There was always an alternative: Runaway Inequality and Corporate capture of the State

Tuesday, May 3, 2016 - 12:11

The billionaire class is out of control. Unless we rein them in very soon, we will never be able to end global poverty or meet the Sustainable Development Goals. This is the key finding of a report released this week by ActionAid International, an international organization that works in solidarity with poor communities around the world.

The history that the paper goes through is worth examining in some detail and on two levels. The story for most of the global North is as follows: After World War 2, state planners understood that they could never go back to the days of robber-baron capitalism or dependence on far-flung empires. It came clear that the mechanisms of state power must be deployed to at least provide a minimum standard of living for the majority of their populations.

For industrialized countries in the West, the post-war period up through the mid-1970s was one of increasing economic equality, strong welfare states, limitations on the movement of finance and high taxes on the rich. The result was not heaven – there was still rampant discrimination against women, people of color, etc. – but these roughly 30 years stand out as an exceptional time when economic gaps narrowed. But the undermining of the agreed currency valuation system, a sudden and massive interest rate hike in the US, and oil price shocks were leading factors in bringing that period to an end.

In its place came a state that used the rhetoric of “free markets” to subsidize the super-rich and big companies while dismantling the parts of the old system that actually worked for poor people. So a system that was trending towards greater equality was replaced by one that trended towards greater inequality. Now, just forty years later, many countries may be as unequal as they ever have been.

Outside the rich countries, the history of inequality is much worse. For most countries in Asia and Africa, the post-WW2 period marked the beginning of the period of independence. Brutal colonial administrations were forced to relinquish their power and the governments that took over mostly had some kind of a pro-people or socialist bent. But coordinated plans that those post-independence governments made, for example at the Asia-Africa Bandung Conference of 1955, were already being dashed by the escalation of the cold war and the lumping together of any pro-people movements as communists aligned with the Soviet Union. Violence was the preferred tool, and the reverberations of some of that violence – for example the assassination of Congo’s Prime Minister Patrice Lumumba in 1961 – can still be felt.

In addition to the military violence came a more insidious kind of violence, perpetrated in the name of “science”. The science in this case was economics – not so scientific, really -- and the violence was the violence of economic austerity. Based on a web of lies about how economies work – ActionAid’s report lists seven lies --  “free market economics” enshrined inequality on an altar of inevitability. Privatization, liberalization and budget cuts were the magic bullets prescribed for any economy whether healthy or unhealthy. And even progressive governments were forced to accept these policies or pay a heavy price thanks to a debt crisis that was caused by policies in the North and by OPEC. In the Philippines the result of all this is poverty rates in excess of 25% and a gini coefficient of 45, ranking 125 out of 175 countries in terms of income inequality.

When I first wrote about these subjects in the 1980s, the austerity programs imposed by the International Monetary Fund (IMF) and the World Bank  were a topic of fierce debate in developing countries and among people working in development. But by now we’ve had 35 years of Thatcherism in Britain, 35 years of Reaganism in the US, and more than 30 years of austerity programs throughout most of Africa, Asia-Pacific, and Latin America and the Caribbean.

The results are plain to see. Privatization policies have made a handful of people very rich and condemned the rest to little or no improvements. In countries like the Philippines, instead of creating more and better jobs or improving services, governments have relied on remittances as a much-needed but still inadequate cushion against poverty. And in Europe, these doctrines are still being put to the test and failing miserably.

The time for debate is over. These policies don’t work, and we know what will work. We must improve social protections for women, ensure that women are better compensated for their unpaid care work, make sure that the richest individuals and companies pay their fair share of tax, invest in industrial policy that can create more and better jobs for young people, and use funds generated from things like financial transaction and wealth taxes to invest in the industries that will replace the unsustainable fossil-fuel economy. At a technical level we know a lot about the policies that would reduce inequality and promote the needs of the most vulnerable women and men and the environment.

But the real solution is not a technical one. The hyper-rich are holding our democracies for ransom. The recent Panama Papers leak reveal reveals the extent of their empires and the amount of influence they have over governments. Changing policy means taking power back from the hyper-rich and restoring the power to the 99% of us who have seen our fortunes decline while they’ve made off with the goods.