Analysis by Keith Rankin.
The academic study of history, more than anything else, is about the relationships between social elites and the lower classes.
Yet, when it comes to the present, the relationships between elites and wider society is under-discussed, both popularly and academically. (In academia, it is the province of sociology, a social ‘science’ both arcane and riven by ideology.) This wasn’t always the case; for example, the classic critical text of elite sociology remains ThorsteinVeblen’s 1899 book, The Theory of the Leisure Class. In more recent times, I would include the recently late (2020) David Graeber as a successor to Veblen; Graeber’s titles include Debt, The Utopia of Rules, Bullshit Jobs, and The Dawn of Everything.
Even more than Veblen, the two most renown economic sociologists have been Karl Marx and Joseph Schumpeter; with the relatively contemporary Schumpeter only having died in 1950, just 72 years ago. In addition, more recent than Schumpeter, was John Kenneth Galbraith (1908-2006); a political economist and critic of industrial capitalism still familiar to modern readers, and who regarded Veblen as one of his most important mentors. I still remember Galbraith’s The Age of Uncertainty TV series (BBC, 1977), with its discussion (in episode 2) of the gilded age in American (especially New York) history. (Here we may note the recent HBO TV drama, The Gilded Age a time when the New York ‘old money’ elite going back to Dutch times and the ‘new money’ robber barons’ jostling for status through their mansions in Park Avenue [New York] and Newport [Rhode Island].)
A good metaphor for the relationship between elites and non-elites is the sedan-chair. However, the simple sedan-chair is now too small for the late-modern era in which mankind still lives. Not all elites are ostentatious, and not all elite individuals are one-percenters. Let’s imagine, for now, a sedan chair in 1972, a year fifty years ago when men – especially white men – (and a few dynastic women such as Indira Gandhi) ruled the world; a carriage with four working-class bearers and two male passengers.
Right- versus Left-Wing Elites
Elites are people – indeed classes of people – who have privileged sources of income, and as a result have shared interests and a shared sense of their own societal importance. Elites are the ‘beneficiaries’ (in the original sense of that word) of their economies; if not the only beneficiaries, then at least the predominant beneficiaries. In ancient times distributable economic surpluses tended to be small, so elites were a small proportion of the population. In the modern era of industrial capitalism, however, there is much more distributable wealth; elites are a much larger share of the population, and they split into a variety of sub-elites.
When we think of elites we traditionally think of the long and evolving history of private fortunes, and of conservative ‘right-wing’ ‘Tory’ politics. We may go back to the emergence of tribal chiefs and their loyal henchmen; a ‘warrior-class’, the chiefs being warlords rather than landlords. These chiefs and their acolytes gained their kudos by being prominent in the protection and advancement of their tribes. Ruling elites emerged from such warlords, their dynasties, and their henchmen’s dynasties. Governments are today’s substitute for kings, ruling to a greater or a lesser extent through the consent of their subject non-elites.
The classic form of right-wing elites were aristocrats who owned productive lands, which, on account of their lands, would engender rents; rents payable by serfs as labour-service, or, in capitalist history, payable in money. In many (if not most) cases these aristocrats initially gained their lands as a reward for services rendered to kings. Indeed we may define such ‘public servants’ – vassals of Kings, and of subsequently constituted governments – as left-wing elites. Thus, historically, the route to private dynastic fortunes was, for many, public services. (In more recent times, we understand that the Russian oligarchs got their head-starts in Soviet Union times.)
The ‘new money’ robber barons of the gilded age were an exception; they were never ‘public servants’ in any sense of that phrase. They – through a mix of cunning and good luck – gained considerable ‘economic rents’ by getting into their ‘game’ early. These were the ‘self-made-men’ who created ‘trusts’ (meaning monopolies, cartels, and the like); some of their types – in the present Internet Age – in 2022 are still young men. We also have a right-wing class of ‘financial elites’ – a class with a long and interesting history – who have made (and sometimes lost) fortunes by selling financial services to elites and by trading ‘assets’ (mostly promises and real estate) for ‘capital gain’.
In present societies then, we have mixes of dynastic ‘old money’ elites (right-wing today, though descended initially from public servants), ‘new money’ right-wing elites who made their fortunes selling goods or services to the non-elite masses (and which include today the executives and principals of ‘big business’ corporations), financial elites, and ‘new money’ left-wing elites. The latter owe their elite status to providing public service – services, expertise, narrative advice – to democratic and socialist governments.
Left wing elites are those whose status arises from the patronage of rulers, especially revolutionary or democratically-constituted governments. Right-wing elites are the captains of industry, ‘robber barons’, and people who make their money selling financial and corporate services and assets. Inheritance elites – dynastic elites – can be regarded as ‘right-wing’, even if the founders of those dynasties were servants to democratic or republican governments.
(In public choice theory, which became popular in the 1980s – in New Zealand, think of Eric Crampton, whose mentor was Gordon Tullock – writers such as Mancur Olsonthought of these early warlords as ‘roving bandits’; a kind of necessary evil in early times, an iniquity from which governance and governments ultimately evolved. Following the advent of agriculture, kings and princes emerged from nomadic chieftains; Olson called these and their landed acolytes ‘fixed bandits’! The more usual name for a landlord class is ‘aristocrats’. Olson’s 1982 book, The Rise and Decline of Nations, was influential in New Zealand Treasury circles in the 1980s, becoming an inspiration for Rogernomics; we should note, however, that Roger Douglas was somewhat played, at that time, by Treasury’s rising stars. While the tenor of public choice theory is a critique of left-wing elites, the 1980s’ Treasury in New Zealand was itself very much a left-wing elite. Further, while far from the only target of public choice economics, there was an alleged left-wing ‘aristocracy of labour’, with an emphasis on the monopoly powers that some trade unions may have held; powers which certain politicians such as Margaret Thatcher were able to break.)
What makes the label ‘left-wing’ especially appropriate for privileged servants of today’s states is that, by their very natures, left-wing ideology favours a ‘big state’ – a big apparatus of government service – whereas right-wing ideology favours a ‘small state’.
A complex question here relates to the status of academics. In short, we may note that the management layers of academic institutions are very much a part of the left-wing elite, while untenured teaching staff are clearly not. For tenured research-active scholars, some have a career focus which is not unlike that of their disciplinary colleagues in or close to the public service; others are genuinely independent scholars who ask pertinent (rather than patsy) research questions, and who follow the trail of evidence wherever it takes them, even if they end up ‘biting the hands that feed them’.
Finally, we should note that there is another group of ‘self-made’ men and women – in that sense like the former captains of industry, and like the moguls of the internet age (such as Mark Zuckerberg) – but who should not be categorised as right wing ‘private-property entrepreneurs’, and who do not fit any above definition of left-wing elites. These ephemeral elites are the successful sports stars, media stars, entertainment stars, and lottery-winners who have made fortunes as a result of their popular talents or sheer good luck. (There are also ‘criminal elites’; a complex story in itself, given that ‘criminal’ has both narrow and wide definitions.)
Follow the Money
To understand much of what happens in the human world, the technique to adopt is ‘follow the money’; that is, to observe where the money comes from, and where it circulates to; regardless of what goods or services may or may not be being purchased, or what labels (eg ‘mental health’) may be on the ‘money bags’ dispensed by government.
Government is the biggest single monetary pump in any modern economy. We should note however that, from the early twentieth century, central banks (ie Reserve Banks) have played a partnership role with governments; and that, mainly in the 1990s and in western liberal democracies, this relationship changed.
(The essence of the change is that, before the 1990s, governments were the biggest customers of their countries’ central banks. Central banks would [create and] lend money directly to governments [as well as to client commercial banks] largely at the behest of those governments. Since 1989 (with New Zealand playing a globally leading role that year) the relationship has changed, with the central banks gaining the power to deny finance to governments; though these banks are still owned by governments, and they implement ‘monetary policy’ in accord with contracts dictated by governments. So, if governments want to borrow newly created money, they have to do it indirectly, by borrowing existing money [selling new government bonds] in the [secondary] money markets, and then the central bank [if it so chooses] lending to the money market by buying those ‘bonds’ [or other existing assets]. An alternative situation is that the central bank wants to create money and lend it directly to government, but is not allowed to do so. So the central bank attempts to finance government indirectly, by buying existing (rather than new) government bonds; and hoping that the government will ‘issue new bonds’ [ie borrow from] the money markets. This alternative situation represents what happened in New Zealand in mid-2021; with the [debt-averse] government not taking the bait, ie with the government thwarting the Reserve Bank. The result was that the parties who sold those existing government bonds to the central bank became awash with new money, and interest rates on medium to long-term debt fell lower than the central bank wanted. The government spent too little, barely addressing the issues the people expected to be addressed; and the housing market and sharemarket were pumped up due to that money not going where the RB had wanted it to go.)
Regardless of whether the government should have spent or dispensed more than it did in 2021, the government was still New Zealand’s biggest spender. A government of a democracy exists to purchase ‘collective goods and services’ (such as healthcare, education, defence) which (at least in principle) benefit all New Zealanders; to dispense collective benefits if not in practice equal benefits.
Further, up to a point and generally with the consent of the demos (the people), some of that spending may be targeted towards particular groups – deserving groups – of people with (or allegedly with) specific disadvantages; ie, these deserving groups are (by definition of ‘deserving’) non-elites. (Dispensing benefits to the deserving is called ‘vertical equity’.) In addition to the purchase of services, the government manages direct monetary flows (accounted for as ‘transfers’); either universal (to all equally; or at least to all who meet a criterion other than financial means, such as age or disability), or targeted to deserving members of deserving groups, or means-tested.
In practice, most of this money – even much of the money set aside for ‘transfers’ – is paid directly to specific intermediate destinations (public ministries, or contractee organisations); ie not directly to non-elite people as universal or targeted transfers. We note that the constitutionally intended recipients of universal ‘transfers’ are mostlynon-elite, and the constitutionally intended recipients of targeted transfers are all non-elite; money for non-elites is filtered through organisations managed by elites.
The problem is that much – in some cases, most – of these monies intended to support the well-being of non-elites do not reach their constitutionally intended recipients. (Note above my ‘mental health’ example. Little of the money in the ‘mental health’ moneybag ends up with the mentally unwell – as money, or as consumed services or other palliatives.) My challenge here, however, is to reflect on where the money does go, and not to wail about the failure of much of it to get to the needy and the deserving.
The elite legacy of the Neoliberal Reforms of the late 1980s and early 1990s
During the first term of the Fourth Labour Government (1984-87), the policy emphasis was on financial deregulation, and on boosting elite incomes by establishing positive real interest rates. For most of the time since the 1920s, interest rates on deposits and mortgages had been lower than inflation rates; this was especially true in the 1970s. This policy on interest rates is what the private elites wanted.
At the same time, especially in 1985 and 1986, the public service was boosted both in salaries and in personnel, as that government both aggravated inflation (knowing they could blame the previous government) and received a huge tax windfall in large part as a result of that inflation. New elites were being created, while old elites were being kept happy. (As a diversion for the more conscionable public servants and academics and pressure groups, from 1986 to 1988 we had the super-doorstop, the 1986 Royal Commission on Social Policy, and its soon-to-be-forgotten five-volume report.)
The neoliberal policy process accelerated after 1987. The Treasury prescription was a long ‘public choice’ document called ‘Government Management’, and it sought to thoroughly reform the public service using a process of internal market contracting. The bureaucracy would become like a giant corporate marketplace where all agents and agencies were expected to contract with each other. The non-elites at the ‘coalface’, doing the actual work of healthcare etc., would be the least-well-paid. Many of us still remember the CHIs (pronounced ‘cheese’) and we still have the CRIs (‘cries’) in place of the DSIR (think CSIRO in Australia). Alphabet soups remain today, as agencies populated by left-wing elites. The 1980s was the decade of the rise of ‘managerial economics’; the new assumption that non-elites could not be trusted became to some extent a self-fulfilling prophecy.
These changes were extended in the early 1990s, under National, with the ‘Mother of all Budgets’, the Employment Contracts Act, the swathe of benefit cuts, and later the 1994 Fiscal Responsibility Act. (I remember seeing the ‘burn Shipley burn’ graffiti on the Rakaia Gorge bridge in 1991.) The result was huge cutbacks in the provision and maintenance of public infrastructure, unemployment rates which were in truth vastly higher than the official maximum of twelve percent, and the departure to Australia of many of those now coming back to New Zealand as 501 deportees.
This was the culture of government management and highly rationed services, created between 1984 and 1994; the culture which still exists, thanks in large part to the ongoing workings of the 1989 Reserve Bank Act, the 1994 Fiscal Responsibility Act and the cultural switch from universal to highly targeted (ie highly administered) public charity in lieu of the social safety net. Highly administered systems are inevitably full of cracks through which people fall, while proving lucrative for the executive managers of these systems of rationed welfare.
As a result of this new culture, the level of services to the non-elites became highly compromised. The ‘government management’ nexus, to whom the money-bags were passed, retained too much of this revenue for itself. An extended left-wing elite was delivered; an elite dependent on government patronage. Left-wing elites make their money by retaining it, circulating more within their own contracting and investing communities than is allowed to trickle-down to the non-elites for whom the monies are ostensibly intended.
New-Left Elites as ‘Rationers’
At the bottom layer are the managers who are themselves tightly managed. David Graeber called their income streams “bullshit jobs”. At the higher layers of elitedom there are lots of travel obligations, cultural formalities, symposia, and networking. As in the contrived behavioural norms of the traditional elites we watch in film and television dramas, it is not always much fun to be trapped in an elite regimen.
The essence of the left-wing elites and the reforms which created their neoliberal verson, is the process of rationing. This process is one of systemic underfunding as an elite mechanism.
In the years prior to ‘government management’, Budgeting was a hit-and-miss affair, because social need was (and still is) inherently unpredictable. In those post- World War II ‘old days’ – nowadays lampooned in New Zealand as ‘Muldoonism’ or similar – unexpected needs were met, the safety net worked, there was a social contract that it should. While there were swings and roundabouts, government finances roughly worked out in the medium term.
In those days, public choice economists lambasted public servants and institutionalised pressure groups as “distributional coalitions”. They proposed a mechanism attributed to Joseph Schumpeter – ‘creative destruction’ – as the heavy-handed remedy for the ‘lazy public service elites’ who had supervised New Zealand’s greatest ever quarter-century of expansion.
The remedy was to replace these undermanaged servants with highly managed servants doing the ultimate ‘bullshit job’, rationing public services. The application of the remedy created lazy government ministers. All the new ministers were required to do was to shuffle (and subdivide) labelled money-bags, with the Minister of Finance not only being shuffler-in-chief, but also deciding the aggregate amount of money in those money-bags. This is in essence, ‘bulk-funding’; the critical rationing decisions are devolved, while the rationing servants have no powers other than the power to ration. Whatever the scale of a problem, an already determined bulk fund would have to address it.
As a way of managing the unpredictability of need for the social safety-net, the expectation is that needs will be unmet; that is, that some (maybe many) will miss out on needed goods or services, and will fall through ‘cracks’ in that net. So, with regards to a particular unmet social need, Treasury may grant safety-net support for X people (specified as just enough dollars to treat X), while expecting that Y people will want such support (where Y is unknown, but believed to be more than X). Under this method of social support, there will always be unmet demand for those supports or services.
All the Minister of Finance has to do is to fund a particular kind of support for X people, leaving it to the rationers to decide who among the Y will be supported and who will miss out. And salary increases to ‘coalface’ staff would mean less money to meet clients’ needs When the government is feeling generous, they may increase X by putting more money in that money-bag (possibly transferring it from another bag), though it will still be less money than can meet the level of need that is Y. When the government wants to tighten fiscal policy, it may simply reduce X. Thus, the art of government becomes an exercise in greater- or lesser levels of under-funding. Because funding is pre-ordained (ie not responsive to needs as they arise), the principal task of the public service and its contractees will always be to ration; that means hiring layers of rationers, all of whom ‘clip the ticket’, retaining much of the allocated funds within the government-dependent elite. This is the mechanism of systemic underfunding, which means that the rationing process itself siphons-off a significant proportion of what is from the outset an ‘underfund’. (Think of Pharmac, the New Zealand drug-buying agency, as an exemplar for this process.)
One other key component of the systemic retention of public funds is the whole ‘optical’ industry; the process of managing perceptions; of making it look like governments are doing much of what people expect of them, when in reality much less of that money is trickling down to the people indicated by the labels on the money-bags. This system of public relations becomes like a game played with elite media; this echelon of the left-wing elite is commonly known as the beltway.
A large part of the wider-beltway that constitutes the expanding left-wing elite is the employment sector: ‘professional, scientific, technical, administrative, and support services’. This, in the 2000s and 2010s, was the country’s fastest employment growth-sector; and is a mish-mash of professional occupations. But the key question is, who is buying their services? The answer would appear to be a mix of professional elites, including those elite-employing organisations which depend on government-initiated income streams. This employment sector is largely superstructure; the edifice through which the money retained by the elites circulates.
Funding for different projects is not neutral. Elites hustle for funding, for their various ‘good works’ and other projects.
An issue then, that may help to explain some of the career-building within the network of organisations seeking access to government money flows, is the matter of statistical manipulation. While I don’t wish to make any accusations, I am aware that the quality of many of the statistics that make the headlines leaves much to be desired. It is not without reason that the phrase ‘lies, damned lies, and statistics’ retains its popular currency today. So instead, I’ll note an example from the acclaimed Danish political television drama, Borgen (Season 3, episode 5, 39′); while fiction, this drama deals with real contemporary political themes.
Sex-workers’ representative Helena: “The studies they carry out. They manipulate the data … the figures from the shelter are exaggerated.” Katrina: “What would the shelter gain from lying?” Helena: “They get money from each girl they help. We’re not the only ones who get paid by the customer.” … Katrina to her political boss: “It looks like Helena’s right; the shelter accrues its figures year-on-year so the women already in the system are counted again as new entries, 400 double-counted out of 1200 clients. … It’s in their [political] interest to make the problem seem as big as possible; they support a ban [on sex-work]”. The issue here was the conflation, for political purposes, of sex-working with people-trafficking.
The underlying problem is that all sorts of statistics are bandied about to make political points, including to attract public revenue to NGOs (non-governmental-organisations); and there’s usually minimal professional scrutiny of those cited data. Statistical manipulation is a trade with many tricks, which include sample self-selection, leading questions, overly broad definitions, and ways of grouping data so that a small number of serious cases are mixed in with a much larger number of marginal cases.
(In the case of Covid19, the most ubiquitous offence – and repeated by even the most reputable of media networks – was the misleading citation of country-aggregate-data when it was appropriate to cite country-per-capita data. Brazil was not the worst-affected country in South America! Here it may not be marketing, rather it’s a mix of journalistic ignorance and the desire to simplify a story; however, the tactic of simplifying and sensationalising stories is a form of competitive marketing by news media.)
Back to the Sedan Chair
The 1972 cartoon for the growth of left-wing elites should be modified. Rather than four working-class ‘chair’men (the carriers of the chair) and two elite male passengers, our cartoon needs more people in the chair, and more diversity. Say, for the 2020s’ New Zealand version of the cartoon, the ‘chairmen’ could be a man in a black singlet, a westie woman, a Pasifika woman, and a South Asian man. The two Pakeha men in the sedan cabin remain, but they are saying “come on up, we have problems to solve”, dropping a ladder down to a Māori man and a Pakeha woman.
The main point, of course, is not the diversity; it is that the load is getting heavier.
Keith Rankin (keith at rankin dot nz), trained as an economic historian, is a retired lecturer in Economics and Statistics. He lives in Auckland, New Zealand.