In this excerpt from How Will Capitalism End?, Wolfgang Streeck argues that current levels of oligarchic inequality amount to “neo-feudalism.” This oligarchy, together with financial corruption, critically weakens today’s neoliberal capitalist societies:
Systemic Disorders: Oligarchy, Corruption
At the end of the lecture that later became chapter one of this [book], I identified five ‘systemic disorders’ that have befallen contemporary capitalism and are likely to condition its future, or non-future. I called them stagnation, oligarchic redistribution, the plundering of the public domain, corruption and global anarchy. Re-reading what I said then, I see no reason to make modifications; in fact, in the short time of two years that has since passed, all five conditions became even more palpable. In the present section I will limit myself to just a few elaborations on oligarchy and corruption — the two, of course, being closely connected. Like secular stagnation, the private appropriation of public infrastructures, and global anarchy, they have in common that they critically weaken the systemic integration and stability of neoliberal capitalist societies.
Beginning with oligarchic inequality — one could also speak of neo-feudalism — what matters here for the future of capitalism, or the lack of one, is not primarily that a tiny minority in today’s capitalist societies is becoming unimaginably rich. On this entire libraries have recently been produced, with little to no political effect. From the perspective of systemic stability what seems more important than inequality as such is that it may already have gone so far that the rich may rightly consider their fate and that of their families to have become independent from the fates of the societies from which they extract their wealth. As a result, they can afford no longer to care about them. This becomes a problem — one of ‘moral hazard’ — when differences in wealth become so extensive that they give rise to a fusion of economic and political power — that is, to oligarchy. To assess the extent to which growing inequality in America has produced an oligarchic power structure, Jeffrey Winters has calculated what he calls a Material Power Index for the contemporary United States. One version of that index considers the relation between the average income of the top 400 taxpayers and of the bottom 90 percent. Using data from 2007, Winters finds a ratio of a stunning 10,327 to 1. In another version of the index, based on 2004 household wealth excluding home equity, the top 100 households are compared to, again, the bottom 90 percent; here the ratio is more than ten times as high, at 108,765 to 1. According to Winters, this corresponds roughly to the difference in material power between a senator and a slave at the height of the Roman Empire.
American oligarchs, unlike their counterparts in other societies like Ukraine or Russia, are of a ‘non-ruling’ type, since they are content to live alongside a public bureaucracy, a state of law, and an elected government run by professional politicians. But this does not mean that they are not becoming involved in the domestic politics of their country, at the minimum in order to maintain optimal conditions for the further accumulation and future conservation of their wealth. Today the ‘material power’ of American oligarchs has reached a dimension that allows for the gross economic inequality that underlies it to reproduce itself in spite of political democracy. This is because it enables the super-rich to buy both political majorities and social legitimacy, the former through campaign contributions of all sorts and the latter by acts of philanthropy partly filling the very gaps in public provision that result from oligarchic fortunes having become safe from taxation in the course of globalization and with the help of their owners’ friends. Oligarchic elites, Winters shows, while they may disagree on just about everything else, are firmly united in their desire to defend their wealth. For this they can afford to employ a huge and highly sophisticated ‘wealth defense industry’ of lawyers, PR specialists, lobbyists, active and retired politicians, and think tanks and ideologues of all kinds, including entire economics departments.
Oligarchs from outside the United States typically take their money out of their countries to resettle it in New York or London. American oligarchs, by comparison, are both more cosmopolitan and more patriotic: they extract their wealth globally and park it locally in the global financial firms of Manhattan. While their counterparts exit their societies to let them rot, moving preferably to the US, American oligarchs exercise voice at home to make sure that their country remains a safe haven for themselves as well as their non-American fellow oligarchs. As long as they succeed in this, there is no need for American-style oligarchic neo-feudalism to be replicated, for example, in Western Europe. Given the structure of the contemporary capitalist world system, what matters for global oligarchic wealth defence, both politically and ideologically, is control over American politics to ensure, for example, that the American Congress will never agree to a global wealth tax as proposed, among others, by Thomas Piketty. As long as this is certain, it does not really matter who governs with what ambitions in France or Germany.
The second disorder of capitalism to be briefly touched upon here is corruption. I use this concept broadly, beyond its definition in criminal law, to mean the gross violation of legal rules and the systematic betrayal of trust and moral expectations in pursuit of competitive success and personal or institutional enrichment, as elicited by rapidly growing opportunities for huge material gain in and around today’s political economy. As pointed out before, corruption is endemic in finance where the highest profits are to be made by circumventing or outright breaking legal rules on, for example, insider trading, mortgage lending, money laundering, rate fixing and the like. Indeed cheating can be assumed to be normal in finance and consequently fails to excite moral outrage, certainly among insiders. In the United States alone, the leading banks had by June 2014 agreed to pay about $100 billion in out-of-court settlement fees for legal infractions in connection with the 2008 financial crisis alone. A little more than a year later, the Frankfurter Allgemeine reported on a study by Morgan Stanley, according to which American and West European banks had together paid roughly $260 billion in settlement fees, again since 2008. Note that none of these cases ever went to trial, testifying to a deep empathy on the part of the legal system with the competitive pressure on financial institutions to break the law in order to make a profit. To get a sense of the penalties that would have been due after conviction in a regular trial, one must add the banks’ legal expenses to the settlement fees. Of course a goodly share of both will be eligible to be declared as business expenses for tax purposes.
Financial corruption does not end here, however. Making fortunes in finance requires not just confidential early information on likely developments in ‘the market’, but also intimate knowledge of government policies, preferably in advance, and a capacity to influence such policies, both their conception and their implementation. Not surprisingly, then, no other industry, except perhaps armaments, has developed anything like Wall Street’s rotating door relationship with the US government. There is Robert Rubin, treasury secretary from 1995 to 1999 under Clinton, and Henry Paulsen, in the same position under Bush the Younger, from 2006 to 2009 — both former CEOs of Goldman Sachs, the one instrumental for financial deregulation, the other presiding over its results in 2008. The two are, however, only the tip of a truly titanic iceberg, as there were and are literally hundreds of former and later Goldman people occupying a wide variety of government positions. One may also take a figure like Lawrence (‘Larry’) Summers, Rubin’s deputy and successor at the US Treasury, for decades now untiringly moving from academia to government to finance and back, and being richly rewarded for it. And not to be forgotten is the Attorney General of the Obama administration, Eric Holder, in office from 2008 to 2014. While negotiating one out-of-court settlement with Wall Street financial firms after another, he was on leave from a Wall Street law firm specializing in, of all things, representing those very same financial firms. Under Holder, not a single banker had to go to court, not to speak of prison. Having made around $2.5 million a year before joining the Cabinet, Holder resigned in 2015 to reassume his partnership, moving back into his old office. Of course, President Obama, who appointed Holder, drew more than one third of his campaign contributions from the financial industry.
Demoralization caused by an overabundance of money-grabbing opportunities in a global economy does not end in the financial industry. As is now common knowledge, management salaries have since the 1980s exploded everywhere in the corporate world, not just in the United States, even when profits were low or non-existent, and also in years of general economic crisis when unemployment rose and wages declined. There are many explanations for this, but the most credible ones involve extended reciprocity among a tight network of corporate oligarchs conspiring to raise their own pay by helping raise that of their co-conspirators. Another example of corruption can be found among political leaders who upon leaving office sell their inside knowledge and public goodwill, and especially the connections they acquired while presumably serving the public interest, to private consulting, lobbying and, above all, financial firms. Corruption is also rampant in professional athletics, which has in recent decades become a huge global industry, financed by mushrooming marketing activities for sports equipment and fashion goods. In major disciplines, including swimming and track and field, not to mention cycling, one can safely assume that top competitors routinely employ the services of expensive specialists providing them with illegal, performance-enhancing treatment. Doping among athletes competing for ever-increasing sums of prize money and even more lucrative advertising contracts in worldwide winner-take-all markets is accompanied by corruption among officials of international sports associations, some of whom are reported to have been paid huge sums by athletes and their management for suppressing the results of positive doping tests, and by corporations and governments for locating events in places they prefer. Officials also own firms that sell television rights in the events their associations organize. Finally, take a global corporation like Volkswagen (which, incidentally, around 2010 raised the salary of its CEO, Martin Winterkorn, to an, in German terms, hitherto unimaginable €15 million per annum). In 2015 it became apparent that Volkswagen had engaged in a massive pattern of fraud in relation to both customers and public authorities. The purpose was, essentially, to save on research and development to meet environmental standards, to be able to spend more on other features more likely to attract sales in a highly competitive global automobile market suffering from saturation and overcapacity.
Unlike in the Mandevillean Fable, under financialized capitalism the private vice of greed is no longer magically converted into a public virtue — depriving capitalism even of its last, consequentialist moral justification. Stylizing owners and managers of capital as trustees of society has lost any remaining credibility, their much-publicized exercises in philanthropy notwithstanding. A pervasive cynicism has become deeply engrained in the collective common sense, which has come as a matter of course to regard capitalism as nothing but an institutionalized opportunity for the well-connected super-rich to become even richer. Corruption, in the sense of the word used here, is considered a fact of life, and so is steadily growing inequality and the monopolization of political influence by a small self-serving oligarchy and its army of wealth defence specialists. Converting public trust into private cash has become routine and is seen as such, effectively rendering the social order morally defenceless in possible future moments of open contestation. Elite calls for trust and appeals to shared values can no longer be expected to resonate with a populace nursed on materialistic-utilitarian self-descriptions of a society in which everything is and ought to be for sale. Morally defenceless as they have rendered themselves, political and economic elites will require great creativity if things came to a head and they had to mobilize legitimacy for themselves and the social order they represent.