Monday, October 17, 2011

Is Inequality Breeding a Contempt for Democratic Institutions?

John Robb writes:

The real reason we are seeing this movement right now is because Capitalism, the last great ideological system, is in crisis.

This isn't merely a crisis of outcomes (economic depression, financial panic, etc.), it's a crisis of BELIEF. While people generally believe in the idea of capitalism, a critical mass of people now think that the global capitalist system we currently have is so badly run, so corrupt, so terrible at delivering results that it needs either a) a complete overhaul or b) we need to build something new.

It’s important to note that the massive rise of inequality is not exclusively an American problem. It has happened all across the world. Even societies that are still growing such as China and India are experiencing massive inequalities, leading to social unrest. This is inherent to unregulated Capitalism: the rich get richer, the poor get poorer. Stein’s law holds: what cannot go one forever must stop. When will inequality stop growing? When the elites own it all? Or when a revolution resets the clock? Is there even a third option anymore? As Kennedy famously said, those who make peaceful revolution impossible make violent revolution inevitable.

This blog post documents this trend:

This Wikipedia post on economic inequality is enlightening:

Some facts from the article:
  • A study by the World Institute for Development Economics Research at United Nations University reports that the richest 1% of adults alone owned 40% of global assets in the year 2000, and that the richest 10% of adults accounted for 85% of the world total. The bottom half of the world adult population owned barely 1% of global wealth.
  • "The richest 1 percent of people in the world receive as much as the bottom 57 percent, or in other words, less than 50 million richest people receive as much as 2.7 billion poor."
  • The three richest people possess more financial assets than the poorest 10% of the world's population, combined.
  • As of May 2005, the three richest people in the world have assets that exceed the combined gross domestic product of the 47 countries with the least GDP, (calculation based on data from list of countries by GDP (PPP) and list of billionaires).
  • 1% of the world population own 40 % of the global assets. The richest 2 % of the world population own more than 51 % of the global assets, the richest 10 % own 85 % of the global assets.
  • 50% of the world population own less than 1 % of the global assets.
  • 1.125 Dollar-Billionaires own 4.4 trillion US$. They own 4 times more than the 50% poor people of the world.
  • Over 80% of the world population lives on less than 10 US$/day; over 50 % of the world population lives on less than 2 US$/day; over 20 % of the world population lives on less than 1.25 US$/day.
  • The top 10 percent of the US population has an aggregate income equal to income of the poorest 43 percent of people in the world, or differently put, total income of the richest 25 million Americans is equal to total income of almost 2 billion people."
This New York Times article is critical. It discusses the fact that around the world, there is growing contempt for the ballot box. People no longer believe voting changes anything. As George Carlin once opined, if voting changed anything, they would have made it illegal.
Hundreds of thousands of disillusioned Indians cheer a rural activist on a hunger strike. Israel reels before the largest street demonstrations in its history. Enraged young people in Spain and Greece take over public squares across their countries. Their complaints range from corruption to lack of affordable housing and joblessness, common grievances the world over. But from South Asia to the heartland of Europe and now even to Wall Street, these protesters share something else: wariness, even contempt, toward traditional politicians and the democratic political process they preside over.
They are taking to the streets, in part, because they have little faith in the ballot box. “Our parents are grateful because they’re voting,” said Marta Solanas, 27, referring to older Spaniards’ decades spent under the Franco dictatorship. “We’re the first generation to say that voting is worthless.”
Economics have been one driving force, with growing income inequality, high unemployment and recession-driven cuts in social spending breeding widespread malaise. Alienation runs especially deep in Europe, with boycotts and strikes that, in London and Athens, erupted into violence. But even in India and Israel, where growth remains robust, protesters say they so distrust their country’s political class and its pandering to established interest groups that they feel only an assault on the system itself can bring about real change.

The whole article is fascinating worth reading. This seems to fit well with Robb's description of the rise of the hollow state. The failure of democratic institutions is being openly acknowledged around the world, not just in America. What’s fascinating to me is that the behavior of Western liberal democracies is increasingly indistinguishable from non-democracies like China and the former Soviet Union. It seems that the state needs to coerce people more and more to keep the economic system functioning. This is what I have termed authoritarian capitalism. It seems that democracy and capitalism are incompatible. Here’s why: Capitalism is designed to benefit the holders of capital, which is always a tiny minority of society. Liberal democracy, by contrast, is designed to benefit society as a whole, that is, all of us - the majority. As capital has become more concentrated, and more global, it has become more oppressive. Holders of capital now wield almost dictatorial control over economies, and because their fortunes are fluid and transnational, they are a new power elite beyond the reach of government institutions, yet with power over them.

Here’s another reason democracy is failing: The economic system exerts much more control over your daily life than does the political system, yet we as individuals have little to no control over the economic forces that rule our lives. While centuries of battles were fought to put the political system under control of the people, i.e. liberal democracy, the economic system has followed no such trajectory. The economic system favors centralized control and eschews democratic participation. And due to its basic premises, economic control has become more and more concentrated, as concentrated as political power was in your average dictatorship or feudal arrangement. People fell they have no control over their economic lives anymore. Even business owners are subservient to larger forces that interlock. For example, if the president of a country does not pay bond holders, capital will flee a country causing its economy to crash. Who’s really in charge here, the president, or the capital holders? The people can elect the former, but not the latter.

The second factor is, the political system has become subservient to the economic system. Paying off bond holders, keeping banks solvent, settling international accounts, attracting capital flows, keeping currency stable, and protection from speculative attacks; all this has become more important than the general welfare of the people under democratic governments. Under capitalism, the former are often hostile to, or in opposition to the latter. Thus, even though democracy is under public control, concentrated economic power has consistently undermined democratically elected governments. This is most egregious in the United States, where politicians are bought and sold due to the revolving door and campaign contributions. Politicians are often actively hostile to the general welfare. Rather than high wages and a social cohesion, politicians actively work to undermine social cohesion and create a society with low wages, high unemployment, and poor job security to benefit their paymasters. They remove regulations that benefit society. Then they construct and ex-post-facto explanation about how this benefits everyone (you’re no longer “dependent” on government, the “free market” solves all problems, etc.).

Related: here’s a good analysis from the NYT Economix blog:

As a poster I admired at the park last Wednesday succinctly put it: “We want democracy, not plutocracy.”

The protesters don’t necessarily demonize the top 1 percent or suggest that taxing them at a higher rate will balance the budget. What brings them together is the conviction that this group exercises disproportionate control over our economic and political life.

Republicans seem to confirm this view when they assert that higher taxes on millionaires would stunt employment growth – as though a small reduction in disposable income would demoralize otherwise mighty job creators.

What seems to be emerging is what the historian Gar Alperowitz described as a process of “evolutionary reconstruction.” It might start by making capitalism more distinct from feudalism.

This idea came to me while reading about a great new product that just hit the market: a $6,400 toilet with its own remote control for water spray and drying fan. Marie Antoinette would have loved it for Versailles.

Whether the ramparts are breached or not, I predict a long and fascinating siege.

Inequality, economic and social, will be the central theme of this era of human history; 2010 – 2100.

Incidentally, how did unequal, hierarchical societies become the norm? Why were egalitarian societies pushed aside? Perhaps military conquest has something to do with it. This important study takes a look at that:

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