Tax cuts as a route to cutting Social Security

Conservatives are fond of saying that if you give a man a fish you can feed him for a day, but if you teach him how to fish you can feed him for a lifetime. This is supposed to tell us that social benefits, such as government programs, are bad for people. A much better example of conservative thought would be to say if I put a fence at the entrance to the pier and don’t let anyone else have access to the water, I can have all the fish for myself.

Let those peasants starve! Such a privatization of fish isn’t distant from the actual mechanics of class warfare as it is practiced, unfortunately.

Take the latest salvo in ongoing class warfare, United States edition: The coming assault on Social Security. Curious as to why the Republican Party’s mania for balanced budgets suddenly vanished? I mean, besides the mind-boggling hypocrisy we can expect from the Right. The immediate cause was to placate their billionaire donors who issued marching orders last June. A “donor retreat” at a Koch brothers’ compound in Colorado was attended by 400 people, and, as The Guardian reported, the “price for admission for most was a pledge to give at least $100,000 this year to the Kochs’ broad policy and political network. Donors decreed that Republicans must pass “tax reform” and reverse the Affordable Care Act (because health care is a socialist plot?) or their checkbooks would be shut.

That the Trump/Republican tax plan will be a bonanza for the wealthiest is well documented by this point, with the “Corker kickback” not only giving “dissident” Republican Senator Bob Corker a multimillion-dollar payday to ensure his vote but giving Donald Trump himself tens of millions of dollars thanks to the special rule benefiting real estate speculators. But lurking behind this devastating corporate offensive is the little matter of the extra $1.5 trillion to be added to the deficit. When Republicans (probably assisted by the more spineless among the Democrats) decide in the near future that deficits matter after all, social benefits will be in the cross hairs, with Social Security and Medicare likely to be the prime targets.

In advance of this, we will be treated to a rerun of horror stories designed to convince United Statesians that Social Security is unsustainable. The claim will once again be that either we’ll have to accept steep cuts to Social Security payments or privatize it, putting our retirements in the hands of Wall Street. This has been the wet dream of financiers for decades, and as an added bonus, Wall Street is another major beneficiary of the Trump tax cuts. “Heads I win, tails you lose” is always the way of Wall Street and here we have it again, pocketing untold millions from tax cuts and then taking away your Social Security when the ensuing deficit mounts.

One way of promoting privatization is to allege that there isn’t enough being paid into the system to cover future claims. It is true that in recent years Social Security has been paying out more than it is taking in, although it is far from broke. Concomitant with that argument is the claim that everybody takes out much more than they pay into it over their working lives. But that isn’t necessarily true — a Congressional Budget Office (CBO) report, issued in 2006, found that people earning near the median income get back about the same as they pay into the fund. Low-income earners do receive more than they pay, but conversely high earns get back less. But Social Security is supposed to be progressive. Indeed, the CBO’s report says, “The Social Security benefit formula is designed to provide beneficiaries who had lower life-time earnings with monthly benefits that are higher, as a percentage of their lifetime average earnings, than those received by higher-earning beneficiaries.”

The corporate interest in gutting Social Security

Those saddled with a lifetime of low or median earnings have spent a lifetime being exploited on the job, so whatever extras are received are pennies on the stacks of dollars extracted from them. Remember that profits come from the usually wide gap between what you are paid and the value of your work, and what financiers haul in is skimming off that pot collected by employers dealing in tangible services and products. There is a symbiotic relationship between financiers and industrialists and although there is much wrangling between them (which is why corporate press releases so often proclaim “enhancing shareholder value” as an important part of their mission), they have a mutual interest in exploiting employees.

That mutual interest extends to gutting Social Security, even if financiers have the more immediate interest. The challenge of funding Social Security isn’t a difficult one. An important reason why that is so is because Social Security taxes are only imposed on income up to $127,200. Anything above that is untouched. So why not raise the bar? Senator Bernie Sanders has introduced a bill that would apply this tax to all income above $250,000. This plan would eliminate 80 percent of the projected shortfall, according to an analysis from the Social Security office of the Chief Actuary. For whatever reason, Senator Sanders’ plan wouldn’t touch income in between. Taxing all income would raise still more money.

New York Stock Exchange (photo by Elisa Rolle)

Another method is suggested by Dean Baker of the Center for Economic and Policy Research. He argues that a payroll tax increase of four percent would be sufficient to fully fund Social Security and Medicare for another 75 years. He acknowledges that such an increase would be difficult for many workers, but he estimates that the loss of income from decades of upward distribution of income to be 40 percent — a loss ten times greater. That figures comes from the gap between the rate of earnings increases for working people and the rate of increases in productivity. He explains:

“[U]pward redistribution over this period has reduced wage growth by more than 40 percentage points. In short, our children are 40 percent poorer than they would otherwise be because of the money going to people like Bill Gates and Steve Zuckerberg rather than ordinary workers.

So by very conservative estimates, a typical person in their twenties or thirties has seen their income reduced by more than 40 percent because of all the money redistributed to those at the top. However, the generational warriors want young people to be upset about the possibility that a bit more than one-tenth of this amount could be used to pay for their parents’ and their own Social Security and Medicare. (This upward redistribution is also responsible for about half of the projected shortfall in Social Security, as more income going to profits and high-income workers escapes the Social Security tax.)

It is also important to understand that government action was at the center of this upward redistribution. Without government-granted patent monopolies for Windows and other Microsoft software, Bill Gates would probably still be working for a living.”

A trillion dollars for Wall Street

Privatizing Social Security would additionally cut benefits because financiers would take hefty cuts. The administrative costs of the retirement portion of Social Security (the bulk of the program) is 0.4 percent. In contrast, Dr. Baker reports, “even relatively well-run privatized systems, like those in Chile or the United Kingdom, are 10–15 percent of benefits.”

Such ratios were Social Security privatized would cost nearly $1 trillion in a decade, he calculates — $1 trillion taken from Social Security benefits and diverted into Wall Street’s bottomless pockets. Consider that the standard payment for hedge-fund managers is to receive an annual fee of two percent of the value of the total assets under management and 20 percent of any profits. The fee gets paid even when the fund loses money. In 2014, the top 25 hedge-fund managers hauled in $11.6 billion despite collectively underperforming the stock market.

Fees for ordinary money managers are not this high, and a privatized Social Security wouldn’t pay fees as exorbitant as those charged by hedge funds. But it would still be huge sums of money. That is why Wall Street has long lusted to get its hands on it.

U.S. Treasury Department under new management (photo by takomabibelot)

Then there is the matter of returns. Would gambling Social Security funds on the stock market really result in better results? Not necessarily. In studying the stock market’s long-term returns for an article I wrote a decade ago, not long after the 1990s bubble had burst, I found that you would have to time your retirement to the peaks of bubbles. When adjusted for inflation, the Dow Jones Industrial Average — the ultimate index of stock-market health and which has its components continually adjusted so as to replace low-performing stocks with high-performing ones — was below its 1929 peak as late as 1991. Here are some long-term results:

  • The Dow peaked at 995 in February 1965. Adjusted for inflation, that was 42 percent more than it was worth at its previous bubble peak in 1929, not so impressive when it took 36 years to get there.
  • The ensuring crash bottomed out in December 1974. At this point, the Dow, adjusted for inflation, was worth only half of what it was worth in 1929 and little more than one-third of its 1965 peak.
  • The most recent crash bottomed out in March 2009, at which point the Dow was three percent below its 1965 peak, adjusted for inflation.

The stock market is edging into bubble territory as we begin 2018, and stocks are priced high by historical standards. The basic measure of stock-price sustainability is the price/earnings ratio of the S&P 500, representing the largest companies on U.S. stock markets. The ratio’s average, calculated back to 1872, is 14. Prior to the 1990s bubble, the S&P 500 P/E ratio rose above 20 four times; each time it subsequently fell below 10. A standard measurement of the P/E ratio today is 26. One way to understand that number is that an investor is essentially paying $26 for each dollar of corporate profit, which is considered too high. It is true that the P/E ratio has been almost continually above the historic average since the 1990s bubble, but nonetheless this more recent rise indicates that a stock collapse is looming.

Goodbye retirement, goodbye disability payments

There aren’t any free lunches. A Center on Budget and Policy Priorities study notes that Social Security is not only a retirement program, but also an insurance program that could not be duplicated if privatized:

“Social Security is not only a retirement program but also an insurance program. About one-third of payroll taxes go to fund Social Security disability insurance and survivors insurance. Comparable insurance products would be extremely expensive to buy in the private insurance market, if one could even find such products. Social Security also provides an inflation-indexed annuity: Social Security benefits are adjusted each year for inflation and are paid until death, regardless of how long a beneficiary lives. These features of Social Security provide a valuable form of insurance against the risks of inflation and of outliving one’s savings.”

Nor would sinking funds into stock markets necessarily be a wise gamble, the Congressional Budget Office has said:

“Government investment in private securities does not offer a free lunch: although it would increase the expected value of budgetary resources, it would do so at the cost of exposing the government, future taxpayers, and beneficiaries of federal programs to greater risk. If that risk was taken into account, the returns on private securities would be no greater than the returns on government securities. … Using risky investment portfolios to finance spending by government agencies could weaken budgetary control of federal financial resources.”

That last item, however, is a lure of Republicans and their corporate masters. Create a larger deficit, cut social spending, repeat. This reduces lifespans, reducing payouts through Social Security and corporate retirement plans, for those lucky enough to still have one. Earlier deaths has already been declared a “silver lining” by U.S. corporations.

And let us not forget the sometimes bipartisan nature of Social Security cuts — Barack Obama had proposed a change to the way inflation is calculated for the determination of cost-of-living increases that would have resulted in lower adjustments for inflation, effectively a small yearly reduction. He did so as a bargaining chip in an effort to force Republicans in Congress to agree to modest tax increases. Ultimately, a Democratic Party revolt, spurred by grassroots opposition, forced an end to this plan, but this episode does serve as a reminder that social movements, not hoping for political office holders to do good, is the key to being able to retire some day.

In Chile, in 1998, the government actually asked workers not to retire because of a sustained economic downturn. (The Chilean retirement system was forcibly privatized under Pinochet). Think it can’t happen elsewhere? Keep in mind these words by Stephen Moore of the far right groups Club for Growth and Cato Institute: “Social Security is the soft underbelly of the welfare state. If you can jab your spear through that, you can undermine the whole welfare state.”

You’ll work until you drop, but Wall Street will profit.

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China maintains its capitalist course

The Western corporate media have been fixated on Chinese President Xi Jinping’s hold on power, speculating on if he will follow the Communist Party’s tradition of leaders stepping down after two five-year terms. The larger story, however, is that there appears there will be no change in course, at least for now, for China.

Perhaps the fixation on President Xi is due to the corporate media’s tendency to focus on personalities over issues, or perhaps because it could be presumed in advance that China would not become a poster child for the International Monetary Fund or World Bank. To be fair, Chinese institutions have strongly emphasized President Xi’s leadership, continually referring to him as the “core” of the party’s central committee and celebrating that “Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era” has been enshrined in the party constitution.

The way in which “Xi Jinping Thought” has been enshrined, however, indicates that the party and state leader is stressing continuity with his predecessors. The resolution by the 19th Chinese Communist Party Congress adopting the report of the outgoing central committee said this in the first paragraph:

“The Congress holds high the banner of socialism with Chinese characteristics and is guided by Marxism-Leninism, Mao Zedong Thought, Deng Xiaoping Theory, the Theory of Three Represents, the Scientific Outlook on Development, and Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era.”

Forbidden City, Beijing (photo by Adamantios)

Looking past the ritualistic style, what is noteworthy about the above paragraph is that every Chinese leader is mentioned. The “Scientific Outlook on Development” is the product of President Xi’s predecessor, Hu Jintao, who declared that China must end its reliance on cheap labor and invest more in science and technology. The “Theory of Three Represents,” laid down by former President Hu’s predecessor, Jiang Jemin, declares that the party should represent the most advanced productive forces, the most advanced culture and the broadest layers of the people. That is an assertion that the interests of different classes are not in conflict and that the party can harmoniously represent all classes simultaneously.

On the surface, that lineup of leaders seems unremarkable, but it represents a change from four years ago, when the party did not formally mention the “Scientific Outlook on Development” and attached the adjective “important” to the “Three Represents.” Combined with the announcement four years ago that the party declared “the role of the market” in China to be “decisive,” a switch from “basic,” this was a strong indication that China would further its integration into the world capitalist system, albeit on its own terms.

A continuing commitment to the capitalist road

The lines laid down by presidents Jiang and Hu, following the turn toward capitalism by Deng Xiaoping, would seem quite contradictory to “Mao Zedong Thought” or, for that matter, Marxism-Leninism. What can be reasonably inferred here is that the party will continue to use Mao as one source of its authority. That all post-revolutionary rulers are included in the list of enshrined theories, with none elevated above any other, indicates that the party is stressing continuity.

If there are to be any significant changes, particularly to economic policy, they are unlikely to be revealed before next autumn, when the third plenum of the new central committee will likely be held. Third plenums, generally held about a year after a congress, are often the occasions for major announcements, as was the case in 2013, when the above switch to making the market “decisive” was announced. (A plenum is a meeting of the entire central committee, generally scheduled at precise intervals.)

Also noteworthy in the congress’ resolution of October 24 was an acknowledgment that the party has to give greater priority to consumer interests and the environment:

“[T]he Congress forms the major political judgments that socialism with Chinese characteristics has entered a new era and the principal contradiction in Chinese society has evolved into one between unbalanced and inadequate development and the people’s ever-growing needs for a better life.”

The party, despite the heavy stress on “Xi Jinping Thought,” also sought to dampen hopes that the growth in living standards would be rapid:

“The Congress elaborates on the Party’s historic mission in the new era and establishes the historical position of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era. It sets forth the basic policy for upholding and developing socialism with Chinese characteristics in the new era, and establishes the goal of securing a decisive victory in building a moderately prosperous society in all respects and then embarking on a journey to fully build a modern socialist China.”

The resolution, which repeatedly referred to the goal of a “moderately prosperous society,” also stressed the party will firmly hold onto its leading role, uphold the unity of China and strengthen its military. As to the direction in which the party intends to lead, the list of goals in the resolution give a strong hint. Among the listed goals are “pursue supply-side structural reform as our main task” and “endeavor to develop an economy with more effective market mechanisms.”

Although “supply-side” in this context certainly is not meant in precisely the same way that “supply-side” was meant during the Reagan administration in the United States, it is not without content, either. The Chinese business magazine Caixin, in a commentary about the congress, had this to say:

“The report said that ‘in resource allocation, the market plays the decisive role and the government plays its role better.’ This line shows unwavering determination to move toward market reform. But we should remain vigilant about how, under China’s current system, in terms of specific administration, the government plays a decisive role, while the market is in a subordinate role. Supply-side reform needs to accomplish five tasks — cutting overcapacity, lowering inventory, deleveraging, lowering costs, and improving economic weak spots. ‘Government failure’ cannot be entirely absolved in causing these problems.”

Party acknowledges “unbalanced and inadequate development”

So, again, more capitalism for the Chinese Communist Party despite its insistence that “socialism” is its guiding ideology. A commentary by the official Chinese press agency, Xinhua, offered these passages:

“The genesis of China’s development miracle is socialism, not other ‘-isms.’ The country succeeds not by rigidly copying the original ideas of scientific socialism, but by adapting it to China’s reality. Xi Jinping’s thought will be China’s signature ideology and the new communism. … China is now strong enough, willing, and able to contribute more for mankind. The new world order cannot be just dominated by capitalism and the West, and the time will come for a change.”

The reality is that China is ever more integrated into the world capitalist system, and has built its economy on being the world’s sweatshop — rendering it highly dependent on exports, particularly to the West. The party would like to follow the path of Japan, which started out making cheap consumer products before moving up the value chain to become a producer of high-end electronics and other technological products. Traveling such a path is a necessity if the party is to fulfill its goal of raising Chinese living standards and making China an undisputed global power.

Shanghai (photo by dawvon)

The reference to the “principal contradiction” of China being “between unbalanced and inadequate development and the people’s ever-growing needs for a better life” is an acknowledgment that China has made insufficient progress. A few numbers will illustrate that.

Household consumption in China remains far below the level of advanced capitalist countries. According to World Bank data, household consumption accounted for 37 percent of China’s gross domestic product in 2015, barely improved from 36 percent in 2007. (Household consumption is all the things that people buy for personal use from toothbrushes to automobiles.) To put that number in perspective, household consumption was as high as 71 percent during the Mao era and above 50 percent as recently as the early 1980s. In comparison, household consumption in advanced capitalist countries tends to be between 58 and 72 percent of GDP.

China’s rapid growth has been overly dependent on investment, and given the overcapacity of many Chinese basic industries and the rash of ghost cities constructed, the ability to continue driving growth through investment is questionable. Here again, data from 2015 is the latest available, when investment accounted for 45 percent of Chinese GDP, down only slightly from a high of 48 percent in 2011. To put that in perspective, the world average is 24 percent.

Wages rising but are still very low

Concurrent with the over-reliance on investment is an ongoing real estate bubble and increasing debt. For the period 2007 to 2014, only four countries saw their debt increase faster than China. A 2016 Financial Times report said that more than 60 percent of Chinese bank loans were directly or indirectly tied to real estate. That any downturn or stagnation remains well into the future is demonstrated in a sudden and pronounced drop in the Shanghai stock market in 2015, ending a stock bubble, not having much of a dampening effect on the economy. Nonetheless, a stock-market bubble is no panacea for low wages or a shredded social safety net.

And wages remain low in China, despite the gains of recent years. The minimum wage in Shanghai, the highest in China, more than doubled from 2010 to 2016, but was still the equivalent of US$327 per month. The minimum wage in most major cities is US$239 and in poorer provinces can be lower still. These increases, the product of labor struggle, may be coming to an end for the near future, however, reports the China Labour Bulletin:

“Current central government policy was clearly stated by Vice Minister for Human Relations and Social Security, Xin Changxing, in July 2016 when he said that because: ‘Our advantage in labour costs is no longer as clear-cut as before; we should ease the frequency and scale of wage increases so as to preserve our competitive advantage.’ ”

Garment manufacturers are relocating to Bangladesh, Cambodia and Vietnam, where wages are even lower. The Bulletin reports that Chinese minimum wages (which are set locally) should be between 40 and 60 percent of the local average wage, but in most cities it is less than 30 percent. The gap between low-paid workers and those earning the average wage has been growing, nor are overtime rules enforced.

The Bulletin concludes its report on Chinese working conditions in sobering terms:

“A superficial look at China’s major cities seems to show a reasonably affluent society: young, hard-working middle class families, determined to make a better life for themselves. Look beneath the surface however and you soon realize that the goods, services and lifestyle products that these middle class families aspire to are all produced, marketed, and delivered to their homes by an army of over-worked and under-paid working class labourers.”

Socialism or sweatshops?

If socialism is defined as a system of political and economic democracy in which industry and agriculture are brought under popular control so that production is oriented toward human, community and social need rather than private accumulation of capital, and all human beings have a say in decisions that affect their lives and communities, integration into the world capitalist system on the basis of low-paid sweatshop labor allowing massive profits for foreign multi-national corporations is not socialism, whether or not with “Chinese characteristics.”

Western corporations, led by Wal-Mart, are responsible for production being moved to China. China did not “take” anybody’s job; it became the favored destination of the transfer of production by taking advantage of capital’s relentless desire to relocate to locations with the lowest wages and most permissive regulations. Japan and South Korea were able to move up the value chain, develop industry and become new members of the Global North. China’s intention is to do this, but it is by no means certain that there is room for it to do so.

China, because of its size, is able to extract concessions from foreign capital and assert more control than other developing countries, and thus is in the unique position of entering the capitalist system on its own terms. But the market has its own “logic,” one that no country is able to escape.

There is considerable speculation that Chinese leaders are playing a long game, using the capitalist system to develop with the intention of later nationalizing and moving again to a socialist system. A healthy skepticism toward such scenarios is more than warranted. Wealth is being accumulated. The power the concentration of capital inevitably builds, and the commonality of interests of capital across borders, are not something that can removed via a decree.

However much China’s leadership might believe it can control and harness the market, there are always interests at stake. Capitalist markets are nothing more than the aggregate interests of the largest industrialists and financiers, and, in the absence of sustained, organized resistance, those interests are decisive, with all the attendant exploitation.

The rapid minting of billionaires in China, the party’s welcoming of those with wealth, and the wealth acquired by those related to party officials, means that the material interests of the Chinese Communist Party is more capitalism.

Creating a participatory system of economic democracy in Rojava

Out of repression has emerged one of the world’s most interesting experiments in democracy. And by democracy, what is meant is not the formal capitalist variety of elections every few years in which consumption of consumer products is substituted for participation in societal decisions.

Surrounded on all sides by hostile forces intent on destroying them, in a part of the world that Western pundits claim can only be ruled by dictators, the Kurds of Syria are intent on creating a society more democratic than any found in North America or Europe. This is not simply a matter of creating institutions of direct and communal, as opposed to representative, democracy but, most importantly, democratizing the economy. In the words of the imprisoned Kurdish leader Abdullah Öcalan, “In self-government, an alternative economic system is necessary, one that augments the resources of society rather than exploiting them, and in that way satisfies the society’s multitude of needs.”

The many sides of that equation are explored in detail in Revolution in Rojava: Democratic Autonomy and Women’s Liberation in Syrian Kurdistan,* a study of Rojava’s experiment in radical democracy by three activists who spent months in Rojava studying the society being constructed, and who themselves have been involved in Rojava in various capacities. One of the authors, Anja Flach, spent two years in the Kurdish women’s guerrilla army. Her co-authors are Ercan Ayboga, an environmental engineer, and Michael Knapp, a historian. Although the three authors make clear their sympathies for the Rojava revolution, their book is not hagiographic, but rather a serious analysis of a developing process.

The Kurdish people are split among four countries — Iran, Iraq, Syria and Turkey — and have long suffered persecution in each of them. Their persecution in Turkey is well known; successive Turkish governments have attempted to disrupt organizing, obliterate Kurdish culture and ban the Kurdish language through waves of lethal military crackdowns. Mr. Öcalan escaped Turkey after a military coup that led to hundreds of thousands of Kurds thrown into jail; he and the Kurdistan Workers Party (PKK) he leads were granted asylum in Syria. In the late 1990s, under Turkish pressure, Syria expelled the PKK, and a year later, Mr. Öcalan was abducted from a Greek consulate (a kidnapping believed to be a CIA operation) and has been imprisoned in Turkey since.

But that the Syrian régime found the PKK a useful lever against Turkey for a time did nothing to ameliorate ruthless repression against the Kurds of northern Syria. The Ba’ath Party of the Assad family implemented a policy of “Arabization” against Kurds and the other minority groups of the areas now comprising Rojava. Kurds were routinely forcibly removed from their farm lands and other properties, with Arabs settled in their place. Bashar al-Assad, in contrast to the misplaced hopes that he might institute a thaw upon succeeding his father in 2000, instituted a harsh neoliberalism. Mass privatization, suppression of unions, the shredding of the social safety net and a channeling of investment capital into tourism and away from production had a particularly devastating impact on Rojava.

After the uprisings in Syria against the Ba’ath régime began in 2011, the struggle quickly became militarized. The Kurds avoided being overrun by the Syrian army or the various Islamist forces because of their own organization. Grassroots organizing had been done steadily since the 1990s, and when local government collapsed following the 2011 uprisings, that organizing, a nascent council system and the formation of militias enabled the carving out of an autonomous territory. People surrounded government buildings, demanding the surrender of all arms while guaranteeing the safe passage of all Syrian government officials. This tactic worked, quickly sweeping through all three “cantons” of Rojava. (A canton is a portion of a province, perhaps bigger than a U.S. county or French department but smaller than a U.S. state or a French region.)

The aim here was to create a democratic territory through peaceful means. This takeover was accomplished nearly without bloodshed, although Rojava’s militias have had to repeatedly repulse attacks from Islamic State, al-Qaeda and other hostile forces, as well as fend off the sometimes active hostility of the Turkish government, which has allowed Islamic State terrorists to freely cross the border and re-arm themselves. Sadly, Rojava has also been subjected to periodic blockades and political harassment from the two corrupt parties that control Iraqi Kurdistan, which borders Rojava to the east.

The system of democratic autonomy

The basic units of Rojava’s organization are councils and commissions. These constitute the building blocks of Rojava’s system of “democratic confederalism.” The authors of Revolution in Rojava explain this concept in this way:

“Democratic Confederalism aims at achieving the autonomy of society, that is, a society that administers itself through small, self-governing decentralized units. It entails a permanent social revolution, reflected in every aspect of social structure. All institutions are self-organized and self-administered.” [page 44]

Concurrent with that concept is “democratic autonomy,” which is defined as “the autonomy of the commune” in an “anti-centrist, bottom-up approach.” The commune is the basic unit of self-government, the base of the council system. A commune comprises the households of a few streets within a city or village, usually 30 to 400 households. Above the commune level are community people’s councils comprising a city neighborhood or a village. The next level up are the district councils, consisting of a city and surrounding villages. The top of the four levels is the People’s Council of West Kurdistan, which elects an executive body on which about three dozen people sit. (“West Kurdistan” is the portion of Kurdistan that lies within Syria.)

Integrated within the four-level council system are eight commissions — women, defense, economics, politics, civil society, free society, justice and ideology — that work with councils at all four levels; in turn commissions at local levels coordinate their work with commissions in adjacent areas. There is also a ninth commission, health, responsible for coordinating access to health care (regardless of ability to pay) and maintaining hospitals, in which medical professionals fully participate. Except for the women’s commission, all bodies have male and female co-leaders.

Taking with upmost seriousness the full liberation of women (also expressed in the all-women’s militias that fight on the front lines the same as men’s units), the women’s commissions are tasked, inter alia, with adjudicating cases of patriarchal violence and forced marriage. An umbrella women’s movement organizes women across Rojava, taking on activities including educational work, publishing a newspaper, pushing for legislation, and investigating and documenting domestic violence. This work has roots in the 1990s, when PKK women organized door to door. When organizing by men was heavily suppressed after 2004, women organized clandestinely, giving them experience.

Making women’s participation central is of course a glaring contrast with the Islamist groups and the so-called moderate groups of the Free Syrian Army. Every organization in Rojava must include at least 40 percent women. Asya Abdullah, co-chair of the Democratic Party of Kurdistan, Rojava’s largest party, said the revolution is conscious of not repeating the mistakes of the past, in which women’s liberation was often put on the back-burner. She said:

“We’re a still long way from achieving our goals. … But we’ve learned from the failed revolutions in the past. They always said, ‘Let’s carry the revolution to success, and then we’ll give women our rights.’ But after the revolution, of course, it didn’t happen. We’re not repeating that old story in our revolution.” [page 70]

Creating a new justice system

As with many governmental functions, the judicial system has had to be rebuilt from scratch. Peace committees seek consensus through dialogue at the commune and neighborhood levels. The goal is rehabilitation rather than punishment. Most cases are settled in peace committees, but felonies and those cases not adjudicated in the peace committees are assigned to district-level people’s courts. There are separate women’s peace committees that handle cases of male violence against women in which all-women panels hand down decisions.

Parallel to these systems of democratic self-activity is the Democratic-Autonomous Administration. This is essentially a dual government, created primarily for foreign governments. Because Rojava’s councils have been ignored elsewhere, the DAA was created so that world’s governments would have a government they could recognize. Each of three Rojava cantons has a DAA, which includes an elected parliament and ministries that are distributed among the various political parties so that each has at least one minister. These, however, rely on the earlier-established council system and work with the councils. The division of labor between the councils and the DAA has yet to be worked out, nor how to reconcile a dual-government structure.

Civil society associations also play large roles in Rojava. These groups perform educational work, organize grassroots activity and place representatives on the councils. Many of these associations are occupation groups. In contrast to what the Kurdish movement sees as the state existing as a means of extracting profits for favored social groups or classes and inculcating a fixation on authority, civil society is substituted for a state. The authors write:

“The Kurdish movement, in its anti-statism, thus draws on [Antonio] Gramsci’s concept of civil society in proposing to strengthen civil society for the purpose of overthrowing the state. In contrast to the abortive Bolshevist strategy of seizing state power, Öcalan posits, like Gramsci on the ideological, political struggle for civil society, a ‘war of position’ beyond military confrontation. Through empowerment, a civil society tries to free itself from the hands of the state and its religious, economic and administrative structures and so to build a counter-hegemony and to activate individual parts of the society to represent civil society in councils and communes.” [pages 122-123]

Economic development on a democratic basis

This democratic concept extends to the economy. Food and fuel prices are controlled, working conditions are negotiated among several interest groups, workers’ rights are defended and the pursuit of profit maximization is blocked to avoid the destructive tendencies of capitalism. The principals of the “communal economy” are described in this way by the Union of Civil Society Associations:

“The state system exploited the society’s labor power and trampled the rights of workers. Under Democratic Autonomy, civil society associations solve problems according to principles of moral politics and an ecological society. The unity of society is the foundation. These associations hold society together. They ensure the unity that is needed to satisfy everyday social needs. Of course, they do this as part of democratic, communal life. They are how society organizes itself.” [page 124]

Rojava, the authors write, was a “quasi-colony” under the Ba’ath régime. There was an enforced agricultural monoculture with no local production allowed. Oil, gas and agricultural products were shipped out, and canned food and finished products from elsewhere shipped in. Not even trees were allowed to be planted. So although there is much productive farmland, Rojava could not come close to self-sufficiency in food as all farmers were forced to raise wheat or cotton. Farming is now being re-oriented toward local needs so that a much higher percentage of food can be produced locally; this is partly a necessity as the area is often blockaded by neighbors.

The city of Qamishli in Syrian Kurdistan

The councils, already in existence, organized the economy to prevent a collapse after Rojava’s liberation. Price controls, measures against hoarding food and medicine, agricultural diversification, planting fruit trees, and building grain mills and industry were implemented and are ongoing projects. Rojava’s economic underdevelopment is seen locally as a disadvantage and an opportunity. It is the latter because, the authors write, it “allows the traditional social collectivism of the Kurdish people to be channeled positively to build a new, alternative economy.” [page 197]

Much of this new economy rests on cooperative enterprises. Cooperatives are required to be connected to the council system; independence is not allowed. Cooperatives work through the economics commissions to meet social needs. Much of this cooperative production is in agriculture or small shops but there are plans to create more industry to meet local needs. Thirty percent of all coop proceeds must be given to local self-government administrations. And this is seen as a route to eliminating unemployment. The authors write:

“The cooperative system is solving the problem of unemployment. ‘Through the communes and cooperatives and the needs-based economy,’ explains [Afrin University chair] Dr. [Ahmad] Yousef, ‘each person can participate in production in his own way, and there will be no unemployment. Where communes are established, it will become clear that unemployment is a result of the capitalist system itself.’ ” [page 206]

Such a system can’t work without an educated population:

“To ensure that society is able to make decisions about the use of water, soil, and energy, information about the society’s needs are taken out of the hands of the experts and socialized. Education is critical for this purpose. ‘We school the people in how cooperatives can form a social economy,’ says [Union of Kurdish Communities leader Cemil] Bayık. ‘We are establishing economics academies to advance this.’ ” [page 207]

Surrounded by a hostile world

All this is at odds not only with the existing institutions and state organizations surrounding them, but with the capitalist powers as well. How can Rojava’s experiment possibly survive in a such a hostile world? The authors of Revolution in Rojava strongly urge the building of Left support sufficiently strong to influence North American and European governments. The people of Rojava, the authors stress, are in need of material support from the West at the same time they are acutely aware of the dangers of a U.S. embrace.

The idea that Rojava’s acceptance of Western aid is a “betrayal” is called “naïve” by the authors, drawing parallels with Republican Spain of the 1930s. Describing Rojava as an “anti-fascist project,” they note that the capitalist West turned its back on the Spanish Revolution, allowing fascism to triumph.

The danger of U.S. material support, of course, can’t be underestimated, given that a communal economy oriented toward people’s needs rather than private profit is anathema to U.S. corporate and government power, which have teamed up to throttle many a revolution attempting to transcend capitalism or simply assert independent development. Moreover, the U.S. wrongly classifies the PKK, which seeks to implement the same system as their fellow Kurds in Syria, as “terrorists” and has long supported Ankara’s scorched-earth repression of Kurds.

In the short term, material support from the West is needed if Rojava is to successfully defend itself from Islamic militants and the Turkish government. Syrian (and Turkish) Kurds, who see their model as one that can be expanded across Syria and the entire Middle East, have their eyes open to the narrowness of the path that must be thread through these contradictions. Nor are their eyes closed to their unsolved problems of pollution, water, waste management, and the stop-gap use of diesel generators that is causing serious environmental problems.

The book ends on an optimistic note, readapting Rosa Luxemburg’s famous phrase to declare the future is “communalism or barbarism.” Although brief discussions of Thomas Jefferson, Luxemburg and Gramsci (who was no opponent of the Bolsheviks) are poorly argued and their views misstated, this is at most a minor irritant in a work ably presenting the first comprehensive study of Rojava’s inspiring experiment in mass-participation democracy. Revolution in Rojava is an excellent introduction to a revolution that is not yet well known but should be.

* Ercan Ayboga. Anja Flach and Michael Knapp (translated by Janet Biehl), Revolution in Rojava: Democratic Autonomy and Women’s Liberation in Syrian Kurdistan [Pluto Books, London 2016]

Wall Street bigger and badder than ever

Being a banker means never having to say sorry. Or worry where that next million is going to come from.

Financial results are in for 2016 for the biggest U.S. banks and — surprise! — profits continue to reach the stratosphere. And with Goldman Sachs in firmer control of the U.S. Treasury Department than ever before, the good times will continue to roll for Wall Street. For the rest of us, that’s another story.

No less than six “Government Sachs” executives have been nominated to high-level posts in the new Trump administration. As a candidate, Donald Trump attacked opponents for their ties to Goldman Sachs during the campaign, but the joke is on those who naïvely believed the real estate mogul was going to “drain the swamp.” Heading the list is the treasury secretary nominee, Steve Mnuchin, who spent years at Goldman Sachs before earning the title “foreclosure king” as chairman and chief executive officer of OneWest Bank.

Occupy Wall Street (photo by David Shankbone)

Occupy Wall Street (photo by David Shankbone)

Mr. Mnuchin, who bought distressed mortgages and evicted thousands of homeowners during the financial crisis, further demonstrated his humanitarian streak when he announced that, as treasury secretary, he would oversee “the largest tax change since Reagan” and said his “No 1 priority is tax reform.” More tax cuts for the wealthy and corporations. Hurray! How many more people would pay for this by losing their ability to keep their homes was not indicated.

The Guardian, however, did report that “Mnuchin went on to sell OneWest last year for more than double what he paid the Federal Deposit Insurance Corporation for the assets in the teeth of the financial crisis.” The California Reinvestment Coalition has calculated that Mr. Mnuchin’s bank was responsible for more than 36,000 foreclosures in in that state alone, and reported he disproportionally foreclosed on seniors. It did so frequently using harassment and other aggressive tactics, even to the point of changing the locks on a senior’s home in a blizzard.

Vampire squid” indeed. Those are the sort of tactics that surely endeared Mr. Mnuchin to President Trump.

Citigroup hopes to replicate destruction of Detroit

No roundup of the year in banking, however, would be complete without the wit and wisdom of JPMorgan Chief Executive Officer Jamie Dimon. When we last checked in a year ago, Mr. Dimon insisted that declining incomes for working people was no big deal, because they are better off by virtue of possessing iPhones, while in 2014 he complained that — oh the humanity! — “banks are under assault.” As we look back at 2016, he has again provided us with comic relief.

Somehow keeping himself composed as he told Bloomberg News that “business [has] been beaten down as if we’re terrible people,” he upheld the work of banks in saving Detroit. You can’t make this up: He said, “Detroit is a perfect example where civil society, not-for-profits, government, business all work together to improve the lives of American citizens. If you can duplicate what they’ve done in Detroit around the country, you’re going to have a huge renaissance.” He finished by declaring “JPMorgan didn’t jeopardize the system. We did not cause the crisis. We have three times more capital than we had back then. We saved 30,000 jobs.”

Goldman Sachs headquarters (photo by Quantumquark)

Goldman Sachs headquarters (photo by Quantumquark)

We’ll pause here so you can enjoy a hearty laugh. There is no need to point out the tremendous damage major banks did to economies around the world, and the trillions of dollars of handouts given to them as a reward for their destructive behavior. There is little need to point out the damage done to Detroit, but as a reminder, complex and poorly understood derivatives were decisive in Detroit’s fiscal downfall.

These derivatives were sold to the city as a form of “insurance” against possible increases in interest rates, but when interest rates fell and Detroit’s credit rating was cut, hundreds of millions were siphoned from city coffers into Wall Street pockets, and the banks that sold the derivatives jumped to the head of the line of creditors. No money for pensions or government services, but plenty for financiers.

Mr. Dimon does seem to be rather well compensated for his difficulties, “earning” $27.6 million for 2015, tops among banking chief executive officers. Goldman Sachs’ Lloyd Blankfein didn’t do too badly himself, hauling in $23.4 million in compensation. Another nine topped $10 million.

Bigger and badder than ever

These bloated salaries did not, so to speak, break the banks. Once again, profits for the six biggest U.S. banks were massive — nearly $93 billion for 2016.

Here’s a breakdown of the six banks for 2016, three of which reported record profits.

  • JPMorgan Chase & Company reported net income of $24.7 billion on revenue of $99.1 billion, the bank’s highest-ever profit, beating out the record set just the year before. These massive profits led to a massive bonanza for speculators — JPMorgan handed out $15 billion in dividends and stock buybacks.
  • Bank of America Corporation racked up $17.9 billion in net income on revenue of $83.7 billion, both increases from a year ago, which, in turn had tripled 2014 earnings. Speculators did well here, too, as Bank of America ladled out $7.7 billion in dividends and stock buybacks, and plans on buying back another $4.3 billion of its stock in the first six months of 2017.
  • Citigroup Incorporated reported net income of $14.9 billion on revenues of $69.9 billion, both a little bit lower than a year earlier. But shed no tear for downtrodden speculators as Citigroup handed out $10.7 billion in dividends and stock buybacks. Five separate violations cost a total of $485 million in government penalties, but that seems to be no more than a minor speed bump.
  • Wells Fargo & Company had net income of $21.8 billion on revenue of $88.3 billion, a dip in profits from 2015 due to having to pay a penalty of $1.2 billion for shady mortgage lending practices and another $185 million in fines because of its illegal practices of opening fake accounts in the name of its depositors. Who says crime doesn’t pay? Speculators certainly won’t say that: Siphoning money from its account holders helped Wells Fargo be in a position to shovel $12.5 billion into financiers’ pockets through dividends and stock buybacks, almost equal to what it handed out a year earlier.
  • The Goldman Sachs Group Incorporated reported net income of $7.4 billion on revenue of $30.6 billion, a bigger profit and profit margin that a year earlier. The company did not break out its expenses for its purchases of the U.S. government in its latest financial report. Goldman Sachs spent $7 billion on buying back its stock and proudly declared itself first in the world in mergers and acquisitions, work that added billions to the investment bank’s bottom line while costing untold numbers of people their jobs. Profits would have been even bigger had it not been for a $5.1 billion fine for selling toxic mortgage securities to unsuspecting investors.
  • Morgan Stanley reported net income of $6.0 billion on revenue of $34.6 billion, a profit about two percent lower than that of 2015. Despite that slight dip in income, the bank somehow found the means to buy back $3.5 billion worth of its stock — a 67 percent increase from what it bought back a year ago. Morgan Stanley would have seen its profits increase for 2016 had it not had to pay $3.2 billion in penalties related to its role in the subprime-mortgage housing debacle.

Beyond the whip of Wall Street

The biggest banks not only extract more money from the rest of the economy than ever, but are bigger than ever — banks with more than $100 billion assets increased their market share from 17 percent in 1995 to 59 percent in 2014. This is the mad logic of capitalism — grow or die. Finance capital, despite being the whip enforcing trends that worsen inequality, is not immune from what it enforces on everyone else. One measure of the cancerous growth of financial products bearing little relationship with actual needs is this: In 11 business days financial speculators trade instruments and contracts valued at more than all the products and services produced by the entire world in one year.

Reducing banking and finance to a public utility would be the only way to break the grip of giant banks and financial institutions. One intermediate step that could be taken would be government banks that would fund public infrastructure projects and provide low-cost loans, and which would be the recipient of government revenue rather than commercial banks.

The Bank of North Dakota is an example of such an institution that already exists, with proposals for state banks being floated for Vermont, Washington state, Oregon and California. A New Jersey gubernatorial candidate, Phil Murphy, has made a public state bank the centerpiece of his campaign, arguing that students would benefit from low interest rates for college tuition, more loan capital would be made available and municipal governments would no longer have to pay high interest to Wall Street.

The Left Party of Germany has a detailed plan to bring banks under democratic control. Although the party’s proposal is specific to Germany, its basic ideas are transferable to any country. Any form of democratic control of an economy would be impossible without banking and finance being reduced to a public utility, and thus serving to benefit communities rather than existing as a parasite that exists to profit over every aspect of human activity, no matter the social cost.

Eight people own as much as half the world

Just when it seemed we might be running out of superlatives to demonstrate the monstrous inequality of today’s capitalism, Oxfam has provided the most dramatic example yet: Eight individuals, all men, possess as much wealth as the poorest 50 percent of humanity.

Eight people have as much as 3.7 billion people.

How could this be? Oxfam calculated that 85 people had as much wealth as the poorest half of humanity in 2014, a staggering finding that researchers with the anti-poverty organization discovered through crunching numbers provided by Forbes magazine in its rich list and by the investment bank Credit Suisse in its global wealth distribution report. Oxfam found wealth distribution to be even more unequal than did Credit Suisse, which calculated that the top one percent equaled the bottom 50 percent. Oxfam, in its report, “An Economy for the 99%,” released this month, explains:

“This year we find that the wealth of the bottom 50% of the global population was lower than previously estimated, and it takes just eight individuals to equal their total wealth holdings. Every year, Credit Suisse acquires new and better data sources with which to estimate the global wealth distribution: its latest report shows both that there is more debt in the very poorest group and fewer assets in the 30–50% percentiles of the global population. Last year it was estimated that the cumulative share of wealth of the poorest 50% was 0.7%; this year it is 0.2%.” [page 11]

 

The "wealth pyramid" as calculated by Credit Suisse. Oxfam's findings are that even this is an under-estimation of inequality.

The “wealth pyramid” as calculated by Credit Suisse. Oxfam’s findings are that even this is an under-estimation of inequality.

Because Oxfam includes among the bottom 50 percent people in the advanced capitalist countries of the Global North who have a net worth of less than zero due to debt, some critics might argue that these people are nonetheless “income-rich” because they have credit available to them and thus distort the inequality outcome. Oxfam, however, says that almost three-quarters of those among the bottom 50 percent live in low-income countries, and excluding those from the North with negative wealth would make little difference in aggregate inequality. That total debt is equal to only 0.4 percent of overall global wealth. The Oxfam report says:

“At the very top, this year’s data finds that collectively the richest eight individuals have a net wealth of $426 bn, which is the same as the net wealth of the bottom half of humanity. …  [E]stimates from Credit Suisse find that collectively the poorest 50% of people have less than a quarter of 1% of global net wealth. Nine percent of the people in this group have negative wealth, and most of these people live in richer countries where student debt and other credit facilities are available. But even if we discount the debts of people living in Europe and North America, the total wealth of the bottom 50% is still less than 1%.” [page 10]

Profiting from cheap labor and forced labor

We are accustomed to hearing that chief executive officers in U.S.-based corporations earn hundreds of times more than their average employee, but this dynamic can be found in the developing world as well. No matter where the CEO lives, brutal and relenting exploitation of working people is the motor force of inequality. Oxfam reports:

“The CEO of India’s top information firm earns 416 times the salary of a typical employee in his company. In the 1980s, cocoa farmers received 18% of the value of a chocolate bar — today they get just 6%. In extreme cases, forced labour or slavery can be used to keep corporate costs down. The International Labour Organization estimates that 21 million people are forced labourers, generating an estimated $150 bn in profits each year. The world’s largest garment companies have all been linked to cotton-spinning mills in India, which routinely use the forced labour of girls.” [page 3]

appleoxfam-graphicPeople become sweatshop workers out of desperation; often these are men and women driven off the land their families had farmed for generations. Land, even small plots that provide only subsistence for those who work it, represents wealth taken away when those subsistence farmers are forced into migrating into urban slums. Displacement from global warming is also a factor.

“[M]any people experiencing poverty around the world are seeing an erosion of their main source of wealth — namely land, natural resources and homes — as a consequence of insecure land rights, land grabbing, land fragmentation and erosion, climate change, urban eviction and forced displacement. While total farmland has increased globally, small family farms operate a declining share of this land. Ownership of land among the poorest wealth quintile fell by 7.3% between the 1990s and 2000s. Change in land ownership in developing countries is commonly driven by large-scale acquisitions, which see the transfer of land from small-scale farmers to large investors and the conversion of land from subsistence to commercial use. Up to 59% of land deals cover communal lands claimed by indigenous peoples and small communities, which translates to the potential displacement of millions of people. Yet only 14% of deals have involved a proper process to obtain ‘free prior and informed consent.’ Distribution of land is most unequal in Latin America, where 64% of the total wealth is related to non-financial assets like land and housing and 1% of ‘super farms’ in Latin America now control more productive land than the other 99%.” [page 10]

As entire areas of the world like Latin America have been plundered for the benefit of multi-national corporations based in the Global North, with those benefits flowing to the executives and financiers who control those corporations, it is no surprise that most of the wealth remains concentrated in the advanced capitalist countries. Although steering well clear of so much as a hint of the imperial nature of uneven development, the Credit Suisse report that Oxfam drew upon does note that North America and Europe together account for 65% of total household wealth with only 18% of the world’s adult population.

The sociologist James Petras estimates that the corporations and banks of the North took US$950 billion of wealth out of Latin America for the period 1975 to 2005. Thus it is no surprise that global inequality, when measured by the standard statistical measure of income distribution, the gini coefficient, is greater than inequality in any single country.

More programs on the way to make inequality still worse

Few countries of the Global North are more unequal than the United States, the imperial center of the world capitalist system that seeks to impose its ways and culture on the rest of the world. The new Trump administration is determined to make U.S. inequality even more extreme. Not only through intentions of cutting taxes on the wealthy and corporations, but via many less obvious routes.

For example, the Center on Budget and Policy Priorities reports that the repeal of Barack Obama’s Affordable Care Act, a process already in motion, would result in tax cuts of $2.8 billion per year for the country’s 400 highest-income taxpayers. Special Medicare taxes that fund subsidies for low-income United Statesians to buy insurance under the act are assessed only on those with annual incomes higher than $200,000. Conversely, the loss of tax credits to buy health insurance would lead to a tax increase for about seven million low- and moderate-income families.

Through the end of 2016, the central banks of Britain, the European Union, Japan and the United States have shoveled a colossal total of US$8 trillion (€7.4 trillion) into their “quantitative easing” programs — that is, programs that buy government bonds and other debt in an effort to boost the economy but in reality does little other than fuel stock-market bubbles and, secondarily, real estate bubbles. Vast rebuilding of crumbling infrastructure — a program that would actually put people to work — would have cost less.

CEO-to-worker ratioStandard economic ideology insists that the real problem is that wages have not fallen enough! Consistent with that, the Federal Reserve released a paper in 2015 claiming that “rigidities” “prevent businesses from reducing wages as much as they would like” during economic downturns.

Oh yes, falling wages instead of stagnant wages will bring happy times! Never mind that productivity has soared over the past four decades, while wages have consistently not kept pace. The average Canadian and U.S. household would earn hundreds of dollars per week more if wages had kept up with rising productivity, while wages in Britain and many other countries are also lagging.

What to do? The Oxfam report, in its conclusions, advocates a switch to a “human economy,” one in which governments are “accountable to the 99%,” businesses would be oriented toward policies that “increase prosperity for all,” and sustainability and equality would be paramount.

“Oxfam firmly believes humanity can do better,” its report concludes. Surely we can do better. But not under capitalism. Does anyone believe that the world’s elites, who profit so enormously and believe they can build a wall high enough to keep the world’s environmental and social problems away, are going to suddenly accept business as usual can no longer go on and willingly give up their enormous privileges?

Any way you calculate it, income inequality is getting worse

A flurry of new reports have provided yet more data demonstrating that inequality is getting worse. All right, this does not qualify as a shock. But it really isn’t your imagination.

The economic crisis, nearly a decade on now, has been global in scope — working people most everywhere continue to suffer while the one percent are doing just fine. One measure of this is wages. A newly released report by the Organisation for Economic Co-operation and Development finds that median wages in the OECD’s 35 member countries are still below where they were in 2007. For the bottom 10 percent of wage earners, the news is worse; wages for this bottom decile have declined 3.6 percent since 2007. But wages have risen for the top 10 percent.

Graphic via the Institute for Policy Studies

Graphic via the Institute for Policy Studies

The report on wage inequality by the OECD, the club of the world’s advanced capitalist countries and a few of the biggest developing countries, also found that inequality has increased in most of those countries. No part of the world has been immune. The report, “Income inequality remains high in the face of weak recovery,” states:

“The crisis has not only heavily affected the number of jobs but also their quality. … Even in countries where labour market slack has been re-absorbed, low-quality jobs and high disparities among workers in terms of work contracts or job security weigh heavily on low-earning households and contribute to maintaining high levels of income inequality. Wages have stalled in most countries, including those that were largely spared by the recession (e.g. Japan) and fallen in those hard hit (e.g. Greece, Portugal, Spain, and the United Kingdom).”

Chile and Mexico are the most unequal countries among the OECD members, followed by the United States, as measured by the gini coefficient. Iceland, Norway and Denmark are the least unequal. (The gini coefficient, the standard statistical measure of income distribution, is equal to zero if everybody has the same income and to one if a single person takes all income.) To put that scale into some tangible form, Iceland’s gini coefficient is 0.24 and Chile’s is 0.46.

Global inequality worse than any country’s

The world’s most unequal country is South Africa at 0.65. Calculating this scale on a global basis gives a better idea of the scale of inequality but is a difficult statistic to find. One measure, as calculated for a United Nations Food and Agricultural Organization paper, estimates the world gini coefficient in 2005 was 0.68, significantly higher than in the 19th century but a bit lower than it had been in 1981. That’s higher than South Africa. The Economist, crunching data from several sources, estimates a global gini coefficient of 0.65 in 2008, a very slight dip from the 1980s peak.

Global inequality has very likely worsened since but no more recent statistics appear to be available.

Rising inequality has been particularly acute in the global center of world capitalism, the United States, and a quick examination of trends there are useful as capitalists elsewhere seek to emulate the new U.S. gilded age. Those at the top of the pyramid are grabbing ever more. The Economist reports:

“Including capital gains, the share of national income going to the richest 1% of Americans has doubled since 1980, from 10% to 20%, roughly where it was a century ago. Even more striking, the share going to the top 0.01%—some 16,000 families with an average income of $24m—has quadrupled, from just over 1% to almost 5%. That is a bigger slice of the national pie than the top 0.01% received 100 years ago.”

Another new study, by economists Thomas Piketty, Emmanuel Saez and Gabriel Zucman, found that the average pre-tax income of the bottom 50 percent of U.S. adults is flat since 1980 in inflation-adjusted dollars — and this includes government transfers, other public spending and the value of job-derived fringe benefits — and thus the share of national income going to the bottom half of United Statesians declined to 12 percent in 2014 from 20 percent in 1980. The top one percent, meanwhile, hauled in 20 percent of income in 2014. Another way of looking at this inequality, the authors write, is that the top one percent of U.S. adults earned on average 81 times more than an adult in the bottom 50 percent. This ratio was 27 times in 1980.

The top of the pyramid does well around the world

To zero in on the tip of the pyramid, the U.S. Internal Revenue Service released a report this month on the 400 tax returns showing the highest incomes reported to it. Those 400 taxpayers reported an aggregate income of $127 billion in 2014 — a fourfold increase in inflation-adjusted dollars since 1980. Those 400 taxpayers by themselves accounted for 6 percent of all interest income and 11 percent of all capital gains (profits from financial assets such as stocks and bonds). To put that in perspective, 149 million tax returns were filed in the U.S. in 2014. Stock-market bubbles and other forms of financial speculation truly are the province of the super-wealthy.

In Canada, Statistics Canada reports that, in 2013, the top one percent grabbed 10.3 percent of income; the average Canadian in this grouping received $450,000 that year. In Britain, the top one percent have doubled their income since 2005, collectively adding another £250 billion to their wealth. Meanwhile, a fifth of Britons live below the poverty line and life expectancy in some areas is lower than in many developing countries, The Independent reports. Australian inequality has not yet reached the above levels, but is getting wider — the percentage of total Australian income grabbed by the top 0.1 percent there has more than doubled since 1980.

Again, nothing here is going to make you fall off your chair in shock. The question becomes: What will we do about all this? This is the internally logical result of the development of capitalism — the upward distribution of income as exploitation accelerates through work speedups, layoffs, movement of production to low-wage havens and the panoply of deregulatory measures resulting from corporate capture of governments.

So-called “free trade” agreements, with their use of clauses enabling multi-national corporations to use secret private tribunals controlled by their lawyers to overturn laws they don’t like, are an exemplary example of the processes used to ratchet up inequality, even if but one of many manifestations. Capital is international and our resistance to it must be international as well. The rise of far right and even fascist movements across Europe and in the United States, decked in the cloaks of nationalism and fake populism, is all the more dangerous because the scapegoating that is always front and center in such movements deflects attention from the real problems.

If the beginning of the end of capitalism is upon us — admittedly something that none of us can yet be certain of — then the need to build movements that can move societies toward a better world is all the more a necessity. Even if the final decay of capitalism has arrived, that decay is likely to unfold over decades unless a global Left movement, uniting the variety of social and environmental movements and struggles across borders, can speed up the process. The only alternative is for inequality to get worse and the repression necessary to impose that inequality to get still more severe.

A basic income is less than meets the eye

A basic income — the concept of everybody getting a regular check from the government regardless of circumstance — is one of those ideas that sound wonderful on the surface but proves to be much less so once we examine the details.

An idea that seems to have gained more traction recently, a basic income is a liberal utopia. It even has its proponents on the Right, including Chicago School godfather Milton Friedman. That alone ought to require us to pause for thought.

A basic income, also sometimes called a universal income, can be defined as a periodic cash payment unconditionally delivered to all on an individual basis, without means-test or work requirements, paid on a regular schedule. Everybody gets this money, on top of their regular earnings.

Northern lights in Suomussalmi region, Finland (photo by Damon Beckford)

Northern lights in Suomussalmi region, Finland (photo by Damon Beckford)

That sounds good, doesn’t it? The devil, of course, is in the details. And, as just noted, a basic income has support from Friedman and hard-line libertarian outfits like the Cato Institute. Friedman gave a talk on this topic (he called his version a “negative income tax”) in 1968, in which he said:

“The proposal for a negative income tax is a proposal to help poor people by giving them money, which is what they need. Rather than as now by requiring them to come before a governmental official, detail all their assets and their liabilities and be told that you may spend x dollars on rent, y dollars on food, etc., and then be given a handout.”

Conservative economists, and certainly Friedman, who remains an icon of the hard Right, are hardly known for wanting government to help anybody (except capitalists). So what is behind this? We are talking here about the economist who helped military dictator Augusto Pinochet implement “shock therapy” in Chile, the result of which was the poverty rate skyrocketing to 40 percent while real wages declined by a third. One-third of Chileans were unemployed during the last years of the dictatorship and the privatized social security system was so bad for Chilean working people that someone retiring in 2005 received less than half of what he or she would have received had they been in the old government system.

And let us not forget the extreme violence that was required to implement Friedman’s neoliberal dreams, with the total of those killed, jailed, “disappeared” or forced into exile totaling tens if not hundreds of thousands. Friedman claimed that he gave only “technical economic advice” and that Chile’s economic and political policies were totally separate, but also wrote that people who demonstrated in favor of human rights at his speeches were “fanatics.”

A back door to cutting services and wages

A basic income is popular among some right-wing economists because such an income would replace social services and provide a subsidy to employers who pay wages below a living level. The Marxist economist Michael Roberts puts this plainly:

“[P]aying each person a ‘basic’ income rather than wages and social benefits is seen as a way of ‘saving money,’ reducing the size of the state and public services — in other words lowering the value of labour power and raising the rate of surplus value (in Marxist terms). It would be a ‘wage subsidy’ to employers with those workers who get no top-up in income from social benefits under pressure to accept wages no higher than the ‘basic income’ which would be much lower than their average salary.”

Although it would likely be difficult for capitalists to force down wages on current employees remaining in their jobs in the short term, a basic income would enable bosses to cut pay to new hires. A prospective employer could easily offer reduced wages on the basis that the prospective employee already has financial support via the basic income. Few interviewers would likely say that so blatantly, but “market pressure” would cut the price of labor, which would remain a commodity in a fully capitalist economy. With starting wages offered to new employees reduced, eventually pressure would build on longer-term employees to accept wage cuts, too.

A Wal-Mart protester is led away during a Black Friday action in Sacramento, California. (Photo via Making Change at Walmart.)

A Wal-Mart protester is led away during a Black Friday action in Sacramento, California. (Photo via Making Change at Walmart.)

Already, low-wage employers like Wal-Mart receive massive subsidies that enable it both to rack up gigantic profits and pay its workers wages below subsistence levels. The spectacle of Wal-Mart workers holding food drives so they can eat might well be replicated on a much larger scale when the basic income proves to be worth less than the value of unemployment benefits and other social-welfare programs, combined with downward pressure on wages.

The Socialist Party of Great Britain notes that unions would not be able to counteract such downward pressure on wages:

“Unions do have some power, but it is limited to working with favourable labour market forces to get higher wages and better working conditions. When, however, labour market conditions are against them the most they can do is to slow down the worsening of wages and working conditions. If all workers got a basic income from the state of £5000, let alone £10,000, a year, this would change labour market conditions in favour of employers. In pay negotiations they would point to the state payment as evidence that they did not need to pay so much in wages or salaries to maintain their employees’ accustomed standard of living. The workers and their unions would realise this and the negotiations would be about what the reduction in wages and salaries should be.”

It won’t make capitalism kinder or gentler

Bargaining over wages in the best of times is no more than negotiating the terms of your exploitation. “Market forces” — which are nothing more than the aggregate interests of the largest industrialists and financiers — will operate just as pitilessly with a basic income because neither a basic income nor collective bargaining over wages touches in any way the social relations of capitalism. A capitalist’s profit derives from paying employees a fraction of the value of what they produce; the inequality that results from that (and the relentless competitive pressure on capitalists to expand on pain of dying) will exist as long as capitalism exists. A basic income would have no effect on this.

A basic income bears some resemblance to the concept of “block grants,” a particular obsession with right-wing politicians in the United States. Block grants are money that would be handed to lower levels of government by the federal government to be dispersed as local officials wish with no accountability as a substitution for money that is ear-marked for specific social programs. These are continually proposed as a back door to dismantling social programs. Similarly, a basic income would be a cash transfer for recipients to pay for whatever services or needs they might have in a private market system, assuming they have adequate total income to obtain it, rather than having services provided for free or at subsidized cost as a public service on the basis of need, as a civilized society ought to do.

The use of the “market” to determine social outcomes would only increase. In other words, more neoliberalism! More people being unable to meet their basic needs would result as wealth would become more of a determinant of results.

Demonstration for a basic income in Berlin, November 2010 (photo by "PD")

Demonstration for a basic income in Berlin, November 2010 (photo by “PD”)

It is also argued that a basic income could disproportionally affect women. The feminist economist Barbara Bergmann countered advocates of basic income who argue that such payments would enable parents to stay home with young children by pointing out that women disproportionally are the stay-at-home parents, to the detriment of their long-term earning potential. Thus a basic income would make women more dependent, not less, she wrote:

“Many if not most employers have come to see women as likely to be continuous labor force participants, not inevitably destined to leave the work force, and therefore as people worth training, worth putting into jobs leading to promotion, worth considering for promotion. This kind of progress would be reversed if a higher proportion of women withdrew from the labor force when their first child was born. For this reason, the full-blown implementation of Basic Income schemes in the near future should not appeal to those for whom gender equality is an important goal.”

Nor would the weakening of health care systems that would be a likely result of cutting social services do any better in fostering equality. Professor Bergmann wrote:

“Both the welfare state and Basic Income reduce inequality of condition. But the welfare state does so with greater efficiency, because it takes better account of inequalities due to differences in needs. If I need an expensive operation and you don’t, giving both of us a Basic Income grant will not go far to make our situations more equal. Only the provision of health services has the chance of doing that.”

Would governments really increase spending?

Those who advocate for a basic or universal income do so on the basis of affordability — there would not be a strain on the treasury, presumably because a spur to consumer spending would boost the economy. But is this so? A hard look at the numbers is not encouraging.

In all types of capitalist societies, from the neoliberalism of the United States to the social democracy of Sweden, the costs of a basic income would far outstrip current spending on social welfare programs.

In the U.S. an annual figure of $10,000 is often bandied about as the appropriate level for a basic income. If this sum were paid out to every U.S. adult, it would cost about $2.4 trillion. That total vastly outstrips current spending on social programs. A Wall Street Journal analysis (hostile to a basic income for the expected conservative reasons) suggests that scrapping income support for the poor, disabled and unemployed, and eliminating veterans’ benefits, Medicaid, Medicare and other health care subsidies would save a composite $1.5 trillion — and likely be quite unpopular.

It could be argued, as the Journal wouldn’t, that money for a basic income could come instead from other sources, such as eliminating massive corporate subsidies, drastically cutting the military budget and even printing money to go toward people instead of the trillions of dollars conjured out of thin air by central banks for “quantitative easing” programs that do little other than fuel stock-market bubbles and inflate speculators’ assets. But for that to happen an immense popular movement would be required, and the enormous effort that would be poured into such a movement would better direct its energies to much more thorough-going changes.

Thus, realistically, a basic income that could hardly be lived on (likely far less than $10,000 annually for United Statesians if it actually came into existence) would be paid for by an effective elimination of the remaining social safety net. Hardly a desirable outcome.

No better prospects where the safety net is stronger

This dynamic would hold in countries with better safety nets. In Canada, a basic income of $10,000 per person would cost 17 percent of Canadian gross domestic product, more than twice what all levels of government in Canada spend on social benefits. Toby Sanger, a Canadian economist who works with unions, argues that any basic income, due to its expense, would soon cease to be universal. He writes:

“Any fiscally sustainable basic income program with an adequate level of benefits would need to be income tested or subject to relatively high clawback or tax rates and so wouldn’t end up being universal and unconditional.  While such a program would be fiscally feasible, it would be subject to many of the same problems with the existing social assistance system that many basic income advocates want to escape.”

Simply instituting a basic income, even if it were fiscally possible, in itself doesn’t address the structural causes of poverty. Mr. Sanger writes:

“While lack of financial resources is of course a primary aspect of poverty, simply providing more money won’t eliminate poverty alone. Social exclusion, inadequate access to education, public goods, opportunities, networks, lack of political influence and many other factors contribute to a persistent of poverty. Systemic racial, gender, class, and ability-based discrimination have resulted in higher rates and a persistent of poverty among women, racialized Canadians, Aboriginal peoples, differentially abled and among those whose families were poor.”

Even a country with generous social-welfare programs like Sweden would find the institution of a basic income difficult. Professor Bergmann calculated that sending a basic-income check equal to a poverty-line income to all Swedes not already recipients of government programs would require about 15 percent of gross domestic product. Doing that, while retaining current benefits, would require higher taxes. As a result:

“[I]f an extra 15 percent of GDP were added to cash payments by government to households, those extra funds would have to be taxed away from households’ wage and property income now devoted to buying consumer goods, now 32 percent of GDP, leaving households just 17 percent of GDP as their net reward for their participation in the production of the entire GDP. That could hardly be tolerated.”

A previous experiment in Canada

Advocates of a basic income often point to the experiment conducted in Dauphin, Manitoba, in the 1970s. A University of Manitoba economist, Evelyn Forget, recently studied the results (a new Conservative government ended the program and the intended government study was never performed) and found positive results. Hospitalization rates declined, more adolescents stayed in school and workforce participation remained steady.

But the experiment in Dauphin, a town of about 12,000 people, wasn’t actually a basic income. There was an income eligibility rate, meaning that only about 30 percent of the town residents actually got a check. A family of four could receive $15,000 per year on top of whatever benefits were already in place. So this was a case of living in a lucky spot.

Mount Meager volcanic complex, British Columbia (photo by Dave Steers)

Mount Meager volcanic complex, British Columbia (photo by Dave Steers)

The province of Ontario, under a Liberal administration, announced this year that it would conduct an experiment in a basic income, to be conducted in selected towns to be determined. But the provincial government has hinted this may be intended as a way of reducing benefits. Its explanation in the budget for this proposal states: “The pilot would also test whether a basic income would provide a more efficient way of delivering income support, strengthen the attachment to the labour force, and achieve savings in other areas, such as health care and housing supports.”

Finland is going forward with its own experiment. The Finnish Ministry of Social Affairs and Health is soliciting input on a program that would provide €560 per month tax-free to 2,000 people in a mandatory test case that would run in 2017 and 2018. The ministry, in a press release, first states it seeks to determine if a basic income would “promote employment,” but then hints at a desire to cut benefits:

“The basic income experiment is one of the activities aiming to reform social security so that it corresponds better to the changes of working life, to overhaul social security to encourage participation and employment, to reduce bureaucracy, and to simplify the complicated benefits system in a sustainable way regarding public finances.”

We live under capitalism, and we don’t get something for nothing, regardless of advocates issuing statements calling for a basic income without any cuts to existing benefits. The measures of democracy and social welfare that have been obtained are a direct result of social movements and the work of activists. They are not gifts handed down to us.

Liberals and social democrats ought to be careful for what they wish. Our energies can better go toward the creation of a sustainable economy that provides for human needs with jobs for all who need them, rather than begging for extra crumbs (that might turn out to be fewer crumbs) from capitalists’ tables.