Mr. Ip and the Wall Street Journal Discover Wealth Inequality

It was in 2013 that Thomas Piketty rediscovered the problem of wealth inequality with his celebrated book Capital in the Twenty-first Century. Published by Harvard University Press and selling several million copies, the book turned prevailing mainstream economic thinking on its head. Academic economists and capitalist apologists had long assured us that capitalism persistently created wealth and distributed it fairly to all the factors of production, with deviations from this fair distribution attributable to unusual or exceptional intervention in the process.

But Piketty’s look at all the available, relevant data showed just the opposite: capitalism-- absent any external or exceptional circumstances-- invariably generated growing inequality. Using sources dating to the eighteenth century, Piketty showed that, with the exception of the destruction of capital or the rare active measures to redistribute it, wealth inequality was bound to grow. Piketty offered no deep explanation of why this is a feature of capitalism, but he did offer the usual social democratic panacea-- tax the rich!

Coming only four years after the steepest economic downturn since the Great Depression, Piketty’s opus was well received by a wide audience. As a consequence, one might think that the idea of overthrowing the system responsible for more than two centuries of growing inequality would accordingly enter the popular conversation.

But it was not to be. Though a new gilded age of conspicuous consumption, new manifestations of privilege, and raging demand for luxury emerged, no serious threat to the capitalist system sprung forth. Anger was contained effectively in the US by a rotten, corrupt two-party system. Fear and a deeply ingrained hostility to socialism gripped older generations. And younger people-- facing a desperate future-- were open to an alternative to capitalism, but saw no clear road for it.

Now, thirteen years later, The Wall Street Journal’s top economic commentator, Greg Ip, has again rediscovered inequality. He writes about today’s economy:

Its rewards are going disproportionately toward capital instead of labor. Profits have soared since the pandemic, and the market value attached to those profits even more. The result: Capital, which includes businesses, shareholders and superstar employees, is triumphant, while the average worker ekes out marginal gains.

The divergence between capital and labor helps explain the disconnect between a buoyant economy and pessimistic households. It will also play an outsize role in where the economy goes from here.

The brute financial force of all that wealth means market fluctuations, like last week’s, matter more for consumer spending. Meanwhile, artificial intelligence could funnel even more of economic output toward capital instead of labor. Last week may be a taste. Amid reports that layoffs are climbing and job openings plunging, especially for professionals exposed to AI, the Dow Jones Industrial Average closed above 50000 for the first time…

The shift to capital from labor has actually been under way for more than 40 years. Labor received 58% of the total proceeds of economic output, as measured by gross domestic income (conceptually similar to GDP), in 1980. By the third quarter of last year that had plummeted to 51.4%. Profits’ share, meanwhile, rose from 7% to 11.7%.

Ip’s charts show that S&P 500 profit margins have doubled over the last 15 years, with corporate profits rising 43% since the end of 2019.

Where Ip tells us that this is an alarming trend over the last 40 years, Piketty tells us that growth in inequality is the long-term trajectory of the capitalist economy. Both are right.

What is disconcerting is that the victims of this trend, the vast mass of working people, have no voice, no representation, no program to address this inevitable-- if we are to believe Piketty-- consequence of a capitalist system.

What is even more disconcerting is that voices on the left that purport to advocate for working people offer such unimaginative, weak alternatives.

Now Ip only raises the specter of growing inequality to alert ruling circles of the danger that the masses will sharpen their pitchforks and rebel against the privileges of capital. Piketty proposes redistributing wealth through mechanisms-- like taxation-- that the system controls with its most loyal agents. The idea that bourgeois political parties will substantially tax the bourgeoisie is truly fantastic. 

Unions-- one of the few remaining mass organizations supporting workers-- offer a poor record of staunching the flow of wealth to capital, even in industries where unions are well represented and strong. And union leaders seldom have any vision beyond that offered by center-left parties. 

Sadly, too many of the left’s public intellectuals are mired in side shows: cooperatives as an answer to international monopolies, romanticizing the capitalist order existing before Thatcher and Reagan, or cheering on an abstract “global south” bringing capitalism to its knees. 

Others paint a dire picture of wealth being cannibalized by a cabal of rentiers, scorning the Marxist theory of bourgeois and exploited proletariat. This novelty finds currency in the fashionable, but deeply incoherent idea of “technofeudalism.”

Missing from these distractive theories is any understanding of capitalism’s fundamental logic: the contradiction between workers and capital. Oddly enough, a capitalist apologist, a conservative writer, Greg Ip, understands this contradiction all too well in his observations about growing inequality, as does Piketty in his writings. 

For many of those offering their thoughts to working people, the working class is inconsequential or decimated by deindustrialization in their relatively small part of the world (typically, English speaking or Eurocentric). As a result, they spin arcane theories of inequality or oppressions. They overlook the reality that there are over a billion and a half workers in Asia alone, most of whom are working under conditions of capitalist exploitation as described by Karl Marx and Frederick Engels. They have forgotten that while industry has shifted globally, while there is a constant change in the global division of labor, the material wealth is still created by working people. 

The mobility of production and the division of labor are permanent features of capitalism that have only accelerated in recent decades. New technologies and industries have sprung up, where older technologies and industries migrated to areas of cheaper labor. A country like the United States is hollowing out, with a diminishing manufacturing sector, but a high-value, high-income technology sector at one level and a precarious, lower-income service sector at another level. Workers at all levels in all countries where capital employs labor are exploited by capital. 

The lengths to which so many supposed leftists go to ignore or deny the fundamental relationship between workers and capitalists-- the ultimate cause of growing inequalities-- is startling. The dawn of the industrial age gave new meaning to the word “exploitation.” Marx and Engels refined that meaning, giving it a rigorous role at the center of their analysis. And it remains essential to our understanding of the world today.  

Workers are exploited.

Reformers seek to blunt exploitation’s sting.

Revolutionaries act to eliminate it.

Greg Godels

zzsblogml@gmail.com

Mark Carney’s “Eulogy” to a Fractured International Order

Mark Carney-- Canada’s premier-- shocked many with his recent speech at the World Economic Forum in Davos. He spoke bluntly about illusions and realities that were features of the post-World War II international order.

He reminded listeners that until recently, it was accepted among global elites that economic life was conducted under a set of rules, governed by institutions, and protected by military alliances that guaranteed free markets, fair exchange, and integration. Granted, it was constructed and maintained by the US. But it was thought that this constituted a post-war consensus that, despite its hierarchical structure and occasional bullying of the weaker by the stronger, created a formidable framework, offering the best outcomes for all.

Now, Carney tells us that widely-held belief is an illusion. To underscore this point, he treats his audience to a silly Cold War parable about neighborhoods of greengrocers in Peoples’ Czechoslovakia, a clumsy knockoff of the tale of the Emperor without clothes, but crafted to get a chuckle out of the rabidly anti-Communist business people and politicians present.

By pandering to Cold War prejudices, Carney unintentionally reveals the context for the post-war international order. The ruling classes of countries assented to the order because they saw it as a bulwark against Communism. They allowed the US to construct the order under its own terms because the US promised to anchor the fight against the Soviet Union and its allies. Institutions, alliances, military bases, and ideological unity constituted a formidable structure to meet a new post-war balance of forces more favorable to socialism and the many social, political, and economic alternatives offered by the socialist bloc. Economic liberalism was showcased as the moral and rational response to Communism. Fear of Communism was the glue that cemented US rulers and their allies to this new order.

It is important to emphasize that the referenced international order was constructed by ruling groups and not by the people. And it was elite interests behind the construction. Too often commentators blur the distinction by loosely attributing policies or actions to countries, as though state policies or actions represent the will of a uniform, homogeneous population. Whatever else the highly-regarded post-war international order was, it was not a popular, democratic, equality-based system, but a structure to grease the wheels of capitalist commerce.

Before conceding too much to Carney’s challenge to this order, it must be remembered that it was challenged earlier with the demise of the bête noire-- the Soviet Union-- in 1991. As a result of losing the arch enemy, the US and its closest allies responded in the following ways:

1. “naturalizing” the international order, painting it as the natural order of things. Margaret Thatcher’s “There is no Alternative” insists that free markets, profit-seeking, and unrestrained competition constitute the most rational way to organize economic activity. Another Pied Piper of the post-war order is the neo-Hegelian, Francis Fukuyama, who maintained that the post-Soviet world was the result of the synthesis of all that came before it-- marking the “end of history.”

2. Finding another "ugly beast" to replace Communism. The war on drugs, the war on terrorism (and the newly minted war on narcoterrorism), the war on Islamic fundamentalism, and the war on immigrants and criminal gangs became replacements for the war on Communism.

Thanks to these responses to the demise of the long Cold War, a fragile world order was maintained with the US remaining its police officer and chief beneficiary.

But the real challenge to the post-war global order came with the twenty-first-century economic crises, especially the deep downturn of 2007-2009. Like the great powers in the Great Depression, the major players sought both individual solutions and solutions that would push the problems onto their neighbors and “allies.” In the wake of the so-called Great Recession, I wrote of “centrifugal forces” breaking apart existing alliances, coalitions, agreements, and institutions. Crisis-induced economic stress threatened to fracture formations like the EU, changed the relationship between US capital and Peoples’ China, fostered an international retreat toward economic nationalism, and intensified rivalries.

That process continues to shape our world today. The European war-- between Russia, Ukraine, and its puppeteers-- reflects that process. The radical rearrangement of the Middle East and Central and South America reflect that process. The 2007-2009 disruption of the post-war economic order changed China from a tasty morsel for Western capital into a powerful rival, thanks to China’s successful navigation of the severe global turbulence. Today’s rise of nationalist, protectionist political movements and parties is certainly related to the failure of the existing world order to survive the twenty-first-century crises intact.

Predictably new economic, political, and military alliances and coalitions are springing up in response to the shattering of the old order. Ruling classes are seeking to promote their national interests at an especially volatile, uncertain moment by realigning, by seeking more favorable terms through courting opposing great powers, or by establishing and dominating spheres of interest.

That is the message that Mark Carney sought to convey with his address at Davos:

Today I will talk about a rupture in the world order, the end of a pleasant fiction and the beginning of a harsh reality, where geopolitics, where the large, main power, geopolitics, is submitted to no limits, no constraints…

It seems that every day we're reminded that we live in an era of great power rivalry, that the rules-based order is fading, that the strong can do what they can, and the weak must suffer what they must.

While these remarks shocked many for their candor and implied a break with his government’s long-standing intimate relationship to the US ruling class, they simply reflected capital in Canada’s search for a more advantageous affair with a more appreciative suitor.

Similarly, some EU states are opting for warmer relations with Russia, while others are looking East, threatening to exit their abusive marriage with the US. The fragility of these new affairs, their basis in the immediate interests of ruling classes and in the capturing of markets and investments should not escape Communists and progressives. Russia’s rulers can pull Assad’s chestnuts out of the fire and pivot swiftly and throw those same chestnuts under the bus, while maintaining solid relations with both Israel and Iran. That illustrates the opportunism of capitalists seeking to restore order out of disorder.

Attempts to establish a new order to be centered around new arrangements, new alliances, new coalitions, and new rules should not be taken for a repudiation of the imperialist system, unless those attempts also repudiate capitalism. Re-centering the global capitalist order around a rival power or rival powers in no way guarantees a more just or equitable world for working people.

This an especially unpleasant conclusion for those who have invested deeply in the BRICS and BRICS+ formation-- an unlikely, heterogeneous, ideologically diverse, and largely capitalist grouping of states loosely organized around various grievances against the existing order. They offer no trade or investment strategies directed specifically at working people, not to mention any rejection of the exploitative imperialist system.

While Carney’s exposure of the “rupture” in the international order may have led some to believe that it signaled a positive reform of global economic relations, it did not sway the Central Executive Committee of the Communist Party of Canada. In a response to Carney’s address, they stated:

Prime Minister Mark Carney’s speech at the World Economic Forum at Davos has been noted for its blunt talk about a “rupture” with the “old order” of U.S. hegemony. This has been seen as a breath of fresh air for some in Canada who are rightly concerned with escalating threats to our sovereignty and the U.S.’s descent into war and reaction. However, Carney’s newly articulated vision does not mark a fundamental shift towards policies that will make lives better for working people, nor does it signal a Canadian foreign policy of peace and respect for the sovereignty of all countries.

Carney’s speech confirms the sharpening contradictions within the global capitalist system and the decline of U.S. imperialist hegemony. He identifies a “rupture” in the post-WWII order, correctly noting that U.S. imperialism is moving away from leadership through dominating international institutions and toward unilateral coercion, even directed against its own allies. But we must not forget who he was addressing: the main bankers and representatives of global finance capital. His message is a strategic one for their benefit.

Indeed, the old order-- a system of predatory monopoly capitalism, maintained by finance capital-- may undergo restructuring and realignment, but it remains a system of predatory monopoly capitalism maintained by finance capitalism. A facelift should not be taken for a revolution.




Greg Godels
zzsblogml@gmail.com