Federal Reserve talks jobs, but (in)action speaks louder than words

If you haven’t gotten a pay raise lately, you are not alone. The percentage of U.S. workers reporting no change in their renumeration remains near its all-time high, according to statistics kept by the San Francisco branch of the Federal Reserve.

The San Francisco Fed’s “wage rigidity meter” — the percentage of “job stayers” who report receiving the same pay as one year earlier, rose above 15 percent in 2010 and has remained there since. For comparison, that figure was 11 percent in 2008, at the start of the global economic downturn and about six percent in the early 1980s, when this statistic first began to be tracked. For hourly workers, not surprisingly, conditions are even worse: More than 20 percent report no increase in pay, about triple the number in the early 1980s.

That is merely one additional piece of evidence — if any more be needed — that inequality is on the rise. Reuters reports that there is some discussion within the Federal Reserve to temporarily tolerate higher inflation as a “tradeoff” to encourage growth in wages and an accompanying boost to full-time employment. How serious this talk actually is might be signaled by this paragraph in the same Reuters report:

“Fed staff economists accepted in 2010 that labor’s share of annual U.S. output, which over a decade had dropped to around 56 percent from its long-term average of around 62 percent, was unlikely to recover.”

In other words, the Federal Reserve says inequality is here to stay. So perhaps tinkering with policy that possibly could make a marginal difference — even the Fed has to keep up appearances sometimes — is the most that might be expected. Contrast that with the enthusiasm with which the Fed has shoveled money into its “quantitative easing” programs — measures that have primarily acted to inflate a new stock-market bubble with a small secondary effect of re-animating real estate prices.

(Graphic by the U.S. Bureau of Labor Statistics)

(Graphic by the U.S. Bureau of Labor Statistics)

“Quantitative easing” is the technical name for a central bank going on an asset buying spree. In conjunction with setting low interest rates, it is a theoretical attempt to stimulate the economy by encouraging investment. The Federal Reserve’s program buys U.S. government debt and mortgage-backed securities in massive amounts.

Through the end of June 2014, the Fed poured about US$4.1 trillion into three quantitative-easing programs since December 2008. The Bank of England had committed £375 billion to its Q.E. program as of the end of 2013.

Prior to the economic downturn, the Fed held between $700 billion and $800 billion of U.S. Treasury notes on its balance sheet, but, because of its quantitative-easing programs, it now holds more than $4 trillion. The Fed is in the process of winding down its buying spree with an intent to finish it in October. Instability is likely to occur when the Fed tries to unload its bloated piles of assets, and many of the world’s other central banks will seek to unload their assets as well.

The latest stock-market bubble, then, will burst as all others before it, with high debt loads dropping another anchor on the economy. A commentary in Forbes calculates that the level of borrowing used to buy stocks is already higher than it ever was during the 1990s stock-market bubble or the run-up before the 2008 crash as measured in inflation-adjusted dollars or as a ratio with the S&P 500 stock index.

What could the world’s governments have done with this massive amount of money had it instead gone to socially useful programs? Instead, trillions of dollars were spent to inflate another stock-market bubble. One more way the world’s wealthiest have gotten fatter while the sacrifices are borne by the rest of us.

And that is merely one way that inequality not only continues to grow, but is accelerating. From 2000 to 2009, labor productivity rose an average of 2.5 percent annually while real hourly wages rose only 1.1 percent, according to U.S. Bureau of Labor Statistics calculations — the biggest gap it has yet measured, going back to the late 1940s.

(Graphic by the U.S. Bureau of Labor Statistics)

(Graphic by the U.S. Bureau of Labor Statistics)

More recent figures, according to Reuters, indicate the gap continues to grow — from 2007 to today, average hourly wages have risen a total of 1.5 percent while productivity has increased by 11.4 percent. Nor is that a phenomenon limited to the United States. The International Labour Organisation calculates that wages in the world’s developed countries increased six percent from 1999 to 2011 while labor productivity increased about 15 percent.

If the employees are not receiving the benefits from their increased productivity, then it is the bosses and speculators who are grabbing it. Thus it is no surprise that the gap in wealth has increased more sharply than have incomes. A research paper written by Fabian T. Pfeffer, Sheldon Danziger and Robert F. Schoeni found that accumulated wealth has decreased for the majority of people since 1984. The median level of net worth — that is, the 50th percentile or the point where the number of people with more is equal to the number with less — has decreased by about 20 percent since 1984. By contrast, those at the 95th percentile have nearly doubled their net worth since 1984.

So much money has flowed upward that industrialists and financiers, and the corporations they control, have more money than they can possibly find investment for — this money is diverted into increasingly risky speculation in an attempt to find higher returns. Working people were handed the bill for the previous bubbles, and before we can get back on our feet the bursting of another bubble looms. Class war is raging, and it’s clear what side is winning.

Corporate tax dodging another capitalist innovation

Competition takes many forms in capitalism. Financial engineering by corporations to avoid paying taxes is one aspect of this competition — under the rigors of market competition, evading responsibility is an innovation to be emulated.

The magnitude of tax evasion on the part of multi-national corporations through one channel — the shifting of profits to countries and territories with low or nonexistent taxes — was quantified earlier this month by the U.S. Public Interest Research Group Education Fund and Citizens for Tax Justice. Their study, “Offshore Shell Games 2014,” reports that the 500 largest U.S.-based multi-national corporations have squirreled away almost US$2 trillion in profits that lie untouched.

An estimated $90 billion a year in federal income taxes are not paid through the creative use of subsidiaries set up in offshore tax havens.

The Cayman Islands and Bermuda are favored locations, although other tax havens such as Hong Kong, Ireland and Switzerland are frequently used. The report illustrated the preposterous number of corporations with sham “offices” in the Cayman Islands:

“Ugland House is a modest five-story office building in the Cayman Islands, yet it is the registered address for 18,857 companies. … Simply by registering subsidiaries in the Cayman Islands, U.S. companies can use legal accounting gimmicks to make much of their U.S.-earned profits appear to be earned in the Caymans and pay no taxes on them. The vast majority of subsidiaries registered at Ugland House have no physical presence in the Caymans other than a post office box. About half of these companies have their billing address in the U.S., even while they are officially registered in the Caymans.” [page 4]

Ugland House in the Cayman Islands. Almost 19,000 companies are located in this building.

Ugland House in the Cayman Islands. Almost 19,000 companies are located in this building.

The Cayman Islands has a corporate tax rate of zero. Not a cent. The government there raises revenue through taxes on imports (thus a consumption tax for the people who live there as virtually everything must be imported), but, as an added bonus should any corporate executive stop by to visit the company post office box, luxury goods such as diamonds are exempted. Bermuda also has no corporate tax.

U.S. tax laws allow profits earned abroad to remain untouched until the money is brought into the country. Profits booked in other countries are instead subject to the local tax rate, even if zero. Accounting, rather than geography, often controls what constitutes “offshore” profits, however. The “Offshore Shell Games 2014” study reports that:

“Many of the profits kept ‘offshore’ are actually housed in U.S. banks or invested in American assets, but registered in the name of foreign subsidiaries. A Senate investigation of 27 large multinationals with substantial amounts of cash supposedly ‘trapped’ offshore found that more than half of the offshore funds were invested in U.S. banks, bonds, and other assets.” [page 5]

Corporate money is “off shore” if the corporation says it is

A 2013 report in The Wall Street Journal revealed that many corporations, including Microsoft Corp. and Google Inc., “keep more than three-quarters of the cash owned by their foreign subsidiaries at U.S. banks, held in U.S. dollars or parked in U.S. government and corporate securities.” Under federal tax law, those funds are “offshore” and thus exempt from taxation.

Microsoft, in its fiscal year 2013 filing with the U.S. Securities and Exchange Commission, said its funds held by its foreign subsidiaries are “deemed to be permanently reinvested in foreign jurisdictions.” It said, “We currently do not intend nor foresee a need to repatriate these funds.” It pays to be a monopoly in more ways than one.

A sampling of corporate highlights, according to “Offshore Shell Games 2014”:

  • Bank of America reports 264 subsidiaries in offshore tax havens, more than any other company. The bank would otherwise owe $4.3 billion in U.S. taxes on the $17 billion it keeps offshore.
  • Nike officially holds $6.7 billion offshore for tax purposes, on which it would otherwise owe $2.2 billion in U.S. taxes. Nike is believed to pay a 2.2 percent tax rate to foreign governments on those offshore profits.
  • Apple holds more money offshore than any other company — $111.3 billion. It would owe $36.4 billion in U.S. taxes if these profits were they not offshore for tax purposes. Two of Apple’s Irish subsidiaries are structured to be tax residents of neither the U.S. (where they are managed and controlled) nor Ireland (where they are incorporated), ensuring no taxes are paid to any government.
  • Google increased the amount of cash it reported offshore from $7.7 billion in 2009 to $38.9 billion. An analysis found that, as of 2012, the company has 23 tax-haven subsidiaries that it no longer discloses but continues to operate.
  • Microsoft increased the amount of money it held offshore from $6.1 billion to $76.4 billion from 2007 to 2013, on which it would otherwise owe $19.4 billion in U.S. taxes. The company is believed to pay a tax rate of three percent to foreign governments on those profits.

You pay when corporations don’t

These arrangements don’t benefit working people in the tax havens. After Ireland’s then prime minister, Brian Cowen, announced that the government would assume all the debts of Ireland’s three biggest banks, he negotiated for what became an €85 billion bailout. In doing so, he demanded, and received, only one concession: There would be no increase in corporate tax rates, which are less than half the level of Ireland’s sales taxes. Taxes on incomes, cars, homes and fuel, however, did rise to pay for the bailout.

Critics, the authors of the “Offshore Shell Games 2014” study not excepted, propose various reforms and tend to discuss this issue in terms of morality. That massive corporate tax dodging is odious from any reasonable ethical standard is indisputable, but reducing it to immorality completely obscures the larger structural problems.

In the relentless competition fostered by capitalism, any successful innovation must be matched by competitors. Such an innovation could be a new production technique but also includes measures to lower costs. If production is moved to a location with low wages and little or no safety and environmental regulations, the boost to profits for the company that does this has to be matched by competitors that otherwise would become uncompetitive and/or fall into disfavor with financiers.

Financial engineering to avoid paying taxes is another boost to profits, and thus a competitive advantage. Other corporations, under the rigors of competition and the ceaseless necessity of expansion and pressure to increase profits, are compelled to copy these innovations.

However much we might wish to morally condemn such behavior, the personality of corporate executives is irrelevant. Expand or die is the remorseless logic of capitalism, and the executive who doesn’t do everything possible to maximize profits will soon be replaced by someone who will.

Nike, to provide an example, proudly announced that, in the past 10 years, it had “returned over $15 billion to shareholders through dividend payments and share repurchases” and assured it would provide more in the future. Nike’s shareholders’ report made no mention of what the company does to extract that money — through brutally exploitative sweatshop labor, paying workers less than a minimum wage set well below subsistence level in places where complaining leads to beatings or firings and striking lands you in prison. And by not paying taxes.

As a second example, Bank of America reported that it paid $3.2 billion to buy back its stock in 2013, money spent to boost its stock price and give extra profits to speculators. (Stock bought for this purpose is paid for at a price higher than the current stock-market value.) That money was available thanks to the billions of dollars it didn’t pay in taxes.

Reforms are good, but reforms can and are taken back when the pressure for them relents, and ultimately leaves the system that rewards such behavior untouched.

The 1 percent get richer thanks to you working harder

It is not your imagination — you are working harder and earning less. Despite significant productivity gains during the past four decades, wages have remained flat.

This is a global phenomenon, not one specific to any country. It is not a matter of the viciousness of this or that capitalist, nor the policy of this or that government. Rather, widening inequality flows naturally from the ideological construct that now dominates economic thinking. Consider Henry Giroux’s succinct definition of neoliberalism:

“[I]t construes profit-making as the essence of democracy, consuming as the only operable form of citizenship, and an irrational belief in the market to solve all problems and serve as a model for structuring all social relations.”

“Freedom” is reduced to the freedom of industrialists and financiers to extract the maximum possible profit with no regard for any other considerations and, for the rest of us, to choose whatever flavor of soda we wish to drink. Having wrested for themselves a great deal of “freedom,” the world’s capitalists have given themselves salaries, bonuses, stock options and golden parachutes beyond imagination while ever larger numbers of working people find themselves struggling to keep their heads above water.

Demonstrating for a $15 an hour minimum wage (Photo courtesy of Socialist Alternative)

Demonstrating for a $15 an hour minimum wage (Photo courtesy of Socialist Alternative)

On the one hand, U.S. chief executive officers earned 354 times more than the average worker in 2013. And even with the bloated pay of top executives and the money siphoned off by financiers, there was still plenty of cash on hand — U.S. publicly traded companies are sitting on a composite hoard of $5 trillion, five times the total during the mid-1990s.

Working harder without getting paid for it

On the other hand, there is the much different fortunes of working people. A study of four decades of wage trends in the United States, for example, revealed that the median hourly wage is less than two-thirds of what it would be had pay kept pace with productivity gains. Authors Lawrence Mishel and Kar-Fai Gee, writing for the Spring 2012 edition of the International Productivity Monitor, calculated the extraordinary mismatch between productivity gains and wages. Their study found:

“During the 1973 to 2011 period, the real median hourly wage in the United States increased 4.0 percent, yet labour productivity rose 80.4 percent. If the real median hourly wage had grown at the same rate as labour productivity, it would have been $27.87 in 2011 (2011 dollars), considerably more than the actual $16.07 (2011 dollars).” [page 31]

Almost every penny of the income generated by that extra work went into the pockets of high-level executives and financiers, not to the employees whose sweat produced it.

Working people in Canada have fared little better. Labor productivity increased 37.4 percent for the period 1980 to 2005, while the median wage of full-time workers rose a total of 1.3 percent in inflation-adjusted dollars, according to a Fall 2008 report in the International Productivity Monitor. The authors of this report, Andrew Sharpe, Jean-François Arsenault and Peter Harrison, provided caveats as to the direct comparability of productivity and wage statistics, but found the mismatch to be real as labor’s share of Canadian gross domestic product has shrunk. The authors note that, in Canada, almost all income gains have gone to the top one percent. They write:

“If median real earnings had grown at the same rate as labour productivity, the median Canadian full-time full-year worker would have earned $56,826 in 2005, considerably more than the actual $41,401 (2005 dollars).” [page 16]

Wage erosion is also at work in Europe. A Resolution Foundation paper found a differential between productivity and wage gains for British working people, although smaller than that of the United States. It also found that British workers did not lose as much ground as did French, German, Italian and Japanese workers. That conclusion is based on a finding that the share of gross domestic product going to wages in those countries has steeply declined since the mid-1970s.

That German workers also suffer from eroding wages might seem surprising. But it should not be — German export prowess has been built on suppressing domestic wages. In 2003, the then-chancellor, Social Democrat Gerhard Schröder, pushed through his “Agenda 2010” legislation, which cut business taxes while reducing unemployment pay and pensions. German unions allowed wages to decline in exchange for job security, which means purchasing power is slowly declining, reinforcing the trend toward Germany becoming overly dependent on exports.

Making a few calculations from International Labour Organization statistics on labor productivity and wages provided for individual countries, I found that average real wages in Germany declined 0.5 percent per year for the period of 2000 to 2008 while German labor productivity increased 1.3 percent per year. (The only years for which data is available for both.)

You can’t sell it if everybody is broke

Despite the overwhelming evidence of increasing hardship for so many people, economic orthodoxy insists we scream in horror at the very thought of raising wages. Such screaming is based on ideology, not on facts. Low-wage workers in the United States earn far less today than they did in 1968, despite their having a much higher level of education now as compared with then. The federal minimum wage is 23 percent lower than it was in 1968 when adjusted for inflation.

An Economic Policy Institute study by Heidi Shierholz, released in January 2014, found there are nearly three job seekers for every one open position. The lack of jobs reflects larger structural weaknesses, not a “lack of education” as orthodox economists, committed to austerity, continue to claim. She writes:

“Today’s labor market weakness is not due to skills mismatch or workers lacking skills for available jobs, but instead due to weak demand. If today’s high unemployment were a problem of skills mismatch, some sizable group or groups of workers would be now facing tight labor markets relative to 2007, before the recession started. Instead weak demand for workers is broad-based; job seekers dramatically outnumber job openings in every industry, and unemployment is significantly higher at every education level than in 2007.”

Household spending accounts for 69 percent of the U.S. gross domestic product; persistent unemployment and stagnant or falling wages can only lead to continuing economic weakness. Demand is what creates jobs. Raising wages, which in turn would stimulate demand, would, in a logical world, appear to be one route to ameliorating stagnation. In fact, a strong consensus exists that, contrary to what the one percent and their hired propagandists say, raising the minimum wage would be beneficial.

A Center for Economic Policy and Research paper surveying two decades of minimum-wage studies concludes:

“Economists have conducted hundreds of studies of the employment impact of the minimum wage. Summarizing those studies is a daunting task, but two recent meta-studies analyzing the research conducted since the early 1990s concludes that the minimum wage has little or no discernible effect on the employment prospects of low-wage workers. The most likely reason for this outcome is that the cost shock of the minimum wage is small relative to most firms’ overall costs and only modest relative to the wages paid to low-wage workers. … [P]robably the most important channel of adjustment is through reductions in labor turnover, which yield significant cost savings to employers.” [pages 22-23]

Similarly, the National Employment Law Project reports a strong consensus in favor of increasing the minimum wage:

“The opinion of the economics profession on the impact of the minimum wage has shifted significantly over the past fifteen years. Today, the most rigorous research shows little evidence of job reductions from a higher minimum wage. Indicative is a 2013 survey by the University of Chicago’s Booth School of Business in which leading economists agreed by a nearly 4 to 1 margin that the benefits of raising and indexing the minimum wage outweigh the costs. …

Two decades of rigorous economic research have found that raising the minimum wage does not result in job loss. While the simplistic theoretical model of supply and demand suggests that raising wages reduces jobs, the way the labor market functions in the real world is more complex. Researchers and businesses alike agree today that the weight of the evidence shows no reduction in employment resulting from minimum wage increases.”

The University of Chicago, the infamous incubator of the “Chicago School” ideology that provides the intellectual “justification” for neoliberalism, can hardly be described as a pro-labor bastion.

Catching up with the demands of 50 years ago

One of the demands of the March on Washington in 1963 was a minimum wage of $2 an hour. Adjusted for inflation, $2 an hour in 1963 would be worth $15.35 today. Yet the federal minimum wage in the United States is $7.25 an hour, and the highest minimum wage mandated by any state government is Washington’s $9.32.

The $10.10 an hour lately proposed by the Obama administration sounds like an improvement when compared with current rates, but in reality it is the usual crumbs on offer by the Democratic Party — the White House is proposing two-thirds of what was demanded 50 years ago!

Rather than settle for the Democrats’ “austerity lite,” a growing movement is demanding the minimum wage be increased to $15 an hour. When a broader perspective is used — drawing on historical demands and, as noted above, that the median hourly wage should be around $28 — the tired arguments that businesses “can’t afford” any raise to the minimum wage fall apart. Sarah White, an activist with Socialist Alternative, which has launched a national campaign for a $15 minimum, writes:

“To fight against the growing movement to raise the minimum wage, mega-corporations are trying to deflect attention from their super-profits by spending huge sums of money on publicity focusing on the ‘concerns of small business.’ Socialist Alternative is very open to helping small businesses — but not on the backs of the workers. Everyone working full-time deserves a decent living. Help for small businesses can be organized by taxes on big business (which are at historically low rates) and eliminating corporate welfare to subsidize small businesses, along with cutting the property tax burden on small businesses. … Raising the minimum wage will help small businesses by increasing the spending power of their potential customers.”

Exorbitant rent increases have forced countless small businesses to close in gentrifying neighborhoods across the country. Commercial rent control that would leave mom-and-pop businesses with a low enough overhead to survive, instead of them having to send all their money to landlords interested in nothing more than squeezing every dollar out of a neighborhood, would do vastly more good than any potential harm caused by a $15 minimum wage.

Close to 60 percent of families below 200 percent of the poverty line have a family member who works full-time, year-round and 47 million U.S. residents rely on food stamps. At the same time, the world’s 1,645 billionaires have an aggregate net worth of US$6.4 trillion, an increase of $1 trillion in just one year.

Individualistic ideology, promoting the idea of personal responsibility for unemployment, low wages and economic insecurity, is a crucial prop holding up the system that leads to such disastrous results. There are no individual solutions to structural inequality.

The high cost of subsidizing Wal-Mart’s profits

Each United States Wal-Mart costs taxpayers nearly $1 million because of the miserably low pay at the same time that the four heirs to the Wal-Mart fortune possess $107 billion in wealth. That’s no coincidence.

You subsidize Wal-Mart whether you shop there or not. And if you do shop there, you are facilitating the movement of production to countries with the harshest sweatshop conditions.

That Wal-Mart workers are often forced to use food stamps and other public-benefit programs is well known; but the company also receives a myriad of local tax benefits, free or reduced-price land, property- and sales-tax exemptions and various grants that, together, are difficult to quantify. The company’s known U.S. subsidies are far in excess of a billion dollars.

SerfsA study prepared by the Democratic Party staff of the U.S. House of Representatives Committee on Education and the Workforce estimates that each Wal-Mart costs taxpayers nearly $1 million in public-assistance programs alone. The study said:

“[Wal-Mart’s] business model has long relied upon strictly controlled labor costs: low wages, inconsiderable benefits and aggressive avoidance of collective bargaining with its employees. As the largest private-sector employer in the U.S., Wal-Mart’s business model exerts considerable downward pressure on wages throughout the retail sector and the broader economy. … While employers like Wal-Mart seek to reap significant profits through the depression of labor costs, the social costs of this low-wage strategy are externalized. Low wages not only harm workers and their families — they cost taxpayers. When low wages leave Wal-Mart workers unable to afford the necessities of life, taxpayers pick up the tab.” [page 2]

To reach this conclusion, the congressional staff analyzed data obtained from the Wisconsin Medicaid program because they were believed to be “the most recent and comprehensive.” Data from that program showed that more Wal-Mart employees were enrolled in Wisconsin’s program for low-income people, BadgerCare, than from any other employer.

Low pay is expensive

Extrapolating from the numbers it found, the authors of the report estimated that a single 300-employee Wal-Mart “super-center” store in Wisconsin likely costs taxpayers at least $904,542 per year — about $3,105 per employee. If all eligible Wal-Mart workers were to enroll in all public-assistance programs in which they are eligible, each Wal-Mart would cost the state’s taxpayers up to $1,744,590 per year.

That is far from exhausting the list of public subsidies to Wal-Mart. The grassroots advocacy group Good Jobs First has tallied 279 “economic development” subsidies totaling roughly $1.16 billion. These are not necessarily small outlays — 33 separate handouts are worth at least $10 million each. The largest of these, for a distribution center in Schoharie County, New York, will save Wal-Mart $46 million over 20 years because the county government took title to the facility so that the company would not have to pay taxes. That’s $1,433 per county resident!

The cheap goods Wal-Mart sells in its subsidized stores rest not only on exploitation of its in-store clerks, but on a ruthless system of sweatshops to which production is outsourced. This is a product of capitalist competition and “market forces” — competitors’ “innovations” in reducing costs must be matched to be able to survive — but also of Wal-Mart’s leadership in moving production to the lowest-wage countries. Although this an industry-wide phenomenon (inevitably mimicked in other industries), one company will be the most ruthless at this, and Wal-Mart is it.

The prices that Wal-Mart will pay its suppliers are so low, they had no choice but to move overseas or go out of business. Because of Wal-Mart’s domination of retail, there was no alternative to knuckling under to its demands. China was that destination, but now the garment industry is increasingly outsourcing to Bangladesh, a low-wage alternative to China with non-existent labor and safety standards, as the April 2013 fire that killed more than 1,100 trapped workers testifies.

Billions at the top, little at the bottom

How dominant is Wal-Mart? The company’s US$470 billion of revenue in 2012 is larger than the world’s next four largest retailers combined. The four heirs of founder Sam Walton are each among the 17 richest people on Earth — worth a combined $107 billion, making them the world’s richest family. Outgoing Wal-Mart chief executive officer Mike Duke is paid more than 900 times the average company employee, and those employees are paid more than 12 percent less than the dismal pay of retail workers elsewhere.

The average wage of a Bangladeshi garment worker is US$70 to $100 per month. The Institute for Global Labour and Human Rights estimates that a worker in Bangladesh would have to labor fifteen and one-half hours to buy a gallon of milk, while CEO Duke needs to work one second to buy that gallon.

If you have drawn the conclusion that Wal-Mart racks up huge profits, you are correct. The company, the world’s largest private employer, reported profits of $75.8 billion for its five most recent fiscal years.

Workers are paid too little for their physical survival so that a handful of plutocrats can grab more money than anybody could possibly spend — although the Walton family, notoriously stingy in its charitable giving, does play a prominent role in funding the U.S. movement to privatize public schools. Three sets of billionaires — the Walton family, Microsoft founder Bill Gates, and construction and insurance magnate Eli Broad — provide the money for the “charter school” movement that is a thinly disguised initiative to bust unions and place schools under corporate control so that students are taught narrow technical skills without being given the tools to think independently so they become corporate drones.

But even if the family chose to spread a bit of its largesse on charity not benefiting themselves, why would we want to live in a world in which the vast majority is dependent on a lord deigning to bestow his or her benevolence on us? Shouldn’t social decisions be made democratically to advance the health and welfare of society rather than by the self-interested whims of a few people consumed by personal greed? Modern capitalism is taking us back to feudalism.

Half the world has 1% while 1% has half the world’s wealth

To say inequality is rampant on a global scale is to say the Sun is a tad warm. Forget pyramids; the global distribution of wealth is better represented by a needle reaching into the stratosphere.

Not simply an anecdote, the common saying that the rich get richer and the poor get poorer has been given fresh evidence from two studies by organizations not known for their sympathies toward the wretched of the Earth.

"The Bosses of the Senate" by Joseph Keppler

“The Bosses of the Senate” by Joseph Keppler

One, from one of the world’s biggest investment banks, Credit Suisse, reports that the world’s richest one percent possesses nearly half of the world’s wealth while half of humanity holds one percent. The other study, issued by the World Bank, estimates that 1.2 billion* people are in “extreme poverty” — defined as earnings of US$1.25 per day. What is perhaps most remarkable about the World Bank report is the minuscule redistribution that would be required to eradicate “extreme poverty.” The report, “State of the Poor,” says:

“Suppose that the real GDP growth for the developing world as a whole is 5 percent per year. If 10 percent of this GDP growth accrued to the 21 percent of the developing world’s population who are extremely poor, and this 10 percent was distributed in a way that the growth in income of each poor person was exactly his/her distance to the $1.25 line, extreme poverty would end in one year.” [page 6]

In other words, redistributing 10 percent of economic growth in poor countries themselves — before any assistance from the developed world — would be sufficient to lift all the world’s poorest people, at least to a less severe poverty.

Despite that suggestion by the authors of the World Bank report, the number of the world’s extremely poor increased by more than 100 million from 1981 to 2010, and their average income was stagnant. The report adds that more than one-third of the world’s extremely poor individuals are children younger than 13, and half of the children living in low-income countries are in extreme poverty.

Lucky births beget lucky births

On the other side of the scale, the wealth concentrated in the ultra-wealthy — naturally, a vastly smaller cohort — is difficult to comprehend, although it, like the vast numbers of the extremely poor, is an outgrowth of deepening inequality. The Credit Suisse study, “Global Wealth Report 2013,” concludes that not only is wealth stable through multiple generations but that the roster of wealthy countries is remarkably stable. On the first point, the report says:

“[T]en generations or more have to lapse before the wealth of an individual in North America is completely unrelated to the wealth of their ancestors. Our simulations for North America are therefore highly consistent with the relatively immobile outlook that emerges from the intergenerational evidence.” [page 34]

North America is the world region with the least mobility in terms of people moving up or down the ranks of wealth. Europe is the next least mobile region. Concomitantly, those two regions are home to three-quarters of the world’s millionaires. The Credit Suisse report, surprisingly direct in its conclusions considering that the ultra-wealthy are its clients, says:

“[C]hanges in the shares of wealth over time tend to be very modest, both within countries and worldwide. Thus the distribution of wealth is both highly unequal and relatively stable over time.” [page 26]

While austerity programs have flattened or reduced living standards for most of the world’s peoples, the super-wealthy have done just fine (the purpose of austerity). Virtually all of the past year’s increase in the value of the world’s assets are accounted for in North America and Europe, and that concentration is itself highly concentrated: The United States, which has 42 percent of the world’s millionaires, by itself accounted for US$8.1 trillion* of the world’s $11.3 trillion increase in wealth from 2012 to 2013.

What? Trillions of dollars in new wealth in just the past year? Still more incredibly, the aggregate wealth total of the U.S. is estimated to be more than 50 percent higher than it was in 2008, when the total bottomed out in the depths of the economic downturn. Wait a minute — wages have fallen and remain under pressure as unemployment remains high. More of us are struggling just to meet basic needs. Where are these fountains that spray gold high into the air?

The stronger take from the weaker

It’s the magic of the market at work. The tricks that make this magic work are multiple levels of exploitation. Worker productivity has increased, while wages are flat or slowly declining, around the world. Countries at the center of the global capitalist system extract wealth from the rest of the world, as their corporations plunder natural resources in one-sided deals and take advantage of low labor costs and non-existent environmental enforcement. James Petras estimates that the corporations of the United States and Europe extracted $950 billion from Latin America for the period 1975 to 2005.

Although some crumbs have historically fallen to the working peoples of the North from imperialism, corporate globalization has dialectically begun to hurt those working peoples as more production is moved to developing countries with ever lower wages. The upward flow of money has accelerated, and the one-sidedness of this arrangement is illustrated by the fact that the Credit Suisse report lists Greece as one of the countries in the richest tier, those with per capita wealth of more than US$100,000. That is so despite 27.6 percent unemployment and an economy that has shrunk for 20 consecutive quarters and by more than 20 percent during that period.

That means that Greece has hideous inequality. But as skewed as wealth distribution is in Greece, a country in which its most lucrative industry, shipping, pays no taxes, it’s not close to being the most unequal. As measured by the gini coefficient, the standard economic metric of inequality, the United States has the worst inequality of any advanced capitalist country, and among the 34 countries of the Organisation for Economic Co-operation (the club of the world’s advanced capitalist countries and biggest developing countries), only Turkey, Mexico and Chile are worse.

Those at the very top hold truly enormous amounts of wealth — Forbes magazine, in its 2013 report on the world’s wealthiest people, report that Earth’s 1,426 billionaires collectively have a net worth of US$5.4 trillion. To put that figure in some perspective, there are only two countries in the world, the U.S. and China, that have a gross domestic product that is larger. Another comparison is this: Those 1,426 billionaires possess wealth that is more than double that of the bottom half of humanity — 3.6 billion humans.

When “markets” are allowed to dictate ever more social outcomes, this will be the result. Capitalism has evolved to the point where people exist to serve markets, not the other way around — and capitalist markets are the aggregate interests of the most powerful industrialists and financiers.

* One billion is 1,000 million throughout this article. One trillion is 1,000,000 million.

Most people are economically precarious, but it’s your fault

If you teach someone to fish, you might enable that person to feed themselves for life, but if you fence off the lake you can keep all the fish yourself. And fishing might well become a prerequisite for eating, given the growing economic tribulations many find themselves in.

Although it isn’t, strictly speaking, necessary for a survey to inform us of the obvious, a report by the normally staid Associated Press news service reveals that four out of every five United States adults “struggle with joblessness, near-poverty or reliance on welfare for at least parts of their lives.” The AP report, based on research to be published by the Oxford University Press next year, finds that 79 percent of U.S. adults experience at least one of these three by age 60: unemployment at some point in their lives, a year or more of reliance on government aid such as food stamps, or income less than 150 percent of the poverty line.

Photo by Alex Proimos,  Sydney, Australia

Photo by Alex Proimos, Sydney, Australia

The report cites corporate globalization, the widening gap between rich and poor, and the loss of good-paying manufacturing jobs. And although poverty and economic insecurity are higher among People of Color — 90 percent of whom will experience one of the three above criteria for economic insecurity — poverty is increasing faster among Whites, of whom 76 percent will experience economic insecurity, according to the AP report.

Indeed, a sinking boat ultimately drowns everybody in it. Back to the fish story at the beginning of this post — one of the more ridiculous sayings people in the United States have foisted upon them is that if you give someone a fish you feed them for a day but if you teach them to fish they can feed themselves forever. Right-wingers are especially fond of this vaporous couplet, but a much more accurate depiction of Right-wing thought in action would be that one person should own the lake or river and keep it all for themselves, unless they charitably decide to sell some of its bounty. Can’t pay? Too bad, you don’t eat. The market speaks!

A series of reports have found that fewer people in the United States move from lower economic rungs to the higher rungs than in any other advanced capitalist country. The U.S. and Britain were found to be the countries with the least social mobility among nine North American and Western European countries in a 2006 study and another 2006 survey of the U.S., Britain and Scandinavian countries also found the U.S. dead last in social mobility.

The U.S. has less of a social safety net, greater income inequality, lesser unionization, and greater disparity in primary and secondary education than other advanced capitalist countries. Another factor is geographical dispersion. A study by researchers at the University of California and Harvard University, coincidentally also released in July 2013, found significant variations in social mobility among U.S. cities. Cities with the least mobility, such as Atlanta and Milwaukee, have lower rates of mobility than any developed country, the researchers said. Summarizing their findings, they wrote:

“We found significant correlations between intergenerational mobility and income inequality, economic and racial residential segregation, measures of K-12 school quality (such as test scores and high school dropout rates), social capital indices, and measures of family structure (such as the fraction of single parents in an area). In particular, areas with a smaller middle class had lower rates of upward mobility.”

The authors caution that the above are correlational and should not be interpreted as causal effects — there are multiple reasons for such dismal U.S. results that interact with one another. Nonetheless, the concentration of disadvantaged people often far from jobs in a city center, and their difficulty in getting to jobs due to substandard or non-existent mass transit — a common situation in U.S. cities — is a significant factor in lack of mobility. So is inequality.

The most common measure of inequality is the “gini co-efficient,” which measures the distribution of income among national populations. Among the more than 30 countries of the Organisation for Economic Co-operation and Development (a club of the world’s advanced capitalist countries and the largest developing countries), the U.S. has the fourth-highest measure of inequality, with only Chile, Mexico and Turkey having worse gini co-efficient scores (after taxes and transfers). Moreover, only New Zealand has had a greater increase in inequality since 1985.

Almost every country has experienced an increase in inequality since 1985; the primary exceptions are found in Latin America. To put it in plain language, if a handful of people are taking everything, there is less for everybody else and the subsequent difficulties in maintaining an adequate standard of living increase.

Individualist propaganda would have it that it is your fault. But how can it be individuals’ fault if four out of five in the richest and most powerful country on Earth struggle to be able to eat properly and keep a roof over their heads? And this the model being imposed on the rest of the world.

Capitalist ideology equates “freedom” with individualism — but as a specific form of individualism that is shorn of responsibility. More wealth for the rich is advertised as good for everybody despite the shredding of social safety nets that accompanies the concentration of wealth. Those who have the most — obtained at the expense of those with far less — have no responsibility to the society that enabled them to amass such wealth. Imposing harsher working conditions is another aspect of this individualistic “freedom,” but freedom for who?

“Freedom” for industrialists and financiers is freedom to rule over, control and exploit others; “justice” is the unfettered ability to enjoy this freedom, a justice reflected in legal structures. Working people are “free” to compete in a race to the bottom set up by capitalists — this is the freedom loftily extolled by the corporate media and the institutions of the corporate elite. That we have to live this way is indeed a fish story.

Three things you can’t avoid: Death, taxes and corporate lies

Corporate leaders in the United States and the politicians who love them are fond of pointing to the statutory federal tax rate of 35 percent, but the reality is that businesses pay taxes in far smaller amounts. The latest study demonstrating this inconvenient fact has been published by the government itself, not exactly a font of radical theory.

The study, consistent with studies previously published by watchdog groups, found that the effective tax rate for U.S. corporations is only 12.6 percent. In other words, you are paying more taxes than some of the world’s biggest corporate behemoths. Despite all the rhetoric that flies about that would have you believe that poor innocent multi-national corporations are being bled to death, more than half of U.S.-based multi-nationals had at least one year of paying no taxes at all on their profits in the years immediately preceding the economic crash of 2008.

Wells Fargo Plaza, HoustonWe are not talking small change here — corporate tax avoidance amounts to hundreds of billions of dollars in subsidies to some of the world’s most profitable businesses.

The government report detailing the low rate of actual taxes paid was released earlier this month by the U.S. Government Accountability Office and commissioned by a Senate committee. The study covered the years 2008 to 2010. And lest neoliberal apologists moan that downtrodden multi-nationals had to pay other taxes, the GAO study found that the rate of local, state, federal and non-U.S. taxes paid was a combined 16.9 percent — not much of an addition to the 12.6 percent paid to the U.S. government.

To put the above figures in perspective, individuals pay eight times more than businesses in taxes when Social Security taxes are added to federal income tax, according to the GAO report:

“At about $242 billion, corporate income taxes are far smaller than the $845 billion in social insurance taxes and $1.1 trillion in individual income taxes that the Office of Management and Budget (OMB) estimates were paid in fiscal year 2012 to fund the federal government.”*

Another way of looking at this is the percentage of contributions to U.S. government revenue:

  • Individual income tax 47.1%.
  • Social Security taxes 35.3%.
  • Corporate income tax 8.3%
  • Estate and gift taxes 0.4%.

High profitability is no barrier to not paying taxes. A study by Citizens for Tax Justice and the Institute on Taxation and Economic Policy, “Corporate Taxpayers and Corporate Tax Dodgers, 2008-2010,” found that 280 of the largest U.S.-based corporations, each among the world’s 500 biggest, received a total of $223 billion in tax subsidies. That’s taxes not paid.

Thirty of these companies paid no taxes or actually received rebates from the government — that is, they had more money after filing their taxes than before — despite reporting composite profits of about $160 billion for the years 2008 through 2010. The most profitable that paid no taxes include, according to the tax dodgers report:

  • Wells Fargo, $49.4 billion in profits for 2008-2010.
  • Verizon Communications, $32.5 billion in profits for 2008-2010.
  • General Electric, $10.5 billion in profits for 2008-2010.
  • Boeing, $9.7 billion in profits for 2008-2010.

Robert McIntyre, director at Citizens for Tax Justice and the report’s lead author, noted:

“This is wasted money that could have gone to protect Medicare, create jobs and cut the deficit.”

Something to keep in mind next time you hear “there is no alternative” to neoliberal austerity programs or that everything would be fine is only we cut corporate taxes more. Businesses are not investing because there is a lack of demand due to shrinking wages, not because they don’t have capital. Recall that, early in 2012, U.S. corporations were sitting on about $2 trillion in cash.

Swimming in a sea of more money than they can spend or invest with, corporations and the wealthy plow money into increasingly risky speculation. That fuels the process of financialization, especially when speculation is, during bubbles, more profitable than actual production.

Generous loopholes and creative accounting are part of the same mad scramble for profits regardless of social cost embodied by the continual shifting of production to locations with ever lower wages. In the race to the bottom, you pay your taxes but your employer pays less than you — or maybe none at all.

* One billion is 1,000 million and one trillion is 1,000,000 million throughout this article.