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How the 'plutonomists' bought governments

Citigroup is something special. With the largest financial services network in the world, it is a banking and finance behemoth, effectively the defining organisation of the global economy.

In 2008, a government aid package was needed to prevent the collapse of its global transactions services division, which transports more than $3 trillion around the world each day for most of the 500 biggest US-based corporations and over 80 national governments and 60 central banks around the world.

Now there is concern that Citigroup isn’t strong enough to survive a renewed recession, according to stress tests carried out by the US Federal Reserve. If Citigroup were allowed to unravel into bankruptcy, "100 governments around the world would be trying to figure out how to pay their employees", according to the Wall Street Journal.

In 2005 and 2006, Citigroup analysts studying income inequalities wrote three internal papers known as the Plutonomy Memos addressed to their wealthiest of customers. Citigroup has gone to great lengths to suppress publication of the memos, and a new analysis by author Edward Fullbrook shows that Citigroup had another, deeper motive for keeping them secret.

At the time, as Fullbrook concludes, the super-rich “plutonomists” recognised “the subversion of democratic process as the ultimate key to their success”. They spend vast amounts to influence the political process, ensuring that the masses continued to vote against their own interests.

Fullbrook’s table, “the revolving door between Goldman Sachs and the Obama administration”, lists 32 people in the US government who have been employed by the world’s most influential investment bank. Even before the crash, Citigroup could see the writing on the wall, as Fullbrook quotes:

Perhaps the most immediate challenge to Plutonomy comes from the political process. Ultimately, the rise in income and wealth inequality to some extent is an economic disenfranchisement of the masses to the benefit of the few. However in democracies this is rarely tolerated forever. One of the key forces helping plutonomists over the last 20 years has been the rise in the profit share – the flip side of the fall in the wage share in GDP. As plutonomists or capitalists tend to be long [on] the profit share, they have benefited from trends like globalization and the productivity revolution, disproportionately. However, labour has, relatively speaking, lost out. We see the biggest threat to plutonomy as coming from a rise in political demands to reduce income inequality, spread the wealth more evenly, and challenge forces such as globalization which have benefited profit and wealth growth.

As we complete this column, the crisis undermining the super-rich and their representatives in government claimed another victim. Greg Smith, a Goldman Sachs executive director and head of the firm’s United States equity derivatives business in Europe, the Middle East and Africa, has just resigned.

"I can honestly say that the environment now is as toxic and destructive as I have ever seen it,” he said on the way out. Apparently the company’s eyes-wide-open pursuit of profit has turned it against its customers. “To put the problem in the simplest terms,” Smith says, “the interests of the client continue to be sidelined in the way the firm operates and thinks about making money".

Smith says it’s a problem of leadership. “The firm changed the way it thought about leadership. Leadership used to be about ideas, setting an example and doing the right thing. Today, if you make enough money for the firm (and are not currently an axe murderer) you will be promoted into a position of influence.”

On March 24, we’ll be discussing how different kinds of democratic leadership can help get us beyond capitalism. You’re invited to attend.

Gerry Gold
Economics editor
14 March 2012

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