Since about 1970, there has been a world-wide trend toward increasing concentration of wealth. That means, for example, that ten percent of a population own far more than ten percent of wealth, and that ten percent of that group possess a disproportionate amount of its wealth—and so on up. It is not surprising that this trend is global, since capitalism is global. Yet it is accentuated in the English-speaking world and in the United States in particular. Why?
Thomas Piketty (Capital in the 21st Century and Capital and Ideology) attributes the trend to the fact that CEOs are awarded (or award themselves) outrageous salaries and other benefits, out of line with any service they could actually perform. In Europe and other places, there are social norms that limit the acceptance by society of such a practice, and there is also support for higher wages for labour in relation to management. Historically, the U.S. has had a low minimum wage. The ethos of that country also glorifies “winners” of all sorts, from celebrities to billionaires. Americans, it would seem, prefer a slim chance at extreme wealth over a reasonable chance at moderate wealth. Fairness is perceived in terms of equal opportunity rather than equal benefit. You could call that the lottery system, where the big prize comes out of the pockets of many small ticket holders. You could also call it the star system, where fame is promised as well as fortune. Like the economy, even the political system is a “winner takes all” sweepstake. Winning per se is the measure of success and the valued skill, so that those who know how to play the system to advantage are romanticized as heroes even while they are robbing you.
Perhaps one reason corporate executives can literally command such high rewards is that they are virtually not held accountable to shareholders. Even when elected, voter turn-out at AGMs is probably small and appropriate payment may not be on the agenda. We could expect corporate leadership to act in our interests, and without our supervision, just as we expect government officials to run a well-oiled machine. Yet, the general attitude of complacency is that shareholders don’t (and shouldn’t) care about excessive remuneration for those at the very top so long as the bottom line for shareholders is a positive gain. The same attitude spills over toward political leadership. If it’s too much trouble for citizens to track politics in the public sector, it is even more bothersome to track it in the private sector, where the issues and contenders are relatively invisible. As a result, CEOs have carte blanche to pay themselves whatever they like. They are in a position to use the system they control for their own benefit. If that breaks the corporation, the shareholders will pay, not the retiring executive; or else the public at large will pay through a government bailout.
There may be further explanations. As the nature of products has evolved, so has the method of valuation. Primary manufacturing made tangible products that entailed a recognizable amount of labour. Economic growth in modern times in developed countries has involved making less tangible products, which are more like services—for example, intellectual property such as computer programs and apps. (Primary manufacturing has migrated to countries where labour is cheaper.) In addition, investment itself has evolved from financing primary manufacturing or resource extraction to meta-investments in “commodities” and other financial abstractions. Speculation then promises a possible gain without a tangible product or expended effort. That has always been the real purpose of capital: to get a larger slice of the pie without doing any actually productive work. An effective form of gambling, the speculative game has evolved to great sophistication in modern times, requiring knowledge and skill. But it does not produce a real increase in wealth, only a redistribution upward.
For the most part, the modern rich have acquired or increased their wealth through applying certain skills dignified as business acumen. In many cases it has been a matter of being in the right place at the right time, as in the dotcom and social media booms. But in many cases these are skills to milk the system more than to produce “genuine” wealth, or to provide services of dubious benefit. Let us suppose there is an objective quantity of real goods and services in the world—things that actually improve people’s lives. It is this objective value which, like gold, ultimately backs up the currency in circulation. Anything that is falsely counted as an increase in genuine wealth can only dilute that objective quantity of real value—which makes GNP misleading. Money represents spending power—the ability to exchange symbolic units for real goods and services. Ultimately money buys other people’s time and effort. Getting money to flow into one’s pocket from someone else’s pocket increases one’s spending power, but does not produce more real wealth. Nor does simply printing more money. It takes effort (human or machine) to produce value that any and all can use. However, some efforts produce things that only the parties doing them can use. Stealing is such an effort. So is war. So is a lot of financial gain that is considered return on investment.
Historically, return on capital to its owners has always exceeded the amount of real growth in the economy. That has always been its very reason for being. But, only real growth can be shared in such a way as to benefit humanity as a whole. That means an increase in the infrastructure of civilization, the common wealth of humanity, potentially enjoyed by all. Spending power is a more private matter. The surplus generated as return on capital accumulates in certain hands as the exclusive ability to access and command the benefit resulting from real growth. Spending power trickles upward because certain individuals have figured out to make that happen. Modern capitalism, with its complex abstractions, is a sophisticated machine to pump spending power into particular coffers.
The distribution of wealth becomes the distribution of spending power; and the growing inequality means unequal access to the common resources of humanity. I do not mean only natural resources or the land, but also products of human enterprise (“improvements” as they are called). This includes things like buildings and art, but also technology and all that we find useful. Perhaps there is no intrinsic reason why there should be equal distribution of either property (capital, which is earning power) or spending/buying power. I am not advocating communism, which failed for the same reason that capitalism is faltering: selfish greed. The problem is not only that some players take advantage of others, which has always been the case. There is also a larger ecological fall-out of the game, which affects everyone and the whole earth. A lot of production is not rationally designed to better the human lot but only to gain advantage over others: widgets to make money rather than real improvement. Thoughtlessly, such production damages the biosphere and our future prospects.
There are ways to redistribute wealth more fairly, short of outright revolution, which never seems to be permanent anyway. Income tax can be made more steeply progressive. Assets and property of all sorts can be taxed progressively as well, so that wealth is redistributed to circulate more freely and does not accumulate in so few hands. There could be a guaranteed living, a guaranteed inheritance, and a guaranteed education for all. The wealthy should not dismiss these ideas as utopian. For, as things are, we are indeed on the historical track to violent revolution. Yet, along with redistribution of wealth as conventionally measured, we must also revolutionize our ideas about what constitutes real wealth—that is, what we truly value as improving life. Upon that our collective survival depends.
We would be far better off to think in terms of real value instead of spending power. However, those who seek personal gain above human betterment will no doubt continue to promote production that gives them what they opportunistically seek rather than what is objectively needed. Perhaps it is fortunate that much of modern economic activity does not involve material production at all. It may be a boon to the planet that humankind seems to be migrating to cyberspace. It may even be a boon that the pandemic has shut down much of the regular economy. What remains to see is how we put Humpty together again.