As American workers started to face a new grim reality in their job markets and social lives in the late 1990s, the rapid accumulation of wealth within a tiny fraction of the population was also starting to give rise to the second wave of American plutocracy.
Plutocracy, defined as the rule of the wealthy derived from extreme concentration of economic and political power, is not new to America. Thanks to the second industrial revolution, America experienced extraordinary economic growth in the last thirty years of the 19th century, a period also known as the Gilded Age. Along with rising living standards for workers, America was producing a class of tycoons who led companies with dominant positions in their markets and were amassing immense amounts of wealth.
As the 20th century dawned, these magnates (the Rockefellers, Carnegie, Mellon, Frick and others) collectively named robber barons, started to funnel their wealth to foundations, museums, universities, libraries, and various charities. Their giving did not come, however, without severe criticism levied on the provenance of their fortunes (trusts and cartels, poor working conditions, exploitation of new immigrants). President Theodore Roosevelt captured the mood when he said “No amount of charities in spending such fortunes can compensate in any way for the misconduct in acquiring them.”
What is more important though to our own appreciation of the current state of the new plutocracy is the dogma that came to epitomize the original plutocrats’ view about their place in the American economy and society. That dogma was articulated by Andrew Carnegie in his essay “Wealth.” Carnegie opined that his ilk should be given free rein by the government to produce as much wealth as possible (even at the expense of the working class); wealth that they, the robber barons, would then spend through philanthropy to redress deficits in the economic, social, health, and cultural fabric of the nation. Interestingly, and in contrast to today’s plutocrats, Carnegie advocated the steep taxation of inherited wealth as an incentive to spend it instead of hording it. Carnegie also espoused that wealth inequality was the inevitable price society had to accept in the interest of economic growth. Does it sound familiar?
Why should we worry about plutocracy? Let’s start with an aphorism from Darren Acemoglu and James Robinson who explored how nations fail. They write: “Societies decline when narrow elites organize society for their own benefit at the expense of the vast masses of people.” There are several ways plutocrats can organize society.
One is through philanthropy. But philanthropy can serve the vanity and priorities of the givers. More money going to elite institutions, say Harvard, instead to underfunded community colleges. More money given to elite museums and opera houses than to neighboring theater groups. Thus, philanthropy may end up benefiting the privileged rather than the underserved. This concern is reflected by Rob Reich in Just Giving: Why Philanthropy Is Failing Democracy and How It Can Be Better. Accepting plutocratic giving as a substitute of public funding, Reich laments, limits the scope of public policy, especially when wealth is derived from tax favoritism that crowds out government revenues.
Another way of impacting society is through political money. Although big corporations and their leaders proclaim devotion to sustainability and social justice, the evidence says otherwise. The record shows that they also fund political forces that resist increases of the minimum wage, environmental regulations, and the rights of minorities and LGTBQ people. The well-organized efforts by corporations and wealthy donors to fund political campaigns would have no reason to exist if there were no payoffs to be reaped.
A third way is through the economy by controlling markets, competition, labor demands, and taxation. We are currently witnessing a worrisome concentration of market power in the financial, pharmaceutical, and information technology sectors. The goal of economic power is rent seeking, that is, the production of super profits over and above what is feasible in competitive markets. The socially-damaging consequences are the retardation of innovation and fewer opportunities for new entrepreneurs.
Based on his experience as a former McKinsey analyst, Anand Giridharadas gives a fascinating and illuminating description of the plutocratic world in his book Winners Take All. This is the world of an international network of the wealthy and their surrogates, politicians and thought leaders, who come together in glamorous gatherings organized by such outlets as South by Southwest, TED talks, Aspen Ideas Festival, Davos World Economic Forum, the Clinton Foundation and others. When Karl Marx summoned the workers of the world to unite, he would have never guessed it would be the plutocrats who would heed his call.
According to Giridharadas, at the core of the plutocratic dogma is the belief that all problems faced by societies can be solved through the private initiative and the magic of markets. He blames plutocrats for enriching themselves from corporate activities that cause health and environmental problems, social disintegration and poverty and then come to the rescue by proposing private market solutions. Thus, Giridharadas argues, big corporations and wealthy individuals manage to keep governments at bay and reduce the role of public policy while at the same time they expand opportunities for profiteering from social problems.
If we are serious about tackling the corrosive effect of extreme inequality and plutocracy, we need to distinguish between creating and hording wealth as Andrew Carnegie did 100 years ago. Creating wealth by fair market practices and socially responsible behavior is beneficial to society. Hording wealth, however, through rent-seeking and low taxes that deny governments the means to enact publicly desirable policies is counter to the interests of society.
Most crucially, we also need to understand that plutocracy is incompatible with democracy and free markets. Sooner or later extreme inequality and concentration of power can lead to social and political unrest. The only way for an economic oligarchy to survive is a political order akin to that in Putin’s Russia. Is this what the current American plutocracy aims for? Is this what we the citizens are willing to accept?
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