Inequality and the Centralization of Power

The world’s extremity of wealth inequality is economically inefficient, politically corrosive, socially divisive and environmentally destructive. From tax havens to weak employment laws, the richest benefit from a global economic system which is rigged in their favour. It is time our leaders reformed the system so that it works in the interests of the whole of humanity rather than a global elite.

- Oxfam


inequality-2014-02-05-FiveQuintilesIncome

 

Conservatives like to preach that “a rising tide lifts all boats.” In other words, the income of a rich executive making millions a year will eventually trickle down into the rest of the economy and ultimately benefit poor people. The above graph from the Stanford Center on Poverty and Inequality’s Poverty and Inequality Report 2014 is proof that trickle down theory is plain wrong. The researchers looked at rising poverty and inequality in the U.S., particularly since the 2007-2008 recession and this graph illustrates that while the rich get richer, the poor simply get poorer. Income inequality is alive and well in the US and around the world. ..another myth busted.

 

Wealth Inequality in America

Introduction

Each of us learned about inequity at a very early age. As children playing with others, we all learned to recognize the inequity of a child who hoards all the toys; indeed, we may have been that child ourselves. We also learned about the power of sharing. As Dual Motive Theory now reveals, our brains are wired to be a balancing act between different neural systems: the Reptilian complex, which looks out for our own best interest and the Limbic system, which looks out for the interest of others. A brain architecture wired in this way gave living beings an evolutionary advantage – it enabled individual members of a species to form close knit social groups to support each other to increase their independent chances of survival. A balanced human being therefore needs both self and other interest to form effective social groups.

When we are truly able to appreciate the sacredness and preciousness of life, we value all it’s many dimensions and there naturally arises a fairness and democracy in our attitude towards other living beings.

Such a mature attitude recognizes that the sacred quality we posess is also found in all other living beings. This immediately democratizes and levels the playing field for living beings. Such an attitude is  also one that naturally promotes equality. It is healthy because it encourages all human beings to recognize the precious nature intrinsic in all living beings. seeing from this worldview encourages self-motivated development & growth of compassion,  wisdom, creativity and work ethic. It also significantly reduces conflict and violence because we are not prone to fight with those we consider precious.

In contrast to this mature view of reality, we are presently immersed in a global society which has lost its appreciation of the preciousness of life. The most distinguishing feature of the present economy is that we are moving away from democracy and towards a plutocracy, a system which is becoming more and more inequitable and where power is highly centralized. The Occupy Movement is a result of a growing awareness and intolerance of the extreme levels of inequity now ubiquitous in our global society.

The Occupy Movement has adopted the catchy slogan “the 99%” which captures the essence of this power concentration and inequity. It is clear for the entire planet to see that unfettered capitalism, instead of allowing free markets to bring wealth to the masses has instead concentrated it in the hands of the very few. That being said, inequity is not confined to one political or economic ideology. Rather, it is a trait of a basic psychological imbalance which has become widely accepted within culture.

This concentration has resulted in inequities in every field, making billions of people dependent on a few people in every field:

  1. Food
  2. Policy
  3. Energy
  4. Economic
  5. Natural Resources
  6. Media
  7. Manufacturing

The Rich do not create Jobs

Nick Hanauer is a successful entrepreneur, a member of the 1%. Yet Nick argues that the arguments that plutocrats use –  that they should be taxed less because they are the drivers of the economy doesn’t wash. Secret offshore tax shelters are a prime vehicle that enables trans-nationals as well as corrupt leaders to keep their money hidden.

I am the rich – I do not create jobs and I should be taxed
Right wing armchair critics such as Tim Worstall of Forbes have launched the expected attacks (See The Ignorance of Nick Hanauer’s Speech) but even readers of his blog have repudiated his half truths. Judging from Worstall’s critics, perhaps there should be a follow up article:

The Ignorance of Tim Worstall’s analysis of Nick Hanauer’s Speech.

Quotes from readers of Tim Worstall’s blog:

You say that Hanauer is deeply ignorant of the subject. Seems that it applies to you also. You argue that profits are double taxed. So are my wages. They are taxed when I earn them and taxed when I spend them. Again double taxation. It happens multiple times in our various tax systems so your argument has little merit. I will be willing to concede to your point of view if you can show me a single business that increases employment without an increase in demand for their product.

I am sorry whilst the talk is not well presented due to a lack of understanding of economics by Nick his points are fair, and your article is full of half truth which is something I see a lot with politicians these days.  Any excess capital derived by the top income earners would have to invested in areas which derive economic utility and create jobs but everyone knows that’s not what happens most of the time it goes into tax shelters , deferred rates or gets invested in assets such as stocks or bonds or mormon churches . So herein lies the classic problem of malinvestment . Giving tax breaks to large compensation, economically speaking usually leads to far less dollar value on job creation due to the fact most companies are bloated or are in saturated markets giving little room for growth. In a depressed economy investment goes down as a result of reduced demand which is in part due to reduced consumption hence reduced investment. It also increases savings due to uncertainty. So to reduce this governments lower interest rates both on savings and on borrowing. The increased supply of money (from Quantitative Easing) was given as cheap credit which has clearly been funnelled to certain of the economy , areas of the economy which only the rich derieve benefit from. For example increased college fees due to cheap credit allowing students to borrow and then the excess capital is not invested but rather put into huge endowments which have become bigger and more bloated then ever. Or increase health cost or bubbles in the stock market which are far outpacing inflation or real growth and nominal growth. Enough economics for you? I would hope so . So whilst Nick lacks education in economics as do most OWS hippies what he says has merit but I am not surprised a Forbes editor has come out against him.

The rich do not create jobs. Opportunity creates jobs. Capitalism enables the ecosystem of job creating. Capitalism in-turn is enabled by society. Please look at the bigger picture.

After viewing the presentation I thought the main discussion is that middle class consumers are suffering and until their condition improves we are stuck. People want to equate lower taxes to growth but the economy is not that simple. I do believe that many low tax advocates have tried to create this dogma that low taxes lead to job creation. That is simply not true. Until we invest in education, infrastructure and provide opportunities to more people we face problems. 

Tim, I’ve heard this argument about the “double taxation” of investment gains many times over the years, and you know what – it’s nothing but a load of hooey. The argument that taxes on gains represents “double taxation” is merely an excuse for the extraordinarily wealthy to have a lower tax rate.

Nic is exactly correct and the corporate conglomerates that pass themselves off as “the people’s media” when nothing could be further from the truth or cheerleading the decline of this nation and the American people. http://www.economyincrisis.org

The bottom line is this: the idea that giving the wealthy a tax break will allow them to invest and “create” jobs is a fallacy. The wealthy don’t spend, they create capital for themselves. It’s about only the capitalist and the bottom line. This “trickle-down economics” was a fantasy 80 years ago during the great depression, 30 years ago when it helped create the bubble that burst- and its a fantasy now.

Hanauer makes a point that gets little press or debate – spending by the middle class is a lot more productive than is spending by the elite.

This could help explain why the centralized Soviet Union couldn’t compete with the more economically distributed west.

I trust spending decisions made on the street where incentives are immediate and decisions can be make or break more than I do from some fat cat that rounds up to the $million.

 

These graphs are taken from Nick’s TED talk.

      
     

 

Corporate Inequity

Resource Depletion

of topsoils, overfishing, biodiversity are measured as beneficial to GDP and GNP because they indicate increased economic activity – in fact they are negative as they reduce long term ability of societies to sustain themselves.

Pollution

Trans-National Corporations (TNC) will always try to do the minimum clean up for the mess they make.  No matter how much greenwashing they use, it is not in their basic philospophy to cleanup the mess they make when they can get others to do so – especially taxpayers.  And did we mention something called the Kyoto Protocol?

Health

Communities often have to launch lawsuits to pay for the health care costs incurred by TNC toxic processes

Displaced People

When TNC’s have to displace people in order to appropriate their land or forests, they once again resist these costs as much as possible.

Trans National Statistics

The three infographics below from Trans National Institute summarize:



A Scientific Study on the Extent of Economic Power Concentration

It’s disconcerting to see how connected things really are

- George Sugihara, complex systems analyst, Scripps Institution of Oceanography in La Jolla, California

Just how many companies control the global world economy? – surprisingly few as a study from an October 2011  New Scientist article revealed. The article, authored by Stefania Vitali, James B. Glattfelder and Stefano Battiston, Swiss Federal Institute of Technology in Zurich and entitled: Revealed – The Capitalist Network that runs the World  is based on a study conducted by a group of complex systems theorists and is the first to go beyond ideology to empirically identify a network of power. It combines the mathematics long used to model natural systems with comprehensive corporate data to map ownership among the world’s Trans National Corporations (TNCs).

“Reality is so complex, we must move away from dogma, whether it’s conspiracy theories or free-market,” says James Glattfelder. “Our analysis is reality-based.”

Previous studies have revealed that a few TNCs own large parts of the world’s economy, but they included only a limited number of companies and omitted indirect ownerships, so could not say how this affected the global economy.

The Zurich team can. From Orbis 2007, a database listing 37 million companies and investors worldwide, they pulled out all 43,060 TNCs and the share ownerships linking them. Then they constructed a model of which companies controlled others through shareholding networks, coupled with each company’s operating revenues, to map the structure of economic power.

The work, to be published in PLoS One, revealed:

  • A core of 1318 companies with interlocking ownerships.
  • Each of the 1318 had ties to two or more other companies, and on average they were connected to 20.
  • Although the 1318 represented 20 per cent of global operating revenues, through their shares they collectively owned the majority of the world’s large blue chip and manufacturing firms – the “real” economy – representing a further 60 per cent of global revenues.
James Glattfelder TED talk about complexity theory and the economy


Fig. 1:  Strongly Connected Components of 1318 Core Companies
(Node size scales logarithmically with operation revenue,
node color with network control, from yellow to red).

 


Fig. 2:  Zoom on some of the Major companies in Financial Sector.

  • Much of the ownership tracked back to a “super-entity” of 147 even more tightly knit companies – all of their ownership was held by other members of the super-entity – that controlled 40 per cent of the total wealth in the network.
  • “In effect, less than 1 per cent of the companies were able to control 40 per cent of the entire network,” – James B. Glattfelder.
  • Most were financial institutions. The top 20 included Barclays Bank, JPMorgan Chase & Co, and The Goldman Sachs Group.
  • John Driffill of the University of London, a macroeconomics expert, says the value of the analysis is not just to see if a small number of people controls the global economy, but rather its insights into economic stability.
  • Concentration of power is not good or bad in itself, says the Zurich team, but the core’s tight interconnections could be.

The  2008 financial crisis demonstrated that  such interconnected power networks are unstable. “If one [company] suffers distress, this propagates” – James B. Glattfelder

Power Concentration Infographics

 

Concentrated Media Power (FrugalDad)

Total Revenue of Concentrated Media US Power (FrugalDad)

10 Multi-nationals control the entire Processed Food Market (Source: Convergencealimentaire )


6 seed companies controls the world’s supply


What’s wrong with our food system? (Oxfam)


500 Companies control the global food supply chain (Oxfam)

Walmart’s impact of food producers

Amazon’s grip on online marketing


500 Companies control the global food supply chain (Oxfam)

Koch Brothers almost single-handedly funds entire climate change denial movement 1 (Greenpeace)

Koch Brothers almost single-handedly funds entire climate change denial movement 2 (Greenpeace)

The Kochtopus!

How Super Concentrated Power does Harm to Everyone Else

 

1. Inequity

Figure 3: 1,210 Billionnaires have over half the wealth of 3 billion people with Net worth less than $10,000

Sources: “The World’s Billionaires,” Forbes Magazine, March 9, 2011 and Credit Suisse Research Institute, Global Wealth Report, October 2010.

Figure 4: Population and wealth shares for adults

Source: Credit Suisse Research Institute, Global Wealth Report, October 2010.

2. Political Influence

Nestlé has generated more than $ 37 billion profit in 2010. In the current political system, lobby and pressure groups are constantly making efforts to pass or block legislation. They are extremely well funded and organized. The food industry conducts lobbying activities at all levels: international, national and local. In addition, large amounts are invested by these companies in the referendum campaigns of several political candidates from all parties. These companies invest and expect favors in return. In 2010, Kraft has spent half a million dollars in contributions to U.S. political candidates; Nestlé, nearly $ 300,000 to Schwarzenegger’s campaign California)

Their only criterion  is that whatever they support maximizes their profit. When political pressure is applied for profit, this is often in conflict with the interests of the population. It is wrong to put the interest of companies  before that of the population. Elected officials are powerless when their election depends on funds advanced by these same companies. This is a form of legalized corruption.

The record of the labeling of products containing genetically modified organisms (GMOs) is a good example to date, it is impossible to know if GMOs have a dangerous effect on health or not. Yet Monsanto and it’s allies continue to work both against farmers and food consumers. Another example is the corruption and bribery of local officials in developing countries. Unilever was charged in one such case to which they responded that  they did not encourage such practices, but tolerate it when it is a “local custom”. In other words: if corruptable politicians are already  in place and are already receiving bribes, kickbacks, then they condoned it.

3. Health Issues

When it comes to a choice between Public Health and the bottom line, the later will always win. For example, despite studies of the World Health Organization and UNICEF which showed that the use of a substitute for breast milk to feed babies contributes to the deaths of 1.5 million children annually in developing countries, Nestlé, the largest manufacturer of breast milk substitutes in the world, continued to promote he choice of using substitutes even if the mother is able to breastfeed . They even fund medical clinics in underdeveloped countries who agree to promote their subsituts breast milk. Many claim that these practices are directly responsible for the death or poor health of millions of children.

4.  Oligopoly Tendencies

When a few large companies control the market, they make competition virtually impossible. In supermarkets, for instance, premium shelf space is reserved for the multi-national food conglomerates. Any competitor with a superior product will be hard pressed to find good shelf space. The system is therefore rigged against healthy competition. Additionally, When few players control the market, there is the possibility of cartels arising to illegally fix prices. In April 2011, Proctor & Gamble was fined 211 million Euros for colluding with Unilever and another company to fix prices in Europe.

5.  Pollution

TNCs  externalize the cost of the pollution they create as they manufacture their products and services. Corporations always try to get away with doing the least possible to clean up the ancillary pollution they create; taxpayers pay through government cleanup programs. Governments subsidizes resource extraction companies to the tune of billions of dollars.

6. Human Rights Abuse

There are many cases of TNC linked to human rights abuse.

The Linkage between Governance and Inequality

There is a fundamental link between governance and inequality. It is often said that governments are simply puppets for big business. Regardless of which political party is in charge, the inequality always persists. To see how the puppet master manipulates the puppet, watch the compelling TED talk by Lester Lessig here as he unpacks how lobbyist are the bridge between the plutocracy and the control and manipulation of government – and how this is the first thing that must change before any other issues can change.

Tax Havens – A key tool for maintaining Inequality

Tax havens are a critical tool supporting inequality, a tool facilitated by the biggest banks in the world and which work for anyone who is wealthy, regardless of how they obtained there wealth. By their very secrecy, tax havens are a magnet for ill-gotten wealth. A 2012 study by the Tax Justice Network reveals the sheer magnitude of the tax free money residing in Tax havens.

The report, The Price of Offshore Revisited states “Tens of trillions of‘missing’ financial”assets we identify in this report are on a larger scale than any estimate hitherto produced, and substantially not counted in any inequality study. The impact on inequality implied by our new data is astonishing. We estimate that fewer than 100,000 people that is, 0.001% of the world’s population, now control over 30% of the world’s financial wealth.”

Goto the tax haven page to learn more.

Manufacturing Centralization

Power imbalance and injustice are inherent in large scale, stateless corporate manufacturing that functions without any transparency or accountability

A major development in the last 50 years is that manufacturing processes in almost every country in the world have become interconnected within a global production system model that is complex, geographically distributed everywhere and controlled by a handful of  Trans National Corporations. Few countries, with the exception of China, can carry production from start to finish. Raw material is sourced from one place, different parts are assembled at different plants, shipped to be processed and assembled in different places and finally shipped globally around the world for sale.

At present, global manufacturing and production processes consume more than 220 billion tons of resources annually, all tekan from the earth’s “natural capital” – oceans, plants, plains, soils, mines and all other aspects of biodiversity. Standard production practice today is for resources to be gathered, wherever on earth they are, then processed, formed into usable products, and shipped back and forth across the planet. A high percentage of the materials are wasted in the mining and manufacturing parts of the cycle, as well as through shipping, and again when the finished products are discarded. We call this whole process the “take-make-waste” cycle.

- John Cavanagh, Alternatives to Economic Globalization

Global manufacturing pits workers in developed countries against workers in developing countries and has the general result of lowering wages and wealth dramatically in developed countries. Under a globalized manufacturing system, wage concessions, worker givebacks and sweatshops become the new norm.

Sourcemap is a website that traces the life cycle of a product from beginning to end, showing where the raw material is mined, where different subsystems come from, where the components come from, where assembly and manufacturing takes place and where it goes to after it’s end of life.


Who do Trans National Corporations Answer to when they are responsible for Global Disasters?  – A Case Study – The BP Deepwater Horizon Disaster

The question of responsibility of Trans National Corporations has been brought into stark focus with the latest BP  Deepwater Horizon disaster. The oceans are a global resource. They do not belong to one country alone. A disaster in one part of the ocean translates into a global disaster. The Deepwater Horizon disaster has impacted the oceans for the entire planet.

Who do they answer to? How can one country alone give permission for oil companies to drill in sensitive ecosystems when they know full well that a disaster cannot be contained?

 

Figure 5: BP Oilspill Impact Infographic

 

Al Jazeera revisited the oil spill and produced a damning report The BP oil spill: Two years on. They found shrimp without eyes, crabs without claws and a fishing industry in decline. The true extent of the impact on the ocean life is just beginning to be revealed. BP should not be allowed to settle until this full extent is known.

Al Jazeera 2012 Investigation reveals major impact on marine life in Gulf of Mexico

Political Inequity

Political inequity creates the imbalance between developed and developing countries:

  • 11 % of the people living in developed countries consume and are responsible for 50% of global CO2 emissions
  • 50% of the people living in developing countries consume and are responsible for 11% of global CO2 emissions


via chartsbin.com

Developed and developing countries disease patterns reflect the inequities. The World Bank divides countries into low, middle and high income brackets. Low income countries have high mortality rates for children and reflect diseases of underconsumption and lack of medical aid while high income countries highest mortality occurs for older demographics and are often disease of overconsumption. About 86 countries are currently in the middle income brackets. These are countries that are on their way to becoming high income countries but the lower-middle income countries have just crossed the boundary from low income. These middle income countries have the highest rates of disease of both low and high income countries.

Figure 6a: WHO 2008 Death Demographics: Low, Middle & High Income Countries  

Figure 6b: WHO 2011 Death Demographics: Children 0-4 Yrs

 

Figure 6c: WHO 2011 Death Demographics: Adults 15-59 Yrs

  

Figure 7a: People who earn more than $200/day  (Source: Worldmapper)   Figure 7b: People living on less than $1/day (Source: Worldmapper)

Your Fired!…But I’ll give you $100 Million Anyways!

Golden Parachutes are contractual provisions that compensate executives, if they are terminated without cause. GMI Rating Report lists the top 21 CEOs who have each received over $100 million Golden Parachutes. In total, these 21 CEO’s walked away with more than $4 Billion USD in compensation…above and beyond their normal “salary”. For example, Lee R. Raymond of Exxon Mobile made close to $700 million USD in his 12 years at Exxon. Does he REALLY need another $320 million USD after he left? Was he broke?

Corporate compensation committees have lost complete sight of the original principles of compensation, resulting in little or no value for shareholders despite excessive compensation.

  1. General Electric John F. Welch Jr. 1981-2001      $417,361,902
  2. Exxon Mobil Corp. Lee R. Raymond 1993-2005      $320,599,861
  3. UnitedHealth Group William D. McGuire 1991-2006      $285,996,009
  4. AT&T Edward E. Whitacre Jr. 1990-2007       $230,048,463
  5. Home Depot Inc. Robert L. Nardelli 2000-2007      $223,290,123
  6. North Fork Bank John A. Kanas 1977-2006      $214,300,000
  7. Merck & Co., Inc./Schering-Plough Fred Hassan 2003-2009      $189,352,324
  8. IBM Louis V. Gerstner Jr. 1993-2002      $189,005,929
  9. Pfizer Inc. Hank A. McKinnell Jr. 2001-2006      $188,329,553
  10. CVS Caremark Corp. Thomas M. Ryan 1998-2011      $185,415,435
  11. Gillette Co. James M. Kilts 2001-2005      $164,532,192
  12. Target Corp. Robert J. Ulrich 1994-2008      $164,162,612
  13. Merrill Lynch & Co. E. Stanley O’Neal 2002-2007      $161,500,000
  14. U.S. Bancorp Jerry A. Grundhofer 2001-2006      $159,064,090
  15. Omnicare, Inc. Joel F. Gemunder 2001-2010      $146,001,476
  16. Wachovia/South Trust Wallace D. Malone Jr. 1981-2004      $125,292,818
  17. United Technologies Corp. George A. L. David 1994-2008      $122,631,309
  18. eBay Inc. Margaret C. Whitman 1998-2008      $120,427,360
  19. WellPoint Health Leonard Schaeffer 1992-2004      $119,041,000
  20. XTO Energy Inc. Bob R. Simpson 1986-2008      $103,485,972
  21. Viacom Thomas E. Freston 2006      $100,839,772