What have the Super-rich and income-inequality got to do with the economic crisis? A great deal! The return of the rich over the last four-decade has been closely associated with developments in capitalism. Most important has been the rise of a new political economic orthodoxy called neoliberalism. In Why We Can’t Afford The Rich, Professor Sayer argued that what caused the 2008 financial crisis is not just about financial system breakdown, at the deeper level, what underpins and generates such crisis is the very architecture of our economy – Capitalism’s innate crisis-prone nature. The root cause caused 2008 financial crisis have much to do with the deregulation and spectacular growth of finance, which are central to neoliberalism, further gear up Capitalism to its most destructive mode. Government policies have aggressively altered to allow the rich get most their income by using control of assets like land and money to siphon off wealth that others produce. With the increasing dominance of the economy by finance – ‘financialisation’, as it’s sometimes called – the rich have become far richer than before by expanding these sources of unearned income.
The richer people are, the ore of their wealth tends to be in financial form – shares, bonds, and other financial investments. The riches 1000 people have become vastly more wealthy over the last 18 years and, after a brief post-crisis dip, have bounced back to become even richer. In 2014 Britain had 104 billionaires, compare with just 53 in 2010. In the US, Emmanuel Saez found that in the 2009-2011 ‘recovery’ the 1% actually gained at the expense of the 99%. So it certainly wasn’t a recovery for the vast majority. Just in 2009-10, the top 0.01% captured 37% of this additional income, gaining an average of $4.2 million per household. The wealth of the top 400 US households equals that of the bottom 50% of the population. Globally, according to the Bloomberg Billionaires website, the top 100 billionaires controlled $1.9 trillion in 2012, adding $240 billion that year. Oxfam calculates that just over a quarter of this – $66 billion – would have been enough to raise everyone in the world over the $1.25 per day poverty line.
Although only a minority of the super-rich around the world list their specialty as finance, most of those in non-finance business are nevertheless also heavily involved in finance, in playing the markets and making deals and, of course, steel, power or telecommunications companies and the like are chosen for financial gain. As a result of highly concentrated wealth in the hand of a small group of people, their surplus capital floods the economic system. On the other hand, the majority does not have purchasing power to enable the economic proper function. Do you have any wonder why there are credit crunch, why the system collapsed?
Neoliberal policies and practices are injustice and morally corrupted. In this system, the rules and regulations are set to allow the rich to take advantage of others by means of unfair financial practices, that extract wealth other people produced and to dominate society for their interest. This is not only unjust but profoundly dysfunctional and inefficient, and it creates inhumane, rat-race societies. The legitimacy of neoliberalism and its policies should be put under scrutiny. The problem of the Super-rich isn’t just a matter of quantity of their income or wealth engulfing the rest of society, but one of qualitative difference – where and how they get the money from.
Most basically, we need to remember something that has been forgotten in modern mainstream economics: economics is about provisioning. As anthropologists and feminist economists have reminded us, it’s about how societies provide themselves with the wherewithal to live. Provisioning requires work – producing goods, from food and shelter through to clothes and newspapers, and services, such as teaching, providing advice and information and care work. What we think people should justifiably get or contribute is one thing, and what they can actually get is another. Justifications and explanations are usually different. Why do the CEOs of big companies pay themselves such vast amounts? Because they can. Equally, when we ask why care workers get so little for doing work that clearly benefits people, the answer is because that’s all they can get, given their limited power. Many of the defenses of existing economic institutions are surprisingly weak, but particularly if people start treating those arrangements as natural – as ‘just how things are’ – they can persist on he basis of power.
Mainstream economics takes the particular features of capitalism – a very recent form of economic organization in human history – as if they were universal, timeless and rational. It treats market exchange as if it’s the essential feature of economic behavior and relegates production or work – a necessity of all provisioning – to an afterthought. It also focus primarily on the relationship between people and goods (what determines how many oranges we buy?) and pays little attention to the relationship between people that this presupposes.
Have the rich got richer because those at the top have become more enterprising, dynamic wealth creators? Are today’s capitalists – or entrepreneurs, as they like to call themselves – so much better at leading economic development than their more moderately paid predecessors of the post-war boom? The economic data suggest the opposite. Growth rates have been slower than in the post-war boom. The rich are clearly not taking the same share of faster growth, but an increasing share of slower growth.
The rich are not only getting a bigger proportion of nations’ gross incomes, but keeping more of it, thanks to massive drops in top rates of taxation. The top income tax rate 1900-2013 clearly show the picture. From the 1930s onwards, tax rates on the rich soared, topping 90% in the UK, US, France and, briefly, Germany. It’s hard to believe this now when they have fallen to less than 50%, with many governments repeatedly trying to drive them down still lower. The sky did not fall down when top rates of tax were high, indeed the economies of these countries boomed at the time, yet we are now told in severe tones that taxing the rich merely restrains growth. Trump’s administration 2017 tax cut further dropped the top bracket from 39.6% to 37%.
We are now experiencing the deepest recession since the Great Depression of the 1920s and 1930s, but whereas then the reaction under the US New Deal was to impose high taxes on the rich and tightly regulate finance, this time round neither o these things is happening on either side of the Atlantic. The rich have got away with it and the financial sector is free to do more damage again.