In his article ‘America’s economy is a nightmare of our own making’ former secretary of Labor in the Clinton administration, Robert Reich, describes increased inequality in the USA. He concludes that the increase in inequality is the product of a heightened concentration of political power in the corporate and financial elite. It is this concentration of political power which has led to the transformation of very the rules by which the market runs.
This transformation in political power has deep repercussions. It means that traditional social democratic solutions such as increasing taxes on the wealthy, increased investment in education and redistribution to the needy, while still relevant, miss a fundamental point- they do not really address the transformation in the fundamental power relations which determine the rules by which the market operates.
Reich is hardly the first to point to the problems caused by concentration of political power in the US corporate elite and its effect on the rules of the economy. In 2005 the largely pro-capitalist and pro free trade economist Jeffrey Sachs criticised the anti corporate animus of the anti globalisation movement. But he qualified this criticism by stating:
“There is nothing in economic reasoning to justify letting the companies themselves set the rules of the game through lobbying, campaign financing and dominance of government policy”.
By 2012 Sachs had stiffened his position still further. He criticizedthe takeover of political power in the USA by a ”corporatocracy”. This comprised primarily four economic sectors: the military industrial complex, Wall Street financial firms, big oil and the private health care industry.
Sachs could easily have added the industrial food complex to the mix. This is an industry which has successfully lobbied the US government to maintain corn and other agricultural subsidies, contributing to an array of health, animal abuse and environmental problems.
In his article Reich rejects the notions that increases in inequality in the USA have arisen largely from technological change and globalization. He points to the disparity between productivity increases and median wage stagnation having commenced in the late 1970’s and early 1980’s before the deeper impacts of technological change and globalization had arrived. He then comprehensively lists the policy changes supported by the financial elite that have transformed the rules of the market. These include:
- Enlargement and extension of intellectual property rights—patents, trademarks, and copyrights, creating windfalls and increased monopoly concentration, as well as higher prices for consumers, especially in pharmaceuticals, high tech, biotechnology, and many entertainment companies.
- Relaxation of anti-trust laws which have increased profits for Monsanto, a handful of companies with significant market power over network portals and platforms (Amazon, Facebook, and Google); for cable companies facing little or no broadband competition and for the largest Wall Street banks, among others.
- Abandonment of financial regulations introduced after the great depression, allowing the largest Wall Street banks to acquire unprecedented influence over the economy spawning junk-bond financing, private equity and “activist” investing, and the notion that corporations exist solely to maximize shareholder value.
- Loosening of bankruptcy laws allowing large corporations—notably airlines and automobile manufacturers—to abrogate labour contracts and threaten closures unless they receive wage concessions, and leave workers and communities stranded.
- Bailouts that have shifted the risk of large corporate failure onto the backs of average working people and taxpayers.
- Alteration of contract laws so that mandatory arbitration before private judges selected by big corporations is required.
- Relaxation of securities laws facilitating insider trading.
- Changes to tax laws creating loopholes for the partners of hedge funds and private-equity funds, special favours for the oil and gas industry, lower marginal income-tax rates on the highest incomes, and reduced estate taxes on great wealth.
- Trade agreements that have encouraged American companies to outsource jobs abroad.
- Austerity policies that place a higher premium on reducing budget deficits than stimulating the economy and reducing unemployment.
- The demise of unions with those firms that are unionised placed at competitive disadvantage with little on or ineffective enforcement where workers are sacked for joining a union.
Though Reich describes increased inequality and the policies that have contributed to it, he sees substantial obstacles in the way of a solution. He says, for example, that education is no panacea, pointing to decline in graduate incomes and increase in unemployment of graduates in the USA. He says that it is necessary to reverse the upward distributions within the rules of the market and to give workers greater bargaining power. But he acknowledges that “neither will be possible as long as large corporations and Wall Street have the power to prevent such a restructuring”.
In the end Reich concludes that any “solution” is political, not economic:
“Ultimately, the trend toward widening inequality in America, as elsewhere, can be reversed only if the vast majority, whose incomes have stagnated and whose wealth has failed to increase, join together to demand fundamental change. The most important political competition over the next decades…will be between a majority of Americans who have been losing ground, and an economic elite that refuses to recognize or respond to its growing distress.”
The growth in inequality is not as dire in Australia as it is in the USA. But it is still increasing. A recent Oxfam report states that the richest 1% of Australians owns the same wealth as the bottom 60%. Australia’s richest person owns more than the bottom 10% of the population combined (2.27 million people) and the nine richest individuals have a net worth of US $54.8 billion, more than the bottom 20% (4.54 million people). Some (though hardly all) of the policies that Reich points to as being responsible for increased inequality in the USA have been followed in Australia . There is a risk that more may follow.
So what should the ALP do?
There is unlikely to be any spontaneous movement in Australia towards reducing inequality without political leadership. The issue needs to be placed on the political agenda and people need to be engaged. How might this occur?
A start may be for the forthcoming National Conference of the ALP to adopt a policy that, upon being elected, Labor will launch a comprehensive inquiry into inequality. It might be called something like ‘Growing Inequality- causes and its solutions’.
This inquiry could include an audit of the policies that Reich points to above as having exacerbated inequality in the USA, and the extent to which they apply to Australia. It could also include research into community attitudes to inequality: What is the community’s understanding of the extent of inequality in Australia and what levels of inequality do most Australians regard as being tolerable? In articulating the need for such an inquiry ALP leaders could refer to the growing instance of inequality in the USA and the need to ensure that Australia avoids these outcomes and reverses them to the extent that they have already occurred.
It might be preferable for such an inquiry to focus on economic inequality and the power structures that contribute to it. This might be the correct emphasis and a big enough area in itself. Increasing (generational) inequality in access to housing is almost certain to have to be considered as the Australian Bureau of Statistics has identified that home ownership remains central to the wealth position of most Australians. But the question of whether social inequality should be included requires consideration. So too does the issue of whether some of the rather disturbing biotechnological challenges to equality that lie ahead in the not too distant future, require examination. You can read further about those here.