Wednesday, November 20, 2019

The "liberal meritocratic capitalism"?

The Economist reviews the latest book of Branko Milanovic which takes about different phases of capitalist evolution. It refers to the current phase as one of "liberal meritocratic capitalism". That, in particular, the "meritocratic" nature may be a figment of imagination. 

There are at least two reasons.

1. Getting to the starting line in accessing life's opportunities is increasingly one of ovarian lottery and less about innate talent or merit. The rich invest heavily in their children's education, which in turn gives them an unassailable head-start in the race to access career opportunities. The signatures of these are everywhere, from declining intergenerational mobility to increasing concentration of those from privileged backgrounds in top universities.

2. The aforementioned trend is being reinforced by a capture of the institutions, or the processes of rule-making, by a tiny elite. This, in turn, is being driven by the dynamic of widening inequality, and, there too, the excessive concentration of wealth in the hands of a tiny few at the very top. A striking manifestation of this is the fact that in the US in 2016, the "top 1% of the top 1% accounted for 40% of campaign donations".

In fact, in the US, the share of campaign donations by the top 0.01% has surged four-fold since the early nineties.

There is no better illustration of political capture than the Big Tech, especially Apple. Sample this,
Apple currently holds about $252 billion in profits offshore, where it can avoid paying U.S. taxes. That’s over 90% of the company’s total cash on hand. This profit is subject to the corporate income tax as soon as it’s “repatriated” back to the U.S. Before the recent tax code overhaul, the company would’ve paid $78.6 billion in taxes if it brought the money home, according to the Institute on Taxation and Economic Policy. Apple didn’t want to pay this tax, so it let the cash sit offshore for years.
In the meantime, Apple and its peers have been working furiously to tilt the tax code in their favor. Apple spent $2.3 million in the third quarter of 2017 alone lobbying. The other four big tech companies—Microsoft, Facebook, Alphabet (which owns Google), and Amazon—chipped in another $14 million. For their efforts, these titans of Silicon Valley are being rewarded handsomely. Now their offshore profits will be taxed at a one-time, 15.5% repatriation rate, also called a tax holiday. And all other corporate profits will be taxed at 21%, down from a previous nominal rate of 35%. So that $38 billion Apple’s going to pay in taxes now? It means the company effectively dodged more than $40 billion it would’ve otherwise paid.
A more appropriate description of today's capitalism would be "benign plutocratic capitalism"!

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