Extreme Inequality and Oligarchy

Published on Oxfam America’s Politics of Poverty blog 

Is the U.S. an oligarchy?

I want to throw out an interesting concept, and discuss how it relates to extreme inequality: Oligarchy. According to Jeffrey Winters, author of this fascinating book that I am reading,  oligarchy refers to the politics of wealth defense by a minority who possess incredibly large fortunes. Oligarchs are actors controlling massive concentrations of material power they can use to defend or enhance their personal wealth. Oligarchs may pursue other political ends, but defending their wealth is their fundamental existential interest.

Winters claims the U.S. is both a democracy and an oligarchy. How can that be?

Oligarchs are distinct from elites, who Winters identifies as a broader category of people occupying powerful positions in government, corporations, the military, or other organizations. Elites are powerful because of their positions; oligarchs because of their personal wealth. Of course, oligarchs sometimes occupy such positions, but their identity as oligarchs doesn’t depend on it.

Oligarchy and democracy can co-exist

Countries can have free and competitive elections, formal political equality across groups, strong and enforced political rights, and high participation levels in government. Yet, none of these things preclude massive accumulations of wealth to form. Nor does democracy impede those possessing it from using their wealth to keep and enhance it.

What does this have to do with inequality? A lot, actually.

The U.S.’s inequality problem boils down to two trends. Since the end of the 1970s, the upper-most sliver of the ultra-rich has seen incredible gains in their share of national wealth. Conversely, the rest of the country has stagnated or become poorer. This is shown by comparing the top .1 percent to the bottom 90 percent in the graph below.


The threat facing oligarchs in a society like the U.S. is the potential for the government to redistribute their wealth through taxes in order to reduce high inequality. In the U.S., American oligarchs have successfully prevented this from happening. Their success is a big reason why inequality has become extreme in recent decades.

Defending their wealth from taxation means passing the burden of financing a functioning state onto poorer people. In particular, the burden now falls heavily on middle and upper-middle wage earners, and on the poor who a pay significantly larger share of their income in sales and consumption taxes than the super wealthy. The political triumph of oligarchs is therefore an important source of America’s inequality problem.

How do oligarchs exercise political power?

Oligarchs keep their riches out of state coffers through what Winters calls the ‘Wealth Defense Industry.’ This is the cadre of professionals hired to lobby government and advise ways of hiding wealth, often through keeping it in tax havens. The Wealth Defense Industry represents an army of lawyers, accounting firms, and high paid lobbyists.

Here’s what Americans should be worried about: Extreme wealth is a more powerful political tool than those available to average citizens. For instance, ordinary Americans can voice their opinion and engage in the extremely hard work of trying to mobilize other citizens. However, even if citizens are successful in mobilizing their neighbors and other like-minded allies, they can only sustain their pressure and intensity for so long. Eventually, the rallies end and we all have to go back to work. Oligarchs, on the other hand, can pay a technocratic army to work in their interests every day of the week all year long, and for decades.

How can citizens combat oligarchy to reduce inequality?

For those of us interested in combating oligarchy, Winters paints a bleak picture. In ‘normal’ periods, oligarchs are generally successful in defending their wealth. It’s only when some sort of crisis, or the rare emergence of a mass mobilization, that significant change seems to happen. However, such inflection points unfortunately have little to do with the regular practices of democracy.

We saw such a response in the aftermath of the Great Depression. Franklin Roosevelt eschewed democratic levers and instead deployed the power of the presidency to curtail oligarchy.

More inspiring, there’s appetite among Americans today to turn the political system against oligarchy. Part of this is reflected in the larger conversation we’re having about extreme inequality. What’s exciting is that much of this conversation now revolves around recognizing that the political system is rigged in favor of the ultra-wealthy, and that our inequality problem stems from this.

The inflection point of the recent financial crisis may be slipping into history. But, I think the upcoming presidential election presents an opportunity to talk about strengthening political equality between the mega wealthy and average citizens. Doing so, it seems, may be the only surefire way to counter the runaway inequality America has been besieged by since the late 1970s.

Here’s what we need to do.

First, citizens need to hold their legislators’ feet to the fire on reducing the power of money to distort our politics. Wall Street spent obscene amounts of money on lobbying to deregulate financial markets in the run up to the crisis. Huge returns accrued to the richest Americans while wages stayed stagnant and our economy became extremely volatile. Likewise, theCitizens United ruling opened the flood gates for oligarchs to curry huge political influence over candidates.

Second, we need to recognize that we’re doing a poor job ensuring equal opportunities for all kids. A good state makes sure kids have a chance to escape poverty and live a decent life. Sadly, the U.S. really has two kinds of institutions – one for the poor and one for the privileged.

Third, we need a tax system that invests in creating widespread prosperity and growth; not one characterized by corporate welfare and holidays for the super rich. Today, our tax system places a greater burden on middle class wage earners than rich people who earn their living by collecting interest on stocks. Even small children find it easy to recognize when something is unfair. A tax structure that works great for the wealthiest by putting the burden on those with less political power is unfair, and a telltale sign that the richest really drive important political choices in the U.S. today.