First posted at Occupy.com
In his recent report, “Reversing Inequality: Unleashing the Transformative Potential of an Equitable Economy,” Chuck Collins explores the structural dimensions of inequality in the U.S. and proposes fundamental changes to “rewire” the economy. It’s a long article, but worth reading because it describes the systemic problems of the U.S. economy and recommends dramatic policies that progressives should be thinking about as they look ahead to 2018.
The paper starts with a review of the current economy: who has benefited, who has fallen behind, and who never was fully a part of the post war economic boom, particularly African Americans and other minorities.
A key point Collins makes is that technological change and globalization are not the major drivers of inequality often attributed to them, although they intensify the problems. Rather, income and wealth disparities are driven by structural inequalities in the economy that are reinforced by political power imbalances. Thus the stagnant wages in the manufacturing sector can be traced directly back to the political losses suffered by unions, as well as to major changes to the tax code giving more and more gains to the top earners in the U.S. and fewer and fewer to the bottom half. These changes started under Ronald Reagan but accelerated during the George W. Bush presidency and, especially, since the end of the Great Recession.
One of the strengths of the paper is that it talks about the social and political costs of inequality in addition to the economic effects. For the large number of people at the bottom of the income ladder, who are often trying to hold down multiple minimum-wage jobs and hustling just to make it to the next paycheck, there is minimal social mobility. Sociologists have observed that segregation by income level has increased over the past few decades, meaning that social cohesion has declined.
“As same-income enclaves form and close the door behind them, people’s sense that they share a common destiny withers, replaced by fear, disconnectedness, misunderstanding, distrust, and class and racial antagonisms that undermine relationships,” writes Collins.
Inequality also creates major differences in health outcomes. Collins cites studies showing a direct link between wealth inequality and increased rates of heart disease, asthma, mental illness, cancer, and other diseases and chronic conditions.
Even in the realm of economic growth, inequality has negative effects. In the U.S., conventional wisdom (ie. trickle down economics) has told us that decreasing taxes on the wealthy stimulates the economy overall. In fact, the opposite is the case. Research findings by the International Monetary Fund (IMF) and others indicate that more equal societies enjoy longer economic expansions, fewer “bubbles,” stronger rates of economic growth, and they recover from downturns more quickly.
One quibble I have with Collins’ focus on inequality is this: A full reckoning of the effects of inequality should address the obvious argument that, for individuals and families, it is poverty that holds people back, causes serious health problems, and limits educational opportunities.
And then there are the extreme political outcomes. The extremely rich use their wealth to affect public opinion, and to intervene in electoral politics in order to determine the rules of both the political game and the economic game. The result is minimal investments in universal healthcare, income supports and education that are the rule in Europe.
This reality has been on display repeatedly in the past several months as Republicans in Congress have consistently tried to pass extremely unpopular legislation to repeal and replace the Affordable Care Act, or Obamacare. In a normally functioning democracy, a politician would decline to support a major piece of unpopular legislation. But in the U.S., where Republicans have been able to suppress democracy through extreme gerrymandering and voter disenfranchisement, their real constituency is composed of plutocrats such as the Mercer family, the Koch brothers, and Sheldon Adelson, along with the Tea Party extremists who imbibe the propaganda of Fox News and alt-right outlets purveying an alternate reality.
After painting this bleak picture of the U.S. political economy, Collins talks about the building blocks of another system: the “Next System.” The general objective of the Next System is to create a society where there is much less inequality along with the social polarization and other negative outcomes that go with it. In a society where everyone has access to health, a basic income, and education, and where society itself is more democratic and organized to be more in harmony with nature, life would simply be better for everyone.
To many American ears, such a system may sound idealistic in the extreme and therefore out of reach. No doubt, we have fallen a long way as a country since the 1970s with the weakening of unions and the increasing dominance of corporations and financial capital. Nonetheless, if laws governing taxes, trade, wages, union organizing and government spending on healthcare and welfare can be changed to favor capital, they can be changed back to favor ordinary people. But it will require a struggle, because it is not nearly enough to adjust who gets what. The rules of the political game must also be changed to return real democracy to our country.
But where would such a campaign lead us? Collins argues that part of the objective would be to bring back some of the building blocks of the New Deal, including an expansion of workers’ rights, the establishment of a living minimum wage, much more progressive taxation, liberal social welfare policies including social security, health insurance, and welfare as well as affordable education for all. But this is only a start.
While social programs that increase opportunities and guarantee healthcare, education and a minimal standard of living for all would be a tremendous improvement in the United States, they would not prevent the continued transfer of great amounts of wealth to huge financial institutions and the super rich. They will also not change the structure of power in our political economic system. This is where the rewiring comes in to envision an entirely different model.
To transform the way our economy works so that it benefits everyone, Collins essentially calls for a new operating system along the lines of the “Nordic model” as described by George Lakey in Viking Economics. This includes the obvious necessity of making income taxes more progressive, reversing trends of the past several decades. But it also requires that wealth inequality itself be taken on by expanding inheritance taxation and levying a wealth tax on the top 1 percent.
In addition to addressing the wealth of individuals, major changes are needed in key economic institutions, especially corporations and the financial system. At present most public corporations are controlled by a narrow executive leadership and designed to benefit their shareholders. Thus, there are large incentives to cut costs, such as workers’ pensions, salaries, and benefits (as well as environmental safeguards) in order to improve the bottom line and increase the value of their stocks. We have seen the results in the lax safety measures of BP in the Gulf, Volkswagen’s fraudulent mileage metering, the Wells Fargo personal accounts scandal, and all of the shenanigans that tanked the U.S. and global economy in 2008.
In other words, corporate governance needs to be transformed so that corporations are structured for social gains instead of shareholder gains. Some of this has already been accomplished as many corporations are open to socially responsible practices and outcomes. But to ensure greater devotion to socially desirable objectives, corporate governance needs a thorough restructuring. Other stakeholders, including workers, consumers, and communities as well as local environmental organizations, need to be given seats at the table in corporate boardrooms.
Such a reform would require major legislation, meaning it is outside the realm of foreseeable change at present. But it is not unrealistic from a technical perspective. Germany’s “co-determination” law has been in effect since 1976 and clearly has not hamstrung German industry. And, perhaps more relevant for the U.S. context, we already have entities known as “B Corporations,” which are designed to achieve sustainable environmental and social goals along with financial viability and, importantly, are evaluated on that basis.
Corporate influence in the U.S. political system must also be minimized. This takes us into the realm of dark money and election financing, which is a large topic on its own. It is one more thing that is immensely difficult in the current U.S. system, but it must be taken on. If corporations and the people who control them are allowed to continue “investing” in political candidates, the political system will continue to do their bidding.
In the financial sector, Collins argues that the “hyperfinancialization of the economy has transformed large sectors of finance into extractive enterprises rather than the stable lending systems needed for real community economic activity.” To turn that around, several substantial steps should be taken. Speculation should be taxed more aggressively and the concentration in the banking sector needs to be reversed by breaking up the biggest banks and limiting their size going forward.
Collins also calls for creating an array of people- and community-focused banks and financial institutions, such as public and state banks, a national reconstruction and infrastructure bank, and other financial institutions whose role is to facilitate the reinvigoration of communities and local enterprises across the country. Many such institutions exist and millions of people are already members of credit unions, but much more must be done to build out such networks and increase the availability of credit to communities everywhere.
Finally, and inevitably, we come to the politics of a Next System and its many unanswered questions. Collins offers numerous useful and creative ideas for how to build a much more democratic economy, but does not say a lot about how to get there politically. Fortunately, we appear to be in a political moment where the long-standing and frozen status quo is giving way. No doubt many of the forces that have crawled up through the cracks of the crumbling edifice of our neoliberal world are frightening in the extreme. But with the emergence of the broad and deep opposition to Donald Trump and his reactionary Republican allies, the potential power of progressive social movements is emerging and starting to assert itself. Bernie Sanders, the one candidate in 2016 who consistently stated that we need to be a lot more like Denmark, happens to be the most popular politician in the country. And his recent legislation calling for a single-payer health system has an unheard-of 15 co-sponsors.
In the end, perhaps it is no shortcoming that the Collins paper does not explain the politics of birthing such dramatic change. We already know that it will come primarily through social movements from below, and that the process has already begun. For the activists and leaders of those movements who are attempting to figure out the design for a more progressive, democratic economy and society, this paper is a useful reference; not as a roadmap for how to get there, but as a blueprint for the essential building blocks of a new system.
For more, listen to Bernie Sanders’ interview with Collins on the Bernie Sanders Show, episode 11