Winner-take-all politics

Frank Stilwell

Concern with economic inequality is making a modest political comeback. Barrack Obama has made it a recurrent feature in his speeches, while Republican Presidential hopeful Mitt Romney has copped flak for saying he is more concerned with the broad middle class than the very rich or very poor.

Fuelling these concerns is a mass of evidence about growing economic inequality in the last couple of decades. One should not be surprised that disparities between rich and poor have widened.  Capitalism reproduces and intensifies inequalities, as those with wealth pursue further capital accumulation while those at the other extreme often remain trapped in a vicious cycle of poverty.

Historically, what has kept these relentlessly unequalising tendencies in check has been the roles played by trade unions and redistributive governments. But unions now cover only a small minority of workers, while governments coming under the influence of neo-liberalism have reduced, if not completely abandoned, their attempts to close the gap through income redistribution. So the share of national income captured by the owners of capital has increased while workers’ share has fallen.  And welfare state provisions face recurrent threats from the implementation of neo-liberal policies.

A progressive tax system has been a particular casualty.  In the United States, for example, much publicity has been given to the statement by multi-billionaire warren Buffett that he currently pays a lower rate of tax than does his secretary. This evident tax injustice is easily explicable. The tax on income from capital gains is usually less than on income from labour, while the wealthy make greater use of tax minimisation schemes. But Buffett’s statement has had political impact because of his popular image as an ethically concerned wealthy citizen. It signals a sound, popular basis for Barrack Obama’s rhetoric and for his proposal that millionaires should always pay at least an overall average tax rate.

Winner-take-all politics, by Jacob Hacker and Paul Pierson (Simon and Schuster, New York, 2010), explores how the failings of the political system created the problems in the US case. The authors are political scientists from highly prestigious universities, Yale and UC Berkeley. They review ‘the transformation of American governance over the last generation’, showing how both Republican and Democratic administrations have presided over arrangements that have facilitated growing inequalities. They use the term ‘winner-take-all politics’ to show how the political pull of America’s super-rich has swamped any residual concerns with equity, social cohesion and progressive redistribution. They call it a ‘thirty-year war’ and show the daunting nature of the challenge with which Obama – or any committed successor – would have to grapple if any practical effect is to be given to more egalitarian principles.

First and foremost, the book shows the fabulous gains that the super-rich have made in recent decades. Looking first at the wealthiest 1 per cent of US households, their share of income is shown to have risen from 8 per cent of the total in 1974 to more than 18 per cent in 2007, on the eve of the global financial crisis. Drilling deeper, however, some newer and more striking evidence emerges. It relates not to the top 1 per cent but the top 0.1 per cent, comprising only some 15 thousand households. This fabulously wealthy elite has increased its share of national income from 2.7 per cent to 12.3 per cent over the 1974-2007 period – a fourfold increase in its already highly advantaged position. Drilling deeper still, the top 0.01 per cent of households has increased its share from less than 1 per cent to more than 6 per cent, the highest share of income going to this super-elite since income data began to be collected nearly a hundred years ago.

Is this growing inequality the effect of economic changes – technological shifts, corporate globalisation and financialisation for example – or the effect of public policies?  Hacker and Pierson emphasise the latter, arguing that ‘government has had a huge hand in nurturing America’s winner-take-all economy’ (p.45). As they point out, this is not just a matter of how governments have restructured taxes and welfare payments. It also reflects a host of other ways in which government policies affect the distribution of ‘market’ (pre-tax) incomes, through laws governing trade unions, the level of the minimum wage, regulation of corporate governance, rules relating to financial markets and so forth.

Former President Ronald Reagan is popularly regarded, by admirers and critics alike, as ‘the obvious leading man in the drama’ of rolling back the policies that once sought to keep inequality in some sort of check. To be sure, Reagan’s tax changes were strikingly regressive, based on the proposition that cutting taxes for the wealthy would increase the total tax revenues (as depicted by the notorious ‘Laffer curve’). But long before Reagan there was growing organisational momentum, within both the Republican and Democratic parties, for a more money-centred approach to politics.  The dominant concern with courting business support was turning both parties into machines for mobilising corporate funding for the political process. 

These inegalitarian processes became so overwhelming as to swamp the effect of particular Presidential incumbents. The Carter administration, for example, backed by Democrats like Ted Kennedy, backed business deregulation. According to Hawker and Pierson, this created conditions more conducive to economic inequality than during, say, the notorious period of Richard Nixon’s Republican presidency which was actually far less neo-liberal in character. Similar stories are told in detail about the presidencies of Clinton and the Bushes. Obama’s mild attempt to chart a new direction are swamped by the cumulative structural processes fuelling ever greater inequality.  Notwithstanding, important differences of presidential leadership style, the inegalitarian juggernaught rolls on.

The story has significant similarities with experiences elsewhere, even in countries where the political arrangements are quite different. In New Zealand, for example, it was the Labour government led by David Lange that introduced the radical neo-liberal program (known locally as “Rogernomics”, after Labour’s Treasurer Roger Douglas). In Australia it was during the period of ALP government between 1982 and 1996 that a strong embrace of neo-liberal economic policies occurred, albeit tempered by an ongoing commitment to some elements of equity through policies affecting labour markets and the ‘social wage’ (such as the reintroduction of a national health scheme).

These policies in Australia and New Zealand are widely regarded by economic commentators as having contributed to ‘economic modernisation’. But the stronger embrace of internationalism and marketisation has come at a social cost. A recent report from the OECD shows that Australia’s economic inequality has been increasing more rapidly than most other nations. Our growing national wealth is markedly unevenly distributed. The top 10 per cent of income-earners got nearly ten times as much as the poorest 10 per cent in 2008, up from an eight-to-one ratio in the mid-90s. So the tendencies described in Hacker and Pierson’s book have some evident parallels here.

In the wake of the global financial crisis there is a renewed urgency for more egalitarian reforms. It was growing inequality that underpinned the crisis, producing a situation were lower income households took on more debt, while wealthy institutions had surplus capital that they used for speculative and unproductive purposes.

Both nationally and internationally, the challenge now is to chart a different direction that is more economically secure and sustainable. Of course, gaining more traction for egalitarianism in public policy is no easy task – pessimism of the intellect (fuelled by the sort of evidence complied in this book on the US situation) understandably tends to dominate optimism of the will. The authors have a concluding chapter on ‘beating winner-take-all’, but its broad prescriptions for ‘reclaiming democratic governance’ and moving ‘from drift to renewal’ read as hopeful exhortation rather than an effective political program.

Since this book was published, yet more strident exhortations have been heard in the streets. The Occupy Movement has given voice to the need to embrace radically different policies – indeed, a new economic system – that serves the needs of the 99 per cent rather than the 1 per cent wealthy elite. The political demands have a significant evidence base. As an important book by social researchers Richard Wilkinson and Kate Pichett, The Spirit Level, shows, reducing inequality would have enormous payoffs in terms of a wide array of social concerns, including mental and physical health, obesity, violence, crime and the incidence of incarceration. So there is no shortage of data nor widespread political concern signaling the need to put this seemingly unfashionable concern nearer the top of the political agenda.

Hacker and Pierson’s book is a significant contributor to understanding what has gone wrong. For some readers it may be quite an irritating book. It is US-centric, with the characteristically parochial focus on that one country as if the rest of the world didn’t exist. Its style is peppered with gee-whiz phrases, seemingly targeted at an ‘airport bookstall’ sort of readership. It talks about the shift from ‘Broadland’ to ‘Richistan’ in the USA, the former phrase implying that there was once a more golden era of egalitarianism - which was patently never the case. Moreover, the book’s focus on the US political system leads to the neglect of broader technological, social and economic changes that impact on the distribution of income and wealth. For all these faults and limitations, however, it is useful ammunition in the continuing war on economic inequality that our neo-liberal and corporate opponents have been so evidently winning during the last three decades. It helps to explain the capture of the political process by the wealthy.

There is a deeper political economic issue too. This concerns the underlying tension between democracy and capitalism. Democracy has ‘one person, one vote’ as a central organising theme for politics – an admirably egalitarian principle. Capitalism involves ‘one dollar, one vote’ in the economic market place – a fundamentally inegalitarian bias towards the interests and preferences of the wealthy. It is when the latter swamps the former – when capitalism negates democracy – that the anti-social character of the current political economic system is most starkly revealed. The USA is a distinctive case, but the basic political economic contradiction is universal.Therein lies the challenge for all of us who are committed to seeking a more democratic and egalitarian economic future.

Jacob Hacker and Paul Pierson: Winner-take-all politics: how Washington made the rich richer – and turned Its back on the middle class, Simon and Schuster, New York, 2010, pp 357. Frank Stilwell is Professor of Political Economy at the University of Sydney and a member of the Evatt Foundation Executive.