Features

Tackling Plutocracy through major policy shifts

24 Sep 2013 - {{hitsCtrl.values.hits}}

By Chandra Jayaratne
“Technology is advancing in leaps and bounds—and so is ‘economic inequality’, says writer Chrystia Freeland, in an impassioned talk, she charts the rise of a new

class of plutocrats (those who are extremely powerful because they are extremely wealthy), and suggests that globalization and new technology are actually fueling, rather than closing, the global income gap. Freeland lays out three problems with plutocracy … and one glimmer of hope. In “Plutocrats,” Chrystia Freeland explores the growing gap between the working poor and the increasingly disconnected mega-rich”.

Author Chrystia Freeland looks under the hood of global capitalism to expose the technological, economic and structural inequalities pushing society in unforeseen directions. Along the way, she takes the temperature of a rising caste— the superrich—and shows how the creation of vast fortunes at the top hollow out the middle class in western industrialized countries. This rising income inequality, she argues, has a structural character, and is becoming a cultural and social issue, with consequences for social cohesion and social mobility.

This invitation goes out to the economic ‘think tanks” in Sri Lanka, the media, professional associations and civil Society ‘voices’. We invite them to research the following issues of significant importance and arrange a nationally value-adding and transparent intellectual debate, leading to the development of policy prescriptions and way forward strategies, which can assure sustainable and equitable growth, for the benefit of Sri Lankan society;

Poverty
Income inequality
Crony capitalism
Plutocracy
Corruption and policy capture corruption
Income and wealth distribution and redistribution
Debt burden

Chrystia Freeland, the Canadian writer and journalist served in various editorial positions with the Financial Times, The Globe and Mail and Thomson Reuters, where she was the managing director and editor for consumer news before she announced her resignation to run for public office. She is the author of an internationally acclaimed book, “Plutocrats: The Rise of the New Global Super-rich and the Fall of Everyone Else” Justin Trudeau, the liberal leader has tapped Chrystia Freeland to help craft economic policy for the liberal platform in 2015.

“TED Talk”
The recent “TED Talk” given by Chrystia Freeland is a must listen to fifteen minute tape for all decision makers, economists and civil society leaders. Following this review these leaders must reflect upon and the institutions identified earlier with infrastructure capability to publicly communicate must arrange to telecast, broadcast and print her “TED Talk” presentation.

Chrystia Freeland in the “TED Talk” makes the under noted profound revelations;

Most important economic fact of our time is, we are living in the midst of surging income inequality, especially between those at the very top and everyone else. This is a global phenomenon, spreading strikingly from US and UK, to communist countries -Russia and China, and from Canada to India and even in social democracies like Sweden, Finland and Germany.

In the 1970, one percent of the US population enjoyed 10 percent of the national income and today they share above 20 percent of the national income. Today, the very top 0.1 percent of the US population shares more than 8 percent of the national income, equivalent roughly to what the top one percent shared in 1970. In 2005, it was estimated that the wealth of Warren Buffett and Bill Gates was equivalent to the bottom forty percent of the wealth of the US citizens, numbering 120 million persons.
In 1992, the combined wealth of the wealthiest 400 US citizens reflected in the Forbes 400 amounted to $ 300 billion, and today it is $ 1.7 trillion. This phenomenon is however not common to the middle class, whose wealth has stagnated or declined over that period.

Plutocracy has developed without significant attention, like the “Boiled Frog” phenomenon, where the changes are slow and gradual and hence hard to notice though results are dramatic. What matters now is the size of the slices and their relative growth in relation to the growth in the size of the pie. In this environment of forging income inequality, income distribution and especially income re-distribution, becomes downright threatening to those in the top income groups.

Political changes experienced through lower taxes, de-regulation (especially in financial services), privatizations and lower regulatory requirements, and the weakening legal protection of trade unions have led to this income inequality.

These political changes promote crony capitalism, benefiting few well connected insiders. These changes do not benefit the majority, and getting rid of them is almost impossible as seen from failed attempts at re-regulating banks, eliminating corruption, particularly powerful oligarchs as in Russia, and raising the taxes of the middle class and selective relatively high income earners.

Economic drivers of income inequality, globalization and technology revolution, have supported the growth of some of the new rich and expansion of plutocracy, including those very smart and very lucky young entrepreneurs who get very rich very quickly, especially those leveraging innovative new technology. Sports and entertainment personalities are now capable of leveraging their ‘superstar’ status globally. Now there are ‘super star’ technology innovators, bankers, lawyers, architects, farmers and even cooks and dentists.

Crony Plutocracy and Aristocracy
Despite globalization lifting millions of people out of poverty to middle class, regrettably however, there is evidence that ‘Meritocratic Plutocracy” can easily and quickly transforms within the system to “Crony Plutocracy” and even to “Aristocracy”, where by the global economic and political power supported by corrupt crony capitalism networks tempt entrepreneurs to use, bend or capture and manipulate the rules of the economy to their personal advantage and soon they become adept at minimizing their global tax bill, further de-regulation, securing high return yielding privatizations and creating oligarchies.

Most scary economic static is that there is no automatic regulatory or economic systems to impose controls which ensures that this economic power and growth translates to economic equality and increased income distribution, where wages are increased, new jobs are created and income disparity gap closes in. Whilst countries are getting richer and companies are getting more efficient and prosper, the majority of citizens are left out of this chain of growth and prosperity.

The benefits of the industrial revolution was shared and benefited a majority only after much social and economic upheaval ( depressions, wars, communism, and socio political upheavals) and the creation social and political welfare schemes ( education and health benefits, pensions and creation of trade unions) . The there is a need for economic transformations to address current income inequality and this requires social and political change.

Lessons for Sri Lanka
Are there lessons from the analysis and way forward pronouncements of Chrystia Freeland for the leaders of the Sri Lankan Society to take note of? And, should they act early and decisively before disaster strikes? Should effective research and intellectual debate precede such forward looking positive steps? Should not therefore, the institutions identified earlier, now take the lead in this research and debate initiative and collectively reach agreement on the way forward? Should these institutions be the advocacy voices for change?
The areas for research and debate include the following;

* Is there evidence of surging income inequality demonstrated by “Plutocracy” taking root in Sri Lanka, when comparing the income inequality levels in 2013 with 2003?
* Is there evidence during the above period of a rising caste of superrich with vast fortunes, being newly created at the top, hollowing out the middle class?
* Is there a danger of this rising income inequality becoming a cultural and social issue, with consequences for social cohesion and social mobility.
* Is there evidence that during the period 2003 to 2013 “Meritocratic Plutocracy” has transformed in to “Crony Plutocracy” and even extended to “Aristocracy”?
* Is there evidence that corruption and crony capitalism networks have tempted the bending, capture and manipulation of the rules of the economy to the personal advantage of “Crony Plutocrats”?
* What were the political drivers that led to the development of “Plutocrats” during this period?
* What were the economic drivers that led to the development of “Plutocrats” during this period?
* How have the poverty profiles (Income and Multi dimensional poverty) of the bottom half of the households changed over the period 2003 to 2013?
* How have the debt burden levels of the bottom half of the households changed over the period 2003 to 2013?
* What socio-political-economic and regulatory transformations are now necessary to minimize income and wealth inequality and endow equitable growth and prosperity options for a majority of Sri Lankan Citizens?
* What specific social and political welfare schemes (new or strengthened) must be in place to support those in society requiring a safety net?
* What specific measures of income and wealth distribution and re-distribution can be implemented whilst achieving sustainable desired growth targets?

(The writer is a former Chairman of Ceylon Chamber of Commerce and a good governance activist)

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Tackling Plutocracy through major policy shifts

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