Restitution and redistribution (to redistribute financial power)
This section is mainly about one of the two great enablers of power, wealth (when I use the term “wealth” in this chapter, I mean financial wealth, not the richer idea of wealth which includes non-financial values such as clean air and social engagement).
The affluent world is now dominated by a model which says “wealth is virtue”, and wealth buys power. What is worse, it creates a vicious circle, where greater wealth takes a disproportionate share of new wealth, and a disproportionately greater capacity to buy power. Mammon is not only on the side of the big battalions, he has ways of making them bigger.
President Obama visited Africa in mid-2015, and an article about his visit describes how he catechised African leaders for being corrupt, and how his advisors suggested that aid had been ineffective and should be reduced[i]. He suggested that Africa should look to itself to solve such problems.
The article ended with an unattributed, and chilling, sentence: “In an era of budget cuts, the president has looked to jumpstart programmes that rely heavily on private financing and could eventually be run by African governments and businesses, including his Feed the Future food programme and Power Africa electricity initiative”.
So Africa, the cradle of humanity, which has probably suffered more than any other continent from the great thefts (of resources, land, people and climate), apparently needs to get its own house in order on governance and democracy, but will be rescued by foreign finance and the private sector in terms of economic production.
According to the article, “At the heart of Obama’s approach to Africa is a belief that the US and other developed [sic] nations can no longer view the continent simply as a receptacle for billions in aid.”
The charitable view of this is that Obama genuinely believes that “private financing” will result in greater economic sovereignty for Africa. Despite all the evidence there is that “private financing” is simply a way of funnelling wealth out of Africa.
The less charitable view is that Obama, like his immediate predecessors, is simply acting as a mouthpiece for American corporate interests. Let’s continue to use Africa as a dump for toxic waste, and increase the rate at which the wealthy private sector is pillaging land and resources. And blame the Africans for the misuse of our generous gifts to them.
The “billions in aid” is a rather sad joke. Total foreign aid in the world in 2013 was $160 billion, or less than a quarter of a percent of the affluent world’s income. This is only a third of the Millennium Development goal of 0.7%. And only about a third of this aid, or $47 billion, goes to Africa[iii].
This pitiful level of aid is accompanied by a level of exploitation which is still appalling. A recent study quoted in the Guardian[iv] suggests that the wealth taken from Africa, at “net $58 billion a year being extracted”, far exceeds the aid and other investment in it. Among other things, the authors describe the United Kingdom’s financial sector as a “network of tax havens, complicit in siphoning money out of Africa”.
The entire poor world’s debt is apparently about $1.8 trillion[v]. Just servicing this debt would consume about half of the foreign aid received.
So, wealth continues to be extracted from Africa. It is poorer now that it was fifty years ago. And the affluent world blames African corruption, not its own theft of resources which has trapped large parts of Africa in poverty.
Yes, corruption in Africa needs to be addressed (just as it does in the affluent world). But the current system encourages rather than fights corruption, by allowing corporations to buy their access to pillage from those in power, and by using those in power as conduits for the aid as it flows in after the pillaging. If Africa had its own economic power and income, there would be less reliance on the political power of the African elites.
The flows of income and wealth need to go back to Africa. The affluent world owes Africa (and other parts of the world, mostly in the south) restitution for its great, and ongoing thefts.
The scale of the thefts is staggering. One estimate of the CURRENT externalisation of costs to the poor world (ie the “fifth” theft) puts the net cost of ecological damage exported by the affluent world at over $4 trillion (compared with total debt of $1.8 trillion)[vi]. This is only one consequence of the thefts – the Guardian’s “net $58 billion a year” adds another slice, but there are many more.
Another indicator of scale relates to American slavery. At the end of the Civil War, African Americans were not only to be recognised as citizens, but also to be given “40 acres and a mule”. The first happened, but not the second. Reparations were actually made to the slave-owners, not to the slaves. One low end estimate of the current cost of making this reparation, based on Martin Luther King’s “$20 a week” calculation, is $6.4 trillion[vii]. Other estimates increase this by up to a factor ten.
But let’s also put a sense of scale on this – the United States Gross Domestic Product is of the order of $17 trillion. So, if the figure of $6.4 trillion is reasonable, it would cost the US about one third of its annual output for one year to make reparations for 250 years of exploitation and savagery. That seems pretty reasonable. And even if the real figure is 10 times higher, it is still not impossible.
But this restitution won’t happen under the current system. In fact, like Africans, African-Americans are going backwards in economic terms. Between 2005 and 2009, courtesy of the Global Financial Crisis, “the typical African American household has lost 53% of its wealth – putting its assets at a mere 5% of the average white American’s”[viii].
What happens is that, as with Africa, aid is given on a grudging and decreasing basis, along with the narrative that their situation is their own fault. If only they had a bit of gumption, the comfortable say, they could make something of themselves!
And, of course, many of them do make something of themselves. Unfortunately, some of this is in the “alternative economies” of crime and conflict, because of the barriers, of both wealth and prejudice, to their success in the “normal economy”. Poverty does lead to crime, and poverty in Africa, and in African America, has been created by far greater thefts than those being perpetrated by some of the victims.
Africa and African Americans are examples only. Many countries, races and ethnic groups have suffered similar fates.
Restitution is an essential part of building a civilised society. Acknowledging and making some form of reparation for the thefts and damage of the past. And parting with some of your current wealth to do this.
Various attempts at restitution have been and are being made by the affluent world. In New Zealand, the most recent approach has been through “Treaty of Waitangi settlements” with Maori “iwi” (tribal groupings). In the last 25 years, 54 settlements have transferred $NZ1.6 billion in assets, plus other acknowledgments or rights, to iwi in New Zealand. There are about 20 settlements in negotiation and an indeterminate number to come (the process is more or less open ended), but most of the larger settlements are believed to have been completed[ix].
These settlements represent only a fraction of the value that has been expropriated from Maori in the last 200 years, and they are also only benefit some Maori, not all – many urban Maori are unclearly affiliated to iwi, and of course the hands which take the settlements tend to have most power over how they are used. But the settlements have provided significant numbers of Maori with a stronger wealth base on which to try to build a better future.
The scale of the settlements so far is tiny in proportion to New Zealand’s annual national income of about $NZ200 billion – scarcely more, in fact than the 0.7% recommended level of annual foreign aid. Yet political parties are able to stir up considerable resentment at intervals about this process of restitution on the grounds of “Maori privilege”.
This “Maori privilege” is clearly demonstrated by their position at the bottom end of most social and economic statistics in New Zealand. And they are at the bottom because their wealth has been stolen from them, and is only being partially restored by the settlement process.
Restitution, as I said above, is an important part of building a civilised society. The acknowledgment and at least partial righting of past injustices.
But restitution is only a specific form of the ongoing redistribution which is essential to a civilised society. If we are to reduce the risks caused by power and power-span, then we need to reduce economic inequality through redistribution of income and wealth relative to how it is now.
It seems that, for much of human history, there have been a few wealthy, and many poor. For a brief moment, peaking in the middle of the twentieth century, some of us in some countries such as New Zealand got a glimpse of a different possibility for modern societies, where incomes were more equal, class structures were not major impediments to opportunity, and most of society could live lives of basic dignity.
But we are now moving away from that possibility with great speed. The path the affluent countries are on leads inexorably to social division, gated communities, and the use of wealth to coerce populations. We are moving back through wage slavery towards serfdom and total slavery.
A lovely article called “Zombie Marxism” recounts the recent history of zombie movies in relation to the image of the wealthy (in their gated communities) defending themselves from the masses[x]. Yes, if we’re not in gated communities, I’m afraid the vast majority of us are, or are soon to be, zombies.
The only calculus being used these days appears to be how many will be on each side of the divide. The dream of the country of “temporarily embarrassed millionaires” is that all will have the opportunity to end up on the wealthy side. But this is a pipe-dream, on two counts. First, American “opportunity” is shrinking with the damage being done to its equality of opportunity. And second, only the few can possibly succeed anyway.
There is no “rising tide to great wealth”. There may be a “rising tide of basic human dignity” available to us, but this will be achieved through human solidarity, through cooperation and sharing, not through social Darwinism and the non-existent “trickle-down” effect. All reputable studies demonstrate that “trickle-up” is what works – the unemployed and the working poor are far better at stimulating the economy if given an extra dollar than the wealthy – the poor will spend it on a loaf of bread rather than an overpriced painting (or a Chinese vase, as “Marvellous Mark” suggests in Doonesbury[xi]).
In the last few years, setting off from Thomas Piketty’s research and Wilkinson and Pickett’s “The Spirit Level: Why More Equal Societies Almost Always Do Better”, there has been increasing mainstream recognition that economic and social inequality within societies causes great damage. Even the International Monetary Fund, a bastion of affluent world pillaging of the poor world, now admits it[xii].
Joseph Stiglitz is a Nobel Prize-winning economist. His book “The Price of Inequality” is a powerful analysis of the causes, state, and impacts of economic inequality in the United States and beyond, which I quote from and use ideas from throughout this book. A particularly relevant quote here is,
“we have a system that has been working overtime to move money from the bottom and middle to the top, but the system is so inefficient that the gains to the top are far less than the losses to the middle and the bottom. We are, in fact, paying a high price for our growing and outsize inequality: not only slower growth and lower GDP but even more instability”[xiii].
The “inefficiency” is caused by the purchases of Chinese vases instead of bread. The poor are far more efficient spenders of money than the rich. So what better to do than steal the money from them?
In the last 30 years, real wages in most affluent countries have gone backwards compared with productivity increases. In New Zealand, the cumulative figure is at least 40 % percent over 30 years. This means that the average wage earner is earning 40% less than 30 years ago. Other affluent countries are similar.
And the regular crises which are an essential aspect of capitalism strip away not only income, but also wealth. The Global Financial Crisis was far more damaging to the middle and low income earners than to the rich.
New Zealand’s Treasury pointed out defensively that the financial impact had been greater on the top decile incomes than on the lower deciles. But what that meant was that the rich lost their second or third home, or maybe their yacht, while the struggling and the poor lost their only home. There is simply no comparison between these two losses. Struggling people became wage slaves, with a much lower wealth base to fall back on.
What is worse, the superwealthy were able to convert the Crisis to their advantage, by persuading governments that banks needed hundreds of billions of dollars in bailouts because they were “too big to fail”. Stiglitz echoes Winston Churchill in his description of the outcome of this:
“Never in the history of the planet have so many given so much to so few who were rich without asking anything in return”.
Remember Stiglitz’s calculation that African-Americans lost 53% of their household wealth in the Crisis? Well, he goes on to say that the average Hispanic household lost 66%. The crises of capitalism are colour-blind, at least.
Not only are low income earners going backwards in wages, but they are also paying relatively greater amounts in taxes, as previously noted. Stiglitz calculates that the super-rich pay on average lower tax rates than those less well off (and Warren Buffett recently echoed this when he said he “was paying lower tax rates than his secretary”).
The reasons the wealthy are able to do this were discussed in the chapters on the rise of capitalism and the United States – they have been able to use their wealth to manipulate the mainstream narrative and the economic system to their own advantage. They now make the rules of the economic playing field.
A more equal society is a healthier society. And greater economic equality is an essential part of this. Inequality is rising rapidly in the affluent world, and needs to be addressed, through redistribution of income and wealth.
My own personal utopia would solve the problem of inequality of wealth and income by eliminating both money and ownership, as discussed in chapter 29. But not everybody is likely to want to go this far, at least not just yet.
Redistribution needs to deal with direct income, with taxation, and with accumulation of wealth. Stiglitz provides a long set of specific proposals for the American economy which you are welcome to work through[xiv]. But I’ll stay at the high level.
”Redistributing direct income” is at heart about giving wage workers more power in setting wage rates (through unions or other means), based on minimum incomes which fund an acceptable living style in the society (the “living wage” or something similar), and overall wage rates which take a larger and fairer slice of corporate income.
“Redistributing through taxation” is about reintroduction of more progressive taxes, and reducing loopholes for the wealthy. Raj Patel points out that President Roosevelt was able to introduce 94% taxes for incomes above $200,000 ($2.5 million today)[xv] in 1942 (admittedly at the beginning of a war). Stiglitz quotes Piketty and others as estimating that the top tax rate should be round 70% (roughly where it was before the Reagan reforms of the 1980s). The top US Federal personal tax rate is currently 39.6%, on income after deductions of $US413,000. In New Zealand, the top rate is 33%, but it kicks in at the much lower level of $NZ70,000.
“Redistributing wealth” could be about anything from “eating the rich” through repossession via burglary through to wealth taxation. The wealth held by the top 1% and top 10% is ludicrous. Stiglitz says of the United States that
“Even after the wealthy lost some of their wealth as stock prices declined in the Great Recession, the wealthiest 1% of households had 225 times the wealth of the typical American, almost double the ratio in 1962 or 1983.”[xvi]
The Occupy movement got it right. The super-wealthy own far too much. Just how many pairs of silk sheets does one family need, anyway?
There are a few, a very few, of the super-wealthy who work hard at redistributing their own wealth. I don’t include people like Bill Gates and Richard Branson in this, as they are just playing games on the margin with their wealth and their income. But, for instance, Sir James Wallace in New Zealand seems to have the right idea. As far as he is concerned, “money doesn’t belong to any of us. We simply manage it for the good of our community and our society.” He is heavily involved in philanthropy, accuses his fellow super-wealthy of becoming selfish, and advocates much higher taxes on high incomes, or finding other ways to incentivise the giving of “excess wealth” back to society[xvii].
Thomas Piketty’s proposals include not only more progressive taxes on income, but also heavier taxes on inter-generational transfer of wealth (ie inheritances), to return some of the wealth to the commons rather than perpetuate inequality of wealth between generations.
And wealth is the buffer that people need to tide them over difficult times. Everybody needs both income and wealth. As an accountant, I’m aware of both income and wealth, and believe that not only income, but also capital gains made, and transfers of wealth (eg inheritances), should be taxed. The different ways in which wealth can be obtained should not prevent us from sharing some of that gain in wealth with our fellow-citizens.
And all this needs to happen within a satisficing economy which redistributes superfluous income to poorer countries. One of the interesting things about inequality is that it has tended to be most troublesome within a society. It is relative poverty which creates disturbance and conflict. So, in a wealthy society, the “poor” may be well above an absolute poverty line, even if they are being driven down towards it by the current economic settings.
As our communications get more widespread and therefore more “democratic”, many of the deeply poor are becoming more aware of the true inequality of wealth in the world. Our “society” is becoming global. And, as a result, national borders are becoming more porous. The movements to the cities in pursuit of income which characterised the last century are being added to by migrations between countries, by the persecuted and the poor.
The most obvious example of this at the moment is the attempted movement to Europe from North Africa. This will continue and expand, unless there is either real redistribution of wealth to make economic and climate migration less necessary, or there is a minefield or barbed wire pontoon put across the Mediterranean to match the proposed wall along the Mexican/US border (both equally insane and equally ineffective, but, if you want to build a “gated” community, you do need walls as well as gates!).
A satisficing economy, whose consumption ambitions were set taking the limited capacity of the whole planet into account, would first redistribute superfluous income outside the country, and second redistribute within the country, through more progressive income taxes and effective wealth taxes.
[i] The Dominion Post, Wellington New Zealand, 30 July 2015, page B1
[v] “The Value of Nothing”, loc 686-91
[vi] “The Value of Nothing”, loc 686-91
[viii] “The Price Of Inequality”, page 123, Loc 557-59
[x] In “Fightback – Struggle, Solidarity, Socialism”, a New Zealand socialist magazine, June 2016
[xi] When Mark is asking his father how he is likely to invest his Reagan tax cuts.
[xiii] “The Price of Inequality”, page xxii, loc. 262-64
[xiv] “The Price of Inequality”, pp269 to 285, locs 4867-5150
[xv] “The Value of Nothing”, loc 1596-98
[xvi] “The Price of Inequality”, page 8 Loc 454-58
[xvii] See “Super-wealthy chastised by a peer”, Dominion Post, 31/07/2015, page B5