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The Self-Destruction of the 1 Percent

The 1% richest classes in almost all countries are thriving like never before

Are the conditions ripe for the further radicalization of capitalism?

German philosopher Peter Sloterdijk once said:  “if there is a person alive to whom they will build monuments 100 years from now, it is Lee Kuan Yew, the Singaporean leader who did more than anyone else to promote and implement the marriage of capitalism and authoritarianism“. This is an arrangement Sloterdijk euphemistically referred to as “Asian values.”

The virus of this authoritarian capitalism is slowly, but surely, spreading around the globe, nowhere more so than in China.

CHRYSTIA FREELAND published on October 13, 2012 in the NYT Sunday Review under “The Self-Destruction of the 1 Percent“:

“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.

Gianni Dagli Orti/Art Resource

A painting of 17th-century Venice, with a view of the banks of the Grand Canal and the Doge’s Palace, by Leandro Bassano.

“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 Libro d’Oro, 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 not for the longer term of Venice prosperity.

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% 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.

You can see America’s creeping Serrata in the growing social and, especially, educational chasm between those at the top and everyone else.

At the bottom and in the middle, American society is fraying, and the children of these struggling families are lagging the rest of the world at school.

Economists point out that the woes of the middle class are in large part a consequence of globalization and technological change.

Culture may also play a role. In his recent book on the white working class, the libertarian writer Charles Murray blames the hollowed-out middle for straying from the traditional family values and old-fashioned work ethic that he says prevail among the rich (whom he castigates, but only for allowing cultural relativism to prevail).

There is some truth in both arguments.

But the 1 percent cannot evade its share of responsibility for the growing gulf in American society. Economic forces may be behind the rising inequality, but as Peter R. Orszag, President Obama’s former budget chief, told me, public policy has exacerbated rather than mitigated these trends.

Even as the winner-take-all economy has enriched those at the very top, their tax burden has lightened. Tolerance for high executive compensation has increased, even as the legal powers of unions have been weakened and an intellectual case against them has been relentlessly advanced by plutocrat-financed think tanks.

In the 1950s, the marginal income tax rate for those at the top of the distribution soared above 90 percent, a figure that today makes even Democrats flinch. Meanwhile, of the 400 richest taxpayers in 2009, 6 paid no federal income tax at all, and 27 paid 10% or less.

None of the 400 richest elites paid more than 35%.

Historically, the United States has enjoyed higher social mobility than Europe, and both left and right have identified this economic openness as an essential source of the nation’s economic vigor. But several recent studies have shown that in America today it is harder to escape the social class of your birth than it is in Europe.

The Canadian economist Miles Corak has found that as income inequality increases, social mobility falls — a phenomenon Alan B. Krueger, the chairman of the White House Council of Economic Advisers, has called the Great Gatsby Curve.

Educational attainment, which created the American middle class, is no longer rising. The super-elite lavishes unlimited resources on its children, while public schools are starved of funding.

This is the new Serrata. An elite education is increasingly available only to those already at the top. Bill Clinton and Barack Obama enrolled their daughters in an exclusive private school; I’ve done the same with mine.

At the World Economic Forum in Davos, Switzerland, earlier this year, I interviewed Ruth Simmons, then the president of Brown. She was the first African-American to lead an Ivy League university and has served on the board of Goldman Sachs.

Dr. Simmons, a Harvard-trained literature scholar, worked hard to make Brown more accessible to poor students, but when I asked whether it was time to abolish legacy admissions, the Ivy League’s own Book of Gold, she shrugged me off with a laugh: “No, I have a granddaughter. It’s not time yet.”

America’s Serrata also takes a more explicit form: the tilting of the economic rules in favor of those at the top.

The crony capitalism of today’s oligarchs is far subtler than Venice’s. It works in two main ways.

The first is to channel the state’s scarce resources in their own direction.

This is the absurdity of Mitt Romney’s comment about the “47 percent” who are “dependent upon government.”

The reality is that it is those at the top, particularly the tippy-top, of the economic pyramid who have been most effective at capturing government support — and at getting others to pay for it. (Particularly, the top weapon and communication industries…)

Exhibit A is the bipartisan, $700 billion rescue of Wall Street in 2008. Exhibit B is the crony recovery.

The economists Emmanuel Saez and Thomas Piketty found that 93% of the income gains from the 2009-10 recovery went to the top 1 percent of taxpayers. The top 0.01 percent captured 37 percent of these additional earnings, gaining an average of $4.2 million per household.

The second manifestation of crony capitalism is more direct: the tax perks, trade protections and government subsidies that companies and sectors secure for themselves. Corporate pork is a truly bipartisan dish: green energy companies and the health insurers have been winners in this administration, as oil and steel companies were under George W. Bush’s.

The impulse of the powerful to make themselves even more so should come as no surprise. Competition and a level playing field are good for us collectively, but they are a hardship for individual businesses.

Warren E. Buffett explained in his 2007  annual letter to investors:  “A truly great business must have an enduring ‘moat’ that protects excellent returns on invested capital. Though capitalism’s ‘creative destruction’ is highly beneficial for society, it precludes investment certainty.”

Microsoft attempted to dig its own moat by simply shutting out its competitors, until it was stopped by the courts.

Even Apple, a huge beneficiary of the open-platform economy, couldn’t resist trying to impose its own inferior map app on buyers of the iPhone 5.

Businessmen like to style themselves as the defenders of the free market economy, but as Luigi Zingales, an economist at the University of Chicago Booth School of Business, argued, “Most lobbying is pro-business, in the sense that it promotes the interests of existing businesses, not pro-market in the sense of fostering truly free and open competition.”

IN the early 19th century, the United States was one of the most egalitarian societies on the planet. “We have no paupers,” Thomas Jefferson boasted in an 1814 letter. “The great mass of our population is of laborers; our rich, who can live without labor, either manual or professional, being few, and of moderate wealth. Most of the laboring class possess property, cultivate their own lands, have families, and from the demand for their labor are enabled to exact from the rich and the competent such prices as enable them to be fed abundantly, clothed above mere decency, to labor moderately and raise their families.”

For Jefferson, this equality was at the heart of American exceptionalism: “Can any condition of society be more desirable than this?”

That all changed with industrialization.

As Franklin D. Roosevelt argued in a 1932 address to the Commonwealth Club, the industrial revolution was accomplished thanks to “a group of financial titans, whose methods were not scrutinized with too much care, and who were honored in proportion as they produced the results, irrespective of the means they used.” America may have needed its robber barons; Roosevelt said the United States was right to accept “the bitter with the sweet.”

But as these titans amassed wealth and power, and as America ran out of free land on its frontier, the country faced the threat of a Serrata.

As Roosevelt put it, “equality of opportunity as we have known it no longer exists.” Instead, “we are steering a steady course toward economic oligarchy, if we are not there already.”

It is no accident that in America today the gap between the very rich and everyone else is wider than at any time since the Gilded Age. Now, as then, the titans are seeking an even greater political voice to match their economic power. Now, as then, the inevitable danger is that they will confuse their own self-interest with the common good.

The irony of the political rise of the plutocrats is that, like Venice’s oligarchs, they threaten the system that created them.

The editor of Thomson Reuters Digital and the author of “Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else,” from which this essay is adapted.

Note 1: I watched on canal ARTE a documentary yesterday that recount how the Danish government instituted the quota law on fishing, a decade ago.  The richest fishermen who purchased and were allocated quotas can now swap quota from one another, as in the stock market, and the little fishermen are vanishing. The little boats are disappearing, the medium fishing boat have been cut by 3, and the bigger boat by 5. The little fishermen have congregated into cooperatives in order to staying afloat. However, the amount of fish exploited has remained the same. Danmark is the highest exploiter of fish, dwindling alarmingly.

Note 2: The European regulations of dumping the smaller fish back to the sea to die (about 50% of the fishing) is preventing the poorer nations to import fish at low prices.  Little fish my ass: You see fish weighting more than 40 kilos thrown back in the sea, on the ground that these fish species have to grow a little more to sustain the exploitation…

Did Tamerlane (Timor Lank) Create Empires?

There is this army commander of the 14th century who kept his army on the march longer (for over 25 years) and crossed more lands than Alexander, Genghis Khan, or Attila and conquered more Empires and was never defeated and slept in his tent, outside city-limits, even in his Capital Samarkand (in current Uzbekistan).

The Persian gave him the nickname Lank because he was slightly lame in one leg.  This is Timor Lank who was not the son of any Monarch, prince, or even a tribal leader.

Timor Lank was from the Caucasus region (probably around the region of Azerbaijan and Chechnya (I get pretty upset when history authors fail to located current geographical areas and just paste the ancient names).

He was a Moslem and veneered Imams and clerics claimed to be descendants of the Prophet Muhammad’s family, and who wore the black turban.

Otherwise, he didn’t give a hoot about Moslems when conquering lands and people. He killed mostly Moslems since the vast area of his operations were mostly Islam Land.

For example, he built pyramids of skulls: 60,000 heads in Asfahan (Iran), 3,000 in Aleppo, and many other skull pyramids in India…

First, Timor Lank chased out the Tatar “Golden Hordes” (led by a descendant of Genghis Khan) along the Volga River (current Russia) and burned and sacked all their cities and villages.  He did not resume his operations, but by the end of his war, the Golden Hordes were weakened and displaced.  It was the fate of the Russian Tsar, Ivan the Terrible, to finish off the job against the Tatars in the 16th century and expand his Empire. You may claim that Tamerlane ultimately created current Russia.

Timor Lank captured Samarkand and made it its Capital.

He descended on Persia and conquered this Empire and beheaded over 60,000 of the population in Isfahan and piled up the head in shapes of pyramids.  This city surrendered peacefully and Timor Lank had no plans to occupy it; he was just crossing!

It happened that for a few cases of rape within the city by Timor Lank’s garrison of 500 soldiers, the inhabitants slaughtered the soldiers.  Timor Lank was camping outside city limit, always in his tent. And the reaction was a nightmare on the city inhabitants.

The commander moved on toward Turkey in 1400.  The Turkish Sultan army was completely demolished and the Sultan was put in a tiny cage so that Timor Lank could use it as a stool to mount his horse. This commander could have conquered all of Turkey, but instead he headed south to enter Aleppo and Damascus in Syria.

If Timor Lank had not vanquished the Turkish army then the Byzantium Capital of Constantinople would have fallen 50 years earlier along with most of Europe.

There would be no Western Europe or the Renaissance:  at that time, the enmities between Genoa and Venice was at its zenith, the Kingdom of Poland was weak, there was no Russian Empire, and the King Henry of Portugal had not begun challenging the high seas to discover new routes to India and the Far East.

And the King of France Charles 8 would not have entered and ruined Rome and displaced the skilled artisans and thinkers, located and concentrated in Papal Rome, to all over western Europe that started the Renaissance.

In the 13th century, the Mameluke Sultan of Egypt had moved out from Egypt with his army and defeated the Mogul army of Hulagu in Palestine around 1250.  This time around, the Mameluke Sultan did not venture to come out to rescue his vassals  in Syria.

Damascus put up a serious fight, but Timor Lank tactics were always to destabilize any city before setting siege.  The skilled people in Syria and Palestine were sent to build and develop Samarkand. (That is the story of the Levant since antiquity: armies conquer The Levant to capture its skilled workers.)

The Ottoman Sultan would later defeat the Mameluke Sultan in the 16th century and conquer Syria, Palestine, Egypt, and all North African countries.

Timor Lank conquered Afghanistan, Pakistan and India.

One of Timor Lank offspring would establish the Mogul Empire in India (the Punjab) that lasted over 5 centuries.  The British Empire would finally take over all of India by the end of the 19th century, but failed to retain Afghanistan after two bloody massacres of its troops.

The British had drawn the current borders among Afghanistan, Pakistan, India, and Kashmir.  As well as drawing many other borders in the Middle-East and Africa with colonial France

This ruthless commander Tamerlane was getting ready to march on China when he died at the age of 63.

Note:  My published novel on wordpress.com “Rainbow over the Levant” is set in that time period.

A Gentleman (continue 8)

Antoun met Yasmine on an April of Palm Sunday (Chaanine) accompanied by Noura as her chaperon.  Yasmine was 17 years old, pretty, shy and introverted. She talked little and Antoun barely heard what she was saying and did not pay much attention to her during the procession. Noura later told him that she was the official health provider for Yasmine’s family.  The family members were suffering not so much of any major physical illnesses but mainly from a kind of depression, sadness and isolation.

Boulos Bakhour, the father of Yasmine, was in earlier times a prosperous merchant who had wide connections with the merchants of the city of Venice. Boulos exported incense and spices to Venice and imported finished woolen cloth (usually imported by the Venice merchants from England through the port of Antwerp in Holland), stone marble, navigation accessories and mechanical wooden toys. Two of his sons had died; one from a ship wreck and another from the plague that devastated Italy on one of his trips. Boulos business went under shortly after and he had to sell his trading facilities at a loss.

Yasmine was highly educated in matters that were considered totally useless, especially for females:  She could write in Latin, speak fluent French and play an exotic musical instrument which resembled a “clavecin”. She also tried her hand at small aquarelle paintings of landscapes and flowers and had reserved a room for that hobby.

Yasmine could not believe Noura when she assured her that Antoun could procure her an updated clavecin, more Latin books and especially those exquisitely varnished mechanical wooden toys if she could afford the price. This information inflamed Yasmine and set her on a journey of conniving for Antoun’s heart and soul.

Noura became frantic and alarmed at Yasmine’s excitement; she was not thrilled with the development shaping out under her watch; her imprudence and pride prevented her from disrupting the unfolding intimate relationships between Yasmine and Antoun.  Noura was reduced to reason logically that, if they indeed might wed, which eventuality should not be a done deal, this wedding might provide a perfect cover up for Antoun’s dangerous activities. The old merchant Boulos knew about the illegal trading business of Antoun but hard times and the newly discovered excitement of Yasmine for life were irresistible.

Most often, love has devious ways of punishing the inattentive to its subtle signals, so that Noura reaped a few lame satisfactions imagining Antoun spending his spare time listening to the harpsichord, attending to Latin poem recitations and entertaining a stuffy entourage in endless boring parties.  Four months of studious courting resulted in Yasmine and Antoun getting married; his eldest sister Latifa represented the Fares family because his father could not make the trip while Antoun’s official situation with the Emir of the Metn was still unresolved.  The honeymoon was spent in Cyprus at the request of Yasmine who had never traveled overseas, a request that suited Antoun’s business transactions too.

The first act of change in class status was for Antoun to buy himself a black pure blood Arabian stallion and a fancy coach hitched to two long-legged bays to take Yasmine on tours of the city and for official invitations. New rich silk outfits for the couple were remarked with appreciation in town and many households had a hard time imitating the expenditure of the newly wealthy couple.  Yasmine nagged Antoun for clinging to his flat turban and assiduously urged him to change to a Venetian headdress and tight thigh molding pantaloons.  Antoun went along with Yasmine’s extravagances for a month until his closest friends started to shun him in the streets and then uncalled for innuendos flooded the neighborhood.

Three months in his new social status confirmed to Antoun that marriage is anathema to his cherished liberty and freedom but rather a very useful formal social contract to establish credibility as a reliable man and setting valid ground to acquire stable status among the prosperous merchant families. Antoun expanded his business by building carriages and subcontracted the mismanaged postal service in and around Beirut and later on to the Metn region.  The regular postal carriages were served by on board scribes who offered their services of reading delivered letters to the illiterate clients and immediately replying to the returned correspondences.  Abundant intelligence information was accumulated via that service along with immense prestige attached to a client friendly enterprise rarely emulated.

The first-born son was named Adhal (muscle) but, to the chagrin of many, Yasmine could only manage the sound of Adl (justice); and thus Antoun’s close friends and associates attributed to him the pseudonym of Abu Adl (father of justice), a name that he grew to like because he thought matched his temperament.  Yasmine hated the name Adhal and screamed recriminations and shed hysterical cries for she hoped her first son would have a French name of Augustin or Christoph as an alternate.

Gergis became a constant fixture at Yasmine study room; he hired her services under the pretense of learning Latin so that she would translate for him passages from the Roman codes of law and books that described how the Romans governed their vast multiracial Empire.  Somehow, Yasmine felt that Gergis made her repeat passages that were connected to Sicily.

Antoun had different code names among the civilian and the armed groups.  His code name for the civilian association was Abu Adl (father of justice) and for the armed group Abu Ghadab (father of anger). A propitious event offered Antoun the opportunity to expand and affirm his leadership.  The Emirs of the regions were summoned by the Viceroy of Damascus to raise their small private armies and advance to face a renegade Emir from the north around Aleppo.  Antoun was frustrated with the heavy demands levied on his business and the mass forced recruitment of the youth and able bodies.  He started by helping the young males from the Metn who refused to be enlisted in the army to flee into the outlawed areas and he prepared to resist any onslaught of the mercenaries of the Emir of Beirut

Neighborhood night watch groups were organized to forewarn against any sudden descend of the Emir’s troops. The sea was opened to evacuate distressed families. Many widowed women and orphans joined the insurgents for food and shelter because foodstuffs were seized and the black market prices were exorbitant. Gergis was spared the draft because he was deemed a valuable middleman to the rich Christian class.

At this junction, Antoun had no choice but to join the resistance movement hiding in the mountains. He took his son Adhal with him to visit his grandparents in the mountains. Yasmine, who was pregnant for the second time, stayed home in Beirut with her parents. The married gentleman Antoun was tolerated again in his hometown which was located at a cross-road between the Capital Mtein and Zahle in the Bekaa Valley.  He had bought a small cottage in the village of Mrouj, very close to his hometown, where his eldest sister Latifa was caretaker.


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October 2020
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