Living in a modern nation-state requires a complex interplay of state centralization, rule of law, and political accountability. The latter two components are necessary constraints on the former and are often carried out by developing institutions that can be labeled either inclusive or extractive. Inclusive institutions tend to create prosperity, while extractive ones tend to ultimately lead to ever increasing concentrations of wealth among an elite who eventually find themselves having to answer to the majority, either in non-violent or violent events, or by simply draining the state of its prosperity over time.
State centralization is important for creating a monopoly on force and violence, which can be used through the rule of law to create inclusive institutions that allow citizens to interact freely in the knowledge that their innovations won’t be stolen or extracted by force by those who have the most might. Extractive institutions are those that essentially embrace the idea that “might makes right” and as result often completely stifle innovation and the creation, propagation, and dissemination of new ideas, which might challenge the extractive process that so enriches the empowered elite.
One form of power that is extractive in nature is that of the medieval form of political and military structure known as feudalism. It is defined below:
Feudalism: The dominant social system in medieval Europe, in which the nobility held lands from the Crown in exchange for military service, and vassals were in turn tenants of the nobles, while the peasants (villeins or serfs) were obliged to live on their lord’s land and give him homage, labour, and a share of the produce, notionally in exchange for military protection.
The idea that “peasants are obliged to live on their lord’s land and give homage” is largely what exists in today’s America. This might seem dramatic or hyperbolic, but let’s examine it more closely. There are three major ways in which one might see this as true today: labor mobility, income tax, and debt.
Free movement of labor (people as workers) is an essential liberty among free people. In its most extreme negation, you have slavery, where people are viewed as property, and just above that you have feudalism, in which peasants are tied to the land they work in order to pay their lord homage. But are people tied to the land in today’s America in the same manner that they were during feudal Europe? In one major way, yes.
People do not have the freedom to move between nations as they please. Some do not even have the freedom to move between states due to restrictions. Of course, these areas of land are much larger than previously, but the fact remains that a person in America cannot simply buy a ticket and fly to North Korea or vice versa, even if they can afford the cost, because of visa and immigration restrictions created by the state powers of those nations. Even movement from America to prosperous nations such as Singapore or South Korea that America is on good terms with, requires huge amounts of work, red tape, and worker restrictions with all sorts of stipulations on what work can and cannot be done with caveats for deportation at all turns.
This is hugely important when capital is given freedom to move between nations. When capital can move, but people cannot, “a race to the bottom” begins. Corporations are able to move their capital to whatever nation will supply the cheapest labor. In recent history, American companies moved their capital to China so as to capitalize on the lower wages workers were willing to earn compared to their American labor counterparts. As China’s labor becomes more expensive and wages rise, we see capital already moving to other nations in and around Southeast Asia, primarily Bangladesh, Thailand, the Philippines, and parts of India. This primarily happens as the incomes of these nations, such as China, rise over time due to increases in real GDP and workers begin to demand higher wages. Rather than acquiesce to demands from labor over wage increases, capital can simply move to a new location.
Once Southeast Asia becomes too expensive, we are likely to see a larger movement into Africa and parts of South America. Of course, we can say that this would eventually lead to some sort of global equilibrium where wages rise among the nations that capital temporarily stops over in. This would happen in the long-run and as Keynes famously said, “In the long run we are all dead.”
Luckily we don’t have to wait for the long-run equilibrium on world wide wage increases. If people were given the freedom to move their labor to nations that had higher wages, they would surely seize it. This is because people as laborers understand that their geographic location accounts for most of their income (60 percent of variability in global incomes). In fact, we see this even though it is technically not legal in places where poor nations border richer ones. Mexico and America, Eastern Europe and Western Europe, India and the UAE, and the Philippines and Singapore. All of these nations have huge migrations of people trying to escape being tied to their own lands that suffer from poorer working conditions and poverty.
This begs the question on migration from America for a better a life. America is quite rich already, but many Americans would still be better off trading their labor in other nations if given the opportunity. Allowing this to happen more freely would also create “a race to the top” as nations and corporations would be forced to pay labor more in order to attract the best workers available today, rather than tomorrow in some distant global wage equilibrium described above in the “race to the bottom” scenario that currently operates.
Not only would this freer movement of labor benefit Americans, but it would also benefit the entire world. Many economists agree this would increase world GDP somewhere between two and three times what it currently is. Some have even stated that it would be “the world’s best anti-poverty program,” exceeding even the current benefits seen from free trade, which is really just free movement of capital.
A lack of labor mobility keeps people tied to the land in which they are born, creates a “race to the bottom” in wages, and prevents world GDP from increasing as quickly as it could otherwise and therefore hurting efforts to alleviate world poverty. However, one might argue that within a given nation, there isn’t much feudalism happening. That free labor movement is just a larger global issue that needs to be resolved.
That isn’t entirely true. Both income tax and the next section, debt, are ways in which America in particular, but any country with large financial and corporate interests in general, keep the general public in states of servitude. This relates closely to the definitional aspect of feudalism above that refers to “a social system in which the nobility held lands from the Crown in exchange for military service”. In this case, we have financial sector billionaires acting as the Crown by granting “lands” to politicians in the form of campaign fundraising in exchange for government legislation that grants them use of “military services” in the form of militarized police forces who are able to assert laws drafted by lobbyists to extract income tax and debts from the majority of Americans as dictated by the IRS.
Of course, society does in fact have good reason to levy taxes. We need roads, bridges, dams, schools, police, and firefighters. Taxes pay for all of these public goods and we have to raise them from somewhere. This section is in no way an argument against taxes or their societal benefit.
One way to raise taxes is corporate taxes. Another is capital gains taxes. And of course, the main option we rely on today is the income tax. The income tax needs to be quite high today in America because of the fact that other taxes, such as the corporate and capital gains taxes, are kept so low. This is the result of massive lobbying interests writing legislation that benefits the financial sector of America and other countries that follow our precedents. This legislation is then enforced by the tax system through the threat of police force if one fails to comply. Anyone refusing to pay income taxes will quickly get a knock on their door.
So rather than extremely wealthy businesses and individuals who make the majority of their money in assets that are taxed under corporate and capital gains tax codes paying for a large share of taxes, the larger majority of working and middle class individuals are forced to pay higher taxes from income. This means they keep less of the wages they earn and therefore must work a larger number of hours to afford their consumption practices (food, clothing, shelter, transportation, etc.). This is basically a modern day “homage” that is described in the definition of feudalism at the start. If one wants to live on the lord’s land, one must pay the homage, which of course they are obliged to live on because they don’t have freedom to move across borders.
Finally, we come to debt. This works in tandem with income taxes in many ways. It forces people to work longer and harder in order to service the ever growing proportion of debt that makes up average American incomes. David Graeber, in The Democracy Project, asks:
How much of a proportion of the average American family’s income ends up funneled off to the financial services industry? Figures are simply not available. (This in itself tells you something, since figures are available on just about everything else.) Still, one can get a sense. The Federal Reserve’s “financial obligations ratio” reports that the average American household shelled out roughly 18 percent of its income on servicing loans and similar obligations over the course of the last decade— it’s an inadequate figure in many ways (it includes principal payments and real estate taxes, but excludes penalties and fees) but it gives something like a ballpark sense. (Kindle Locations 1220-1225).
Coupled with state and federal income taxes, sales taxes, and the excluded penalties and fees Graeber mentions for financing the debt, it is easy to see that the majority of Americans could be paying as much or more than fifty percent of their income to service debt and pay taxes for the “privilege” of living and working on American soil, which they have relatively few options to leave.
Many might argue that modern Americans do not have to take on debt, but that seems to be a rather un-American statement to make. Here are the figures on American debt composition (also from Graeber):
TOTAL DEBT BALANCE AND ITS COMPOSITION
Americans are constantly sold the idea of home ownership. It is part of the American dream. It also has very large tax incentives, meaning banks highly encourage it, although some economists are beginning to question the validity of this system of incentives and the adverse effects it can have as demonstrated in the Great Recession of 2009. That “American dream”, turns out to be largely a dream for the financial sector, which is then able to extract interest, fees, penalties, and the like for helping you achieve it and pointing out that you’re wasting money by renting because of the tax code they have written, a problem that largely doesn’t exist in Germany where people get by just fine by renting. Auto loans are nearly a necessity if people wish to get back and forth to work in large sprawling suburban metropolises, another problem that doesn’t exist in many countries that make better use of public transportation like Korea and Singapore. Try getting to work in California without a car. Next to housing, cars are typically the largest purchases Americans make and that typically requires financing with the attendant extractive fees and penalties.
Then we come to student debt. Another financial sector dream. Higher education is no longer about the development of our collective humanity or the exploration of the world and what makes life meaningful. Instead, it is the route that must be taken to enter professional work. In order to work in a field that gives one even the slightest chance to break out of the state of serfdom described so far, one must engage in a professional career. This leaves the average American exiting university with over $30,000 in student debt, that cannot be unsaddled even by bankruptcy, at the start of their working life where the median income in America is currently just over $30,000.
This student debt is the ultimate manner in which the financial nobility are able to keep serfs tied to them. One must pay the student loan fees in order to work because of the degree, licensing, and credential requirements of professional fields or risk very serious likelihood of arrest or police threat of violence as they dispossess you of your house, car, and future pay for defaulting.
There is simply little pragmatic alternative for most people in the United States other than getting a student loan, home loan, and car loan in order to work in a profession, live without throwing money away on rent, and commute back and forth in most major cities so that one can turn around and pay those loans and taxes before keeping the little left over for food, clothing, and a bit of leisure and entertainment.
A Path Forward
Americans work the longest hours of any comparable developed nation. The reason should appear obvious by now. We live in a system where the financial sector can lobby government officials for the rules that most benefit them and give them the greatest opportunity to extract income and wealth from the working and middle classes, not unlike southern elites managed to successfully vote for the secession.
They are able to do this in a few major ways: gaining rights to move their own capital around the world freely, while not allowing labor to do so; keeping corporate and capital gains taxes low, thereby shifting the burden of taxation to income taxes; and ensuring a society that requires the majority to take on debt in the form of home ownership, car ownership, and student loans to meet the requirements of professionalization.
None of these rules that harm the majority of US citizens must exist. They largely exist because of the insecurity that breeds within the system itself. If a person is financially insecure and always worried about the harsh consequences from missing even one debt payment or an inability to pay taxes, they are much more likely to act in conservative manners that attempt to create a sense of stability in their life. Psychology is showing again and again that a feeling of stress caused by scarcity turns people inwards, lessens their thinking capacity, and generally makes them more self-interested.
This can help explain why so many working class people vote directly against their own long-run economic interests. They are much more concerned with the predictability of tomorrow by voting for a conservative than the unpredictability of voting for social change that could harm them in the short-run as various social programs and policies are fleshed out.
How does a society overcome this? Unfortunately, there is no simple or quick answer. Francis Fukuyama summarizes this well:
The proper approach to the problem of middle-class decline is not necessarily the present German system or any other specific set of measures. The only real long-term solution would be an educational system that succeeded in pushing the vast majority of citizens into higher levels of education and skills. The ability to help citizens flexibly adjust to the changing conditions of work requires state and private institutions that are similarly flexible. Yet one of the characteristics of modern developed democracies is that they have accumulated many rigidities over time that make institutional adaptation increasingly difficult. In fact, all political systems— past and present— are liable to decay. The fact that a system once was a successful and stable liberal democracy does not mean that it will remain one in perpetuity. (pp. 428-430)
What’s worth adding to his thoughts is that the higher level of education he mentions ought to be made free of the oppressive student loans currently being issued in order to avoid serfdom where people become tied to working any job they can find in order to pay the banks back.
While this is by no means a radical or even new proposal, the reasoning should be clear enough. Higher education levels create citizens that can think, act, and work more productively. In thinking more clearly, they are able to find jobs that pay better, ultimately allowing them to overcome their debt, have more discretionary income post-taxes, feel less financially insecure and thereby be able to vote in ways congruent to their own interests.
Clearly, this is a chicken-or-the-egg scenario. What comes first, the voting for better education or the better education needed for the voting? It’s a bit of a “catch 22”. Hopefully, understanding how America closely resembles a feudal state can help in the education process needed to keep government accountable when voting so that legislation is created that benefits the majority and the corrosive institutions that currently exist can slowly be dismantled.