The Capital Bias of today’s Extractive Economy

Capital bias is explained by Kelly and Howard (2019) as follows:

Ours is an economy “Of the 1%, By the 1%, For the 1%,” as economist Joseph Stiglitz put it. At its core, it has what we, the coauthors, call capital bias, a favoritism toward finance and wealth-holders that is woven invisibly throughout the system.

We might call it an extractive economy, for it’s designed to enable a financial elite to extract maximum gain for themselves, everywhere on the globe, heedless of damage created for workers, communities, and the environment.

In the extractive economy, income to capital is to be maximized; income to labor is to be minimized.

  •  This mandate is embedded in the structure of the income statement, which defines income to capital as profit, something to be increased, while income to labor is defined as an expense, to be endlessly decreased.
  • A similar bias is found in corporate purpose focused on gains to capital, board membership limited to capital, and a culture of investing that defines maximum income to capital as the prime aim. As the custom has it, no amount of investment income is ever enough.

Capital bias is often advanced by policyas with lower taxes on cap­ital gains than on labor income, bailouts for big banks but not for ordi­nary homeowners, or tax breaks given to large corporations that put small locally owned companies out of business. Yet capital bias also lies more deeply in basic economic architectures and norms, in institutions and asset ownership.

This bias toward capital leads to the ongoing effort to expel labor income from the system, however possible.

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Kelly and Howard (ibid: 5,6,23; emphasize and bullets added)

 

In the mainstream economy, one main driver for this capital bias (although most pronounced in the USA), is the concept of  fiduciary duty (duty of loyalty to shareholders), which we will look at next.