Servants of the 1%?: Politicians and the Economic Elite

by Pablo Torija

In recent years millions of citizens across the Western world have taken to the streets calling for real democracy.  These massive demonstration began in North Africa, but spread rapidly to Greece, Portugal and Iceland, and then to North America and much of the rest of Europe.  The most popular slogan of this international movement, ‘We are 99%’ – borrowed from an article by the Nobel Laureate Joseph Stiglitz[1] – encapsulates the widespread sense that governments are serving the interests of a tiny elite, over those of the broader public.

The idea that democracy is dysfunctional and is serving a wealthy elite is not new.  In 2004 Collin Crouch published Post-democracy, one of the most inspiring books on this topic.[2]  It summarizes several years of work and explains how in spite of the regularity of elections in the Western world, in practice politicians do not represent the majority of the population. 

Crouch argues that the power of the working class followed a parabolic trajectory: After the Second World War, workers started to organise and press their demands though the agendas of labour parties.  The height of their power and representation was achieved in the seventies, when states recognised their rights and provided substantial public services.  The arrival of globalisation changed this post-war paradigm.  Industrial workers lost their jobs, which were transferred to emerging economies, and multinational corporations began to acquire the tremendous power which they enjoy today. 

Crouch claims that political representation followed the same parabolic trajectory and suggests that the impotence of the trade unions and the strength of multinational corporations distorted the democratic process.  Though workers make up the majority of the population, politicians now only serve the interests of shareholders and CEOs of large multinationals.  Politicians, he claims, work for the economic elite.

Crouch’s views are now becoming more widely accepted by citizens and scholars, and there is intense debate in academia and in the streets about the quality of our democracy.  I have therefore spent the last year of my PhD trying to gather statistical evidence to prove or disprove Crouch’s thesis, which is also the central claims of the Occupy movement.

I started with the notion that every political decision must benefit and improve the happiness of certain groups, whilst imposing a cost on others.  For example, when François Hollande proposed a 75% income tax on salaries above €1m to pay for public services, this would have mostly benefited the poor, who are the main users of those services.  In this case then, we can say that the poor are the most favoured group (MFG).  On the other hand, when governments raise indirect taxes to ensure that banks do not lose the values of their stocks, we can say that the MFG are the rich, since it is they who own the largest share of financial institutions.  Some policies meanwhile would tend to favour middle income groups, such as public universities.  If we rank citizens according to their income, we can see how these three political actions have three different MFGs. 

GRAPH 1.

Most Favoured Group of different political actions.

 

This graph shows the three MFGs of the three political actions just mentioned.  Increasing taxes for the rich favours the poorer the most, as they pay less taxes and benefit most from the services those taxes fund.  Public university benefit the middle class most, since the rich pay too much for the service they receive, whilst the poor pay too much for a service from which they received little benefit at all (since they tend to drop out of education at secondary level).  A similar reasoning holds for a political action designed to protect the wealth of shareholders.

According to traditional theories, in a country with two political parties, both will target the median voter (percentile 50) as the MFG.  More recent research has emphasised the importance of political ideologies in determining the MFG of different parties (with social democrats, for example, favouring poorer groups than conservatives).  My research had three aims: (1) to determine which are the MFGs for each political ideology (2) to analyse whether the MFGs have changed over time (3) to analyse if the power of labour unions and the strength of multinationals affect who is the MFG.

I used data from the World Value Survey (WVS) which contains information on happiness, income and other socio-economic indexes in the OECD countries (Western Europe, the USA, Canada, Australia, New Zealand and Japan).  I matched this with data on these countries’ macro economic variables (GDP per capita, GINI index, affiliation to labour unions, percentage of national income as wages), as well as an index of political ideology, which measures the political orientation of the party in government (whether centre left, centrist or centre right).  In total, the database I compiled contains more than 100,000 observations for the period 1981-2009.

Once I had compiled the database, I conducted several regressions in order to calculate the MFGs.  I also considered which other macro economic factors were correlated with politicians favouring the rich or the poor, and whether different political parties represent different MFGs.  Once I had the coefficients of the regressions it was possible, with simple algebra, to calculate the MFG. 

Using extrapolation techniques, I analysed whether Western democracies were more representative in the seventies by analysing the MFG of parties with different political ideologies.  Graph 2 shows which were the MFGs of different political parties in 1975. 

GRAPH 2.

Most favoured groups in 1975, for different political ideologies

 

As we can see, there was a difference between centre left, centrist and centre right parties in 1975.  Centre left parties most benefited poorer individuals (percentile 16), and centre right most benefited richer individuals (percentile 81).  Furthermore, we can observe how parties with centrist politics were situated in the middle of the income distribution, benefiting the median voter (percentile 50).  This is a picture of a healthy democracy where different political parties represent different social groups.

But how does it look now?  Graph 3 shows the MFG in 2009 for different political parties.  As we can see, there is no difference between them.  They all benefit the richest 1%, whether centre left, centrist or centre right. 

GRAPH 3.

Most Favoured Groups in 2009, for different political ideologies

The change has been gradual and continuous for all parties (see graph 4).  Conservatives have shifted from favouring the 80th percentile to favouring the 1% (percentile 100th).  But by far the sharpest change has been amongst parties of the centre left.  Whereas once they defended citizens with low income, now they are hardly distinguishable from the conservatives.  From a qualitative perspective, this dramatic shift of the centre left parties can be associated with the deep changes that take place in social democracies after the economic crisis of the mid-seventies. 

GRAPH 4.

Changes on the Most Favoured Groups.

Blue region is an extrapolation of the data.

I was also able to identify some correlations between parties benefiting the richest and other variables.  Both weak labour unions and capitalists taking a larger share of the national income seem to be correlated with parties favouring richer individuals.  But correlation does not mean causality.  It is not clear therefore whether strong labour unions mean that the politicians are more likely to serve the interests of the poor, or whether politicians working for the rich tend to weaken labour unions.  The same holds for the relationship with capital’s share of the national income: it is not clear whether this is a cause or an effect.  Neither can this evidence help us better understand the role of mass media, the financial sector, or the action of lobby groups, for example.  It shows us that western democracies have become unrepresentative, but does not explain how we got here.

Nevertheless, what this evidence does show is that those movements that have used the slogan ‘We are the 99%’ are indeed correct.  Politicians in the OECD countries no longer represent the majority of the population and focus instead on the economic elite – the 1%.  Whether the new wave of global movements will be able to bring back real democracy is something that we will discover in coming years.

The original scientific paper on which this article is based is available here.

Pablo Torija is a PhD candidate at the University of Padova.  He currently lives in Vienna where he works for the University. 



[1] Joseph E.  Stiglitz, ‘Of the 1%, by the 1%, for the 1%.’ Vanity Fair, May 2011.

[2] Colin Crouch, Post-Democracy.  Cambridge: Polity Press, 2004.

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First published: 23 April, 2013

Category: Corporate power, Inequality, Labour movement, Politics

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1 Comment on "Servants of the 1%?: Politicians and the Economic Elite"

By Hedinn Bjornsson, on 26 April 2013 - 11:30 |

The popular upprising in Iceland (january 2009) preceded the uprisings in North Africa by almost 2 years.

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