Four Things I Learned When I Read “Plutocrats”
By Denise O’Connor
I learned a lot reading this book. In this short posting, I am going to touch very superficially on four key things.
First, the twin phenomena of globalization and technology have meant that corporations are no longer “captive” of a state. This means they can – and they do – move to where they can maximize their “efficiency”, or profit. We see this in the de-industrialization of Canada. What this also means is that corporations no longer need a middle class in the developed world to consume their products (Henry Ford increased wages to create a market for his cars and created a larger middle class). The growing middle class in developing nations provides a large market. It also means that national GDP growth – a measure of corporate growth or profit and how we have come to define economic prosperity – is not shared within a nation. With lower corporate taxes the profit and productivity growth goes primarily to shareholders and CEOs.
Second, there is greater inequality within the 1% (with the 0.1% capturing most of the wealth) than there is between the 1% and the 99%. Also, this wealth is largely driven by income, not inherited wealth (US data). This marks a break from the past. Most of those in the 1% make a very good living but they are not the super-wealthy. Then, there are the plutocrats or the 0.1%. Some create value and wealth through new product innovation (disruptive technology) and then there are those who “extract” value or “skim” from others’ work, but add nothing. The first kind has the “lucky combination of the right skills, the right character, and the right position in society at the right time” and they can make a lot of money, but without the kind of job creation in the host country that was typical in our industrial past. The second kind of plutocrat, is largely about the rise of finance and how global finance structure, particularly in London and New York have made a many people working in that industry extraordinarily rich, without them adding much to the value of economies or sharing it. Plus, they mistakenly believe that what’s good for Wall St. is good for the economy. This hasn’t proven to be the case, but regulators have drunk the Kool-Aid.
Third, we are at a danger point where upward social mobility may be closing off, particularly in the US and the UK. Increasingly the plutocrats are influencing the rules to benefit themselves, and have become a global “gated community” who go to the same events, own homes in the same cities and send their children to the same schools. Many of them think they deserve their privilege because they’re special and the rest of us are lesser human beings. This is problematic in and of itself in democracies where the notion of equality is basic. But when class segregation becomes a feature of a country’s capitalism, it reduces diversity of perspective and thought, leading to group think. Group think typically leads to economic decline because of complacency and self-congratulatory behavior, as corporate leadership does not or cannot prepare for disruptive technology or approaches that others invariably invent and takes them down. She uses the example of the steel industry to illustrate the point.
Fourth and finally, I was very to read to learn that two of the people who have stood up for a more open form of capitalism are Canadian: Paul Martin and former Bank of Canada governor Mark Carney. Because of the Canadian financial regularly system, we rode out the recession better than most and as a result, both Martin and Carney influence the international scene. This book is not a condemnation of capitalism nor is it an attack on the plutocrats who innovate and create new products. It is a warning that if we don’t understand the differences between our national interest (national as in the people, not its corporations) and that of capitalism, that our governments are doomed to become nothing more than instruments of capital. This means growing inequality and a reduction in our overall economic well-being.
Is that we are here for or is it time to negotiate a new social license with corporations and their plutocrats?