Corporate welfare strengthens the billionaire class
Last year, at the height of the global pandemic, the world created more than 700 new billionaires. In the year that followed, five hundred more were created – but the total wealth on the Forbes list grew from $ 5,000 billion to $ 13 trillion, the largest increase on record in a one-year period. China tops the list for most new billionaires, with the United States coming in second.
Meanwhile, global GDP shrank 3.3% in 2020 and unemployment rate are about 1.5 percentage points higher than they were before the pandemic in most economies. It doesn’t just raise moral questions about the distribution of wealth during a pandemic – it forces us to wonder exactly how those at the top are doing so well when demand in the global economy is so low.
The main reason for the explosion of billionaire wealth during the pandemic has been the asset purchase programs undertaken by central banks. In the wake of the financial crisis, and following in the footsteps of the Bank of Japan after its crisis a decade earlier, central banks set out to create new money to buy long-term government bonds and some other assets in order to reduce yields (previously they had mainly traded short-term bonds in order to influence interest rates).
The idea behind what is now commonly known as quantitative easing (QE) was that lower yields on long-term government bonds would encourage investors to buy other assets, like stocks. Some claim it was simply a measure designed to increase lending and investment; others argue that central banks were actively trying to raise asset prices, making the rich richer on the assumption that that wealth would “trickle down” to everyone.
Whatever the initial intentions, the central bank’s asset purchases have undoubtedly led to high asset price inflation and increased wealth inequalities. While this trend was not evident as the COVID-19 pandemic approached – U.S. stocks had seen their longest rise in history and many observers pointed to a high-yield corporate debt bubble – So it is certainly evident today.
To say that the central bank’s asset purchases have increased wealth inequalities is another way of saying that the state has intervened directly to increase the wealth of those at the top. In this context, the idea that a billionaire’s wealth is simply a reward for effort and innovation – the size of which is determined by the “market” – is clearly absurd. These billionaires did not earn the massive increases in their wealth seen over the past year – they were effectively handed over that wealth by the state.
And QE is not the only form of upward redistribution promoted by capitalist states today. Even before the pandemic, the United States had a huge problem with so-called corporate welfare. Special interest groups – from oil to agriculture to aviation – has received huge direct donations from the US state in the form of tax breaks and subsidies.
The response to the global financial crisis could itself be seen as a form of corporate welfare. Some of the biggest banks, insurance companies and other financial institutions have received massive direct or indirect bailouts for undertaking activities that many of their senior executives were aware were incredibly risky.
These bankers undoubtedly knew that their organizations were “too big to fail”: they knew that their collapse could bring down the world economy. The trump card these large organizations hold is a form of structural power inherent in how capitalism works: as long as a few people control most of the world’s resources, they can blackmail even the most progressive governments.
The pandemic has seen a massive revival in corporate welfare – only this time, rather than bailing out their financial sectors, governments are bailing out the entire capitalist class. In addition to the $ 9 trillion in QE undertaken since the start of the pandemic, governments around the world have spent trillions on loans and grants to corporations, financiers and homeowners. Most also provided a little support for workers; yet, without debt, rent, and bill reduction, much of that ended up in the pockets of the rich as well.
These are just the indirect channels through which capitalist states support the world class of billionaires. Oxfam identified in 2015 that a third of the wealth of billionaires comes directly from buddy connections to the state or to the monopolies. Whether by outsourcing, subsidies or privatization, state policy has created many billionaires over the years – as should be clear from the fact that state-capitalist China has created the most new billionaires this year.
It is no exaggeration to say that the dramatic increase in the wealth of people at the top of society would have been impossible without the direct intervention of capitalist states around the world. Those who attempt to justify extraordinary levels of inequality on the basis that they are the natural result of the functioning of the free market would do well to remember this.
But it would be the same for those on the left who see state intervention as the answer to all the problems of capitalism. More often than not, capitalist states undertake a policy in the interest of capital. It is not because states are mere instruments of the ruling class; this is because the balance of power between capital and labor has shifted decisively in favor of the former in recent years, which has influenced the class struggle taking place within state institutions.
It is perhaps possible to imagine a world in which public power is used to support the interests of labor over capital, but there is no way to achieve this without a class struggle within and – crucially – outside the capitalist state.