Inequality and the Global Economic Crisis

PROLOGUE

Introduction

Inequality has been universal throughout humans’ existence, varying over time and place in its form, intensity, and consequences. In the main capitalist nations life has always been difficult for a significant percentage of their working class, and horrible for almost all in the poor countries. Inequality has always tended to deepen in hard times and to lessen in good times in the rich countries, often at the expense of the poor countries.

Since World War II, the US has been the most influential of all nations. Its influence has been both positive and negative as to one degree or another most other countries have become Americanized: economically, politically, socially, militarily. In becoming so, their patterns of inequality could not help but be affected; if neither in the same ways nor degrees.

From the 1970s on, the world entered a new era: the global economy became always more integrated and interdependent; there have been substantial periods of both expansion and contraction, and simultaneous inflation and deflation. The effects were most marked in the US but not unique to the US. Whether during expansion or contraction, the always substantial inequalities of income, wealth, and power worsened from the 1970s to the present.

This book was begun in 2006 and completed a few months after the US election won by Barack Obama. It is hoped that his presidency will not only halt but reverse the ugly tendencies that took root in the 1970s. Evidently, the election itself signified a marked lessening of racism against blacks. That said, it is also generally understood that the election took place just as it became clear (1) that a serious economic crisis had begun and, (2) that the Bush administration was not only critically responsible but that its emergency policies of bailout were favoring the very companies and executives which had contributed to and profited from the causes of that crisis. It may be hoped that a considerably different direction, one concerning all the people rather than financial bigwigs, will be undertaken by the new administration.

Financial wildness is not unique to the present; a reading of economic history shows that as far back as the seventeenth and eighteenth centuries, the early years of capitalism, the two leading economies created their financial crises (first the Dutch Tulip Mania, then the English South Sea Bubble). Their causes were centered on the greed aped in the US Crash of 1929 and again in today’s collapse. However, it must be understood that as capitalism moved from the seventeenth century to the present, always more complex economies and technologies have multiplied and deepened the consequences of greed-driven speculation. There is much to be understood and read about those developments: see Boxer (1965) for the Dutch, Bowden (1937) for England, and, for the US, Zinn (2000), Mitchell (1947), Soule (1947), and Phillips (2008).

The focus of ensuing chapters is mostly upon the US: its capitalism, its class structure, and its related inequalities of income, wealth, and power. It emerged as the most powerful of all capitalist societies during World War I, and its power greatly accelerated because of the enormous damages done to others by World War II. In the ensuing years, US policies have brought almost all other nations toward Americanization to a significant degree.

Capitalism’s inherent class structure carries with it related income and wealth inequalities. But substantial attention must also be given to the ways in which economic and political inequalities have been supported and worsened by long-standing realms of discrimination and prejudice based on gender, color, religion, and national origin; not least in the US.

Capitalist Paradise: the US

Uniquely in the capitalist world, the US did not have a pre-capitalist existence; its inequalities have been stamped American, from its Constitution to the present. That its all men were created equal… and that it omits all women and non-white men was doubtless unconscious: after all, Jefferson and most of the other drafters had slaves and, of course, all were men, were also landowners or commodity traders (most profitably of slaves), and were incipient capitalists. Without knowing it, they were paving the way for industrial capitalism and its institutionalized inequality between those who own the means of production and those who do not. As the historian George Fredrickson has put it, Rather than being an exception to the grand themes of liberty and democracy, slavery and the racism it engendered have exposed the shallowness and narrowness of the national commitment to these ideals (Fredrickson, 2009).

Thus it was that from the US’s birth as a nation, inequality ruled; as it had for most of history for all others. After World War II, inequality was noticeably reduced in many European nations and, in lesser degree, in the US, but only for a while. Since the 1970s, through an always more concentrated and decreasingly challenged capitalist system, the pre- and postwar social reforms have been smothered or abandoned by an even tighter, more reckless, and more ruthless Americanized/globalized capitalism; whether in the major industrial capitalist or in once-imperialized now-industrialized countries: for example, in India, Vietnam, and Communist-capitalist China (Wang Hui, 2003).

Those controversial generalizations will be discussed at length in ensuing chapters; but here we begin with the birth of the nation. As it took hold, Tom Paine famously wrote These are the times that try men’s souls. It was too soon for anyone to see that the basis for such times was the dawning transformation of colonialism into imperialism, the stirring of the industrial revolution and an ever hungrier, more demanding capitalism. The nature of that new social system was seen simultaneously in 1848: by Marx and Engels in their Manifesto seeking to overthrow it, by John Stuart Mill in his Principles hoping to cleanse it.

Because the US became a nation in the early evolution of capitalism meant that it was not encumbered by non-capitalist habits and values; only one of its many advantages. Among the others were:

Meanwhile, other capitalist nations had to struggle against each other for even a portion of the thievery. Those struggles ultimately took them to their mutual defeat by the two world wars as, perversely, they carried the US to unheard of heights of wealth and power. The gods of capitalism and imperialism had selected Uncle Sam as their favorite son. Thus began the US history of militaristic imperialism and of treating non-whites as being non-human and which have since served all too well as a training school for the habit of blaming the victim (Ryan, 1976).

It was in those early years that the US came to view its endless aggressions both within and beyond North America as a blessing for those conquered while, in 1823, blandly announcing the Monroe Doctrine: "Keep out of our hemisphere!" (W. Williams, 1980). Since then, the US has made many wars. (See Chapter 8.)

Only in its Civil War, if then, did the US seem to live up to its stated ideals of the land of the free and the home of the brave, where all ‘men’ are created equal. But 600,000 died in its Civil War; was not that to rid the US of slavery? Part of the answer is that at least half of those dead soldiers died to maintain slavery; nor is there reason to believe that a majority of the Northern troops were fighting to end it. As to the equality of men and women, it was not until the twentieth century that women were allowed to vote, let alone to be seen as equal; and many more decades passed before blacks would be seen as being among the free and the brave; by a few, now and then. Consider this: General MacArthur became a hero as the US Commanding General in the Pacific war. Early on, he issued an order that black soldiers were not to carry weapons: no matter what, no matter where; in or out of combat areas. (Some of that dirty history is found in Killens, 1969, who was a black soldier in the Pacific war.)

That was in the past. The chapters to follow discuss and analyze the details concerning the many realms of contemporary inequality, the anti-democratic ways and means to which the US has become accustomed, and their revival since the 1970s.

Slouching Toward Hell

Since the 1970s the dominant socio-economic tendencies in the US and, increasingly, elsewhere, have pushed us to the political right, reversing the moderate left-leaning reforms after World War II. It should go without saying that inequalities are harmful to their victims in many ways, including daily misery and shortened lives. That may change with Obama if there is popular pressure and support. Less obvious, however, is that those same inequalities wreak great economic, political, and social harm upon the society as a whole, including those who create or permit them. That will be elaborated upon in Chapters 8–11; Chapter 7 will show how post-1970s let the devil take the hindmost as financial policies allowed Wall Street to become a free-for-all playground for gambling. In those same years economies were increasingly transformed from being centered upon industrial production to being dominated by the free-for-all standards of high finance; and thrust into today’s financial collapse. In Chapter 12, US inequalities and their treatment are compared with those in Western Europe. There it will be seen that although capitalism requires class inequality and inequalities of gender, color, are universal, that after the horrors of interwar fascism in most of Western Europe, their capitalist countries were led by popular movements to be less inhumane and reckless than the US’s. Today almost all countries in the globalized world have adopted much of the politics and economics of the US. It has become all too possible that, unless interrupted and reversed, today’s centralized socio-economic power and consumption crazed populations could open the door for the emergence of what Bertram Gross called friendly fascism (Gross, 1980).

That possibility will be examined in the Epilogue, where it will be shown that the term friendly as used by Gross was ironic. His argument is that as fascism looms again the relevant populations will resist so little that the violence and concentration camps of (say) German and Italian fascism would not be needed. A better term could be acquiescent fascism. Whether or not the 2008 election of Obama will eliminate that possibility in the US will be determined by whether or not its people rise from their TVs and shopping and become politically involved in building a decent world. In that regard, it is disturbing to have to add that the US record regarding both the pre- and post-World War II fascisms is not encouraging, to note that until attacked by Japan and Germany declared war against the US, it stood aside, even cooperated with European fascist nations (Italy, Germany, Spain). Moreover, since World War II, the US helped the fascist Pinochet to depose the Chilean democratic government in 1973 (Uribe, 1975; and see Chapter 8).

It is both conceivable and essential that the political apathy accompanying consumerism will be altered substantially if, or when, the ongoing financial crisis spreads and deepens into a global depression. In the US, the presidency of Obama could quite possibly generate a move toward social sanity. If it does not? Such a worrisome matter has also come to apply to Western European capitalist societies. After World War II moderately left-leaning policies took firm hold in most of Europe. More recently, their socio-economic policies have given way to those resembling the US’s; as they also shop ’til they drop. (See Chapters 5–6.)

What is it about current developments that is especially worrisome, and why? The main theme of this book is that the always deep and wide inequalities of the capitalist world, although lessened significantly after the war, have since the 1970s been given an always stronger life. The US business world has consciously and effectively deepened its power to achieve its ends as giant corporations have created or strengthened a many-sided rightwing political movement and were determined to go back to the good old days of unchallenged prejudice, discrimination, and poverty. Along the way they have created an anti-democratic, happily militaristic many-sided rightwing movement. (See Chapter 4 for the US.) The rightist movement was and is fed and supported not only by the all too indifferent, even cooperative media and generously subsidized research organizations, but (especially in the US) by numerous politically-geared gun lovers, passionate racists and sexists, and a string of zealous religious groups; despite that the activists of one or more of such groups are themselves among the victims of one or more other groups.

The above holds mostly for the US; unfortunately, but not inexplicably, such developments have emerged in Europe as well, most obviously in Italy (where I now live and teach), with the third electoral triumph of Silvio Berlusconi. He is the richest man in Italy, at once fierce and jovial, a passionate businessman and sportsman. He controls several companies in the communications world (radio, TV, newspapers, etc.) and owns one of Italy’s major soccer teams. As liberal and left politics have become paralyzed, Berlusconi has become always more powerful and always more arrogant. He is meaningfully seen as Mussolini in a business suit.

One may dislike and fear all of that greatly and still ask: What is to be feared? Is not today’s lurch to the right just another bump in the road? Perhaps. But it should never be forgotten that early in the twentieth century, Italy and Germany were generally seen as the most civilized of nations because of the beauty of their art, literature, music, and science; nonetheless as the 1920s became the 1930s they had become the first and most murderous of fascist nations. If a repetition of that horrible fate is to be avoided in the US or elsewhere, we the people must activate ourselves and become the leaders of a genuinely democratic society. Time is running out.

1

INEQUALITY: AN INTRODUCTION

These opening chapters will examine the many ways in which inequality’s persistence and deepening have always and everywhere prevented our species from achieving decent and safe societies. Inequality may or may not be "the root of all evil," but it surely sits at the causal center of a world now rife with poverty, misery, economic crisis, wars, and environmental self-destruction. A major element of economic inequality was usefully noted in the Wall Street Journal in its Boom in Financial Markets Parallels Rise in Share for Wealthiest Americans (December 10, 2007):

The richest Americans’ share of the national income has hit a new record since World War II: The wealthiest one percent of Americans earned 21.2% of all income in 2005, according to new data from the Internal Revenue Service, up sharply from the previous high… The bottom fifty percent earned 12.8% of all income, down from 2004… The nation’s top 400 taxpayers reported a total of $85.6 billion – an average of $213.9 million each…twice as large as it was a decade earlier… Until this summer [2007], soaring stock prices and buoyant credit markets had produced spectacular payouts for private equity and hedge fund managers and investment bankers. A University of Chicago study shows that in 2004 there were more than twice as many such Wall Street professionals in the top half of one percent of all earners as there are executives from non-financial companies… The top 25 hedge-fund managers earned more in 2004 than the chief executives of all the companies in the Standard & Poor’s 500-stock index…

In 2004, both the US House and Senate passed a health care bill providing care for about 10 million children without health care. Bush vetoed the bill; then, a few days later he provided an extra $200 billion for the Iraq war, whose total costs already exceed $3 trillion.

In capitalist societies, such data are the facts of life. As will be seen in what follows, there are all too many such facts in other areas (health, housing, poverty, etc.), all ranking high in the world of inequality’s injustices and its social criminality. The focus here will be mostly but not only on the US; later, in Chapter 12, US conditions will be compared with those of the major capitalist nations of Europe; there it will be seen that although capitalism’s intrinsic inequalities of income, wealth and power function in Europe, until recently they have been less severe than in the US. But before proceeding further about inequality it is important to indicate what here is and is not meant by equality. What follows is very much dependent upon the reasoning of R.H. Tawney’s classic book Equality (1931).

Inequality of Whom, Regarding What?

We live in a world in which the many kinds of inequality are normal, pervasive, taken for granted, usually seen as proper, and where arguments for lessening inequality are likely to be mocked: You mean you want everyone to have the same education? Have the same way of life? Eat the same food and wear the same clothes? Listen to the same music? Do the same work? Or, more to the point, and what would irk most: To be viewed with the same respect? The answers to some of those questions should be yes; to others, of course not. But that’s not the problem. Mockery might be expected from those who oppose any and all arguments for a genuinely democratic society; but even many who see themselves as open-minded and decent also raise such questions: we have become all too accustomed to acquiesce in a deeply unequal society.

So, what in this work is or is not meant by the equality seen as desirable? A starting-point is that from womb to tomb all human beings are equal in their basic needs: adequate nutrition, shelter, education, and health care, the need of equal opportunity for all to work toward the fulfillment of their diverse possibilities. Those basic needs will be discussed at length later on, a fine treatment of which can be found in the analyses of Sen (1981) and Streeten (1984).

Basic needs are not fully met anywhere on earth; least of all in the dozens of once colonized/imperialized and now globalized societies of Africa, Asia, Latin America, and the Middle East. There the overwhelming majority of people live in desperation and poverty from birth to what is usually a premature death. It is rarely understood that their lives were both more bountiful and more dignified before they were taken over by colonization and imperialism: the critical bases for the world’s rich nations’ ability to become so rich (Wright, 1992).

However, having stolen the resources and potential riches of the poor countries, the thieving countries nevertheless have failed to meet the basic needs of the peoples of their own countries: notably, especially, and most disgracefully in the US, the richest country in history where, however, tens of millions live in poverty. This work seeks to show that when compared with the other rich countries, the unmet basic needs of the majority of the US are the broadest, deepest, and most damaging while, adding insult to injury, the US power structure and ideology have allowed and caused those unmet needs to be widely accepted as natural.

Those US realities are a product of still another problem; namely, that it is the most rugged capitalist of all nations. In being so, it has led Americans to accept ugly social realities and to blame their victims (Ryan, 1976). More than all others, the people of the US have learned to take the ideology of capitalism as a given; to believe, as Britain’s Prime Minister Margaret Thatcher put it when she was in power: There is no alternative.

Inequalities have always existed, everywhere, beginning with those between men and women. Even assuming that inequality is timeless and ubiquitous, what’s the fuss? The fuss is because although contemporary industrial capitalist societies are by far the most abundant in all of history, that abundance and the meeting of basic needs are available only to some of their people. The some may be a strong majority, as in Scandinavia, but it is a small minority in the US and elsewhere. (See Chapters 9–10.)

Although pre-modern societies were blotched by inequality, it was neither as pervasive nor as essential to their existence as for ours. Capitalist societies require the meeting of one inequality in particular as essential: the inequality of power between workers and owners – class inequality. In the next two chapters, where the inequality of economic and social power will be the focus, as will be seen, that class inequality is fed and strengthened by the other realms of inequality: those between men and women, and those between races, nationalities, and religions. (Quotation marks are placed around race for reasons explained in Chapter 3.) In the preceding pages, capitalism has been accused of social wrongdoings; before proceeding further it seems important to support that by examining its nature.

Capitalism’s Nature and Nurture

Capitalism is, and must be, not only an economic but also a political and social system whose processes go well beyond production and trade for profit. From the seventeenth century on, Britain was first to seek and achieve the necessary depth and breadth of the processes systemic to capitalism: (1) expansion, (2) exploitation, and (3) oligarchic rule (Mantoux, 1906). In turn, those essentials of capitalist health could only be met within the larger processes that characterize the modern world: capitalism itself, and three interacting and interdependent developments: colonialism (which became imperialism, which has become globalization), nationalism, and industrialism. Taken together, they provided capitalism’s vitality and have become the leading characteristics of modern society (even, it is revealing to note, for the capitalism of Communist China).

However, the interaction of capitalism’s imperatives has inexorably produced intermittent crises and threats to its very survival, most destructively the socio-economic upheavals and wars of the twentieth century. First, we examine the imperatives of exploitation and expansion; then the critical relationships between them and oligarchic rule.

Exploitation and Expansion

Capitalist profitability requires and capitalist rule has provided ever-changing areas of exploitation, both geographic and social as well as economic; all made possible by minority ownership and control of the means of production (land and its resources, factories and machinery, etc.); combined with a supply of powerless workers eager for any wages they can get; no matter how sordid or dangerous the conditions (Hobsbawm, 1968; Mantoux, 1906).

Given those socio-economic relationships, the strengths of each capitalist enterprise and its nation vary with the volume, scope, and rate of capital accumulation; that is, the expansion of the capitalist’s capital, the accumulation of which is the driving force of capitalist development: profits are plowed back to be converted into more capital, and more profits, ad infinitum. Capitalists’ personal consumption is well above the average, but that is not their main drive; that is provided by their endless passion for wealth: more and more, always more. Marx put it succinctly in this famous passage:

[The capitalist] shares with the miser the passion for wealth as wealth. But that which in the miser is a mere idiosyncrasy is, in the capitalist, the effect of the social mechanism of which he is but one of the wheels… [And, a few pages later, Marx concludes:] Accumulate, accumulate! That is Moses and the prophets! Accumulation for accumulation’s sake… (1867)

Capital accumulation is the basis for economic growth, itself interwoven with and dependent upon geographic expansion; most recently by today’s globalization. Taken together, economic and geographic expansion are capitalism’s heartbeat. They in turn depend upon the muscles that enable them to exploit labor and whatever it takes to gain governmental cooperation in geographic expansion: plus what follows…

Oligarchic Rule

Capitalism and political democracy came into existence at roughly the same time (if also with varying intervals and selectivity). But political democracy in itself, whatever its virtues, is a limited democracy, providing only the formal right of the citizenry to install and/or remove those allowed to govern by the electoral process. Political democracy has always been contaminated and diluted by its coexistence with capitalism’s inherent inequalities of income, wealth, and power. Taken together the latter enable those at the top not only to remain there, but to always increase the gaps between themselves and all others, to sustain policies that favor and strengthen them, and to obstruct those which do not.

Capitalism benefits from having a formally democratic system, but it has worked best when, as in the US, the general public is de-politicized, made so by the combination of consumerism, the media, the subtle consequences of our socialized prejudices, discrimination and capital’s associated ideological triumph. (See Chapters 2 and 4; and McChesney, 1999.)

Capitalism’s Ideology of Inequality

To view inequality as the cause and consequence of what’s wrong in the world might be seen as foolish or at least as a serious exaggeration. Of course there are other wrongs. Even so, the many inequalities to be examined in this work intensify whatever else is socially harmful:

The equality of civil and political rights is of the essence of democracy; the inequality of economic and social opportunities is of the essence of capitalism… Democracy is unstable as a political system as long as it remains a political system and nothing more; instead, democracy should be not only a form of government, but a type of society and a manner of life which is in harmony with that type. (Tawney, 1931)

Capitalist democracy has remained only a political system and nothing more. Its main beneficiaries have sought seriously to keep it that way, up to and including wiping out democracy with the ferocities of fascism, if necessary. (See Epilogue.) In doing so, capitalism’s normal functioning has intensified the inequalities of the deep past, modified and extended them, and, with the support of its ideology, fortified and strengthened them.

To repeat, for millennia inequalities have existed everywhere. With the coming of a settled agriculture and its superior productivity, it became possible (and necessary) for non-agricultural centers – cities and civilization – to come into being. What also came into being as they did so were class societies, ruled over by priests and/or warriors (with women doing the work both at home and in the fields) (Childe, 1951). With that evolution there soon developed what is now called ideology; a set of cultivated beliefs, principles, and values within which people live, usually unconsciously (Mannheim, 1936). Ideologies have always served to justify inequalities in income and wealth, in status and prestige, in opportunity, and diverse levels of wellbeing.

Insisting that they are natural or normal or necessary serves the purposes of inequality’s main beneficiaries as both victimizers and their victims come to believe that they deserve their conditions. Tawney again:

One of the regrettable, if diverting, effects of widespread inequality is its tendency to weaken the capacity for impartial judgment. It pads the lives of its beneficiaries with a soft down of consideration, while relieving them of the vulgar necessity of justifying their pretensions, and insures that, if they fall, they fall on cushions…; causes them to apply different standards to different sections of the community, as if it were uncertain whether all of them are human in the same sense as themselves… It seems natural to those who slip into that mood of tranquil inhumanity that working-class children should go to the mill at an age when the children of the well-to-do are just beginning the serious business of education; and that employers, as the history of coal reveals, should be the sole judges of the manner of conducting an industry on which the welfare of several hundred thousand families depend…; and that different sections of the community should be distinguished not merely by differences of income, but by different standards of security, of culture, and even of health. (1931)

Today the disdainful attitudes of the fortunate toward the poor, given the richness of modern economies, are at least as damaging as those in Tawney’s time; and as globalization has its ways, the numbers of poor in both the rich and the poor areas have increased, and the blame continues to fall upon the victims. (See Chapters 6 and 10.) Such opinions may be seen as a major component of the functional relationship between inequality and ideology, a relationship made all the more evident when it is realized that those harmed, as often as not, develop the same attitudes:

Capitalism is maintained, not only by capitalists, but by those who would be capitalists if they could; and the injustices survive, not merely because the rich exploit the poor, but because, in their hearts, too many of the poor admire the rich. They know and complain that they are tyrannized over by the power of money; they do not yet see that what makes money the tyrant of society is largely their [socialized] reverence for it. (Tawney, 1931)

Tawney’s focus was principally upon early twentieth-century Britain. As time went on, Britain and other rich countries developed a substantial labor movement aimed toward democratic socialism, and for which Tawney’s ideas were pivotal. It was such efforts in Western Europe which, after World War II, went much further to decrease their inequalities than did the US labor unions in America. In recent decades, however, such political efforts from the bottom up have weakened or disappeared, as the US social disease of consumerism has come to bewitch, bother and bewilder always more, here, there, and elsewhere. Since World War II, consumerism, the media and globalization have had the US as pacemaker: as all have learned to want what they don’t need and not to want what they do (Baran, 1969, and see Chapters 4–6).

The Dangers of Inequality

The existence, causes, dimensions, functions, and consequences of inequality must be the first and most enduring question asked about our socio-economic processes; they and the means and ends of those responsible and supportive are the heart of the matter for understanding the social problems of our time.

In all societies inequalities have been and remain the key obstacles facing people as they seek to meet their needs and possibilities; but reaching their true potential is virtually impossible for most people because of:

Where laws are involved, they were provided by and for the powerful and the privileged at the cost of all others. That is most clearly so in the US, whose powerful and privileged are and always have been overwhelmingly rich white men and their inheritors. In the US even