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Economic Inequality in US
Published on Monday, July 1, 2002 in DAWN, Pakistan's leading English language newspaper
Economic Inequality in US
by Huck Gutman
 

Like those magicians whose hand is quicker than the eye, the acolytes of American capitalism make arguments that are fascinating - and deceptive. The historian Francis Fukuyama, darling of American bankers and industrialists and conservative politicians, famously proclaimed "the end of history". What he was referring to was the uncontested victory of capitalism as the now dominant motor force of societies all over the globe.

There is no question that the United States is, by far, the wealthiest nation in the world; there seems little doubt that it, with its system of corporate capitalism, has amassed such a sheer abundance of material goods and productive capacity that it can lay claim to being the wealthiest nation in the history of humankind. What Fukuyama, and George Bush, and Bill Clinton before him (though the latter less so) do not pronounce nearly so boldly - they actually do not pronounce it at all - is who owns this wealth. Or, in more traditional economic terminology, they do not dwell on the manner in which this wealth is distributed.

In the United States today, the wealthiest one per cent of the population owns more than the bottom 95 per cent.

The United States has the greatest disparity of wealth in the entire industrialized world. That fact is a national disgrace, though it is largely invisible both in the media, and in the endless accolades about the wonders of capitalism. While America seems to be enjoying a banquet of unbelievable richness, most Americans do not get a full plate, and a remarkable number go hungry.

In the last quarter of a century when the United States moved from global power to global behemoth, a quarter of a century in which American corporations reaped huge profits while spreading their power and influence all over the globe, American workers made no gains. None. The wages of American workers have, since 1978, been flat or declining.

This may be hard to believe for those abroad who see, on television and in movies, Americans driving sports utility vehicles and living in well-appointed houses. But the economic reality is that increases in the standard of living - and many families have seen such increases - have come almost entirely because women have entered the work force in huge numbers, and households which formerly depended on one wage earner now depend on two. Child care, home management, cooking, today are not part of the work day, but in addition to it.

It is not only this increase in the invisible, unpaid work hours that accounts for the ability of many American families to maintain their standard of living. American workers today work longer hours than workers in any other industrialized nation, even hard-working Japan. Harvard economist Juliet Schor reported that the average American works an additional 163 hours, or one month a year, more than the workers did in 1969. American workers get less vacation time than in any other nation.

Let me repeat: the wealthiest one per cent of the population owns more than the bottom 95 per cent. There are three causes for this monstrous maldistribution of wealth: capitalism, government, and pay.

The first is obvious. Capitalism depends on capital, and some members of society have a lot more of it than others. So the in-built tendency of capitalism is to reward those who have capital, which in less technical terms means that those with money tend to see their wealth grow much faster than those who have no money. The rich get richer is a fundamental corollary of capitalist dynamics.

There are two ways of suppressing this tendency toward increasing concentration of wealth. One, obviously, is taxes; the other is government spending. Taxes support public services and government functions, but they have, always, another function. Taxes redistribute income. Governments take money from people via taxes, and they also give money back to people, via social programs. Who the government takes money from, how much it takes, and what it spends the money on: these are decisions with redistributive consequences.

With the exception of a Clinton tax increase on the wealthy in 1993, the major tax changes since 1978 - an era in which Republicans Ronald Reagan and the two Bushes (father and son) were president a majority of the time - redistributed wealth upward. That is, larger tax breaks went to the wealthy than went to ordinary citizens. In fact, while taxes on the rich were reduced in a multitude of ways, the non-progressive social security tax for federally-funded pensions and the medicare tax for health care for senior citizens, took ever more dollars from working people.

How egregious this tax policy has been can be seen, dramatically, from the single most important initiative of Mr. George W. Bush's presidency. Elected by a minority of voters only after shenanigans in the courts, Mr. Bush insisted that what the country wanted and what the economy needed was a huge tax cut. He proposed, and then rammed through the Republican Congress, a tax bill which redistributed money from social services into the pockets of the wealthy.

The wealthiest one per cent of the population will rake in 52 per cent of the tax benefits when the cuts are fully operative. In the next ten years, the new tax plan will divert an astounding $500 billion out of federal coffers and into the bank accounts of those who earn over $375,000 a year. Diverting this money to the wealthy has moved the US government into deficit.

Accordingly, the president and his Republican allies in the Congress are loathe to provide money for education, housing, health care, and other services which working people and the poor depend on. Not only are the rich made richer, the poor and even the middle class will see cuts in what they receive from the government. Redistribution two ways, in a country where the disparity of wealth is already so great that in the world's richest nation, over sixteen per cent of children live in poverty.

Capitalism favors the rich, and in America tax policies have been skewed to take from the working people and give to the wealthy.

The third cause of the huge wealth gap between the rich and the great mass of ordinary Americans, is pay.

In the United States today, according to the authoritative publication, Business Week, the CEOs of large corporations earn, in salary and other compensation, five hundred times what their average workers make. Put in less arithmetical terms, they earn in slightly over half a day what their workers earn in an entire year. As the recent debacles of Enron, Worldcom, Global Crossing, Adelphia Networks and others have revealed, corporate executives have been running their companies for the sole purpose of enriching themselves. And rich they have become.

While greed has been the operative guiding principle for corporate executives - and their bankers, their accountants, their investment advisers - American workers have seen hard times. Over the last four years, a total of 2 million factory jobs have been lost - ten per cent of the manufacturing workforce, which is the best-paying sector of the American economy. The executives who reward themselves so handsomely (the CEO of pharmaceutical manufacturer Merck received over $250 million for one year's compensation) nonetheless cry in outrage at any mention in a rise in the minimum wage, currently at $5.15 an hour.

Since 1979 the minimum wage, in inflation-adjusted dollars, has dropped 21 per cent. In the same period, corporate executives were under no such restraint: in 1980, CEOs made 45 times as much as their workers, while last year they made 531 times what their workers made.

Wages have been flat, the minimum wage has not kept pace with inflation and, to make matters worse, well-paying jobs have declined while low paying service-sector jobs have increased dramatically. Worse, in the last half-century concentrated efforts by business and the corporate media have combined to undermine unions and union-organizing activities. While in 1954, 34.7 per cent of American workers were unionized, currently only 13.9 per cent of the workers belong to a labor union. This too drives wages downward.

It bears repeating, for a third time: In the United States, the wealthiest one per cent of the population owns more than the bottom 95 per cent. It would seem that capitalism is scarcely triumphant, except for those who are at the top of the pile. It is not even the case that, as capitalist apologists always seem to claim, a rising tide lifts all boats, for as we have just seen, the evidence reveals that wages have been flat and wealth share declining for a majority of American workers.

The Americans are, in general, hardworking and generous people. But the maldistribution of wealth, and the Republican effort to continue - with Democratic connivance - the wealth shift, has painful consequences. For all the appearance of material prosperity, Americans often live with large reservoirs of economic anxiety and unfocussed political anger. Economic injustice is the great unacknowledged specter which haunts American society. And this injustice is, sadly, increasing.

The writer is a professor at the University of Vermont in the US.

© The DAWN Group of Newspapers, 2002

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