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Social Structure in 21st Century Capitalism: Wealthy Elites, Middle Class, and Labor

This lecture discusses the social structure of 21st century capitalism, including the rise of economic elites, the differentiation of the middle class, and the marginalization of labor. It also explores the concentration of wealth and income, the emergence of new elites in different countries, and the causes behind the rise of economic elites in the neoliberal era.

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Social Structure in 21st Century Capitalism: Wealthy Elites, Middle Class, and Labor

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  1. Lecture (ppt 4).Social structure in 21st Century Capitalism: Wealthy Elites, middle class and labor. Andrés Solimano, Universidad Mayor and CIGLOB . Prague –University of Economics • November, 2014

  2. Wealthy Elites, Crises and Economic Democracy. New Alternatives Beyond Neoliberal Capitalism. The social structure of 21st Century Capitalism • Rise ofEconomic Elites and the Super Rich. Social Counterpart of income and wealth concentration. • The Internal Differentiationof the Middle Class :Polarization between a new upper middle class and a stagnant traditional middle class. • Marginalization oflabor, stagnant wages, job vulnerability and polarization of job structures. • Trends for mature capitalist economies and developing countries with some variations (labor incomes may grow faster). Andrés Solimano January 2014 - RutgersUniversity

  3. Wealthy Elites, Crises and Economic Democracy. New Alternatives Beyond Neoliberal Capitalism. Measuring Elites: Top Incomes and Top Wealth • Two methods: • Income-based (from tax- returns information of the top 10 %, top 5 %, top 1% and top 0.1 %. (iii) Wealth-Based: individual data on billionaires (Forbes Magazine) and asset ownership. Aggregatewealth to income ratios. • Income and wealth concentration is greater the USA and UK than in continental Europe (France, Germany, the Netherland and Switzerland) and Japan. Andrés Solimano January 2014 - RutgersUniversity

  4. Wealthy Elites, Crises and Economic Democracy. New Alternatives Beyond Neoliberal Capitalism. New Elites in US, UK, Russia, China and India. • Strong financial elites in the USA, UK and other countries. • Rise of income concentration at the top in large emerging economies such as Russia, China and India that have followed market-oriented and liberalization policies. • The emergence of Russian oligarchs, new mandarines (China) and new economic castes in India. Andrés Solimano January 2014 - RutgersUniversity

  5. Empirical evidence on top incomes • Top 10 %, top 5 %, top 1 %, top 0.1 % for OECD countries (USA, UK, Germany, France, Sweden, Switzerland, Jpan, Australia, Ireland, New Zealand,Canada). • For emergingeconomies (Argentina, China, India, Singapore, Colombia, Mauritius, South Africa). January 2014 - Routgers University

  6. Top decile in the UnitedStates, 1917-2010 January 2014 - Routgers University

  7. Top 1 %, top 5-1 %, top 5-10%, USA (1913-2010) January 2014 - Routgers University

  8. Top decile US, UK, Germany and France, 1910-2010 January 2014 - Routgers University

  9. Top 1 % in English speakingcountries(1910-2010) January 2014 - Routgers University

  10. Top 1 % in Continental Europe and Japan,(1900-2010) January 2014 - Routgers University

  11. Top 1 % share in developing and emergingcountries, (1920-2010) January 2014 - Routgers University

  12. Top 1 % developingcountries and emergingeconomies, 1920-2010 January 2014 - Routgers University

  13. Wealthy Elites, Crises and Economic Democracy. New Alternatives Beyond Neoliberal Capitalism. Causes of the Rise of Economic Elites in the Neoliberal Era. • Lower taxes on top incomes • Privatization of public assets. • Big compensation packages to CEOs • Lack of regulation of big business and financial sector. • Political connections (inside privatization, cheap credit, licenses). Andrés Solimano January 2014 - RutgersUniversity

  14. Top incometaxrates US, UK, Germany and France, 1910-2010 January 2014 - Routgers University

  15. Theories of Elites • i) Merit- Oriented Elites (Pareto, Mosca, Michels -the Italian School). • ii) Power Elites (Wright-Mills) • iii) Class-Based Theories of Elites (Sweezy, Marxist tradition • iv) Financial Elites, knowledge elites, political elites. January 2014 - Routgers University

  16. Top Incomes in Anglo-Saxon versus French Capitalism Wealthy Elites, Crises and Economic Democracy. New Alternatives Beyond Neoliberal Capitalism. Divergent Evolution of Top Income Shares between Anglo-Saxon and French Capitalism Income Share of the top 1 percent in France, the United Kingdom and the United States.(In percent, 1927-2007) Source: Atkinson et. al (2011) Andrés Solimano January 2014 - RutgersUniversity

  17. Wealthy Elites, Crises and Economic Democracy. New Alternatives Beyond Neoliberal Capitalism. Top Wealth Holders • The distribution of wealth is often more concentrated (higher Gini coefficient) than the distribution of income (Solimano, 2009). • Forbes Magazine : there were 1,210 billionaires in the world in 2012 that have a combined wealth of U$ 4.5 trillion. • We have over 2 billion individuals living with less than 2 dollars a day. Andrés Solimano January 2014 - RutgersUniversity

  18. Wealthy Elites, Crises and Economic Democracy. New Alternatives Beyond Neoliberal Capitalism. Top Wealth Holders by country around the world Worldwide top 10 Billionaires by Country (2011) • Source: Forbes.com and Wikipedia. Andrés Solimano January 2014 - RutgersUniversity

  19. Evidence on Wealth to Income ratios. January 2014 - Routgers University

  20. Wealth-Income for France and UK, (1820-2010) January 2014 - Routgers University

  21. Private wealth-income ratios for OECD January 2014 - Routgers University

  22. Causes of the evolution of wealth to income ratios. January 2014 - Routgers University

  23. Wealthy Elites, Crises and Economic Democracy. New Alternatives Beyond Neoliberal Capitalism. Economic Elites: Heroes of productive capitalism, rent-seekers or economic oligarchs? Top incomes and top wealth: What is being rewarded? i) The Meritocratic view: Ingenuity, hard work, bright ideas, innovative capacities, superb education? ii) Role of Inheritance. More important in slow growth societies. iii) Appropriation of assets (by force?), rent seeking and political connections: Privatization and Accumulation by Dispossession . Marx’s primitive accumulation • Harvey’s accumulation by dispossession • Post 1990 (non competitive) privatizations Andrés Solimano January 2014 - RutgersUniversity

  24. Wealthy Elites, Crises and Economic Democracy. New Alternatives Beyond Neoliberal Capitalism. Economic Elites: Heroes of Productive Capitalism or Economic Oligarchs? (cont.) iv) Winners-Take-All Markets ¿Superstars market? ¿Are excessive concentration of talent in some markets? Andrés Solimano January 2014 - RutgersUniversity

  25. Elites, Inequality and Democracy • Political participation by the rich, middle class and poor. • Money and politics: contributions to political campaigns, lobby, ownership and influence on the mass media, funding of think-tanks and public intelectuals. January 2014 - Routgers University

  26. Elites, Inequality and Growth • Productive (pro-growth elites) versus rent-seeking (stagnant-growth) elites. • Inequality may deter growth through various channels: • Instability and social conflict • Waste of talent of low income individuals. • Induced higher-taxation? January 2014 - Routgers University

  27. Wealthy Elites, Crises and Economic Democracy. New Alternatives Beyond Neoliberal Capitalism. Curbing the Power of Economic Elites i) Maximum wages and regulation of compensation of CEOs and top executives. ii) Further taxation of top incomes iii) De-privatization and public ownership (state, community, workers-owned) Andrés Solimano January 2014 - RutgersUniversity

  28. Wealthy Elites, Crises and Economic Democracy. New Alternatives Beyond Neoliberal Capitalism. 2. The Fragmentation of the Middle Class in the Neoliberal Era i) Affluent upper middle class: financial experts, lawyers, technological experts, medical doctors. ii) Lagging traditional middle class: school teachers, clerical workers, less skilled white collars employees. Mid-level employees in ministries and state-sector. Andrés Solimano January 2014 - RutgersUniversity

  29. How to define the middle class? • By negation: segment that is neither rich nor poor. • Absolute income –based definitions: U$ 10 to U$ 50 per day. • By deciles: D 3 to D9. D5 to D9. • By values: desire of job stability, of holding a house, access to education and health. January 2014 - Routgers University

  30. Wealthy Elites, Crises and Economic Democracy. New Alternatives Beyond Neoliberal Capitalism. The Three Main Roles of the Middle Class : Myth or Reality? Role I: The Middle Class as a source of consumer power: yes but relying on debt, vulnerable to financial crisis. Role II: The Middle Class as a source of entrepreneurship: yes but need to distinguish between opportunity and necessity entrepreneurship. Role III: The middle class as a stabilizing and democratic segment in Society: maybe , role in authoritarian regimes LAC in 1970s and Europe in the 1930s. Andrés Solimano January 2014 - RutgersUniversity

  31. Wealthy Elites, Crises and Economic Democracy. New Alternatives Beyond Neoliberal Capitalism. The Identity for the Middle Class: Values and Ideology Values of the middle class: Quest for economic security, education for their children, housing. Democratic per se? Theories of Cultural Identity: Weber: orientedtowork, saving, and delayedgratification. Gramsci: Lack of particularism in values (cultural hegemony) Chomsky: Manufacturedconsentalignstothemiddleclasstothemainstream. Andrés Solimano January 2014 - RutgersUniversity

  32. Wealthy Elites, Crises and Economic Democracy. New Alternatives Beyond Neoliberal Capitalism. Empirical Regularity I: GDP per capita and the Middle Class The Middle Class (broad definition) and GDP per capita, (127 selected countries, circa year 2000) Andrés Solimano January 2014 - RutgersUniversity

  33. Empirical regularity II: Inequality and the middle Class (Gini of income and wealth) Andrés Solimano

  34. Income polarization in the US since the 1970s • Since the late 1970s the income share of the top 10 percent (D10) starts going-up (redistribution to the rich). • This redistribution comes mainly from the bottom 40% (D1-D4) that sees its income share decline since the 1970s. • The share of the middle class (D5-D9) remains relatively flat. January 2014 - Routgers University

  35. Latin America: the middle class and the vulnerable class in the 2000s. Andrés Solimano

  36. Labor in the global Era • In advanced capitalist countries labor is affected by: • i) Globalization of production to low-wage countries. • ii) Outsourcing of services and parts and intermediate products. • iv) Labor saving technical change • v) immigration from developing countries • vi) De-unionization January 2014 - Routgers University

  37. The labor share January 2014 - Routgers University

  38. Labor shares in the US, Germany, Japan and China January 2014 - Routgers University

  39. Labor shares in developingcountries and emergingeconomies January 2014 - Routgers University

  40. Real wage and labor productivity, USA January 2014 - Routgers University

  41. Real wage and labor productivity in developing countries January 2014 - Routgers University

  42. Wealthy Elites, Crises and Economic Democracy. New Alternatives Beyond Neoliberal Capitalism. Alternatives to Neoliberal Capitalism: Economic Democracy? Principles of “Economic democracy” i) More voice and participation to consumers, workers and citizens. ii) More egalitarian distribution of economic assets and appropriation of economic surplus. iii) Promote non-capitalist/not-for-profit modes of production and distribution iv) Political democracy and economic democracy are just two sides of a truly democratic society. Andrés Solimano January 2014 - RutgersUniversity

  43. Wealthy Elites, Crises and Economic Democracy. New Alternatives Beyond Neoliberal Capitalism. Cases of Economic Democracy. The Mondragon Corporation in the Basque country in Spain (85% of his workers are member of the cooperative). Around 1 billion people worldwide are members of a cooperative. Cooperatives provide close to 100 million jobs worldwide (20% more than multinational corporations). Andrés Solimano January 2014 - RutgersUniversity

  44. Wealthy Elites, Crises and Economic Democracy. New Alternatives Beyond Neoliberal Capitalism. Analytical Aspects of the Concept of Economic Democracy i) Individuals play several, simultaneous, roles in society: they are citizens with political rights and obligations; consumers in the market place; owners, managers or workers in factories and hold assets such as housing, financial assets and human capital. ii) Capital more mobilethan labor iii)Effective freedom of labor is limited (lack of information, cost of moving, barriers to immigration). iv) Unemployment as a “disciplining device” (Kalecki) . v) Workers mobility is also critically related to their stock of knowledge, level of education and social contacts. Andrés Solimano January 2014 - RutgersUniversity

  45. Wealthy Elites, Crises and Economic Democracy. New Alternatives Beyond Neoliberal Capitalism. Areas of Application of Economic Democracy Four areas of potential application of the principles of economic democracy in society: a)Workplace democracy and firm-level participation. b)Democratizing ownership and enhanced financial participation. Less power to the economic elites. c) Labor and citizen voice in austerity programs. Lower power of (unelected) international financial institutions, IMF, ECB others. d) Public ownership and citizens distribution of the rents obtained from the exploitation of natural resources. Andrés Solimano January 2014 - RutgersUniversity

  46. Wealthy Elites, Crises and Economic Democracy. New Alternatives Beyond Neoliberal Capitalism. Concluding remarks i) 21st capitalism is prone to generate an excessive power of economic elites that concentrate income, wealth and distort democracy. ii) Fragmentation of the middle class iii) Marginalization of labor iv) High frequency of financial crises iv) Need for more economic democracy and real political reform. Andrés Solimano January 2014 - RutgersUniversity

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