This is up from the 1 percent owning 44 percent of the world’s wealth in 2010 and 48 percent in 2014. If current trends continue, the 1 percent will own 54 percent by 2020.
The top 80 billionaires were worth $1.9 trillion in 2014, an amount equal to the bottom 50 percent. These 80 billionaires saw a 50 percent rise in their wealth in just four years, from 2010 to 2014, during which time the poorest 50 percent saw a drop in their wealth. In other words, there has been a huge transfer of wealth in a very short period of time from the poorest half of humanity to the richest 80 individuals on the planet.
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Capitalism produces social inequalities as a consequence of its own internal workings.
What should we do in the face of these escalating worldwide inequalities? In his worldwide bestseller, Capital in the Twenty-First Century, French economist Thomas Piketty argued for a global tax on capital and redistribution through progressive tax reform. The book has gained traction globally perhaps because its prescriptions converge with the reformist agenda of a rising number of transnational elites and intelligentsia, who have become concerned that the turmoil sparked by such egregious inequalities may destabilize global capitalism and threaten their control. Like Piketty, they have been calling for mildly redistributive measures, such as increased taxes on corporations and the rich, a more progressive income tax, the reintroduction of social welfare programs and a “green capitalism.”
This reformist approach to global inequality, however, is entirely inadequate because it bypasses the questions of power and of corporate control over the planet’s productive resources that are at the very heart of global capitalism and its crisis. Any resolution to this crisis requires a radical redistribution of wealth and power downward to the poor majority of humanity. Social justice requires a measure of transnational social governance over the global production and financial system as a necessary first step in this radical redistribution, which in turn must be linked to the transformation of class and property relations.
Seen in this perspective, the elites’ reformist approach has more to do with averting such a transformation than with resolving the plight of the poor majority. The power relations that are at stake become clear by exploring what accounts for social inequalities under capitalism.
Causes of Rising Inequality
What accounts for escalating worldwide inequalities that have so alarmed transnational elites? As Marx analyzed in Capital, there is something going on in the capitalist system itself beyond sets of government policies that generates inequalities. Simply put, capitalists own the means of producing wealth, and therefore appropriate as profits as much as possible of the wealth that society collectively produces. Capitalism produces social inequalities as a consequence of its own internal workings.
The global market has not been able to absorb the output of the global economy.
But such inequalities end up undermining the stability of the system, since the mass of working people cannot purchase the wealth that pours out of the capitalist economy to the extent that capitalists and the well-off retain more and more of total income relative to that which goes to labor. If capitalists cannot actually sell (or “unload”) the products of their plantations, factories and offices, then they cannot make a profit.
This is what in critical political economy constitutes the underlying internal contradiction of capitalism, or the overaccumulation problem. Left unchecked, expanding social polarization results in crisis – in recessions and depressions, such as the 1930s Great Depression or the 2008 Great Recession. Worse still, it engenders great social upheavals, political conflicts, wars and even revolutions – precisely the kinds of conflicts and chaos we are witnessing in the world today.
In the view of the reformers, however, it is not the capitalist system itself, but its particular institutional organization that is to blame for inequalities. They believe it can be offset by increased taxes, social welfare programs and other reformist measures.
The Class Warfare of the Transnational Capitalist Class
The sharp escalation in inequalities coincides with capitalist globalization from the 1970s and on. The high rates of inequality registered in the wake of the Industrial Revolution, and that reached a peak in the late 19th and early 20th centuries, had diminished somewhat in the heartlands of world capitalism in the wake of two world wars and the Great Depression. Inequalities in the rich countries were diminished in part thanks to colonialism and imperialism, which resulted in the transfer of surplus wealth from the periphery to the metropolitan centers of world capitalism and made possible the rise of a “labor aristocracy” in these centers.
What became known as the “Fordist-Keynesian” social order that took shape in the 30 years following World War II involved high growth rates, a rise in living standards for substantial sectors of the working class and a decrease in inequalities in the developed core of world capitalism.
These Fordist-Keynesian arrangements came about because of the mass struggles of working and popular classes from the late 1800s into the 1930s, including worker, populist and socialist movements, the Bolshevik revolution and the anti-colonial and national liberations struggles in global South countries.
But those sectors that saw rising standards of living in the post-World War II period are now experiencing under capitalist globalization downward mobility, heightened insecurity and “precariatization” that threaten to undo the hegemonic blocs forged in the 20th century in the rich countries through the incorporation of these (often white racially privileged) sectors. When reform-oriented transnational elites bemoan the “loss of the middle class,” they are referring to the destabilization of these formerly privileged sectors among the working class and to the erosion of the earlier hegemonic blocs.
Redistributive nation-state capitalism evolved, therefore, from capital’s accommodation to mass upheavals from below in the wake of the crisis of the two world wars and the Great Depression. In the wake of the next great crisis, that of the 1970s, capital went global as a strategy of an emergent transnational capitalist class to reconstitute its social power by breaking free of nation-state constraints to accumulation, and to do away with the Fordist-Keynesian arrangement.
The corporate class and its agents identified the mass struggles and demands of popular and working classes and state regulation as fetters to its freedom to make profits and accumulate wealth as the rate of profit declined in the 1970s. As the transnational capitalist class congealed, it forged what became know as the “Washington Consensus,” or the agreement around sweeping worldwide economic restructuring to put in place a new transnational corporate order and go on the offensive in its class warfare against working and popular classes.
Onetime apostles of neoliberalism have set the public agenda on global poverty and inequality.
Transnationally oriented elites and capitalists captured governments around the world and used states to undertake sweeping restructuring and integration into a new globalized production and financial system. The “neoliberal counterrevolution” opened up vast new opportunities for accumulation. Free trade agreements and financial liberalization lifted state restrictions on cross-border trade and capital flows. Privatization turned over everything from public industries, to educational and health systems, mail service, highways and ports to transnational corporations and provided an investment bonanza to the transnational capitalist class as it concentrated wealth as never before. Labor market reform led to the erosion of regulated labor markets. As workers became “flexible,” they joined the ranks of a new global “precariat” of proletarians who labor under part-time, temporary, informalized, non-unionized, contract and other forms of precarious work.
As a result, popular and working classes have been less effective in defending wages in the face of capital’s newfound global mobility. And states have seen the erosion of their ability to capture and redistribute surpluses given the privatization of public assets, ever more regressive tax systems and prospects for corporate tax evasion, mounting debt to transnational finance capital, interstate competition to attract transnational capital and the ability of the transnational capitalist class to transfer money instantaneously around the world through new digital financial circuits.
Emergent transnational capital experienced a major expansion in the 1980s and 1990s through globalization. The transnational capitalist class undertook hyper-accumulation by applying new technologies such as computers and informatics, through neoliberal policies and through new modalities of mobilizing and exploiting a global labor force. The transnational capitalist class conquered new markets in hothouse fashion in the former Soviet Union, Eastern Europe and poor countries. Several hundred million new middle-class consumers in China, India and elsewhere in the so-called “emerging countries” provided new global market segments that fueled growth.
But at the same time, hundreds of millions, perhaps billions, of people were displaced from the countryside in the global South through new rounds of global enclosures brought about by neoliberal policies, as well as social cleansing and organized violence, such a the “war on drugs” and the “war on terror,” both of which have served as instruments of primitive accumulation and for the violent restructuring and integration of countries and regions into the new global economy. All this has generated a vast army of internal and transnational immigrants who have swelled the ranks of the unemployed and the structurally marginalized – the new “surplus humanity” – placing downward pressure on wages everywhere.
The Cycle of Crisis
By the late 1990s, stagnation once again set in and the system faced renewed crisis as privatizations dried up, the conquered regions were brought into the system, global markets became saturated and new technologies reached the limits of fixed capital expansion. Escalating global social polarization and inequality fueled the chronic problem of overaccumulation. The global market has not been able to absorb the output of the global economy. Global inequalities and the impoverishment of broad majorities mean that transnational capital cannot find productive outlets for unloading surplus. By the turn of the century, it was clear we were headed toward a new structural crisis.
There are no capitalists and workers in Piketty’s world, just people with different amounts of “capital” in their possession.
The transnational capitalist class turned to several mechanisms to sustain accumulation in the face of stagnation. One is militarized accumulation. Wars and conflicts unleash cycles of destruction and reconstruction that fuel accumulation. We are now living in a global war economy. The global arms trade, prison industrial complex, homeland security systems, mass surveillance, militarized policing and border control, the deployment of armies of private security guards – all this keeps accumulation going in the face of stagnation, yet it also further aggravates social inequalities and ultimately destabilizes the system.
A second mechanism is the sacking and pillaging of public finances, reflecting a more general transformation of public finance. Predatory transnational finance capital extracts ever greater amounts of surplus value from labor via public finances recycled as bailouts, subsidies and the issuance of bonds. According to the Bank for International Settlements, the global trade in government bonds now exceeds $100 trillion. As we see so clearly in Greece, public finance has become a mechanism for transnational capital to transfer wealth from workers to itself and to make claim to the future income of workers.
A third mechanism is frenetic financial speculation in the global financial casino. Fictitious capital now so exceeds the real output of goods and services that a new collapse of devastating proportions would appear all but assured.
Although these three mechanisms – militarized accumulation, pillaging public budgets and speculation – helped keep the global economy sputtering forward, all three have also further aggravated inequalities, overaccumulation, social conflicts and political crises.
Tellingly, some of the very economists and policy makers who designed the neoliberal program and pushed it on the world – through such transnational state institutions as the World Bank and the International Monetary Fund – are now leading critics of “market fundamentalism,” a phrase first coined by George Soros, a Wall Street tycoon, in his book The Crisis of Global Capitalism, which argued that blind faith in market forces was leading to widening inequalities and ongoing crises that threatened the stability of the system.
As senior vice president and chief economist of the World Bank from 1997 to 2000, Joseph Stiglitz helped impose neoliberalism around the world, but then became a leading voice among the reformers in the wake of the 1997-98 Asian financial crisis.
Piketty’s proposed remedies for rising inequality do not involve control over capital.
More recently, Lawrence Summers joined the ranks of the reformists. Previously, he displayed impeccable neoliberal logic in 1991 by claiming, as chief economist at the World Bank, that dumping toxic waste in poor countries would bring economic benefits. “I have always thought that the under-populated countries in Africa are vastly UNDER-polluted,” said Summers, “their air quality is probably vastly inefficiently low compared to Los Angeles or Mexico City.” From the World Bank, Summers went on to design free trade and other neoliberal policies for the Clinton administration and then later the Obama administration. Fast forward to 2012; Summers argued that escalating inequality should be tempered because it is fueling a growing disillusionment with capitalism.
Jeffrey Sachs is perhaps most emblematic of the neoliberal-cum-reformer. As a consultant for international financial institutions and governments, Sachs designed and imposed the very first neoliberal structural adjustment program on Bolivia in 1985, decimating the country’s poor and working class. The succession of mass popular uprisings against Sachs’ program eventually culminated in the Indigenous revolution that brought Evo Morales to power in 2006.
From Bolivia, Sachs went on to pioneer the “shock program” of structural adjustment in Russia following the collapse of the Soviet Union, resulting in an overnight drop of 50 percent in the GDP, a tenfold increase in poverty and a spike of 75 percent in the mortality rate for workers. He also drafted programs for the transition to capitalism in Poland and elsewhere in Eastern Europe, including overnight austerity and the wholesale transfer of large blocs of formerly state assets to private banks and corporations.
As global capitalism entered a period of stagnation that also saw renewed mass social struggle and a turn to political radicalism in the face of escalating inequalities at the turn of the 21st century, these and other onetime apostles of neoliberalism have set the public agenda on global poverty and inequality. They have helped to establish the hegemony of a mildly reformist discourse within this agenda that actually embraces the continuation of a campaign to open up the world to transnational capital within a new framework of transnational regulation and mild redistribution through taxation and limited social safety nets.
The ranks of the reformists among the transnational elite and intelligentsia have expanded rapidly since the 2008 global financial collapse. Many global elites responded to the collapse (and even prior to it) by pushing for a neo-Keynesianism. These elites articulated a project involving a limited re-regulation of global market forces, tax reform (such as the Tobin tax), limited redistribution and multitrillion-dollar state intervention programs to bail out transnational capital. The role of the state is to assist transnational capital to accumulate even against its will, by raising demand and attenuating radical challenges without disputing the prerogative of capital or altering the fundamental structure of private property.
Transnational Elites’ Newfound Critique of Free Market Capitalism
This newfound critique of the model of free market, global capitalism among onetime technocrats and neoliberal intellectuals found analytical legitimation in Thomas Piketty’s aforementioned book, Capital in the Twenty-First Century. Piketty is responsive to elite concerns, yet his study is accommodating to capital, not a Marxist critique. In fact, Piketty admitted in an interview with the New Republic that he has not read Marx’s Capital.
If Milton Friedman was the poster child of neoliberalism, Piketty may become a poster child of the emerging post-neoliberal era in which states are to play a limited role in a mild re-regulation of capital and effect a limited redistribution through transfer payments, more progressive income tax and a tax on capital.
Capital, in Piketty’s definition, is neither a social relation, nor a process of accumulation; it is defined as anything at all that can theoretically have a commercial value. It includes factories and machinery, money itself, buildings (including all individual dwellings), roads, jewelry, the clothes we wear and also everything found in nature (Piketty defines nature itself as “natural capital”), including a cave where Stone Age people may dwell and the spears they may use. He writes: “Historically, the earliest forms of capital accumulation involved both tools and improvements to land (fencing, irrigation, drainage, etc.) and rudimentary dwellings (caves, tents, huts, etc.).”
This conception is significant because it means that every human being in global capitalism owns capital so long as they wear an article of clothing, have a bicycle, a cow, a cup to drink out of, a wristwatch or a can of beans. Taking the logic of this definition to the extreme, a shopping cart that a homeless person pushes around is to be considered capital. There are no capitalists and workers in Piketty’s world, just people with different amounts of “capital” in their possession.
Piketty’ study exhibits the same fatal flaw that Marx identified for the two fathers of classical political economy, Adam Smith and David Ricardo. These two made major contributions to our understanding of political economy, but could not identify the genesis or the nature of capitalism as a social system (or capital as a social relationship) because they took as givens the existence of capital itself and the prevailing property relations or distribution of capital.
Primitive accumulation in Europe through the enclosures, and around the world through colonialism and imperialism, dispossessed millions – billions – of people, turning their land and resources into capital (property) of the capitalist class and turning them into proletarians. A class of owners and a mass of dispossessed is the pre-given and nonproblematic starting point for Piketty, as it was for Smith and Ricardo. Capital and private property are thus naturalized.
As a result, force and violence as fundamental and constitutive social relations in the making of world capitalism are not part of the story; power is glaringly absent from the entire Piketty construct. Exploitation is as well. Inequality for Piketty is not a social relationship of power, domination or exploitation; it is not an antagonism among social groups or classes. These concepts are not part of his vocabulary.
Smoke and Mirrors
Since the existence of capital and the prevailing property relations are given as the starting point of analysis, Piketty does not – and cannot – explain why in the first instance there would be inequality in the capitalist system. Inequality flows from the unequal ownership of capital, yet this unequal ownership of capital is not – and cannot – be explained by Piketty. His narrative begins with an already established regime of property.
The crux of Piketty’s argument is what he refers to as the capital-rate of growth ration. When r, as the rate of return on capital, is greater than g, the growth rate, then inequality will rise, expressed as r>g. This is in essence a neoliberal argument: Inequality is not the result of exploitation but of slow growth; it is not inequality that leads to slow growth, but slow growth that leads to inequality. The notion that high inequality means that output cannot be absorbed (insufficient purchasing power) and thus growth (accumulation) stagnates – that is, in simplified terms, overaccumulation – cannot figure into the model.
Next, Piketty’s theory of inequality hinges on the capital-income ratio that he postulates, capital being the total market value of all assets (as previously mentioned, this includes, by Piketty’s definition, someone’s can of beans, car or personal dwelling), and income being the quantity of goods produced and distributed in a nation in one year. If the capital stock grows quicker than output then inequality will rise. Inversely, high growth rates will lower inequality.
Yet this capital-income ratio on which Piketty’s thesis hinges tells us very little; it is actually misleading. He contends that slow growth starting in the late 20th century, as well as high savings, is the prescription for increasing the capital stock relative to income and therefore for an increase in inequality. This is the very crux of Piketty’s thesis. But it explains remarkably little. Neither slow growth nor high savings can cause anything; they are not independent but dependent variables. They need to be explained in turn, not as exogenous to the model but as endogenous and caused by something else going on.
What is this something else? That is, what may cause slow growth and high savings? If we move beyond the conceptual constraints of Piketty’s model – and of neoclassical economics – we find that all Piketty is saying is that as investment opportunities dry up (overaccumulation) growth will slow and the overaccumulated capital is expressed as growing piles of capitalists’ wealth – just what we are seeing worldwide at this time.
Beyond the Neoliberal Box
Once we step out of the neoliberal box, we can see the circular reasoning in this thesis. Circular reasoning is when one explanation for a condition or phenomenon is itself said to be caused by that condition or phenomenon. Heightened inequalities from 1970 to 2010 are caused by slow growth and continued high savings. Slow growth and continued high savings are caused by the increase in capital stock relative to income. Yet this increase in capital stock relative to income is caused by slow growth and high savings.
Stepping outside this box, “continued high savings” in the capitalist economy suggests that capitalists are accumulating capital that they cannot reinvest. The ever greater concentration of wealth leads to slow growth and “high savings” or to stagnation in the face of overaccumulated capital. Slow growth is the effect of inequality in this framework, not the cause.
Piketty calls for transfers programs (health, education and pensions), progressive income tax and a “global tax on capital” in order to resolve the problem of escalating inequalities. This call for a “global tax on capital” has sparked considerable interest among commentators. However, it is important to be clear on what he means by this.
One would think typically of a “tax on capital” as corporate tax. But this is not a call for a tax on corporate profits. Recall Piketty’s definition of capital as any asset that has a value. Although he mentions taxing foundations and financial institutions, by a “global tax on capital,” he is referring to taxing individuals in accordance with the value of their assets and in the order of a few percentage points. This “global tax on capital” would amount to extending to all people’s assets – what, in many countries, is currently a property tax.
Piketty’s proposed remedies for rising inequality do not involve control over capital, but rather the capture of small amounts of its accumulated surplus. However important this may be, his reform agenda is considerably milder, in fact, than controls over capital that states imposed during the Fordist-Keynesian era, or what many around the world are now demanding. He does not call for restraining “free trade,” that is, the free movement of transnational capital across borders as epitomized most recently in the Trans-Pacific Partnership agreement. Such measures as nationalizing banks or rebuilding public sectors are simply not on his agenda.
Finally, Piketty does not really address truly global inequalities. There are two omissions of great significance in terms of his conception of global inequalities, as well as the political significance of these inequalities. One is the lack of any historical or analytical treatment of the great North-South or center-periphery divide brought about by colonialism and imperialism. The second is the omission of inequality seen in terms of the global population as a whole, beyond the top centile and the billionaire class, such as that discussed by Oxfam.
According to that report, 52 percent of global wealth not owned by the richest 1 percent of humanity is owned by the richest 20 percent, while 80 percent of humanity has to make do with just 5.5 percent of global wealth. This is the new global social apartheid. A necessary step in overthrowing global apartheid is a critique of its elite critics.