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Home Publications Blogs Beat the Press Fareed Zakaria Misses the Story: Technology and Globalization Only Favor the Rich When They Are Rigged

Fareed Zakaria Misses the Story: Technology and Globalization Only Favor the Rich When They Are Rigged

Friday, 20 December 2013 05:37

Fareed Zakaria misses the story big-time when he tells readers that the super rich have gotten richer in the United States because, "globalization and technology help superstars." This is not inherently true, it is only true when the government rigs the deck to accomplish this result.

For example, globalization could be used to promote competition in the CEO market so that U.S. corporations take advantage of the much lower paid CEOs in Europe and Asia to save tens of millions of dollars a year in wasted CEO pay. However because the corporate governance structure in the United States essentially allows CEOs to pick the corporate boards that decide their fate, corporations do not take advantage of this opportunity provided by globalization.

As another example, many huge fortunes earned in drugs and the high tech sector depend on strong government patent monopolies. It would be easy to devise systems that produced as much or more technological progress that did not redistribute so much income upward to those at the top. Many of the huge fortunes in the financial sector are attributable to the under-taxation of this sector and the large number of regulatory and tax loopholes that the government leaves in place to allow for fortunes to be made by the very rich.

It is very convenient for the wealthy to have the public believe that their riches came about through forces like globalization, as opposed to government rigging. It leads to views like those expressed by Zakaria:

"We don’t have all the answers, but if you’re looking for the policy that would likely have the biggest effect on increasing social mobility and reducing inequality, let’s shift the attention from the rich and the middle class and focus on the forgotten poor."

This is known as "Loser Liberalism."

Note: linked added.

Comments (13)Add Comment
written by Kat, December 20, 2013 7:01
Article link available?
The Double Standard of Superstars and First Movers
written by Last Mover, December 20, 2013 7:18

Fareed Zakaria belongs with loser liberal writers like Tom Friedman and Robert Samuelson, who end up justifying the current level of hyper concentrated income and wealth that controls America, with implicitly self appointed first mover superstars "helped" by globalization and technology.

These writers report the "factual" at the cost of ignoring the obvious counterfactual. Those few winners at the top do exist ... so they must be true economic winners ... in the sense of maximum added value, free market competition and all the rest of the implied "factuals" consistent with such an observation.

Since these "first mover superstars" were first on the scene to take advantage of opportunities not available to those coming behind, that obviously explains why there are so few of them.

Why of course, we should have known. It's a niche market of sorts, ready to expand into a major new market grounded in the appropriate upgraded or entirely new technology, ready to replace with creative destruction the obsolete technology in place.

With today's technology and globalization, it obviously takes a superstar to get it done. All that stuff about about being overpaid to collect monopoly economic rent that actually creates negative value is a load of loser liberal lies. Any economist knows those differences in pay mean nothing, that there would still be only room for a few winners in such an economy as this one.

Now that they have the easy part cleared up - you know, the factual part with no counterfactual of what could have been or what should have been - the rest is easy. Just figure out what part of the economic pie created by superstars should be made available to the middle and lower classes.

That part is easy too. Just teach them how to be winners as well so they can compete with the superstars. Proceed to flog the supply side theory with tortured logic on how to reduce inquality with more training and education rather than incentive-killing handouts ... so more can move up the occupational ladder ... to compete for fewer and fewer positions available ... among the increasingly tiny few at the top ... like you know, to have winners there must be losers, right? Even millions of them.

Never forget the double standard of superstars in America. It was real first movers who made America with the "help" of technology. Now it's fake first movers who are taking it down with the "help" of technology and globalization.
written by Prison Patsy, December 20, 2013 8:49
like you know, to have winners there must be losers, right? Even millions of them.

brilliant writing, this made my day
Not superstars... capitalists
written by J. Miller, December 20, 2013 9:59
Dean, kudos as always for fighting the good fight. but here I think your critique of Zakaria is superficial and your solutions likely to be very inadequate.

Technology and globalization do not favor "superstars", they favor capitalists -- some of whom may be brilliant and creative, many of whom are trust-fund drones. They all benefit equally regardless. They own the technology (invented by others). They benefit from globalized labor competition (carefully focused on lower-wage jobs, as you point out).

Piecemealing of the sort you propose will not solve the problem. We need a comprehensive return to well-regulated capitalism of the sort we had in the 50's, or the sort which much of Europe has today.

The owners of the means of production automatically have first claim on the income of production. They have no inherent incentive to share. Left to their own devices they will continue to absorb the lion's share of productivity gains (and of course lions are predominantly scavengers). "Noblesse oblige" never worked very well and has certainly gone by the board in this country today. They need to be adequately taxed and restricted in their ability to exploit labor.
i guess I don't get it....
written by pete, December 20, 2013 10:26
Everybody knows the rules....there is a contest (VCR v Beta, Apple V. MSFT/IBM). Consumers pick the winner. Many many dotcoms disappear. Focusing soley. on the few who are successful is inappropriate. CEOs...there are very few of these who make the outrageous salaries. Most interesting is that highest non-marked-to-market income shifts wildly amongst individuals from year to year. Wealth is obviously very stable, but income is much more volatile. So when some midlevel Google employee cashes in their options, they are in the 1% of income that year. Next year, probably not. On the other hand doctors and lawyers, and some profs like Krugman, are in the top 1% from year to year.
Throwing shoes
written by Nick Batzdorf, December 20, 2013 3:22
My blood is still boiling over his commentary about the Swiss voting down a 1:12 lowest salary:executive pay limit. Paraphrasing: "Thankfully common sense prevailed and they realized that the talent would just go elsewhere."

The good news: he didn't kowtow to James Baker during that show.
written by liberal, December 20, 2013 3:46
pete wrote,
CEOs...there are very few of these who make the outrageous salaries.

You're totally clueless. Do you know what fraction of corporate profits go to the top management, in aggregate?
Restructure the USA economy away from the financial and military rich
written by John Wright, December 20, 2013 4:07
I believe globalization is helped because the US military makes the world not "safe for democracy" but "safe for global business".

So drop military spending and the risk of conducting business overseas goes up, and a USA employee's value increases.

I also do not know why the USA finance industry needs to be so large and apparently lucrative. If the task of the financial industry is to allocate capital to the best use, the more capital the financial industry diverts to itself in the allocation process harms output.

With computers and inexpensive information flow over the internet, the cost of allocating capital should drop down.

Shrink the military and the financial industry and some of the enablers of the global rich go away.

But I doubt either is on Obama's new years resolution list.
historical trend of ceo salaries
written by Prison Patsy, December 20, 2013 4:11
top 500-800 companies up to 2008

Or how about setting up all "producers of labor" to be vulnerable to coercion instead of allowing them access to a "free market"?
written by Perplexed, December 20, 2013 6:18
Or how about setting up all "producers of labor" to be vulnerable to coercion instead of allowing them access to a "free market"?

Dean, have you had a chance to see this recent article by Mark Thoma: http://www.thefiscaltimes.com/...y-It-Works

I thought he did a great job of explaining the "basic principles" behind insurance and how it works to spread risks that could be a disaster to one individual across a large number and thereby make everyone safer as they would now only be exposed to their "proportionate" share of the risk. Everyone takes a slightly less return in exchange for the whole group becoming safer and better off. I thought that his example showing how the group of 100 all gained in spite of the same number of defaults did a great job of explaining something that is somewhat counter-intuitive and a "nuance" that often gets lost in the political arguments over cuts to social programs (many of which are simply a form of insurance). I would quarrel a bit with the statement that "However, by pooling the loan default risk through a bank or other financial intermediary, the risk can be reduced substantially." The overall "risk" is really the same (same # of defaults/100), its just now spread by the "insurance" of risk pooling so that all participants can take a "proportionate share" instead of each bearing the risk that theirs will be the defaulted loan, and that they would then absorb 100% of those losses. The actual mathematical implications of "we're all this together" are quite compelling indeed.

While reading it, I couldn't help but wonder why economists ignore that what we are doing by denying access to the "producers" of labor (the 95%) the protections under anti-trust laws has exactly the same results, only in the reverse direction. It "insures" that those involved in the production of labor have no ability to pool their risk and therefore each "producer" must individually bear the risk and take all of the losses if "their number" is selected. The only real difference is that the investors in Mark's example had a choice (even before risk pooling was available), they could choose not to invest at all, or to invest in an alternative, whereas those selling their labor have no choice but to play the game, there are no alternatives for most.

Hoping to get Mark's opinion on why this discrepancy exits, I posted the following request on his blog. I've asked Jared Bernstein for his reaction and would like to get yours as well if you had the time in a future post to address it:

"Next year is the 100th anniversary of the Clatyon Act, the Act that denies equal protection under anti trust laws to those whose "product" is "labor," you know, the 95%. Obviously you're quite busy, but, if you had the time, it would be great to see an article on how this same mathematical relationship works in exactly the opposite direction for those whose product is "labor." By denying access to equal protection under the law to laborers, we can force them to bear individually the entire risk (to them) of output gaps and spare all of those left employed from having to bear even a small amount (their proportionate share) of this risk. This denies all of those producing labor from access to any "pooling of these risks" and makes them much easier to coerce as a group because they can all now be threatened with being thrown into the pool of victims, not by just the random probability of the event occurring, but instead by the choice of those with the power to coerce. With one "employment at will" decision, they can be chosen to bear the entire risk. It would also be great to know, space permitting of course, if you have any insights on why economists as a group would be in support of such as system and such market manipulations."

I elaborated further on the question on Jared's blog here: http://jaredbernsteinblog.com/...nt-2144406

At any rate, it would be great to hear your thoughts if you get any time to think through the implications.
written by watermelonpunch, December 20, 2013 9:18
written by J. Miller, December 20, 2013 10:59
The owners of the means of production automatically have first claim on the income of production. They have no inherent incentive to share. Left to their own devices they will continue to...

You're missing the point. They're not left to their own devices. They're given what they have by policies we allow.

They have no automatic first claim to production because they have no inherent ownership without us, the people, deciding that they do by policy.

These policies that dictate ownership and claims were not handed down by nature or divine supernatural causes, or just random chance.

They are the result of policies.

We live in what's supposed to be a nation run for the people, by the people.

Without government, there is no ownership by law, and there are no means by which to make claims or extract profits.
@watermellonpunch. Yes, but ...
written by J. Miller, December 22, 2013 4:53
I absolutely agree fundamentally. But the problem is not with "policies" as we normally use that word. What Dean wants to do is change policies, i.e., principally international treaties. That is not enough. We need to address fundamental concepts of property rights. Which indeed are not laws of nature or nature's God. But conservative propaganda has ingrained the view that they are. That's the challenge. And I think Dean is underselling it.

Dean proposes broadening global labor competition to include higher-paid occupations, and curbing intellectual property protections. This could cut the cost of healthcare and drugs. But I can't see it really making a major difference.

In fact the benefits that capitalists gain from technology and globalization do indeed accrue principally from the "free", i.e. unregulated, market, not from government policies like those Dean addresses. Labor-saving technology and global labor competition create a virtual labor oligopsony in which workers have essentially no market power in the sale of their labor (and they have always been at a disadvantage).

Markets and property, as you rightly say, are artifacts of the law. They properly exist to serve some semblance of the greater good for the greater number. But we have a long way to go from present popular attitudes on these matters to achieve the needed result. And we're not going to get there by tinkering with trade treaties.

Better worker's rights, i.e, unions, are one way to empower employees in the labor market. But labor competition has increased significantly since the unions' heyday. Employers just don't need to employ all of the Americans that need to work. Hence permanent high unemployment. Union organizing does no good to the unemployed.

More government spending on neglected public priorities could perhaps be a major solution. That requires breaking through the anti-tax phobia which conservatives have instilled in the public mind. Too few liberals (much less God help us "centrists") are at present prepared to confront that issue.

So... I agree with you philosophically. And I'm not sure what you propose programmatically. My point is I think Dean's program, as I understand it, is inadequate.
Viewer class
written by viewer, December 23, 2013 12:08
The median CEO salary is more like 190K which is the figure you would need. The average is skewed by the big boys.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.