Nathan Gardels

Rising plutocracy threatens American democracy

There is a good chance Rafael Cebrian is going to make it. The handsome young Spaniard is already a rock star and accomplished actor back home. Now he's moved to Los Angeles, where his generous talent is already being recognized in Hollywood. His native tongue is even a plus in the ever burgeoning Spanish language market -- in the U.S. and globally.

Like so many before him, Cebrian says, "In the U.S. there's hope, and the feeling that you can achieve whatever you want." Indeed, this creed implicit in so many American movies has been one of the reasons for the sustained global appeal of Hollywood that attracts the likes of young Cebrian to our shores.

As the late director Sydney Pollack once put it: "American films say to people everywhere that you don't have to be high and mighty to make it. You may be a kid with braces on your teeth in some small town who dreams of success and adventure in life. Movies tell you it is possible. You can write your own narrative. In a very fundamental way, this is what America itself is really all about."

At their convention in Tampa earlier this year, the last popular Republican, former secretary of state Condi Rice, phrased this aspirational creed succinctly: "America is not about where you came from, but where you are going."

Today, however, opportunity for everyone is fast becoming Hollywood fiction. Ironically, Hollywood may be one of the few pockets where upward mobility based on merit and talent is still a reality. Silicon Valley, where a kid in a dorm room with an algorithm can go to connect the world and make a fortune, is another.

But for the vast majority of Americans another story is emerging: a new plutocracy of the super-wealthy is cementing its hold on the top. Only low-wage jobs that lead nowhere are being created at the bottom. The middle class is being hollowed out because manufacturing has been shifted out of the country and new digital technologies, which outsource white-collar work to consumers themselves, are replacing everyone from bank tellers to airline clerks.

Just connecting the dots with a few key figures paints a clear picture of just how America's foundational creed is under assault.

Today, as Chrystia Freeland reports in her new book, "Plutocrats," the top 20 per cent of Americans own 84 per cent of the wealth. And since the financial crisis of 2008, that skewed distribution has sharpened. While the income of the 99 per cent has "recovered" by 0.2 percent, for the top 1 per cent it has improved by 11.6 per cent.

While the top 1 per cent of Americans held 8 per cent of all income in 1975, by 2012 they held 22 per cent.

Much of this wealth is concentrated in the so-called super-elites of finance, who claimed 40 percent of all corporate profits at the time of the 2008 crash. The "winner-takes-all" access to global markets is another key factor.

At the same time, American manufacturing has dropped to less than 12 per cent of GDP from about 24 per cent over the past two decades. Nearly a quarter of those jobs were lost as a result of trade with China. (Through a series of policies that invest in skills and training while trimming benefits to make them sustainable, Germany has retained a competitive manufacturing base of 24 per cent of GDP that is the key pillar of its middle class prosperity. China is one of the biggest markets for its machine tools and well-known engineering prowess.)

As Eric Brynjolfsson and Andrew McAfee argue in their recent study, "Race Against the Machine," the spread of digital technology throughout the economy, reorganizing nearly every pattern of work, has increased productivity enormously while not adding new jobs. The "ghost of the ATM machine" haunts the white-collar middle class.

Meanwhile, as Nobel laureate Michael Spence has documented, 90 percent of the 27 million jobs created in the U.S. in the last 20 years have been in the low-wage "non-tradable" sectors of retail sales, health care and government service.

The great danger to the American creed of opportunity is that this combination of wealth concentration, industrial demise and technological displacement will lead to a closure of upward mobility. As the plutocrats seek to defend their privileges through the political influence of money and perpetuate their elite status by monopolizing access for their children to the Stanfords, Harvards and Princetons of higher education, everyone else will be shut out from ever getting to the top.

Without doubt, American entrepreneurial energy will seek to breakthrough this tendency toward closure by the plutocrats at the top. Government policies that provide incentives (like Germany) to retain or expand manufacturing in the U.S. are also critical to stemming the growing income gap.

But, as all economists agree, the key variable in income differentials is the level of education. Only a highly skilled and imaginative workforce will be able to harness the digital revolution's creative-destructive dynamic so that high-paying jobs follow rising productivity.

Investment in education, training, research and development, however, will require wresting resources for the future from an economy not only skewed toward the plutocrats well positioned to protect their interests but also weighed down by the present costs of past promises through Medicare, Social Security and other benefits.

In short, any attempt to restore the aspirational faith in mobility and opportunity will necessarily pit the top and the past against the future. What has been made clear by the re-election of President Obama -- and the continuing battle over the 'fiscal cliff' -- is that most Americans are in no mood to sacrifice their promised social benefits on behalf of investment in the future if the plutocrats are left off the hook.

We got a hint of how this all might be sorted out in California's recent elections when Gov. Jerry Brown's measure to raise taxes on the wealthy to fund elementary education, the University of California and the CalState system succeeded by a surprisingly large margin. It was the Latino, Asian and youth bulge that put it over the edge.

The true import of this election is that a powerful new constituency has emerged for investment in the future, affirming a key tenet of the American creed: Education, particularly affordable public higher education, is the best guarantor of upward mobility for all citizens.

Soaking the rich alone is not going to renew the clogged meridians of mobility and opportunity for most Americans. In the end, a society only works if everyone who shares the benefits also bears the costs.

But what the vote in California tells us is that most Americans believe that the aspiration to write one's own narrative is the right of everyone, not the privilege of the few.

(Nathan Gardels is editor-in-chief of NPQ and the Global Viewpoint Network of Tribune Media. He is coauthor with Nicolas Berggruen of "Intelligent Governance for the 21st Century: A Middle Way Between West and East.")


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