Licensed larceny

Infrastructure, financial extraction and the global South

Nicholas Hildyard

• Publisher: Manchester University Press
• Year: 2016
• Print ISBN:
  9781784994273
• eBook ISBN:
  9781526108975
• Topic: Economics
• Subtopic: Political Economy
• Index: Economics

The growing wealth gap is best viewed as a proxy for how for how effectively elites have constructed institutions that extract value from the rest of society. For inequality is not just a problem of poverty and the poor; it is as much a problem of wealth and the rich. The provision of public services is one area which is increasingly being reconfigured to extract wealth upward to the one per cent, notably through so-called Public Private Partnerships (PPPs). The push for PPPs is not about building infrastructure for the benefit of society but about constructing new subsidies that benefit the already wealthy. It is less about financing development than developing finance. Understanding and exposing these processes is essential if inequality is to be challenged. But equally important is the need for critical reflection on how the wealthy are getting away with it. What does the wealth gap suggest about the need for new forms of organizing by those who would resist elite power?

Chapter 1

Mise-en-scène: the injustices of wealth

What thoughtful rich people call the problem of poverty, thoughtful poor people call with equal justice a problem of riches.

(R.H. Tawney 1914)

The world is riven by social injustices, and there are numerous individuals, groups, political parties and social movements whose commitment and dedication to challenging what Chilean poet Pablo Neruda (2004, p. 1) called ‘organised social misery’ is a constant inspiration. But no challenge that lacks a grounded understanding of how wealth is accumulated within society, and by whom, is ever likely to make more than a marginal dent in the status quo. Nor will it shift accumulation’s lethal trajectory of oppression, dispossession, environmental degradation and life-robbing inequalities. At best, it may slow the processes through which elites extract value from society every minute of every day; at worst, it may unwittingly further the concentration of political and economic power, marginalisation, exclusion and looting that such extraction entails.

The relative ease with which elites have deflected mounting popular protest over the growing worldwide gulf between rich and poor, and the injustices that this reflects, is illustrative. Protests by Occupy! and other movements have forced acknowledgment of the problem by just about everyone from President Obama to the corporate head honchos who gather every year at the World Economic Forum. The International Monetary Fund (IMF) and the Organization for Economic Co-operation and Development (OECD), both bastions of neoliberalism, have now similarly ‘discovered’ inequality as an ‘issue’. Some policy changes have been made: both the IMF and the OECD have jettisoned years of defending inequality as necessary to economic growth and now argue that it poses a barrier. Longstanding demands that taxes on the rich be slashed have also been modified to endorse progressive taxation as an appropriate policy response to inequality. So, too, the damaging impacts of inequality on the fabric of society, scrupulously documented by academics such as Richard Wilkinson and Kate Pickett (2009), have now been acknowledged.

Three cheers for all that! Except that, even as the IMF sheds crocodile tears over the ‘dark shadow’ that inequality is casting over the global economy, it continues to impose austerity measures on Greece and other countries. Except that what counts as ‘excessive inequality’ keeps shifting in the wrong direction. (Today it is asked whether an average wage differential between CEOs and workers of 300:1 is acceptable, whereas as recently as the 1970s a ratio of 20:1 was considered out of line.)¹ Except that inequality is still viewed primarily as a problem of poverty and the poor rather than of riches and the rich, an explanation that conveniently deflects attention from the role that wealth creation plays in creating inequality (Dorling 2010; Sayer 2015). Except that the structural causes of inequality remain unexamined and unchallenged. Everything changes so that nothing changes.

1.1 Gattopardo politics

Dissembling and damage control are to be expected from the likes of the IMF, which, as architect and chief enforcer of structural adjustment, has form on inequality. But much of the noise around inequality emanating from the mainstream Left also amounts to what academics (and self-styled ‘bourgeois radicals’) Ewald Engelen and Karel Williams (2014, p. 1771) describe as ‘guaranteed inaction’, whereby ‘society can recognise the problem of growing inequality without any prospect of effective redress’.

An emblematic case in point is the response of the left-leaning French economist Thomas Piketty, whose 600-page doorstopper of a book, entitled Capital in the Twenty-First Century, hit the bestseller lists in 2014. Largely based on research undertaken over the previous decade with his colleague, Emmanuel Saez, Piketty exhaustively documents the historical data on income inequalities in 20 countries, citing a blizzard of statistics to dismantle claims that capitalism spreads wealth rather than concentrates it.

Piketty observes that, since 1700, capital (a term he uses as a synonym for ‘wealth’) has typically shown a pre-tax return of 4–5 per cent a year – far higher than the average growth of the economy as a whole (The Economist 2014a). Piketty boils this down to what he calls ‘the first fundamental law of capitalism’: namely, that ‘the private rate of return on capital (r) tends to be significantly higher for long periods of time than the rate of growth of income and output (g)’. So, if wealth grows at 5 per cent but the economy grows only at 1 per cent, the rich have gains of 4 per cent which they can use to make more wealth. The result, over time, is that the wealth of the rich just accumulates and accumulates. In the absence of wars (which destroy wealth) or major redistributive initiatives, those who have wealth therefore tend to get wealthier, generating ever greater inequality, which simply snowballs over time as the wealthy become ‘more and more dominant over those who own nothing but their labour’. Or, as Piketty (2014, p. 571) puts it, ‘The past devours the future.’

The direction of travel is thus towards a return of ‘patrimonial capitalism’ marked by ‘terrifying’ inequalities of wealth and income, where the rich are rich largely because they have inherited large fortunes. Piketty’s suggested solution is an 80 per cent rate of taxation on incomes over $1 million and the introduction of a global wealth tax (Hear! Hear!).

So far so good. Picketty’s law (r > g) succinctly encapsulates what we knew or already suspected: namely, that capitalism is an engine that remorselessly generates inequality. But challenging this inequality requires digging deeper. What are the structures that enable the wealthy to get their wealth in the first place? And, critically, what enables them to hold on to it? Piketty unfortunately only skims the surface.

A case in point is his treatment of ‘capital’ as merely valued objects. Under this definition, the hunting spears of an Amazonian tribe or the shed in a suburban garden are considered to be no different from the shares in a joint stock company or options on a future oil contract (Kunkel 2014). But they clearly are different: they may all constitute forms of wealth but they do not all constitute forms of ‘capital’. For ‘capital’ is not a ‘thing’: it is a process, a set of constantly evolving and contested social, economic and political relationships that enable money to be used to make more money. The spear is not capital when used to kill an animal for the family cooking pot, any more than money, land, houses and industrial plant and equipment are capital when they are used to satisfy human needs without making profits. Quite the opposite. In fact, when they are not being used productively as part of a process of accumulation, they are the very antithesis of capital.

Geographer David Harvey (2014) observes that Piketty’s Capital is not really a book about capital at all. By treating capital as a ‘thing’, Piketty (in common with many others) leaves out all that is important if inequality is to be confronted: class, relations of production, the political and legal infrastructures that underpin accumulation, the daily finessing of patterns of wealth extraction, unequal exchange and, critically, the distribution of political and economic power. The engine of inequality remains unexamined and thus unchallenged.

Piketty also seems reluctant to probe what might constitute a plausible political strategy for confronting the rich and dismantling their ‘constructed institutions’ of extraction. He advocates talking truth to power as the means of achieving change, albeit gloomily admitting that his call for a wealth tax is unlikely to be put into practice as long as it is the rich that he is talking to. As Ewald Engelen and Karel Williams (2014, p. 1771) of the Centre for Research on Socio-Cultural Change (CRESC) remark, this ‘political reticence’ renders Piketty’s approach less effective than it might otherwise be as a means of actually redressing inequality: ‘The rich can sleep soundly in their beds with Professor Piketty on our bookshelves.’

1.2 Honouring capital’s ghosts

Clearly there is a need to probe beyond Piketty’s blizzard of statistics. Such figures certainly provide a rough and ready measure of the extent to which elites have constructed institutions that extract value from society, and of the operational efficiency of such extractive institutions (see Box 1.1 ‘Global looting – a snapshot’). But without a deeper analysis of how value is created, the figures have little or no explanatory power and thus offer little in the way of action that would pose an effective challenge to inequality. Knowing that 1.5 million people in the US, the richest country in the world, and a billion more in the rest of the world live on less than $2 a day while Bill Gates, co-founder of Microsoft and (for the past sixteen years) the world’s richest man, rakes in $140 a second (Live-Counter 2015) without having to lift a finger is a cause for anger: but it tells us little or nothing about the processes that enable Gates and other billionaires to accumulate their wealth or the relationship between those processes and the poverty of others. Indeed, without an analysis that places accumulation at its centre, inequality statistics can serve as a wake-up call to some but do not themselves challenge the growing gulf between the haves and the have-nots. Even calls for progressive taxation (a no-brainer as a tool for disempowering the rich, but only a limited tool) arguably threaten to become a regressive end-of-pipe ‘solution’ that perpetuates the violence of capital while retrospectively compensating a few of those from whom capital has looted, mainly in those richer countries where the wealth extracted historically from around the globe is currently concentrated.

Box 1.1 Global looting – a snapshot

In country after country, the incomes of the rich are skyrocketing, while those of poorer people stagnate or plummet; and the lion’s share of global wealth is increasingly concentrated in fewer and fewer hands. Mainstream economists insist that inequality is simply one of the growing pains of economic development. The message is ‘Be patient, a rising tide

will lift all boats’.

For those billions of people who don’t have a boat, such talk is cruelly cynical nonsense. Trickle down is not working – and never has. Instead of trickling down to irrigate all of society, wealth is gushing up, concentrating in the hands of the few.

Numerous reports now document the statistics of the global wealth gap. Although such data reveals little (and disguises much) about the social processes through which wealth is accumulated by the few, it does provide a snapshot of how effectively elites have, in the words of journalist Will Hutton, ‘constructed institutions that extract value from the rest of society’. It is through that lens that the data is best viewed.

The figures for income tell a dismal story. In 1992 the UN Development Programme (UNDP) produced a diagram depicting how just over 80 per cent of total world income went to the top fifth of the world’s people, while the bottom fifth got a paltry 1.5 per cent. The resulting ‘champagne glass’ image became a symbol of the vast gap between rich and poor. In 2007 researchers at the United Nations Children’s Fund (UNICEF) revisited the figures and found that the percentages had barely shifted, despite global economic output doubling in the intervening years. The UNICEF researchers concluded that ‘it would take more than eight centuries (855 years to be exact) for the bottom billion to have ten percent of global income’. Warren Buffett, one of the world’s richest men (the vast majority of the world’s super-rich are men and white) is candid: ‘There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.’

And income is only part of the inequality story. In many countries, inequalities in accumulated wealth are even wider than those in income, and they are growing. Oxfam calculates that, in 2013, just 85 people – the number of people you could get into just one London double-decker bus – controlled as much wealth as the bottom half of the world’s adult population. A year later, the same amount of wealth was controlled by just 67 people.

The wealth gap between the richest and poorest countries is also growing. During the colonial period from 1820 to 1911, the income gap between the richest countries and the poorest countries widened from 3:1 to 11:1. By 1950, at a time when many countries were achieving independence, it was 35:1. Post-independence, the gap has not narrowed but increased: in 1999 the United Nations Development Programme estimated it was 79:1.

Looting is the only word for this process.

Source: Hildyard 2015

To give inequality numbers any meaning requires uncovering, understanding, exposing and organising against the many-stranded forms of wealth extraction that are invisible in graphs and computer models. The ‘shining pin on which … billionaires pirouette’ (to use the image of Booker Prize-winning Indian novelist and activist Arundhati Roy (2014)) is a product of thousands of everyday acts of exploitation of humans and non-humans, and of resistance to them. As Roy records, even the merely relatively rich who make up the new middle class of India

live side by side with spirits of the netherworld, the poltergeists of dead rivers, dry wells, bald mountains, and denuded forests; the ghosts of 250,000 debt-ridden farmers who have killed themselves, and the 800 million who have been impoverished and dispossessed to make way for us.

(Roy 2014, p. 12)

These ‘ghosts of capitalism’ are to be found wherever relationships are being forged that enable accumulation. They haunt the shiny new factories of China’s free trade zones where low-waged workers produce iPads to make Apple’s shareholders rich (Froud et al. 2012). Their blood inks the international free trade agreements – from NAFTA (Brennan 2015) to the proposed US–EU Transatlantic Trade and Investment Partnership (Hilary 2014) – that strip away labour rights and environmental controls, drive down wages and massively concentrate and enhance corporate power. They stalk the offices of the accountancy firms that pore over tax laws to find loopholes for their corporate clients (Sikka 2012). They lurk within the trillions of dollars of derivatives contracts that magic money out of money (Hildyard 2008). They are present everywhere in the myriad, interconnected processes of enclosure, dismantling, reconstruction, abstraction, quantification, monetisation and commodification that, historically and in the future, make it possible to appropriate the unpaid work of both non-humans and humans (Lohmann 2015).

Much work has been done over the years by academics and activists to honour the lives of these ever-present spectres by illuminating the broad processes of wealth extraction that are responsible for their impoverishment, dispossession, exploitation and demise. As Karl Marx (2010) scrupulously documented over a century ago, wealth is extracted upwards because capitalists pay workers for only a fraction of the value they create through their labour – and snaffle the rest. Other means of extraction include rent and interest. These forms of looting – aka ‘capitalism’ – are now the ins...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright
• Contents
• List of exhibits
• List of boxes
• Acknowledgements
• Abbreviations
• 1 Mise-en-scène: the injustices of wealth
• 2 A study in financial extraction: Lesotho’s national referral hospital
• 3 Infrastructure as financial extraction
• 4 Extraction in motion: infrastructure-as-asset-class
• 5 Infrastructure corridors, frontier finance and the vulnerabilities of capital
• 6 Reflections for activism
• References