Friday 27 April 2012

Exile The Rich!

We must make our choice. We may have democracy, or we may have wealth concentrated in the hands of a few, but we can't have both.  (Justice Louis Brandeis)
The rich have two defining capabilities: independence from and command over others. Those two features make being rich very pleasant indeed. But they are also what make the rich bad for democracy, and indeed even for capitalism itself. The problems I am concerned with are not about justice. Perhaps it is morally wrong that some people are rich and others are poor, and perhaps it would be right to redistribute wealth from rich to poor, and from wealthy countries to poorer countries. But from my perspective that resembles debating the proper (re)arrangement of deck chairs. What I'm concerned with is the sinking ship - the threat the rich pose to liberal democracy itself. Democracies are extended moral communities whose flourishing and indeed survival depend on the interdependence and equality of their members. The rich not only have no place in this kind of community, but their very presence undermines it. Therefore, if we believe our democracy is worth preserving, we should offer the rich a choice: give up your money or give up your membership of our society.

The normative definition of the rich is always those who have ‘too much’. Yet there are various ways of defining this in the contemporary (liberal) literature on justice. Some take an egalitarian distribution of wealth as the naturally just distribution, and argue that deviations from that which lack a specific moral justification are prima facie unjust, and the greater the inequality, the greater the injustice. Others focus on how the present concentrations of wealth in our society are the legacy of a long history of theft and extortion for which restitution is required (including even libertarians, when they take their historical account of entitlement seriously).

Yet others focus on the inefficiency of great inequality. The pop utilitarian Peter Singer, for example, argues that ordinary middle-class people in the west have much more than enough (anyone with annual income over $35,000 is in the global 1%) while a great many (around 2 billion) live in appalling absolute poverty. The richer you are, the less benefit you can get from another dollar of wealth, while the poorer you are the more good that dollar could do. So the relatively rich should give away our money to the poorest people we can find, where it will do the most good. And we should keep giving up to the point that we have to sacrifice something of comparable moral significance (which seems pretty far).

These different approaches to thinking about justice problematise wealth in different ways (unfairness, illegitimacy, inefficiency, and so on). Although I won't be making direct use of any of them, it is worth noting what they all have in common: identifying the problem of the rich as 'absolutely relative'. In other words, the rich pose an objective problem of justice not because of how wealthy they are in absolute terms (how much they can buy) but because of the relation in which they stand to others. I employ the same foundational idea. Just as seawater is good for fish but poisonous to humans, so extreme wealth is wonderful for individuals but toxic for democracy. However, my approach is different from that of the justice theorists because I am not directly concerned with identifying injustices in the distribution of wealth, nor with making its distribution more just, for example by making the rich give their money to the poor.

I. The Bourgeois Character of Democracy

Democracy as we know it is the invention of the American republic, and, as Alexis de Tocqueville analysed, fundamentally government by and for the middle-classes, the bourgeoisie. This is a fact. The flourishing democratic societies of the world are all politically dominated by a middle class - as the political scientist Barrington Moore put it succinctly, "No bourgeoisie, no democracy." The mere possession of formal democratic institutions like parliaments and elections is demonstrably insufficient for a flourishing democratic society, as poor countries like India demonstrate (with state oppression and impunity comparable with that of China). 

Successful democracies are bourgeois because middle-class circumstances are particularly amenable to the spirit of democracy. The bourgeoisie live in circumstances of moderate abundance: neither so poor as to be utterly dominated by circumstances or powerful persons, nor so well-off as to be free from inter-dependence on the goodwill of other people for success. This is the sweet spot of sufficient independence to think for oneself, and sufficient inter-dependence to be sensitive to the interests and concerns of other people, that cultivates the civic habits and dispositions on which a flourishing democratic polity depends.

A democratic society is organic, not a construct of high theory. Its heart is equality of political status, which sounds like it's only worth the paper it's written on, but which is actually all about the freedom of all from domination, whether by government or other people. A real democracy must pass what the political philosopher Philip Pettit calls the 'eye test': Is every person free to look any other in the eye, without fear and trembling?

The brain of a democracy is its ability to make legitimate collective choices in a way that everyone accepts even when they disagree about the conclusions. Again, that sounds like an abstract adding machine (and social choice theorists' terminology doesn't help!). But actually it's about community and common sense. The brain works so long as everyone recognizes that we are all in this together, and that we have a shared interest in and commitment to making things better for everyone, even though we disagree about how to do so. The members of a bourgeois society have an orientation to co-operation, even with those we disagree with, because we are fixed in relations of interdependence with each other and have no choice but to try to make this society work.

So what's the problem with the rich? Their circumstances of life are distinctly different from the bourgeoisie. At the extreme, the combined assets of Walmart's Walton family have been calculated to be equal to that of the bottom 150 million Americans combined. Great wealth changes people and their relationship to society as a whole.

The rich are independent of the rest of us. Obviously they are materially independent so long as their property rights remain recognized. They can achieve what they want by themselves, that is by buying it from others or paying someone else to do it for them. But this power of command also generates a social distance from society that allows them to become 'ethically independent'. Since they don't depend on the goodwill of others to succeed - for example, few of them have recognisable jobs - they may become less concerned in general about whether they deserve goodwill. 

They are thereby freed from the disciplinary power of bourgeois social norms and standards (and, it often seems, even from the laws that apply to little people). I'm sure that sense of liberty must be quite exhilarating (romantics and hippies also aspire to it, though they actually have to make sacrifices to achieve it). But that freedom also means that they aren't really like the rest of us. There is some worrying social psychology research about what they are like (eg).  It suggests that society’s nobility are not actually very noble. The rich have a more positive attitude to greed than the rest of us, and this is expressed, for example, in feeling entitled to opt out of ethical standards; to lie and cheat when it suits them; and a lack of compassion toward others.

Though recent events should teach us not to build castles on the findings of social psychology, such research goes together with what all of us see and hear every day of the self-centredness and self-servingness of the rich, from Donald Trump’s White House, to Warren Buffet’s exploitation of his political connections to lobby for public subsidies of his investments in Goldman Sachs and railroads. Thus, the 'ethical independence' of the rich from the rest of society has political implications, since, to put it mildly, it does not suggest that the rule of the rich is to the benefit of all.

For the rich the spirit of cooperation on which democracy depends is only an option, not a necessity. When the rich engage in politics they are not under the same constraints as the rest of us to find a mutually agreeable solution, since their fortunes are not fixed to the success of this society as ours are. They can always buy their way around the absence of public goods, or leave for somewhere nicer.

That means that the rich don't have the same political interests as the rest of us. They aren't worried about crime (their gated communities come with private security) or the quality of public education (their kids go to the fanciest schools money can buy) or affordable accessible health care, job security, public parks, gas prices, environmental quality, or most of the other issues that the rest of us have no choice but to care about, and to care about politically since they are outside of our individual powers to fix. The political concerns of the rich do not lie in the provision of public goods, but in furthering their private interests for power over others and yet more wealth. That is why Adam Smith, the father of economics, warned us so vehemently to be suspicious of their self-serving rhetoric (e.g. WN I.11.264). 

It is an unfortunately widespread fallacy that democracy is a means to achieve one's interests, rather than a space in which the public interest can be deliberated. Thus some people seem to believe that elections work in the same way as the rest of our modern consumer society: one orders what one wants at the election and then 2 weeks later it should arrive. Then if it doesn't arrive, they think democracy must be broken.

However, for the rich, politics actually does work somewhat like this, because they have the power to intervene non-democratically in our politics. They can and do use their wealth to command outsize political influence, whether by being powerful enough to bargain directly with our elected officials about government policies; by cultivating private relationships with political candidates who want their financial support; by becoming politicians themselves; or just by buying an enormous media megaphone to transmit their opinions to voters and drown out counter-speech.

The rich act this way because they believe that their opinion deserves more voice because it is theirs, and their wealth means that it does indeed receive more attention. This is the logic of the market, of course, and it converts politics from democracy into a market for influence.

First, it introduces a principle of political inequality. The rich achieve extraordinary influence over the character and direction of our society, and thus over how our individual lives will go, yet they have no qualification for that political role except their wealth. Like a feudal aristocracy, their special political status derives from a prior asymmetry of power (combined with a personal sense of entitlement), rather than democratic selection.

Second, it undermines the democratic legitimacy of our political institutions, the perception that even if we don't personally agree with their outcomes they genuinely reflect the will of the people and we should go along with them. Every ideological faction wants to get their own way. Democracy deals with the threat of factionalism not by suppression but through a transparently fair social choice process. Everyone still thinks their own views are right and true, but in a democracy everyone agrees that practical legitimacy derives from the consent of the people. Those ideas that win a democratic mandate have a prima facie legitimacy to govern, subject to the checks and balances that protect opposing (minority) views.

The rich  are a particularly dangerous faction because they have the power to upset this principled modus vivendi, to hollow out democratic institutions and establish the permanent dominance of their interests. When that happens, then, even though elections continue to be held, the link between political success and a democratic mandate to govern is broken. Political outcomes are no longer understood as a reflection of the will of the people, but rather of the machinations of the rich. Everyone realises that the system is rigged. As a result the legitimacy of the political regime will no longer rest on democratic grounds, but on some other grounds such as economic prosperity. Unfortunately the rich threaten capitalism as well as democracy.

II. Why the Rich are not 'Job Creators'

It is sometimes thought that the rich are necessary to the flourishing of a free market economy, that because they have more wealth than they need for their own consumption it is their investment of capital that makes the economy spin around and create jobs. Thus the claim that there is a trade-off between democracy and material prosperity. But that ‘job creator’ thesis is out of date and back to front. 

First, while in Adam Smith's time it might have been true that economic development required capitalists to reinvest their profits this was because everyone else was too poor. But these days the economies of democratic societies are characterized by a broad middle-class whose savings are quite sufficient for funding business development and expansion (such as through the share-ownership of our pension funds or the bank loans backed by our deposits). 

Second, the greater the wealth inequality, the worse we may expect the economy to perform. A flourishing economy requires customers as well as investors. If the gains of economic productivity are overwhelmingly transferred to some small group (as profits) that means that they don't go to ordinary people (as wages). (For example, since 1979 all the productivity gains of America's economy have gone to the richest 1%.) The implications are, first, that economic growth does not increase national prosperity because it does not increase the economic command of ordinary people to satisfy our wants (which is how Smith defined the wealth of nations). And, second, economic growth itself will eventually suffer since high inequality limits the extent of the market (fewer customers) and thus the scope for innovation.

But the biggest problem is the capitalists themselves, who use their dominance of politics to legitimate and entrench their momentary competitive advantages into de facto quasi-monopolies and effectively levy a redistributive tax on society as a whole. The interest of the plutocratic elite is to widen the market but limit the competition; to do what Bill Gates did to Netscape and Carlos Slim did to Mexico's telecoms industry. Consider the re-construction of America’s financial services industry over the last 30 years. As the number of firms went down, favourable laws went up, converting the industry into a rentier system in which the costs of financial services to the economy as a whole rose, profits rose, and risks were socialized.

This rentier capitalism doesn't have the same virtues as the free market kind proposed by Smith and endorsed by most contemporary economists. It undermines the policing required to maintain real – fair and rivalrous - competition. It misallocates the country's wealth and talent, by funnelling it away from productive enterprises and into rent-seeking enterprises that harvest the productivity of others.

III. What to do about the rich

I think it is clear that the rich are a burden and a danger to our democratic society as a whole. (If you're still not convinced, read the now classic essay Of the 1%, by the 1%, for the 1% by the economics Nobel prize winner, Joe Stiglitz.) But that doesn't tell us what to do about them. Some people would say that we should tax the rich into the middle-class, but this proposal has never really got off the ground because it seems punitive and unfair, and not only to libertarian moral philosophers. After all, the rich got rich by playing - and ‘winning’ - the economic game according to the rules we set. It's not their fault that their wealth is toxic to democracy. 

Fortunately I am not concerned here with fairness and social justice, but with the somewhat simpler but more urgent existential threat that the presence of the rich poses to a democratic society. I'm against the rich, but I don't care about their money. And that allows me to advance a different kind of proposal than one normally sees in this debate: the simple rule that no-one can be both a member of our democratic society and rich.

A good way of thinking about what a democratic society is and should be, and how its members relate to it, is through the device of the social contract. A social contract is a hypothetical agreement to form a political association for the mutual advantage, security, and justice of all its members. The significance of this idea is that it allows us to scrutinize whether our current social arrangements resemble what we would have deliberately chosen to create if we had had the chance. Or whether we would have chosen something better.

In the hands of philosopher John Rawls the social contract is a device for generating a unique agreement on the basic structure of a just society by making explicit our intuitions about what a just democratic society requires. But one can also use the social contract device more crudely, to draw our attention to the preconditions for and legitimate authority of a democratic society. Though we may not follow Rawls’ controversial argument for what an ideally just democratic society would look like, we may all readily agree that some features are incompatible with the persistence of any democratic society in which such questions of justice might be debated. Plutocracy seems such a feature, since it is incompatible with freedom from domination between citizens, or political equality in social choice.

The idea of the social contract also directs us to think of our democratic society as a kind of private club for the mutual benefit of its members. (Indeed, this is explicitly how we often analyse it when thinking about immigration [previously].) Such a club has the legitimate authority to enforce its constitutional commitment to democracy and take action against members who undermine it.

Hence my modest proposal. We should first identify with some precision the category of what it seems reasonable to call the rich i.e. those people whose capabilities for independence from and command over the rest of us crosses the threshold from enviable affluence to aristocratic privilege. Then, when anyone in our society lands in the category of the problematic rich we should say, as at the end of a cheesy TV game show, "Congratulations, you won the economy game! Well done." And then we should offer them a choice: give it away (hold a potlatch, give it to Oxfam, their favourite art museum foundation, or whatever) or cash out their winnings and depart our society forever, leaving their citizenship at the door on their way out. Since the rich are, um, rich, they have all the means they need to make a new life for themselves elsewhere, and perhaps even inveigle their way into citizenship in a country that is less picky than we are. So I'm sure they'll do just fine. 

How much wealth makes someone problematically rich? That seems a political question for society to deliberate about, informed by empirical research from social scientists about the character and effects of large wealth inequalities. It is certainly not something for philosophers to decide! But, for the sake of this discussion let me outline one approach, to show how such deliberation could move from broad and abstract principles to concrete proposals. 

The general principle is adapted from Rousseau: “In respect of riches, no citizen shall ever be wealthy enough to buy another, and none poor enough to be forced to sell himself.” That suggests that the form of the definition of the rich should be 'absolutely relative' rather than merely relative (e.g. we can't just use the richest 1%, because there will always be a richest 1% , and this proposal is not about envy). One way to go would be to use some multiple of the wealth of the median citizen (the person who is poorer than 50% of the population and richer than 50%) as a proxy for the distance from and power over ordinary citizens that defines problematic wealth. Let me suggest a very generous multiple of 500 to be going on with (surely everyone can agree that anyone with more than 500 times the wealth of the middling citizen is in a different class than the merely enviably affluent). What would that mean for a country like America?

According to the Credit Suisse’s Global Wealth Report (2015) the median adult American’s personal wealth is around $50,000, which suggests a cut off of $25 million.  For context, America’s mean average wealth is $350,000 (if the gulf between mean and median figures seems surprising, it reflects the fact that wealth inequality is much more pronounced than income inequality). For further context, median wealth in the UK is more than twice as high as America, suggesting a cut-off of $63 million to be allowed to be rich and British. The UK-US comparison shows that this simple definition has a powerful inbuilt ratchet. The greater the concentration of wealth in a society, the greater, I have argued, the threat to democracy, and the lower the boundary line for the problematic rich that this definition will produce.

There are obviously many technical difficulties remaining in this definition (from settling on appropriate accounting standards, to allowing for market volatility in asset values, to distinguishing individual from household wealth). But if it could be made to work, what would happen? Presumably there would be an outpouring of wealth as assets are liquidated and moved abroad. But the immediate consequences of this should not be exaggerated. The mansions and banks and TV channels and supermarket chains would still be here, just owned by someone else. The already globalised financial portfolios (most of the assets of the rich) would simply be registered at a foreign address and denominated in a different currency.

Aside from some short-term disruption the loss of the rich would not make our society poorer. As I noted earlier, developed economies do not lack for capital; what the rich contribute to the economy is not their willingness to invest but their interest in domination. An economy's wealth - as opposed to an individual's - relates to its efficiency in in converting resources into valuable goods and services so as to satisfy as many of the wants of its people as possible. In the long term our economy's productivity would be higher without the distorting influence of the rich, and, not coincidentally, the gains from that productivity would be more equally shared than they are now.

But anyway I don't think that all the rich would leave. After all, while tax avoidance is extremely popular among the rich, true tax exiles are somewhat rare. Democratic societies really are great places to live, and plutocracies really aren't. (Even Russia’s oligarchs want to live in New York or London, and send their kids to school there.) I think that many rich people understand that, and would in fact appreciate the benefits of democratic society even more if they were forced to make an explicit choice between continuing to live there and their money.

Another possible consequence is a decline in innovation and entrepreneurship - vital to the future growth of the economy. If the rewards for winning 'the economic game' became truncated at a few million dollars, would people stop trying so hard? Will there be no future economic revolutionaries like Bill Gates or Peter Thiel?

This argument seems to rest on the assumption that innovators are only motivated by the possibility of very high rewards. On the one hand, this seems false because innovation is just what free people do in the face of interesting or important problems, whether that be in literature, computer science, or logistics. On the other hand, it is true that the people, like Bill Gates, who package up the technological breakthroughs of others into economically significant contributions are certainly motivated by the hope of economic windfalls. And yet, how big does the reward have to be to motivate entrepreneurial innovation? Does it really have to be in the billions? Would JK Rowling have stopped writing books after she reached her $63 million limit? Perhaps. Though I am sympathetic to Adam Smith’s argument that what people are really seeking is the “respect and admiration of mankind” and that a swimming pool full of money is merely one way – a vulgar, inferior way – of achieving that (TMS).

IV. What about the poor?

It may seem curious that I haven't yet mentioned the poor. If democracy requires a society that is bourgeois through and through, then the poor may seem as problematic to its success as the rich. It is not true, however, that the poor threaten democracy in the same way as the rich. Although their circumstances are as different from the bourgeoisie as those of the rich - characterized by the precariousness of their lives and dependence on others - they do not present an existential threat to democratic society that should be excluded. After all, their defining feature is a lack of power. Rather they present an ethical challenge of full inclusion. That is, a society that wants not only to survive but to flourish as a democracy should commit to the elimination of the poor by raising them into the bourgeoisie. Yet it seems to me that the rich are an obstacle to this justice project and only limited progress may be made while they remain.

Our political-economy has been designed to suit the rich (cf David Grusky). Yes, the system redistributes some money from the economic winners to the losers (a tiny part of taxes paid). But this is considered a kind of charity that the poor should be grateful for. The resulting debates about how much charity they deserve are a distraction from the real issue of the fairness of the pre-tax distribution.

The form of our social and economic institutions - from capital markets to labour markets to higher education - determines who gets what share of the economy's productivity, and thus who gets to enjoy a life of aristocratic opulence, middle-class dignity, or precarious penury. Yet these institutions are not the pure reflection of perfect competition we have in recent decades been persuaded to take them for, in which wages exactly reflect economic contribution. If you want to know why CEOs get so much money and cleaners so little, it's rather ridiculous to appeal to 'the market' in general (though The Economist likes to try), especially when pay levels can be seen to vary so greatly between successful economies. CEOs get paid so much because CEOs want to get paid so much, and they have substantial power to make it so.

There is a further sense in which the presence of a rich elite harms the poor: by skewing our bourgeois sense of justice from a concern for equal dignity to a concern for 'meritocracy'. The rights and interests of the poor are considered, to the extent that they are, only in terms of whether they have a 'fair chance' to pass through the filtering process that selects who is worthy to be in the tiny elite (the narrow academic path up through the elite universities and thence to places like Goldman Sachs or the White House). Not whether they have real access to a decent middle-class life for themselves and their families.

What about Corporations?

It may seem that the greatest threat that wealth poses to democracy comes from rich corporations, not rich individuals. Like rich individuals, corporate agents such as Exxon Mobil and Goldman Sachs can use their concentrated economic power to intervene non-democratically in our politics. Like rich individuals, their interests in politics are narrower and more self-interested than the ordinary citizen's. Once again the nexus between wealth and power undermines political equality and the legitimacy of the political system as a whole. Indeed, corporate bribery of politicians to work for them rather than their constituents appears much more extensive and systematic than similar efforts by rich individuals.

My proposal does nothing directly to address the threat of corporatocracy. Nonetheless, this idea of politicising wealth in terms of its incompatibility with democracy suggests how it should be approached. The idea of 'corporate citizenship' implies that corporations can possess political rights, such as to freedom of expression of political views, that are inextricable from real citizenship. But this is a nonsensical chimera. Corporate agents are not citizens to begin with, and never can be since they are not morally sophisticated enough to appreciate the obligations as well as rights of citizenship. Rather, they are artificial persons created for purely instrumental reasons - increasing our general prosperity - and their 'rights' can be assessed and revised by reference to the public interest rather than 'their' interests. This means that we can exile corporations from politics if we conclude that they are a threat to democracy without having to do any moral philosophical heavy lifting. The means for doing so are also obvious and long-established in many democracies. We can pass (and enforce) laws that restrict corporations' electioneering communications and lobbying. We can even dismember them if they get too big for their boots and start creating oligopolistic market positions that undermine the efficiency of the market economy.


My proposal will not be enacted any time soon. But like the idea of the social contract, it is primarily intended to do its work hypothetically. The point is to politicize the issue of excessive wealth in terms of democratic citizenship, rather than merely moralise it in terms of justice. It challenges the rich to justify their place amongst us, to overcome our suspicions by proving their loyalty to the democratic values of our society (something we routinely demand of immigrants).

In this perspective the advantages of the rich are turned against them. The rich have been used to think of themselves as more equal than others in our society. Yet that power of command over others is exactly what puts the legitimacy of their place in our politics in question. They have been used to enjoy their independence from the rest of us, hardly mixing with ordinary people and hardly noticing the national borders they cross. Yet this very feature would legitimate and justify our ostracising them in turn. The rich have made it perfectly clear that they believe all their accomplishments came through their own efforts and that they don't need us for anything except property rights. By their own reasoning, we wouldn't be doing them any harm by exiling them from our politics, or even literally exiling them to another country. By achieving such independence, the rich have brought upon themselves the burden of justifying why they should be allowed to remain amongst us. If you don't need us, we can ask, why do we need you?

A revised version of this essay was published in Krisis, April 2016.

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