Can Democracy be Revived

 

MEMO:  To President Donald Trump and the Republican Congress

FROM: Mary-Ellen Pecci

DATE: February 13, 2018

SUBJECT: The present attempt to lift our failing democracy will not work. Here is why.

Problem

Democracy is in cardiac arrest because the United States Government is no longer “for the people by the people.” The cause and effects of burgeoning economic inequality in the U.S. has left us with no middle class. The gift given to large corporations in the latest tax bill will not be spent on R&D, research and development.  It will be doled out to the hierarchy. Historically this is true. Hence there will be no new jobs nor increases in pay or benefits to create ‘again’ our middle class.

Discussion

Bodie (2015) tells us that some consider welfare programs a distribution of wealth. People who do not agree with this distribution of wealth say it robs us of the economic incentive. Bodie (2015) also posits that the redistribution of income has been functioning under the wrong model. His premise is that the corporations are catering to the shareholder having moved away from the workers. He indicates that our existing labor and employment laws are insufficient to protect the worker. The National Labor Relations Act (NLRA) has not solved the problem of imbalance of power in the corporation. The corporation is our hope for the future but not as it exists today. Once formed the operation of the corporation goes to the board of directors who in turn pass on power to the CEO, the chief executive officer. In general employees have no claims to profits. Bodie (2015) continues to tell us that in real terms corporations have driven wages down over the past 35-40 years in favor of shareholder wealth. The workers income has stagnated to acquiesce to the top 0.1%, of managers and supervisors who have tripled their share of the national income. The mega corps also share the wealth game by extending a hand to other corporations who participate in the game. The NLRA does step in regarding bargaining power on employee pay where most employees of large corporations are ‘employees at will’. They can walk away or be fired with no warning. Bodie (2015) speaks of the “Golden Era” of the 1950’s employee unions which were much stronger then today. Unionized employees have shrunk from 35% in the 1950’s to 6.6 % today. The power of the unions to tie down labor and employment laws is no longer effective. We need to change how ‘corporate’ behaves. Employee ownership would be great but employees can’t afford to purchase stock. Another suggestion was for the corporation to invest in the global market instead of attacking employee wages. Bodie (2015) also suggested an employee be placed on the board of directors in order to promote equity. Employees voting for selectees for the board of directors would prevent cronyism. Bodie (2015) concludes, income inequality could be fixed if corporations changed to include employee participation in governance of the firm. This fits in well with a liberal, progressive even a democratic socialist agenda. The Golden Era of the 50’s functioned in this manner.

The conservative, free-market pushers are holding back progress, stretching out and pushing even stronger on income inequality. This present administration is pushing Nationalism.

Solt (2011) tells us that Nationalism is a diversion to keep us from realizing and attempting to do anything about economic inequality. The state will purvey the myth that an individual owes his/her life to the state. Tools are in place to create and maintain this myth. Glorification by building monuments, statues, naming bridges, parks, and even changing street names help ingrain this in the population. There is the need to create legitimacy and that need goes up and down over time and economic inequality plays a part. The more economic inequality the higher the level of unrest amongst the population. Nationalism is used as a drug to control the masses by making them forget their plight. It serves to bring groups together in comradeship. Some will recognize the word “comrade” as one used in WWII Germany and Russia. Communist governments use nationalism to control the masses. Instead of changing to more distributive income schemes the government prefers to anesthetize with nationalism. It does not work on all groups and often there is “blow back” (Solt, 2011). National pride can lead to hostility against ethnic and religious minorities. There is a difference between patriotism and nationalism. Patriotism is all encompassing where nationalism is group think. Bias can result from this psychological phenomenon, (Druckman 1994). This leads to conflict unlike the responsibility for country and family that comes from patriotism.

Where nationalism is fed by income inequality, Gilman (2014) tells us that economist give four reasons for the sharp rise in inequality since the 1980’s. Firstly, education has not kept up with the pace of technology in that low skilled jobs are now computerized or sent overseas. Second is a worn out safety net for those at the bottom with scarce redistribution of wealth. Third is the fact that public policy favors big money over the people and fourth is a lead on from this in that politics also favor big money over the people, (Gilman 2014).  The United States Supreme Court is leading the parade.

Citizens United, is the SCOTUS ruling granting corporations the rights of a citizen, Gilman (2014).  The court also allowed unequal funding between poor and wealthy schools. The courts upheld voter identification laws that discriminate against the poor. Many of the courts pro-business decisions have been class discriminatory. Government policies, with willfully blind deliberation, created ghettos piling up poverty and discrimination. The attitudinal model of SCOTUS judges is alive and well.  If the ruling in a case is indeterminate their personal preferences weigh in. Gilman (2014) concludes telling us that the market does not cause inequality. The framework of inequality is designed by government.

Solution

The United States Government is the agent in this failure and the middle class is the principle. Here in lies the problem. Unless the government forces income to be more equal democracy will not be revived. This problem can be solved by strongly incentivizing corporations to trickle down their profits to the employee instead of spreading the wealth to the already burgeoning .01% of autocratic mega giants who control government. This can be done by pay raises, end of year dividends or ownership rights. The following tables and charts will enlighten as to an understanding of where the middle class and where the mega giants were in the 1950’s compared to today, (all charts and tables, Dumhoff 2017). It is imperative we achieve that balance again. The incentive for large corporations to do this will have to be by punishment. Government policy will have to change. Our legislators need to enact rules that essentially say, “If the corporation does not trickle profit down to its workers they will be taxed at the same value they should have awarded the workers. If workers are not raised up, the communities and small businesses around them will fail. Get out the defibrillator.

  All Charts and Tables, (Dumhoff 2017):

Table 1: Income and net worth in the U.S. by class, 2013

Wealth or income class	Mean household income	Mean household net worth
Top 1 percent	$1,679,000	$18,623,400
Top 20 percent	$257,200	$2,260,300
60th-80th percentile	$76,500	$236,400
40th-60th percentile	$46,000	$68,100
Bottom 40 percent	$20,300	-$10,800

From Wolff (2014); only mean figures are available, not medians.  Note that income and wealth are separate measures; so, for example, the top 1% of income-earners is not exactly the same group of people as the top 1% of wealth-holders, although there is considerable overlap.

Table 2: Distribution of net worth and financial wealth in the United States, 1983-2013

	Total Net Worth
	Top 1 percent	Next 19 percent	Bottom 80 percent
1983	33.8%	47.5%	18.7%
1989	37.4%	46.2%	16.5%
1992	37.2%	46.6%	16.2%
1995	38.5%	45.4%	16.1%
1998	38.1%	45.3%	16.6%
2001	33.4%	51.0%	15.6%
2004	34.3%	50.3%	15.3%
2007	34.6%	50.5%	15.0%
2010	35.1%	53.5%	11.4%

Table 3: Wealth distribution by type of asset, 2013

	Investment Assets
	Top 1 percent	Next 9 percent	Bottom 90 percent
Business equity	62.8%	31.0%	6.2%
Financial securities	54.7%	39.6%	5.7%
Stocks and mutual funds	49.8%	41.2%	9.1%
Trusts	49.5%	34.0%	16.5%
Non-home real estate	33.7%	44.1%	22.2%
TOTAL investment assets	51.5%	37.0%	11.5%
	Housing, Liquid Assets, Pension Assets, and Debt
	Top 1 percent	Next 9 percent	Bottom 90 percent
Principal residence	9.8%	31.1%	59.2%
Deposits	24.8%	42.4%	32.8%
Life insurance	30.0%	35.3%	34.7%
Pension accounts	17.8%	47.5%	34.8%
TOTAL other assets	14.5%	37.6%	47.9%
Debt	5.4%	21.1%	73.5%

Sources: From Wolff (2014).

Table 4: Share of wealth held by the Bottom 99% and Top 1% in the United States, 1922-2013.

	Bottom 99 percent	Top 1 percent
1922	63.3%	36.7%
1929	55.8%	44.2%
1933	66.7%	33.3%
1939	63.6%	36.4%
1945	70.2%	29.8%
1949	72.9%	27.1%
1953	68.8%	31.2%
1962	68.2%	31.8%
1965	65.6%	34.4%
1969	68.9%	31.1%
1972	70.9%	29.1%
1976	80.1%	19.9%
1979	79.5%	20.5%
1981	75.2%	24.8%
1983	69.1%	30.9%
1986	68.1%	31.9%
1989	64.3%	35.7%
1992	62.8%	37.2%
1995	61.5%	38.5%
1998	61.9%	38.1%
2001	66.6%	33.4%
2004	65.7%	34.3%
2007	65.4%	34.6%
2010	64.6%	35.4%
2013	63.3%	36.7%

Sources: 1922-1989 data from Wolff (1996). 1992-2013 data from Wolff (2014).

Table 6a: Concentration of stock ownership in the United States, 2001-2010

	Percent of all stock owned:
Wealth class	2001	2004	2007	2010
Top 1%	33.5%	36.7%	38.3%	35.0%
Next 19%	55.8%	53.9%	52.8%	56.6%
Bottom 80%	10.7%	9.4%	8.9%	8.4%

Table 6b: Amount of stock owned by various wealth classes in the U.S., 2010

	Percent of households owning stocks worth:
Wealth class	$0 (no stocks)	$1-$9,999	$10,000 or more
Top 1%	5.1%	0.6%	94.3%
95-99%	6.9%	4.0%	89.1%
90-95%	11.8%	4.8%	83.4%
80-90%	21.0%	8.5%	70.5%
60-80%	41.3%	15.6%	44.1%
40-60%	55.4%	19.9%	24.7%
20-40%	76.1%	17.4%	6.5%
Bottom 20%	79.2%	17.3%	4.5%
TOTAL	53.1%	17.5%	31.6%

Both tables' data derived from Wolff (2007, 2010, & 2012).  Includes direct ownership of stock shares and indirect ownership through mutual funds, trusts, and IRAs, Keogh plans, 401(k) plans, and other retirement accounts. All figures are in 2010 dollars.

  Figure 9: CEOs' pay as a multiple of the average worker's pay, 1960-2007

Source: Executive Excess 2008, the 15th Annual CEO Compensation Survey from the Institute for Policy Studies and United for a Fair Economy.

Figure 8: Top income shares in the U.S. and Sweden, 1950-2009. Source: Alvaredo et al. (2012), World Top Incomes Database.

Source: Alvaredo et al. (2012), World Top Incomes Database.

Figure 10: CEOs' average pay, production workers' average pay, the S&P 500 Index, corporate profits, and the federal minimum wage, 1990-2005 (all figures adjusted for inflation). Source: Executive Excess 2006, the 13th Annual CEO Compensation Survey from the Institute for Policy Studies and United for a Fair Economy.   

                                                                                                                                                                 Source: Executive Excess 2006, the 13th Annual CEO Compensation Survey from the Institute for Policy Studies and United for a Fair Economy.

        References

Bodie, M. T. (2015). Income inequality and corporate structure. Stetson Law Review 45(1), 69-90. Retrieved from http://heinonline.org.lib.kaplan.edu/HOL/Page?handle=hein.journals/stet45&div=9&start_page=69&collection=journals&set_as_cursor=2&men_tab=srchresu

Domhoff, W.G. (2017). Wealth, Income, and Power. Who Rules America, University of California Santa Cruz. Retrieved from http://www2.ucsc.edu/whorulesamerica/power/wealth.html

Druckman, D. (1994). Nationalism, Patriotism, and Group Loyalty: A Social Psychological Perspective. Mershon International Studies Review, Vol. 38, No. 1, pp. 43-68. Retrieved from

http://bev.berkeley.edu/Ethnic%20Religious%20Conflict/Ethnic%20and%20Religious%20Conflict/2%20National%20Identity/Druckman%20nationalism.pdf

Gilman, M.E. (2014). A Court for the One Percent: How the Supreme Court Contributes to Economic Inequality, 2 Utah L. Rev. Retrieved from

https://scholarworks.law.ubalt.edu/cgi/viewcontent.cgi?article=1261&context=all_fac

Solt, F. (2011). Diversionary Nationalism: Economic Inequality and the Formation of National Pride. The Journal of Politics 73:3, 821-830. Retrieved from https://eds-a-ebscohost-com.lib.kaplan.edu/eds/pdfviewer/pdfviewer?vid=1&sid=d0f3612a-ae84-4de7-b75b-417eff9543e8%40sessionmgr4007

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