Saturday, 21 March 2015
Part IV: Inequality and the Crisis of Capitalism and Democracy
Solutions to the Income Inequality and Declining Democracy
There is no shortage of possible solutions for rising income inequality and declining democracy in our time. Nor is there a shortage of people who dogmatically claim they have “The Answer” as though it is a miracle cure for bad breath. There is no Shangri La, (mythical Himalayan utopia) or any kind of utopia except in Plato’s Republic and Thomas More’s Utopia, any more than there is a possibility for an egalitarian society because more than likely there will always be elites.
Human beings will probably never achieve the ideal of equality on this earth as religions conceive of it in spiritual terms. This does not mean that the struggle for social justice and equality must yield to unchecked greed, power and privileges by the elites, official and private sector corruption that is parasitic to the economy, institutional decadence at the expense of democracy, and tyranny by the few so they retain their privileged status. Solutions depend on one’s ideological perspective and for the purposes of simplicity I have divided them into three categories below, though there are many nuances within these listed.
1) The Neo-liberal Solution:
The ideological roots of this solution can be traced to Adam Smith at the end of the 18th century during the nascent phase of the Industrial Revolution in England. Continue with the neo-liberal policies and allow the market to determine the social structure, no matter the level of inequality and damage to the social fabric. Do not change the political economy regardless of the growing inequality it creates and how much it undermines democracy because change would only come at the expense of productivity efficiency, competition, innovation, and investment.
If preserving the status quo is of the utmost importance, proposing greater equality and more democracy is to advocate Socialism, a system that failed in the 29th century in the Soviet bloc, China and other Communist states. Besides, no matter what the UN, World Bank and numerous organizations and social scientists contend, inequality studies are vastly exaggerated and their goal is to undermine the vitality of capitalism. Inequality is a distraction from the “real issue of freedom”, that is to say, freedom to maintain the existing social order, to buy political influence through campaign contributions, to maximize profit and minimize costs, including pay workers whatever the employer wants not what government legislates in order to lessen inequality. (James Pierson, The Inequality Hoax)
Income redistribution from the rich to the middle classes is an anathema to neoliberal apologists of income inequality. However, they have no problem with the fiscal system as a mechanism for income redistribution from lower and middle class to the rich and to sustain corporate welfare capitalism. Apologists of the status quo oppose tax increases for higher-income groups, while advocating low wages, slashing social programs, retirement benefits, and social programs ranging from school lunches to Medicare. The only way to deal with inequality is for each individual to improve his/her own condition through education/training, not through public spending for such programs. Besides, there is always philanthropy by individuals, private organizations, and businesses generous enough to give of their own free will. (Jamie Peck, Constructions of Neoliberal Reason)
2) The Reformist or Keynesian Solution:
The ideological roots of this solution go back to the 19th century social democratic solutions opposed to monetarist orthodoxy that merely concentrate wealth and increase inequality. A policy mix of political economy based on Keynesian economics (1930s New Deal) would be a good start to undo the damage that neo-liberalism has caused around the world in the last four decades. Raise income taxes on the wealthy, provide more support for education, training, and research and development, and offer incentives to business to hire and offer above minimum wage, and raise the minimum wage law. Close tax loopholes and crack down on offshore accounts hiding trillions from their respective governments.
Strengthening the working class is the only way to strengthen the weakening middle class and this means nationalizing the educational system that reflects socioeconomic polarization, with the rich going to best schools, and the rest having to suffer through mediocre ones. The Keynesian school of thought recognizes that capitalism left to its own devices will self-destruct and take down with it democracy. The only way to save democracy and the “market economy” from predatory capitalism is for the state must interfere to rationalize it and protect the middle class and workers who are powerless against the financial elites. (Duane Swank, Global Capital, Political Institutions, and Policy Change in Developed Welfare States; Danny Dorling, Inequality and the 1% )
3) The Socialist Solution: The ideological roots of Socialism are European, predating Marx and Engels, but gaining enormous intellectual momentum after the European revolutions of 1848 that contributed to raising working class consciousness and contributing to representative democracy throughout the continent. There are varieties of Socialism and there is fundamental agreement on the goals, though not on the modalities of what remains largely a utopian solution as far as many people are concerned. In the absence of systemic change of the political system that would overhaul everything from fiscal policy to labor, education and health policy, inequality under democratic regimes will continue to become worse because of capital concentration.
How likely is systemic change, how does social discontinuity come about, and even if it takes place does this mean trading one set of existing elites for another, as was during the French Revolution that ousted the nobility to replace it with the bourgeoisie. Does democracy in fact work if the state has to force equality top-down on a segment of the population that simply does not believe in it and wants to live in a hierarchical society? If democracy is to survive and be viable, then finance capitalism, which is by nature parasitic – concentrating and siphoning off wealth instead of creating it and distributing it more equitably – cannot be the hegemonic force behind the state that drives policy at all levels. (Jeremy Reiman and Paul Leighton, The Rich Get Richer and The Poor Get Prison: Ideology, Class, and Criminal Justice)
If “democratic governments” see the root causes of inequality and poverty in terms of a technical fix for natural and manmade problems, then the solution is really technocratic than political. Here is what the World Bank as well as many democratic governments like India regard as causes of extreme inequality.
1) Natural disasters; drought, flooding, etc.
2) Agricultural cycles and global supply-demand fluctuations;
3) Environmental degradation and derivative costs;
4) Lack of technology and the right technology to address problems;
5) Lack of education or more targeted education, then the solution is to address these problems through technical means.
6) Lack of the proper infrastructure for optimal resource
7) Lack of or poor strategic economic planning for sustainable growth
8) Inadequate investment incentives
9) Failure to decentralize production geographically
10) Failure to diversify the economy
11) Failure to achieve social cohesion owing to the social fabric breaking down and exacerbating socioeconomic inequality
The World Bank, OECD, African Development Bank, Agency for International Development, UN agencies, and other national and international organizations see the income inequality problem from the same technical perspective as neoliberal apologists of the political economy, proposing technical solutions that only exacerbate the problem for future generations. I want to emphasize that the problem is not the lack of studies on income inequality, not the cliché “sustainable development” fits all solution as though this elements will magically end growing inequality. I walked into the World Bank bookstore the other day and there were many books dealing with poverty and inequality, in addition to quarterly pamphlets and online material the Bank has available. The problem is that neoliberal “reform solutions” are the cause of income inequality as history has proved from the 1950s to the present. To have more “neoliberal solutions” from the culprits of inequality and poverty is absurd. (Catherine Weaver, Hypocrisy Trap: The World Bank and the Poverty of Reform)
Besides structural problems in the political economy, without a doubt, wars have always been a cause of widespread misery and poverty on the losing party, and often on the “winners”, while a few profiteer in the process. Excessive military spending has brought down civilizations from Athens in 5th century B.C. to the Roman Empire in 5th century A.D. and the British Empire in the early 20th century. From the dawn of civilization when city-states in Mesopotamia and Greece waged war to secure trade routes, to loot, to gain prestige and glory, while maintaining a hierarchical social order. In modern history from the Commercial Revolution (16th century) onwards, wars were waged for market share, raw materials from energy to strategic minerals, all contributing to the economic and political strength of the socioeconomic elites.
Even if the goal of war was to benefit the rulers of the country, the tangible benefits accrued to the socioeconomic elites at the expense of the broader population. It is simply hollow propaganda that any modern nation-state under capitalism launches wars for ideological considerations linked to altruism and not profit for the socioeconomic elites, just as it is raw propaganda that military spending helps the civilian economy on a sustainable basis. The end result of chronic excessive defense spending is greater inequality and decline of the civilian economy. (Paul Kennedy, The Rise and Fall of the Great Powers; D. Acemoglu, James Robinson, Why Nations Fail: The Origins of Power, Prosperity, and Poverty)
Defense allocations in 2011 stood at $1.2 trillion. This was money benefiting mostly defense contractors and consultants, devoted for parasitic and corrupt enterprises that does not produce new wealth for society, contributes to income inequality and degradation of democracy because militarism reorients people toward authoritarian ideological perspective. The combination of the defense budgets and the corporate welfare capitalist system are impediments to productivity and a more equitable share of wealth for the middle and working classes.
Besides defense spending, corporate welfare siphons off enormous resources and simply transfers income from the bottom income groups to the top. For example, the US Export-Import Bank provides huge export subsidies for the largest US corporations. The same holds true for EU subsidies of European multinationals, although the US and EU have been blaming each other for subsidies. The EU has often demanded that the World Trade Organization (WTO) impose punitive fines on the US for granting multi-billion-dollar tax breaks to Microsoft, General Electric, Boeing, and others that hardly need subsidies. The corporate welfare system and defense spending are inexorably linked to the political economy of uneven development and social inequality. (T. M. Kostigen, The Big Handout: How Government Subsidies and Corporate Welfare Corrupt the World We Live In and Wreak Havoc on Our Food Bills)
Philanthropy anti-Poverty Programs
Will global poverty end if the 1000 richest people and the next one million richest donate all their wealth? Of course not! Charity has never been the solution to the problem of unequal distribution of wealth and labor values. Neoliberals argue that philanthropy is the solution to poverty, while social democrats maintain anti-poverty programs help decrease inequality and provide needed assistance for the lower strata of society. In a recent announcement, the world's richest people (a few dozen billionaires) tentatively agreed to give away to the charities of their choice half of their wealth, which amounts to $3.5 trillion, or just over one-quarter of the EU's GDP. Thirty people own 6% of the world's wealth. Meanwhile, 80% of the world's population share 20% of the world's wealth, making billionaire charity a godsend gift to the wretched of the earth. About 1000 people on the planet, according to Forbes, own roughly 10% of the world's GDP, while one billion people do not have access to drinking water largely because a handful of multinational corporations, in which the billionaire philanthropists own most of the stock, own water rights around the world and charge exorbitant utility rates for water that IMF and World Bank insist must be under private ownership. (Tim Di Muzio, The 1% and the Rest of Us.)
About two billion people are victims of chronic malnutrition and lack of medicine, largely because multinational corporations, in which billionaire philanthropists own most of the stock, do not make it affordable for people to eat and have medicine. Water, food, health, education and affordable housing are among the problems that billionaire philanthropists want to address. The political economy, which made the same philanthropists billionaires, created the aforementioned problems in the first place. Exploitation of the public by a handful of fraudulent investors determined to continue manipulating markets, shield their wealth in tax heavens, so they can amass greater wealth is indeed a Constitutional right under free speech protection, as far as neoliberals are concerned.
While charity is fine to meet emergency needs, it hardly solves the chronic problem of closing the rich-poor gap. Then there are the governments and international organizations involved in the endeavor of aid that historical has been used as bait for trade and investment. Although aid is indeed necessary for emergency cases, aid donors have always used it as bait for trade and investment and not to solve the rich-poor gap that actually widens regardless of aid. There are also the programs of the World Bank and United Nations intended to deal with the poor. These are actually programs intended to result in commercial benefits for large corporations. For example, introducing agrichemicals, seeds, and machinery to convert subsistence agriculture into commercial agriculture does not alter the social structure in India or Africa. On the contrary, it simply integrates more of the segment that was on the periphery of the monetary economy into the world system, forces out the small farmers and results in greater income inequality because of commercialization of the sector.
Specific country programs to end poverty and close the rich-poor gap have not worked either. Let us take Lyndon Johnson’s “Great Society” period of 1964 to 1968 also known as the “War on Poverty”. That program essentially locked in a segment of the population, mostly minorities, into chronic lower working class to poverty status rather than providing opportunities for upward social mobility. Not that the ghettos in London and Paris as a result of similar programs are much better than those of Chicago and Los Angeles. As much in the US as in UK and France, not only has the rich-poor gap widened since the Thatcher-Reagan decade, but the rich-middle class has also widened since government programs were introduced to close the poverty gap in the 1960s.
The key reason for the welfare experiment failure was government policy intended to maintain the social structure intact and continue with policies that strengthen the rich even more, while providing a social safety net for the rest of the population so that they would continue to support what was presented as “democratic” society. In short, the anti-poverty policies were in fact a means to preserve the system that causes poverty and widens the gap between the rich and the rest of the population. These pretences were dropped first by US and UK in the 1980s when neoliberal policies triumphed and then around the world because welfare corporate capitalism began to replace the social welfare state.
In existence for about five hundred years, the evolving capitalist economic system in different forms causes social and geographical poverty and inequality on a global scale. As the core of the capitalist world-economy shifts from the US to East Asia in the course of the 21st century, there will be increased socioeconomic ineqaulity in the West and relative rising affluence in underdeveloped countries. The irony of mostly Western billionaires donating in large measure to non-Western areas is that in the 21st century the West will most definitely experience the same Third World conditions. Nor is the solution "made in America" (Germany, France, UK, etc.) because at the core of cyclical crises of capitalism is not to make each country more competitive--lower wages and higher quality products--as the apologists of the system insist and Obama argued recently. At the core of the system rests the assumption that capital chases the highest profits wherever it can secure them with the help of the state. Inequality is as much a local and national problem as it is a global one. (Michael Chossudovsky, The Globalization of Poverty and the New World Order)
Socioeconomic inequality and poverty is caused and can only be solved by political economy not by charity, a handful of wealthy people who steal legally and illegally for decades and then decide to give some of their wealth to atone for their greed, or expedient diplomacy by a government(s) wishing to promote trade with the aid recipient. Inequality and poverty cannot be eradicated by private organizations with the support of the UN and World Bank whose goal is the more thorough commercial exploitation of natural resources, labor and markets where poor people live. If indeed inequality and poverty are imbedded in the structure of the political economy, the only solution is structural.
Band aid solutions for Inequality
Most of the programs introduced to combat extreme inequality and to sustain democracy have been band-aid solutions. The proof of failure rests is in the inequality statistics. More for public relations purposes to show the world that there is a commitment to democracy and social justice, band-aid economic solutions have always had the goal of preserving the political, economic, and social status quo. We continue to see such band-aid solutions until the present. Greece is the latest example because it has captured world headlines in the last five years owing to its inability to service the public debt and the reality of its technical bankruptcy causing ripple effects in the euro zone. Austerity policies combined with neoliberal ones de-capitalized Greece, as capital transferred out by the billions from both the public and private sectors from 2010 until the present.
Once the credit dries up and domestic and foreign capital have fled, IMF loan conditionality entails securing new loans to finance servicing existing debt. The result for Greece has been GDP reduction to the tune of 25% annually or $70 billion annually from 2010 to the present for a total of $350 billion. This resulted in gross uneven income distribution and social inequality, not just for this generation but for the next one as well. On 19 March 2015, the instruments of austerity and neo-liberalism came along and offered $2 billion euro for the “humanitarian crisis” that austerity and neo-liberal policies created in the first place.
In making the announcement for the humanitarian aid that amounts to 1.2% of Greece’s annual GDP, EU Commission President Jean-Claude Juncker stated that the money will actually go to help some of the hard-hit companies and targeted groups. First, monetarist and neoliberal policies causes the banking crisis, second the middle class and workers are asked to pay for it, third comes another dose of austerity, and finally, adding salt to injury come the band-aid solution for the poverty holocaust to demonstrate that there are systemic mechanisms to address worst case inequality scenarios.
The global rising inequality has been responsible for sociopolitical instability from Nigeria and Yemen where radical Islamist groups are engaged in guerrilla war to the Middle East and Philippines. Rise in income inequality will continue to have social and political implications and cause instability and further weaken the world political climate and economy as the UN has warned to the shrugs of the richest nations responsible for the crisis of capitalism. There have been calls by both governments and non-profit organizations that poverty will inevitably rise rather than drop. From the inner cities of the US to sub-Sahara Africa, inequality is rising amid governments' sole focus on the health of the market controlled by those at the top of the socioeconomic ladder.
To circumvent the criticism that they are violating the social contract of public accountability, democratic governments have been using the strategy of co-optation and piecemeal approach to social justice. To divert attention from the systemic inequality, governments have embraced social and cultural issues, while categorically rejecting the inequality issue as core to the political economy. The cultural and social issues include using the issues of racism, sexism, gay bias, environmental degradation, ethnic and religious hatred. Committed to providing women, minorities, gay people, and environmentalists with “equality of opportunity” access, the institutional structure has made these part of the political correctness arena, thus silencing critics about inequality in society.
As long as a small percentage of non-whites, women, gay people, people of all faiths and environmentalists have a stake in capitalism, then why does the larger issue of inequality need to be addressed? If Obama can become US president, how can there possibly be a problem of inequality, racism and social justice in America? OK, so there are the intermittent shootings of block youth, the reality of blacks as the majority populating prisons, suffering higher unemployment and lower income as a whole. But at least there is equality of opportunity! If a Muslim Arab can be a European bank executive, how there be systematic discrimination at the workplace against Muslim workers and vast income inequality in every country from Greece to the UK? In other words, class transcends religion, race, ethnicity, gender, etc, so there is no need to focus on inequality of the entire society. As long as a democratic society demonstrates tolerance for gay people, minorities, women, and even those Green Peace environmentalists causing trouble for Shell Oil, well then what else can a democracy do?
While gender, ethnic, racial and religious prejudice and discrimination are integral parts of social inequality, breaking them apart from the class structure category is an attempt to de-legitimize the more universal issue of systemic inequality and break the solidarity of all oppressed groups by vying them against each other. Women’s issues are only about women as though the millionaire woman in Manhattan is in the same category as the cleaning woman in Detroit; as though the African-American insurance executive is in the same category as the unemployed teen in Manila; as though the Hispanic female owner of her own bottling franchise company is in the same category as her white maid.
These are very old distractions of bourgeois politicians and apologists of the political economy. However, they became pronounced after the Civil Rights and women’s movement of the 1960s and co-optation has worked well in the last half century. If progress had been made on these issue of minority rights one could argue that perhaps it was well worth it. But the record speaks for itself on the socioeconomic status of the vast majority of minorities.
Social discontinuity is not around the corner as some would like to believe any more than revolution that would overthrow capitalism. Even when it is unfolding with society showing strains in all institutions, the vast majority of the population will not notice that anything unusual is taking place. When social discontinuity was unfolding during the transition from the Fall of Rome to the Medieval World, from the feudal-manorial mode of production to commercial agriculture and long-distance trade people simply went about their lives as though society was “normal”. The transition from the capitalist world economy to a new mode of production will evolve gradually and over the course of many decades if not centuries.
Social discontinuity on a world scale will not come as a result of a single national uprising, a spectacular revolutionary uprising, and it will not come because reform movements that attempt to rationalize capitalist democracy have failed. The entire world system would have to collapse from the core outward to the periphery for social discontinuity to take place. Because of the system’s interdependence and close integration as a global one, it will collapse altogether, rather than national capitalism falling in one country while another thrives under the market economy. The glaring absence of social justice, the wide gap between rich and poor will invariably precipitate political instability as we have seen in the last fifty years. Besides internal conflict and political instability, capitalism in its pursuit of more markets will mean more regional conflicts, more instability and greater tensions between countries.
If there is a rise in inequality and less social justice despite the promise of democracy, why then does capitalism survive and thrive not just in authoritarian societies but in open ones where pluralism exists? Mechanisms of social control part of which is indoctrination and distraction are among the answers and explain in part why social discontinuity will take a long time to evolve. Clearly, religion redirecting peoples’ focus from the material world to the spiritual has always been the most powerful and enduring mechanism of social conformity. However, in modern society secular ideology along with religion is the basis for mass indoctrination as expressed endlessly not just through the mainstream media, but all institutions from educational to social clubs.
Focusing on foreign conflicts, potential enemies, and domestic violence against societal harmony are among the ways of the state engendering conformity. As long as there are larger enemies and the culture of fear thrives, people become convinced that the inequality and lack of social justice may not be as significant. Therefore, nationalism as a secular religion and at the core of the hegemonic culture has always helped to keep people docile and resist calls of critics for social progress.
Clearly, one would have to blind not to see that in the last five centuries capitalism has perpetuated the hegemony of the privileged elites enjoying dominant influence in every sector of society, from the political arena to the judicial system to at the expense of the rest of society. Capitalism has at its core the value system of greed feeds on the base human proclivities. This is learned behavior, conditioned by the hegemonic culture that keeps capitalism alive. We learn to worship the culture of materialism, to believe there is nothing else more important in life than devoting one’s life to working and shopping and to self-aggrandizement and atomism at the expense of the community. In paying tribute to his fellow human beings that work and create, that helped to shape his character and life, Albert Einstein was correct that we are indeed social animals, as Aristotle had observed centuries ago, as everyone of us recognizes stepping outside our home, no matter what the dominant culture teaches and how alienating the new technology is trying to make human beings.
As social animals, we are part of a collective totality. We are not sitting on some mountaintop all alone hunting and gathering in the manner of our ancestors 15,000 years ago. We have a social responsibility and that cannot be anything short of a collective response through policy to change the injustice of society. In the age of no places left to exploit in the same manner as in 19th century Africa, capitalism has turned inward focusing as much on exploiting labor in the core regions of the West as in the periphery of Asia, Latin America and Africa. Frank Fanon’s Wretched of the Earth dealing with French colonial rule in Algeria and the broader issue of Western colonial and neo-colonial exploitation of non-Western countries continues to have relevance in the early 21st century as the world has become socioeconomically and geographically polarized although we are no longer living in the age of colonization. As difficult and as radical as Fanon’s solution may sound about grassroots action, the concept of “redemptive violence” may not be as far off as we believe to correct the injustices of social, political, and economic inequality.
With the inevitability of periodic short recessionary cycles, and perhaps one or more very deep and long recessions in the 21st century, how likely is it that the economic and political structure will be able to be sustainable and the road to social discontinuity averted? If the state were to withdraw its massive support from the private sector the capitalist system would begin to collapse and we would be well on our way toward social discontinuity.
Social discontinuity will eventually take place, just as it did when the feudal/material system gave way to capitalism. While we are not near the collapse of capitalism and democracy in the early 21st century, I would not be as confident if the transition of social discontinuity accelerates toward the end of the century. The revolutions of the 20th century that took place in underdeveloped and dependent countries exploited by the West and/or Japan – Russia, China, Vietnam, and Cuba – were social but also national expressions against foreign exploitation and assertions of national sovereignty and determining their future without foreign hegemony. All of them had weak state structures with a weak national bourgeoisie and a strong foreign capital, military and political influence. In short, the social revolutions were combined with nationalism as catalyst for popular mobilization that transcended class.
As the developed countries – G-7 – are becoming increasingly socioeconomically polarized, and “Third World” phenomena manifest themselves in the “First World”, the signs of social discontinuity are present as much in the US and UK as they are in developing nations. For those in the bottom of the socioeconomic scale in advanced capitalist countries, health, education, housing, the criminal justice system, and quality of life in general is not much different than it is for those in countries trying to develop their economies. Not just the polarization widening, but the state becoming increasingly authoritarian and institutions increasingly marginalizing the masses will create the new dynamics for social discontinuity.