Wealth and political power have been a central concern for as long as organised social life. Concentration of wealth (business concentration, skill-biased technologies, executive compensation, tax cuts etc) leading to widening economic inequality, leading to concentrated political power and consequent capture of the political agenda has been a constant theme of this blog.
I struggle to understand why we need more evidence on this, and regard this as the biggest challenge facing the liberal democratic market economies of today. But while it gets mentioned everywhere, it is widely seen as a manageable problem rarely as an alarming existential concern. Contrast this with the attention and shrill debates that issues like China, migration, Donald Trump, and protectionist trade practices generate.
But Free Exchange has an excellent summary of the latest research in this regard. And, at least in the opinion of this blogger, it is very important. The most heartwarming fact is that it comes not from economists but researchers of good old politics and governments.
The relation between concentrated wealth and the political power of the rich is scarcely limited to political spending, or to America. The rich have many means to shape public opinion: financing nominally apolitical think-tanks, for instance, or buying media outlets. Although their power may sometimes be used to influence the result of a particular vote, it is often deployed more subtly, to shape public narratives about which problems deserve attention.
Derek Epp and Enrico Borghetto examine the evidence in the context of Europe and write,
This article considers two competing hypotheses: (1) that policymakers will act to counter rising inequality by renewing their focus on redistributive social policies, and (2) that rising inequality makes legislative agendas especially vulnerable to the influence of economic elites, and that these elites will attempt to keep redistributive social policies off the agenda. Empirical tests, which are designed to arbitrate between these hypotheses, use data on public laws and parliamentary bills introduced in the legislatures of nine European countries between 1941 and 2014. The evidence is supportive of the second hypothesis: as inequality becomes more acute, European legislative agendas become systematically less diverse and this narrowing of attention is driven by a migration away from social safety-net issues toward issues relating to law enforcement, immigration, and national defense.
Benjamin Page, Larry Bartels and Jason Seabright drill down further to explore political and social preferences of different income groups and find,
There can be little doubt that the wealthy exert more political influence than the less affluent do... Recent evidence indicates that “affluent” Americans in the top fifth of the income distribution are socially more liberal but economically more conservative than others... We report the results of a pilot study of the political views and activities of the top 1 percent or so of US wealth-holders. We find that they are extremely active politically and that they are much more conservative than the American public as a whole with respect to important policies concerning taxation, economic regulation, and especially social welfare programs...
The wealthy are much more favorable toward cutting social welfare programs, especially Social Security and health care. They are considerably less supportive of several jobs and income programs, including an above- poverty-level minimum wage, a “decent” standard of living for the unemployed, increasing the Earned Income Tax Credit, and having the federal government “see to” —or actually provide—jobs for those who cannot find them in the private sector... wealthy Americans are much less willing than others to provide broad educational opportunities, by “spend[ing] whatever is necessary to ensure that all children have really good public schools they can go to” or “mak[ing] sure that everyone who wants to go to college can do so.” They are less willing to pay more taxes in order to provide health coverage for everyone, and they are much less supportive of tax-financed national health insurance... to a much greater extent than the general public—the wealthy oppose government action to redistribute income or wealth...
Variation within this wealthy group suggests that the top one-tenth of 1 percent of wealth- holders (people with $40 million or more in net worth) may tend to hold still more conservative views that are even more distinct from those of the general public. We suggest that these distinctive policy preferences may help account for why certain public policies in the United States appear to deviate from what the majority of US citizens wants the government to do. If this is so, it raises serious issues for democratic theory.
The paper contrasts the preferences of the top 1 per cent wealthiest with those of the general public on a variety of issues from education and health care to taxation and redistribution to economic regulation and environment. It finds very stark divergences. This summary of federal government spending priorities itself is revealing.
Finally, Lee Drutman explores the underlying influence pathway, campaign finance,
In the 2010 election cycle, 26,783 individuals (or slightly less than one in ten thousand Americans) each contributed more than $10,000 to federal political campaigns. Combined, these donors spent $774 million. That’s 24.3% of the total from individuals to politicians, parties, PACs, and independent expenditure groups. Together, they would fill only two-thirds of the 41,222 seats at Nationals Park the baseball field two miles from the U.S. Capitol. When it comes to politics, they are The One Percent of the One Percent...
(they) have unique access to candidates and party leaders. They know that candidates and parties need their money, and this presumably allows them to play a kind of gatekeeper role, allowing them to set the parameters of priorities of “legitimate” politics. They congregate in a limited number of elite zip codes. Their concerns are not the concerns of ordinary Americans. Some are motivated by ideological reasons. For others, the motivation is less partisan and more pragmatic: Many are lawyers and lobbyists, and even more are corporate executives, all seeking to influence legislation and policy... In the 2010 election cycle, the average One Percent of One Percenter spent $28,913, more than the median individual income of $26,364... In a world of increasingly expensive campaigns, The One Percent of the One Percent effectively play the role of political gatekeepers. Prospective candidates need to be able to tap into these networks if they want to be taken seriously. And party leaders on both sides are keenly aware that more than 80% of party committee money now comes from these elite donors.
Whether we like it or not, the stark differences in preferences on social/public concerns between the wealthiest and the rest is a reflection of the growing divergence between their respective interests and a rapidly decreasing overlap of their respective physical lives. Indeed, it is not incorrect to describe it as a deep fracturing of the social contract itself. Whether we like it or not, the core democratic ideal - governments listen to all its citizens and represent them all (at least the majority) - is just that, an ideal increasingly divorced from practice. And worryingly so it has been the case for sometime now.
It is time to recognise this as the greatest danger to the liberal democratic and market economy based social order.