New Internationalist

Him That Hath

Issue 137

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THE RICH [image, unknown] How they have been affected by the world recession

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Him that hath
Only by giving the wealthy and powerful the freedom
to become more so, apologists claim, will the rest of us
prosper. Well, the rich have got richer over this last decade,
as John Cavanagh details, but with devastating consequences.

IN the United States, between 1978 and 1984 the share of taxes paid by families on or below the official poverty level rose from four to ten per cent. At the other end of the scale, the percentage share of taxes paid by the wealthy and top corporations was substantially reduced.

In Nigeria, where less than half the adult population can read and the country is classified as having ‘very high’ infant mortality, top people in the Shageri government were estimated to have smuggled $5-7 billion out of the country between 1979 and 1983.

In over 30 countries last year, under the crushing weight of $700 billion in external debt, ‘stabilization’ agreements were reached with the International Monetary Fund. The conditions for the loans? Reduced government spending, subsidies and wages, all directly hitting the pocketbooks of the poor.

Is this concentration of wealth in the hands of the few, accelerating in most of the capitalist world, helping productive investment and promoting development? The ideologues of Reaganomics and Thatcherism - most of them quite wealthy - say yes. This is the only way to pull the world economy out of its tail spin, they claim. But the experience of the past five years, characterized by national economic crises and international recession, suggests otherwise.

Conservative governments in the United States, United Kingdom and West Germany pursuing deliberately regressive taxation policies have driven the wedge further between rich and poor. In the US those earning above $250,000 paid 9.9 per cent less of their income for social security and income taxes in 1984 than in 1980; those earning less than $10,000 paid 2.3 per cent more.

In 1983, a year when the US economy actually shrank, the combined net worth of the richest 400 Americans shot up from 592 billion to $118 billion, an increase of 28 per cent. No fewer than 116 enjoyed at least a 50 per cent increase in their fortunes. Ten US corporate executives brought home more than $2.5 million each in salary and bonuses in 1982.

Concentration of wealth among the largest corporations is also occurring at a rapid pace. Sales of the world’s top 200 industrial corporations jumped from $475 billion in 1970 to$2,155 billion in 1980, arise from 19to29 per cent of the capitalist world’s combined gross domestic products.

Such astronomical sums mask a disturbing shift within many of the developed countries which has been described as ‘the declining middle’. Manufacturing jobs are disappearing, partly replaced by service jobs in management and computing. New job categories tend to fall at both extremes of the income scale: highly paid technicians, programmers and engineers or sales clerks and minimally paid secretaries performing data entries.

Meanwhile world trade has stagnated. This has been devastating for hundreds of millions in developing countries whose fortunes have been increasingly tied to the global market. With a decline in demand for raw materials, prices have plunged since 1980. Those hit hardest have been peasant farmers who had previously been encouraged by both their governments and international aid institutions like the Food and Agriculture Organization to grow export crops. Nor have exports of clothing, electronics and other light manufactures encouraged by the World Bank and IMF fared much better - with lay-outs hitting workers in many newly established Free Trade Zones.

Debt crises are driving dozens of developing countries to the IME, resulting in the normal recipe for recovery: devaluations, wage freezes and the evaporation of food subsidies. Few would dispute that the poor have paid the heaviest price for the downturn in the world’s economy.

In the midst of rising inequality has been one equalizing tendency. Clothing sweatshops worked by immigrants with no papers have proliferated in the shadows of corporate skyscrapers in Los Angeles and Manila alike. When corporate capital aided by satellite communications and cheap transport can move around the world with ease, national boundaries become less important.

Large shifts in income distribution do not, by themselves, reduce demand. Just because wealth is transferred from the poorer to the richer doesn’t mean that money disappears. It simply shifts the composition of consumption as the poor buy fewer necessities and the rich stock up on luxuries. Concentration of corporate capital however, exercises another effect. During a period of crisis, large corporations have shown an annoying tendency to skirt productive investment that creates jobs, using their money instead to eat each other up. In both 1981 and 1982, the price of mergers among the US giants exceeded $80 billion.

During the 1970s, two out of every three ‘new’ manufacturing facilities brought on line by the 500 largest US corporations were actually acquired from other firms, Most of the takeovers were conglomerate, plunging the acquirer into industries it knew little or nothing about. The billions that were spent created no new productive capacity or productive employment. No economies of scale were won. Corporate bureaucracies are merely bloated: new managers recruited to oversee the expanding global empires. The share of ‘overhead’ personnel in US manufacturing jobs has risen from 18 to 30 per cent over the last three decades.

Mergers also fuel high interest rates, which discourage new investment. Says merger veteran Edgar Bronfman, chairman of the Seagram Company (the whiskey distillers): ‘In the takeover battles that we have all seen recently - …billions of dollars have been borrowed on a short-term basis ... When too many would-be borrowers are seeking credit, the cost of money goes up.

In developing countries the rich tend to invest where the returns are greatest, and this is increasingly in overseas stock and commodities markets, in conspicuous consumption, in real estate and in secret bank accounts.

The economic crisis that is wracking countries from Tanzania to Peru just quickens the vicious spiral. It accelerates the smuggling of wealth out of the country. So even less internal capital is invested in new jobs, In a macabre tale now unravelling in Mexico, the police chief of Mexico City has been accused of accumulating $600 million through extortion, drug running, contraband, robbery and fraud, much of which is now abroad. His weekly salary was very modest, The transfer of resources from North to South has been reversed, to the advantage of those discreet Swiss banks and their anonymous account holders. (See box ‘Sticky Fingers’)

Nine years ago the New Internationalist in October 1975 cogently put forward the arguments for a New International Economic Order based on large transfusions of aid from North to South and the creation of several United Nations mechanisms to redistribute wealth internationally, A convincing case was built.

Since then foreign aid as a percentage of Gross Domestic Product of most developed countries has been cut. Promising United Nations agencies have been bureaucratized, infiltrated by multinational corporations, and their work programmes reshaped according to the wishes of their major contributors from the North. Minor rebellions by critics of the old order within UNCTAD, UNESCO and World Health Organization have largely been put down via withdrawal of funds, suppression of controversial studies and closer surveillance by the US.

While the need for a New Economic Order is more pressing than ever, it is now clear that initiatives must come less from inter-governmental organisations and more from shifts within nations. Continued global economic crisis is likely to fuel far-reaching changes. The brief US recovery offers no panacea. Based on the stimulative powers of massive budget deficits, it will likely collapse in 1985 after the Presidential elections and as economic pressure to reduce government spending continues to grow from Wall Street.

Social unrest provoked by IMF-induced hardship is challenging the old order from Brazil to Chile to the Philippines. Political movements are emerging which are refusing to accept the wisdom of export-oriented development and prioritize instead the needs of the majority. Such a movement has succeeded in winning power in Nicaragua. But under pressure from the US mining of her harbours and supplies to the rebels, things look fragile. If anything can be learned from Nicaragua’s experience, the road will be long and tortuous, met at each step by external attempts to sabotage social progress. But there’s the alternative. The lessons of the last decade are that the conventional remedies of the powerful offer no through road.

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*John Cavanagh, a former official of the United Nations Conference on Trade and Development and the Wor1d Health Organization, is a fellow at the Washington DC based Institute for Policy Studies. He has written several studies on transnational corporations in commodity markets and is co-author (with Frederick Clairmonte) of The World in Their Web: The Dynamics of Textile Multinationals.


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