Capitalism, plutonomy and the pursuit of wealth
Economists have shown increasing wealth has concentrated in hands of a few. It has not ‘trickled down’
The writer is vice-chancellor of the Pakistan Institute of Development Economics
The capitalist mode of production represents a radical break from traditional methods of organising economic activity. Because it has taken extremely diverse forms and evolved in complex ways over time, it is not easy to define precisely. Many authors have seen through this complexity of forms to the simplicity of the spirit. Max Weber writes about capitalism that “man is dominated by the making of money, by acquisition as the ultimate purpose of his life. Economic acquisition is no longer subordinated to man as the means for the satisfaction of his material needs.” It is natural for men to want wealth so that they can fulfill their needs, acquire luxuries, status, travel, or do anything that they desire. However, it is not natural to hoard wealth and revel in its possession. Ancient philosophers from Aristotle to Lao Tzu are united in their assessment that while money can be very useful, love of money is extremely harmful. Modern thinkers like John Maynard Keynes agreed that the pursuit of wealth is a “disgusting morbidity” and a “mental disease”. Nonetheless, they launched a daring experiment to harness the powerful force of greed for the accumulation of wealth and elimination of want.
This, then, is the fundamental contradiction at the heart of capitalism. The pursuit of wealth, universally condemned by traditional societies, is adopted as the central principle for the organisation of economic affairs. There is no doubt that legitimising the pursuit of wealth has led to an unprecedented accumulation of it, far beyond the dreams of traditional societies. However, economists like Joseph Stiglitz, Thomas Piketty, and others have shown that the increasing wealth has concentrated in the hands of a very tiny proportion of people. It has not ‘trickled down’. In retrospect, the reason is obvious. Traditional values of cooperation and generosity lead to sharing of wealth and general prosperity. When the modern value that ‘greed is good’ is promoted, those who accumulate wealth use it to acquire more wealth and power, rather than sharing it with the needy.
Understanding the vagaries and fluctuations of the economies of today is beyond the reach of conventional economic theory being taught in universities. This is because the economy has become sharply segregated into the haves and the have-nots, also called the one per cent and the 99 per cent. In confidential reports circulated in 2005 to their wealthy investors, Citicorp coined the term “Plutonomy” to describe this situation. This word combines Plutocracy — the rule of the rich — with economy and can be defined as follows: Plutonomy refers to a society where the majority of the wealth is controlled by an ever-shrinking minority; as such, the economic growth of that society becomes dependent on the fortunes of that same wealthy minority.
The concept of plutonomy allows us to resolve a contradiction presented by economic statistics over the past three decades. The statistics show that life has become more difficult for the vast majority of the population. The real wage has been stagnant or declining over this period. The rate of job creation has been low, and the quality of jobs available has declined. The time spent at work has increased to an enormous extent in the heartland of capitalism, while vacation time is pitifully small. All this time spent on the job takes away from time for family and friends, and loneliness and unhappiness show a strong upward trend. While skilled jobs carry very high wages, acquiring an education has become increasingly costly. The average debt of the graduating class of 2015 is at historically record-high levels. Similarly, homelessness and hunger are also at record levels after the global financial crisis.
Despite these depressing statistics, stock markets have been booming, growth seems to be going at a normal pace, property values have recovered to levels seen before the global financial crisis, corporate profits are increasing and so on. The Citicorp report tells the wealthy investors that they can safely ignore the doom and gloom statistics. These concern only the bottom 99 per cent whereas the economy is driven by the fortunes of the top one per cent. Textbook economic concerns with the “average” consumer are completely irrelevant in a plutonomy. The Citicorp reports classify the US, the UK and Canada as world leaders in plutonomy, with many other rich countries on their way. Nonetheless, some countries like Japan, France, Switzerland and the Netherlands are classified as the “Egalitarian Bunch”. The key difference is that the share of the top one per cent is not strikingly high. The Citicorp reports paint a rosy picture for the top one per cent: “Our own view is that the rich are likely to keep getting richer, and enjoy an even greater share of the wealth pie over the coming years.” They are not daunted by the visible threats: “We see the biggest threat to plutonomy as coming from a rise in political demands to reduce income inequality, spread the wealth more evenly, and to challenge forces such as globalisation which creates wealth and profits.”
Whereas the global financial crisis wiped out the lifetime savings of millions, the recent upheavals in the stock markets in China and the US have only affected the fortunes of the top 10 per cent. The bottom 90 per cent has only minor holdings in stocks. Obviously, there was no change in real productive capacities — no floods, earthquakes, wars or other catastrophes. As long as the lives of the workers are not affected, there is no impact on the real sector of the economy. The fortunes of the top one per cent did suffer a temporary setback. In the past, such crises have been successfully exploited by the plutocrats to their advantage, to scare the public into providing a bailout to the rich at the expense of the rest. This is not likely to happen since recent events have created increasing awareness and understanding of these financial games which impoverish the poor. Nonetheless, levels of awareness and cohesion among the bottom 99 per cent appear insufficient to create a threat to the plutonomy, justifying the confidence of the Citicorp report.
Published in The Express Tribune, August 31st, 2015.
This, then, is the fundamental contradiction at the heart of capitalism. The pursuit of wealth, universally condemned by traditional societies, is adopted as the central principle for the organisation of economic affairs. There is no doubt that legitimising the pursuit of wealth has led to an unprecedented accumulation of it, far beyond the dreams of traditional societies. However, economists like Joseph Stiglitz, Thomas Piketty, and others have shown that the increasing wealth has concentrated in the hands of a very tiny proportion of people. It has not ‘trickled down’. In retrospect, the reason is obvious. Traditional values of cooperation and generosity lead to sharing of wealth and general prosperity. When the modern value that ‘greed is good’ is promoted, those who accumulate wealth use it to acquire more wealth and power, rather than sharing it with the needy.
Understanding the vagaries and fluctuations of the economies of today is beyond the reach of conventional economic theory being taught in universities. This is because the economy has become sharply segregated into the haves and the have-nots, also called the one per cent and the 99 per cent. In confidential reports circulated in 2005 to their wealthy investors, Citicorp coined the term “Plutonomy” to describe this situation. This word combines Plutocracy — the rule of the rich — with economy and can be defined as follows: Plutonomy refers to a society where the majority of the wealth is controlled by an ever-shrinking minority; as such, the economic growth of that society becomes dependent on the fortunes of that same wealthy minority.
The concept of plutonomy allows us to resolve a contradiction presented by economic statistics over the past three decades. The statistics show that life has become more difficult for the vast majority of the population. The real wage has been stagnant or declining over this period. The rate of job creation has been low, and the quality of jobs available has declined. The time spent at work has increased to an enormous extent in the heartland of capitalism, while vacation time is pitifully small. All this time spent on the job takes away from time for family and friends, and loneliness and unhappiness show a strong upward trend. While skilled jobs carry very high wages, acquiring an education has become increasingly costly. The average debt of the graduating class of 2015 is at historically record-high levels. Similarly, homelessness and hunger are also at record levels after the global financial crisis.
Despite these depressing statistics, stock markets have been booming, growth seems to be going at a normal pace, property values have recovered to levels seen before the global financial crisis, corporate profits are increasing and so on. The Citicorp report tells the wealthy investors that they can safely ignore the doom and gloom statistics. These concern only the bottom 99 per cent whereas the economy is driven by the fortunes of the top one per cent. Textbook economic concerns with the “average” consumer are completely irrelevant in a plutonomy. The Citicorp reports classify the US, the UK and Canada as world leaders in plutonomy, with many other rich countries on their way. Nonetheless, some countries like Japan, France, Switzerland and the Netherlands are classified as the “Egalitarian Bunch”. The key difference is that the share of the top one per cent is not strikingly high. The Citicorp reports paint a rosy picture for the top one per cent: “Our own view is that the rich are likely to keep getting richer, and enjoy an even greater share of the wealth pie over the coming years.” They are not daunted by the visible threats: “We see the biggest threat to plutonomy as coming from a rise in political demands to reduce income inequality, spread the wealth more evenly, and to challenge forces such as globalisation which creates wealth and profits.”
Whereas the global financial crisis wiped out the lifetime savings of millions, the recent upheavals in the stock markets in China and the US have only affected the fortunes of the top 10 per cent. The bottom 90 per cent has only minor holdings in stocks. Obviously, there was no change in real productive capacities — no floods, earthquakes, wars or other catastrophes. As long as the lives of the workers are not affected, there is no impact on the real sector of the economy. The fortunes of the top one per cent did suffer a temporary setback. In the past, such crises have been successfully exploited by the plutocrats to their advantage, to scare the public into providing a bailout to the rich at the expense of the rest. This is not likely to happen since recent events have created increasing awareness and understanding of these financial games which impoverish the poor. Nonetheless, levels of awareness and cohesion among the bottom 99 per cent appear insufficient to create a threat to the plutonomy, justifying the confidence of the Citicorp report.
Published in The Express Tribune, August 31st, 2015.