Wednesday, July 3, 2019

MORE OF THE SAME


What is to be done about the extreme and increasing inequality of income and wealth that characterizes, and is structurally integral to, capitalism?  What indeed?

First, a brief clarification of my allusion to the 1932 work of Berle and Means.  In The Modern Corporation and Private Property, the authors describe the transformation of relatively smaller owner-operated companies into modern huge joint stock limited liability corporations in which legal ownership of the corporation, in the form of shares of stock, is divorced from management of the corporation and widely dispersed.  The effect of this transformation is to isolate the managers from the control, oversight, or even periodic review by the legal owners of the corporation, who are numerous, more or less anonymous, and completely divorced from corporate decision making.  This divorce in practice extends even to decisions concerning how much of the corporation’s profits will be distributed as dividends.

Liberated from owner oversight and control, chief executive officers [who are, it is sometimes difficult to remember, employees] have in the past fifty years raised their salaries from roughly 20 times that of the typical production worker in 1965 to more than 370 times today.   By and large, corporate managers have large stock holdings in the companies they manage because they are corporate managers; they are not corporate managers because they have large holdings of stock in their corporations.  For example, Rex Tillerson, our recent and unlamented Secretary of State, joined EXXON as a civil engineer in 1975 and ascended to the top position thirty years later.  He is worth [in one sense of that term] $300 million, all of it coming from executive compensation and stock options.  [Do not be misled by Bill Gates, Mark Zuckerberg, Jeff Bezos and their ilk.  They are the exception, not the rule.]

Now to the question at hand:  what can be done about the inequality in the distribution of income and wealth? 

Income first, because it is easier conceptually, as well as politically.  There are two ways to reduce income inequality, both of which in fact are currently being done, albeit inadequately.  The first way is to pay people more for the jobs they do.  The second is to leave their pay alone but take from the rich and give to the poor [or at least to the less rich].  In short, minimum wages laws and income transfers.  These work, they really do, and we ought to do a great deal more with them.  I won’t bother to list all of the possibilities.  I assume you are familiar with them.  But let us be clear.  Neither pushing up wages nor increasing transfer payments will eliminate large scale inequality of income.  They will simply make things less bad.  Don’t get me wrong.  Less bad is good, and it may be, as Paul Newman says, all we are going to get.  But still.

Wealth, on the other hand, is a bitch.  Without touching the basic structure of capitalism, there are three ways to reduce wealth inequality.  The first way is to help those who have little or no wealth to get some, most easily by assisting families to own their homes, so that the equity they build up as they pay off their mortgages becomes a form of personal wealth that can be used as collateral for loans or to pass on to one’s children.  As I argued in the third chapter of my little book, Autobiography of an Ex-White Man, the federal government’s deliberate encouragement of White home ownership and discouragement of Black home ownership after the Second World War contributed to the astonishing difference by race of the household wealth of families with comparable wages and salaries.

The second way is to tax the wealth [not the income] of the wealthy, as for example the French do, and use the receipts to redistribute the wealth downward in the form of tax rebates, transfer payments, or services in kind.  This reduces the wealth of the wealthy and increases the income of the poor.

The third way is to impose confiscatory inheritance taxes on large estates to interrupt the intergenerational transfer of wealth.  As a rule of thumb, we might prohibit anyone from leaving at his or her death more than an amount equal to a thousand years of the median household income, which would tax away everything in an estate above $58 million dollars.  Seems reasonable.

The last of these ways of addressing wealth inequality would generate vast amounts of government tax revenues, which could be used to finance a substantial minimum individual income underwritten by the state.  This would at the least undermine patrimonial capitalism.
And that is it.  As Porky Pig says at the end of a Loony Tunes cartoon, “Th-Th-The, Th-Th-The, Th-Th... That's all, folks!"

Tomorrow I will say something about the shaky rationale for wage and salary inequality.

5 comments:

  1. I agree with the thrust of what you are saying.

    But I worry about a state-imposed "solution". This will be seen as robbery by the rich. You can say "yeah, but they robbed to get what they have". But still, it is another robbery and I vaguely remember a pithy saying "two wrongs do not make a right".

    I think you have to go deeper. Real change comes from the people and that means a social change based on attitudes, world view, ethics, etc.

    I think we need a new morality which shuns displays of wealth as vulgar. Instead we need to value public-spiritedness that encourages the rich to "give back" to society. That may sound wimpy, but it avoids the call for a top-down "taking".

    People need to shun the rich instead of idolizing. They need to question "what have you done to deserve what you have?" and to ask "how are you showing your gratitude to the wider society for the opportunities you've had to enrich yourself?"

    My path is the harder path. But it avoids what history has taught us so many time: violence begets violence. Using the law to force somebody to do something is just another kind of violence. The state is an instrument of power to force people to do things. I prefer a world in which, as anarchists, we collaborate to build a better future. Of course I'm utopian! But all radical change is utopian.

    The route of changing minds, education, inspiring, and encouraging from the ground up is labourious, painful, slow, and probably won't work. But at least it doesn't sew the seeds of hatred and violence.

    You can dismiss me as naive. So be it. But I worry that seizing the reins of power and forcing a viewpoint without the backing of the overwhelming majority will only cause resentment and violence.

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  2. By the way, in the company that I worked at I would stand up at company-wide meetings and make clear my dislike for how the CEO and his crony executives were paying themselves exorbitant bucks. He labeled me a "communist". I got a chuckle at that because I was an "anarchist". My outspoken views got my career "side-lined" but if more people would speak up and shame those on top, change would come. The problem is too many buy into being "at the top of the pyramid". But the effort to "get to the top" changes people. You see it in politicians. Some start out with a good heart, but the little compromises on the way up the ladder means they sell out by the time they get to the top.

    The only solution is to flatten the pyramid. Our culture should celebrate ideas, honour, virtue, good deeds. Not greed, not accumulation, not lies. It will take a really deep cultural change to make that happen.

    You were/are deeply involved with South Africa. You saw how a person with good ethics, Nelson Mandela, moved a people's movement from hate-filled attacks to one which when it took power held used the route of "truth and reconciliation" instead of vengance and violence. Of course post-Mandela his party has become corrupted because it is built around a hierarchy. But it in its own small way was a demonstration that there is a "better way", just as the short-lived anarchists communes in the Spanish Civil War demonstrated that there was a better way.

    I like reading your blog because I can see that you have a good heart. Keep it up! I'm a happy reader!

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  3. Prof, By "This would at the least undermine patrimonial capitalism. And that is it", do you mean that the third way of addressing wealth inequality will undermine ONLY "patrimonial capitalism" (but not capitalism, per se)?

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  4. By and large, corporate managers have large stock holdings in the companies they manage because they are corporate managers

    This is right, and important, but it's also worth asking _why_ top corporate managers are often compensated in stock, to a significant degree, as opposed to wages. One reason seems, on its face, perfectly reasonable: managers compensated in stock will have a strong incentive, we might hope, to make the company perform well, thereby helping to solve the principle-agent problem inherent in the modern corporation. Unfortunately, as I am sure I need not tell people here, this hasn't worked exactly as planned, for a number of different reasons. The second reason to be compensated in stock rather than wages is less clearly plausible - it can often have significant tax advantages. There can sometimes be good reasons for these tax considerations, so I wouldn't want to eliminate them completely in one swoop. (Promoting investment is often good, for example.) But, many of them serve to protect the wealthy from paying their reasonable share of taxes. Fixing this is a large practical problem, but not a large problem in principle.

    On wealth inequality, let me recommend my friend Daniel Halliday's recent book, _The Inheritance of Wealth: Justice, equality & the right to bequeath." It's more sympathetic to luck egalitarianism than I am, but is clear, short, and has both nice normative arguments for large inheritance taxes and practical discussions about how to make them work. It would be well worth people's time.

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  5. High taxes don't make sense to me. Inheritance taxes, limiting of wealth doesn't really makes sense to me. Luxury taxes make sense to me. If an "owner" invests their money well, this is good for the economy. If they invest poorly, they lose money, or there is an opportunity cost from another investment they could have made. If someone is a billionaire, but 999 million of it it's in stock options, what does anyone care?

    It's only liquidation transformed into 2nd homes and Ferraris that bothers me. when someone buys a 200k car when that could be given to 10 families at 20k.

    I like 0% capital gains tax and 0% corporate tax, 100% tax on a second home.

    Of course then they just but a private jet and a home in Chile.

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