Economy

Are We a Kleptocracy and What Does That Mean Anyway?

Two articles consider what the real economic patterns we face are, and whether the big process we're undergoing is basically just a massive transfer of wealth.

Editor’s note: In some ways, the economic landscape we face  defies conventional explanation. It’s true that consumers aren’t spending a lot -- measures of consumer confidence are approaching their all-time low -- and businesses don’t have much taste for expansion. The foreclosure crisis -- all but forgotten in elite circles -- rages on unabated. But as Washington Post business reporter Steve Pearlstein noted recently, while “the jobs haven't returned, corporate profits surely have and, at $1.2 trillion annually, are now higher than they were at the height of the bubble. It turns out that companies have found ways to produce as much as they ever did, but with fewer workers.”

In an ordinary business cycle, once profits return, firms start investing in research and development and looking for new market opportunities. But as Steve Pearlstein reported, “after falling sharply for two years, such spending has only just begun to rebound, and much of it has focused on faster-growing markets outside the United States. Some of the cash has been used to pay down debt or buy back stock. But so far the one thing businesses haven't done is hire back full-time employees, preferring instead to contract for temporary workers or increase the hours of the workers they already have.”

Economist David Altig with the Federal reserve Bank of Atlanta noted that over the past few months, “the unemployment rate has far exceeded the level that would be predicted by the average correlation between unemployment and job vacancies over the past decade.” Altig looked at the number of job openings in April and May and concluded, “the unemployed would be expected to number about 10.4 million—not the nearly 15 million we actually saw.”

The backdrop against which the crisis is playing out is a long decline in the economic security of all but a rarified elite. In 2006, the New York Times reported, “wages and salaries now make up the lowest share of the nation’s gross domestic product since the government began recording the data in 1947, while corporate profits have climbed to their highest share since the 1960s.”

Between 1973 and 2006, the U.S. economy tripled in size. In 1973, the incomes of the bottom 90 percent averaged $32,135 dollars per year (adjusted to 2007 dollars). But despite that trebling of the economy, by 2006 the bottom 90 percent had taken a cut, pulling down an average income of $31,528. Despite thirty-three years of healthy growth in the economy, the vast majority of Americans earned a bit less than they had in 1973. This was an era in which we saw also saw a steep rise in the number of Americans who lack health-care, and the virtual end of fixed-benefit pensions

An increasingly polarized public is deeply divided over how we got here and where we should go from here. But most -- from the irate Tea-Partier to the disenchanted Obama fan -- agrees that it is some toxic combination of incompetence, corruption and misguided adherence to ideology on the part of our ruling class that is ultimately to blame. But two critical analyses, below, consider these dynamics from different angles. What if hollowing out the standards of citizens in the developed world is, if not part of a plan, at least a trend that benefits that ruling class?

Two articles published below consider this question in depth: What if we are seeing, in the words of Drake University Scholar Ismael Hossein-Zadeh in the first article, a “race to the bottom,” in which “the kleptocratic rulers in the US, EU, and other debt-burdened countries know exactly what they are doing” ? In the second piece, William Astore, a retired Air Force Colonel, gives a solid definition of what a kleptocracy is, and also surveys the same ravaged landscape. He wonders whether both the right and the left are distracted by images of creeping socialism and fascism, respectively, when the real ideological danger facing us today is the drift from nominal liberal democracy to the sort of kleptocracy that most identify with banana republics in the developing world.

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Race to the Bottom
By Ismael Hossein-Zadeh
CounterPunch

While the harrowing economic hardship that started in late 2007 and early 2008 rages on, and countless people in the United States, Europe and other parts of the world are losing their jobs, their homes and their sources of livelihood, policy-makers in the advanced capitalist countries of the West are standing idly by without lifting a finger to alleviate the onerous burden of the crushing recession. On the contrary, they have embarked on an orchestrated series of cruel belt-tightening austerity policies that have, indeed, contributed to the worsening of the recession.

The question is why? How can the policy makers’ callous indifference to the plight of the people, or their pathetic inability to carry out effective policies of economic recovery, be explained?

The official explanation for not investing in the revival of the economy is that, due to the already huge debt and deficit, additional public spending would be “fiscal irresponsibility.” In light of the fact that governments in the US, EU and other debt-ridden countries have showered the powerful international banksters and other financial moguls with trillions of dollars, this explanation falls miserably short of credibility; indeed, it can more appropriately be called an excuse than an explanation.

Explanations offered by most of the left, liberal, or Keynesian critics of the Neoliberal austerity policies are not satisfactory either. As I have argued in an earlier essay, these critics tend to characterize such policies simply as “shortsighted,” “reckless,” “misguided,” “unwise,” and the like—as if the governments that make such policies do not know what they are doing; or as if policy making is a simple matter of technical expertise or personal proclivities of policy makers, that is, a matter of choice. In other words, liberal/Keynesian critics tend to explain the class-biased austerity policies of the vicious global Neoliberalism in (the benign) terms of policy makers’ “inability to distinguish ‘good’ from ‘bad’ policies: inability to realize that we can grow our way out of this crisis through deficit spending, just as we did in response to the Great Depression of the 1930s.” (See, for example, any of the Nobel laureate Paul Krugman’s economic columns in the New York Times.)

An Alternative Explanation: The Race to the Bottom

The fact remains, however, that the kleptocratic rulers in the US, EU, and other debt-burdened countries know exactly what they are doing: to let the recession drag on, to take advantage of the crushing recession in order to extract “enough” concessions from the working people until welfare states are dismantled and labor costs in the more developed capitalist countries are made competitive with those of the less-developed countries. This explains why despite new signs of further global economic contraction, the reigning governments in these countries (whether they are nominally headed by Socialist, Social-Democratic, Labor, Democratic, Conservative or other parties) are maintaining their coordinated abstention from expansive or stimulating fiscal policies while continuing their brutal spending cuts on health, education, wages, pensions, and the like.

This is not to say that these governments do not want to have economic growth or job-creation—they do—but that they want them on their own (Neoliberal) terms, that is, through Neoliberal policies that would create jobs that would pay wages on a par with those of workers in less-developed countries. In other words, they prefer the kind of lopsided economic growth whose fruits would be reaped mostly by the wealthy—the so-called trickle-down or supply-side economic growth. As writer/reporter Patrick O’Connor points out, “In the US, Europe and other advanced capitalist economies, the aim is permanently reducing the living standards of working people.

It is not surprising then that, instead of calling for bold expansionary policies of growth promotion and job creation, US and European government heads, their economic policy makers and the collusive corporate media are frequently calling for “tolerance” and “endurance” in the face of economic hardship, exhorting the unemployed and economically distressed that they “need to be patient” because, as President Obama has occasionally put it, “the road to economic recovery does not follow a straight line,” and that “it's going to take some time to fix it." (The President made this statement on ABC News' "This Week with George Stephanopoulos." Mr. Stephanopoulos obligingly spared the President the obvious question: “why is it, Mr. President, that fixing the enormously expensive problem of Wall Street gamblers did not take much time, but reviving the economy and creating jobs, which would take only a fraction of the cost of the Wall Street bailout, would take a long time?”)

Through its editorials and columnists such as Thomas Friedman, The New York Times has been playing a leading role in preparing the American public to accept the new, protracted phase of economic challenges, and to reconcile with lower standards of living. Here is an example of how Friedman explains the need for belt-tightening:

Welcome to the lean years. Yes, sir, we’ve just had our 70 fat years in America, thanks to the Greatest Generation and the bounty of freedom and prosperity they built for us. And in these past 70 years, leadership — whether of the country, a university, a company, a state, a charity, or a township — has largely been about giving things away, building things from scratch, lowering taxes or making grants. . . . Indeed, to lead now is to trim, to fire or to downsize services, programs or personnel. We’ve gone from the age of government handouts to the age of citizen givebacks.

In a similar vein, The Times further opined:

American workers are overpaid, relative to equally productive employees elsewhere doing the same work. If the global economy is to get into balance, that gap must close. . . . The global wage gap has been narrowing, but recent labor market statistics in the United States suggest the adjustment has not gone far enough.

Without using blunt words such as “the need to cut wages,” President Obama also frequently preaches to the American people to be prepared for the looming lean years: “We must lay a new foundation for growth and prosperity – a foundation that will move us from an era of borrow and spend to one where we save and invest; where we consume less at home and send more exports abroad.” Obviously, by “we” Mr. Obama means the working class and the general public, not the ruling Kleptocracy; and by “consume less” he means earn less, get used to a lower standard of living—because wages, benefits, pensions and all kinds of social safety net programs are going to be cut or eliminated.

In their efforts to push wages in the more developed countries down toward slave wages, the powerful financial interests (and the ruling kleptocracy in general) are pursuing multiple objectives. An obvious objective is, of course, to pay for the gambling losses of the Wall Street swindlers. Another objective is to make US producers more competitive in global markets, a strategy of export promotion at the expense of the working class that President Obama calls National Export Initiative: “Boosting America’s exports strengthens our economic growth and supports millions of good, high-paying American jobs. That’s why I set a goal during my State of the Union address to double our exports over the next five years.” Stripped from its Orwellian veneer, the President’s “national export initiative” simply means bringing US wages and benefits down on a par with those of China, Vietnam, India, and other less-developed countries so that American manufacturers can compete more effectively in international markets.

These are ghastly Neoliberal policies of super exploitation that are sometimes called “the race to the bottom,” or competing backward to the Dickensian days of working class misery. Naomi Klein has aptly called this sinister strategy “the shock doctrine,” a strategy that takes advantage of the overwhelming crisis times to implement Neoliberal austerity programs and redistribute national resources from the bottom up.

Of course, the Neoliberal strategy of dismantling the welfare state and driving the labor pay down to slave wages is not limited to the United States. Downward competition is pursued in other advanced capitalist countries as well. Indeed, the competitive capitalist pressure of profitability and survival has driven almost all countries of the world to participate in this retrogressive (but capitalistically rational!) race to the bottom.

Checking the Logic of Downward Competition: International Trade Unionis

Regrettably, most trade union leaders in the US and Europe are actively collaborating with the Neoliberal austerity policies of their capitalist rulers against their own class interests. This disgraceful policy of labor bureaucracy follows from a self-defeating philosophy that is called “business unionism,” or more accurately, “national business unionism.” National business unionism accepts capital’s needs for profitability as a precondition for labor’s need for survival and, therefore, advocates collaboration with the capitalist class on a national basis and shoulders the burden of onerous economic sacrifices to maintain corporate profitability.

Growth and/or circulation of nationalist sentiments in the labor ranks (and the resulting international labor rivalry) is of, course, a boon for the ruling kleptocracy that loves to pit workers against their class brothers and sisters internationally. It is not surprising that as the grueling economic conditions continue unabated and the high rates of unemployment remain unrelenting, many politicians and policy makers are increasingly trying to whip up xenophobia and nationalist sentiments among workers. This includes not only the unabashedly right-wing or conservative politicians, but also the purportedly liberal Democratic President of the United State, Barack Obama, who has recently been promoting his new, nationalist approach—“made in America”—to comforting the jobless Americans. “So the message I want to deliver to our competitors . . . is that we are going to rebuild this economy stronger than before. And at the heart of it are going to be three powerful words: Made in America. (Applause.) Made in America," stated the President in a recent address to the AFL-CIO Executive Council.

Note that, once again, Mr. Obama is careful not to use the bluntly nationalist/protectionist “buy American” slogan. Instead, he uses a more subtle, Orwellian version of it: “made in America.” While prima facie reasonable, and may be pleasing to populist sentiments, the “buy American” or “made in America” policy suffers from a number of weaknesses. While the policy may save some jobs in import-competing industries, it would hurt employment in export industries, as it is bound to create protectionist retaliation among international trading partners. Furthermore, since the policy accepts the primacy of the needs of (national) capital, it heightens international labor rivalry, thereby making labor hostage to the profitability imperatives of national capital.

Of course, destructive effects of international capital’s blackmailing policy (of plant relocation or capital flight) reach beyond the curtailment or elimination of jobs and wages—vital as these are to the working class. This pernicious policy has become a weapon in the hands of the footloose and fancy-free multinational capital when it opposes any humane social program, or essential social needs: science, technology, education, health care, use of natural and/or environmental resources, and so on. Attempts to place environmental standards on firms are met with the threat of moving production elsewhere. Higher taxes to improve the schools? Again, the same threat. Better health and safety standards? The same response, or blackmailing strategy.

What can the working people and other grassroots do to protect their jobs, their sources of livelihood, their communities and their environment? Is there a defense against these threats? Are there alternatives to the global corporate agenda? What can communities do to undermine the strategies of multinational corporations that block progressive social and economic reforms?

A logical, first step deterrent to multinational corporations' blackmailing strategies, and their actual export of jobs, would be to remove the lures that induce plant relocation, or capital/manufacturing flight. Making labor costs of production comparable on an international level would be crucial for this purpose. This would entail taking the necessary steps toward the establishment of wage parity within the same company and the same trade, subject to (a) the cost of living, and (b) productivity in each country. It would also entail abandoning the current business unionist policies of the labor bureaucracy in major industrialized countries and, instead, organizing international trade unions.

A strategy of this sort would replace the current downward competition between workers in various countries with coordinated bargaining and joint policies for mutual interests and problem-solving—just as the World Bank, the International Monetary Fund, World Trade Organization and other capitalist international organizations are constantly seeking solutions for the problems facing international capital.

Some may view this suggestion as unrealistic. But the rapid internationalization of production, technology, and information is increasingly creating favorable conditions for such an alternative. The evolving internationalization of capital and integration of world markets is pulling the workers of the world together to an unprecedented extent. "More and more workers around the globe not only work for the same 1,000 or so dominant multinational corporations (MNCs) or their contractors," as Kim Moody points out, "but are linked in common production or service delivery system."

We're Living in a Kleptocracy: Fears of Socialism and Fascism Are a Distraction from the Naked Theft of Trillions
By William Astore
Tomdispatch.com

Kleptocracy -- now, there’s a word I was taught to associate with corrupt and exploitative governments that steal ruthlessly and relentlessly from the people.  It’s a word, in fact, that’s usually applied to flawed or failed governments in Africa, Latin America, or the nether regions of Asia.  Such governments are typically led by autocratic strong men who shower themselves and their cronies with all the fruits of extracted wealth, whether stolen from the people or squeezed from their country’s natural resources.  It’s not a word you’re likely to see associated with a mature republic like the United States led by disinterested public servants and regulated by more-or-less transparent principles and processes.

In fact, when Americans today wish to critique or condemn their government, the typical epithets used are “socialism” or “fascism.”  When my conservative friends are upset, they send me emails with links to material about “ObamaCare” and the like.  These generally warn of a future socialist takeover of the private realm by an intrusive, power-hungry government.  When my progressive friends are upset, they send me emails with links pointing to an incipient fascist takeover of our public and private realms, led by that same intrusive, power-hungry government (and, I admit it, I’m hardly innocent when it comes to such “what if” scenarios).

What if, however, instead of looking at where our government might be headed, we took a closer look at where we are -- at the power-brokers who run or influence our government, at those who are profiting and prospering from it?  These are, after all, the “winners” in our American world in terms of the power they wield and the wealth they acquire.  And shouldn’t we be looking as well at those Americans who are losing -- their jobs, their money, their homes, their healthcare, their access to a better way of life -- and asking why?

If we were to take an honest look at America’s blasted landscape of “losers” and the far shinier, spiffier world of “winners,” we’d have to admit that it wasn’t signs of onrushing socialism or fascism that stood out, but of staggeringly self-aggrandizing greed and theft right in the here and now.  We’d notice our public coffers being emptied to benefit major corporations and financial institutions working in close alliance with, and passing on remarkable sums of money to, the representatives of “the people.”  We’d see, in a word, kleptocracy on a scale to dazzle.  We would suddenly see an almost magical disappearing act being performed, largely without comment, right before our eyes.

Of Red Herrings and Missing Pallets of Money

Think of socialism and fascism as the red herrings of this moment or, if you’re an old time movie fan, as Hitchcockian MacGuffins -- in other words, riveting distractions.  Conservatives and tea partiers fear invasive government regulation and excessive taxation, while railing against government takeovers -- even as corporate lobbyists write our public healthcare bills to favor private interests.  Similarly, progressives rail against an emergent proto-fascist corps of private guns-for-hire, warrantless wiretapping, and the potential government-approved assassination of U.S. citizens, all sanctioned by a perpetual, and apparently open-ended, state of war.

Yet, if this is socialism, why are private health insurers the government’s go-to guys for healthcare coverage?  If this is fascism, why haven’t the secret police rounded up tea partiers and progressive critics as well and sent them to the lager or the gulag?

Consider this: America is not now, nor has it often been, a hotbed of political radicalism.  We have no substantial socialist or workers’ party.  (Unless you’re deluded, please don’t count the corporate-friendly “Democrat” party here.)  We have no substantial fascist party.  (Unless you’re deluded, please don’t count the cartoonish “tea partiers” here; these predominantly white, graying, and fairly affluent Americans seem most worried that the jackbooted thugs will be coming for them.)

What drives America today is, in fact, business -- just as was true in the days of Calvin Coolidge.  But it’s not the fair-minded “free enterprise” system touted in those freshly revised Texas guidelines for American history textbooks; rather, it’s a rigged system of crony capitalism that increasingly ends in what, if we were looking at some other country, we would recognize as an unabashed kleptocracy.

Recall, if you care to, those pallets stacked with hundreds of millions of dollars that the Bush administration sent to Iraq and which, Houdini-like, simply disappeared.  Think of the ever-rising cost of our wars in Iraq and Afghanistan, now in excess of a trillion dollars, and just whose pockets are full, thanks to them.

If you want to know the true state of our government and where it’s heading, follow the money (if you can) and remain vigilant: our kleptocratic Houdinis are hard at work, seeking to make yet more money vanish from your pockets -- and reappear in theirs.

From Each According to His Gullibility -- To Each According to His Greed

Never has the old adage my father used to repeat to me -- “the rich get richer and the poor poorer” -- seemed fresher or truer.  If you want confirmation of just where we are today, for instance, consider this passage from a recent piece by Tony Judt:

In 2005, 21.2 percent of U.S. national income accrued to just 1 percent of earners.  Contrast 1968, when the CEO of General Motors took home, in pay and benefits, about sixty-six times the amount paid to a typical GM worker.  Today the CEO of Wal-Mart earns nine hundred times the wages of his average employee.  Indeed, the wealth of the Wal-Mart founder’s family in 2005 was estimated at about the same ($90 billion) as that of the bottom 40 percent of the U.S. population: 120 million people.

Wealth concentration is only one aspect of our increasingly kleptocratic system.  War profiteering by corporations (however well disguised as heartfelt support for our heroic warfighters) is another.  Meanwhile, retired senior military officers typically line up to cash in on the kleptocratic equivalent of welfare, peddling their “expertise” in return for impressive corporate and Pentagon payouts that supplement their six-figure pensions.  Even that putative champion of the Carhartt-wearing common folk, Sarah Palin, pocketed a cool $12 million last year without putting the slightest dent in her populist bona fides.

Based on such stories, now legion, perhaps we should rewrite George Orwell’s famous tagline from Animal Farm as: All animals are equal, but a few are so much more equal than others.

And who are those “more equal” citizens?  Certainly, major corporations, which now enjoy a kind of political citizenship and the largesse of a federal government eager to rescue them from their financial mistakes, especially when they’re judged “too big to fail.”  In raiding the U.S. Treasury, big banks and investment firms, shamelessly ready to jack up executive pay and bonuses even after accepting billions in taxpayer-funded bailouts, arguably outgun militarized multinationals in the conquest of the public realm and the extraction of our wealth for their benefit.

Such kleptocratic outfits are, of course, abetted by thousands of lobbyists and by politicians who thrive off corporate campaign contributions.  Indeed, many of our more prominent public servants have proved expert at spinning through the revolving door into the private sector.  Even ex-politicians who prefer to be seen as sympathetic to the little guy like former House Majority Leader Dick Gephardt eagerly cash in.

I’m Shocked, Shocked, to Find Profiteering Going on Here

An old Roman maxim enjoins us to “let justice be done, though the heavens fall.”  Within our kleptocracy, the prevailing attitude is an insouciant “We’ll get ours, though the heavens fall.”  This mindset marks the decline of our polity.  A spirit of shared sacrifice, dismissed as hopelessly naïve, has been replaced by a form of tribalized privatization in which insiders find ways to profit no matter what.

Is it any surprise then that, in seeking to export our form of government to Iraq and Afghanistan, we’ve produced not two model democracies, but two emerging kleptocracies, fueled respectively by oil and opium?

When we confront corruption in Iraq or Afghanistan, are we not like the police chief in the classic movie Casablanca who is shocked, shocked to find gambling going on at Rick’s Café, even as he accepts his winnings?

Why then do we bother to feign shock when Iraqi and Afghan elites, a tiny minority, seek to enrich themselves at the expense of the majority?

Shouldn’t we be flattered?  Imitation, after all, is the sincerest form of flattery.  Isn’t it?

Ismael Hossein-zadeh, author of the recently published The Political Economy of US Militarism (Palgrave-Macmillan 2007), teaches economics at Drake University, Des Moines, Iowa. William J. Astore, a retired lieutenant colonel (USAF), now teaches at the Pennsylvania College of Technology. His books and articles focus primarily on military history and include Hindenburg: Icon of German Militarism (Potomac Press, 2005). He may be reached at wastore@pct.edu.