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The Inheritance of Inequality and Rethinking Growth
by Martin Schuerz, K Burmeister and S Stache
Email: marc1seed (nospam) yahoo.com
14 Oct 2014
The economy should serve humanity, not vice versa. Economics should be pluralistic, not a monolith. The economy should be embedded in society; society should not be embedded in the economy. Thomas Piketty and alternative economics emphasize inequality and mass unemployment as dangers in late stage capitalism.
THE INHERITANCE OF INEQUALITY
The French economist Thomas Piketty has anchored the debates around inequality in the economic mainstream. An overview of his theses
By Martin Schuerz
[This article published in Arbeit & Wirtschaft 6/2014 is translated from the German on the Internet. Martin Schuerz is an economist in Vienna.]
Unfortunately people first notice some social changes when it is already too late. This statement seems true at least for the unequal distribution of wealth. For a long while, lists of millionaires and billionaires have fascinated or frightened. The consequences of their fabulous wealth for society and especially for democracy were long unheeded. To everyone anxious for a more just society, the French economist Thomas Piketty gives solid data for the distribution debate with his book “Capital in the 21st Century.”
Piketty describes the income and wealth relations since the 18th century. His historical view proves very informative. Piketty shows that long-term economic development is marked by two elements: enormous social inequality and modest growth rates. On the other hand, the upswing phase after the Second World War only represented a brief interruption of this trend.
Piketty’s fundamental thesis is: distribution is the great problem of society – or the fact that the rich become richer. For a long time, this opinion was slandered by elites as envious resentment…
AGAISNT WEALTH RELATIVIZERS
Piketty emphasizes the rich have the stocks, shares and business investments. They can always fall back on their assets while the rest of the population at best has their labor power. Only the rich realize considerable assets-income. Enormous assets bring greater returns which increase inequality even more.
The Frenchmen describes the income- and assets-relations since the 18th century and illuminates how wealth is intensely concentrated in the hands of a few. In his opinion, special attention must be given to the richest thousandth, the wealthy elite. Conservative ideological approaches narrow the theme of wealth or expand it to the nebulous – and thereby relativize wealth. The rich only like to compare themselves with the well-to-do. Covering up the life situation of the lower half in this debate is a desirable side effect. Speaking of the riches of seniors and of the missing chances of the young is also popular. The receivers of minimum income among seniors and the privileged generation of the heirs are forgotten. The distinction between countries as between the poor South and the rich North is also problematic. Poverty in the “rich countries” is thereby relativized. Global distribution questions must be distinguished from the discussion about prosperity.
Piketty’s often quoted formula is r > g where r describes returns on assets and g economic growth. Historically, returns on assets were almost always higher than economic growth. However when the GDP grows, this does not mean automatically that the living standard rises for everyone. Even low income persons can live better with higher economic growth. How the development of the last years is justified is in no way convincing. All the economic growth landed with the rich.
The share of the rich in the total income and assets in a country is considerable. Perhaps people expected that this concentration in the hands of few would lessen. But this has not happened. In the 18th and 19th centuries, the top 10 percent had 90 percent of the total assets; the top 1% had 60 percent. Today the richest ten percent have “only” 60 to 70 percent and the richest one percent “only” 20 to 30 percent. The lower half has almost nothing (under five percent).
Income inequality is justified ideologically in capitalism with the principle of meritocracy. Whoever does not achieve more should not earn more. Inequality provides an incentive to achieve more. Wealth is then something like a jackpot for everyone who strives excessively and is very talented. But how does the enormous concentration of assets in the hands of a few fit this achievement-oriented approach?
The promises of meritocracy do not correspond to the social realities – and were never fulfilled. This becomes clearer and clearer. They merely fueled hopes because people could believe at least for a short while that the winners were not established at the start. Piketty demystifies this promise of the social ascent of achievers. The way to the top is always obstructed; inequality becomes increasingly striking (see also “the apple does not fall far from the trunk,” pp.14-15). Yes, our society is beginning to resemble that society of the 19th century with fortified social structures. In such a world, inherited assets are crucial, not achievement.
Inheritance is not the center of the Piketty book. The legitimation of inequality through performance collapses with the low-achieving inheritances. In the 19th century, ten percent of the population had more in the form of inheritances and gifts than the lower population earned in their lifetimes. In the 20th century, wars and taxes reduced the importance of inheritances. The share of the rich heirs who could live from their inheritance alone fell to two percent. However this turned around again in the 21st century. The cohorts of those born around 1970 could expect greater inheritances. The wealth of the well-to-do part of the postwar generation is inherited. Piketty predicted that the group of those persons who did not have to work since they could live from their inheritance would grow to twelve percent. The society will become more unequal with the increasing significance of inheritances.
With the statistical questions, Piketty underlines the connection of politics and interests of the well-to-do. Good statistics on distribution have a subversive potential because they make visible what the well-to-do like to sweep under the carpet: the unjustified inequality.
The French Revolution introduced a wealth tax register and marvelous debates on hereditary title or the right of succession. On this background, Piketty urged that the tax authorities should receive all information for calculating the net assets of citizens. This demand did not arise out of a desire to snoop in nighttime activities. Rather it is the basis for justice debates.
The problem of wealth concentration is a global problem. A coordinated approach by the G20 would be a proper political-economic reaction. Piketty pleads for a global wealth tax. He makes clear that a rational justification of the rising wealth was impossible. Only that inequality that contributes to social improvement can be justified. How much inequality a society can endure is unknown. In any case, its rise is threatening for democracy because new social incrustations are generated. The danger is that a privileged stratum of profiteers, heirs and super-managers could remove themselves more and more from the rest of the population – if we are not already in the middle of this development.
RETHINKING GROWTH! WHAT SHOULD REALLY GROW?
By Kai Burmeister and Stefan Stache
[This article published in the socialist spw 2/2010 journal is translated from the German on the Internet, www.linksnet.de.]
Sometimes fundamental crises focus attention on analyses of historical upheaval phases. Long before the term sustainability entered the political debate, a group of scholars asked in 1972: “Should growth continue until new natural limits appear? Should we hope that a new technological possibility will enable growth to continue?” Central model assumptions and proposals of the Report on the “Limits of Growth” of the Club of Rome must be relativized. However in their core the question about the quality of economic growth and ecological and social compatibility remain open.
The neoliberal growth promises dominant at the end of the last decade are in the waste dump politically and economically with the latest world economic- and financial market crisis. A medium term return to a new Keynesian phase as Paul Krugman urged in his analysis of the crisis is in no way agreed even if most governments have prevented a hard landing with extensive economic programs and a new labor market openness.
Growth strategies are under a legitimation pressure given the simultaneity of economic and ecological crisis. The political left must face this challenge. A three-percent increase in the gross domestic product only indicates a great change of economic output expressed in money. However this indicator says nothing about social conflicts and ecological consequences. The limited expressiveness of the gross domestic product as an indicator for economic development or for prosperity is well known. In addition the fundamental question is raised whether and to what extent economic growth is still ecologically tenable and leads to broad prosperity – on account of the everyday experience of mass unemployment and million-fold precariousness. The debate is carried on in which way material prosperity contributes to individual happiness and what other qualitative factors like time sovereignty play a crucial role. In summary, does growth lead out of crisis? Are the working- and living conditions of dependent employees improving?
Spw 169 “Time for a New New Deal” and discussion of an ecological-social growth constellation focus on these questions. The question about the presuppositions of an alternative sustainable growth regime beyond neoliberalism and finance-market capitalism is illuminating.
As to the ecological aspect of growth, the left has not had unchallenged position. Eco and environment are regarded as very smart. Conservatives and market-liberals define sustainability in their way. The old familiar “new social market economy” serves them as a symbolic foil. An article of the environmental minister from the Sueddeutsche Zeitung newspaper is an example of this. An economic price for the consumption of resources and “an ecological system policy” that makes environmental care and resource sparing into the economic self-interest of businesses and citizens are vital, the authors urge. A “market economic ecology” could increase the competitiveness of the location Germany with energy- and material efficiency and opening ecological markets. This eco-renewal of Germany’s neoliberal model could happen through combined wages and open acceptance of low wages. “Whoever wants to work diligently through little jobs in the first labor market deserves respect and acknowledgment in the form of state grants. The low wage sector may not be barred for these people.” Stockers who collect ALG II because of poverty wages are counted in a second labor market. With the green-colored competitive garb, people present themselves as ecologically enlightened and modern and advocates of employees and presumably the working poor.
The credibility question is first raised when the ecologically “enlightened growth term” is taken up by those who earlier were afraid of such debates. However the new ideological formations make clear that a progressive growth discourse cannot be carried out without raising questions about economic power in capitalism and the distribution conflicts. The concept of ecological industrial policy is promoted to an element of the social-democratic mainstream with a pioneering function of the state. The programmatic embedding in a project of an emancipatory social state and social and economic democratization is necessary. Such an embedding discussed by SPD-leftists and others under the term New Deal must still be accepted by the whole party. Neither the opening of ecological markets and ecological innovations nor investments in more education as SPD leader Sigmar Gabriel stresses in his book “Rethinking the Left” is an exclusive leftist characteristic.
In their article, Tanja von Egan-Krieger and Barbara Muraca take a skeptical attitude toward economic growth and its qualitative control. Possibilities for increasing resource productivity and reducing consumption of natural resources are limited on account of increasing demand. The shift of growth to the service sector also cannot solve the problem since industrial production moves to developing- and threshold countries. Still Muraca and von Egan-Krieger do not draw the conclusion of a reversal of growth tendencies to zero growth. Rather they recommend the “uncoupling from economic growth.” Growth should “not be raised any more to the measure and goal of a national economy.”
Simon Sturn and Till van Treeck choose another perspective. The mere production of goods is not an end-in-itself. Coordinated economic-, wage- and distribution policy must strive for an even distribution so no poverty arises alongside abundance. Reduced working hours create elective- and creative possibilities through more free time. Economic inequality must be reduced for social and ecological reasons. This will be much harder without growth than with growth. Growth is necessary to enlarge the possibilities for sustainable economics and enable people to bid farewell to consumer pressures.
The criteria and control of growth are crucial. Even in the political left, the potential of technological (base) innovations is often faded out and understood too little as an element of social reform initiatives – against historical experience. Joined to the theory of long waves, base technology can be determinative for the next long cycle. In spw, new forms of energy production were discussed that have this potential of a base innovation. Beside the technical plane, growth is desirable when it is based firstly on a possible nature- and resource-sparing production method and secondly contributes to improving working- and living conditions of the majority of the population. Expressed differently, whoever emphasizes growth must answer which sectors should grow. First of all, the latest crisis has shown the destructive power of an inflated financial sector with its radical profit-orientation. Every national economy depends on a functioning financial system. Financial institutes particularly in the US and Great Britain take a greater share of the economic product and ultimately absorb too many clever minds that often produce no benefits or work destructively. In a future, the financial sector must be consciously shriveled. Other sectors must grow and be developed. A new growth model must go along with economic democratization.
Wolfgang Rhode from the IG Metal union argues similarly. We face the decision between a traditional and a socially-ecologically friendly growth path, not a decision for or against growth. Production processes and products must be adjusted to a resource-sparing and climate-friendly economy. Social and health services should be developed. This must be reflected in a new economic-political strategy of the EU under the title “EU 2020.” Union demands for the EU 2020 are directed at the pillars of social justice, priority for good work and ecological compatibility. Rhode regards a “double dividend to benefit labor and the environment” as possible. One key for this lies in the ecological modernization of industry. Conflicts between labor and ecology must be argued and not swept aside.
An analysis by Holger Rogall points to the positive employment effects of a low-emission growth strategy. The environmental economist calculates that employment effects of a systematic sustainable restructuring. Rogall concludes that 335,000 jobs could arise through introduction of alternative propulsion technologies and fuels accompanied by a restructuring of tax funds in developing local public transportation and emission-sales for kerosene consumption.
Cordula Drautz outlines different progressive debate themes around growth and pleads for a systematic integration of ecological and social criteria in the economy and its indicators. A strengthened domestic market orientation, reduction and just distribution of good work and regulation of the financial sector should be sought alongside an ecological orientation of the production method that considers the price of resource consumption. The financial sector must serve the real economy.
No new growth model will be possible without global regulation of the financial markets and dismantling the economic imbalances, Sebastian Dullen, Christian Kellerman and Hansjorg Herr emphasize. In their four-pillar model of a “good capitalism” beyond neoliberal system logic, they speak for an economic growth based on private demand through income growth. A system of stable exchange rates should tie together the world economy and reduce the balance of payments imbalances through exchange rate adjustments. A coordinated economic- and employment policy within monetary unions is vital. Relatively indigenous financial systems will suffice to finance credits for innovations and investments.
Cordula Drautz, “New Economy and New Prosperity,” April 2010