Economic Elites, Crises, and Austerity in 21st Century Capitalism

24 September 2014

Andrés Solimano

The era of neoliberal capitalism starting by the late 1970s and early 1980s promotes free trade, capital mobility, fragmented migration, privatization, deregulation and marketization. On the social side neoliberalism seeks the weakening of labour unions and the strengthening of big capital. My book [1] examines the main effects of this variant of global capitalism such as the rise of economic elites, the internal differentiation of the middle class and the marginalization of the traditional working classes, the higher frequency of financial crisis followed by austerity policies, the rise of the politics of nationalism and intolerance, the globalization of elites, migration and social movements. We end with some thoughts of an alternative based on the principles of economic democracy. 

Rising economic elites and fragmented middle and working class

The leading actors in this new play are the rich economic elites. This segment is more than a statistical share depicted by the top 5 per cent or the top 1 per cent; it is a somewhat cohesive group with a high command of economic assets and unyielding political influence. Given their unparalleled capacity to appropriate the economic surplus these elites are able to mobilize ample financial resources to influence the working of political institutions through mechanisms such as contributions to political campaigns; lobbying activities to shape legislation; the message of the mass media; the mobilization of public intellectuals and academics to provide technical arguments in favour of pro-elite policies. Economic elites not only capture main productive and financial assets, but they extend their reach to the democratic process.

Another set of impacts of neoliberal policies on the social structure of capitalism is the internal differentiation of the middle class between a group of high-middle class segment of managers, financial experts, successful professionals, and a lagging portion of mid-level public employees, school-teachers and small firm owners. In addition, we observe a weakening of the traditional working class in advanced capitalist countries due to various factors such as the relocation of domestic firms to low wage countries, growing immigration to rich countries, labour-saving technical progress and weakened labour unions. 

Crises, austerity, and the rise of extreme politics

In contemporaneous global capitalism financial and economic crisis have shifted to the core economies of global capitalism from the chronically unstable periphery. The US and Europe have since 2008–9 been affected by slow growth, unemployment and diminished expectations for future generations. A historical perspective confirms that global capitalism, when accompanied by unregulated financial markets at national and global levels, becomes prone to financial crises of varying degrees of virulence and intensity, the exception being the Bretton Woods period of regulated capitalism. 

The faces of austerity

After a brief flirtation with expansionary fiscal policies in 2009, the global north has resorted to austerity policies imposed upon the weaker links of peripheral European countries such as Greece, Spain, Italy, Portugal, and Ireland. The results have been predictable: output contraction, lost investment, lack of jobs particularly for the youth. Austerity policies dictated by the troika promote privatization, business deregulation, and retrenchment of the welfare state. Privatization is presented as a way to raise revenues for the state (in the short run) rather than as a transfer of national wealth to small but powerful private conglomerates disregarding international evidence on the formation of new economic elites, along with most expensive access to social services and utilities that have accompanied privatization of public assets in the 1980s and 1990s, in the United Kingdom, Latin America, Russia, and other countries. An alternative path for dealing with the crisis would be to put a ceiling on debt servicing and give priority to maintaining internal economic growth, employment, public investment, and social spending, while tackling the structural problems that gave birth to the crisis. Such a change in policy priorities is not in sight, however. 

The politics of nationalism and intolerance

The social and political consequences of the crisis should not be underestimated. The frustrations brought about by protracted unemployment, massive firing of workers in the public and private sectors, cuts in social entitlements, and the effect of immigration are giving rise to complex political reactions. The public frustration is exacerbated once people recognize that rich elites are unaffected by the crisis—or even may be profiting from it. Nationalist, xenophobic and anti-European political parties and movements are on the rise in various European countries resembling the social and political polarization of the 1920s and 1930s at a time of also serious economic crisis and social disarray.

Global elites, migration, and social movements

The sharp separation between the circuits of capital, talent, and workers mobility is another contradiction of current global capitalism. International capital along with high-level executives, financial and technical experts, and people with higher education and connections are much more mobile than immigrant workers and the mobile poor. Two sorts of globalization patterns seem to superimpose: first a globalization ‘from above’, led by corporations, banks, and rich-country governments. Second a ’globalization from below’, comprising worker migration along with the rise of new social movements seeking, with varying degrees of success, to counter the increasing power of economic elites in the new global capitalism. The latter are especially critical of social inequality and exclusion, unemployment, corruption, and the failures of a representative democracy. 

Times of renewal and the case for economic democracy

New alternatives are needed to give people more voice, de-concentrate assets and democratize the use of the economic surplus. Political democracy and economic democracy are two sides of a genuinely democratic society. This is a good time to think of new forms of economic organization around the principles of economic democracy at various levels. Instead of privatization and the uncontested rule of capital and entrenched elites, we need enhanced participation of employees in the workplace concerning issues of wage setting, benefits and working conditions; social services must be preserved along with more equitable and democratic patterns of ownership of the productive capital in the economy. Labour and society as a whole should have a stronger voice in the choice between austerity, economic security, and growth. Reforms of international organizations must reflect the new economic realities of the global south and they must abandon unilateral dictating the terms of austerity over whole countries. Finally economic and political reforms must go hand in hand for a new more equitable and transparent social contract. 

Andrés Solimano, a Chilean-Italian national, holds a PhD in Economics from the Massachusetts Institute of Technology (MIT). He is currently Regional Advisor at the United Nations Economic Commission for Latin America and the Caribbean.

[1] A. Solimano (2014). Economic Elites, Crises, and Democracy, Oxford University Press.  

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September 2014
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