17.6.13

THE HOUSE OF HAVE, AND THE HOUSE OF WANT.

Chrystia Freeland's Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else has a provocative title that does not accurately summarize the analysis of the book.  In Book Review No. 11, I hope to highlight the research opportunities, and the contested territory in the political economy of globalization, that the book really points toward.

Thus, dear reader, if you're hoping that the main title is an appeal to your inner Marxist, and that the book ends with a call for torches, pitchforks, and a storming of the Winter Palace, you will be disappointed.



If you're disposed to agree with Dean Baker on the effects of influence sought and influence obtained in government and in the tax code, you are likely to find Plutocrats agreeable.
The revised GDP data for the fourth quarter released yesterday showed the profit share of corporate income hitting 25.6 percent. This is the highest since it stood at 25.8 percent in 1951. However if we look at the after-tax share of 19.2 percent, we would have to go back to 20.8 percent share in 1930 to find a higher number, excepting of course the 19.3 percent number hit last year.

To put this in context, the after-tax profit share was just 14.5 percent in Reagan's Morning in America days. The difference would have come to roughly $330 billion last year. To put this in the 10-year budgetary window that is the standard framework in Washington these days, the rise in after-tax corporate profits since the Reagan era can be seen as equivalent to a $5.0 trillion tax on the nation's workers.
Yes, public power is the power to generate rents, and yes, rent-seekers seek rents, politicians generate them, and the combined effect is often to dissipate rents. There's an entire chapter in Plutocrats on the threat a "global rent-seeking oligarchy" might pose to the body politic, but no coherent proposal either to limit government's ability to generate rents, or to provide additional procedural checks on government agencies.

There's also recognition that rent-seeking can be counterproductive.  At page 168 is one of the destructive ways rent-seeking works.  A reference to Firestone Tire might well be a reference to the entire Fordist Industrial State.  "'Ossified success formulas' aren't enough, and the outsiders who are good at responding to revolution can outflank the establishment."  Sic transit gloria Akron.  Plutocrats, though, is about the emergence of those noveaux riches, primarily in information technology and finance, not about the efforts of Old Oil and Old Steel and Old Tire and Old Auto to retain some vestige of their Old Privileges.  On page 170 is an observation about those New Elites, though, with implications that Ms Freeland does not explore.  After the financial sector crashed, a senior manager at Goldman Sachs told her that no Big Capital manager would have dared suggest taking a more prudent position in the midst of the Bubble -- despite the strong possibility that such prudence would have attenuated the effects of both Bubble and Pop.  But Consensus Wrecks Lives is not the kind of title that makes the best-seller list, let alone appeals to the Chattering Classes.  Disentangling the effects of reactionary rent-seeking (the Fordists) from misplaced consensus (the Financial Sector) from creative destruction (at p. 184 the author suggests global markets are more powerful at making rich people richer and poor people poorer) will keep the next generation of social scientists busy for years, that is if anybody is going to be doing any social science research any more.

What, then, about The Fall of Everyone Else?  The assertion makes sense if the author and reader confine their focus to Middle America: those Union Workers in Fordist Industries, and Middle Managers, and Competent Bureaucrats rendered redundant by Chinese Prison Factories, and (take your pick) Information Technology or Re-engineering, and Cynicism.

Think globally, though, and that Everyone Else takes on a different cast.  A passage at pp. 240-41 contemplates economic change that "lifts four people in China and India out of poverty and into the middle class, and meanwhile one American drops out of the middle class."  Put simply, that's a Marshallian improvement.
To visualize this, draw a production possibility curve, pick an allocation of output along it, draw a new production possibility curve to the right of the old one, and pick an allocation of output that is NOT to the northeast of the old one. You've just identified a Marshallian improvement, in the form of expanded output, but one that requires some people to give up some of their current consumption to make the improvement happen.
Ms Freeland (page 266) notes "In India and China, the past three decades of freer markets have lifted hundreds of millions of people out of poverty, a feat the previous three decades of left-leaning development economics had singularly failed to accomplish."  Thus, Reason's Moses Naim suggests, might the plutocrats be undermined.
According to the World Bank, between 2005 and 2008, from sub-Saharan Africa to Latin America and from Asia to Eastern Europe, the proportion of people living in extreme poverty (those with incomes under $1.25 a day) plunged. Given that the decade was marked by the onset of the deepest economic crisis since the Great Depression of 1929, this progress is even more surprising. The world is expected to reach the Millennium Development Goals on poverty set in 2000 by the United Nations much earlier than originally anticipated. One of the most audacious goals back then was to cut the world’s extreme poverty in half by 2015; that impressive feat was achieved five years early, in 2010.

Despite the global financial crisis, the economies of poorer countries continued to expand and create jobs. That trend began three decades ago; 660 million Chinese have escaped poverty since 1981, for example. The share of Asians living in extreme poverty dropped from 77 percent in the 1980s to 14 percent in 1998. This sort of progress is happening not only in China, India, Brazil, and other successful emerging markets but also in the poorest countries of Africa.
It's not the end of plutocracy, but Mr Naim suggests that end, too, is coming.
By no means is big power dead. The big, established players are fighting back, and in many cases are still prevailing. Dictators, plutocrats, corporate behemoths, and the leaders of the great religions will continue to be the defining factors in the lives of billions of people, even as they slowly lose market share. But these megaplayers are more constrained in what they can do than they used to be, and their hold on power is less secure.
Ms Freeland's most useful contribution might be to suggest to readers, not necessarily of Reason or of Public Choice Theory, that rent seeking contributes to the entrenchment of those who have an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.

(Cross-posted to 50 Book Challenge.)

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