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October 22, 2014

Insight: Plutocracy trumping democracy

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Posted: Sunday, August 10, 2014 3:30 am

A disquieting paradox is increasingly apparent. Americans hope for the self-respect and happiness that arise from a hearty sense of earned merit. Yet, we simultaneously desire greater wealth and advantages than deserved by any prudent measure of social responsibility. We reckon ourselves upstanding because of petty morality, while seeking to exploit lawful loopholes that aid wealth acquisition. Our strange sense of deservedness is rooted in strategic play and name recognition, not the true value of our contributions.

Our bifurcated economic recovery — great for the top 5 percent while meager for the bottom 75 percent — belies claims that all is well. The spread of financial pragmatism (i.e., follow any working trend) has left most Americans inattentive to the morality of national laws that shape economic activity. Indeed, the ease by which we speculate in many markets has calloused us to the notion of earned merit. Ultimately, market opportunity is our moral compass; that is, when we’re not admiring the highly disproportionate rewards of celebrity.

The notion of what constitutes fair opportunity and deservedness changes along with culture, religion and business conditions. This relativity causes many intellectuals to scoff at the idea that culture or politics could ever find sufficient consensus about merit to create an ethos by which various expressions of merit could be evaluated and fairly rewarded. Hence, our politics subsidize and reward financial power, corporatism, interest group demands and the growth expediencies that are allegedly necessary to underwrite entitlements. This system, as widely noted, is a model of unethical financial distribution.

Until the industrial revolution in the early 1800s, Americans’ economic rewards were generally aligned with one’s prudence, labor, ingenuity and stewardship of resources — with a little luck thrown in. As the industrial age dawned, much of this changed, the outcome working to advantage those with capital over others with little but their labor. In Russia, the result was the communist revolution — a movement that endeavored to restore linkage between deservedness and labor. The mantra was: “All workers in a workers’ state.”

In the West, most observers saw the workers’ adage as a deception arising from desperation, with party elites gaining advantage over their proletarian prey. Americans broadly viewed the communist ideology as economically inefficient. Additionally, communism was viewed as unfair to contributions arising from ingenuity, entrepreneurship, business management, the wise stewardship of property and earned capital. Europeans, not quite so enamored by free markets, looked to democratic socialism as a hybrid way.

In America, we thought we had the best of all worlds with a wide-open market system, bounded only for a few robber barons and monopolists. Buoyed by rapid growth, inexpensive land, abundant low-cost resources and other helpful dynamics, the expansion of social mobility seemed to confirm our economic judgments. In short, we felt immune to any need for a national conversation on just deserts. Our market morality seemed amply moored by a robust work ethic, sense of self-responsibility and belief in business propriety (flaws aside). Why would we want big government to tell us what to do when we already knew the answers?

In retrospect, we were caught off-guard by cultural and technological changes. Beginning with the computer age in the 1980s and the blossoming of electronic media shortly thereafter, tremendous leverage was created for exploiting vulnerabilities in our ad-hoc market architecture. Rampant diversity in ideals, orientations, ethics and goals left us with little cultural consensus apart from ambiguous generalities. This is the outcome John Jay feared most in his discussion of the American prospect (Federalist Paper No. 2).

Lacking a unifying vision, our politics fell prey to the only commonality that remained: the chase for prosperity as subsidized by growth. The story of America’s last 10 years demonstrates this point. What we now call “merit” reflects a breakdown in the linkage between contributions and rewards. Nationally, we’re baffled, as nothing in our political toolkit addresses such a challenge.

The argument here overlaps observations made in a 2013 book by Adam Arvidsson and Nicolai Peitersen, “The Ethical Economy: Rebuilding Value After the Crisis.” While the progressive book argues to different ends than mine, the opening material explains how we lost our way. A complimentary case is made by Joseph Kett’s traditionalist book, “Merit: The History of a Founding Ideal from the American Revolution to the 21st Century.”

The consequences of our failure to prudently link meritorious contributions to economic rewards are detailed brilliantly in Thomas Piketty’s 2014 book, “Capital in the Twenty-First Century.” As the best-selling book in the history of Harvard University Press, Piketty’s volume demonstrates that the rising trend of economic inequality in America and Europe portends serious social and political complications. One may deduce from Piketty’s work that we stand to lose many cherished freedoms, as liberty has mutated into financial licence.

According to Piketty’s monumental research, the world’s top 1 percent are pulling away from the top 10 percent; the top 1/10th of 1 percent are out-distancing the top 1 percent, and the top 1/100th of 1 percent are leaving behind lesser elites in the next closest group. In short, plutocracy is trumping democracy. Meanwhile, the world’s central bankers continue facilitating this outcome, excusing their policies as necessary expedients for employment and economic growth.

Thomas Piketty’s statistics are no mere abstraction. Years ago when living in the Pacific Northwest, I had an acquaintance who built a successful business over his lifetime. Upon reaching retirement age, he sold his company for about $8 million. Widely admired for his business values, work ethic, conscientiousness, community virtues and human decency, this entrepreneur’s gradually acquired wealth reflected the magnitude of his contributions. His wealth was clearly merited by his prudence, perseverance, ingenuity and ethic of sharing prosperity within his organization.

Sadly, people like the gentleman now described are seeing the wealth they acquired across a lifetime of service rapidly washed out on a relative basis by unprincipled raiders of the global financial architecture. This is very serious! The new reality is that some people make more money in a single year, month or week than an honest, hardworking traditional entrepreneur could make and save in a lifetime. While some may scoff, this reality is hazarding much of what Americans once held dear.

President Theodore Roosevelt said it best. He warned that if America permitted “rich men whose lives are corrupt and evil to domineer in swollen pride,” the likely reaction would bring “sweeping attacks upon all property, upon all men of means, without regard to whether they do well or ill.” Thus, “the death knell of the Republic” would be sounded (Roosevelt’s Works, Vol. 20, page 450). Now, as plutocracy gains hold, this prospect comes into focus.

The best way to avoid Roosevelt’s nightmare is to differentiate between meritorious financial conduct — that which is constructive of the lasting public good — and the foolish contrast that exists today. While there is no easy way to set upon this task, politically or culturally, a good-faith effort on behalf of fair opportunity will get us further in the right direction than any capitulation to raw power.

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