Are the Rich Rentiers or Superordinate Workers?

This is the third post in our series discussing The Meritocracy Trap by Daniel Markovits. Click here to read all posts in the series. 

Daniel Markovits –

I am grateful to the LPE Blog for hosting this exchange about The Meritocracy Trap. Today’s post will take up Hart’s and Steinbaum’s post and focus on facts, and tomorrow’s will turn to Gordon’s post and take up values.

Hart and Steinbaum claim that The Meritocracy Trap fails to recognize deep “differences between rich professionals and the ultra-wealthy capitalist class.” They also propose that the book exaggerates meritocratic inequality’s economic rationality, that “[i]t is not the meritocrats’ skills that bring in their high salaries.” In short, Hart and Steinbaum propose that the rich are not superordinate workers paid on account of their enormous productivity but rather are rentiers who exploit their capital to extract rents.

Hart and Steinbaum suggest that The Meritocracy Trap overemphasizes the rising labor incomes of the merely very rich and underemphasizes the exploding capital incomes of the super-rich. But in fact, although the past half-century has seen a shift of income against labor and in favor of capital, this shift is much too small to account for rising top income shares. Instead, rising economic inequality is principally caused by a shift of income within labor’s share, away from middle-class and towards superordinate workers.

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Buybacks are the Symptom, Shareholder Power the Disease

Jeff Gordon –

People claim to be worried about stock buybacks. In fact, the buybacks are a stand-in for what we can all see: business in this country works for wealthy shareholders, not workers, customers, or communities.

Buybacks are in the news as policymakers contemplate a bailout of several major U.S. airlines, all of which have relatively little cash on hand to weather the current crisis. One reason the airlines have so little cash is that, as Bloomberg reports, they spent 96% of free cash flow buying back shares over the last decade. Senator Elizabeth Warren has proposed that no corporation receiving a government bailout should ever again be allowed to conduct buybacks. But the notion that, with fewer buybacks, the airlines would have saved enough to withstand a world-historic economic collapse is fanciful. To see this, we must recognize that the massive stock buybacks of the past decade are a symptom of heightened shareholder power. Efforts to limit or ban buybacks without addressing that power at its source would not lead to the higher wages, productive investments, or rainy-day savings that buyback critics hope for. Moreover, the narrow focus on buybacks distracts from the bigger opportunity presented by the crisis: to reclaim corporations for the public good.

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The Constitutional Theory of the Business Enterprise: Toward a Monetary Theory of Production

This post is part of a series on the Methods of Political Economy.

Jamee K. Moudud

Neoclassical economists see-saw between the twin poles of perfect markets and “market failure” in either advocating laissez faire or state intervention.  And yet this dichotomy rests on a fundamental mischaracterization of the business enterprise, its role in society, and markets more generally. This essay draws out a heterodox theory of the firm and argues that real-world business behavior can only be understood in light of insights from the Law and Political Economy (LPE) tradition. I draw on the classical economists as well as the Oxford Economists’ Research Group (OERG), especially P.W.S. Andrews.  The constitutional theory of the business enterprise (“small-c constitutional” as used by Sabeel Rahman and Christine Desan) discussed here fuses this economics literature with the Legal Realist framework, thereby creating a bridge between microeconomics, macroeconomics, and law. Development of this theory and its implications ought to be central to LPE approaches to understanding how firms do and might operate.

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The Sociology of Markets: an Alternative Political Economy

This post is part of a series on the Methods of Political Economy.

Neil Fligstein – 

For the past 35 years (and certainly before that), scholars across disciplines have offered critiques of neoclassical theory and its variants of political economy. As a result, there is a great deal of theoretical work done on issues of the linkages between states and markets, the comparative study of capitalism across countries, and on understanding how markets are the product of social interactions between market actors—an approach known as the sociology of markets. All of these perspectives share the view that the economy is embedded in political, social, and cultural processes. The upshot of these perspectives is to counter neoclassical political economy’s claim that there is one best or “efficient” way to arrange markets. Instead, markets reflect the relative power of governments, firms, and workers to structure the production of goods and services. The outcome of these interactions produces stability for incumbent firms, a stability that reflects a resolution of these political conflicts. This perspective exposes theoretical arguments that assume efficiency as both incomplete and misleading. Such arguments miss that because there are multiple ways in which these arrangements can be negotiated, there are multiple paths to create stable markets.

These perspectives have been used to understand many empirical contexts including the rise of shareholder value capitalism in the U.S., the rise of finance in the U.S. and around the globe, and the implications of all of this for increasing income and wealth inequality. This literature is well known in political science, sociology, and business studies but less well known in the rest of the academy, particularly in parts of legal studies. My goal here is to introduce the perspective I have contributed by explaining a few of the key ideas and a couple of insights based on using those ideas to make sense of important features of markets.

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Privatizing Sovereignty, Socializing Property: What Economics Doesn’t Teach You About the Corporation

This post is part of a series on the Methods of Political Economy.

David Ciepley – 

We imagine we live in a bourgeois capitalist economy, in which the means of production are owned by natural persons, the “capitalists” of capitalism.  On this, the Marxist economist, the liberal economist, and the neoliberal economist agree.  But we do not.  Ours is a corporate economy.  Overwhelmingly, the means of production are owned, not by natural persons, but by abstract legal entities—corporations.  Marx was thus right in predicting that the fetters of bourgeois, individually-owned property would be burst asunder to be replaced by socialized property.  But it is not at the level of the state that productive property has been socialized.  It is at the level of the corporation.  It is, notes Paddy Ireland, “capitalism without the capitalist.”  The implications of this are manifold and take us outside the confines of what conventional economics can illuminate.

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The Second Wave of Algorithmic Accountability

Frank Pasquale –

Over the past decade, algorithmic accountability has become an important concern for social scientists, computer scientists, journalists, and lawyers. Exposés have sparked vibrant debates about algorithmic sentencing. Researchers have exposed tech giants showing women ads for lower-paying jobs, discriminating against the aged, deploying deceptive dark patterns to trick consumers into buying things, and manipulating users toward rabbit holes of extremist content. Public-spirited regulators have begun to address algorithmic transparency and online fairness, building on the work of legal scholars who have called for technological due process, platform neutrality, and nondiscrimination principles.

This policy work is just beginning, as experts translate academic research and activist demands into statutes and regulations. Lawmakers are proposing bills requiring basic standards of algorithmic transparency and auditing. We are starting down on a long road toward ensuring that AI-based hiring practices and financial underwriting are not used if they have a disparate impact on historically marginalized communities. And just as this “first wave” of algorithmic accountability research and activism has targeted existing systems, an emerging “second wave” of algorithmic accountability has begun to address more structural concerns. Both waves will be essential to ensure a fairer, and more genuinely emancipatory, political economy of technology.

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