The vicious circle of wealth concentration

22.07.2019 - Buenos Aires, Argentina - Guillermo Sullings

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The vicious circle of wealth concentration

We often read statistics illustrating the accelerated concentration of wealth in the world; a few billionaires accumulate more wealth than the poorest half of the planet, and the richest 1% of the population owns more than half of the world’s wealth. We are resigned, like mere spectators, to a brutal and inhuman process of concentration. This resignation is often based on the certainty that there are enormous powers capable of resisting any attempt at change, and also on the fact that populations are sometimes contradictory and individualistic, and their behaviour is functional to a consumerist capitalism that inevitably leads to such concentration.

In any case, if any hope were to be able to reverse this tendency, we would deposit it in the State, because it is the one that could modify the distributive matrix. But we doubt when we see that it is often taken over by economic power, and its policies exacerbate the problem. Because that power has the capacity to manage the media that influence the electorate, has the resources to buy wills in the three branches of the State, and has the strength to pressure, blackmail and discipline. Of course, this perverse mechanics tends to have fissures, because sooner or later it generates suffering in the populations, and political crises offer opportunities for change. But it is not a sufficient condition, because in the immediate and immediate history there are examples in which, even counting on state power, the search for alternative models failed, perhaps because not all the factors that gravitate in the concentration of wealth were understood and the consequences were addressed more than the causes.

When Piketty published “Capital in the 21st Century”, explaining and basing the way in which the process of concentration was historically given, some of its detractors, not being able to deny the substantial (the tendency to concentration), preferred to attack the redistributive proposals, affirming that the economic concentration of capitalism is not so harmful, but that it favors investment and consequently progress, which is what has historically improved the standard of living of the populations. They forget that Piketty himself in “The Economy of Inequalities” also affirms that the improvement in the standard of living of the populations was fundamentally due to progress and not so much for having achieved some more point in the percentage of the distribution of the cake. But this is a half-truth, because for accumulation to turn into investment and progress, there must be a potential demand that encourages such investment, and such a demand would not exist if the populations did not increase their incomes, and much of the bid for the distribution of the cake has to do with that. There must be an unstable equilibrium for the dynamics of development to work. Up to a certain scale capital accumulation can favour investment and multiplication (and we say “can” because business decisions do not always coincide with that romantic vision of liberal capitalism according to which the surplus is always saved and the savings are always invested). But from a larger scale this accumulation begins to function as a black hole, an enormous gravitational force that begins to absorb companies in order to dominate markets and form prices; it begins to impose brands by outsourcing and delocalising production, disciplining small and medium enterprises that become a sort of “emproletariat” forced to compete with each other while minimising profits and salaries (as Naomi Klein explains in “No logo”). This dominant position achieved by concentrated capital allows them to increase their profitability to the detriment of productive companies and workers, and in that instance capitalism stops “multiplying the fish,” and begins to give birth to a monstrous giant fish that swallows the small ones.

Of course, at the levels of concentration we are talking about, vasocommunication between large business groups and the financial sector is absolute, and the growing profitability of dominant positions is being derived towards financial and stock market speculation, or towards usury by indebting those who are impoverished to continue consuming, until the bubbles burst and everyone loses (except the Bank); and so the wheel continues to spin and concentration continues to increase. That wheel is increasingly far from the reach of any brake that is attempted, thanks to a globalisation characterised by productive delocalisation, the flight of capital to tax havens, and the connivance of international organisations imposing rules of the game that favor such concentration. The distributive bid between workers and employers is limited to an ever smaller portion of the cake, because big profits are beyond the reach of labor demands, and that union weakness is another factor that feeds the vicious circle.

We already know that in many cases they are functional to concentration; but what could they do if they really wanted to work for a better distribution of income and wealth? Of course, through adequate labour policies, the income of workers could be improved a little, but the margin of manoeuvre in many companies is less and less because of what has been explained above, and that also puts a wage ceiling on the rest. So labour policies could generate relief, but would not move too much the ammeter of income distribution. It is necessary to intervene strongly from the fiscal policy to balance the burdens. In this sense, one of the limitations that the State encounters from the economic concentration is the increasing difficulty to have a progressive tax system, not only because those who concentrate wealth have better tools to evade, but also because when the concentration increases the rates should be higher and higher for the concentrated sectors. In other words, in a kind of demonstration by reduction to the absurd, if in a country the Gini coefficient were equal to 1, the State should charge a single person a tax rate of 99.99% to finance itself, which would be illegal because of the confiscation, and unfeasible in practice because that person would own the country. Without going to that extreme, we can understand that the more unequal a society is, the greater the tax pressure it would be necessary to exert on a few taxpayers to finance public policies in an equitable manner; but as this is often difficult for legal and political reasons, the tax pressure ends up falling on a larger base of taxpayers with less contributory capacity, and the system becomes highly regressive which can stimulate the growth of informality.

The question of Social Security does not escape the consequences of the concentration of wealth, because to the extent that the benefits of the technological revolution are appropriated by entrepreneurs by increasing their surplus value and reducing personnel, unemployment increases and consequently the mass of contributors to the solidarity pension systems decreases, which added to the aging of the population pyramid and the increase in informality mentioned earlier, makes this system unviable. The solution of the “modernising liberals” is to increase the retirement age, which in addition to postponing the deserved retirement of workers, postpones the entry of young people into the labour market. One solution would be for the benefits of technological advances to accrue to workers, either by reducing the working day while maintaining the level of income, or by allocating a basic income. Others will say that it is not bad for employers to keep the higher profitability resulting from technological advances because they will invest it in new projects that will generate work, but in practice this does not happen in sufficient measure to compensate for what has been lost. In order to alleviate these consequences, the State seeks to increase its spending on social services, in a context in which, as we explained earlier, the tax pressure becomes unsustainable due to the regressive nature of the system.

A possible break from this vicious circle should focus on the use of fiscal policies to force high-yield sectors to reinvest their surpluses productively. The tax on profits or income, both for individuals and companies, should include progressive rates up to very high levels, but not only in proportion to the magnitude of the profit, but also in proportion to the number of workers employed, so that this rate is inversely proportional to the number of jobs that were generated to obtain this profit. Differential rates should also be contemplated depending on whether this gain is reinvested in the country where it was generated, or escapes abroad, or is channeled into financial speculation. This would have a simultaneous impact on the labour market, lowering unemployment and consequently strengthening salaried workers in the distributive bidding, and would increase the collection for the pension system. Progressive rates, which would heavily tax high yields that are not reinvested, would balance the overall tax burden, making the tax system less regressive, and consequently tend to reduce evasion and informality at lower profitability levels (provided that this is accompanied by effective controls). The evasive vocation would surely concentrate on the highest profitability levels, but which will be better identified to exercise over them an intense monitoring and control that minimizes capital flight and evasion.

It will be necessary to contemplate very strict policies for the financial system, preventing it from continuing to accumulate profits at the expense of the productive sector, and consequently of its workers, for which it will be necessary to regulate all its operations, avoiding at the same time that it continues to be the main logistical support available to the large evaders to escape capital. Of course we will have to coexist with some limitations imposed by globalisation, but it is possible from national policies to take important steps to reverse at least in part this concentration of income and wealth that marginalises more and more people. In some countries it will be possible to advance faster than in others, and the staggering of rates will be able to be adapted to the rhythm of what is possible, but what must not be doubted is that it will not be the market itself that improves the distribution of income and wealth, if the states do not force a substantial change in the distributive matrix.

 

Translation Pressenza London

Categories: Economics, International, Opinions
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