Selected Chapters from: Wealthy Elites, Crises and Economic Democracy. New Alternatives Beyond Neoliberal Capitalism

*Do not cite or reproduce without the author’s permission

Chapter 1. Introduction and Guide to the Book

Since the 1980s and 1990s we live in a variant of capitalism --dominant in the US, the UK, Russia, to an extent in China, Chile and a score of other countries -- that embraced policies of privatization, market deregulation, globalization, denationalization and financialization as the engines for growth and modernization. This variety of capitalism, often called neoliberalism, shows the following main features: (i) in prevalence, in really existing capitalism, of monopolistic markets, dominated by oligopolies and big conglomerates in key economic activities, (ii) the legitimation of the profit motive over other motivations such as solidarity and altruism as the fundamental mechanism to encourage wealth creation and redistribution , (iii) a reduced role of the state as producer, regulator and redistributive agent, (iv) a significant concentration of economic power and political influence in small but powerful economic elites, in other words a strong dominance of capital, (v) a weakening of the influence of labor unions and a decline of labor shares in national income, (vi) a control of the mass media and other mechanisms of knowledge production and dissemination by private interests and economic conglomerates, (vii) a democratic process of low intensity with reduced citizen participation and strongly permeated by the influence of big money and interest groups.

The adoption of neoliberal policies has been accompanied, in the economic and social realms, by irregular growth paths, large inequality of income and wealth, a sharp internal differentiation of the middle class generally considered as a stabilizing segment in society, the fragmentation of entrepreneurship, an increase in the frequency of economic and financial crises, the globalization of elites and a rise of migration in highly segmented global labor markets.

The leading actor of the new play is rich economic elites. This segment, popularized as “billionaires” by publications such as Forbes magazine or the top 1 percent, has strived in dynamic sectors of the economy such as technology, finance, telecommunications, energy, media, entertainment and others. In today´s capitalism, the very rich control most of the productive and financial wealth of society. Their influence not only reaches the material realm of the economy but is also extended to the sphere of ideas, culture and the production of a “common sense” aligned with the views of the elites. As mentioned before, private conglomerates have dominant ownership of the mass media (TV, newspapers, radio networks) and other centers of production and dissemination of knowledge and cultural contents that shape social behavior and political views that are functional to the status-quo.

A countermovement to the increasing power of economic elites in the new global capitalism has been the emergence of national and global social movements that are critical of corporate-led globalization, social inequality and exclusion, unemployment, corruption and the failures of representative democracy captured by interest groups and self-reproducing political and technocratic elites. We live in fragile and complex times. On one side, there are unprecedented technological breakthroughs and new productive possibilities to raise living standards and, on the other side, we experience uneven growth, social tension in divided societies, ecological fragility and climate change.

The growing influence of the rich economic elites on democracy is a source of concern. Given their unparalleled capacity to appropriate the economic surplus generated in an economy with new and more productive technologies these elites are able to mobilize ample financial resources to influence the working of political institutions and, thus, block or neutralize, real or perceived, social demands for higher taxation, and regulation of big business and, even, nationalization of the assets concentrated by the elites, although some “business friendly” nationalization of banks in the US and UK actually took place during the financial crisis of 2008-2009.

There are several channels through which the money of the elites exerts a decisive influence on democracy. To cite the most important: (i) contributions by corporations and rich individuals to political campaigns, (ii) lobby activities to affect legislation, (iii) the ownership, funding and shaping of messages by the mass media and the advertisement industry, (iv) the mobilization of public intellectuals and academics to provide technical arguments in favor of pro-elite policies.

Nowadays the most important corporate decisions concerning investment, remunerations of CEOs, middle rank managers and workers, location of firms are made in the opacity of corporate boardrooms, which are accountable only to a small group of dominant stockholders. The lack of economic democracy of current society is, indeed, large. Consumers, workers and community members are, notably, outside the small circle of decision makers, although they are, of course, directly affected by the decisions made by economic and political elites.

This book examines the main impacts of neoliberal capitalism on the formation and consolidation of business and financial elites, the fragmentation of the middle class, the diminished role of labor, the frequency of financial crisis, the increased globalization of elites and talent mobility along with the rise of social and protest movements around the globe. The book also explores the scope for greater economic democracy as an alternative to elite-dominated capitalism.

2.1The Different Phases of Capitalism since the 19^th century: Laissez-Faire, Regulated and Neoliberal Capitalism

In the long 19^th century, the hegemonic power was Great Britain that practiced a sort of “imperial free trade” based in its colonial system, better technology, economic power and naval superiority and liberal economic doctrine. As noted by Karl Polanyi the period from 1815 to 1913 was historically unprecedented as it yielded, on the whole, international peace in Europe based on a balance of power system among various empires.

Nevertheless, the outbreak of World War I completely shattered the world-system of liberal capitalism. The breakdown of the previous economic and political order brought about by war was followed by more than two decades, until the end of World War II, of economic and political turbulence. The early 1920s were characterized by very severe inflation in Austria, Hungary and Germany and by a difficult return to the gold standard. The attempts to restore orderly trade and capital mobility were ultimately futile. A severe financial crash took place in 1929, followed then by the Great Depression and an uneven and bumpy recovery that only consolidated through the economic stimulus provided by the war effort. The 1920s and 1930s were two decades of social turbulence characterized by the emergence of virulent and destructive nationalisms, xenophobia and intolerance in the forms of Fascism and Nazism.

Towards the end of World War II, the USA and the UK, the two main global powers, gave priority to a new political and institutional settlement oriented to stabilize global capitalism, curbing its most self-destructive tendencies and consolidating international peace with the help of the newly formed United Nations, whose headquarters were placed in New York City. In turn, international monetary stability and orderly adjustment to balance of payments disequilibria was the mission of the new International Monetary Fund (IMF) with headquarters in Washington DC. In turn, assistance for economic development and reconstruction would come from the World Bank. The IMF and World Bank became part of the Bretton Woods system, under the strong influence of the US government. The Bretton Woods system, however, was not truly global as it did not include the presence of the USSR and the full new socialist block.

At national level, the post-World War II economic and social priorities in industrial countries were the provision of jobs for all, (full employment), economic security and social protection. These new priorities also reflected the demands of a population exhausted by the instability, turmoil and economic insecurity of the 1920s and 1930s.

The specifics of the new social contract of regulated capitalism varied from country to country. In the United States there were the policies of the New Deal led by President Franklin Delano Roosevelt in the 1930s, and continued, decades later, by the “Great Society” programs of President Lyndon Johnson in the 1960s. The New Deal included a series of legislation and commitments by government to ensure full employment, deposit insurance relief to those affected by the Great Depression, farm support, public work programs and the creation of institutions to promote housing acquisition by the middle and working class. New labor legislation came to place and a Federal system of social security was created to provide income for retirement along with affordable health services.¹

In Europe, several models of social welfare and policies oriented to ensure full employment were also developed. In Britain the Labor Party, in government after 1945, adopted the recommendations of the Inter-Departmental Committee on Social Affairs Report, known as the “Beveridge Report” and expanded the National Insurance System covering pensions, unemployment transfers and other social benefits, including a labor and tenant covenant and the National Health System; these programs constituted the bulk of what was the welfare state system in the UK. In France, in 1944, the National Council of the Resistance (or Conseil National de la Resistance, CNR) opposed to the Vichy regime and composed by a range of progressive parties and social movements, including the communists, draw a government program to be applied after liberation that included the nationalization of energy, insurance companies and banks, social security, the need for state planning and policies oriented to guarantee the independence of trade unions. In West Germany, in 1949, after the end of World War II, the social market economy was led by the Christian Democratic Union under the leadership of both Economic Minister Ludwig Erhard and Chancellor Konrad Adenauer. This was a model that combined market capitalism with social insurance. The social balance was to be guaranteed by the combination of active trade unions to countervail the power of capital. The German model was intended to be a third way between laissez fair capitalism of the 19^th century and state-socialism and collectivism of the sort implemented in soviet Russia since the second half of the 1920s following the Bolshevik revolution of 1917.²

We can summarize the new system of regulated capitalism put in place in America and Europa after World War II in four main pillars:

(i) Keynesian policies oriented to reduce the economic fluctuations of the business cycle and ensure full employment.

(ii) The welfare state oriented to provide social protection and access to education, health, housing and pensions to the majority of the population.

(iii) Controlled private capital markets at national and international levels.

(iv) A reasonable balance of power between organizations representing the interests of capital and labor unions.

In advanced capitalist countries the regulated system worked fairly well up to the early 1970s. This period was termed as the “golden age of capitalism” due to its economic dynamism and degree of social stability. In fact, the regulated capitalism was able to achieve reasonably high rates of economic growth, reduce inequality, maintain macroeconomic equilibrium and avoid acute social tensions and recurrent financial crises. However, the system was not completely problems–free either. In fact, by the 1960s the US economy was incubating fiscal imbalances and divergences between productivity growth and wage increases, which eventually contributed to seal the fate of the Bretton Woods parity of the US dollar with respect to gold and opened the door for a crisis of the prevailing monetary system.

2.2The Ascent of Neoliberalism.

As a first step, a group of liberals gathered in Paris in 1938 at the Walter Lippmann colloquium to exchange views and organize like-minded people around the quest for a new liberal approach. Later on, in 1947, the Mont Pelerine Society was formed in a village of that name near Lake Geneva in Switzerland. Members of that Society included figures such as Friedrich Hayek, Wilhelm Roepke, Raymond Aaron, Fritz Machlup, Willem Roepke, Milton Friedman and others. It is fair to say that neoliberalism was, in the 1940s, 1950s and 1960s, a quite marginalized current of economic thinking with little influence on public policy, even on conservative governments.

French philosopher Michael Foucault, in a series of lectures given at the College of France in 1978 and 1979 and published under the title of The Birth of Geopolitics, undertook an early and insightful analysis of several currents of neoliberalism. Foucault contrasted two forces: the logic of the “reason of state” (raison d´Etat) prevalent in Europe since the 16th century where the state constitutes both a pre-existing reality and a process of ongoing construction strengthened through economic, military, demographic and diplomatic means on one side and the quest for setting limits to the state and the Sovereign on the other. Foucault contrasted 19^th century classic liberalism and 20^th century neoliberalism regarding the relative roles of markets and the state in the economy and society and highlighted, in detail, the differences between German Ordo-liberalism associated with Roepke and Erhard and the Austrian liberals in the line of Hayek and Von Misses and American neoliberalism associated with the Chicago School of Economics of Milton Friedman, Gary Becker, George Stigler and others. Foucault draws a critical difference between the German Ordo-Liberals in both approach and actual policy recommendations and the American Neoliberals and the Austrian liberals. His accounts, somewhat surprisingly, omits British Neoliberals.

The Ordo-Liberals saw the market as embedded in a broader framework formed by moral and cultural constraints that pose social limits to its action. Incidentally, the issue of the disembodiment of the market in society under liberal capitalism and its dire consequences for society is a main theme of the classic book The Great Transformation written by Karl Polanyi, (see chapter 9).

The German social market economy built after 1945, in which the state plays an important role in the provision of social services and in the regulation of big business and high finance rested on the recommendations of Ordo-Liberalism. In contrast, Hayek and the Chicago School saw no mayor need for regulating and constraining the market and advocated for the privatization of money (Hayek), education, health, social security and the extension of the logic of the market to a variety of unconventional fields (for the action of the market) irrespective of the social consequences these extensions of the market could have on the social fabric. For Polanyi the expansion of the market to create “fictitious markets” (of labor, land and natural resources) and to social sectors (education, health) was a main cause of social disruption in the 20^th century.

In advising and supporting Margaret Thatcher in the UK, Ronald Reagan in the US and General Augusto Pinochet in Chile in the 1970s and 1980s, Hayek and Friedman obviously distanced from Polanyi and completely disregarded the social consequences of promoting the unregulated market to the largest number of possible sectors and activities for society as a whole.

Different interpretations on the nature of neoliberalism exist. In the neo-Marxian tradition³ the rise of neoliberalism since the 1970s is seen as an economic and political project oriented to restore the power of capital (capitalist class) after a period of growing ascendancy of the labor class in terms of strengthened trade unions, higher wages and squeezed profit rates. In this vein, the stagnationist and inflationary tendencies of the 1970s were, largely, a consequence of the deterioration of the power of the dominant classes to ensure adequate conditions for capital accumulation and the appropriation of the economic surplus by the capitalists.

Neoliberalism seeks to restore the appropriate conditions for an increase in the profit rate as a way to boost investment and growth. In the 1970s and 1980s the adverse “reaction of the bourgeoisie” to the welfare state, taxation, labor militancy, dirigisme and inclusive social contracts was unquestionable. Free market economics provided a useful way to revert the process of diminished business profitability and the weakened influence of capital in setting the rule of the game in the political and economic realms.

Both Harvey and Demenil and Levy, the main proponents of the neo-Marxian view of neoliberalism, show the very different nature of the financial crisis starting in 2008-2009 in advanced capitalist economies compared with the stagflations’ crises of the 1970s that also hit the core of capitalist countries. In the 1970s the problem was slower productivity growth and active labor militancy complicated by two oil price shocks (in 1973 and 1979) preceded by the end of the Bretton Woods parities. In the crisis of the 1970s, the main problem was that labor was too strong in the new macroeconomic context of adverse supply shocks and exchange rate instability.

In contrast, the crisis triggered in 2008-2009 reflected reflected too much of power of capital, in particular of financial capital. In fact, financial capitalism since the 1980s promoted rapid credit creation and debt accumulation, with both processes running freely due to a state in a sort of “neoliberal paralysis” that prevented it to take required measures to regulate, control and stop financial excesses and rampant speculation. Of course, that state activism would have affected the interests of the powerful financial elites interested in making money with minimal state interference.

In fact, since the 1980s, Wall Street, the City of London and other main financial centers pressed governments not to regulate the loan-making process and the proliferation of new, complex, financial instruments, a process that ultimately led to financial bubbles and the overvaluation of asset prices that could not be sustained over time and whose correction proved to be very costly for real economic activity, employment and the interests of working class and middle class people.

While financial capitalism came associated with exacerbated income and wealth inequality favoring financial elites and the super-rich, the non-rich had to incur in indebtedness to sustain their living standards and afford the increased cost of privately-provided education, health, housing and durable consumption.

The actual application of neoliberal policies varied among the countries upon which these programs were implemented. In the third world, a naked and ruthless version of neoliberal economics was applied in Chile in the 1970s, under the military rule of General Pinochet helped by a cohesive team of economists trained at the University of Chicago under the leadership of Milton Friedman and company. The Chilean experiment was a radicalized version of free market economics that managed to privatize not only a score of state-owned enterprises in industry, energy and public utilities but also fully privatized social security (except for the pension system of the armed forces) through a “capitalization system”. In addition, the profit motive was extended to education, health and other social activities, a step that Margaret Thatcher was unable to achieve in the United Kingdom. The political element was important too, as these experiments in privatization –or “accumulation by dispossession” -- were launched in Chile during a military regime that ruled without parliament, banned political parties, severely restrained the action of labor unions and censored the press. The military used active state-violence to push for the neoliberalization of the country, in a peculiar blend of “closed politics” and “free market economics”. Furthermore, in another unexpected twist of history, neoliberalism was further consolidated in Chile by several social-democratic governments (based on a political alliance between Socialists and Christian Democrats and other center-left parties, excluding the Communist party) that succeeded General Pinochet in 1990 and that stayed in power for around twenty years after the end of the military regime (see Solimano, 2012b).

In the first world, the application of neoliberalism by the governments of Ronald Reagan in the USA and Margaret Thatcher in the United Kingdom was somewhat more constrained by the presence of democratic institutions, at least if we compare them with the Chilean experiment, although the crushing of organized labor was not that gentle. Both conservative leaders deregulated industry, privatized important sectors of the economy, particularly in the UK, and encouraged private capital markets, curtailing labor unions and strengthening big corporations and high finance. In the USA these policies were started by republican administrations and continued by two democratic Clinton administrations in the 1990s mainly in the financial sector (the repeal of the Glass-Steagal legislation was led by two Treasury Secretaries of the Clinton administration: Lawrence Summers and Robert Rubin). As mentioned before, in the UK the Blair governments of “new labor” also maintained the bulk of free market, conservative policies started by Margaret Thatcher.

It is fair to say that neoliberalism was more popular, among the policy-circles, in Anglo-Saxon countries than in continental Europe. Apparently, France and Germany, besides the Netherlands did not got tempted, at least before the crisis of 2008-2009, to adopt the kind of free-market policies followed in the USA and the UK. In the Far East, Japan also maintained, on the whole, a healthy distance from Neoliberal policies although this country experienced a financial bubble in the 1980s followed by a protracted period of stagnation. As we shall see in chapter 2, inequality the concentration of income and wealth in the top 1 percent of the population has been more acute in Anglo-Saxon than in non- Anglo Saxon countries in recent decades.

The reach of neoliberalism also extended to other corners of the world in recent decades. It sway was strong in Latin America in the 1990 as several countries of the region moved, under the advice of the International Monetary Fund and the World Bank, to privatize state-owned enterprises, open their economies to international trade, foreign direct investment and private capital flows and stabilize inflation. Within the Latin American region, Brazil and Uruguay maintained a distance from neoliberal economics, while in the 1990s free-market economics was adhered, with more enthusiasm, in Argentina, Mexico, Peru, Colombia and, of course, Chile. In the 2000s, however, the political cycle changed again and the governments of Venezuela, Bolivia, Ecuador, Brazil, Argentina and Nicaragua adopted more nationalistic and socially-oriented policies different from the prescriptions of the Washington Consensus.

The influence of free market ideas developed in the West also extended to the former communist world helped by the action of the US government and the Bretton Woods institutions. In Russia, the first post-soviet government of Boris Yelstin privatized important parts of the gas and other natural resource activities, slashed public budgets in education, health and pensions and fired many people from the state enterprises and ministries. At the top, the replacement of the old communist-nomenclature elite by a new capitalist oligarchy was bold and swift, radically altering the existing social structure of the country. The emerging new capitalism tilted the balance of power between capital and labor in favor of the former, redressing the trend of the soviet period that was formally a “government of the working class”, of course, ruled by a communist leadership and bureaucracy.

Primitive accumulation to reinvent capitalism in Russia acquired unexpected new forms. Former communist apparatchiks and enterprise directors seized very valuable state assets and resources using obscure and non-transparent mechanisms. The voracity of the new capitalists was not counter-balanced by the institutions of a hypothetical Russian democratic state as, in the new ideological and political environment, the state largely resigned to play its key functions of producer, regulator and (progressive) redistributive agent. Similar trends were observed, with the corresponding national peculiarities, in Poland, Hungary, Czech Republic, Bulgaria and the Baltic countries.

2.3Impact of Neoliberalism on the Social Structure of Capitalism

The experience, so far, with neoliberalism and globalization highlights four main impacts on inequality and the social structure of advanced and developing countries.

1. 
   A sharp concentration of income and wealth at the top. This refers to the phenomenon discussed at the outset of this chapter and known as the “rise of the top one percent”. In countries that were pioneers in embracing the neoliberal model such as the United States the income share of the richest one percent is currently about 22 percent, in the United Kingdom 15 percent and in Chile it reached a record 33 percent. As discussed before, this trend leads to a worsening of income distribution and wealth with a sharp concentration at the top, a small group that exerts disproportionate influence and power on the economy and society.
   

(2) Heterogeneity of entrepreneurship. Free market economics affected the nature of entrepreneurship in various ways. Far from turning the economies back to the idealized 19^th century Victorian capitalism of decentralized and atomistic markets depicted in most textbooks of economics, it has deepened the dominance of corporate- monopoly capitalism in which the bulk of investment and production worldwide is carried-out directly, or through global production chains, by big corporations and multinational firms. These companies, managed by committees rather than by individual entrepreneurs, enjoy an ample command of financial and human resources, upgraded technologies, and political influence both at national and international levels. In contrast, small and medium size enterprises have a lower contribution to output generation, albeit they are more labor intensive. Entrepreneurship is quite heterogeneous: on one hand, we have highly successful technological entrepreneurs like the late Steve Jobs, Bill Gates, and Jeff Bezos, Sergei Brin, Larry Page and others. However, besides the super-stars, we have a large middle range of “opportunity entrepreneurs”, which create firms and engage in new endeavors facing limited access to credit, markets and technologies and the harsh competition and barriers posed by oligopolies and big corporations. In addition, there is a segment of “necessity entrepreneurs” that operate, mainly, in the service sector and micro-firms, with reduced financial and technological requirements and very tight access to funding. Necessity entrepreneurs often earn a rate of return that is not very different from the wage of a middle rank employee in the formal sector but subject to greater uncertainty and vulnerability. This type of entrepreneurship is certainly different from the classic “Schumpeterian entrepreneur” and resembles more an economic survival strategy at times of diminished employment possibilities, low wages and social exclusion typical of third world countries. Nevertheless, currently, necessity entrepreneurs are also present, in increasing degree, in core advanced capitalist economies and peripheral European economies such as Greece, Portugal, Ireland, Spain and Italy affected by severe economic crises, high unemployment and the destructive effects of austerity policies.

(3) Growing internal differentiation within the middle class. The middle class is also a social segment that has been affected, in various ways, by the turn to the free market, the rise of inequality and the enhanced power of economic elites. The general trend is toward increased differentiation within the middle class with some segments of the middle class benefitting from the new capitalism, while others failing to advance in the free market. On the one hand, we observe a thriving upper middle class segment composed by a brand of highly educated and well-connected top managers and professionals such as lawyers, financial experts, economists, and technology experts working for banks, big corporations and independent professionals firms. This new “technostructure”, borrowing the highly suggestive term coined by the late American economist John Kenneth Galbraith, often earns very good salaries and has access to preferential stock options and bonuses. They make the main decisions within corporations and face appealing opportunities for upward social mobility in the corporate sector, in government or in the financial sector.

On the other hand, the new capitalism enlarges a less fortunate segment of the middle class, composed by school teachers, employees of ministries and public agencies, clerical workers, salespeople in retail stores for whom free market economics has often meant stagnant wages and slim chances for economic progress in an increasingly segmented and elitist society. This is a segment particularly vulnerable to shocks in the labor market (including recurrent waves of job cuts in the public sector), shocks in financial markets (indebtedness) and, unaffordable, health contingencies that can be very harmful for their financial position of vulnerable households.

In some countries such as China, India and some Latin American countries social statistics show that millions of people have left poverty (as measured by income-based poverty lines) and joined the ranks of the “middle class”. However, in many instances, the new entrants to the middle class (itself a complex concept to define and measure as we shall see in chapter 3) are vulnerable to fall again below the poverty line should an adverse shock take place. Moreover, an increase in income does not necessarily imply greater economic security, empowerment and political influence of this “new middle class”.

(4) Fragmentation and Marginalization of Labor. Probably the main losers, in terms of relative economic position and influence in the economic and political process in the last three decades, have been manual workers and their organizations. The anti-labor stance of the early experiments with neoliberalism in the 1970s and 1980s under Reagan in the USA, Thatcher in the UK and Pinochet in Chile was evident. These governments severely distrusted labor and engaged often in repressive policies to working class movements. They blamed the alleged combination of strong labor unions and “large government”, for the slowdown in productivity growth, squeeze in profit rates, inflationary pressures and macroeconomic instability that marked the end, in the 1970s, of the post-world war II consensus of regulated capitalism.

A number of changes in the global economy related with international trade, the structure of production, technological change and the dynamics and institutions of labor markets have affected the position of labor. We can highlight six major factors at work: First, the increased globalization of capital such as foreign direct investment and multinationals directing their operations towards low-wage countries; Second, important changes in the international location of the production process and the development of global value chains that has encouraged production and outsourcing of intermediate parts and inputs in cost-competitive nations along with the externalization of services such as call-centers and accounting; Third raising immigration of skilled and unskilled workers towards high income nations in North America and Europe coming from developing countries and former communist nations. This immigration flows have increased the supply of labor of various qualifications in host countries bringing outside competition from foreign workers and professionals; Fourth the penetration of labor-intensive manufacturing imports produced in low-wage countries that has moderated wage growth; Fifth, the information technology revolution that has encouraged the adoption of labor-saving, skill-intensive technologies and reduced the price of investment goods leading to a substitution of labor for capital equipment including computers, ; Sixth, the diminished bargaining power of labor unions associated with the de-unionization process . These trends have had the effect of moderating the growth of wages of workers and middle rank employees, displaced jobs away from industrial nations, increased wage disparities between CEOs and the rest of the labor force and increased global inequality. Ian important effect has been the global reduction of the labor share in national income. Empirical studies are showing that in at least 42 countries during the period 1975 and 2012 there have been a decline in labor shares of the order of five percentages points, in contrast with the near stability of that share in the four decades after World War II. Moreover, this decline in the labor share has taken place in the four largest economies of the world: the USA, China, Germany and Japan. These trends provide evidence of a regressive distributive shift against labor during the neoliberal era. It is important to note that this decline in the labor share may underestimate the true increase in inequality in this period if we consider the sharp rise in remuneration of top income earners (CEO and other senior managers) that are also part of labor incomes (see chapter 2). In the USA the decline in the overall labor share in the last 25 years is around 6 percent but if consider the labor share of the bottom 99 percent taxpayers that decline is 10 percent.⁴

4. Economic and Financial Crises and Austerity Policies

Besides these effects on the social and economic structure of countries, during the last decades of the 20^th century and the early 21^st century we have been living in a period of macroeconomic volatility and repeated financial crises. Large-scale financial crises were more frequent in the periphery of the world economy—the “global south”— in the 1970s, 1980s and 1990s although advanced economies also experienced financial crises such as the case of the Savings and Loans crisis of the 1980s in the USA, the banking crisis of some Scandinavian countries in the early 1990s, the debacle of the Long Term Capital Markets Fund in the late 1990s, to cite some instances of financial crisis in developed economies. However, now the epicenter of large scale financial crises shifted north and since 2008-2009 the core of the world economy composed by the United States and several European countries have been at the center of severe, large-scale, financial crises that have led to stagnation, unemployment, diminished expectations for future generations and financial fragility. In a historical perspective this confirms that global capitalism when accompanied by unregulated financial markets at national and global levels becomes very prone to experience financial crises of different degrees of virulence and intensity. As we show in chapter 5, historically, financial crisis of big proportions and with international ramifications were very uncommon only in the Bretton Woods period. They were present in the first wave of globalization of late 19^th century and early 20^th century affecting both the center (Europe and the US) and the periphery of the world economy with financial links with the center; also in the 1920s and 1930s and then, again, in the period of neoliberal globalization started in the 1980s.

These crises raise important questions on the role of economists and the effectiveness (or the lack of it) of existing international financial institutions such as the IMF and monetary authorities such as Central Banks. In particular, an obvious question is why the mainstream economics profession, Central Banks and the International Monetary Fund, with their large teams of sophisticated economists having Ph.Ds. in economics, failed to anticipate these crises and/or prevent these crises to occur? It is also relevant to ask the role played by the economic theories these economists and the organizations that they were working for, used to understand reality and influence it. Particularly miscarried theories were the efficient market hypothesis, new classical macroeconomics and the rational expectations school that provide very unrealistic depictions of how the real world works and that can misguide governments and economic and financial authorities. An additional question is the role economists have played in generating this general conceptual confusion?

Besides ideas, interests also matter. The public policy climate existing before the 2008-2009 crises and the type of rescue packages put forward in their aftermath, underscore the big influence that financial sector elites (bankers, big investors, hedge fund owners and managers and so on) had on Central Banks, Finance Ministries and governments. These financial sector elites pushed for weak regulation and a hands-off approach of the financial markets and promoted the notion that these markets could effectively self-regulate them. However, when the crises occurred, Central Banks and the Treasury provided quick relief to financial intermediaries and bailed-out these institutions, on the grounds that they were “too- big- to fail”. As a consequence of those massive rescue packages the national debt of the crisis countries has climbed, passing the cost of financial irresponsibility to future generations.

It is apparent that during the booming phase of the financial cycle, gains were privatized. However, in asymmetric fashion, during the crisis phase of the cycle losses were socialized. In the financial binge, the “discipline of the market”, in which gains and losses of private transactions are borne by the market participants, has been conspicuously absent. In turn, the “remedies” to the crises –through the adoption of austerity policies-- have been also very controversial. Initially, in 2009 and part of 2010, the US and European countries attempted expansionary fiscal policies to counteract the effects of the decline in private investment and the slowdown in private consumption on economic activity. This policy, however, was abandoned in 2010 and policy priorities shifted from defending employment and growth to the containment of fiscal deficits and public debt. As a consequence, economic growth in Europe and America stalled, increasing unemployment and, along the way, debt to output ratios. Austerity policies have been particularly detrimental for countries of the European periphery such as Portugal, Spain, Greece and Ireland. Those nations have experienced record unemployment levels and cuts in social benefits. A sense of despair is pervasive among the population of these countries. The full consequences for democracy of the protracted economic crisis remain to be seen.

2.4 5. Global Elites, Migration and Social Movements

In late 20^th century and early 21^st century, the migration of workers is by far more restricted than trade in goods and services, financial capital mobility and foreign direct investment (Solimano, 2010). We live now in a world in which multinational corporations and knowledge elites have become more global in their scope of activities than in the past. People with higher education levels, knowledge capabilities, social status, connections and access to capital have become more internationally mobile along various circuits and networks in global labor markets and global capital markets. International investors move financial capital around the world, including placing them in fiscal paradises, with relatively little restrictions from governments or supra-national authorities. There is also an internationally mobile “global technostructure” composed by high level executives, financial and technical experts, economists and engineers, lawyers and other professionals that work for multinational corporations (MNCs) in the private sector or for international organizations such as the IMF, the World Bank, the OECD, the United Nations and others in the international public sector. In these international bureaucracies incomes are tax-free and employees enjoy a privileged status. Besides the international circuit of big private or public organizations there is also a degree of mobility of independent entrepreneurs that do not have the backing of big international corporations and that try their fortunes in other countries the best they can. As in many things in life, some succeed while others do not.

Globalization has led also to a significant geographical concentration of individuals with high education and special talents in rich OECD countries. However, the economic crises of the first world triggered in 2008-09 and the faster rates of economic growth we observe in several emerging and developing countries may lead to reversals in the direction of migration of technological entrepreneurs, professionals, technical experts, medical doctors, graduate students, scholars and others away from the labor markets in rich countries. Global job markets are changing fast in response to changes in job opportunities and demographic trends.

At the same time, along with these trends of globalization, concentration of third world talent in rich countries and denationalization of economic activities we find also immigrant´s Diasporas that have left their home countries for a variety of factors such as war and internal conflict, political and ethnic prosecution, economic stagnation and other push-factors. A distinctive feature of the Diaspora, compared with purely economically motivated migration is their commitment and attachment to their home countries. Diasporas contribute to maintain historical identities at times of an increasingly rootless global capitalism. Moreover, as Diasporas prosper in the host countries they become also a valuable source of savings, capital, knowledge, wealth, access to technologies and international contacts for their home nations. Remittances are the most visible and important vehicle for transferring financial resources to the source countries but this is not the only asset that Diasporas can transfer to their home nations. Market contacts, knowledge and fresh capital accumulated by diaspora members are also valuable factors for development. However, the mobilization of these assets for the national development of the home country is not always automatic and needs some activism by governments and civil society organizations in the home nation.

Finally, along with globalization “from above” led by corporations, banks and rich country governments there is also a social counter-movement of “globalization from below” comprised by workers migration and the international movement of the poor. Another phenomenon is the rise of global, national and local social movements critical of the consequences neoliberal capitalism on inequality, unemployment, economic justice, the environment and the way democracy works in their own countries and also more globally.

6. Economic Democracy

The power of economic elites, inequality and the corrosive effects of big money for democracy that characterizes early twenty-first century capitalism has led to the search of alternatives forms of organization such as economic democracy. The quest for either more humane and fair capitalism, or for an effective alternative system, is not new. During the 20^th century the main models for reforming (or replacing) capitalism such as communism and “reconstructed” social democracy are not appealing any more.

The recent experience with social democratic governments in countries such as the UK, Spain, the USA, Chile and Greece often ended up in disappointment as they ultimately implemented public policies that were very similar to those of neoliberalism. In turn, since 2008, social democratic governments in Europe have not been able to offer clear alternatives to the socially regressive austerity policies dictated by the Troika formed by the IMF, the European Central Bank and the European Commission. In turn, in the USA the Obama administration refrained from adopting policies that could have diminished the power of rich financial elites and inequality remains high.

Political democracy and economic democracy are two sides of a genuinely democratic society. In fact, democracy will hardly flourish when economic power and the property of productive assets, including the mass media affecting the cultural and ideological make-up of society, is heavily concentrated in the hands of small economic elites. They have the means and resources to influence the political process in directions to preserve the status-quo and their privileged position in society while excluding the rest from meaningful social participation and the fruits of material progress.

In the last part of this book we discuss a renewed agenda of Economic Democracy (ED) that departs from neoliberal policies; this agenda, in turn, is illustrated with concrete historical and current experiences of practices of ED includes the following principles and aims: (a) workers and employees enhanced participation in the workplace, on issues concerning wage setting, social benefits and working conditions, profit sharing and employee stock option partnership extended to employees and general participation in the firm’s strategic decisions; (b) democratic access to housing, credit, banking services and education at different levels, (c) a more inclusive and democratic pattern of ownership of productive capital in the economy, including workers–owned and workers-managed companies, communal property, non-for profit organizations and cooperatives, (d) enabling labor and civil society to have effective voice in the design and implementation of adjustment programs and austerity policies, (e) public (not necessarily equal to state) ownership of natural resources and other strategic productive assets along with the democratic distribution of economic surplus and the rents associated with the productive exploitation of national resources and (f) the proper articulation of a broad agenda of economic, social, cultural and political rights.

Besides ensuring the technical soundness and political feasibility of implementing these goals, its eventual application will be crucially dependent upon solving, adequately, the “agency problem” of finding a social group and political organization with conceptual clarity and leadership to steer progressive social and economic change and also obtaining the support of the population for this set of socio-economic transformations.

7. Organization of the Book

The book is organized in four parts that, overall, comprise ten chapters. Part A (chapters 2 to 4) examines the social class structure that emerges after the application of the policies of neoliberal capitalism. Chapter 2 analyzes the nature of wealthy elites and reviews various empirical measures trying to gauge their quantitative significance, influence and measures to curb their power. In turn, chapter 3 discusses various theories of entrepreneurship and reviews empirical studies related to the nature of the entrepreneur in modern capitalism. The chapter highlights the importance of the technostructure of the big corporation for decision-making regarding resource allocation and growth compared with the role of the independent entrepreneur of the individual firm. Chapter 4 focuses on the fragmentation of the middle class since the 1980s (neoliberal era) between an upper middle class segment and a lower middle class group and evaluates the potential contribution of the middle class, along with its limits, to spur growth through entrepreneurship, to job creation and to political stability. Part B, comprising chapters 5 and 6 focuses on economic and financial crisis that have shaped global capitalism since the 19^th century to the present. Chapter 5 provides a review of several historical episodes of financial crises in the 19^th, 20^th and 21^st centuries, in both advanced capitalist countries and in developing and emerging economies, highlighting their main causes, mechanisms of propagation and economic and social consequences. The chapter also considers “austerity policies", as a costly approach to foster recovery after a crisis episode. Chapter 6 then examines a variety of alternative theories of crises including Monetarism, Rational Expectations, New Classic, Keynesian, Marxian and eclectic approaches and provides a comparative evaluation of their merits and shortcomings.

Part C of the book examines patterns of international mobility of capital, rich elites and professional and knowledge elites that strive under globalization, calling attention to the rise of global social movements that are critical of both global capitalism and low-intensity democracy and examines the main features and potential economic impact of migration Diasporas for home country development (Chapters 7 and 8). Finally, Part D, composed of chapters 9 and 10, focuses on an agenda of economic democracy and post-neoliberal transformation. Chapter 9 analyzes the concept, modalities and potential areas of application of economic democracy and chapter 10 closes summarizing the main messages of the book and highlights possible courses of reform of 21^st century global capitalism.

Directory: wp-content -> uploads -> 2014
2014 -> Raíces y Sueños: the Artistry of Cuba Call for Art – Exhibit Application
2014 -> Session 1 occ 202 Wednesday • 10: 15-11: 45 am
2014 -> African-american vernacular english: selected references
2014 -> Woman suffrage in ridgefield
2014 -> Why did the usa fail in Vietnam?
2014 -> Worksheet #5 Who’s to Blame? In this section, Causes of the Cold War, we have covered why it started the underlying factors after the Second World War, ideological differences, Soviet expansion after the war
2014 -> Colonial America Created By: Jodi Stocker, Jenna Doney, Casey Knaust, Jen Schmidt, Ryan Molitor Unit Goals
2014 -> How to Find Library Resources Tech and Society

Download 212.32 Kb.

Share with your friends: