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Sunday
Apr132014

Plutocracy ~ Ploutos Meaning Wealth and Kratos Meaning Power

The vast income accumulated by the narrow slice of super-elite at the top of the wealth pyramid has created a kind of global “canopy economy” that has lost its connections to the nations and people they sprang from.[1]

Two things seem self-evident to me. First the Plutocrats, more commonly known as the 1%, are not going to change their ways and join the rest of us in our respective societies. They rule. Second, governments, whether democratic, ostensibly democratic, military or totalitarian, are not going to make the 1% change their ways. They are either paid off by or belong to the Plutocrats.

Over the past thirty years or so, those in the financial industry have created an entirely protected, indeed cocooned, world in which only they live. It no doubt has its internal logic and morality, where what is legal can be far from what our common sense would say is ethical. In their world, individuals, companies and corporations have become obscenely wealthy and powerful. It is the natural state of this world. While what happens in this world may seem unethical, immoral, illegal and absurd to us, it is for them reasonable and perhaps even just. An example. The way CEO’s are reimbursed for their labour.

It is not uncommon for a CEO to be given a golden hello, a retention payment, a substantial salary, annual bonuses above salary and finally a golden good-bye. These various payments in the form of cash, stock options and pension benefits amount to millions for individuals and collectively billions for boards. For example, Barclays Bank gave £32m ($53.1m) to its 12 member executive board. Not to be outdone, Prudential paid eight directors on its board £47m ($78m). In addition two other people not on the board were paid £25m ($41.5m): £7.6m ($12.6m) to one and £17.6m ($29.2m) to the other.   I have no doubt that within the upper echelon of both Barclays and Prudential these payments made sense and were justified. To us they are breathtaking.

In our world it is difficult to justify that kind of money going to so few individuals. However, two basic justifications are offered to explain such obscene payments. First, companies and corporations need to offer high salaries and bonuses in order to attract and keep the best people. None of us are offered a huge bonus for agreeing to accept a job. That would be absurd. None of us are given substantial bonuses if we agree to stay in the job (retention bonus). It’s assumed that if we wanted the job we might hang around for awhile. No bribe necessary. None of us are given huge bonuses above our salaries for doing the work we were hired to do. But in the financial world all this is normal practice and to question such practices is incomprehensible. Anthony Jenkins, chief executive of Barclays, said the £32m ($53.1m)payment to his executive board, including £3.2m ($5.3m)to himself, was necessary to avoid a “death spiral” in which, apparently, everyone would quit their jobs and, perhaps, move to Hong Kong. So far no government or society has tested this claim, but it’s worth noting that the High Pay Centre, an independent non-party think tank established to monitor pay at the top of the income distribution and set out a road map towards better business and economic success, collated the international and UK research on pay and found no flight of staff, no shortage of executive talent and interestingly, no relationship between pay and performance (see also Polly Toynbee). And what about those retention bonuses, those additional payments that are to assure the newly hired executive stays in post? Well,  Euan Sutherland, who was paid £3.5m ($5.8m) which included a retention payment, walked out on the Co-operative Group because he said it was unmanageable. I haven’t heard that he gave back the retention bonus.

The second justification for obscene payments is that compensation is linked to performance. This claim, which may be believed within the financial world, is, of course, nonsense when viewed from the outside. As I said above, High Pay Centre found no direct relation between pay and performance in the world of executive reimbursement. An example, might help. Lloyds Bank and the Royal Bank of Scotland, though reporting losses of more than £45bn ($74.8m) over the past five years, are handing out £35m ($58.1m) in bonuses to their executives. What’s particularly galling about this is that both banks are partially owned by the public: 33% and 81% respectively. 

With the possible exception of Iceland, no government has really challenged the financial sector. Even after the 2008 crash, governments have done little to regulate the industry. Half hearted measures were passed in the U.S. and the UK, and there was a lot of passionate hot-boiled rhetoric about the pros and cons, but the banks and hedge funds have continued business as usual. If we thought that after we the people, and not unimportantly we the taxpayers, saved the financial industry at considerable cost in funds, services and quality of life, our governments would reign in the accesses of the financial world, we were sadly mistaken. They have basically made us pay for the losses as the bonuses continued. Even in the midst of the crisis the bonuses continued and are now being paid out at levels greater than pre-2008 payments. This is even true in banks largely or partly owned by the people. If I belonged to the 1%, I might be asking why there has not been blood in the streets. As the 1% I screwed up royally causing an international financial meltdonw, but the people bailed me out and saved my job and bonuses, at a cost to their standard of living and their welfare safety net (which of course I do not need), and amazingly no blood in the streets.

We often read that our elected politicians and governments have been bought by the rich. I think this is partially but not wholly true. The 1% possess tremendous power. They can “buy” politicians through a number of different means. But it is also true that many in our governments are themselves members of the elite. In the U.S. half the member of the House of Representatives and the Senate are millionaires. In the  2010 in the UK 23 or the 29 cabinet ministers in the UK Tory/Liberal Democrat coalition government were millionaires.  Recently it has been reported that that number has dropped to 18 out of the 29 but their combined wealth is calculated to be £70m.  Oh wait! The ex-banker multimillionaire Safid Javid has just been appointed secretary for culture (he loves Star Trek) to the cabinet so that’s 19 out of 29.

Many in the our governments are members of the Plutocracy, or will become so. I am not saying they are all evil. That would be nonsense and unjust. But I am saying that my world is not their natural habitat. So, who do you think they are making the laws for?

This isn’t just a case of sour envious grapes on the part of the 99%, though anger is not misplaced. We did, after all, save their jobs along with our savings and pensions. It was not unreasonable to think our governments might have made the people who caused the damage to help pay for it. But it really did turn out to be a case of privatizing profits and socialising loss.[2] Even the idea put forward by a few that the government should make banks use their annual bonus pay-outs to repay the taxpayers was ridiculed by the financial sector. And when our elected official had been able to even comprehend the notion, they would have laughed in derision. No, this is not just about anger and envy. The thing is, the more they take, the less we have, and by less I mean weekly pay, salaries, investments, pensions, and vital services.

We are connected. Forbes reported that the “collective net worth of the wealthiest four hundred Americans reached a record two trillion dollars in 2013, more than doubling since 2003.[3] In the U.S. the combined net worth of billionaires has quintupled since 2000 while the income of the medium household has fallen.[4] In the UK the standard of living for most people has fallen below 2008 levels and will probably not recover to those previous levels until 2019. In the U.S. the Credit Suisse Global Wealth Databook found that that 75.4% of all wealth is owned by the richest 10% of the people.

 In the Video on Wealth Inequality in U.S. (which went viral and I encourage you to watch it) it was revealed that the upper 1% possess 40% of all the wealth in the U.S. while the bottom 80% own 7%. Furthermore, the 1% possess 50% of all stocks, bonds, mutual funds while the bottom 50% own only 0.5% of the same.

Obviously with great wealth comes great power and many are now arguing that the accumulation of wealth and power in an elite is actually threatening democracy. It can be argued that the U.S. is actually no longer a functioning democracy at all. It is, in fact, a plutocracy.[5]

Next week, a look at how the plutocrats treat the 99% and the implications for democracy. Following that, what can we do about it, if anything?

Copyright © 2014 Dale Rominger


[1] Ferguson, Charles. Inside Job: Financiers Who Pulled of the Heist of the Century. London: Oneworld  Publications, 2012, p 12.
[2] Investopedia: A phrase describing how businesses and individuals can successfully benefit from any and all profits related to their line of business, but avoid losses by having those losses paid for by society. Privatizing profits and socializing losses suggests that when large losses occur for speculators or businesses, they are able to successfully lobby government for aide rather than face the consequences of said losses.
The biggest example of privatizing losses and socializing losses came during the TARP bailouts of 2008-2009 in which the United States government bailed out numerous banks, insurers and auto manufacturers after they had sustained huge losses in their business dealings, in some cases through unacceptable risk tasking and lack of due diligence.

[3] Brynjolfsson, Erik & McAfee, Andrew. The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies. London: W.W. Norton & Company, 2014, p. 131.
[4] Ibid., p. 163.
[5] See: Plutocracy
The Great American Class War: Plutocracy Versus Democracy
.
Plutocracy in America.

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