.

Buchanan’s team had no discernible success in decreasing the federal government’s pressure on the South all the way through the 1960s and ’70s. But take a longer view—follow the story forward to the second decade of the twenty-first century—and a different picture emerges, one that is both a testament to Buchanan’s intellectual powers and, at the same time, the utterly chilling story of the ideological origins of the single most powerful and least understood threat to democracy today: the attempt by the billionaire-backed radical right to undo democratic governance.

A quest that began as a quiet attempt to prevent the state of Virginia from having to meet national democratic standards of fair treatment and equal protection under the law would, some sixty years later, become the veritable opposite of itself: a stealth bid to reverse-engineer all of America, at both the state and the national levels, back to the political economy and oligarchic governance of midcentury Virginia, minus the segregation.

The goal of all these actions was to destroy our institutions, or at least change them so radically that they became shadows of their former selves?

This, then, is the true origin story of today’s well-heeled radical right, told through the intellectual arguments, goals, and actions of the man without whom this movement would represent yet another dead-end fantasy of the far right, incapable of doing serious damage to American society.

When I entered Buchanan’s personal office, part of a stately second-floor suite, I felt overwhelmed. There were papers stacked everywhere, in no discernible order. Not knowing where to begin, I decided to proceed clockwise, starting with a pile of correspondence that was resting, helter-skelter, on a chair to the left of the door. I picked it up and began to read. It contained confidential letters from 1997 and 1998 concerning Charles Koch’s investment of millions of dollars in Buchanan’s Center for Study of Public Choice and a flare-up that followed.

Catching my breath, I pulled up an empty chair and set to work. It took me time—a great deal of time—to piece together what these documents were telling me. They revealed how the program Buchanan had first established at the University of Virginia in 1956 and later relocated to George Mason University, the one meant to train a new generation of thinkers to push back against Brown and the changes in constitutional thought and federal policy that had enabled it, had become the research-and-design center for a much more audacious project, one that was national in scope. This project was no longer simply about training intellectuals for a battle of ideas; it was training operatives to staff the far-flung and purportedly separate, yet intricately connected, institutions funded by the Koch brothers and their now large network of fellow wealthy donors. These included the Cato Institute, the Heritage Foundation, Citizens for a Sound Economy, Americans for Prosperity, FreedomWorks, the Club for Growth, the State Policy Network, the Competitive Enterprise Institute, the Tax Foundation, the Reason Foundation, the Leadership Institute, and more, to say nothing of the Charles Koch Foundation and Koch Industries itself.

I learned how and why Charles Koch first became interested in Buchanan’s work in the early 1970s, called on his help with what became the Cato Institute, and worked with his team in various organizations. What became clear is that by the late 1990s, Koch had concluded that he’d finally found the set of ideas he had been seeking for at least a quarter century by then—ideas so groundbreaking, so thoroughly thought-out, so rigorously tight, that once put into operation, they could secure the transformation in American governance he wanted. From then on, Koch contributed generously to turning those ideas into his personal operational strategy to, as the team saw it, save capitalism from democracy—permanently.

In his first big gift to Buchanan’s program, Charles Koch signaled his desire for the work he funded to be conducted behind the backs of the majority. “Since we are greatly outnumbered,” Koch conceded to the assembled team, the movement could not win simply by persuasion. Instead, the cause’s insiders had to use their knowledge of “the rules of the game”—that game being how modern democratic governance works—“to create winning strategies.” A brilliant engineer with three degrees from MIT, Koch warned, “The failure to use our superior technology ensures failure.” Translation: the American people would not support their plans, so to win they had to work behind the scenes, using a covert strategy instead of open declaration of what they really wanted.

Future-oriented, Koch’s men (and they are, overwhelmingly, men) gave no thought to the fate of the historical trail they left unguarded. And thus, a movement that prided itself, even congratulated itself, on its ability to carry out a revolution below the radar of prying eyes (especially those of reporters) had failed to lock one crucial door: the front door to a house that let an academic archive rat like me, operating on a vague hunch, into the mind of the man who started it all.

What animated Buchanan, what became the laser focus of his deeply analytic mind, was the seemingly unfettered ability of an increasingly more powerful federal government to force individuals with wealth to pay for an increasing number of public goods and social programs they had had no personal say in approving. Better schools, newer textbooks, and more courses for black students might help the children, for example, but whose responsibility was it to pay for these improvements? The parents of these students? Others who wished voluntarily to help out? Or people like himself, compelled through increasing taxation to contribute to projects they did not wish to support? To Buchanan, what others described as taxation to advance social justice or the common good was nothing more than a modern version of mob attempts to take by force what the takers had no moral right to: the fruits of another person’s efforts. In his mind, to protect wealth was to protect the individual against a form of legally sanctioned gangsterism. Where did this gangsterism begin? Not in the way we might have expected him to explain it to Darden: with do-good politicians, aspiring attorneys seeking to make a name for themselves in constitutional law, or even activist judges. It began before that: with individuals, powerless on their own, who had figured out that if they joined together to form social movements, they could use their strength in numbers to move government officials to hear their concerns and act upon them.

The only fact that registered in his mind was the “collective” source of their power—and that, once formed, such movements tended to stick around, keeping tabs on government officials and sometimes using their numbers to vote out those who stopped responding to their needs. How was this fair to other individuals? How was this American?

Even when conservatives later gained the upper hand in American politics, Buchanan saw his idea of economic liberty pushed aside. Richard Nixon expanded government more than his predecessors had, with costly new agencies and regulations, among them a vast new Environmental Protection Agency. George Wallace, a candidate strongly identified with the South and with the right, nonetheless supported public spending that helped white people. Ronald Reagan talked the talk of small government, but in the end, the deficit ballooned during his eight years in office.

Had there not been someone else as deeply frustrated as Buchanan, as determined to fight the uphill fight, but in his case with much keener organizational acumen, the story this book tells would no doubt have been very different. But there was. His name was Charles Koch. An entrepreneurial genius who had multiplied the earnings of the corporation he inherited by a factor of at least one thousand, he, too, had an unrealized dream of liberty, of a capitalism all but free of governmental interference and, at least in his mind, thus able to achieve the prosperity and peace that only this form of capitalism could produce. The puzzle that preoccupied him was how to achieve this in a democracy where most people did not want what he did.

Ordinary electoral politics would never get Koch what he wanted. Passionate about ideas to the point of obsession, Charles Koch had worked for three decades to identify and groom the most promising libertarian thinkers in hopes of somehow finding a way to break the impasse. He subsidized and at one point even ran an obscure academic outfit called the Institute for Humane Studies in that quest. “I have supported so many hundreds of scholars” over the years, he once explained, “because, to me, this is an experimental process to find the best people and strategies.”

The goal of the cause, Buchanan announced to his associates, should no longer be to influence who makes the rules, to vest hopes in one party or candidate. The focus must shift from who rules to changing the rules. For liberty to thrive, Buchanan now argued, the cause must figure out how to put legal—indeed, constitutional shackles on public officials, shackles so powerful that no matter how sympathetic these officials might be to the will of majorities, no matter how concerned they were with their own reelections, they would no longer have the ability to respond to those who used their numbers to get government to do their bidding. There was a second, more diabolical aspect to the solution Buchanan proposed, one that we can now see influenced Koch’s own thinking. Once these shackles were put in place, they had to be binding and permanent. The only way to ensure that the will of the majority could no longer influence representative government on core matters of political economy was through what he called “constitutional revolution.”

By the late 1990s, Charles Koch realized that the thinker he was looking for, the one who understood how government became so powerful in the first place and how to take it down in order to free up capitalism—the one who grasped the need for stealth because only piecemeal, yet mutually reinforcing, assaults on the system would survive the prying eyes of the media, was James Buchanan.

The Koch team’s most important stealth move, and the one that proved most critical to success, was to wrest control over the machinery of the Republican Party, beginning in the late 1990s and with sharply escalating determination after 2008. From there it was just a short step to lay claim to being the true representatives of the party, declaring all others RINOS—Republicans in name only. But while these radicals of the right operate within the Republican Party and use that party as a delivery vehicle, make no mistake about it: the cadre’s loyalty is not to the Grand Old Party or its traditions or standard-bearers. Their loyalty is to their revolutionary cause.

Our trouble in grasping what has happened comes, in part, from our inherited way of seeing the political divide. Americans have been told for so long, from so many quarters, that political debate can be broken down into conservative versus liberal, pro-market versus pro-government, Republican versus Democrat, that it is hard to recognize that something more confounding is afoot, a shrewd long game blocked from our sight by these stale classifications.

The Republican Party is now in the control of a group of true believers for whom compromise is a dirty word. Their cause, they say, is liberty. But by that they mean the insulation of private property rights from the reach of government, and the takeover of what was long public (schools, prisons, western lands, and much more) by corporations, a system that would radically reduce the freedom of the many. In a nutshell, they aim to hollow out democratic resistance. And by its own lights, the cause is nearing success.

The 2016 election looked likely to bring a big presidential win with across-the-board benefits. The donor network had so much money and power at its disposal as the primary season began that every single Republican presidential front-runner was bowing to its agenda. Not a one would admit that climate change was a real problem or that guns weren’t good, and the more widely distributed, the better. Every one of them attacked public education and teachers’ unions and advocated more charter schools and even tax subsidies for religious schools. All called for radical changes in taxation and government spending. Each one claimed that Social Security and Medicare were in mortal crisis and that individual retirement and health savings accounts, presumably to be invested with Wall Street firms, were the best solution.

Although Trump himself may not fully understand what his victory signaled, it put him between two fundamentally different, and opposed, approaches to political economy, with real-life consequences for us all. One was in its heyday when Buchanan set to work. In economics, its standard-bearer was John Maynard Keynes, who believed that for a modern capitalist democracy to flourish, all must have a share in the economy’s benefits and in its governance. Markets had great virtues, Keynes knew—but also significant built-in flaws that only government had the capacity to correct.

As a historian, I know that his way of thinking, as implemented by elected officials during the Great Depression, saved liberal democracy in the United States from the rival challenges of fascism and Communism in the face of capitalism’s most cataclysmic collapse. And that it went on to shape a postwar order whose operating framework yielded ever more universal hope that, by acting together and levying taxes to support shared goals, life could be made better for all.

The most starkly opposed vision is that of Buchanan’s Virginia school. It teaches that all such talk of the common good has been a smoke screen for “takers” to exploit “makers,” in the language now current, using political coalitions to “vote themselves a living” instead of earning it by the sweat of their brows. Where Milton Friedman and F. A. Hayek allowed that public officials were earnestly trying to do right by the citizenry, even as they disputed the methods, Buchanan believed that government failed because of bad faith: because activists, voters, and officials alike used talk of the public interest to mask the pursuit of their own personal self-interest at others’ expense. His was a cynicism so toxic that, if widely believed, it could eat like acid at the foundations of civic life. And he went further by the 1970s, insisting that the people and their representatives must be permanently prevented from using public power as they had for so long. Manacles, as it were, must be put on their grasping hands.

Is what we are dealing with merely a social movement of the right whose radical ideas must eventually face public scrutiny and rise or fall on their merits? Or is this the story of something quite different, something never before seen in American history? Could it be—and I use these words quite hesitantly and carefully—a fifth-column assault on American democratic governance?

The term “fifth column” has been applied to stealth supporters of an enemy who assist by engaging in propaganda and even sabotage to prepare the way for its conquest.

This cause is different. Pushed by relatively small numbers of radical-right billionaires and millionaires who have become profoundly hostile to America’s modern system of government, an apparatus decades in the making, funded by those same billionaires and millionaires, has been working to undermine the normal governance of our democracy. Indeed, one such manifesto calls for a “hostile takeover” of Washington, D.C. That hostile takeover maneuvers very much like a fifth column, operating in a highly calculated fashion, more akin to an occupying force than to an open group engaged in the usual give-and-take of politics. The size of this force is enormous. The social scientists who have led scholars in researching the Koch network write that it “operates on the scale of a national U.S. political party” and employs more than three times as many people as the Republican committees had on their payrolls in 2015.

For all its fine phrases, what this cause really seeks is a return to oligarchy, to a world in which both economic and effective political power are to be concentrated in the hands of a few. It would like to reinstate the kind of political economy that prevailed in America at the opening of the twentieth century, when the mass disfranchisement of voters and the legal treatment of labor unions as illegitimate enabled large corporations and wealthy individuals to dominate Congress and most state governments alike, and to feel secure that the nation’s courts would not interfere with their reign. The first step toward understanding what this cause actually wants is to identify the deep lineage of its core ideas. And although its spokespersons would like you to believe they are disciples of James Madison, the leading architect of the U.S. Constitution, it is not true.

Their intellectual lodestar is John C. Calhoun. He developed his radical critique of democracy a generation after the nation’s founding, as the brutal economy of chattel slavery became entrenched in the South, and his vision horrified Madison.

***

Democracy in Chains: The Deep History of the Radical Right’s Stealth Plan for America 

by Nancy Maclean

Nancy K. MacLean is an American historian. She is the William H. Chafe Professor of History and Public Policy at Duke University and the author of numerous books and articles on various aspects of twentieth-century United States history.

get it from Amazon

Noticing Neoliberalism’s Nakedness – Chris Trotter. 

If the 2017 general election turns into a messy boil-over, it will be the fault of New Zealand’s most successful people. For the best part of 30 years, the high achievers of New Zealand society have aligned themselves with an ideology that has produced consistently negative outcomes. Not for themselves. In fact, they have done extremely well out of the economic and social changes of the past 30 years. For the majority of their fellow citizens, however, the Neoliberal Revolution has been a disaster.

The real puzzle of the past 30 years is, therefore, why a political system intended to empower the majority has not consigned neoliberalism to the dustbin of history. Why have those on the receiving end of economic and social policies designed to benefit only a minority of the population not simply elected a party, or parties, committed to eliminating them?

A large part of the answer is supplied in Hans Christian Andersen’s famous fable, The Emperor’s New Clothes. Those who know the story will recall that the crucial element of the swindlers’ con was their insistence that the Emperor’s magnificent attire could only be seen by the wise. To “anyone who was unfit for his office, or who was unusually stupid”, the Emperor would appear to be wearing nothing at all.

The interesting thing about Andersen’s fable is that it’s actually supported by a critical element of scientific fact. If people whose judgement we have no reason to doubt inform us that black is white, most of us will, in an astonishingly short period of time, start disregarding the evidence of our own eyes. Even worse, if an authority figure instructs us to administer punishments to people “for their own good” most of us will do so. Even when the punishment appears to be causing the recipients intense, even fatal, pain, we will be continue flicking the switch for as long as the authority figure insists that the pain is necessary and that we have no alternative except to proceed. (If you doubt this, just google “Stanley Milgram”.)

For 30 years, then, New Zealand’s best and brightest business leaders, academics, journalists and politicians have been telling the rest of us that the only reason neoliberalism appears to be promoting a nakedly brutal and inequitable economic and social system is because we are too stupid to perceive the true beneficence of the free market. In language ominously reminiscent of Professor Milgram’s terrible experiment, we have been told by those in authority that there can be “no long-term gain without short-term pain”, and, God forgive us, we have believed them – and continued flicking the switch.

Nowhere has this readiness to discount the evidence before one’s own eyes been more pronounced than in our politicians. How many of them, when confronted with the social and environmental wreckage of neoliberalism, have responded like the “honest old minister” in Andersen’s fable, who, upon being ushered into the swindlers’ workshop, and seeing nothing, thought: “Heaven have mercy! Can it be that I’m a fool? I’d have never guessed it, and not a soul must know. Am I unfit to be the minister? It would never do to let on that I can’t see the cloth.”

How else are we to explain the unwillingness of the Labour Party and the Greens to break decisively with the neoliberal swindle? Or, the repeated declarations from National and Act praising the beauty and enchantment of its effects: “Such a pattern, what colours!”

Even as the evidence of its malignity mounted before them. Even as the numbers harmed by its poisonous remedies increased. The notion that the best and the brightest might perceive them as being unusually stupid and unfit for office led the opposition parties to concentrate all their criticism on the symptoms of neoliberalism. Or, in the spirit of Andersen’s tale, critiquing the cut of the Emperor’s new clothes instead of their non-existence.

Eventually, of course, the consequences of neoliberalism are felt by too many people to be ignored. Children who cannot afford to buy their own home. Grandchildren who cannot access mental health care. The spectacle of people living in their cars. Of homeless men freezing to death in the streets. Eventually someone – a politician unafraid of being thought unusually stupid, or unfit for office – breaks the swindlers’ spell.

“‘But he hasn’t got anything on,’ a little child said.

‘Did you ever hear such innocent prattle?’ said its father. And one person whispered to another what the child had said, ‘He hasn’t anything on. A child says he hasn’t anything on.’

‘But he hasn’t got anything on!’ the whole town cried out at last.”

Now, the whole New Zealand electorate may not be calling “Time!” on neoliberalism – and certainly not its best and its brightest – but Winston Peters is.

And the town is whispering.

Bowalley Road

NZ Labour leaves genuine Social policy to others. The Greens make a moral decision. – Bryan Bruce. 

Good on them. The Green party’s Social Justice proposals released today are moral and just.

Those who are struggling and say they don’t have a choice this election need to think again.

Reducing  the bottom tax rate from 10.5 per cent to 9 per cent for anyone earning less than $14,000, while raising the tax rate to 40% for anyone earning more than $150,000 per year is a well overdue move to close the gap between the haves and have nots.

We have to lift around 179,000 Kiwi kids out of poverty. Their tomorrow, and ours, depends on what we do today

THE PREDICTED OUTCOMES

– A sole parent on a benefit, with two school-aged children and no paid employment: $179.62 better off each week.

– A sole parent receiving the Student Allowance, with two children, and part time work on just above minimum wage: $176.15 more each week.

– A single person on jobseeker support: $42.20 more each week.

– A two-parent family, with one working parent on the median income, with three children: $104.52  more each week.

– Two parents, both on jobseeker support, with three children: $207.46 more per week.

– A two-parent family, both earning the median income of $48,000 with three children: $130.19 more each week.

– Two parents, one in paid work earning $70,000 a year, two children: $87.85 more a week.

‘These problems will not be fixed by the market’ – Bruce Plested. 

Over the years I’ve had a variety of bosses. In seeking to recognise a good boss from one not so good, I asked this question: ‘Would they make a good foreman?

  • Could they ask the workers to do a difficult or unpleasant job and expect them to do it?
  • Could they do the job themselves?
  • Could they take their people with them?
  • Did they get the job done every day, week and year?

With 2017 being an election year in New Zealand it is worth asking these questions of our politicians.  Too many of them fail the test and are lost in platitudes, jokes, jibes, foxy words and sheer procrastination.

Housing

Our houses, through most parts of New Zealand, cost some ten times the net annual income of the family seeking to buy them.

These high prices (three times annual income was normal for many years prior to the early 2000s) have been progressively increasing for the past 15 years, and all governments have been aware of the problem. No government or local government has taken any meaningful action against this rising tide.

As the New Zealand Initiative has stated, “There are not enough homes being built to meet the demand.”

Why?

  • Planning restrictions make it difficult to increase population directly within the city boundaries.
  • Cities are prevented from growing outwards because of rural and urban boundaries.
  • New developments require infrastructure investment from local councils, which can only pay for such investment by rates increases.

Politicians, both local and national, must take action on this very fixable social disgrace. “The market” cannot sort out this problem. Real leadership and intestinal fortitude is needed now.

Education

Measured by some standards, our education is at satisfactory levels on a global average scale. However only 30% of children from lower decile school areas are reaching the New Zealand average for level 3 NCEA.

This low level of success continues the establishment of a permanent socio-economic group of under-achievers in education, and it is our Māori and Pacific Island people who make up most of this group.

This group of under-achievers are more displaced than ever by rising housing and rent prices. Without educational success they will continue to make a lesser contribution to society.

Business can play a bigger role in attempting to sustain and assist educational development. If businesses and schools, particularly in lower decile areas, get together in a meaningful way, benefits will evolve. The more children understand how a business (from a farm, to a fruit shop, to an engineering factory, to a quarry) works and interacts, the more they can understand the possibilities. Business people may be able to inspire children and parents to strive for success, and may be able to contribute to financing school wish lists, from computers to sports equipment, books to bus trips.

Can electorate and local politicians help make this happen?

Environment

Pollution and degradation of our environment is another area requiring strong political will.

Most cities provide bins for rubbish and bins for recycling. There is however no education, or ongoing exhortation, on how to recycle, why to recycle and whether it works. Is an unwashed bottle or can recyclable, or does it go into landfill? Should we recycle bottles with the lid left on? Should wine bottles have the lead seal removed? What happens to polystyrene, what happens to plastic bottles with pumps attached, what about empty aerosol cans? Much of this stuff is going to landfill because our local authorities don’t tell us what is required. If recycling is just a myth, let us know, otherwise teach us to recycle for the benefit of the planet.

Our lack of respect for water and water quality is an indictment of governments going back decades. Various businesses and pressure groups have been allowed to pour chemical waste, animal entrails, milk, and human and animal effluent into our streams, rivers and sea. Freshwater rights for irrigation have been given, to the extent that some rivers run dry most years. And now we are giving water rights to export freshwater in plastic bottles.

Regulators could have stood against many of these past and present excesses, but chose to do nothing and leave the problems to our children and grandchildren.

A couple of years ago I heard a European billionaire being interviewed. When the slightly irritable reporter asked “Well, how much money do you want?” the billionaire answered “Just a wee bit more.”

And it is the “wee bit more” that has done so much to damage our environment – just a few more cows per acre, just a wee bit more water for irrigation, just another water bore in case it doesn’t rain, just a wee bit more sewerage mixed with a wee bit more storm water, just a few more years hitting our already depleted fish stocks.

The problems mentioned here are not fixed by the market. They are like law and order – the local and national politicians should be dealing with them and committing to solutions before the next elections.

***

Bruce Plested, Mainfreight founder. 

The Spinoff

The Rise And Fall Of The American Middle Class – William Lazonick. 

Social Europe

William Lazonick is a Professor at the University of Massachusetts Lowell, where he directs the Center for Industrial Competitiveness. He is also a Visiting Professor at the University of Ljubljana where he teaches a PhD course on the theory of innovative enterprise. Previously he was an Assistant and Associate Professor of Economics at Harvard University, Professor of Economics at Barnard College of Columbia University, and Visiting Scholar and then Distinguished Research Professor at INSEAD.


The Lewis Powell Memo: A Corporate Blueprint to Dominate Democracy. – Elizabeth Warren. 

In 1971, the U.S. Chamber of Commerce enlisted a corporate lawyer named Lewis Powell to write a secret memo.

As soon as Powell finished his thirty-three-page paper, the chamber, a national organization representing the interests of many of America’s largest corporations, quietly began passing it from one power broker to another.

For the CEO crowd, the memo was electrifying. Powell had held nothing back. He forcefully argued that the entire free-enterprise system was under attack—and he called on the super rich to counterattack with all their might.

Powell was an unlikely firebrand. He was mild-mannered, gentlemanly, and unfailingly polite. Many people remarked on his deeply ingrained civility. He was intensely proud of his Virginia roots, which were noticeable in his soft drawl, and he idolized Robert E. Lee. Tall and thin, Powell wore thick glasses and old-fashioned suits. Yet despite all his courtly manners, when it came to defending his corporate clients, he was a take-no-prisoners, shoot-them-all kind of guy.

Powell served on the board of directors for more than a dozen of America’s biggest corporations, and his dedication to advancing the interests of corporate America was legendary. His work for tobacco company Philip Morris included signing off on the company’s annual reports touting the health benefits of cigarettes, and he railed against the press for failing to give adequate credence to the industry’s claims about tobacco safety. He was close personal friends with the top lawyer for General Motors, and when newspaper articles about cars with dangerous designs and product defects began appearing, Powell viewed those stories—and the reporters who wrote them—with alarm. He fervently believed that such challenges undermined people’s confidence in corporate America and put our country right on the slippery slope to socialism.

Many of those who received Powell’s memo shared his view that America’s system of free enterprise was at risk, but it was his call to action that really galvanized his CEO readership. His advice was visionary: Fight back! Reshape Americans’ views about business, government, politics, and law. Fund conservative think tanks. Influence young people by reasserting business interests on college campuses. Pay professors to publish pro-business work.

Using example after example, Powell made it clear that he wanted to return America to the pro-corporate, largely unregulated government that, in his view, had served this country so well before the Great Depression.

In the darkest days of the Depression, Roosevelt had offered hope to “the forgotten man at the bottom of the economic pyramid.” Without a hint of irony, Powell now spoke tenderly to America’s millionaires:

“One does not exaggerate to say that, in terms of political influence with respect to the course of legislation and government action, the American business executive is truly the ‘forgotten man.’”

Rich guys just can’t catch a break.

THE PLAN: TAKE OVER GOVERNMENT

Two months after Powell sent his memo to the Chamber of Commerce, President Nixon nominated him for the Supreme Court. The paper remained secret until after Powell was confirmed. But his idea had already spurred the millionaires and CEOs who’d read the memo to stop complaining and start acting. The rich and powerful enthusiastically took up his call to arms and began to use their considerable wealth to alter America’s political landscape.

Their efforts began to pay off almost immediately. Just over nine years after Powell’s memo began to circulate, and with considerable support from a “Business Advisory Panel” of corporate CEOs, Ronald Reagan was elected president.

Reagan swept into office under the banner of free-market economics, and he was cheered on with many boisterous calls for “liberty” and “freedom.”

Reagan’s approach was unmistakably aimed at helping giant businesses and their top executives, but its advocates promised working people that all those benefits going to big corporations would “trickle down” to them as well. The economic plan was as simple—and as sweeping—as the plan Franklin Roosevelt had put in place nearly half a century earlier during the Great Depression. But Reagan’s plan turned Roosevelt’s on its head.

Elizabeth Warren

from her book: This Fight Is Our Fight, the battle to save working people. 

***

Written in 1971 to the U.S. Chamber of Commerce, the Lewis Powell Memo was a blueprint for corporate domination of American Democracy.

CONFIDENTIAL MEMORANDUM

Attack on American Free Enterprise System

DATE: August 23, 1971

TO: Mr. Eugene B. Sydnor, Jr., Chairman, Education Committee, U.S. Chamber of Commerce

FROM: Lewis F. Powell, Jr.

This memorandum is submitted at your request as a basis for the discussion on August 24 with Mr. Booth (executive vice president) and others at the U.S. Chamber of Commerce. The purpose is to identify the problem, and suggest possible avenues of action for further consideration.

Dimensions of the Attack

No thoughtful person can question that the American economic system is under broad attack. This varies in scope, intensity, in the techniques employed, and in the level of visibility.

There always have been some who opposed the American system, and preferred socialism or some form of statism (communism or fascism). Also, there always have been critics of the system, whose criticism has been wholesome and constructive so long as the objective was to improve rather than to subvert or destroy.

But what now concerns us is quite new in the history of America. We are not dealing with sporadic or isolated attacks from a relatively few extremists or even from the minority socialist cadre. Rather, the assault on the enterprise system is broadly based and consistently pursued. It is gaining momentum and converts.

Sources of the Attack

The sources are varied and diffused. They include, not unexpectedly, the Communists, New Leftists and other revolutionaries who would destroy the entire system, both political and economic. These extremists of the left are far more numerous, better financed, and increasingly are more welcomed and encouraged by other elements of society, than ever before in our history. But they remain a small minority, and are not yet the principal cause for concern.

The most disquieting voices joining the chorus of criticism come from perfectly respectable elements of society: from the college campus, the pulpit, the media, the intellectual and literary journals, the arts and sciences, and from politicians. In most of these groups the movement against the system is participated in only by minorities. Yet, these often are the most articulate, the most vocal, the most prolific in their writing and speaking.

Moreover, much of the media — for varying motives and in varying degrees — either voluntarily accords unique publicity to these “attackers,” or at least allows them to exploit the media for their purposes. This is especially true of television, which now plays such a predominant role in shaping the thinking, attitudes and emotions of our people.

One of the bewildering paradoxes of our time is the extent to which the enterprise system tolerates, if not participates in, its own destruction.

The campuses from which much of the criticism emanates are supported by (i) tax funds generated largely from American business, and (ii) contributions from capital funds controlled or generated by American business. The boards of trustees of our universities overwhelmingly are composed of men and women who are leaders in the system.

Most of the media, including the national TV systems, are owned and theoretically controlled by corporations which depend upon profits, and the enterprise system to survive.

Tone of the Attack

This memorandum is not the place to document in detail the tone, character, or intensity of the attack. The following quotations will suffice to give one a general idea:

William Kunstler, warmly welcomed on campuses and listed in a recent student poll as the “American lawyer most admired,” incites audiences as follows:

“You must learn to fight in the streets, to revolt, to shoot guns. We will learn to do all of the things that property owners fear.” The New Leftists who heed Kunstler’s advice increasingly are beginning to act — not just against military recruiting offices and manufacturers of munitions, but against a variety of businesses: “Since February, 1970, branches (of Bank of America) have been attacked 39 times, 22 times with explosive devices and 17 times with fire bombs or by arsonists.” Although New Leftist spokesmen are succeeding in radicalizing thousands of the young, the greater cause for concern is the hostility of respectable liberals and social reformers. It is the sum total of their views and influence which could indeed fatally weaken or destroy the system.

A chilling description of what is being taught on many of our campuses was written by Stewart Alsop:

“Yale, like every other major college, is graduating scores of bright young men who are practitioners of ‘the politics of despair.’ These young men despise the American political and economic system . . . (their) minds seem to be wholly closed. They live, not by rational discussion, but by mindless slogans.”A recent poll of students on 12 representative campuses reported that: “Almost half the students favored socialization of basic U.S. industries.”

A visiting professor from England at Rockford College gave a series of lectures entitled “The Ideological War Against Western Society,” in which he documents the extent to which members of the intellectual community are waging ideological warfare against the enterprise system and the values of western society. In a foreword to these lectures, famed Dr. Milton Friedman of Chicago warned: “It (is) crystal clear that the foundations of our free society are under wide-ranging and powerful attack — not by Communist or any other conspiracy but by misguided individuals parroting one another and unwittingly serving ends they would never intentionally promote.”

Perhaps the single most effective antagonist of American business is Ralph Nader, who — thanks largely to the media — has become a legend in his own time and an idol of millions of Americans. A recent article in Fortune speaks of Nader as follows:

“The passion that rules in him — and he is a passionate man — is aimed at smashing utterly the target of his hatred, which is corporate power. He thinks, and says quite bluntly, that a great many corporate executives belong in prison — for defrauding the consumer with shoddy merchandise, poisoning the food supply with chemical additives, and willfully manufacturing unsafe products that will maim or kill the buyer. He emphasizes that he is not talking just about ‘fly-by-night hucksters’ but the top management of blue chip business.”

A frontal assault was made on our government, our system of justice, and the free enterprise system by Yale Professor Charles Reich in his widely publicized book: “The Greening of America,” published last winter.

The foregoing references illustrate the broad, shotgun attack on the system itself. There are countless examples of rifle shots which undermine confidence and confuse the public. Favorite current targets are proposals for tax incentives through changes in depreciation rates and investment credits. These are usually described in the media as “tax breaks,” “loop holes” or “tax benefits” for the benefit of business. * As viewed by a columnist in the Post, such tax measures would benefit “only the rich, the owners of big companies.”

It is dismaying that many politicians make the same argument that tax measures of this kind benefit only “business,” without benefit to “the poor.” The fact that this is either political demagoguery or economic illiteracy is of slight comfort. This setting of the “rich” against the “poor,” of business against the people, is the cheapest and most dangerous kind of politics.

The Apathy and Default of Business

What has been the response of business to this massive assault upon its fundamental economics, upon its philosophy, upon its right to continue to manage its own affairs, and indeed upon its integrity?

The painfully sad truth is that business, including the boards of directors’ and the top executives of corporations great and small and business organizations at all levels, often have responded — if at all — by appeasement, ineptitude and ignoring the problem. There are, of course, many exceptions to this sweeping generalization. But the net effect of such response as has been made is scarcely visible.

In all fairness, it must be recognized that businessmen have not been trained or equipped to conduct guerrilla warfare with those who propagandize against the system, seeking insidiously and constantly to sabotage it. The traditional role of business executives has been to manage, to produce, to sell, to create jobs, to make profits, to improve the standard of living, to be community leaders, to serve on charitable and educational boards, and generally to be good citizens. They have performed these tasks very well indeed.

But they have shown little stomach for hard-nose contest with their critics, and little skill in effective intellectual and philosophical debate.

A column recently carried by the Wall Street Journal was entitled: “Memo to GM: Why Not Fight Back?” Although addressed to GM by name, the article was a warning to all American business. Columnist St. John said:

“General Motors, like American business in general, is ‘plainly in trouble’ because intellectual bromides have been substituted for a sound intellectual exposition of its point of view.” Mr. St. John then commented on the tendency of business leaders to compromise with and appease critics. He cited the concessions which Nader wins from management, and spoke of “the fallacious view many businessmen take toward their critics.” He drew a parallel to the mistaken tactics of many college administrators: “College administrators learned too late that such appeasement serves to destroy free speech, academic freedom and genuine scholarship. One campus radical demand was conceded by university heads only to be followed by a fresh crop which soon escalated to what amounted to a demand for outright surrender.”

One need not agree entirely with Mr. St. John’s analysis. But most observers of the American scene will agree that the essence of his message is sound. American business “plainly in trouble”; the response to the wide range of critics has been ineffective, and has included appeasement; the time has come — indeed, it is long overdue — for the wisdom, ingenuity and resources of American business to be marshalled against those who would destroy it.

Responsibility of Business Executives

What specifically should be done? The first essential — a prerequisite to any effective action — is for businessmen to confront this problem as a primary responsibility of corporate management.

The overriding first need is for businessmen to recognize that the ultimate issue may be survival — survival of what we call the free enterprise system, and all that this means for the strength and prosperity of America and the freedom of our people.

The day is long past when the chief executive officer of a major corporation discharges his responsibility by maintaining a satisfactory growth of profits, with due regard to the corporation’s public and social responsibilities. If our system is to survive, top management must be equally concerned with protecting and preserving the system itself. This involves far more than an increased emphasis on “public relations” or “governmental affairs” — two areas in which corporations long have invested substantial sums.

A significant first step by individual corporations could well be the designation of an executive vice president (ranking with other executive VP’s) whose responsibility is to counter-on the broadest front-the attack on the enterprise system. The public relations department could be one of the foundations assigned to this executive, but his responsibilities should encompass some of the types of activities referred to subsequently in this memorandum. His budget and staff should be adequate to the task.

Possible Role of the Chamber of Commerce

But independent and uncoordinated activity by individual corporations, as important as this is, will not be sufficient. Strength lies in organization, in careful long-range planning and implementation, in consistency of action over an indefinite period of years, in the scale of financing available only through joint effort, and in the political power available only through united action and national organizations.

Moreover, there is the quite understandable reluctance on the part of any one corporation to get too far out in front and to make itself too visible a target.

The role of the National Chamber of Commerce is therefore vital. Other national organizations (especially those of various industrial and commercial groups) should join in the effort, but no other organizations appear to be as well situated as the Chamber. It enjoys a strategic position, with a fine reputation and a broad base of support. Also — and this is of immeasurable merit — there are hundreds of local Chambers of Commerce which can play a vital supportive role.

It hardly need be said that before embarking upon any program, the Chamber should study and analyze possible courses of action and activities, weighing risks against probable effectiveness and feasibility of each. Considerations of cost, the assurance of financial and other support from members, adequacy of staffing and similar problems will all require the most thoughtful consideration.

The Campus

The assault on the enterprise system was not mounted in a few months. It has gradually evolved over the past two decades, barely perceptible in its origins and benefiting (sic) from a gradualism that provoked little awareness much less any real reaction.

Although origins, sources and causes are complex and interrelated, and obviously difficult to identify without careful qualification, there is reason to believe that the campus is the single most dynamic source. The social science faculties usually include members who are unsympathetic to the enterprise system. They may range from a Herbert Marcuse, Marxist faculty member at the University of California at San Diego, and convinced socialists, to the ambivalent liberal critic who finds more to condemn than to commend. Such faculty members need not be in a majority. They are often personally attractive and magnetic; they are stimulating teachers, and their controversy attracts student following; they are prolific writers and lecturers; they author many of the textbooks, and they exert enormous influence — far out of proportion to their numbers — on their colleagues and in the academic world.

Social science faculties (the political scientist, economist, sociologist and many of the historians) tend to be liberally oriented, even when leftists are not present. This is not a criticism per se, as the need for liberal thought is essential to a balanced viewpoint. The difficulty is that “balance” is conspicuous by its absence on many campuses, with relatively few members being of conservatives or moderate persuasion and even the relatively few often being less articulate and aggressive than their crusading colleagues.

This situation extending back many years and with the imbalance gradually worsening, has had an enormous impact on millions of young American students. In an article in Barron’s Weekly, seeking an answer to why so many young people are disaffected even to the point of being revolutionaries, it was said: “Because they were taught that way.” Or, as noted by columnist Stewart Alsop, writing about his alma mater: “Yale, like every other major college, is graduating scores’ of bright young men … who despise the American political and economic system.”

As these “bright young men,” from campuses across the country, seek opportunities to change a system which they have been taught to distrust — if not, indeed “despise” — they seek employment in the centers of the real power and influence in our country, namely: (i) with the news media, especially television; (ii) in government, as “staffers” and consultants at various levels; (iii) in elective politics; (iv) as lecturers and writers, and (v) on the faculties at various levels of education.

Many do enter the enterprise system — in business and the professions — and for the most part they quickly discover the fallacies of what they have been taught. But those who eschew the mainstream of the system often remain in key positions of influence where they mold public opinion and often shape governmental action. In many instances, these “intellectuals” end up in regulatory agencies or governmental departments with large authority over the business system they do not believe in.

If the foregoing analysis is approximately sound, a priority task of business — and organizations such as the Chamber — is to address the campus origin of this hostility. Few things are more sanctified in American life than academic freedom. It would be fatal to attack this as a principle. But if academic freedom is to retain the qualities of “openness,” “fairness” and “balance” — which are essential to its intellectual significance — there is a great opportunity for constructive action. The thrust of such action must be to restore the qualities just mentioned to the academic communities.

What Can Be Done About the Campus

The ultimate responsibility for intellectual integrity on the campus must remain on the administrations and faculties of our colleges and universities. But organizations such as the Chamber can assist and activate constructive change in many ways, including the following:

Staff of Scholars

The Chamber should consider establishing a staff of highly qualified scholars in the social sciences who do believe in the system. It should include several of national reputation whose authorship would be widely respected — even when disagreed with.

Staff of Speakers

There also should be a staff of speakers of the highest competency. These might include the scholars, and certainly those who speak for the Chamber would have to articulate the product of the scholars.

Speaker’s Bureau

In addition to full-time staff personnel, the Chamber should have a Speaker’s Bureau which should include the ablest and most effective advocates from the top echelons of American business.

Evaluation of Textbooks

The staff of scholars (or preferably a panel of independent scholars) should evaluate social science textbooks, especially in economics, political science and sociology. This should be a continuing program.

The objective of such evaluation should be oriented toward restoring the balance essential to genuine academic freedom. This would include assurance of fair and factual treatment of our system of government and our enterprise system, its accomplishments, its basic relationship to individual rights and freedoms, and comparisons with the systems of socialism, fascism and communism. Most of the existing textbooks have some sort of comparisons, but many are superficial, biased and unfair.

We have seen the civil rights movement insist on re-writing many of the textbooks in our universities and schools. The labor unions likewise insist that textbooks be fair to the viewpoints of organized labor. Other interested citizens groups have not hesitated to review, analyze and criticize textbooks and teaching materials. In a democratic society, this can be a constructive process and should be regarded as an aid to genuine academic freedom and not as an intrusion upon it.

If the authors, publishers and users of textbooks know that they will be subjected — honestly, fairly and thoroughly — to review and critique by eminent scholars who believe in the American system, a return to a more rational balance can be expected.

Equal Time on the Campus

The Chamber should insist upon equal time on the college speaking circuit. The FBI publishes each year a list of speeches made on college campuses by avowed Communists. The number in 1970 exceeded 100. There were, of course, many hundreds of appearances by leftists and ultra liberals who urge the types of viewpoints indicated earlier in this memorandum. There was no corresponding representation of American business, or indeed by individuals or organizations who appeared in support of the American system of government and business.

Every campus has its formal and informal groups which invite speakers. Each law school does the same thing. Many universities and colleges officially sponsor lecture and speaking programs. We all know the inadequacy of the representation of business in the programs.

It will be said that few invitations would be extended to Chamber speakers. This undoubtedly would be true unless the Chamber aggressively insisted upon the right to be heard — in effect, insisted upon “equal time.” University administrators and the great majority of student groups and committees would not welcome being put in the position publicly of refusing a forum to diverse views, indeed, this is the classic excuse for allowing Communists to speak.

The two essential ingredients are (i) to have attractive, articulate and well-informed speakers; and (ii) to exert whatever degree of pressure — publicly and privately — may be necessary to assure opportunities to speak. The objective always must be to inform and enlighten, and not merely to propagandize.

Balancing of Faculties

Perhaps the most fundamental problem is the imbalance of many faculties. Correcting this is indeed a long-range and difficult project. Yet, it should be undertaken as a part of an overall program. This would mean the urging of the need for faculty balance upon university administrators and boards of trustees.

The methods to be employed require careful thought, and the obvious pitfalls must be avoided. Improper pressure would be counterproductive. But the basic concepts of balance, fairness and truth are difficult to resist, if properly presented to boards of trustees, by writing and speaking, and by appeals to alumni associations and groups.

This is a long road and not one for the fainthearted. But if pursued with integrity and conviction it could lead to a strengthening of both academic freedom on the campus and of the values which have made America the most productive of all societies.

Graduate Schools of Business

The Chamber should enjoy a particular rapport with the increasingly influential graduate schools of business. Much that has been suggested above applies to such schools.

Should not the Chamber also request specific courses in such schools dealing with the entire scope of the problem addressed by this memorandum? This is now essential training for the executives of the future.

Secondary Education

While the first priority should be at the college level, the trends mentioned above are increasingly evidenced in the high schools. Action programs, tailored to the high schools and similar to those mentioned, should be considered. The implementation thereof could become a major program for local chambers of commerce, although the control and direction — especially the quality control — should be retained by the National Chamber.

What Can Be Done About the Public?

Reaching the campus and the secondary schools is vital for the long-term. Reaching the public generally may be more important for the shorter term. The first essential is to establish the staffs of eminent scholars, writers and speakers, who will do the thinking, the analysis, the writing and the speaking. It will also be essential to have staff personnel who are thoroughly familiar with the media, and how most effectively to communicate with the public. Among the more obvious means are the following:

Television

The national television networks should be monitored in the same way that textbooks should be kept under constant surveillance. This applies not merely to so-called educational programs (such as “Selling of the Pentagon”), but to the daily “news analysis” which so often includes the most insidious type of criticism of the enterprise system. Whether this criticism results from hostility or economic ignorance, the result is the gradual erosion of confidence in “business” and free enterprise.

This monitoring, to be effective, would require constant examination of the texts of adequate samples of programs. Complaints — to the media and to the Federal Communications Commission — should be made promptly and strongly when programs are unfair or inaccurate.

Equal time should be demanded when appropriate. Effort should be made to see that the forum-type programs (the Today Show, Meet the Press, etc.) afford at least as much opportunity for supporters of the American system to participate as these programs do for those who attack it.

Other Media

Radio and the press are also important, and every available means should be employed to challenge and refute unfair attacks, as well as to present the affirmative case through these media.

The Scholarly Journals

It is especially important for the Chamber’s “faculty of scholars” to publish. One of the keys to the success of the liberal and leftist faculty members has been their passion for “publication” and “lecturing.” A similar passion must exist among the Chamber’s scholars.

Incentives might be devised to induce more “publishing” by independent scholars who do believe in the system.

There should be a fairly steady flow of scholarly articles presented to a broad spectrum of magazines and periodicals — ranging from the popular magazines (Life, Look, Reader’s Digest, etc.) to the more intellectual ones (Atlantic, Harper’s, Saturday Review, New York, etc.) and to the various professional journals.

Books, Paperbacks and Pamphlets

The news stands — at airports, drugstores, and elsewhere — are filled with paperbacks and pamphlets advocating everything from revolution to erotic free love. One finds almost no attractive, well-written paperbacks or pamphlets on “our side.” It will be difficult to compete with an Eldridge Cleaver or even a Charles Reich for reader attention, but unless the effort is made — on a large enough scale and with appropriate imagination to assure some success — this opportunity for educating the public will be irretrievably lost.

Paid Advertisements

Business pays hundreds of millions of dollars to the media for advertisements. Most of this supports specific products; much of it supports institutional image making; and some fraction of it does support the system. But the latter has been more or less tangential, and rarely part of a sustained, major effort to inform and enlighten the American people.

If American business devoted only 10% of its total annual advertising budget to this overall purpose, it would be a statesman-like expenditure.

The Neglected Political Arena

In the final analysis, the payoff — short-of revolution — is what government does. Business has been the favorite whipping-boy of many politicians for many years. But the measure of how far this has gone is perhaps best found in the anti-business views now being expressed by several leading candidates for President of the United States.

It is still Marxist doctrine that the “capitalist” countries are controlled by big business. This doctrine, consistently a part of leftist propaganda all over the world, has a wide public following among Americans.

Yet, as every business executive knows, few elements of American society today have as little influence in government as the American businessman, the corporation, or even the millions of corporate stockholders. If one doubts this, let him undertake the role of “lobbyist” for the business point of view before Congressional committees. The same situation obtains in the legislative halls of most states and major cities. One does not exaggerate to say that, in terms of political influence with respect to the course of legislation and government action, the American business executive is truly the “forgotten man.”

Current examples of the impotency of business, and of the near-contempt with which businessmen’s views are held, are the stampedes by politicians to support almost any legislation related to “consumerism” or to the “environment.”

Politicians reflect what they believe to be majority views of their constituents. It is thus evident that most politicians are making the judgment that the public has little sympathy for the businessman or his viewpoint.

The educational programs suggested above would be designed to enlighten public thinking — not so much about the businessman and his individual role as about the system which he administers, and which provides the goods, services and jobs on which our country depends.

But one should not postpone more direct political action, while awaiting the gradual change in public opinion to be effected through education and information. Business must learn the lesson, long ago learned by labor and other self-interest groups. This is the lesson that political power is necessary; that such power must be assidously (sic) cultivated; and that when necessary, it must be used aggressively and with determination — without embarrassment and without the reluctance which has been so characteristic of American business.

As unwelcome as it may be to the Chamber, it should consider assuming a broader and more vigorous role in the political arena.

Neglected Opportunity in the Courts

American business and the enterprise system have been affected as much by the courts as by the executive and legislative branches of government. Under our constitutional system, especially with an activist-minded Supreme Court, the judiciary may be the most important instrument for social, economic and political change.

Other organizations and groups, recognizing this, have been far more astute in exploiting judicial action than American business. Perhaps the most active exploiters of the judicial system have been groups ranging in political orientation from “liberal” to the far left.

The American Civil Liberties Union is one example. It initiates or intervenes in scores of cases each year, and it files briefs amicus curiae in the Supreme Court in a number of cases during each term of that court. Labor unions, civil rights groups and now the public interest law firms are extremely active in the judicial arena. Their success, often at business’ expense, has not been inconsequential.

This is a vast area of opportunity for the Chamber, if it is willing to undertake the role of spokesman for American business and if, in turn, business is willing to provide the funds.

As with respect to scholars and speakers, the Chamber would need a highly competent staff of lawyers. In special situations it should be authorized to engage, to appear as counsel amicus in the Supreme Court, lawyers of national standing and reputation. The greatest care should be exercised in selecting the cases in which to participate, or the suits to institute. But the opportunity merits the necessary effort.

Neglected Stockholder Power

The average member of the public thinks of “business” as an impersonal corporate entity, owned by the very rich and managed by over-paid executives. There is an almost total failure to appreciate that “business” actually embraces — in one way or another — most Americans. Those for whom business provides jobs, constitute a fairly obvious class. But the 20 million stockholders — most of whom are of modest means — are the real owners, the real entrepreneurs, the real capitalists under our system. They provide the capital which fuels the economic system which has produced the highest standard of living in all history. Yet, stockholders have been as ineffectual as business executives in promoting a genuine understanding of our system or in exercising political influence.

The question which merits the most thorough examination is how can the weight and influence of stockholders — 20 million voters — be mobilized to support (i) an educational program and (ii) a political action program.

Individual corporations are now required to make numerous reports to shareholders. Many corporations also have expensive “news” magazines which go to employees and stockholders. These opportunities to communicate can be used far more effectively as educational media.

The corporation itself must exercise restraint in undertaking political action and must, of course, comply with applicable laws. But is it not feasible — through an affiliate of the Chamber or otherwise — to establish a national organization of American stockholders and give it enough muscle to be influential?

A More Aggressive Attitude

Business interests — especially big business and their national trade organizations — have tried to maintain low profiles, especially with respect to political action.

As suggested in the Wall Street Journal article, it has been fairly characteristic of the average business executive to be tolerant — at least in public — of those who attack his corporation and the system. Very few businessmen or business organizations respond in kind. There has been a disposition to appease; to regard the opposition as willing to compromise, or as likely to fade away in due time.

Business has shunted confrontation politics. Business, quite understandably, has been repelled by the multiplicity of non-negotiable “demands” made constantly by self-interest groups of all kinds.

While neither responsible business interests, nor the United States Chamber of Commerce, would engage in the irresponsible tactics of some pressure groups, it is essential that spokesmen for the enterprise system — at all levels and at every opportunity — be far more aggressive than in the past.

There should be no hesitation to attack the Naders, the Marcuses and others who openly seek destruction of the system. There should not be the slightest hesitation to press vigorously in all political arenas for support of the enterprise system. Nor should there be reluctance to penalize politically those who oppose it.

Lessons can be learned from organized labor in this respect. The head of the AFL-CIO may not appeal to businessmen as the most endearing or public-minded of citizens. Yet, over many years the heads of national labor organizations have done what they were paid to do very effectively. They may not have been beloved, but they have been respected — where it counts the most — by politicians, on the campus, and among the media.

It is time for American business — which has demonstrated the greatest capacity in all history to produce and to influence consumer decisions — to apply their great talents vigorously to the preservation of the system itself.

The Cost

The type of program described above (which includes a broadly based combination of education and political action), if undertaken long term and adequately staffed, would require far more generous financial support from American corporations than the Chamber has ever received in the past. High level management participation in Chamber affairs also would be required.

The staff of the Chamber would have to be significantly increased, with the highest quality established and maintained. Salaries would have to be at levels fully comparable to those paid key business executives and the most prestigious faculty members. Professionals of the great skill in advertising and in working with the media, speakers, lawyers and other specialists would have to be recruited.

It is possible that the organization of the Chamber itself would benefit from restructuring. For example, as suggested by union experience, the office of President of the Chamber might well be a full-time career position. To assure maximum effectiveness and continuity, the chief executive officer of the Chamber should not be changed each year. The functions now largely performed by the President could be transferred to a Chairman of the Board, annually elected by the membership. The Board, of course, would continue to exercise policy control.

Quality Control is Essential

Essential ingredients of the entire program must be responsibility and “quality control.” The publications, the articles, the speeches, the media programs, the advertising, the briefs filed in courts, and the appearances before legislative committees — all must meet the most exacting standards of accuracy and professional excellence. They must merit respect for their level of public responsibility and scholarship, whether one agrees with the viewpoints expressed or not.

Relationship to Freedom

The threat to the enterprise system is not merely a matter of economics. It also is a threat to individual freedom.

It is this great truth — now so submerged by the rhetoric of the New Left and of many liberals — that must be re-affirmed if this program is to be meaningful.

There seems to be little awareness that the only alternatives to free enterprise are varying degrees of bureaucratic regulation of individual freedom — ranging from that under moderate socialism to the iron heel of the leftist or rightist dictatorship.

We in America already have moved very far indeed toward some aspects of state socialism, as the needs and complexities of a vast urban society require types of regulation and control that were quite unnecessary in earlier times. In some areas, such regulation and control already have seriously impaired the freedom of both business and labor, and indeed of the public generally. But most of the essential freedoms remain: private ownership, private profit, labor unions, collective bargaining, consumer choice, and a market economy in which competition largely determines price, quality and variety of the goods and services provided the consumer.

In addition to the ideological attack on the system itself (discussed in this memorandum), its essentials also are threatened by inequitable taxation, and — more recently — by an inflation which has seemed uncontrollable. But whatever the causes of diminishing economic freedom may be, the truth is that freedom as a concept is indivisible. As the experience of the socialist and totalitarian states demonstrates, the contraction and denial of economic freedom is followed inevitably by governmental restrictions on other cherished rights. It is this message, above all others, that must be carried home to the American people.

Conclusion

It hardly need be said that the views expressed above are tentative and suggestive. The first step should be a thorough study. But this would be an exercise in futility unless the Board of Directors of the Chamber accepts the fundamental premise of this paper, namely, that business and the enterprise system are in deep trouble, and the hour is late.

***

Lewis Powell

Greenpeace

The Mother of all Blunders – Bryan Gould. 

“Neoliberal economic policies have failed, and an important aspect of that failure has been that most of such new wealth as has been created has gone to the richest people in society.”

Jim Blogger, former NZ Prime Minister

Jim Bolger headed a government that set about cutting taxes and therefore public services, and weakening trade unions, policies often seen as the hallmarks of neo-liberalism, and that is to say nothing of Ruth Richardson and her boast of delivering “the mother of all budgets”.

It is beyond dispute that the countries which have enjoyed the best economic outcomes have been those – like the Scandinavian countries – which have at the same time most stoutly resisted the growth of inequality.  As for the rest, the application of neo-liberal policies has meant a poorer economic performance, accompanied by greater social division.

We do not have to choose, in other words and as is so often asserted, between social justice and economic success.  The former is an essential element in producing the latter and is not just a “luxury” we can do without.

Or, to put it in another way, the failure of neo-liberal policies is largely attributable to their inevitable tendency to exacerbate inequality and to foster a lack of concern for the less fortunate.

And a moment’s reflection will tell us why that is so.  An economy will always be more successful if it engages with and uses all of its productive capacity – and that means its human resources – rather than leaving some of them under-used and undervalued.

The loss and damage we sustain, if we fail to take account of the interests of the whole of society, creates not only a weaker economy, but a more divided and unhappier society.

In today’s politics, it is the right that is ideologically driven while it is the left that constantly seeks merely pragmatic solutions to pressing problems.  The left’s difficulties in attracting majority public support suggest that solutions to problems will stand a better chance of being accepted if they are seen to be grounded in a coherent analysis of what has gone wrong.

It may be that, in their anxiety to gain support from the “middle ground”, the left has too easily been frightened away from developing such an analysis.  Surprisingly, they seem reluctant to engage in an ideological debate and prefer to leave the territory uncontested.

If Jim Bolger can do it, and link outcomes to policy frameworks, why not the left?  But, if there were to be a next time, Jim, could you please see the light and find the road to Damascus a little sooner?

Bryan Gould

Freeing up the rich to exploit the poor – that’s what Trump and Brexit are about – George Monbiot. 

Freedom is a word that powerful people use to shut down thought.

Propaganda works by sanctifying a single value, such as faith, or patriotism. Anyone who questions it puts themselves outside the circle of respectable opinion. The sacred value is used to obscure the intentions of those who champion it. Today, the value is freedom. Freedom is a word that powerful people use to shut down thought.

When thinktanks and the billionaire press call for freedom, they are careful not to specify whose freedoms they mean. Freedom for some, they suggest, means freedom for all. In certain cases, this is true. You can exercise freedom of thought, for instance, without harming others. In other cases, one person’s freedom is another’s captivity.

When corporations free themselves from trade unions, they curtail the freedoms of their workers. When the very rich free themselves from tax, other people suffer through failing public services. When financiers are free to design exotic financial instruments, the rest of us pay for the crises they cause.

Above all, billionaires and the organisations they run demand freedom from something they call “red tape”. What they mean by red tape is public protection. 

The Guardian

The Ideology That Dares Not Speak Its Name – Chris Trotter. 

“Neoliberalism (neo-liberalism) refers primarily to the 20th-century resurgence of 19th-century ideas associated with laissez-faire economic liberalism. These include extensive economic liberalisation policies such as privatisation, fiscal austerity, deregulation, free trade and reductions in government spending in order to increase the role of the private sector in the economy and society. These market-based ideas and the policies they inspired constitute a paradigm shift away from the post-war Keynesian consensus which lasted from 1945 to 1980.”

Admirably clear. And while there’s certainly scope for scholarly debate around detail and emphasis, Wikipedia’s definition is more than sufficient to dispel the feigned ignorance of neoliberalism’s most zealous defenders.

Why, then, do neoliberals like Hosking continue to insist that they have no firm grasp of the term’s usage – other than as an expression of left-wing abuse?

The answer is simple. To survive and prosper, neoliberalism and the policies it inspires cannot afford to be seen as ‘just another ideology’ – like communism or fascism. Rather, it must be accepted as a law of nature – as unyielding to human influence as the weather.

…… Bowalley Road

No, wealth isn’t created at the top. It is merely devoured there – Rutger Bregman. 

This piece is about one of the biggest taboos of our times. About a truth that is seldom acknowledged, and yet, on reflection, cannot be denied. The truth that we are living in an inverse welfare state.

These days, politicians from the left to the right assume that most wealth is created at the top. By the visionaries, by the job creators, and by the people who have “made it”. By the go-getters oozing talent and entrepreneurialism that are helping to advance the whole world.

Now, we may disagree about the extent to which success deserves to be rewarded – the philosophy of the left is that the strongest shoulders should bear the heaviest burden, while the right fears high taxes will blunt enterprise – but across the spectrum virtually all agree that wealth is created primarily at the top.

So entrenched is this assumption that it’s even embedded in our language. When economists talk about “productivity”, what they really mean is the size of your paycheck. And when we use terms like “welfare state”, “redistribution” and “solidarity”, we’re implicitly subscribing to the view that there are two strata: the makers and the takers, the producers and the couch potatoes, the hardworking citizens – and everybody else.

In reality, it is precisely the other way around. In reality, it is the waste collectors, the nurses, and the cleaners whose shoulders are supporting the apex of the pyramid. They are the true mechanism of social solidarity. Meanwhile, a growing share of those we hail as “successful” and “innovative” are earning their wealth at the expense of others. The people getting the biggest handouts are not down around the bottom, but at the very top. Yet their perilous dependence on others goes unseen. Almost no one talks about it. Even for politicians on the left, it’s a non-issue.

To understand why, we need to recognise that there are two ways of making money. The first is what most of us do: work. That means tapping into our knowledge and know-how (our “human capital” in economic terms) to create something new, whether that’s a takeout app, a wedding cake, a stylish updo, or a perfectly poured pint. To work is to create. Ergo, to work is to create new wealth.

But there is also a second way to make money. That’s the rentier way: by leveraging control over something that already exists, such as land, knowledge, or money, to increase your wealth. You produce nothing, yet profit nonetheless. By definition, the rentier makes his living at others’ expense, using his power to claim economic benefit.

For those who know their history, the term “rentier” conjures associations with heirs to estates, such as the 19th century’s large class of useless rentiers, well-described by the French economist Thomas Piketty. These days, that class is making a comeback. (Ironically, however, conservative politicians adamantly defend the rentier’s right to lounge around, deeming inheritance tax to be the height of unfairness.) But there are also other ways of rent-seeking. From Wall Street to Silicon Valley, from big pharma to the lobby machines in Washington and Westminster, zoom in and you’ll see rentiers everywhere.

There is no longer a sharp dividing line between working and rentiering. In fact, the modern-day rentier often works damn hard. Countless people in the financial sector, for example, apply great ingenuity and effort to amass “rent” on their wealth. Even the big innovations of our age – businesses like Facebook and Uber – are interested mainly in expanding the rentier economy. The problem with most rich people therefore is not that they are coach potatoes. Many a CEO toils 80 hours a week to multiply his allowance. It’s hardly surprising, then, that they feel wholly entitled to their wealth.

It may take quite a mental leap to see our economy as a system that shows solidarity with the rich rather than the poor. So I’ll start with the clearest illustration of modern freeloaders at the top: bankers. Studies conducted by the International Monetary Fund and the Bank of International Settlements – not exactly leftist thinktanks – have revealed that much of the financial sector has become downright parasitic. How instead of creating wealth, they gobble it up whole.

Don’t get me wrong. Banks can help to gauge risks and get money where it is needed, both of which are vital to a well-functioning economy. But consider this: economists tell us that the optimum level of total private-sector debt is 100% of GDP. Based on this equation, if the financial sector only grows, it won’t equal more wealth, but less. So here’s the bad news. In the United Kingdom, private-sector debt is now at 157.5%. In the United States the figure is 188.8%.

In other words, a big part of the modern banking sector is essentially a giant tapeworm gorging on a sick body. It’s not creating anything new, merely sucking others dry. Bankers have found a hundred and one ways to accomplish this. The basic mechanism, however, is always the same: offer loans like it’s going out of style, which in turn inflates the price of things like houses and shares, then earn a tidy percentage off those overblown prices (in the form of interest, commissions, brokerage fees, or what have you), and if the shit hits the fan, let Uncle Sam mop it up.

The financial innovation concocted by all the math whizzes working in modern banking (instead of at universities or companies that contribute to real prosperity) basically boils down to maximising the total amount of debt. And debt, of course, is a means of earning rent. So for those who believe that pay ought to be proportionate to the value of work, the conclusion we have to draw is that many bankers should be earning a negative salary; a fine, if you will, for destroying more wealth than they create.

Bankers are the most obvious class of closet freeloaders, but they are certainly not alone. Many a lawyer and an accountant wields a similar revenue model. Take tax evasion. Untold hardworking, academically degreed professionals make a good living at the expense of the populations of other countries. Or take the tide of privatisations over the past three decades, which have been all but a carte blanche for rentiers. One of the richest people in the world, Carlos Slim, earned his millions by obtaining a monopoly of the Mexican telecom market and then hiking prices sky high. The same goes for the Russian oligarchs who rose after the Berlin Wall fell, who bought up valuable state-owned assets for song to live off the rent.

But here comes the rub. Most rentiers are not as easily identified as the greedy banker or manager. Many are disguised. On the face of it, they look like industrious folks, because for part of the time they really are doing something worthwhile. Precisely that makes us overlook their massive rent-seeking.

Take the pharmaceutical industry. Companies like GlaxoSmithKline and Pfizer regularly unveil new drugs, yet most real medical breakthroughs are made quietly at government-subsidised labs. Private companies mostly manufacture medications that resemble what we’ve already got. They get it patented and, with a hefty dose of marketing, a legion of lawyers, and a strong lobby, can live off the profits for years. In other words, the vast revenues of the pharmaceutical industry are the result of a tiny pinch of innovation and fistfuls of rent.

Even paragons of modern progress like Apple, Amazon, Google, Facebook, Uber and Airbnb are woven from the fabric of rentierism. Firstly, because they owe their existence to government discoveries and inventions (every sliver of fundamental technology in the iPhone, from the internet to batteries and from touchscreens to voice recognition, was invented by researchers on the government payroll). And second, because they tie themselves into knots to avoid paying taxes, retaining countless bankers, lawyers, and lobbyists for this very purpose.

Even more important, many of these companies function as “natural monopolies”, operating in a positive feedback loop of increasing growth and value as more and more people contribute free content to their platforms. Companies like this are incredibly difficult to compete with, because as they grow bigger, they only get stronger.

Aptly characterising this “platform capitalism” in an article, Tom Goodwin writes: “Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world’s largest accommodation provider, owns no real estate.”

So what do these companies own? A platform. A platform that lots and lots of people want to use. Why? First and foremost, because they’re cool and they’re fun – and in that respect, they do offer something of value. However, the main reason why we’re all happy to hand over free content to Facebook is because all of our friends are on Facebook too, because their friends are on Facebook … because their friends are on Facebook.

Most of Mark Zuckerberg’s income is just rent collected off the millions of picture and video posts that we give away daily for free. And sure, we have fun doing it. But we also have no alternative – after all, everybody is on Facebook these days. Zuckerberg has a website that advertisers are clamouring to get onto, and that doesn’t come cheap. Don’t be fooled by endearing pilots with free internet in Zambia. Stripped down to essentials, it’s an ordinary ad agency. In fact, in 2015 Google and Facebook pocketed an astounding 64%of all online ad revenue in the US.

But don’t Google and Facebook make anything useful at all? Sure they do. The irony, however, is that their best innovations only make the rentier economy even bigger. They employ scores of programmers to create new algorithms so that we’ll all click on more and more ads. Uber has usurped the whole taxi sector just as Airbnb has upended the hotel industry and Amazon has overrun the book trade. The bigger such platforms grow the more powerful they become, enabling the lords of these digital feudalities to demand more and more rent.

Think back a minute to the definition of a rentier: someone who uses their control over something that already exists in order to increase their own wealth. The feudal lord of medieval times did that by building a tollgate along a road and making everybody who passed by pay. Today’s tech giants are doing basically the same thing, but transposed to the digital highway. Using technology funded by taxpayers, they build tollgates between you and other people’s free content and all the while pay almost no tax on their earnings.

This is the so-called innovation that has Silicon Valley gurus in raptures: ever bigger platforms that claim ever bigger handouts. So why do we accept this? Why does most of the population work itself to the bone to support these rentiers?

I think there are two answers. Firstly, the modern rentier knows to keep a low profile. There was a time when everybody knew who was freeloading. The king, the church, and the aristocrats controlled almost all the land and made peasants pay dearly to farm it. But in the modern economy, making rentierism work is a great deal more complicated. How many people can explain a credit default swap, or a collateralized debt obligation?  Or the revenue model behind those cute Google Doodles? And don’t the folks on Wall Street and in Silicon Valley work themselves to the bone, too? Well then, they must be doing something useful, right?

Maybe not. The typical workday of Goldman Sachs’ CEO may be worlds away from that of King Louis XIV, but their revenue models both essentially revolve around obtaining the biggest possible handouts. “The world’s most powerful investment bank,” wrote the journalist Matt Taibbi about Goldman Sachs, “is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”

But far from squids and vampires, the average rich freeloader manages to masquerade quite successfully as a decent hard worker. He goes to great lengths to present himself as a “job creator” and an “investor” who “earns” his income by virtue of his high “productivity”. Most economists, journalists, and politicians from left to right are quite happy to swallow this story. Time and again language is twisted around to cloak funneling and exploitation as creation and generation.

However, it would be wrong to think that all this is part of some ingenious conspiracy. Many modern rentiers have convinced even themselves that they are bona fide value creators. When current Goldman Sachs CEO Lloyd Blankfein was asked about the purpose of his job, his straight-faced answer was that he is “doing God’s work”. The Sun King would have approved.

The second thing that keeps rentiers safe is even more insidious. We’re all wannabe rentiers. They have made millions of people complicit in their revenue model. Consider this: What are our financial sector’s two biggest cash cows? Answer: the housing market and pensions. Both are markets in which many of us are deeply invested.

Recent decades have seen more and more people contract debts to buy a home, and naturally it’s in their interest if house prices continue to scale now heights (read: burst bubble upon bubble). The same goes for pensions. Over the past few decades we’ve all scrimped and saved up a mountainous pension piggy bank. Now pension funds are under immense pressure to ally with the biggest exploiters in order to ensure they pay out enough to please their investors.

The fact of the matter is that feudalism has been democratised. To a lesser or greater extent, we are all depending on handouts. En masse, we have been made complicit in this exploitation by the rentier elite, resulting in a political covenant between the rich rent-seekers and the homeowners and retirees.

Don’t get me wrong, most homeowners and retirees are not benefiting from this situation. On the contrary, the banks are bleeding them far beyond the extent to which they themselves profit from their houses and pensions. Still, it’s hard to point fingers at a kleptomaniac when you have sticky fingers too.

So why is this happening? The answer can be summed up in three little words: Because it can.

Rentierism is, in essence, a question of power. That the Sun King Louis XIV was able to exploit millions was purely because he had the biggest army in Europe. It’s no different for the modern rentier. He’s got the law, politicians and journalists squarely in his court. That’s why bankers get fined peanuts for preposterous fraud, while a mother on government assistance gets penalised within an inch of her life if she checks the wrong box.

The biggest tragedy of all, however, is that the rentier economy is gobbling up society’s best and brightest. Where once upon a time Ivy League graduates chose careers in science, public service or education, these days they are more likely to opt for banks, law firms, or trumped up ad agencies like Google and Facebook. When you think about it, it’s insane. We are forking over billions in taxes to help our brightest minds on and up the corporate ladder so they can learn how to score ever more outrageous handouts.

One thing is certain: countries where rentiers gain the upper hand gradually fall into decline. Just look at the Roman Empire. Or Venice in the 15th century. Look at the Dutch Republic in the 18th century. Like a parasite stunts a child’s growth, so the rentier drains a country of its vitality.

What innovation remains in a rentier economy is mostly just concerned with further bolstering that very same economy. This may explain why the big dreams of the 1970s, like flying cars, curing cancer, and colonising Mars, have yet to be realised, while bankers and ad-makers have at their fingertips technologies a thousand times more powerful.

Yet it doesn’t have to be this way. Tollgates can be torn down, financial products can be banned, tax havens dismantled, lobbies tamed, and patents rejected. Higher taxes on the ultra-rich can make rentierism less attractive, precisely because society’s biggest freeloaders are at the very top of the pyramid. And we can more fairly distribute our earnings on land, oil, and innovation through a system of, say, employee shares, or a universal basic income. 

But such a revolution will require a wholly different narrative about the origins of our wealth. It will require ditching the old-fashioned faith in “solidarity” with a miserable underclass that deserves to be borne aloft on the market-level salaried shoulders of society’s strongest. All we need to do is to give real hard-working people what they deserve.

And, yes, by that I mean the waste collectors, the nurses, the cleaners – theirs are the shoulders that carry us all.

The Guardian

Populism is the result of global economic failure – Larry Elliott. 

The rise of populism has rattled the global political establishment. Brexit came as a shock, as did the victory of Donald Trump. Much head-scratching has resulted as leaders seek to work out why large chunks of their electorates are so cross.

The answer seems pretty simple. Populism is the result of economic failure. The 10 years since the financial crisis have shown that the system of economic governance which has held sway for the past four decades is broken. Some call this approach Neoliberalism. Perhaps a better description would be unpopulism.

Unpopulism meant tilting the balance of power in the workplace in favour of management and treating people like wage slaves. Unpopulism was rigged to ensure that the fruits of growth went to the few not to the many. Unpopulism decreed that those responsible for the global financial crisis got away with it while those who were innocent bore the brunt of austerity.

Anybody seeking to understand why Trump won the US presidential election should take a look at what has been happening to the division of the economic spoils. The share of national income that went to the bottom 90% of the population held steady at around 66% from 1950 to 1980. It then began a steep decline, falling to just over 50% when the financial crisis broke in 2007.

Similarly, it is no longer the case that everybody benefits when the US economy is doing well. During the business cycle upswing between 1961 and 1969, the bottom 90% of Americans took 67% of the income gains. During the Reagan expansion two decades later they took 20%. During the Greenspan housing bubble of 2001 to 2007, they got just two cents in every extra dollar of national income generated while the richest 10% took the rest.

The US economist Thomas Palley says that up until the late 1970s countries operated a virtuous circle growth model in which wages were the engine of demand growth.

“Productivity growth drove wage growth which fueled demand growth. That promoted full employment, which provided the incentive to invest, which drove further productivity growth,” he says.

Unpopulism was touted as the antidote to the supposedly failed policies of the postwar era. It promised higher growth rates, higher investment rates, higher productivity rates and a trickle down of income from rich to poor. It has delivered none of these things.

James Montier and Philip Pilkington, of the global investment firm GMO, say that the system which arose in the 1970s was characterised by four significant economic policies: the abandonment of full employment and its replacement with inflation targeting; an increase in the globalisation of the flows of people, capital and trade; a focus on shareholder maximisation rather than reinvestment and growth; and the pursuit of flexible labour markets and the disruption of trade unions and workers’ organisations.

To take just the last of these four pillars, the idea was that trade unions and minimum wages were impediments to an efficient labour market. Collective bargaining and statutory pay floors would result in workers being paid more than the market rate, with the result that unemployment would inevitably rise.

Unpopulism decreed that the real value of the US minimum wage should be eroded. But unemployment is higher than it was when the minimum wage was worth more. Nor is there any correlation between trade union membership and unemployment. If anything, international comparisons suggest that those countries with higher trade union density have lower jobless rates. The countries that have higher minimum wages do not have higher unemployment rates.

“Labour market flexibility may sound appealing, but it is based on a theory that runs completely counter to all the evidence we have,” Montier and Pilkington note. “The alternative theory suggests that labour market flexibility is by no means desirable as it results in an economy with a bias to stagnate that can only maintain high rates of employment and economic growth through debt-fuelled bubbles that inevitably blow up, leading to the economy tipping back into stagnation.”

This quest for ever-greater labour market flexibility has had some unexpected consequences. The bill in the UK for tax credits spiralled quickly once firms realised they could pay poverty wages and let the state pick up the bill. Access to a global pool of low-cost labour meant there was less of an incentive to invest in productivity-enhancing equipment.

The abysmally low levels of productivity growth since the crisis have encouraged the belief that this is a recent phenomenon, but as Andy Haldane, the Bank of England’s chief economist, noted last week, the trend started in most advanced countries in the 1970s.

“Certainly, the productivity puzzle is not something which has emerged since the global financial crisis, though it seems to have amplified pre-existing trends,” Haldane said.

Bolshie trade unions certainly can’t be blamed for Britain’s lost productivity decade. The orthodox view in the 1970s was that attempts to make the UK more efficient were being thwarted by shop stewards who modeled themselves on Fred Kite, the character played by Peter Sellers in I’m All Right Jack. Haldane puts the blame elsewhere: on poor management, which has left the UK with a big gap between frontier firms and a long tail of laggards. “Firms which export have systematically higher levels of productivity than domestically oriented firms, on average by around a third. The same is true, even more dramatically, for foreign-owned firms. Their average productivity is twice that of domestically oriented firms.”

Populism is seen as irrational and reprehensible. It is neither. It seems entirely rational for the bottom 90% of the US population to question why they are getting only 2% of income gains. It hardly seems strange that workers in Britain should complain at the weakest decade for real wage growth since the Napoleonic wars.

It has also become clear that ultra-low interest rates and quantitative easing are merely sticking-plaster solutions. Populism stems from a sense that the economic system is not working, which it clearly isn’t. In any other walk of life, a failed experiment results in change. Drugs that are supposed to provide miracle cures but are proved not to work are quickly abandoned. Businesses that insist on continuing to produce goods that consumers don’t like go bust. That’s how progress happens.

The good news is that the casting around for new ideas has begun. Trump has advocated protectionism. Theresa May is consulting on an industrial strategy. Montier and Pilkington suggest a commitment to full employment, job guarantees, reindustrialisation and a stronger role for trade unions. The bad news is that time is running short. More and more people are noticing that the emperor has no clothes.

Even if the polls are right this time and Marine Le Pen fails to win the French presidency, a full-scale political revolt is only another deep recession away. And that’s easy enough to envisage.

The Guardian

New Zealand’s Neoliberal Drift – Branko Marcetic. 

In New Zealand, neoliberal reforms have widened inequality and undermined the country’s self-image as an egalitarian paradise.

A few years ago, when the 2008 global financial crisis was just one or two years old, a coworker and I were talking about the increasingly common sight of homeless people in Auckland, New Zealand. While homelessness in Auckland was nothing new, we agreed that we were seeing more and more men and women curled up in doorways, draped in layers of old clothes and blankets, and holding up tattered signs asking passers-by for money on Queen Street, the city’s main commercial hub.

It was sad, I remarked, that while the problem seemed to be getting worse, the government seemed to be doing very little to help these people escape poverty. She too expressed sympathy for the poor and stressed the importance of giving them a leg up, but confessed she found it difficult to feel bad for homeless people. After all, New Zealand had a generous welfare state that made sure no one was left behind.

“I mean, if you can’t make it in New Zealand,” she said, “then there must be something really wrong with you.”

Her attitude is not particularly unusual — millions of New Zealanders share it. The image of New Zealand as a kind-hearted social democracy, a Scandinavia of the South Pacific, is deeply engrained in its culture.

In fact, this view extends far beyond the country’s borders. A Kiwi in the United States is likely to field three common queries: questions about the country’s natural beauty, about The Flight of the Conchords, and about how much more progressive New Zealand is than America. (There’s an occasional fourth that has something to do with Lord of the Rings.)

To be clear, New Zealand has earned this reputation. Its quality of life is consistently ranked among the highest in the world. In metric after metric — whether examining corruption or life expectancy — it rates well above average. Perhaps most significantly, New Zealanders themselves report extreme satisfaction with their lives.

All of these accolades cover up another truth, however: New Zealand hasn’t been a social-democratic paradise for a long time now. Often considered a “social laboratory,” New Zealand eagerly adopted radical neoliberal reforms in the 1980s like few countries before or since. Nevertheless, its kindly image persists, in and out of the country.

A Social-Democratic Laboratory

All countries have narratives. In United States, it’s the “American Dream,” the idea that hard work makes millionaires. In New Zealand, it’s the idea that a benevolent, liberal state will look after its people.

This self-image can be traced back to the period between 1890 and 1920, when the country became known as the “social laboratory of the world.” By then, New Zealand already had a long egalitarian streak: it established government life insurance in 1869 to help those who couldn’t afford private plans, assisted new immigrants, and embarked on an expensive public works scheme to lay roads and railway lines. But in 1879, a severe depression dented New Zealanders’ widespread belief in the free market and individualism.

The Liberal governments of Richard Seddon and then Joseph Ward, which first took power in 1893, passed a flurry of social welfare reforms, including distributing free textbooks, improving workplace conditions, establishing food and drug standards, and breaking up large estates to provide land for settlers. The Industrial Conciliation and Arbitration Act of 1894 instituted a guaranteed minimum wage and a system of compulsory arbitration for settling industrial disputes. The 1898 Old Age Pensions Act created one of the world’s earliest public pension schemes, even if it was small, means-tested, and only applied to “persons of good character.” (Much of this came at the expense of the indigenous Maori, who were dispossessed of more and more of their land to make way for English settlers and railroad lines).

Foreign visitors returned with tales of an egalitarian paradise and “a country without strikes”. American Progressives drew on New Zealand’s example to push for similar changes back home.

New Zealand’s reputation for progressive enlightenment continued into the twentieth century, even as consistent labor agitation undermined its popular image. The benefits of its burgeoning welfare state expanded over the years, particularly during World War I, when it began covering widows, the blind, influenza victims, and consumption-stricken miners.

Then, like the rest of the world, the Great Depression devastated New Zealand’s economy. The downturn hobbled the country’s labor movement. Widespread economic suffering — exacerbated by the country’s lack of unemployment relief — swept the Labour Party to power in 1935. Its leader, Michael Joseph Savage, promised New Zealanders a “reasonable standard of living in the days when they are unable to look after themselves.”

The country’s first Labour government gave unemployed workers an immediate Christmas bonus, launched a state housing program, established compulsory union membership, and started a Keynesian scheme of guaranteed prices for exports. The centerpiece of its stimulus package was the 1938 Social Security Act, which established universal superannuation for those sixty-five or older, universal free health care (at least in theory), and welfare payments for the poor and unemployed. Savage died trying to enact this bill, putting off cancer surgery to help get it passed and win that year’s election. (Once again, Maori were left out — the law’s language gave officials wiggle room to discriminate and pay them reduced benefits).

Perhaps most importantly, however, the government’s commitment to full employment would endure for decades to come. Successive Labour governments paired this policy with a gradually increasing family allowance, culminating in 1946, when a universal benefit for all families with children passed.

By 1949, the International Labor Organization (ILO) claimed the Social Security Act had “deeply influenced the course of legislation in other countries.” English prime-minister-to-be Clement Atlee praised New Zealand as “a laboratory of social experiment.” In 1944, Labour prime minister Walter Nash wrote that the country offered a “practical example” of what “may well become typical of most democracies tomorrow.”

While Labour’s time in power ended in 1949, its policies of government intervention New Zealand endured. The country remained a highly controlled economy with an extensive welfare state and widespread state ownership in various sectors through the 1970s. Government-guaranteed full employment enjoyed bipartisan support. Even Robert Muldoon, who served as the right-wing National Party’s prime minister from 1975 to 1984, once joked that he knew all seventy unemployed New Zealanders by name.

Weird Science

This all changed in the mid-1980s. As in the Depression years, a crisis sparked a political sea change. New Zealand lost a major trading partner with the United Kingdom’s turn to Europe in 1973, while a series of oil shocks through the 1970s plunged the country into recession. In 1965, New Zealand ranked as the sixth wealthiest country per capita; fifteen years later, it fell to nineteenth.

Again like in the 1930s, the Labour Party implemented a major political transformation, making New Zealand once again a “laboratory of social experiment.” But this time, Labour responded to the crisis by deregulating, selling off public assets, and slashing state investment.

The reforms came to be known, somewhat derisively, as “Rogernomics,” after the finance minister Roger Douglas, who would go on to found ACT, a radical free-market party that has recently embraced US Republican-style law-and-order policies. Prime Minister David Lange acted as an affable and charming salesman for the reforms but had little interest in either economics or policy more generally. For the most part, he allowed his team to experiment with the economy however they liked.

Through the 1980s and 1990s — first under Labour, then under National Party rule — New Zealand ushered in neoliberal reform on an unprecedented scale. Controls on wages, prices, rents, interest rates, and more were scrapped. Finance markets were deregulated, and restrictions on foreign investment were removed or relaxed. Based on the belief that welfare helped create unemployment by encouraging dependency, the system was overhauled in ways that the government’s own official encyclopaedia describes as “particularly swift and severe.”

In 1986, Labour slashed the tax rate for high-income earners and introduced a goods-and-services tax. This change effectively hiked taxes on low- and middle-income earners, given that they spend a larger proportion of their earnings on consumption. (Douglas even tried to institute a flat tax, which turned out to be a step too far for Labour.) Legislation in 1991 eliminated hard-fought reforms like compulsory union membership, compulsory employer-employee bargaining, and unions’ special place in this process.

Most state-owned assets were fully or partially sold off, including three banks, the Tower insurance company, shipping companies, the national airline and the country’s main airport, and various energy companies, among many others. In some cases, the results were disastrous, as when National sold off the country’s national rail network to a consortium of financial companies, who soon ran it into the ground forcing a government buyback. It wasn’t the only privatized asset the government later had to rescue. 

Government disinvestment from public services abandoned the most vulnerable citizens. Nearly all psychiatric hospitals closed down by the 1990s, their responsibilities passing on to nongovernmental organizations. University tuition fees shot up by nearly 1,000 percent in 1990 and have climbed steadily ever since. The price of attending college in New Zealand now ranks as the industrial world’s fourth highest. The abrupt end of farm subsidies and protectionist policies hit farmers hard, plunging them into debt and leading to a spate of suicides. One prominent Kiwi recalled seeing a beggar on the streets of New Zealand for the first time in his mid-fifties, an experience he described as “like being kicked in the stomach.”

All of this happened at a dizzying pace. And it had to because the reforms were hugely unpopular.

“It is uncertainty, not speed, that endangers the success of structural reform programs,” wrote Roger Douglas in 1993. “Speed is an essential ingredient in keeping uncertainty down to the lowest possible level.” Douglas would later reportedly advise foreign leaders to keep their equivalent programs hidden from the public and to implement them as quickly as possible to bypass opposition.

New Zealand once again became a global poster child for policy innovation, as Jane Kelsey outlines in The New Zealand Experiment. The New York Times gushed that a “heavily protected, over-regulated, high inflation economy” had been turned into “one of the most open in the world.” The Financial Times claimed New Zealand offered a “blueprint for a shrinking state.” The Wall Street Journal applauded that “this little Prometheus unchained itself from a rock of high taxes, high tariffs, heavy welfare burdens, and pro-union labor laws,” and celebrated that “anybody can follow New Zealand’s example to prosperity.” None praised New Zealand more than the Economist, however, which ran story after story on what it called a “free market experiment in socialist sheep’s clothing” that was “out-Thatchering Mrs Thatcher.”

New Zealand’s neoliberal employment reforms attracted policymakers’ attention internationally. In 1996, Newt Gingrich — then House Majority Leader — sent a congressional delegation to study the country as a “model” for industrial relations deregulation. Powerful neoliberal institutions like the IMF, the Asian Development Bank, and the World Bank exported New Zealand’s grand “experiment,” organizing and funding study trips, speaking tours, seminars, and reports that promoted the program.

Partly thanks to this, countries like Mongolia and Thailand copied New Zealand in their own reforms and worked closely with prominent architects of the experiment. In 1998, New Zealand’s minister of international trade boasted that the “success of New Zealand’s economic reforms” was now as internationally well known as its sheep, its rugby team, and its milk brand.

If you look narrowly at metrics like inflation and government debt, the reforms worked. If you look at more fundamental economic measures like employment, income levels, and economic growth — all of which free-market policies are supposed to boost — they were a miserable failure.

The economy shrank by 1 percent between 1985 and 1992, while other countries in the OECD saw 20 percent growth. Poverty skyrocketed, with one in six falling below the poverty line by 1992. Unemployment jumped, too, and even when it later fell, much of the recovery was in part-time work. Income inequality widened sharpley, with the bulk of income gains going to the country’s wealthiest citizens.

Binging on Neoliberalism

While these reforms profoundly shifted New Zealand’s politics, citizens’ self-image hasn’t kept pace. There remains a prevailing view that their country is an idyllic paradise apart from the rest of the world’s ills that, if anything, is too generous to its less advantaged citizens.

Surprisingly, many business leaders believe that New Zealand is an over-regulated, antibusiness economy hostile to economic success. Complaints that companies are mired in “red tape” never seem to end. CEOs regularly report that fear of regulations keeps them up at night.

These beliefs stand at odds with reality. Three times since 2005, New Zealand has topped the World Bank’s annual “Ease of Doing Business” report, which measures regulations that, at least according to the World Bank, enhance and constrain business activity. Every other year, it’s come third or, more often, second. It ranked first twice during Helen Clark’s Labour government, which often faced accusations that its legislation was making it impossible for businesses to succeed.

Furthermore, Forbes has listed New Zealand in the top three “best countries for business” each year since 2010. It ranked first in 2012. Two years later, Forbes called it best in the world when it came to “red tape.”

Every year since 2009, the conservative Heritage Foundation has put New Zealand in the top five countries for its “Index of Economic Freedom.” Investment banker and right-wing commentator Peter Schiff said he would like to live in New Zealand because of its lack of governmental interference.

Resistance to “the nanny state,” a paternalistic government unreasonably worming its way into every little of detail of individuals’ lives, has also become widespread. This belief most commonly finds its expression in complaints about the welfare program, which many think discourages hard work and desperately needs to be cut back. This narrative took center stage from 1999 to 2008, when Clark’s Labour government went some way toward slowing, though not ultimately reversing, the march of neoliberalism.

New Zealanders would be shocked to find that since 2001 and throughout all of the Labour years, social spending as a percentage of GDP has been on or below the OECD average. New Zealand has consistently appeared in the lower half of OECD social spending, closer to the United States than to countries like Finland, Denmark, Sweden, and even France and Germany, which rank far above it.

Nonetheless, popular myths about New Zealand’s safety net persist. Tales abound of unscrupulous beneficiaries gaming the system and ripping off taxpayers, or of apparently sociopathic parents churning out children just to receive more paltry benefits. Much of this is based on anecdotal evidence and high-profile yet rare incidents that receive heavy publicity. As per usual, it is also heavily racialized — the “dole bludger” that exists in popular imagination is usually Polynesian — even though 44 percent of working-class welfare recipients are Pakeha, or white.

The dramatic changes to the welfare system made by John Key’s National Government, which took power in 2008, are founded on these myths. As of 2012, single parents who wanted to keep their benefits had to start looking for work as soon as their child turned five (previously, they could wait until the child was eighteen); parents who had children while on welfare had to start job-hunting after one year. These changes enjoyed wide approval, even among voters who identified as left-leaning. Two years later the government promised to cut welfare rolls by a further 25 percent.

Meanwhile, charities like the Salvation Army reported a massive strain on their resources as overwhelming demand for food and other assistance outstripped their ability to provide it. Poverty, a normalized, structural feature of the New Zealand economy since the 1980s, has reached shameful levels: a third of the country’s children now live in poverty, and an increasing number of families live out of their cars as rents in cities go up.

Meanwhile, attitudes have hardened. A 2013 bill that would have provided free breakfasts and lunches at schools in low-income neighborhoods failed after the opposition called it “an abdication of responsibility of parenting.” One influential right-wing blogger and pollster mocked the bill as a plan to “replace parents”:

[I]f a family is so incompetent that [it] can’t arrange breakfast or lunch for their kids, then surely we can’t trust them to do dinner also . . . So I think we also need huge state owned dining places where kids can get their dinners for free.

After businessman and one-time Trump prototype Bob Jones said beggars were “fat Maoris” and “a bloody disgrace,” an online poll found that 72 percent of the nearly forty thousand respondents thought begging should be outlawed.

Such views also spurred a recent crackdown on welfare fraud, which saw as many as one thousand people a year being prosecuted for costing the country around $30 million annually. By contrast, less than a tenth of that number are prosecuted for tax evasion, despite the fact that this problem cheats taxpayers of $1 billion annually.

Public services have been further hollowed out over the past nine years. In its quest for budget surpluses, no matter how small and meaningless, the Key government slashed health funding, relentlessly defunded the Department of Conservation, and cut support for education at all levels. It has ramped up privatization over public objections, ignoring the fact that selling profitable state-owned assets for a one-time payment makes little economic sense.

Workers’ rights have also been steadily undermined — a stunning fact for a country once viewed as an international model for its labor laws.

Shortly after coming to office, the National Party introduced a three-month probationary period for all new employees, during which they could be fired for any reason without appeal. A 2010 Department of Labor survey and a 2016 Treasury report found this extra flexibility had done nothing to help employment, but had simply cut “dismissal costs for firms” while creating uncertainty for workers, a fifth of whom had been fired under the provision.

In 2010, the government passed legislation that excluded film workers from the definition of employees. Warner Brothers had threatened to move the production of The Hobbit to Ireland if the change wasn’t made, and the measure had been both publicly urged and privately promoted to top policymakers by the film’s director, national treasure Peter Jackson.

Anti-union sentiment became so bad that a group of global unions issued a joint statement in 2012 calling for “an immediate end to concerted attacks on workers in New Zealand” and “an end to the union-busting measures.” More recently, the government narrowly succeeded in revoking workers’ long-held right to rest and meal breaks.

While the benefits once afforded to workers and the poor are slowly being eroded, it’s never been a better time to be wealthy. Inequality may not be as extreme as in other countries, but as journalist Max Rashbrooke notes, the wealth gap has widened more quickly than anywhere else in the developed world.

Certainly, the National Party’s tax policies have helped: in 2010, the Key government embarked on a series of reforms that gave the biggest cuts to high earners and further raised the goods-and-services tax — a stealthily regressive tax regime that undermined any gains for lower-paid workers.

While New Zealand has been hesitant to welcome Syrian refugees, its doors are open wide if the price is right. It offers the global rich two separate residency visas, one of which — the Investor Plus, introduced in 2009 — has only two conditions: émigrés must invest $10 million over three years and spend at least eighty-eight days in the country in the final two years.

Since then, there has been an uptick in ultra-wealthy individuals gaining residency. As Peter Thiel recently showed, citizenship appears to be easily available to those with a high enough net worth.

Indeed, a recent New Yorker article revealed that New Zealand has become a popular refuge for billionaires preparing for the breakdown of society. But this has been known for years, at least since Robert Johnson told  the Davos World Economic Forum in 2015 that hedge-fund managers were buying farms as “boltholes” to escape increasing unrest over inequality. New Zealand’s absurdly loose rules around foreign property ownership make this strategy possible: buyers don’t need visas and pay no stamp duty. Until recently, it was one of the few developed countries to have no capital gains tax. (Even now, it only applies to houses sold within two years of their purchase.)

New Zealand’s laws benefit the rich in other ways. For years, it operated as a tax haven, allowing foreigners to stash income in anonymous trusts and pay no tax on it. John Key expressly requested this rule, which a top law firm said would put New Zealand on even footing with the Cayman Islands, Luxembourg, and Ireland — all world-famous tax havens. While some have denied this label, the Panama Papers heavily implicated New Zealand and showed that these trusts more than quintupled from two to eleven thousand over a decade.

Ironically, the politicians behind this continued neoliberal rollback all directly benefited from the programs they are now dismantling. The social development minister who cracked down on single parents on welfare was once a single parent on welfare. Former prime minister John Key, whose government sold off thousands of state houses, grew up in a state house. Virtually everyone involved in the reforms that have burdened generations of young people with student debt enjoyed the right of free education.

But a significant part of the population has long since internalized the idea that this is simply the way it has to be. Just prior to Donald Trump’s victory, the New Zealand Listener (the country’s equivalent to Time magazine) criticized Trump and Bernie Sanders for “their unimplementable and often mendacious policy prescriptions.” Some of Sanders’s signature policies included a public health-care system and free college — both of which once existed in New Zealand (and one of which, public health care, still does, albeit in a modified form).

The First Step

Despite adulation from people like Peter Schiff, New Zealand is hardly the libertarian promised land. It continues to have a robust government involved in many aspects of its citizens’ lives.

But neither is New Zealand the progressive paradise that foreign travelers once breathlessly described — or that many of its citizens still believe it is. Perhaps it never was, given that ideas about self-reliance and individualism have always been central to its culture and self-conceptions.

Still, decades of neoliberal reforms have not only hardened social attitudes and eroded some of the country’s greatest legislative accomplishments, but also rolled back many of the elements central to its self-image. A country once proud of its egalitarianism now has higher income inequality than much of the developed world. A country once known for its prosperity now suffers with shameful levels of poverty. A country that markets itself as “clean and green” now must face the reality of its environmental degradation.

For the vast majority of the population, much of this remains invisible, which explains why Kiwis continue to view their country through social-democratic-tinted glasses. Perhaps if they looked more honestly, they could start to solve these problems.

Jacobin Magazine

 

How economic boom times in the West came to an end – Marc Levinson. 

Unprecedented growth marked the era from 1948 to 1973. Economists might study it forever, but it can never be repeated. Why? 

The second half of the 20th century divides neatly in two. The divide did not come with the rise of Ronald Reagan or the fall of the Berlin Wall. It is not discernible in a particular event, but rather in a shift in the world economy, and the change continues to shape politics and society in much of the world today.

The shift came at the end of 1973. The quarter-century before then, starting around 1948, saw the most remarkable period of economic growth in human history. In the Golden Age between the end of the Second World War and 1973, people in what was then known as the ‘industrialised world’ – Western Europe, North America, and Japan – saw their living standards improve year after year. They looked forward to even greater prosperity for their children. Culturally, the first half of the Golden Age was a time of conformity, dominated by hard work to recover from the disaster of the war. The second half of the age was culturally very different, marked by protest and artistic and political experimentation. Behind that fermentation lay the confidence of people raised in a white-hot economy: if their adventures turned out badly, they knew, they could still find a job.

The year 1973 changed everything. High unemployment and a deep recession made experimentation and protest much riskier, effectively putting an end to much of it. A far more conservative age came with the economic changes, shaped by fears of failing and concerns that one’s children might have it worse, not better. Across the industrialised world, politics moved to the Right – a turn that did not avert wage stagnation, the loss of social benefits such as employer-sponsored pensions and health insurance, and the secure, stable employment that had proved instrumental to the rise of a new middle class and which workers had come to take for granted. At the time, an oil crisis took the blame for what seemed to be a sharp but temporary downturn. Only gradually did it become clear that the underlying cause was not costly oil but rather lagging productivity growth – a problem that would defeat a wide variety of government policies put forth to correct it.

The great boom began in the aftermath of the Second World War. The peace treaties of 1945 did not bring prosperity; on the contrary, the post-war world was an economic basket case. Tens of millions of people had been killed, and in some countries a large proportion of productive capacity had been laid to waste. Across Europe and Asia, tens of millions of refugees wandered the roads. Many countries lacked the foreign currency to import food and fuel to keep people alive, much less to buy equipment and raw material for reconstruction. Railroads barely ran; farm tractors stood still for want of fuel.

Everywhere, producing enough coal to provide heat through the winter was a challenge. As shoppers mobbed stores seeking basic foodstuffs, much less luxuries such as coffee and cotton underwear, prices soared. Inflation set off waves of strikes in the United States and Canada as workers demanded higher pay to keep up with rising prices. The world’s economic outlook seemed dim. It did not look like the beginning of a golden age.

As late as 1948, incomes per person in much of Europe and Asia were lower than they had been 10 or even 20 years earlier. But 1948 brought a change for the better. In January, the US military government in Japan announced it would seek to rebuild the economy rather than exacting reparations from a country on the verge of starvation. In April, the US Congress approved the economic aid programme that would be known as the Marshall Plan, providing Western Europe with desperately needed dollars to import machinery, transport equipment, fertiliser and food. In June, the three occupying powers – France, the United Kingdom and the US – rolled out the deutsche mark, a new currency for the western zones of Germany. A new central bank committed to keeping inflation low and the exchange rate steady would oversee the deutsche mark.

Postwar chaos gave way to stability, and the war-torn economies began to grow. In many countries, they grew so fast for so long that people began to speak of the ‘economic miracle’ (West Germany), the ‘era of high economic growth’ (Japan) and the 30 glorious years (France). In the English-speaking world, this extraordinary period became known as the Golden Age.

What was it that made the Golden Age exceptional? Part of the answer is that economies were making up for lost time: after years of depression and wartime austerity, enormous needs for housing, consumer goods, equipment for farms, factories, railroads and electric generating plants stood ready to drive growth. But much more lay behind the Golden Age of economic growth than pent-up demand. Two factors deserve special attention.

First, the expanding welfare state. The Second World War shook up the social structures in all the wealthy countries, fundamentally altering domestic politics, in particular exerting an equalising force. As societies embarked on reconstruction, no one could deny that citizens who had been asked to sacrifice in war were entitled to share in the benefits of peace. In many cases, labour unions became the representatives of working people’s claims to peacetime dividends. Indeed, union membership reached historic highs, and union leaders sat alongside business and government leaders to hammer out social policy. Between 1944 and 1947, one country after another created old-age pension schemes, national health insurance, family allowances, unemployment insurance and more social benefits. These programmes gave average families a sense of security they had never known. Children from poor families could visit the doctor without great expense. The loss of a job or the death of a wage-earner no longer meant destitution.

Second, in addition to the growing welfare state, strong productivity growth contributed to rising living standards. Rising productivity – increasing the efficiency with which an economy uses labour, capital and other resources – is the main force that makes an economy grow. Because new technologies and better ways of doing business take time to filter through the economy, productivity improvements are usually slow. But in the postwar years, productivity grew very quickly. A unique combination of circumstances propelled it. In just a few years, millions of people moved from low-productivity farm work – more than 3 million mules still plowed furrows on US farms in 1945 – to construction and factory jobs that used the latest machinery.

In 1940, the average working-age adult in western Europe had less than five years of formal education. As governments invested heavily in high schools and universities after the war, they produced a more educated and literate workforce with the skills to produce far more wealth. Advances in national infrastructure gave direct boosts to national productivity. High-speed motorways enabled truck drivers to carry bigger loads over longer distances at higher speeds, greatly expanding markets for farms and factories. Six rounds of trade negotiations between 1947 and 1967, ultimately involving nearly 50 countries that signed the General Agreement on Tariffs and Trade (GATT), brought a massive increase in cross-border trade, forcing manufacturers to modernise or give up. Firms moved to take advantage of technological innovations to operate more productively, such as jet aircraft and numerically controlled machinery.

Between 1951 and 1973, propelled by strong productivity gains, the world economy grew at an annual rate of nearly 5 per cent. The impact on living standards was dramatic. Jobs were just for the asking; in 1966, West Germany’s unemployment rate touched an unprecedented 0.5 per cent. Electricity, indoor plumbing and television sets became common. Stoves burning coal or peat were replaced by central heating systems. Homes grew larger, and tens of millions of families acquired refrigerators and automobiles. The higher living standards did much more than simply bring new material goods. Retirement by 65, or even earlier, became the norm. Life expectancy jumped. Importantly, in Western Europe, North America and Japan, people across society shared in those gains. Prosperity was not limited to the urban elite. Most people began to live better, and they knew it. In the span of a quarter-century, living standards doubled and then, in many countries, doubled again.

The good times rolled on so long that people took them for granted. Between 1948 and 1973, Australia, Japan, Sweden and Italy had not a single year of recession. West Germany and Canada did almost as well. Governments and the economists who advised them happily claimed the credit. Careful economic management, they said, had put an end to cyclical ups and downs. Governments possessed more information about citizens and business than ever before, and computers could crunch the data to help policymakers determine the best course of action. In a lecture at Harvard University in 1966, Walter Heller, formerly chief economic adviser to presidents John F Kennedy and Lyndon B Johnson, trumpeted the success of what he called the ‘new economics’. ‘Conceptual advances and quantitative research in economics,’ he declared, ‘are replacing emotion with reason.’

Wages and investment were private decisions, but Schiller hoped government guidelines would contribute to ‘collective rationality’

The most influential proponent of such ideas was Karl Schiller, who became economy minister of West Germany, Europe’s largest economy, in 1966. A former professor at the University of Hamburg, where his students included the future West German Chancellor Helmut Schmidt, Schiller was a centrist Social Democrat. He stood apart from those on the Left who favoured state ownership of industry, but also from extreme free-market conservatives. His advice called for ‘a synthesis of planning and competition’. Schiller defined his philosophy thus: ‘As much competition as possible, as much planning as necessary.’

Most fundamentally, Schiller believed that government should commit itself to maintaining high employment, steady growth and stable prices. And it should do this all while keeping its international account in balance, within the framework of a free-market economy. These four commitments made the corners of what he called the ‘magic square’. In December 1966, when Schiller became economy minister in a new coalition government, the magic square became official policy. Following Schiller’s version of Keynesian economics, his ministry’s experts advised federal and state governments how to adjust their budgets to achieve ‘equilibrium of the entire economy’. The ministry’s advice was based on an elaborate planning exercise that churned out five-year projections. In the spring of 1967, the finance ministry was told to adjust taxes and spending plans to increase business investment while slowing the growth of consumer spending. These moves, Schiller’s economic models promised, would bring economic growth averaging 4 per cent through 1971, along with 0.8 per cent unemployment, 1 per cent annual inflation and a 1 per cent current account surplus.

But in an economy that was overwhelmingly privately run, government alone could not reach perfection. Four or five times a year, Schiller summoned corporate executives, union presidents and the heads of business organisations to a conference room in the ministry. There he described the economic outlook and announced how much wages and investment could rise without compromising his national economic targets. Of course, he would add, wages and investment were private decisions, but he hoped that the government’s guidelines would contribute to ‘collective rationality’. Such careful stage management cemented Schiller’s fame. In 1969, for the first time, the Social Democrats outpolled every other party. The election that year became known as the ‘Schiller election’.

Schiller insisted that his policies had brought West Germany to ‘a sunny plateau of prosperity’ where inflation and unemployment were permanently vanquished. Year after year, however, the economy failed to perform as he instructed. In July 1972, when Schiller was denied control over the exchange rate, he stormed out of the cabinet and left elected office forever.

Schiller left with the West German economy roaring. Within 18 months, his claim that the government could ensure stable prices, robust growth and jobs for all blew up.

The headline event of 1973 was the oil crisis. On 6 October, Egyptian and Syrian armies attacked Israeli positions, starting the conflict that became known as the Yom Kippur War. By agreeing to slash production and raise the price of oil, Saudi Arabia, Iraq, Iran and other Middle Eastern oil exporters quickly backed the two Arab countries. Shipments to countries that supported Israel, including the US and the Netherlands, were cut off altogether.

Oil-importing countries responded in dramatic fashion. Western European countries lowered speed limits and rationed diesel supplies. From Italy to Norway, driving was banned on four consecutive Sundays in order to save fuel. The Japanese government shut down factories and told citizens to turn out the pilot lights on their water heaters. US truck drivers blocked highways to protest high fuel prices, and motorists queued for hours to top off their gasoline tanks. In a televised address, the US President Richard Nixon warned Americans: ‘We are heading toward the most acute shortages of energy since the Second World War.’

Faced with higher petroleum prices, economic growth in 1974 collapsed. Around the world, inflation soared. When oil prices receded, the world economy failed to bounce back. Double-digit inflation dramatically undermined workers’ wage gains. From 1973 to 1979, average income per worker grew only half as fast as it had before 1973. Help-wanted signs vanished as unemployment rose. The economic experts, only recently so confident that their rational mathematical analysis had brought permanent prosperity, were flummoxed. Stable economic growth had given way to violent gyrations.

The underlying problem, it turned out, was not expensive petroleum but slow productivity growth. Through the 1960s and early ’70s, across the wealthy world, productivity had risen a strong 5 per cent a year. After 1973, the trend shifted clearly downward. Through the rest of the 20th century, productivity growth in the wealthy economies averaged less than 2 per cent a year. Diminished productivity growth translated directly into sluggish economic growth. The days when people could feel their living standards rising from one year to the next were over. As the good times failed to return, voters turned their fury on political leaders. In fact, there was little any Western politician could do to put their economies back on their previous tracks.

To give a short-term boost to an underperforming economy, central banks and governments have a variety of tools they can use. They can lower interest rates to make it cheaper to buy a car or build a factory. They can lower taxes to give consumers more money to spend. They can increase government spending to pump more cash into the economy. They can change regulations to make it easier for banks to lend money. But when it comes to an economy’s long-term growth potential, productivity is vital. It matters more than anything else – and productivity growth after the early 1970s was simply slower than before.

Turning innovative ideas into economically valuable products and services can involve years of trial and error

The reasons behind slowed productivity growth had nothing to do with any government’s economic policy. The historic move of rural peoples to the cities, around the world, could not be repeated. Once masses of peasant farmers and sharecroppers had shifted into more productive work in the cities, it was done. The great flow of previously unemployed women into the labour force was over. In the 1960s, building thousands of miles of superhighways brought massive economic benefits. But once those roads were open to traffic, adding lanes or exit ramps was far less consequential. In rich countries, literacy had risen to almost universal levels. After that historic jump, the effects of additional small increases in average education were comparatively slight. If higher productivity growth were to be regained, it would have to come from developing technological innovations and new approaches to business, and putting them to use in ways that allowed the business sector to operate more effectively.

When it comes to influencing innovation, governments have power. Grants for scientific research and education, and policies that make it easy for new firms to grow, can speed the development of new ideas. But what matters for productivity is not the number of innovations, but the rate at which innovations affect the economy – something almost totally beyond the ability of governments to control. Turning innovative ideas into economically valuable products and services can involve years of trial and error. Many of the basic technologies behind mobile telephones were developed in the 1960s and ’70s, but mobile phones came into widespread use only in the 1990s. Often, a new technology is phased in only over time as old buildings and equipment are phased out. Moreover, for reasons no one fully understands, productivity growth and innovation seem to move in long cycles. In the US, for example, between the 1920s and 1973, innovation brought strong productivity growth. Between 1973 and 1995, it brought much less. The years between 1995 and 2003 saw high productivity gains, and then again considerably less thereafter.

When the surge in productivity following the Second World War tailed off, people around the globe felt the pain. At the time, it appeared that a few countries – France and Italy for a few years in the late 1970s, Japan in the second half of the ’80s – had discovered formulas allowing them to defy the downward global productivity trend. But their economies revived only briefly before productivity growth waned. Jobs soon became scarce again, and improvements in living standards came more slowly. The poor productivity growth of the late 1990s was not due to taxes, regulations or other government policies in any particular country, but to global trends. No country escaped them.

Unlike the innovations of the 1950s and ’60s, which were welcomed widely, those of the late 20th century had costly side effects. While information technology, communications and freight transportation became cheaper and more reliable, giant industrial complexes became dinosaurs as work could be distributed widely to take advantage of labour supplies, transportation facilities or government subsidies. Workers whose jobs were relocated found that their years of experience and training were of little value in other industries, and communities that lost major employers fell into decay. Meanwhile, the welfare state on which they had come to rely began to deteriorate, its financial underpinnings stressed due to the slow growth of tax revenue in economies that were no longer buoyant. The widespread sharing in the mid-century boom was not repeated in the productivity gains at the end of the century, which accumulated at the top of the income scale.

For much of the world, the Golden Age brought extraordinary prosperity. But it also brought unrealistic expectations about what governments can do to assure full employment, steady economic growth and rising living standards. These expectations still shape political life today. Between 1979 and 1982, citizens in one country after another threw out the leaders who stood for the welfare state and voted in a wave of more Right-wing politicians – Margaret Thatcher, Reagan, Helmut Kohl, Yasuhiro Nakasone and many others – who promised to tame big government and let market forces, lower tax rates and deregulation bring the good times back. Today, nearly 40 years on, voters are again turning to the Right, hoping that populist leaders will know how to make slow-growing economies great again.

More than a generation ago, the free-market policies of Thatcher and Reagan proved no more successful at improving productivity and raising economic growth than the policies they supplanted. There is no reason to think that the populists of our day will do much better. The Golden Age was wonderful while it lasted, but it cannot be repeated. If there were a surefire method for coaxing extraordinary performance from mature economies, it likely would have been discovered a long time ago.

Aeon

How a Ruthless Network of Super-Rich Ideologues Killed Choice and Destroyed People’s Faith in Politics – George Monbiot. 

Neoliberalism: the deep story that lies beneath Donald Trump’s triumph.

The events that led to Donald Trump’s election started in England in 1975. At a meeting a few months after Margaret Thatcher became leader of the Conservative party, one of her colleagues, or so the story goes, was explaining what he saw as the core beliefs of conservatism. She snapped open her handbag, pulled out a dog-eared book, and slammed it on the table. “This is what we believe,” she said. A political revolution that would sweep the world had begun.

The book was The Constitution of Liberty by Frederick Hayek. Its publication, in 1960, marked the transition from an honest, if extreme, philosophy to an outright racket. The philosophy was called neoliberalism. It saw competition as the defining characteristic of human relations. The market would discover a natural hierarchy of winners and losers, creating a more efficient system than could ever be devised through planning or by design. Anything that impeded this process, such as significant tax, regulation, trade union activity or state provision, was counter-productive. Unrestricted entrepreneurs would create the wealth that would trickle down to everyone.

This, at any rate, is how it was originally conceived. But by the time Hayek came to write The Constitution of Liberty, the network of lobbyists and thinkers he had founded was being lavishly funded by multimillionaires who saw the doctrine as a means of defending themselves against democracy. Not every aspect of the neoliberal programme advanced their interests. Hayek, it seems, set out to close the gap.

He begins the book by advancing the narrowest possible conception of liberty: an absence of coercion. He rejects such notions as political freedom, universal rights, human equality and the distribution of wealth, all of which, by restricting the behaviour of the wealthy and powerful, intrude on the absolute freedom from coercion he demands.

Democracy, by contrast, “is not an ultimate or absolute value”. In fact, liberty depends on preventing the majority from exercising choice over the direction that politics and society might take.

He justifies this position by creating a heroic narrative of extreme wealth. He conflates the economic elite, spending their money in new ways, with philosophical and scientific pioneers. Just as the political philosopher should be free to think the unthinkable, so the very rich should be free to do the undoable, without constraint by public interest or public opinion.

The ultra rich are “scouts”, “experimenting with new styles of living”, who blaze the trails that the rest of society will follow. The progress of society depends on the liberty of these “independents” to gain as much money as they want and spend it how they wish. All that is good and useful, therefore, arises from inequality. There should be no connection between merit and reward, no distinction made between earned and unearned income, and no limit to the rents they can charge.

Inherited wealth is more socially useful than earned wealth: “the idle rich”, who don’t have to work for their money, can devote themselves to influencing “fields of thought and opinion, of tastes and beliefs”. Even when they seem to be spending money on nothing but “aimless display”, they are in fact acting as society’s vanguard.

Hayek softened his opposition to monopolies and hardened his opposition to trade unions. He lambasted progressive taxation and attempts by the state to raise the general welfare of citizens. He insisted that there is “an overwhelming case against a free health service for all” and dismissed the conservation of natural resources. It should come as no surprise to those who follow such matters that he was awarded the Nobel prize for economics.

By the time Thatcher slammed his book on the table, a lively network of thinktanks, lobbyists and academics promoting Hayek’s doctrines had been established on both sides of the Atlantic, abundantly financed by some of the world’s richest people and businesses, including DuPont, General Electric, the Coors brewing company, Charles Koch, Richard Mellon Scaife, Lawrence Fertig, the William Volker Fund and the Earhart Foundation. Using psychology and linguistics to brilliant effect, the thinkers these people sponsored found the words and arguments required to turn Hayek’s anthem to the elite into a plausible political programme.

Thatcherism and Reaganism were not ideologies in their own right: they were just two faces of neoliberalism. Their massive tax cuts for the rich, crushing of trade unions, reduction in public housing, deregulation, privatisation, outsourcing and competition in public services were all proposed by Hayek and his disciples. But the real triumph of this network was not its capture of the right, but its colonisation of parties that once stood for everything Hayek detested.

Bill Clinton and Tony Blair did not possess a narrative of their own. Rather than develop a new political story, they thought it was sufficient to triangule. In other words, they extracted a few elements of what their parties had once believed, mixed them with elements of what their opponents believed, and developed from this unlikely combination a “third way”.

It was inevitable that the blazing, insurrectionary confidence of neoliberalism would exert a stronger gravitational pull than the dying star of social democracy. Hayek’s triumph could be witnessed everywhere from Blair’s expansion of the private finance initiative to Clinton’s repeal of the Glass-Steagal Act, which had regulated the financial sector. For all his grace and touch, Barack Obama, who didn’t possess a narrative either (except “hope”), was slowly reeled in by those who owned the means of persuasion.

As I warned in April, the result is first disempowerment then disenfranchisement. If the dominant ideology stops governments from changing social outcomes, they can no longer respond to the needs of the electorate. Politics becomes irrelevant to people’s lives; debate is reduced to the jabber of a remote elite. The disenfranchised turn instead to a virulent anti-politics in which facts and arguments are replaced by slogans, symbols and sensation. The man who sank Hillary Clinton’s bid for the presidency was not Donald Trump. It was her husband.

The paradoxical result is that the backlash against neoliberalism’s crushing of political choice has elevated just the kind of man that Hayek worshipped. Trump, who has no coherent politics, is not a classic neoliberal. But he is the perfect representation of Hayek’s “independent”; the beneficiary of inherited wealth, unconstrained by common morality, whose gross predilections strike a new path that others may follow. The neoliberal thinktankers are now swarming round this hollow man, this empty vessel waiting to be filled by those who know what they want. The likely result is the demolition of our remaining decencies, beginning with the agreement to limit global warming.

Those who tell the stories run the world. Politics has failed through a lack of competing narratives. The key task now is to tell a new story of what it is to be a human in the 21st century. It must be as appealing to some who have voted for Trump and Ukip as it is to the supporters of Clinton, Bernie Sanders or Jeremy Corbyn.

A few of us have been working on this, and can discern what may be the beginning of a story. It’s too early to say much yet, but at its core is the recognition that – as modern psychology and neuroscience make abundantly clear – human beings, by comparison with any other animals, are both remarkably social and remarkably unselfish. The atomisation and self-interested behaviour neoliberalism promotes run counter to much of what comprises human nature.

Hayek told us who we are, and he was wrong. Our first step is to reclaim our humanity.

Evonomics.com

Preparing Our Economy And Society For Automation & AI – Robert Reich. 

Professor Reich comes to Google to discuss the impact of automation & artificial intelligence on our economy. He also provides a recommendation on how we can ensure future technologies benefit the entire economy, not just those at the top.

Social Europe

How To Win Back Obama, Sanders, and Trump Voters – Les Leopold. 

It is imperative we think big to destroy Neoliberalism’s grip. 

Hillary Clinton underperformed Barack Obama by minus 290,000 votes in Pennsylvania, minus 222,000 votes in Wisconsin and a whopping minus 500,000 votes in Michigan. We don’t know how many of these voters also supported Sanders along the way, but it is highly likely that millions took that journey. Winning them back is the key to the battle for economic and social justice.

The current resistance to Trump is truly remarkable. Not since the anti-Vietnam War and Civil Rights protests have we seen so many people in the streets ― women, Muslim ban protesters, scientists protesting in behalf of facts, people just protesting ― with more to come. Even three New England Patriots are refusing to attend their Super Bowl White House event.

As Trump’s lunacy and destructiveness grow day-by-day, defensive struggles are an absolute must. But defensiveness alone is not likely to win back Obama/Sanders/Trump voters.

It is possible that those voters will soon get buyer’s remorse and join our defensive struggles. Or maybe a dozen more Nordstrom-like ethics violations could lead to impeachment. But such hopes leave political agency in Trump’s hands rather than in our own.

Instead of waiting for Trump to implode, we should be engaging directly with the Obama/Sanders/Trump voters. But doing so requires an understanding of the economic forces that fueled both the Sanders and Trump revolts.

We live in an era of runaway inequality. In 1970 the gap between CEO pay and the average worker was about 45 to 1. That’s a hefty gap. It means that if you could afford one house and one car, a top CEO could afford 45 homes and 45 cars. Today, the gap is an unfathomable 844 to 1 and rising. 844 houses to your one!

That money gushing to the top is the direct result of 40 years of neoliberalism, a philosophy that captured both political parties. It calls for:

– Tax cuts (especially for the wealthy)

– Government deregulation (especially for Wall Street)

– Cuts in social spending (especially for programs and infrastructure that benefit the rest of us.)

– Free trade (which gives corporations the tools to destroy unions and hold down worker wages.)

Supposedly, this plan would create a massive profit and investment boom, job creation and rising incomes for all. Of course, it failed miserably for the vast majority of us, while succeeding beyond belief for the super rich.

The failure, however, involved far more than rising income gaps. Financial deregulation unleashed Wall Street to financially strip-mine the wealth from our workplaces and our communities into the pockets of Wall Street and corporate elites. This outrageous process has nothing to do with talent or hard work. It also is not an economic act of God. Rather it is the direct result of weakening rules that protect us from the financial predators. This is why the richest country in the history of the world has a crumbling infrastructure, the largest prison population, the most costly health care system, the most student debt and the most income inequality.

Sanders and Trump led revolts against runaway inequality. Both claimed the established order had to be changed radically. Sanders nearly defeated the Clinton machine with a social democratic platform of free higher education, Medicare for All, turning the screws on Wall Street, and taking big money out of politics. Trump, like Sanders, attacked trade deals and claimed he would bring jobs back to America, But he also led the hard right’s racist, sexist and xenophobic calls for immigration restrictions, walls, climate change denial and the curtailment of women’s rights. 

Resisting Trump alone will not stop the hard right. We need to continue the Sanders attack on the neoliberal order by offering a compelling vision for social and economic justice.

Right now Trump is a clear and present danger to us all. But an equally dangerous problem is that the regime of runaway inequality will grow worse as the hard right consolidates its political power. Long before