The self-destruction of the 1 percent

Chrystia Freeland writes: In the early 14th century, Venice was one of the richest cities in Europe. At the heart of its economy was the colleganza, a basic form of joint-stock company created to finance a single trade expedition. The brilliance of the colleganza was that it opened the economy to new entrants, allowing risk-taking entrepreneurs to share in the financial upside with the established businessmen who financed their merchant voyages.

Venice’s elites were the chief beneficiaries. Like all open economies, theirs was turbulent. Today, we think of social mobility as a good thing. But if you are on top, mobility also means competition. In 1315, when the Venetian city-state was at the height of its economic powers, the upper class acted to lock in its privileges, putting a formal stop to social mobility with the publication of the Libro d’Oro, or Book of Gold, an official register of the nobility. If you weren’t on it, you couldn’t join the ruling oligarchy.

The political shift, which had begun nearly two decades earlier, was so striking a change that the Venetians gave it a name: La Serrata, or the closure. It wasn’t long before the political Serrata became an economic one, too. Under the control of the oligarchs, Venice gradually cut off commercial opportunities for new entrants. Eventually, the colleganza was banned. The reigning elites were acting in their immediate self-interest, but in the longer term, La Serrata was the beginning of the end for them, and for Venetian prosperity more generally. By 1500, Venice’s population was smaller than it had been in 1330. In the 17th and 18th centuries, as the rest of Europe grew, the city continued to shrink.

The story of Venice’s rise and fall is told by the scholars Daron Acemoglu and James A. Robinson, in their book “Why Nations Fail: The Origins of Power, Prosperity, and Poverty,” as an illustration of their thesis that what separates successful states from failed ones is whether their governing institutions are inclusive or extractive. Extractive states are controlled by ruling elites whose objective is to extract as much wealth as they can from the rest of society. Inclusive states give everyone access to economic opportunity; often, greater inclusiveness creates more prosperity, which creates an incentive for ever greater inclusiveness.

The history of the United States can be read as one such virtuous circle. But as the story of Venice shows, virtuous circles can be broken. Elites that have prospered from inclusive systems can be tempted to pull up the ladder they climbed to the top. Eventually, their societies become extractive and their economies languish.

That was the future predicted by Karl Marx, who wrote that capitalism contained the seeds of its own destruction. And it is the danger America faces today, as the 1 percent pulls away from everyone else and pursues an economic, political and social agenda that will increase that gap even further — ultimately destroying the open system that made America rich and allowed its 1 percent to thrive in the first place. [Continue reading…]

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2 thoughts on “The self-destruction of the 1 percent

  1. Norman

    Perhaps I’m being naive here, but I really don’t think the U.S. has many years left before it either changes from the corruptions its embraced or just plain destruction itself. The issues are taken from old thoughts, processes that worked in the preceding centuries, when the population was much smaller in the world. With the madness of the warmonger[s], it’s only a matter of time before the nuclear card is played, most likely from the west or the junk yard dog[s].

  2. delia ruhe

    There’s no point confronting the American oligarchy with these historical precedents, as the wealthy know that in this globalized economy, when their finished pauperizing the US, there are plenty other populations to plunder.

    This from the UNCTAD Trade and Development Report, 2012:

    “… while globalization and technological change,
    and their interplay, have created both winners and losers, their
    apparent adverse impacts on overall income distribution in many
    countries must be understood in the context of the macroeconomic,
    financial and labour market policies adopted. Those policies have
    caused unemployment to rise and remain high, and wages to lag
    behind productivity growth, and they have channelled rentier
    incomes towards the top 1 per cent of the income ladder. Neither
    globalization nor technological improvements inevitably require
    the kind of dramatic shift in the distribution of income that favours
    the very rich and deprives the poor and the middle-class of the
    means to improve their living standards. On the contrary, with
    more appropriate national and international policies that take into
    account the crucial importance of aggregate demand for capital
    formation, structural change and growth dynamics, job creation
    can be accelerated, inequality reduced and the requisite degree of
    economic and social stability guaranteed.”

    In other words, some of that money that got “sucked up” in the dribble-down economy needs to be redistributed back downward in the form of wages — WAGES, not gimmicky tax rebates. People need to earn enough to consume AND pay taxes. But as it stands, workers have been cut out of the circulation of wealth. No demand, no production; no production, no wealth. The wealth loop — that “virtuous circle” — needs repairing.

    But it won’t be the US that repairs it because it’s far too late for a course correction. Democrat policies have been only marginally better than Republican ones: banana republic status is just around the corner.

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