Business·Analysis

Why elites will always try to protect their wealth

There is a giant political issue lurking furtively on the global stage: the growing income gap between rich and poor, writes Don Pittis.

This Labour Day, a giant political issue lurks in the wings of the global stage. Though, for some reason, it seems shy.

It was peeking from behind the curtain at last week's Republican convention, but, blushing, it never really came on stage to dance.

Britain's deputy prime minister, Nick Clegg, addressed it with his suggestion of a special tax on the wealthy to plug the gap in the government's shrinking budget.

But the idea was quickly shooed back out of sight as even the normally left-leaning Guardian editorialized against the wealth tax proposal, calling it "the politics of envy."

The issue in question is what economists call income distribution. In the current climate, that means the growing split between the rich and the poor, and the dangers that entails.

It just so happens I have been reading a rare book that addresses this issue quite squarely.

Called The New Class, it describes members of a greedy elite that, while paying lip service to greater equality, became the owners of everything. Their share of wealth increased, they ate well while others starved, and they controlled the media and justice system to maintain their grip on power.

British Liberal leader, and deputy prime minister, Nick Clegg wanted a new wealth tax imposed. It may not happen. (Stefan Rousseau / Associated Press)

That grip, says the book, was unshakeable.

"Ah," AynRandBoy1980 will want to say in the comments section below, "another liberal diatribe against free market capitalism." But AynRandBoy1980 would be wrong in this case.

This is not, as you might think, a book bashing today's "one per cent," the group that the Occupy movement has fingered as the bogeymen of an increasingly unequal age. But perhaps it could be.

The New Class was written in an earlier time, as revealed in its subtitle: An Analysis of the Communist System.

The new class

The author, Milovan Djilas, was next in line to Yugoslav leader Josip Tito before writing this book. A member of Europe's most successful anti-Nazi underground during WWII, Djilas was a loyal communist and propagandist. He had meetings with Stalin.

But in the early 1950s, Djilas discovered something about the communist revolution he didn't like. Djilas noticed the formation of a "new class" with fleets of cars and country houses at their disposal.

What was especially interesting about them, he writes, is that they truly believed they deserved these advantages for their efforts on behalf of the working classes.

At the same time, Djilas noticed that the large majority outside this new class lived in virtual poverty. Despite the rhetoric about equality and the notion that the workers were supposed to be in charge, "the fruits of revolution do not fall to them, but to the bureaucracy."

Instead of pursuing the original, idealistic goal of the revolution, which had become politically dangerous, this new class focused single-mindedly on crushing dissent and maintaining its wealth and power.

Djilas also observed that with no motivation to share the wealth, the total prosperity of the country collapsed. Farm yields and number of livestock were worse than before the revolution.

For writing this book, Djilas was sentenced to six years in prison. The ruling class does not like it when people point fingers at them.

The politics of greed

Being right didn't help Djilas. In fact, it probably hurt. And his writing about it didn't do much good.

Ten years later, bushy-browed Soviet leader Leonid Brezhnev became famous for his fleet of foreign cars, leading to the one-liner, "Comrade Brezhnev, what will you do when the revolution comes?"

As Djilas discovered, reversing inequality, even in the midst of a Communist revolution, was an almost impossible task. The new elite had replaced the old and they weren't inclined to let go.

Djilas also helps us understand that inequality cannot be blamed on capitalism. As the tsars and kings and satraps of history have shown us, inequality is by no means a modern invention. It comes and goes.  

Republican vice-presidential candiate Paul Ryan and House majority leader Eric Cantor in post-convention mood. Talking about a more egalitarian America. (Steve Helber / Associated Press)

Last week, the world's richest woman, Australian heiress Gina Rinehart, added her own version of the "politics of envy," telling the jealous poor that all they had to do was drink less and work harder. Oh yes, and inherit millions from Daddy.

Ms. Rinehart reminds us that once gross inequality is established, it is really difficult to fix. As with the Communist Party bureaucrats, the rich become convinced they deserve every penny.

And like those bureaucrats, they stoutly maintain that their continued wealth is in everyone's interest.

I am certain Republican vice-presidential candidate Paul Ryan's urge to "give our children the America that was given to us" reflects a deep nostalgia for an era of greater equality.

It must be obvious to Republicans and Democrats — or Germans or Greeks or Canadians — that an economy where everyone has a substantial stake will be richer, healthier and more productive than one where all the economic activity is concentrated among a small elite.

The ultimate goal is to make the pie bigger. But the difficulty is in convincing some — whether teachers, millionaires or Communist bureaucrats — to take a smaller slice now to help make that happen.  

The author of The New Class was convinced that the solution to fixing inequality between classes was not revolution, but democracy. And I believe democracy will do it eventually.

But on this Labour Day, we should observe that the other face of the politics of envy is the politics of greed.