A Brief History of Very Rich People

Couple of things to red up before I call it a day.

In the comments section of a previous post, Fergus O’Rourke pulls me up on my use of the term ‘Very Rich People Benefit’ as another word for bank bailouts. So here it is. CMK has already answered this very well. But seeing as I had started to write a response, I might as well finish it. Fergus asks me to name names. When I don’t, and point him in the direction of a book, he says he doesn’t want to read it, because it wouldn’t provide an answer.

Oh well. Harvey’s ‘Brief History of Neoliberalism‘ tells you how the typical Neoliberal State -with which Ireland shares many important common features – has a manifest bias toward a drive to restore class power:

In the event of a conflict, the typical neoliberal state will tend to side with a good business climate as opposed to either the collective rights (and quality of life) of labour or the capacity of the environment to regenerate itself. The second arena of bias arises because, in the event of a conflict, neoliberal states typically favour the integrity of the financial system and the solvency of financial institutions over the well-being of the population or environmental concerns.

Though there may be a conflict with neoliberal orthodoxy, neoliberal states

typically facilitate the diffusion of influence of financial institutions through deregulation, but then they also all too often guarantee the integrity and solvency of financial institutions at no matter what cost. This commitment in part derives (legitimately in some versions of neo-liberal theory) from reliance upon monetarism as the basis of state policy- the integrity and soundness of money is a central pinion of that policy. But this paradoxically means that the neoliberal state cannot tolerate any massive financial defaults even when it is the financial institutions that have made the bad decisions.

In this description, we see two prongs of state policy currently governing the Irish population. One, the all-out commitment to keeping financial institutions afloat even as ordinary people sink. Two, the reliance on, or rather, in the Irish case, the subjection to, monetarism.

The Irish population has no control over the ECB, whose main task is the control of inflation in the Eurozone. It is this institution that primarily determines the amount and cost of money available for lending to Ireland.

Since the Irish State doesn’t print its own money, its potential options for spending to counter the effects of the burst housing bubble are severely constrained. The ECB could extend greater levels of support to Ireland, basically by printing more money, but it does not. Instead, Ireland must make promises that it will hit the Stability and Growth Pact target of 3pc of GDP by 2014.

The effects of this on the general population will be severe, with proposed cuts in public services and social welfare, accompanied by higher tax burdens, due to tighten the vice on the worst-off.

While the outlook for the public is extremely bleak, with large swathes likely to encounter increased instability and a shrinking social wage, it is not true that there will be no stability and growth in Ireland.

For instance, Corporation Tax, according to current plans, will remain stable. This means, in effect, an increased subsidy to corporations.

“So if Ireland decides it wants to keep a low corporation tax, it has to deal with the deficit in some other way and we will be saying: ‘Okay, that’s your choice. If you don’t deal with it that way, how are you going to do it?’”

There is a widespread belief that a Corporation Tax rate of 12.5% is the golden goose that must not be molested lest it drop dead. Raise Corporation Tax, the theory goes, and watch all those MNCs bolt for the exit door. This theory shows the degree of power enjoyed by corporations in Ireland.

When ordinary people have to pay more taxes in order to make sure that corporations are held only to their present obligations, this is a shift in power away from the population in the direction of private corporations.

This benefits some very rich people. Take, for instance, someone resembling the CEO of a multinational. Like Mark Hurd. Mark Hurd was appointed chief executive of Hewlett-Packard, a company that employs a lot of people in Ireland, in 2005. On appointment, he was given $20 million as a ‘Golden Hello’. He then proceeded to sack thousands of people. He was ‘beloved by investors for his relentless cost-cutting – and scorned by thousands of laid-off employees for the same’

Hurd received $37 million when he left HP, after the firm found he had falsified expense reports and other financial documents to conceal his relationship with a woman who had brought a sexual harrassment case against him.

Not all CEOs hang out in secret with actresses who starred in Body of Evidence 2, but many do get paid lots of money to drive down wages, sack lots of people and seek to relocate operations to cheaper locations in order to maximise shareholder value. The benefits to them of maintaining corporation tax at its existing level whilst the general population endures unemployment, wage cuts, benefit cuts, and crumbling public services are transparently obvious.

OK. That is one group of very rich people who benefit from the bank bailout. Who else? Fergus asks for a good reason why people like Micks O’Leary and Smurfit personally benefit from the rescue of the banks: the degree of social power they enjoy relative to the general population increases as ordinary people are hit with effective wage cuts. Threats of disinvestment enable them to exert more control over government for concessions.

In this light, we can see why Goldman Sachs Chairman Peter Sutherland might see fit to call for the sell-off of RTE, as he did last week. For all RTE’s faults, and some of its news and current affairs programmes are atrocious, its existence serves to maintain a certain standard of quality in news and current affairs reporting. Were it sold off to private corporations, the quality of information readily available to the general population would fall, since information would be presented and communicated primarily for the purposes of making a profit, rather than providing a public service. This would mean even less scrutiny for private corporations, leaving these with a free hand to fuel public disenchantment with the institutions of government, so that the public might see government, and not the concentration of private power, as the primary cause of the disintegration of prosperity.

So, in general, as a result of the bank bailout, capitalist producers are conferred with a greater coercive power over the workers they hire. They are in a better position to exploit workers more exhaustively, and deprive them of the necessary information to become conscious of their predicament.

Hope that answers the question.

=================================================================================

Moving on, I want to consider what it means to say things like ‘Very Rich People Benefit’, and what the likely consequences are of doing so. Saying something like this can seem controversial because we are not used to hearing it put in these terms. Public political debate tends to require that words be freighted with moderation and circumspection. In such circumstances, saying things like ‘Very Rich People Benefit’ as inflationary.

Presenting a debate in ’emotive’ terms is automatically frowned upon. There are unspoken rules which hold that the use of controversial language automatically disqualifies you from holding a legitimate point of view.

Furthermore, if you use ’emotive’ language, this may convey to others, even those who might be sympathetic to what you have to say, a sense of your lack of authority relative to those who deploy neutral language can come across. So saying things like ‘Very Rich People Benefit’ always carries the risk that people will just switch off because they think that what you are saying must be wrong because when people are right they speak differently to that. But seemingly neutral and objective language covers up all sorts of ugly realities, so there is a case to be made for being inflationary on occasion. Let me give an example, which relates to the matter of the bank bailouts.

An important component of the bank bailouts in Ireland is NAMA. for a process that, in the case of Ireland, amounts to what forty-six academic economists last year called -conservatively, in my view- ‘a massive transfer of wealth from taxpayers to private risk-takers‘.

I say ‘conservatively’ because the use of the term ‘taxpayer’ says nothing about who will be worst hit as a consequence of that transfer of wealth. Michael O’Leary is a taxpayer, as far as I know, but he would not be hit by this transfer of wealth in the same way as, for instance, a construction worker who lost his job when the bubble burst.

Also ‘private risk-taker’ doesn’t tell us a great deal about the type of person who might fall under that category. There are very few people who don’t take private risks. If a person on average industrial wage, confronted with news of ever-upward spiralling house prices in the press, decides to take out a mortgage in the expectation that it will only be even more expensive to take out a mortgage in future, that person is a private risk-taker.

There are more extreme examples. If the same person, a few years later, having lost his job, takes out a payday loan in order to pay the electricity and gas bills, he acts once again as a private risk-taker.

In both examples supplied, we can debate how willingly these risks are taken. But there are other situations in which risk is simply thrust upon people: being compelled to do more work for less pay on threat of losing your job, having to shoulder a greater burden because other staff have been fired, or simply getting fired yourself, increases your risk of ill health and an early death.

It seems safe to assume that the type of private risk-takers mentioned above are not the kind of people the cited economists mean when they talk about the beneficiaries of the massive transfer of wealth.

I note these problems with the language used by the economists in their letter because it’s a good example of how, when it comes to economics, what appears on the surface as the language of empirical inquiry, turns out, on closer inspection, to be the product of moral judgement.

While there is doubtless a degree of ideological diversity among the signatories, and not all might have used the opposition between ‘taxpayer’ and ‘private risk-taker’ if left to their own devices, the final outcome is the product some sort of consensus-seeking activity, based on an expectation of how their words are going to be received, and perhaps how they are going to be perceived as a result. This is not to say that these people are wrong to sign a letter worded in such a way: signing it may be a good thing to do when considered pragmatically.

It just shows that when it comes to speaking, the realm of public debate can impose a hefty admission fee.