Capitalism’s Top 1% Are the New Aristocracy

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The central promise of free market capitalism is that anyone can make it if they try.  It’s appeal over the old model of landed aristocracy and feudal society was the emancipation of land locked peasantry to enjoy the fruits of their labours based on meritocracy – in short: those who can, will.  However, with social mobility in decline and the wealth gap widening to ever greater degrees – have capitalists become the new aristocrats, lording over a globalised neo-feudal system?

 Life under Feudalism

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Feudalism was the economic system exercised between the 5th and 15th century across Europe and parts of Asia, which structured society around the holding of land in return for service and labour.  Those living at the time did not consider feudalism as a formal structure for their society, but through the lens of history it can be viewed as nothing else.  The society was a pyramid with Monarch at its head and peasant at its base.  The Monarch in theory owned the land and parcelled it out to Lords in return for loyalty (military and other support).  The Lords in turn allowed peasants access to the land in return for their labour and services upon it.  Feudal rights of Lordship were hereditary and passed from the landowner to the eldest son automatically on his Lordships death. The labour of agricultural peasants was the foundation and lifeblood of the society, the surplus of which was used to increase the wealth of the aristocratic ruling class and generated the development of towns, non agricultural craftsmanship, and education.

No one reading Feudalism at even the most rudimentary level can fail to overlook the entrenched caste system generated by it. One feels a sense of entrapment even briefly entertaining the thought of being referred to as a peasant, or of being part of a clearly stratified society and the idea of needing to know one’s place.

It might then come as some surprise that social mobility is no greater now than under feudalism in the middle ages.

A recent University of California study examined social mobility patterns in England between 1066 and 2011. The key finding of the study by Gregory Clark were:

  • The modern ‘meritocracy’ is no better at achieving social mobility than the medieval oligarchy. Instead that rate seems a constant of social physics rather than social engineering.
  • There is tentative but disquieting evidence that after 1000 years of complete long run social mobility, modern England is becoming more stratified by class.

The Promise of Capitalism

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These findings challenge the central promise of Capitalism and the American Dream: that anyone can make it if they try.  The Clark study highlighted that it has always been possible for people from the bottom of the pile to scratch and claw their way to the top of it. This is nothing new.  Yet Capitalists the world over continue to cite the nonetheless rare event of a peasant ‘making it’ as proof positive of the inherent egalitarianism of the system.

Capitalism grew out of the 16th century and has existed in several iterations.  It is important to understand, at least in outline, the development of the means of economic and social organisation which now governs the majority of the globe.

Mercantilism – 16th to 18th Century

The first run at Capitalism was Mercantilism.  This can be best summed up as: there is only so much stuff; we need to get the most stuff!

Mercantilism was very much a vehicle of the state, rather than the individual.  The purpose was to increase the wealth of the nation through strict governmental regulation of the whole national economy through creating a favourable balance of trade (exporting more than you import), developing agricultural and manufacturing capability and output, and (by war and plunder) creating and maintaining foreign trade monopolies.

Industrialism – 18th Century & 19th Century

The writings of mid-late 18th century thinkers David Hume and Adam Smith not only coined the term Mercantilism but ushered in the subsequent epoch of Industrialism.  They challenged the idea of mercantilism that the rate of wealth in the world remained constant and gains could only be made by one state at the loss of another.

During the Industrial Revolution the new industrialists become the dominant force in society over their merchant predecessors.  The reins of power were not so much handed over as seized by this new industrial class. The period saw the dawn of free trade policy where Britain began to abandon protectionist policies such as the Corn Laws, and began the lowering of tariffs on imports.

Karl Polanyi argued that capitalism as we know it did not emerge until the progressive commodification of land, money, and labour culminating in the establishment of a generalized labour market in Britain in the 1830s.

Keynesianism and Neoliberalism  - 20th Century to Present

The dawn of the 20th century, two world wars and two enormous and pan western economic meltdowns saw the demands of the poorest for greater protections from the seemingly unavoidable fits of crisis produced by ‘the market’.  As the policies of capitalism saw fluctuations in prices of staple foods, energy, and employment the welfare state was created to shelter the majority from the worst of the storms.  The largest difference the Clark study finds here is that the development of the welfare state and access to health and maternity care in particular saw the mortality rates balance between the elites and the rest in the UK for the first time.

The period also saw a wave of denationalising of formerly state managed industries as the idea of the free market took hold. Energy, water, transport, aerospace industries, steel, coal, control of wages, control of prices, printing of money, joined a long line of newly privatised interests.  The dawn of the 21st century has seen the hallowed spaces of state education, prison, probation, police and military functions being passed over to the private sector to manage.

These changes have opened new markets and allowed the commodification of goods, services and functions which had previously been viewed of as part of the commons or the common interest.

However, during the rise of neoliberalism and globalisation in the latter half of the 20th century, social mobility and wealth distribution markers have been set firmly to reverse.

The Great March Backwards

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While social mobility has been declining in Britain since the 1950’s (this is a reverse in a complete progressive trend in the UK for the previous thousand years) the situation has escalated for the worse since the late 1990’s.  The wealth gap in the UK has not so much widened as undergone a seismic event.

A recent report by the Resolution Foundation, Squeezed Britain 2013, revealed stunning disparities in the ever growing wealth gap in modern Britain.  The top 1% of earners now pocket 10p in every £1 earned in Britain – an increase of 7% in the last fifteen years.  The poorest half of the population taking home just 18p – dropping 1% during the same period.  This reveals not only that the top 1% is earning more than ever, but that their earnings are coming from the share of the rest of the 99%. This would be bad enough if it was simply a UK phenomenon, but these patterns reflect the global pattern of wealth distribution in the 21st century.  A recent study by James S Henry, former McKinsey head and Tax Justice Network board member revealed equally horrific results at a global scale, summarised in the pie chart below.

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The top 0.1% own 81% of the world’s wealth, whilst the bottom 99.9% hold only 19%.  This figure is staggering.  Perhaps more staggering is that in spite of this figure, the myth persists that social mobility is increasing, today’s children have better life chances than yesterday’s children and the world is gradually ‘developing’.  The reverse is true.

Robert Reich, former US Labour Secretary under Bill Clinton commented:

“Income inequality, and wealth inequality even more so, are worse in the United States since the 1920s, and by some measures since the 1890s. Most of the economic gains in the past 25 years have gone to the top 15-20 percent of Americans, but more recently, in the past six to seven years, most of the economic gains have gone to the top one percent. . . . The average CEO is making about 380 times more than the average worker – a huge gap relative to what it used to be 40 years ago – it was about 30 times.”

In response to this, proponents of the current system might argue, and indeed have, that mobility and equality are non issues; that so long as the standard of living keeps rising for the bottom, the inordinate wealth at the top is irrelevant.  But the rise of neoliberalism has seen the top increase their wealth at the expense of those at the bottom, and those at the bottom less likely to ever make it out.

Things Are Not Getting Better

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 The reality is, wages are stagnating or falling for most of the 99%.  Today, wages have not simply stagnated but fallen sharply for a number of groups.  If we turn to the US, the earnings of so called ‘High School drop outs’  have dropped 66% since 1969, and people with some college – the median education level in the US – have seen their wages drop by a third.

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Outside of the US and UK, the outlook isn’t much better for the global 99% either.  Global wages, whilst still on the rise, have dropped significantly in their rate of rise from 3% in 2007, dropping each year since to just 1.2% in 2011 (0.2% is you remove China from calculations).

Contrary to the language of workers versus shirkers in the UK, and the language of Mitt Romney’s ill fated presidential campaign in the US, the working class are working harder than they ever have, and for less.  Further research by the International Labour Organisation reports that the rise in Labour Productivity has outstripped wage inflation at an ever increasing rate in the last decades.  Between 1999 and 2011 labour productivity (the output of workers time and efforts) increased at double the rate of wages.  In Germany, labour productivity surged by almost a quarter over the past two decades while real monthly wages remained flat.

The reality the world over is that people are working harder, for longer, for less and that work is increasingly unlikely to see them move out of their social strata than at any time in the last five hundred years.

Inequality Matters

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The widening income and wealth gap matters because it has a causal link to the decline in social mobility.  In today’s economy, the working poor can neither afford to lavish money or time on the development of their children to the same degree as the increasingly non working rich.  The working poor of today are finding themselves both time and cash poor.

Meanwhile, the richest 1% earns roughly half their income from wages and salaries, a quarter from self-employment and business income, and the remainder from interest, dividends, capital gains and rent.  In the world’s largest capitalist economy, the United States, the top 1% are increasingly working in Finance, marrying each other and taking a strong interest in politics.

Their children will largely go to fee paying schools outside of the state system, whilst the children of the 99% will largely go to state funded schools.  This not only gives these children an advantage in terms of the standard of their education, the pupil:teacher ratios in their classes and so on, but it perpetuates a social network of privilege.  It is no coincidence that the current Prime Minister, Chancellor and Mayor of London attended public school followed by Oxford, where they formed their future networks.

The Conservative party candidate in the Eastleigh by-election Maria Hutchings somewhat let the cat out of the bag on this matter recently.  When challenged as to why her child would not be going to a local state school she replied:

“William [her son] is very gifted which gives us another interesting challenge in finding the right sort of education for him – impossible in the state system. He wants to be a cardio-respiratory surgeon.”

I short, the state school system is seen by the political elite in the UK as the provider of plumbers, managers, small business owners…but not judges, surgeons and political leaders.  And they are right.  A 2007 study by the Sutton Trust found that more than half of Britain’s leading 500 figures came from Independent schools, whilst these schools educate only 7% of the UK’s children.

Dr Lee Elliot Major, Director of Research at the Sutton Trust, said:

“This analysis shows that the school you attend at age 11 has a huge impact on your life chances, and particularly how likely you are to reach the top of your chosen profession.

We are still to a large extent a society divided by wealth, with future elites groomed at particular schools and universities, while the educational opportunities available to those from non-privileged backgrounds make it much more difficult for them to reach the top.”

The beneficiaries of fee paying schools included: 70% of High Court Judges, 54% of FTSE100 CEOs, 53% of the current UK government, 28.5% of those studying medicine and dentistry, and the legal profession has seen a backward slide in favour is privately educated members. Between 1988 and 2004, the proportion of privately educated magic circle partners aged under 39 grew from 59% to 71%; and in the late 1980s, 10% fewer barristers and 15% fewer solicitors were privately educated than in the early 2000s.

Inequality matters because it is not a static thing.  It is an increasing gap in income, an increasing gap in wealth, an increasing gap in life chances and an increasing gap in the ability of people to have a say in the ways science, law, economics, politics and health are managed in our society.  These decisions are increasingly being made by fewer people, from a narrower slice of wider society.  The results have been those outlined above, an escalation in the enrichment and empowerment of one section of society, over the equivalent loss for the rest.  While the medieval peasant was land locked, the modern day peasant is simply locked out.

24 thoughts on “Capitalism’s Top 1% Are the New Aristocracy

    • If we are then really those whose heads are to be lost are in the process of pushing for it to occur. It’s not just the profits and gap between rich and poor, it’s that the rich have now for several decades been hell bent on tearing down any and all forms of welfare, social program, educational or health equality. Nothing can be outside this system that maximizes profits for the investors but minimizes outcomes for everyone else.

      Further I think it’s crippling the ultimate outcome of the anglophonic economies – people are removed from the cycle of consumption, private ownership of public assets and infrastructure imposes extra costs on business as well as on those least able to afford it. Time for those who are already very, very well off to accept a smaller slice of a larger pie lest we all end up worse off. Consider this, if we launched on the type of government driven initiative that gave us the technology of nuclear power and weaponry we could get enhanced geothermal power up and running and produce more power than we’ll need for even the most energy hungry scenario of the future. Further despite high initial investments we could produce energy continuously at such a low unit price that we’d be able to more successfully compete in areas like manufacturing against countries with less stringent regulations and higher wages.

  1. Hi Scriptonite,

    Nice article. I think however that your comparison with previous hierarchical systems goes too far. The disconnect is that kings lived in a world where your position in the hierarchy mostly determined your quality of life. We now live in a world where your position in time is an equal factor for quality of life.

    This fact results in more and more of the top of the hierarchy betting on progress. But there are still too many of them betting on hierarchical position. Its rather like the battle between mercantilism and industrialism that you describe. This basic argument between zero sum and progress seems to be fought over and over again each age.

  2. Old paradigms are crumbling. We are in the midst of fundamental transition. It is the rightbrainers, the creative types, the people who do not conform, the people who understand intuition and who can take non-linear leaps forward who are required and who will make the change. We need to stop looking at past models that are no longer relevant.

    Right NOW..at this moment in time…it doesn’t matter how you were educated, who your parents are, how much money you earn or which political party you belong to. ALL our systems are corrupt..law, medicine, education, politics… Many of the ‘middle class’ are still asleep because they haven’t yet been touched (or so they they/we think). Also, in order to ‘succeed’ in today’s world, no matter what field you are in, you need to be able to put aside your own moral code, keep your head down, not rock the boat, live in denial/fear. The return is ‘status’ and a false sense of security. That’s why people’s souls have been sucked dry and actually live as if consumerism is the only reason we are on this planet.
    Change starts on an individual basis. Stop buying into the false reality. Each of us is NOT helpless. A book could easily be written on the truth of that last statement (with the science to back it back). But people are kept too busy surviving and consuming to work that out for themselves. So, just understand, that change starts internally first and then you join hands with others who have done the same. This is global. You are not alone. You are not powerless. Change, NOW.

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  8. Is the thesis of your essay here that regardless of the economic or social structure of a culture, we always seem to come back around to a pyramidal hierarchy? Where I’m going with this relates to complexity theory. If biological cells in a body were sentient, would they realize their individual role in the greater organism? Your section on peasants not recognizing the Feudal system as a de facto organizational structure made me stop and think about our own place in this system. Many of the eminent scientists of our time are confronted with the idea that we may be reaching the limits of our brain’s ability to understand our own place in the universe. That there are entire fields of science that we haven’t discovered that are currently staring us in the face. Most of these start their lives as soft sciences, until a great discovery is made that forms the basic axioms of the new “hard science”. Biology for instance with the discovery of evolution, or marketing with the “discovery” of archetypes and demography, are moving into a more “hard science” role, whereas climate science and psychology are still squarely in the “soft science” statistical modeling and extrapolation phase, where concrete results are difficult to predict because there are variables we aren’t yet familiar with.

    Any thoughts on any of that? I’m not as up on historical economics beyond the high school level.

    • Great comment, and excellent questions.

      I think I can come at your questions from perhaps a slightly different angle. I don’t believe that we are destined to form pyramid heirarchies in perpetuity. I think that there are example of social and economic organisation today and yesterday that show human’s unecumbered by entrenched heirarchy seek out cooperation, collaboration and egalitarianism. That said, minorities have historically used might to gain power over others. That’s how come it happens that way.

      On science, one of the issues facing economics is that the dominant neoclassical/neoliberal paradigm promotes itself as hard science when it is in fact ideological. An example is, Italisn scientists were recently jailed for failing to forecast a deadlt earthquake. Yet, not one neoliberal economist foresaw the financial crisis (which killed alot more people) and none went to jail. The discipline also fails to use the evolution of other sciences and mathematics tp update it’s models. Why? Because they don’t work, and are proven false when you use modern maths. So, rather than revising the models and developing economics like we develop physics and chemistry, the new arguments are ignored. In this sense economic progress is being held hostage by ideologues who are kept in key positions of power in academia, politics, policy development, financial analysis and journalism by those who benefit from the perpetuation of the neolliberal paradigm.

      If you’d like further information on that, I would read Steve Keen’s Debunking Economics.

      I believe our potential is uimaginable at this stage and further scientific enquiry will continue to open up new worlds inside us and outside us, and it would be a real breakthrough for human progress if we viewed social sciences with the same determination to progress and evolve.

      • I really enjoyed reading Debunking Economics. Keen is an iconoclastic and entertaining thinker and he cleverly skewers neoclassical economics by exposing the flaws in their models. He does though, I believe, share the weakness of other Keynesian/post-Keynesian economists in dismissing the work of Marx and the Marxian schools of political economy. His chapter on Marxian economics in the book is really quite poor, misunderstanding and misinterpreting Marx’s work. He therefore lacks much insight in to some of the fundamental dynamics of capitalist economies – the creation and reproduction of class, the exploitation of labour as the source of profit, the pressure for expansion and accumulation driving growth, the necessity for a reserve army of labour to maintain profits, the trend towards corporate monopolies/oligopolies (and the resulting economic stagnation), why it is that over the last 30 years workers have had to work longer and harder for no increases in wages. Without a clear acknowledgement of where power lies in society (for instance how money power becomes class power becomes political power), there is little chance of getting his reforms adopted, no matter how progressive/beneficial. It’s not simply about exposing the politicians and regulators to superior ideas and getting them to see the light. There is after all a struggle going on with very powerful interests. As Warren Buffett, CEO of Berkshire Hathaway, said “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.”
        Steve Keen was one of the speakers at the event Just Banking (Builing a banking sector that serves society) here in Edinburgh last year. Videos of him and some of the other contributors can be seen here:
        http://justbanking.org.uk.gridhosted.co.uk/video/
        I particularly liked Mary Mellor’s contribution – What does the current banking system mean for sustainability?

      • Loving the complexity theory, decidedly quantum angle! Given the manifest failing for most people of the current social paradigm and the perhaps irreversible damage that it has done to our shared environment, I would argue that the minority elites and ideologues driving it are more akin to cancer cells in living organisms. Hunter-gatherer, pre Imperial societies lived in peace and harmony sharing their resources and wealth for the good of all for a considerably longer time period than our current post colonial ‘civilisation’ has been in existence. I would argue that this ancient wisdom of our ancestors represents a weakened social immune system that is now trying to regenerate and evolve in order to overcome the terminal threat that the cancer cells have become. But then I’m an optimist… ;)

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  10. in 2002, on request of Maurits Coppieters, honorary chairman of the Flemish Government, Ecosystem 2000 (NGO) published Eternal Spring. Living with Enough in a World of Abundance. The book outlines principles and actions towards genuine sustainable development.
    In July, the Washington Diplomat published a full page review of the book.

    Interested? Mailto: [email protected] or visit http://www.ecosystem2000.sr.to
    We will be happy to share this publication with organisations looking for an hand-out to reach a peacefull world of abundance for all its inhabitants.

    • Hi Natascha, although this is technically spam, I’m going to let it through as some people might find it of interest and it is related to the blog. But just to let you know, if I get feedback to the contrary then I’ll need to take it down. I hope it forms part of the wider debate we need to have to breathe new ideas into our body politic so thank you for sharing.

    • Good question. I’m a firm believer in creating a powerful alternative. It’s not an overnight thing to achieve, but plenty are working on it, and the more of us who do, the better. If you take a look at my other blogs I post links to the exciting campaigns and alternative models being worked on (believe the Austerity Isnt Working post contains a few. Keep on the look out..check out the New Economics Foundation, Move Your Money, the community gardens programmes and other things which mean you can personally make some changes and cut off your support to some degree. It’s going to take time but new ideas and a willingness to recieve those ideas is key. We’ll get there!

  11. Thank you for this! More Americans need to know the truth and quit being unwitting lackeys and/or pawns for sociopathic megalomaniacs.

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