Winner-Take-All Politics: How Washington Made the Rich Richer—and Turned Its Back on the Middle Class is a 2010 book by political scientists Jacob S. Hacker and Paul Pierson. In it the authors argue that contrary to conventional wisdom, the dramatic increase in inequality of income in the United States since 1978—the richest 1% gaining 256% after inflation while the income of the lower earning 80% grew only 20%Winner-Take-All Politics, p.23 Figure 2 based on Congressional Budget Office "Historical Effective Tax Rates, 1979-2006"—is not the natural/inevitable result of increased competition from globalization, but of the work of political forces.Winner-Take-All Politics: How Washington Made the Rich Richer--and Turned Its Back on the Middle Class, p.4, 7 Those at the very top of the economic ladder have developed and used political muscle to dramatically cut their taxes, deregulate the financial industry, and keep corporate governance lax and labor unions hamstrung.Winner-Take-All Politics: Public Policy, Political Organization, and the Precipitous Rise of Top Incomes in the United States* Jacob S. Hacker and Paul Pierson. Politics & Society 38(2) 152–204 2010 SAGE Publications Instead of a rising tide lifting all boats, the authors write, "yachts are rising, but dinghies are largely staying put" in America, and "there is reason to suspect that the dinghies are staying put in part because the yachts are rising."Winner-Take-All Politics, p.20
Themes The authors quote a number of luminaries on the dangers of concentrated wealth and its incompatibility with good government—Theodore Roosevelt (p. 80), Louis Brandeis (p. 81–82), Alexis de Tocqueville (p. 77), the 1st-century Greek historian Plutarch (p. 75) ("An imbalance between rich and poor is the oldest and most fatal ailment of all republics"), and even the father of the free market, Adam Smith (who warned of "great inequality" where "civil government" is "instituted for the defence of the rich against the poor") (p. 82).
Increase in inequality
Since the late 1970s, inequality of income in America has gotten worse across the board,comparing the population divided up into five "quintiles" according to income levels (most of the gains for the middle and lower income households coming from working longer hours) Figure 2 p.23, Table 1 p.25 but it is at the top where income has become most concentrated—concentrated at a level not seen since just before the Great Depression. Most of the gains of economic growth since the 1970s have gone to the top 1% of Americans, and most of that to the top 0.1%.p.14 While the share of America's income gains between 1979 and 2005 for the bottom middle- and lower-income 60% of the population was just 13.5% (and most of that gain came from working longer hours), the top 0.1% share was over 20%. In other words, the top 300,000 Americans gained half again as large a slice of income as the bottom 180 million.p.3 This after-tax distribution of income varies only slightly when factoring in non-cash compensation (such as health insurance and retirement pensions) distributed.It improves the picture only slightly for middle income. source p.21-24, citing CBO Historical Effective Tax Rates, 1979-2006)
Debunking the "educational cause" "Most economic experts" agree that the 30-year trend in America of greater inequality is a natural economic/historical trend of economic rewards for those with educational achievements and workplace skills. The authors do not. The income distribution has not followed a pattern of "the 29% of Americans with college degrees pulling away" from those who have less education. It is the top 1% that have pulled away from the top 20%, and most especially "the top 0.1% or even 0.01%" that has grown richer than the rest of the population.
Nor has this rise in inequality taken place in many other developed economies. Western Europe and Japan, "haven't seen anything like the rise in inequality America has." Inequality in France and Switzerland has actually fallen; in Germany it has remained the same; and in Ericsson's Sweden and Sony's Japan it has moved up only slightly.American politics, Democracy in America Winner-Take-All Politics. It's a pretty good book. economist.com Democracy in America. 21 September 2010.Winner-Take-All Politics, p.39, Figure 3
The relative lack of skill of American workers cannot be blamed, as there is not one. There is no gap between American workers and those of Europeans, Canadians, et al., measured in years of schooling.Winner-Take-All Politics, p.37 America's more extreme stratification has not come with any benefit of faster economic growth or more social mobility than its peer countries. Economic growth per capita was essentially the same in the US as that of the 15 core nations of Europe through 2006.Winner-Take-All Politics, p.26 America's self-image as the land of the American Dream and rags-to-riches success notwithstanding, the share of those brought up poor or middle class who succeeded in becoming rich (i.e. the social mobility), is now less than in almost all other developed countries.Winner-Take-All Politics, p.28-9
Two areas related to income distribution where the US differs quite a bit from other developed countries are executive pay and unionization. Unions as a whole have been a force for raising pay and benefits for those with lower income. The percentage of workers belonging to unions has had a marked decline in the US not mirrored in other affluent countries such as America's neighbor Canada,32% of Canada's workforce is unionized, the same rate as in the mid-1960s. In the US unionization has declined from 30% to 14% from the mid-1960s to the mid-2000s.(Winner-Take-All Politics, p.60-1) despite a similarity in the "structural features" of the two countries economies and their workers' "propensities to join a union."W. Craig Riddell, `Unionization in Canada and the United States: A Tale of Two Countries,` 1993 cited in Winner-Take-All Politics, p.61 Increase in the relative pay of CEOs in the US—from 24 times the earnings of the typical worker in 1965 to 300 times in 2007—is much greater than in Europe. It takes a different form than those countries—deferred compensation, "guaranteed hours on corporate jets, chauffeurs, personal assistants, apartments, even lucrative consulting contracts". (This "camouflaged" compensation need not become public knowledge as American business law does not require its reporting.)Winner-Take-All Politics, p.64
The top 0.1% Besides corporate executives and managers, the other occupation/industry with large numbers of top earners are professionals in the finance industry. The two groups make up almost 60% of the top 0.1%.The top 0.1% collectively make more than $1 trillion a year including capital gains. (In contrast, entertainment celebrities and sports superstars combined form only 3% of this elite one-household-in-a-thousand.)
While corporate management in America has benefited mightily from its 'capture' from stockholders of boards of directors, whose nomination, pay and perks management has strong influence over.Winner-Take-All Politics, p.63 The financial industry's success has come from pushing government to deregulate that industry and making risky investments from which it has privatized the gains and socialized the losses with government bailouts.Winner-Take-All Politics, p.66
The "political cause" of inequality Hacker and Pierson describe the political action that has "abandoned the middle class" in the US in favor of making "the rich richer" in the last 30+ years as being the work of "modern, efficient organizations operating in a much less modern efficient political system."Winner-Take-All Politics, p.115 Those organizations strove successfully to cut taxes (estate and capital gains taxes) and tax rates for the wealthy, and to eliminate or prevent any countervailing power or oversight of corporate managers—including private litigation,the Private Securities Litigation Reform Act (PSLRA) of 1995 which put "new hurdles in the way of shareholders seeking legal remedies against corporations and underwriters peddling false information."(Winner-Take-All Politics, p.219) efforts to empower boards of directors and shareholders,the 2001 appointment of veteran corporate management defense lawyer Harvey Pitt to the Securities and Exchange Commission (SEC) by George W. Bush. (Winner-Take-All Politics, p.219) the regulation of the Securities and Exchange Commission (SEC)for example, sharply reducing the fees Wall Street paid the federal government to finance regulatory activity in the years before the 2008 financial collapse. (Winner-Take-All Politics, p.228) and labor unions.For example, reported violations of the National Labor Relations Act by companies have skyrocketed in the late 1970s and early 1980s. Meanwhile, strikes by unions (an indication of their ability to challenge companies) have plummeted. (Winner-Take-All Politics, p.59)
The action in financial markets, corporate governance, industrial relations, and taxation, came from both changing policy and preventing it from being changed—"drift". Policy changes include tax cuts and legislation such as the 1999 Gramm–Leach–Bliley Act that repealed the Depression-era Glass–Steagall Act and allowed the merger of consumer banks, investment banks, and insurance companies.
Drift, or preventing policy changes to keep "pace with changing economic conditions", included not updating labor laws in response to new corporate anti-union tactics, not enacting stock option regulations in response to changing executive pay packages, and not updating securities regulations in response to the growth of dangerously risky but profitable Wall Street speculation.Morning Feature: Winner-Take-All Politics, Part II: Hats Black and Gray June 3rd, 2011 by NCrissieB One example is an attempt in 1993 by Financial Accounting Standards Board (FASB) to "moderate the explosion of CEO pay, not through burdensome interference but through the simple enforcement of honest, transparent accounting" by requiring the expensing of stock options by corporations. They were prevented by "legions of businesspeople" and intervention by congress, led by Senator Joe Lieberman.Winner-Take-All Politics, p.221, 246-7 Another is the "carried-interest" loophole (costing tax payers about $4 billion/year) which allows hedge fund managers—some of the richest people in the US—to pay only 15% tax (the capital gains rate) on income they receive from investors, though the money is a paycheck received for services, not investment income. Political Veto Points and the Politics of Drift by Henry |15 July 2010Closing The Hedge Fund Manager Tax Loophole Would Raise $4 Billion Annually From The 25 Richest Managers| By Pat Garofalo| 6 July 2011
Politics as "organized combat" Though this process came as part of what the authors describe as a "transformation of American government", it has been overlooked by the public, the media, and recent political science studies. They focus on the more entertaining, fast-moving and easy-to-follow "electoral spectacle" of politicians and their campaigns for office, instead of "what the government actually does"—the more complex, and "frankly boring", organization-driven making of laws and policy.Winner-Take-All Politics, p.101, 105, 106 But that the latter is what is really important is reflected in how much more money is spent on lobbying (officially $3 billion a year, unofficially much moreAccording to the authors the number is "grossly underestimated" because it doesn't include "grassroots and Astroturf mobilizations, as well as massive media buys.") than election campaigns",Winner-Take-All Politics, p.114, 274 and the growth in corporate public affairs offices in the nation's capital (100 in 1968, 2500 in 1982).Winner-Take-All Politics, p.123