Authoritarianism and Inequality

It seems that every few months new statistics come out showing that wealth inequality in America keeps hitting new highs. This was an issue in the Democratic primary election, mostly because Bernie Sanders kept it constantly before our eyes. And his message struck a chord with many Americans, especially among the young, who sense correctly that the economic playing field is heavily stacked against them. Indeed, this is a condition that we really should not ignore, because it is creating an imbalance in society that will cause severe problems in the future if not corrected. (It is already causing severe problems, but they will grow exponentially worse, if we don’t execute a course correction soon.)

In order to correct this imbalance, however, we must understand its cause, otherwise we risk whacking at its leaves instead of its roots. The cause of our staggering and accelerating inequality, in general terms, is authoritarianism. Let me explain. In pretty much every society, wealth is a function of ownership. As a general rule, the more you own, the more you earn. And the secret of accumulating wealth is not only to own as much as possible, but also to keep others from owning much. Another rule of thumb is that democracy tends to spread ownership around, while authoritarianism concentrates ownership.

The problem here is not directly political. It is economic. And we have a major disconnect in our society between our political system and our economic system. We formed a democratic republic in America that, theoretically, gives one vote to one person and thus spreads power evenly through the republic. Unfortunately, in our current society, my vote doesn’t count nearly as much as, say, David Koch’s or George Soros’s or Robert Mercer’s. Basically, inequality in the economic system undermines the equality of our political system. And the reason we have so much inequality in our economics is that we have adopted an authoritarian economic system that is a perfect mismatch to our political ideals.

Our economy is populated almost exclusively with organizations that we could only describe as authoritarian in nature. The variety is impressive, though. We have businesses that we might describe as monarchies, or oligarchies, or plutocracies, or dictatorships, or totalitarian regimes, or banana republics, or blundering bureaucracies, or theocracies. Unfortunately, we also have fake republics and pseudodemocracies. But very, very few businesses in the United States could be considered economic democratic republics. In essence, at our founding, we enthroned freedom and democracy in our political sphere, but we allowed authoritarian institutions to thrive in our economic sphere. The inevitable result is that the authoritarianism in our economy has now quite effectively undermined the freedom and democracy of our political system.

So, how does this affect wealth inequality? I’ve written about this before, but it bears repeating. Our economic system, which is overwhelmingly a form of corporate capitalism, has a dual pay system. It pays one group of people (those who own or control capital) as much as possible, and it pays another much larger group of people as little as possible. (Somewhere in the middle is a professional class that is paid quite well, but nowhere near what the owners and controllers or capital are paid.)

 I used to teach operations management at BYU’s Marriott School of Management. One of the given rules of pretty much all production planning models is the imperative to minimize costs, one of which is labor. This is why corporations, with the help of Republican politicians, have broken or diluted the power of most unions. This is why they oppose a minimum wage. This is why they shop around for countries with low wages and move production to those locations. This is especially why corporations are constantly replacing human labor with machines.

And we must understand the result of replacing humans with machines, because more and more jobs are being automated. When you replace a recurring labor cost with a one-time investment in technology, or even if you use technology to make your remaining employees more productive, the incremental profit gained does not go to labor. It goes to those who own or control capital—the capitalists and executives. And this accelerates the accumulation of wealth at the top.

I haven’t even mentioned the shift in our economy from manufacturing to finance. That’s a topic for another day, but for now let me just point out that this shift also contributes to the exploding wealth inequality. As money changes from a tool to ease the exchange of goods and services into a product in its own right, we see money breeding money without any sort of attachment to a real good or service. When this happens, something in society gets turned on its head. Which means we should be doing the opposite of what the Republicans are seeking to do with their deregulation of Wall Street.

But why should we even be concerned about our ever-increasing inequality? Well, for many reasons. Let me mention just a couple. First, there is a distinct difference between how the wealthy employ their money and how the poor and middle classes do. The poor and middle classes we might term the consumer classes. They spend most of what they earn (often more than what they earn) on the necessities and minor luxuries that keep the economy humming. If the disposable income of the consumer classes drops, this has an effect on the health of the corporations and entrepreneurs who sell stuff. This is also why supply-side economics doesn’t work. Giving more money to the wealthy doesn’t cause them to invest in production capacity and new jobs. Why? Because they only do that when demand increases, when there is sufficient money going to the consumer classes to make them go out and buy more stuff. So, if you starve the consumer classes, the economy shrinks. We call that recession. The wealthy, by comparison, don’t spend proportionally on consumer goods. They want to invest their money. But if there is insufficient demand, they don’t invest productively. Instead, they might chase after speculative financial instruments or just let their money sit idle, as was the case during the Great Recession. So, it is actually better for both the wealthy and the rest of us if wealth is distributed more equitably.

A second reason we should be concerned about wealth inequality is that when too much goes to the top, the number of people on the bottom increases. We are seeing that in the past couple of decades. This increases the demand for government aid in a variety of ways, from food stamps to Medicaid. The Republican answer to this predictable result of their supply-side scheme is to make health care unaffordable for the sick and the poor, cut aid to the disadvantaged, and give more tax breaks to the wealthy. This is where their ideology simply grinds to a halt and why Paul Ryan’s silly health-care plan had only 17 percent of the population who liked it (and that group probably didn’t understand it). There was absolutely nothing in it to like, other than it wasn’t called Obamacare.

So, how do we reverse the trend we’ve created? How do we decrease inequality? Well, the least effective way would be to restore a sensible tax system. In 1994, the top marginal tax rate was actually 94 percent. In 1945, it dropped to 91 percent and stayed there for 19 years, when it dropped first to 77 percent and then to 70 percent. This enabled us to pay down our war debt, build up the middle class, rebuild Europe and Japan, and create an economic juggernaut. And guess what? Even with tax rates that high, the rich still got richer. Since Reagan’s tax cuts, though, we’ve been accumulating debt while the wealthy have accumulated obscene amounts of wealth.

As I said, restoring a more progressive tax code would be the least effective method of restoring a more healthy level of economic equality. Necessary, but not as effective as redistributing wealth at its source. How could we do this? This is what I’ve been harping about for 30 years now. The only way to do this is to spread ownership more equitably. There are many forms of worker ownership, but it is the best way to solve this problem we have.

This isn’t rocket science. But both political parties have been in the pocket of corporate America for a long time now, so it has never been considered as a serious option. Until the last election. Of all the candidates, it was Hillary Clinton who brought up increasing worker ownership. Of course it wouldn’t have been any of the Republican candidates. The Republicans, for all their “freedom” rhetoric and their supposed devotion to democracy, are not really in favor of economic freedom and democracy for the working classes.

I still think Michael Ventura put it best. I find it hard to argue with his logic:

As a worker, I am not an “operating cost.” I am how the job gets done. I am the job. I am the company. . . . I’m willing to take my lumps in a world in which little is certain, but I deserve a say. Not just some cosmetic “input,” but significant power in good times or bad. A place at the table where the decisions are made. Nothing less is fair. So nothing less is moral. . . . It takes more than investment and management to make a company live. It takes the labor, skill, and talent of the people who do the company’s work. Isn’t that an investment? Doesn’t it deserve a fair return, a voice, a share of the power? . . . If the people who do the work don’t own some part of the product, and don’t have any power over what happens to their enterprise—they are being robbed. You are being robbed. And don’t think for a minute that those who are robbing you don’t know they are robbing you. They know how much they get from you and how little they give back. They are thieves. They are stealing your life.¹

Unfortunately, the authoritarians in America don’t want you to understand these ideas. They want to own everything and keep you from having a voice. They do not believe in economic democracy. But Bernie Sanders’s campaign wasn’t a flash in the pan. It was a hint of things to come. Many people were duped by Trump’s faux populism. But after they learn how blind they were, there will be a real uprising in America. As Nick Hanauer warned his fellow “zillionaires,” the pitchforks are coming.²

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1. Michael Ventura, “Someone Is Stealing Your Life,” Utne Reader, July/August 1991, 78, 80, reprinted from L.A. Weekly.

2. Nick Hanauer, “The Pitchforks Are Coming . . . for Us Plutocrats,” Politico Magazine, July/August 2014, http://www.politico.com/magazine/story/2014/06/the-pitchforks-are-coming-for-us-plutocrats-108014.