Home > Uncategorized > Rigged: How globalization and the rules of the modern economy were structured to make the rich richer

Rigged: How globalization and the rules of the modern economy were structured to make the rich richer

from Dean Baker

Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich RicherThe richest 1% have done extraordinarily well over the last four decades. But income has stagnated for the majority. This was not an accident. It was by design.

My book, Rigged, highlights five areas where US policies were deliberately structured to redistribute income upwards.

  1. IP laws were strengthened, making patent & copyright monopolies longer and stronger

This hugely increased the share of GDP that goes to sectors like pharmaceuticals, medical equipment, computers, and software. And it made stakeholders in these sectors hugely wealthy.

But it was unnecessary. Alternative mechanisms for financing innovation and creative work – such as direct public funding for pharmaceutical research, with new drugs selling as generics – would not have led to the same sort of upward redistribution.v

  1. The financial industry has been exempt from sales taxes – which are imposed in similar sectors  

This exemption – and other regulatory advantages – have allowed the narrow financial sector (securities & commodities trading) to more than quadruple as a share of the economy over the last four decades. And it’s produced some of the country’s largest fortunes.

But, there has been no commensurate improvement in the allocation of capital, or the security of savings, that could justify this massive increase in costs.

  1. Weak corporate governance has allowed management to ‘capture’ corporate boards – and push through massive executive pay increases

CEO pay, adjusted for inflation, has increased 940 percent over the last four decades. Increases for other top executives have been similarly large.

But while CEO pay has soared, returns to shareholders have been historically low.

This contradiction stems from the effective capture of corporate boards (who set executive pay) by management. It’s exacerbated by the near impossibility of holding board members to account for approving these pay increases by removing them: well over 99 percent get re-elected.

  1. Trade deals have been designed to make it as easy as possible to import manufactured goods from developing countries with low-paid labor

This has directly put downward pressure on the wages of manufacturing workers and indirectly put downward pressure on the wages of less-educated workers more generally.

But, while these policies have been justified in the name of “free trade” almost nothing has been done to remove the barriers that prevent foreign workers in highly paid professions, like doctors and dentists, from practicing in the US.

As a result, these highly paid professions receive much higher compensation in the US than in other wealthy countries.

  1. Fiscal and monetary policy has focused more on limiting budget deficits and combatting inflation, rather than maintaining high levels of employment

When unemployment is moderate or high, it is difficult for employees to effectively negotiate wage increases – as they have no leverage.

So, in prioritizing limiting budget deficits and combatting inflation – instead of prioritizing lower levels of unemployment – US policymakers have ensured that the benefits of any productivity increases accrue predominantly to employers.

Going forward, just as it has taken deliberate policies to skew the distribution of wealth, it will take deliberate policies to restructure the market:

  • We can rely more on publicly funded open research and less on government-granted patent and copyright monopolies to support innovation and creative work.
  • A modest financial transactions tax will sharply reduce the size of the financial sector, without hurting its ability to allocate capital efficiently.
  • The rules of corporate governance can be changed to make it easier for shareholders to keep boards accountable. For example, mutual funds can be prohibited from voting except where they have been given explicit guidance from investors. Also directors can be made to suffer real consequences for allowing excessive pay, such as losing their annual salary if shareholders vote down a compensation package on a “say of pay” vote.
  • To bring pay of doctors and other highly professionals in line with other wealthy countries, our trade deals can be focused on making it easier for qualified foreign professionals to practice in the United States.
  • To limit unemployment and ensure that workers at the middle and bottom of the wage ladder have the bargaining power to secure wage gains, we can have fiscal and monetary policy that is focused on maintaining full employment, rather than being obsessed with budget deficits and inflation.

These and other policies discussed in Rigged can reverse the upward redistribution of the last four decades. When we recognize that it was deliberate policy, and not the natural workings of the market, that gave us upward redistribution, it is much easier to find ways to rectify the problem.

See article on original site

  1. John deChadenedes
    September 12, 2019 at 2:04 am

    Mr. Baker, I respect your analysis and your opinions. It is very much to the point to show that the rigged system we enjoy did not “just happen” but was rather the result of generations of well-coordinated efforts on the part of the rich to make sure they got richer, no matter who suffered. However, your conclusion that this will make is “easier to find ways the rectify the problem” is a bit misleading. Rectifying the problem, after all, will mean forcing the rich, who control the government, the military, and all of the big corporations, to give up something they really, really care about, namely, more wealth. There is no evidence from history that anything will make this easier or that there is any way to accomplish this other than through popular uprising or violent revolution, or perhaps both.

  2. Helge Nome
    September 12, 2019 at 4:03 am

    Well, well, well. What’s new since the days of the Romans, or Babylonians, or societies before them?
    Remember the dinosaurs? They ruled the earth until some natural calamity displaced them.
    That’s likely what will have to happen again in human society in order to effect major change.
    The wheel goes round and round.

  3. Ken Zimmerman
    September 12, 2019 at 3:22 pm

    Conditions worse than anything found in America or Europe today prompted the French Revolution and the rise of Napoleon to power. But when Napoleon was defeated, first in 1814, and again in 1815, and particularly after his death in 1821, the monarchists rose to power once again. These were mostly not “romantic” monarchists but merchants and rich traders who took the monarchist side because it protected their wealth and allowed them to become richer. These monarchists (and their royalist friends) employed every technique used today (e.g., gerrymandering, withholding voting rights to the poor, threats of violence, and rigged taxes) to achieve a majority in the Chamber of Deputies. And when Charles X took the throne, rigged every part of the political process and economy to serve their need for greater wealth. Even though the monarchy was technically a constitutional monarchy, by 1824 it and and royalists and monarchists in the Chamber, with Charles X controlled the nation. This changed only with a popular uprising in 1830. The rich never run out of greed, or of supplicants who will serve their greed for a “piece of the pie.” Persuasion alone could not stop the greed and political malfeasance of the French rich, monarchists, and royalists. It’s unlikely to stop the American version of these today. Let’s take this lesson from the French, a popular uprising is needed.

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