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.

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7 Responses to “A Brief History of Very Rich People”


  1. 1 FERGUS O'ROURKE October 16, 2010 at 8:08 am

    Well !

    I can’t remember if I ever got honoured in this way before. It certainly has not happened often: an entire blog-post directed at me ! I will have to tell my mother and my extended family before I consider a response 🙂

    Thank you, Hugh !

    However, I must correct one thing immediately.

    It is not that I do not want to read the book – though nothing about it so far quoted encourages me to believe that I would learn anything from it – it is that answering my question with the advice/request to read a book (*any* book) is not a satisfactory answer to a straightforward question.

    In general, the longer an answer, the less likely it is that the original challenged statement is correct.

    I can also immediately reject the idea that CMK has answered anything at all, notwithstanding his impressive command of the vocabulary of vitriolic rhetoric.

    More later (not soon, sadly).

  2. 2 Hugh Green October 16, 2010 at 11:05 pm

    Well, I don’t like leaving questions unanswered, and I thought it was a reasonable question. As for the blog post directed at you, while I’m sure it’s up there with a private audience with the Pope, I decided a while back that I’d try and make the blog a bit more dialogical and less declarative, comments and time permitting. So if someone asks a question or has some point to make, I’ll pick up on that rather than spend time off looking for something else to write about. Regarding the length of answers, a general observation says little about answers to specific questions. But in this case, I just took the opportunity to expand on some stuff I had been thinking about. I suppose I could have just said that bank bailouts are a transfer of wealth from the general population to the most economically powerful groups in society because the financial system such as it is is an instrument of the rich.

  3. 3 FERGUS O'ROURKE October 18, 2010 at 3:10 pm

    Life is too short to read the amount required to debate with you, and I am not going to proceed further.

    My objection to characterising the bank bail-out as Very Rich People Benefit is the implication that *only* the very rich benefit.

    As I understand it, that implication is denied by you. That’s enough.

  4. 5 Eoin October 18, 2010 at 4:22 pm

    “Life is too short to read the amount required to debate with you, and I am not going to proceed further.”

    Translate: I’ve lost an argument that I sought and my ignorance of something I thought I had an opinion on, is blissful.

  5. 6 Donagh October 18, 2010 at 9:35 pm

    Thanks for going to such lengths Hugh, as always. Very informative and lucid.

    “Life is too short to read the amount required to debate with you, and I am not going to proceed further.”

    It’s very length has outed Fergus as a proper ignoramus.

    My objection to characterising the bank bail-out as Very Rich People Benefit is the implication that *only* the very rich benefit.

    But I suspect that it wasn’t it’s length that was the problem. Going by the above comment it seems that Fergus simply didn’t understand your point. Because it seems that Fergus thinks there are only two types of banking systems. A failed one and a working one and that a working one can only come about in the present circumstances through a bailout. And if he thinks that he knows a lot less than I thought.

  6. 7 FERGUS O'ROURKE October 22, 2010 at 6:09 pm

    @donagh

    Without what is commonly called “a bailout”, those who have money in their bank accounts will not get all of it back.

    I’d be interested to learn your explanation of how a working banking system can proceed against such a background.


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