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.