We Must Stop Protecting the Rich from Market Forces
Gore Vidal, the recently demised American writer, once famously quipped that the US economic system is “free enterprise for the poor and socialism for the rich”.
Since the outbreak of the global financial crisis in 2008, not only has the US lived up to Vidal’s caricature but the whole of the rich capitalist world has become more “American”. The poor are increasingly exposed to market forces, with tougher conditions on the diminishing state protection they get, while the rich have unprecedented levels of protection from the state, with virtually no strings attached.
The poor are told that their states are bankrupt because their previous governments splashed out on welfare payments for them.
They – especially if they happen to be from the “lazy” eurozone periphery countries – are lectured that they have to pay for the “good times” they had with “other people’s money” by working harder at lower wages and by accepting lower levels of welfare provision, with more stringent conditions.
Of course, this narrative is completely misleading. The current budget deficits are mainly the outcomes of the fall in tax revenues caused by the financial crisis, rather than excessive social spending.
In fact, in the runup to the crisis, countries like Spain and Ireland had run budget surpluses (for a decade, in the case of Ireland), while the deficit levels in other countries, except in Greece, were at manageable levels.
The “laziness” argument also does not wash, as most poor people work much harder than the rich in any given country, while the Greeks, the Spaniards and the Portuguese work much longer (by at least a few hundred hours per year) than the Germans or the Dutch. In contrast, the rich are enjoying unprecedented levels of protection from market forces.
Many financial and industrial companies have been bailed out with the public’s money, but very few of those who had run those companies have been punished for their failures.
Yes, the top managers of those companies have lost their jobs – but with a fat pension and mostly with a handsome severance payment. None of them have been punished for gross negligence or incompetence, even when they had flatly denied there was anything wrong with their business.
There were, to be sure, occasions when the governments punished companies for obvious wrongdoings. However, those punishments were too meek to have any corrective effect on their subsequent behaviour, in contrast to the harsh punishments meted out to benefit cheats (they used to call this “class justice” in the 19th century).
For example, in 2010, the US government fined Goldman Sachs $550m for the misselling of financial derivatives, but that was equivalent only to a couple of weeks’ profit for the company in that year.
Not only were they not punished for their failures, the surviving financiers have been drawing large salaries and bonuses despite the fact that they are living off state protection: – guarantees for bailouts, in the case of deposit banks and other financial institutions allied with them; and monetary policy of historical laxity, which has allowed them to operate with a fat profit margin even within a generally depressed economy. And some of them have done this even when their companies were doing very poorly, defying the basic market principle of linking compensation to performance.
