Billionaires and the welfare of nations

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Occupy Wall Street protester in 2011.
Image: Glenn Halog Source: Flickr

The super rich are leaving only the scraps for everyone else to fight over, which is fuelling a mounting wave of intolerance as minorities and migrants are scapegoated for falling wellbeing. For the welfare of all, we must end these stark wealth inequalities before it leads to unmanageable social unrest.

Saturday 20 June 2020

Everyone has it tough during the COVID-19 pandemic and we are all in the same boat – this has been a common refrain throughout the crisis.

It is true that we are all aboard the Titanic together. However, some are riding first class, some are riding third class, and others are in the galley below rowing… Oh, and there are not enough lifeboats to go round.

In reality, the super rich are not only shielded from this crisis by their wealth, which enables them to shelter from the virus on superyachts or escape it on private jets, some are even enjoying an unprecedented bounty during these difficult times. This is especially the case in the United States.

During the coronavirus crisis, US billionaires accrued a huge windfall of more than $583 billion in the three months between mid-March and mid-June, according to the latest report by the progressive Washington-based Institute for Policy Studies and Americans for Tax Fairness. At a time when at least 45 million Americans are out of work, tens of thousands have died of the coronavirus (which has has killed black Americans at three times the rate of whites), and 265 million people around the world are at risk of dying of hunger, the United States minted 29 additional billionaires, according to the report.

While frontline workers risk their health and lives to keep society functioning and care for the sick, the biggest financial winners by far were America’s top five billionaires (Jeff Bezos, Bill Gates, Mark Zuckerberg, Warren Buffett and Larry Ellison) who saw their wealth grow by a total of $101.7 billion, or 26%.  Bezos and Zuckerberg saw their combined fortunes grew by nearly $76 billion, or 13% of the $584 billion total, according to the IPS study.

Whenever anyone, including myself, criticises the obscene wealth of billionaires, there are those who rush in to defend them, arguing that critics are just envious and that billionaires deserve this success and earned their vast fortunes.

But is this actually the case?

Like a superhero origin myth, there is a typical narrative that surrounds billionaires, especially those in the tech industry. It goes something like this: X, working in their bedroom/garage/dorm, came up with a brilliant idea, against the odds, brought it to market and is now enjoying the fruits of their brilliance.

It is true that quite a few billionaires started off with nothing (or at least with a more modest fortune), and many did exhibit inspiring brilliance in their early careers. However, is the acumen of these entrepreneurs really worth so much more than everyone else’s labour – combined?

Unimaginably, it would take an American household earning the mean $60,000 a year nearly 2.5 million years to accumulate the estimated $147bn which Jeff Bezos is estimated to be worth… if they did not spend a penny. A low-paid Amazon worker on the shopfloor would take more than 4 million years of saving their entire income to assemble their boss’s fortune.

And these are workers in the world’s richest country. Now try to imagine how long it would take a poor worker in South Asia or sub-Saharan Africa to make this kind of money.

It goes without saying that nobody’s ideas or work ethic or vision is worth thousands or even millions of years of everyone else’s labour. This notion is particularly insulting in this time of crisis, when the people society depends on to function are not tycoons, top CEOs or hedge fund managers but nurses, doctors, emergency workers, care-givers, supermarket staff, delivery people and utility workers.

Moreover, there is almost inevitably an ugly and underexposed underbelly which casts serious doubt on the idea that billionaires “earned” their unfathomable fortunes. While there are certainly “good billionaires” and “bad billionaires”, there are no billionaires, as far as I can ascertain, who made their billions fair and square, without employing some ethically dubious practices.

These practices may include underpaying or overworking staff, monopolising the productivity gains delivered by their workers by keeping the financial gains to themselves and automating jobs, exporting  jobs, stifling competition, and even exercising monopolies or near-monopolies.

One area where the billionaire class and large corporations have been laughing all the way to the bank, and where the rest of society has been crying in misery, is taxation. While ordinary wage earners in advanced economies, especially those with a robust social safety net, disproportionately bear the burden of taxation, corporate tax rates and taxes on high incomes and capital have hit historic lows, with a de facto regressive tax system increasingly becoming the new normal.

The results of this skewed, unjust system are clear to see. The fattest cats in America, for example, saw their wealth bloat by over 1,100% between 1990 and 2018, according to the Institute for Policy Studies report, yet their proportional tax obligations decreased a spectacular 79% over the same timescale.

Meanwhile, the rest of society is left to fight over the scraps, which has fuelled ugly identity politics and the massive resurgence of racism and xenophobia as minorities and migrants are incorrectly blamed and scapegoated for the corrosion of the majority’s welfare which was largely caused by the gluttony of the super rich and large corporations, not just in America but in many other parts of the world.

Over and above this, the unprecedented mobility of capital and wealthy individuals, facilitated by decades of deregulation and the absence of a global tax regimen or coordination of tax policies, has enabled many corporations and billionaires to transfer their profits to tax paradises, allowing them to dodge their tax burdens and, with them, their social responsibilities. This has also forced a race to the bottom between countries fearful of losing out to tax havens.

Even though corporate tax rates are at an all-time low, the IMF estimates that governments are deprived of up to $600 billion a year in corporate taxes at the reduced rates due to the kind of clever bookkeeping that has been made possible through decades of financial deregulation and walks the fine line between legal ‘tax avoidance’ and illegal ‘tax evasion’. Economists calculate that 40% of the profits of multinationals are artificially transferred to tax havens from higher-tax countries, especially in Europe.

To add insult and injury, not only has deregulation devastated the welfare state, but also among the biggest recipients of state welfare are, paradoxically, the richest, who benefit the most from the rescue packages designed to pull us out of crises, especially in the US. This occurred during the Great Recession following the financial meltdown of 2008-9 and is happening again during the current coronavirus crisis.

More enlightened billionaires have arrived at the realisation that such vast concentrations of wealth are not only bad news for society, they are bad for the wealthy. Warren Buffett and Bill Gates are both advocates of higher taxes for the rich, but the rates they consider fair are nowhere near enough to bridge the inequality chasm that has emerged, rebuild our tattered social safety nets, lift the world’s poorest out of poverty and heal the environmental devastation caused by such extremes of wealth.

Another solution is for billionaires to voluntarily divest. Buffet and Gates have not only pledged to give away their money, they have established the so-called Giving Pledge, where they encourage other tycoons to also part with their fortunes. However, the response to the initiative among the mega rich, or what I like to think of as wealth extremists, has been lacklustre at best, representing a tiny drop in the ocean compared with the total wealth billionaires control. Meanwhile, those who have signed up to the pledge are generally seeing their fortunes grow far faster than they are giving them away.

Besides, philanthropy is no substitute for taxation and social justice. Not only does it demean people by turning what should be their rights into acts of charity and largesse from the rich, it also puts what should be a collective decision-making process on societal priorities in the hands of unelected individuals, who may or may not be concerned about the greater good.

Moreover, this gigantic concentration of wealth gives billionaires the kind of political clout that makes a mockery of the one person, one vote foundation of democracy. We are used to the business class representing a powerful oligarchy in authoritarian and autocratic regimes, such as in Russia or the Arab world. In democracies, the massive lobbying power, both direct and indirect, of the billionaires and corporations erodes democratic governance and undermines the will of the electorate.

What we need are not half-baked efforts to make being a billionaire undesirable – we must make becoming a billionaire impossible. This requires a collective, global effort to introduce “equanomics“.

This can be achieved through a variety of mechanisms, from a coordinated taxation system so progressive that there remains no incentive or possibility to build up such vast fortunes, to enacting an actual cap on wealth and incomes.

This will both narrow inequalities and enable societies around the world to repair and expand their social safety nets, as well as to better reward those working in neglected vital sectors. Moreover, it will enhance the incentive for constructive, socially beneficial innovation because people will feel that the fruits of their labour are not just going to make fat cats fatter.

Failure to take corrective action will lead to greater social unrest and conflict as people’s welfare is further degraded. While minorities are currently paying, and will continue to pay, the heaviest price for this inequality, the super wealthy, as history has shown repeatedly, are not immune to the wrath of those they impoverish.


This is the updated version of an article that was first published by Al Jazeera on 26 May 2020.


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Introducing equanomics

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By Khaled Diab

Governments need to rethink their economy policies to make them more equitable and responsive to citizens’ needs.

January 2009

Reading the business pages is like wading through a nuclear wasteland littered with ‘toxic assets’. Gordon Brown is now working to limit the damage from this radioactive debt with a multi-billion pound safety net for the financial system. This, along with the hundreds of billions the government has already pledged, not to mention the tens of billion it has already spent, has sparked warnings of possible bankruptcy for the UK.

Since it rippled out from the subprime scandal in the United States, the global financial crisis has seen taxpayers exposed to mind-boggling liabilities, potentially counting in the trillions. While the financial sector sends the wider economy into a recessionary tailspin, what have the architects of the disaster been up to?

Rather than face paying the price for the ruin they have visited on others, top executives have been giving each other golden handshakes before donning their diamond-encrusted parachutes and leaping out of the blazing wrecks they have left for governments to keep airborne with both engines burning.

But even in the United States, it seems that people have lost patients with the executive caviar train. Last week, the Senate said it would not approve any more bailout money without strict limits being imposed on executive pay.

The brewing outrage is hardly surprising when you consider that, as millions face the prospect of the dole and losing their homes, top managers are sitting pretty and laughing. Take the Merril Lynch executive who got $25 million for three months work or, on this side of the Atlantic, the €4 million payoff received by the former chief financial officer of Belgian-Dutch Fortis Bank, which benefited from a government bailout to the tune of €11.2 billion.

Even George W Bush, a leading cheerleader of neo-liberal economics who has probably done more than any other president to fatten the bottom line of corporate America, has been making ominous threats. “Anyone engaging in illegal financial transactions will be caught and persecuted,” he recently said. Appalled as I am by the exuberant excesses at the top, as a strong believer in human rights, I cannot tolerate talk of persecution.

What needs to be done is not only to limit executive pay in banks receiving government bailouts but across the board. We need a general cap on earnings, which would be high enough to provide an incentive for people to perform and strive but low enough to prevent major economic injustice.

But that, in itself, is not enough. We need to rethink our approach to the economy and herald in a new age of what I call equanomics, where the success of an economy is judged by how well it improves citizens’ well-being, narrows the gap between them, and truly provides them with equal opportunities.

At present, there is too much of a tendency to regard the economy as somehow existing outside of society. But this false separation has led policy-makers in many countries to put the interests of the market ahead of the interests of the people. Equanomics would remove the false barriers between the economy, markets and society, and social indicators – such as quality of life, education and health – would count as much as macro- and microeconomic indicators.

In addition to maximum and minimum limits on income, under equanomics, salaries would be determined not only according to a job’s market value but also its social worth through, say, an impartial index which draws on the views of experts and the general public to assess the social value of different jobs. Of course, this might mean that top executives will be taxed extra to raise the pay of nurses.

Some will argue that only free markets can create the wealth needed to improve people’s lives and that communism only succeeded in impoverishing societies in its quest for equality. I am not advocating the imposition of a communist dystopia, but the sort of enlightened blend of socialism and capitalism that served Europe well in the post-war years and has helped Scandinavia to have its cake and allow the majority of citizens to eat it.

Besides, free market capitalism has failed dismally to create the utopia it promised. Despite the laudable talk of equal opportunities, economic disparity robs millions of the opportunity to shine and succeed. For example, an upper-class boy in the UK is 30 times more likely to land a top job than a boy from the unskilled working class. Contrast this with the countries with the highest social mobility, such as the Nordic countries and Canada, which also happen to be the countries with the lowest inequality. This means that there can be no equal opportunity without greater economic equality.

The free market, as we currently know it, is actually not an ‘invisible hand’ that dispenses impartial economic justice. The big players, from oligarchs to dominant or pseudo-monopolistic corporations, have a massive distortionary effect on the efficient functioning of the market.

This is reflected in the rapidly rising levels of global income and wealth inequality, which has led the UN to sound the alarm on the possibility of widespread social unrest, not only in developing countries, but also in the United States, Britain, Spain and Greece (which was recently plagued by riots).

In the UK, since income disparity rose at unprecedented rates in the 1980s, those Thatcherite levels of economic inequality have been perpetuated, with the super rich racing even further ahead, the middle classes getting a modest piece of the action, and the lowest income groups being left behind to eat everyone else’s dust.

Of course, given the fact that multinationals are of a size to rival small, prosperous nation states and the financial markets can punish governments for stepping out of line, the need for coordinated intergovernmental action has become all the more urgent. In this regard, governments can harness the power of the EU and other regional blocs, and even reinvent the World Trade Organisation, to make globalisation fairer and more equitable.

The current crisis risks deepening the wealth gap, as millions in the middle and lower income brackets face the prospect of imminent unemployment and pay cuts, while government funds are exhausted underwriting the welfare of the wealthy. We need governments to put equanomic principles at the heart of their policy if we are to avoid widespread social conflict and enhance socio-economic justice.

This column appeared in The Guardian Unlimited’s Comment is Free section on 19 January 2009. Read the related discussion.

This is an archive piece that was migrated to this website from Diabolic Digest

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