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Rise of the 1%:

An organizational explanation
Jonathan Murphy Visiting Professor, Copenhagen Business School

Purpose of the paper

Provides a conceptual framework which locates the re-emergence of overt discourses of class conflict as a product of the reorganization of capitalist production, specifically through the dismantling of socially embedded organizations, a process driven by the ascendance of the neoliberal thought style

Re-emergence of class discourse

The 1% - 99% contrast is only one of a plethora of class contrasts highlighted in contemporary popular discourse Also wide attention to difference in taste and in Britain at least - mockery of affluent in populist media Numerous references to class, until recently seen as unacceptable in mainstream political discourse: they just dont get it; two rich boys Enhanced attention to excessive salaries; executive remuneration packages regularly voted down.

Real growth in inequality

The renaissance of class-based political discourse is founded on real growth in inequality, especially notable in AngloAmerican capitalism Between 1980 and 2006 the share of US income captured by the top 1% more than doubled from 9.1% to 18.8% In UK Gini coefficient of inequality rose from 26 to 40 between 1999 and 2009; income of top 1% also doubled (to 14.4%) Ramifications of growing inequality extend beyond income but frame life chances and embed social class differentiation

How changes in organization of capitalism underpin growing inequality

Traditional model of the corporation is still taught in business schools, particularly in HRM; relatively stable organizations that seek to invest in their human capital The traditional model of the corporation is reflected in international management in the staged internationalization paradigm

Emergence of global business processes has rendered this model largely out-dated
The capacity to modularize the value chain (lego capitalism) permits a variety of different corporate forms including capital extensive firms

Cascading impacts of modularized capitalism

Capacity to modularize value chain greatly enhances the power of capital in the value chain process

Through drawing in low cost labour from developing and peripheral countries, a major increase in supply of labour in global workforce
Unlike in the earlier phase of imperialist production, the profits of superexploitation are not shared with a labour aristocracy in the West; the benefits are retained by the elite Despite the exponential growth in outsourcing relatively little of the value of goods and services produced in outsourced production chains remain in the developing country Global labour arbitrage therefore increases the surplus value accruing to elites controlling transnational value chains

Realising value
The modularisation of capitalism has also provided opportunities for innovation in elite realisation of value, With the content of business processes concentrated in fungible, poorly regulated locations, an increasing share of value is realised in the strategic management of the value chain, capital allocation, and branding These aspects are all characterised by their intangible nature. They are subject both to corrupt practices as seen in the Enron, Worldcom, Stanford and Madoff scams

However the intangibility and fungibility of these functions permits realisation of value in tax havens, bypassing traditional state-based taxation systems
This process is facilitated by complicity of elite networks in national governments and transnational financial institutions (WB, IMF, OECD, etc)

Conditions of possibility for the emergence of the 1%

Paper draws on the concept of thought styles developed by Ludwick Fleck Capacity of an assiduously promoted, elite-backed ideology to frame understanding of a field, and specifically to exclude from consideration perspectives that do not fit Ascendance of neo-liberalism driven by well-organized and networked campaign (MPS in Europe, Chicago School in US, IEA in UK) but made possible by exhaustion of the Keynesian paradigm (Cold War context)

Cascading implications and insatiable demands

It would be a mistake to view the rise of neoliberalism and the emergence of the 1% as a pre-planned phenomenon Rather there is an internal logic of any set of actions, the results of which the actors will be largely unable to predict In the case of neoliberalism, the relatively broad character of the initial demands made the cascading effect particularly powerful For example, early demands included reduced state regulation, a smaller state, reduced union power, increased marketizaton, free trade and freedom of corporate action; and in developing countries, the abandonment of autarkic development strategies and integration into a global economy with greatly reduced national barriers These aspects of neoliberal ideology interacted with each other resulting in a marked shift in power from population to elites


Dual movement
Just as the logic of the neoliberal thought style resulted in the emergence of a small and powerful elite at the top of transnational value chain capitalism, so it also resulted inevitably in dissatisfaction among those negatively affected by growing inequality The initial reaction has been in developed countries where first the traditional working class was squeezed and now increasingly the middle class. Unlike in early forms of capitalism the support base for the 1% elite is by definition quite narrow Meanwhile in developing countries, incorporation into global value chains initially appealed, but increasingly the limits to upward mobility are clear, with substantial unrest (particularly in China) The inability of the elite to control value realisation (particularly financial instruments) resulted in the current global crisis. The solution of further downward pressure on the mass of the population in order to regain stability will inevitably exacerbate conflict and drive the emergence of alternatives to the current model; Polanyis dual movement.


Questions at CBS
From a Scandinavian perspective, is this hypothesis unnecessarily negative; reflective of a crisis particularly of Anglo-American capitalism (but then what about Southern Europe)? What are the conditions for the success of an organizationally flexible capitalism (strong social safety net, tri-partism?) Is neoliberal economic restructuring productively harnessed in northern Europe? If so, why does the cascading logic not function here?