Power without conspiracies

On Twitter this morning Sam Freedman asked “whether it's possible to see politics as entirely about power structures without eventually thinking conspiratorially?” I think it is. There are (at least) three elements here.

The first is that capitalism is an emergent process: nobody designed it from scratch. It emerged as the unintended outcome of millions of decisions, and it is not simply individual behaviour writ large. As Marx said, “men make their own history but they do not make it just as they wish.”

One aspect of his concept of alienation is that all of us – even capitalists – become subject to impersonal forces beyond individual control. For example, he thought that poor working conditions were due not to “evil” capitalists but to the fact that competition forced even benign capitalists to hold wages down*:

Free competition brings out the inherent laws of capitalist production, in the shape of external coercive laws having power over every individual capitalist. (Capital Vol I Ch 10, part 5)

A similar process might explain the rising pay of the 1%. If each individual board of directors wants to attract a top-quality CEO, they’ll feel the need to drive up pay. The upshot will be an arms race in which shareholders collectively pay more than they need to whilst being unable to coordinate to cut CEO pay.

The relative lack of coops might also be due to emergent processes. Credit constraints and problems of collective action – it’s difficult to get dozens of people to agree to anything – might stymie their spread. Capitalistic modes of production thus dominate without them being more efficient but without any conspiracy.

A second process is ideology. People don’t support the existing order merely because they’ve been indoctrinated by the Tory press. There are spontaneous processes whereby this happens.

One, demonstrated by Kris-Stella Trump, is a form of anchoring effect; our idea of what’s fair is shaped by the actual distribution of income. For example, if someone were to say that the appropriate share of income going to the top 1% should be 7% we’d regard them as very left-wing: the share today is almost 14%.  In the mid-80s, however, such a view would have been merely a defence of the existing distribution.

A second process is system justification (pdf). This can arise from wishful thinking: people want to believe the world is fair and the wish is father to the belief.

A third is adaptive preferences. As Amartya Sen has said:

Deprived people tend to come to terms with their deprivation because of the sheer necessity of survival, and they may, as a result, lack the courage to demand any radical change, and may even adjust their desires and expectations to what they unambitiously see as feasible. (Development as Freedom, p63)

Just as lonely men become accustomed to bachelorhood, and even like it, so the poor and powerless do to their circumstances. There’s no conspiracy here, just the powerful tendency of humans to adapt.

Thirdly, there’s the relationship between capitalism and the state. Imagine a benign government which wanted high wages and employment. It might adopt pro-capitalist policies to achieve these simply because capitalists have power over investment and hiring decisions. The desire to maintain business confidence and stop firms relocating overseas might cause it to maintain low taxes on profits and top incomes, ensure a quiescent labour force, and have little regulation. It might even – in a world in which real interest rates are high – justify fiscal austerity to hold down borrowing costs. Depending upon conjunctural features of capitalism such policies might or might not be justified: they were more so in the 90s than they are now. Whether they are or not justified, however, is a matter of judgment. We don’t need to invoke conspiracies.

None of this is anything like a complete description of the mechanisms at work. I hope, though, that they are sufficient to show that we can think of capitalism in terms of power relations without invoking conspiracy theories.   

* Marx might well have been too pessimistic here. Competition can bid up wages too – if firms want to pay above the going rate to reduce staff turnover or induce more effort. And some firms might have more discretion over wages than Marx thought.

Comments

[e]

Hmm. All this being of common knowledge decade upon decade...we watch as an unhindered market in conspiratorial thinking takes root and flourishes....must be because living within our means just won't allow for anything much beyond fox news literacy, and weapons. It truly is a wonder...

[Blissex]

«Imagine a benign government which wanted high wages and employment.»

But for whom? I am familiar with the "magic tory areas" of the south-east and London and there upper-middle class people have high wages and employment, and much more besides. Austerity for everybody across the country to cool down an overheated economy has not happened -- it has been redistribution upwards from poorer to richer, from north to south.

The Conservatives since 2010 have amply proved they are a benign government that delivers high standards of living -- to their own.

A farm is not run to improve the standards of living of the cattle, but of the farmer'e family...

[cjcjc]

Except bottom quintile incomes have risen the most and top quintile incomes the least since 2010...

https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/householddisposableincomeandinequality/financialyearending2017

[Kevin Carson]

I don't see it as either/or. Institutional structure and other material factors are clearly the primary driving force, and "conspiracy" is a second-order effect. But the concentratino of power in a handful of interlocking corporate and state institutions definitely facilitates conspiracy among the interlocking elites who run those institutions.

[Blissex]

«The Conservatives since 2010 have amply proved they are a benign government that delivers high standards of living -- to their own.»

In sheet 5 of the "Economic well-being Q3 2017" dataset I read that "Households Wealth" has increased £6,373 billions in 2008 to £7,376 billions in 2011
and leapt to £9,972 billions in 2016.
That's £520 billions per year of capital gains per year and we can be quite sure that nearly all went to the top 50% of households and the vast majority to the top 25%, and nearly all of them are in the south.
Using "conservatively" 50%, that's 14 million, or a Conservative delivered redistribution of £37,000 over 5 years, tax free, work free, on average, to tory voters.

«bottom quintile incomes have risen the most and top quintile incomes the least since 2010...»

That's a clever misunderstanding of the data, based on these misuses: quintiles, income including investment income, looking at top and bottom and only since 2010 (that is, pretty much everything).

For a duller but more fruitful understanding I used the more extensive the "Average Incomes, Taxes and Benefits by Decile Groups of ALL Households" dataset and plotted original and disposable income 2002-2014 here:

https://blissex.files.wordpress.com/2018/04/dataukhousehincdeciles2001to2014.jpg

It then becomes obvious that the entire "top quintile incomes the least" clever misunderstanding is because the pre-2008 investment income of the top decile (probably of the top centile) grew enormously and post-2008 it fell, and that the very tory 9th decile has done very well indeed, and the bottom decile has done not so well. The 2nd decile, even if the deciles above it have done better.

As to that and "bottom quintile incomes have risen the most" usually people with annual original incomes of a few thousand pounds are retired, and I have done the same graphs from the "Average Incomes, Taxes and Benefits by Decile Groups of Retired Households":

https://blissex.files.wordpress.com/2018/04/dataukhousehincdeciles2001to2014_pens.jpg

That's pretty impressive! As other analysts have pointed out most of the improvement in living standards since 2008-2010 have gone to pensioners who overwhelmingly vote tory, and here the Conservatives have really taken care of their own (and not just through 4% tory pensioner bonds).
It is particularly heartwarming that the disposable income of the top and 9th decile has grown faster than their original income, but the lowest deciles have done well too.

So massive capital gains for the mostly-tory upper and upper-middle class property owners, and for the mostly-tory pensioners too, who also often have significant property gains in the south too.

And no conspiracy about that: various tory politicians have been quite clear as to who "their own" are.

[Blissex]

The retired incomes graph is actually:

https://blissex.files.wordpress.com/2018/04/dataukhousehincdeciles2001to2014_pens2.jpg

[Blissex]

Oops, the retired incomes graph is actually:

https://blissex.files.wordpress.com/2018/04/dataukhousehincdeciles2001to2014_pens3.jpg

[Blissex]

«That's a clever misunderstanding of the data, based on these misuses: quintiles, income including investment income»

Another clever misunderstanding when misusing "disposable income" is that the ONS in the "Average Incomes, Taxes and Benefits" add to it housing benefit, but don't subtract from it "private market" housing costs like rent, or utility bills (but at least they subtract net council taxes).

Things like small increases in tax credits and cash benefits are astutely balanced by much bigger increases in rents (and house prices) and bills. The big print giveth, the small print taketh. Do let the left hand know what the right hand does :-).

As to cash benefits I have just derived this nice graph for all households and just retired households:

https://blissex.files.wordpress.com/2018/04/dataukhousehbenscashdeciles2002to2014.jpg

Of course the levels of cash benefits for retired household should be higher, but what is impressive is that the trends are dramatically different, and those for the upper deciles sometimes are more favourable than those for the lower deciles.

[Cjcjc]

I didn’t realise that if the price of my London house rose faster than your Welsh house that that was a “redistribution”.
Silly me.

[Blissex]

«if the price of my London house rose faster than your Welsh house that that was a “redistribution”. Silly me.»

Of course it is, and you have have been indeed the victim of a clever misunderstanding if you did not realize that:

* Every increase in price of an asset as it stays the same is necessarily redistributive: if the property A goes from £100k to £300k, £200k have been redistributed: the current owners has £200k more and the next owner £200k less, if the next owner has no property.

* If the next owner of A had a property B that went up in price from £50k to £150k in the same period, the redistribution is £100k from to the current owner of A from the current owner of B, and £100k to the current owner of A from the next owner of B.

The indisputable fact that increases in price of an unchanged asset are purely redistributive is also why the Bank of England are so happy with them: they are "non-inflationary", as every gain in purchasing power by the current owner is a loss of purchasing power by the next owner, leaving aggregate demand unchanged.

At each step of the property ladder price increases are upward redistribution from smaller owners (or renters) to bigger owners.

To prevent another common "clever misunderstanding", notional price gains in property are not "just imaginary because they are not cash transfers until the property is sold":

* They are as if for property A, Thatcher, Blair, Osborne had taken £200,000 from the pension account of the next owner of A in advance and put a £200,000 deposit in the pension account of the owner of property A, which she can then cash in on retirement, and that makes a big difference indeed. Pension accounts and house prices are equally non-imaginary, just deferred.

* Given that tax-free work-free donation from the tories (at the expense of smaller owners and non-owners) into the "pension account" of the the current owner of a property, she can then cut her savings rate and spend more as the next owner is in effect saving for her. If a property goes from £100,000 to £200,000 in 10 years the owner can save £10,000 less and still retire with the same standard of living (the next owner instead will need to save £10,000 more per year or cut their retirement standard of living).

Property prices in London and the south-east that double every 7 to 10 years "forever" are the most fantastic upward redistribution machine ever invented!

[Blissex]

«the most fantastic upward redistribution machine ever invented!»

When a 2 bed flat in London will reach the price of £4 millions (around 2032) to be sold on for £8 millions (around 2039) the new owners will need a 90 year mortgage at 3% for £21k a month to buy it, to redistribute to the sellers a nice £4m tax-free profit and paying £16m of interest to their bank.

But it will be worth it because they will be able to sell it on for £16 millions (around 2046) making an £8 million tax-free work-free profit and clearing the mortgage balance after having paid less than £2 millions of the mortgage (almost all interest).

That's the wonder of a tory economy! :-)

[Kathy]

"........all of us – even capitalists – become subject to impersonal forces beyond individual control...............A similar process might explain the rising pay of the 1%. If each individual board of directors wants to attract a top-quality CEO, they’ll feel the need to drive up pay. The upshot will be an arms race in which shareholders collectively pay more than they need to whilst being unable to coordinate to cut CEO pay."

I've always been puzzled by the 'impersonal forces' argument when it comes to stratospheric salaries. A top quality CEO could choose to say £1 million will do nicely, squire, don't really need any more. What s/he loses in big bucks, s/he gains in public moral reputation and private satisfaction of conscience. Moreover, ensuring that this choice is widely known puts pressure on the others to demonstrate that they are good fellows too. After all, it's not impersonal forces that compel people to accept confetti salaries - it's personal pride, vanity and greed, surely? And even if it were impersonal forces that compel CEOs to meekly accept their golden fates, they could do a whole lot more for the civic realm to ensure their entry through the pearly gates.

Oh well, I suppose I must suffer from adaptive preference. My grandfather was a Methodist missionary: that might explain it.

[Blissex]

«I've always been puzzled by the 'impersonal forces' argument when it comes to stratospheric salaries.»

Our blogger tends a bit to oversell the "without conspiracies" thesis of impersonal forces, as if the CEO class had not lobbied for a long time and generously funded the parties and rewarded politicians who have created the legal and political and media and economic environment in which CEOs can pretty much do as they please (as long as they support same sex marriage of course).

[Kathy]

Yes, the forces you identify (lobbying, funding and rewarding) do very much appear to work through personal agency.

[Blissex]

«appear to work through personal agency.»

Indeed, yet that operates in the short-medium term, in the long term "events" overcome. After all our blogger quotes an observant person saying “men make their own history but they do not make it just as they wish.”