Flag in Distress

Gar Alperovitz
Interviewed by David Barsamian
Cambridge, MA
January 19, 2012

available from Alternative Radio

You can listen to Gar Alperovitz speak for himself here.

Gar Alperovitz is Professor of Political Economy at the University of Maryland and co-founder of the Democracy Collaborative. He is the author of numerous books, including
Unjust Deserts, Making a Place For Community, Rebuilding America, Atomic Diplomacy, The Decision to Use the Atomic Bomb, and America Beyond Capitalism.

In a New York Times op-ed on December 15, 2011, you wrote, “A mere 1% of Americans own just under half of the country’s financial assets and other investments. America, it would seem, is less equitable than ever. But at another level, something different has been quietly brewing in recent decades.” What’s been brewing?

What’s interesting—and, again, the press doesn’t cover this—is just below the surface of what the press normally sees. There are thousands and thousands of institutions that democratize the ownership of wealth. Political and economic systems are defined in terms of their power. But who owns the capital?

In the U.S. 1% owns just under half of the investment capital, 5% owns 70%. Literally, a medieval power structure. So if there is to be a democratic alternative, what you look for is: Are there ways that democratic ownership can happen? Indeed, if you look closely, there are some 13 million people involved in one form or another of worker-owned companies, a form that changes who owns; there are 130 million people involved in credit unions and co-ops, another democratized form of ownership; there are 4,000 or 5,000 neighborhood corporations, devoted to neighborhood development; there are 2,000 utilities that are owned by cities. People don’t realize that. A quarter of the American electricity supply is essentially socialized in a radically decentralized way, utilities and co-ops, city-owned utilities. And it’s been growing. There’s a whole quiet building up of a different model that has a very American tone to it but goes at the central question of who owns capital, who owns the wealth. That I think is a critical basis for possible longer- term change.

And what do you mean by a particular American tone?

Unlike France, for instance, or Russia or the former Soviet Union, we have a very decentralized tradition, localism and states and kind of participatory American idea that comes from the agricultural frontier days. So there is something in the culture that can go many different ways: it can go far to the right, to individualism, but it also has community spirit and a kind of you-can do-it, roll-up- your-sleeves, we-can-try-something-here.

The models that are interesting—and I think of this as a long historical development—are very much at the local, neighborhood, workplace level of democratizing. I see that, one, as a precondition of how you could actually develop a system which was not state-dominated but also change who owned the productive capital. That’s a precondition, building up that kind of an experienced culture and also a vision, models of what could be. It also in a funny way has a Gramscian aspect, because it cracks open in a very American way the ideological question. That is to say, it opens up the question of who owns capital in a practical way rather than in a challenging way. That’s another question. The challenge part is needed. But here you have ordinary Americans doing worker-owned companies. What do we make of that? Why not? And why can’t that expand?

You write further, “If such cooperative efforts continue to increase in number, scale and sophistication, they may suggest the outlines, however tentative, of something very different from both traditional corporate-dominated capitalism and traditional socialism.”

That is what’s interesting about this to me. At one level this is all very positive, it’s all useful and it’s helpful and it’s a good thing to do. But much more interesting is whether or not these kinds of developments, if we are aware and self-conscious and clarify the meaning, give people a sense, and even an ideological perspective, of what might be possible. Re-creating a sense of the possible and a sense of vision and something beyond rhetoric, something that gives content to an alternative structure of beyond corporate capitalism and beyond the traditional state socialist models. You need to have that if you’re to build a movement that gets beyond rhetoric and also has something concrete to do and say.

So, yes, I see it as both useful to do no matter what, but also laying down ideas and practices and experience and expertise of how actually do you do a good worker-owned company, not rhetorically. And what are its limits? There are problems with worker-owned companies, too. Getting much more sophisticated about what it is we want and what it is that makes sense.

And you realistically observe that these efforts are minor compared with the power of Wall Street banks and the other giants of the American economy. Are they willingly going to go along with the weakening and evisceration of their own power?

Of course not. The struggle for real triumph over the systemic issues is a many-decade struggle. So if you say now is the fight, tomorrow, it’s obvious that the deck is stacked. If that’s where the confrontation comes, that’s not going to happen. On the other hand, if you take—I wear a hat as a political economist and historian, but if you stand back and ask, how does historical change really take place, what you’re looking at is decades of developmental struggle, both negative, challenging, and the creation of ideas, projects, vision, concrete ideology.

What I think is interesting is the failures of the American system. I think they are endemic now. I don’t think they are going to go away, I don’t think the pendulum is going to swing. I think we’re into deep stagnation and decay and pain. That is the forming ground of people waking up and saying something is profoundly wrong, not just who wins the next election. Occupy cracked open the debate about the 1% and the 99%. But that would not have happened if people didn’t feel there was something wrong. Much more important even than Occupy is that there is a sense in the public that something is wrong. So I see it as a long, long battle and a long developmental process.

Another way to look at it is—and we’ve been doing a fair amount of work in the Midwest, where the destruction of cities is just powerful—that’s the internal empire. And at the tail end of the internal empire the pain is greatest. But it’s also the place where people are struggling to build something new. So if you see it historically—you can even see it in traditional terms—many of the preconditions of even the New Deal were developed in the states and localities, some of them state by state, decade by decade. The women got the vote in the 19th century decade by decade by decade, one state and another state and another state, until finally they accumulated enough power to go national.

This is the prehistory of a possible transformation, not the history of it. My heroes are the civil rights workers in Mississippi in the 1930s and 1940s. That’s when the real work was done, laying the groundwork and building up ideas and people and inspiration that ultimately could become the 1960s. That’s the hard place. Something roughly analogous is the way I think about this period.

In America Beyond Capitalism, to reinforce what you said about Americans in large numbers feeling that something’s not quite right, you write, “Repeated studies have shown the majority of Americans know full well that something fundamental is going on with ‘democracy’“— and I’m interested that you put “democracy” in quotes; I’ll ask you to explain that in a moment—“and four out of five judge that government leaders say and do anything to get elected, then do whatever they want, and another study found that seven out of ten felt that ‘people like me have almost no say in the political system.’”

Not only is that now true, that people sense that and they know money is dominating, and even more so with the Citizens United decision, that people understand that. But what’s very interesting—and, again, if you’re thinking about transformative change in stages of development— three decades ago the numbers were just the opposite. If you asked somebody, “Do the politicians or the president or the Congress do what people say?” they said, “Well, of course they do what the people say.” So there has been a major ideological shift, consciousness shift, negative in this case, that something is wrong, it’s all rigged, or Washington is broken or whatever the language is, or four out of five saying they will just do anything to get elected. That is a—more important than the shift— a profound change in the sense of direction of understanding in the ordinary public. You can’t get to much more fundamental change until you eliminate the possibility of believing in some of the foolishness. That’s going on big time in the U.S. People sense there’s something profoundly wrong. They don’t quite know what to do with it, they are still struggling with that. But awareness has grown over my lifetime in a way that’s astounding.

You suggest these efforts toward building some kind of alternative worker-owned structures will take many decades, that we’re now in the incipient stages. Am I summarizing correctly?

Not only worker ownership. Municipal ownership. That was the early part of the Debs revolution, was about municipal ownership and neighborhood development. All forms of changing, not just worker ownership. We are potentially in the incipient stages. We are further along than that. There’s lot on the ground. As I say, 130 million people are involved in credit unions and co-ops. A very American institution that doesn’t get taken seriously, except all of a sudden $4 billion or $5 billion have been shifted from big banks to credit unions as a matter of ideology, a matter of saying, We don’t want to be with the big banks. Let’s go there.

Some cities now are saying, Why can’t we set up a city bank or a city credit union? The state of North Dakota has an old state public bank. Publicly owned banks. In San Francisco they have about $28 billion in regular float, cash around. Why should that go to Bank of America? Why not put it in a city bank? Why not set up a city bank or a credit union?

Worker ownership is part of this, but there are all kinds of models that are emerging quietly that the central principle is democratizing ownership in one form or another, from my point of view, as the preliminaries to the transformation, or to an America beyond capitalism.

You trace the origins of this movement to actually a failed effort. In 1977 in Youngstown, Ohio, a big steel plant closed down, 5,000 workers lost their jobs. You were involved in an effort then to get that plant going again. It didn’t succeed. But from those efforts other things evolved. The Cleveland model.

Yes. Many of these things have grown up on their own. The industrial worker-owned co-ops, that’s very interesting and does trace back in part to Youngstown. There are many other roots we could go into. This was in 1977. Five thousand people got pink slips in one day, thrown out of work. In 1977 that was really big news. That was national news because it hadn’t been happening. Now it happens all the time.

So the steel workers there in the local in Youngstown—it was Youngstown Sheet & Tube, a big company—said, why don’t we take this place over and run it ourselves, along with the religious leaders of the city, the ecumenical council. That was the original idea. I was called in to try to help them design a plan and the strategy to do it. What happened was they did their politics very carefully. They got the whole state, Democrats and Republicans, including the so-called conservative governor, who had to be for it because the religious leaders and labor was for it, and they put forward a plan, which would have made for a worker-owned company, a large one. They even got the Carter administration in those days to commit $200 million in loan guarantees.

After the election of, I think it was, 1978 the money disappeared. There is a story there, too. Nonetheless it was popular. So the mill did not happen.

But what was interesting is that the leadership understood that might occur and they understood—and this is critical for activists now—they were self-consciously aware that even if it failed, they were injecting an important idea into political consciousness and that they couldn’t lose. Indeed, what happened in Ohio is there are probably more worker-owned companies now per capita in Ohio than perhaps any other state. There’s no study on that, but you get a sense of that if you go out there. A little center was set up at Kent State which began giving technical assistance to worker-owned companies.

The most sophisticated model that exists is in Cleveland. And it’s an interesting model because it’s in a very poor black area: $18,000 is the family income average, 40% unemployment. But there are also big hospitals there. The Cleveland Clinic is there and big universities. If we put two and two together in this case, building on the ideas of worker ownership, those hospitals and universities—and this can be done anywhere, in fact, many cities have picked up on this—they buy $3 billion in goods and services every year, $3 billion. That’s in addition to salaries and construction, just buying, none of which had been bought from this area. So the light bulb went on. Why not see if we can either induce them or ask them or force them to buy from worker-owned co-ops in this area that will service them and also service other things?

So the result is, in that area there are a series of worker-owned co-ops. They’re not simply to make a couple of workers rich, or not rich but make a lot. They’re linked to build a community. A nonprofit corporation ties them together. They can’t be sold off without a major decision. There’s a revolving fund so that the money is made, and a percentage, 10%, of profits go back in to make new companies. So that they want to build a complex of community building in a structure also of worker ownership, and partly stabilized by the fact that in these big hospitals and universities, taxpayer money, a huge amount in health care and in education, is being used to reconstruct the community on a wholly different institutional design. In America, right now.

Indeed, the small businessmen like it, it helps the tax base. And it has ideological resonance in a way that what we’ve learned there is if you speak concretely and make sense and know what you’re talking about, very, very fundamental institutional change can be made available in cities, particularly where the pain levels are growing and deepening. Cleveland has gone from a population of 800,000 to 400,000 in the last 30 years. Devastated. It’s like Detroit. Nothing has happened that works. If something like this works—and this is working; there are several companies—they have a possibility of reaching a much broader public. Which is critical. Not just small, radical groups; a much larger public.

So, for instance, they’re just about to open a greenhouse, partly solar, hydroponic. But the scale is not your little co-op. Three million heads of lettuce a year is the production, plus a lot of other stuff. They have an industrial-scale, very advanced, high-tech laundry, ecologically the greenest in the Midwest, perhaps—it uses about a third of the water and heat for laundries—that is servicing the hospitals and the nursing homes in the area. They have another solar installation company which is on track to put in just probably shortly more installations in Ohio and more capacity than existed in the whole state already. The goal is to build up not your own little, tiny worker co-op, but it’s to really get serious about developing scale and power. And community. Worker ownership, but not just worker ownership. Community development, in the largest sense of the community.

Talk about the role of organized labor. You trace in your book the steep decline from a peak of around 35% of the work force being unionized in the 1950s to what it is today, in single digits in the private sector a little higher in the public sector. You say it’s going to drop even further.

Historically unions were a countervailing force to capital. This is critical. The way in which most of the advanced systems around the world have been run—to say nothing is different in other parts of the world—is you allow the corporations and the capital owners to have a dominant role, and you build up union power as the basis of some form of progressive political coalition to keep distributional questions, social questions, environmental questions sort of in line. That’s the social democratic model in Europe or liberalism or progressive politics in this country. That’s the model. A “countervailing force” was what Galbraith called it. Indeed, without that, the situation would have been dreadful in most parts of the country and in many parts of the world.

That system model, that entire design of how you run a system, I think that’s decaying before your eyes, for better or for worse. There is a lot of pain associated with that. And the most fundamental of the reasons is that the power of organized labor, the muscle and money behind democratic elections, has radically declined, from about 35% in 1952 to just under 12% now, and probably declining further. So even the fights in Wisconsin—I’m from Wisconsin—recently and in Indiana and Ohio, very inspiring fights, but the thing to notice is that they were all defensive. They’re moving backwards saying, Do less, don’t take away more. They’re not on the offense. And they would love to be, to gain more power for both the unions and for social programs and economic programs. But there is a decay process at work.

Either there is going to be a new model of how you transform advanced systems in a new direction, or the decay will worsen and the pain will grow and the violence will come with it. I think this is the most important period of American history, bar none, and I include the American revolution, because we’re running out of options in the traditional models. The question that’s posed by all this experimentation and many other things and by Occupy is whether we’re in potentially the beginning of really reshaping our idea of where to go and how to get there. Critical to that is to get beyond rhetoric to what does it look like. What is it that makes sense in the design and politics and vision of the next system?

All these experiments on the ground—there are many, many more, some of them larger, some of them smaller—Alaska gives away the oil—if you go to Texas and Alaska and see what they do to oil, for odd reasons Alaska gives every citizen a right to a share of the profits from oil. Odd, historically. But there it is in America, that odd pattern.

If you look deeply, there are lots of elements that begin to form a mosaic, I think, potentially suggesting the direction of an America beyond capitalism and also beyond state socialism, a decentralized democratic model that begins to give content to a different vision and practical experience to build towards it. I think this is an extremely important development. Potentially, when it gets to politics—it doesn’t have a politics now; it has developments, experimentation, fragments—I think the next stage is a politics that begins to pick up on the knowledge and the experience and the practicality of all of this and begins to offer answers that you can explain to anybody.

I’m from Racine, Wisconsin. That’s kind of a decaying industrial town. I can go back to Racine and talk to my conservative high school buddies—and there are some who are really conservative, very intelligent but very conservative—and talk about all this, and it makes sense to people. It is explainable development and it has a vision that people understand,

That’s a good thing to do. We’ve got a lot of pain here in this town. So that content as well as the vision I think is very important.

The name of Marx’s book was Capital. It centers on who owns the power base.

People like Howard Zinn and Noam Chomsky would say that socialism has never really been tried. That the Soviet Union was a distortion, an aberration. They took the name socialism, but it was a form of top-down state capitalism.

That’s definitely fair. Indeed. I think it’s also true that you can find libertarian socialist theory and communitarian socialist theory and also syndicalist socialist theory. So there are traditions you can draw upon. But for the most part we have dwindled to the place that socialism means for most people the state owning and controlling.

I was a student of Bill Williams, the wonderful historian at the University of Wisconsin at Madison. He was always down on rhetoric. He was interested in content. What does it look like and why should this work any better, is the question we need to ask.

Indeed, you mention Howard Zinn and Noam Chomsky, both of whom are friends of mine who have been kind of urging this book, because it gets very practical about where to go and how to begin to build. A lot of the book is simply reporting on what’s out there all over the country that the press does not cover that you can do in your community. If they can do it in Cleveland, Ohio, you can do it anywhere.

Then the problem becomes, what are you willing to do? It becomes existential. You want to do something? It is not that it is impossible. We know that from all the things that I report on in the book or the cities like Cleveland. It’s whether people get off their chair and begin to act. So there is an existential component to this, as in all movements. Unlike 30 years ago—we were talking about Youngstown—when to build a worker- owned company, there weren’t many people you could call and ask how to do it, that’s changed. It’s a massive historical evolution when we have people available who actually know how to do this kind of thing.

And they exist. If you want to do any of the kind of developmental trajectories we’re talking about, just get online or look in the book. There’s a website I should mention, community-wealth, which simply surveys this kind of thing. You can find people who can say, “Hey, we’re doing it in way here. And we’d be happy to help you if you want to do something.”

That’s the challenge in a democratic system. It becomes not just about what they’re doing but what we are willing to get off our chair and do. Because now it is possible to do things, and the ball is in our court. One never knows about historical development. All of this may decay. It’s possible. But we certainly know that if you don’t build, you’re never going to get anywhere. So this developmental trajectory is very interesting from that perspective as well.

The U.S. as well as much of the world is experiencing the worst economic crisis since the Great Depression of the 1920s and 1930s. There are well-documented studies of the tremendous increases in wealth and income inequality, massive unemployment. Curiously, as economist Richard Wolff points out, this unemployment is unusual because it is chronic and long-term. People are out of work for long periods of time, and many of them drop out of the work force. With this kind of background, I see several possibilities.

One is a fertile time for alternative points of view: Look, this is what this system has produced. But also there is a worry, to use Bertram Gross’s term, “friendly fascism,” scapegoating immigrants and gays to explain the crisis.

And civil liberties. The President just signed into law provisions that allow some bureaucrat to put you in prison without trial. Maybe that will get taken out in the next legislation. But there has been no violence yet. A little bit of violence and you could see civil liberties go out the window in the U.S., as they did in the 1920s or in the McCarthy era. Even worse now, with terrorism. So I think Gross was right.

You can lay out the options. One of the options is that decay will simply continue. Rome decayed, period. Another option is it will explode into violence. And with violence, suppression and loss of civil liberties, our “friendly fascism.” It’s certainly a possibility. A third option is the basis of a great transformation will be established in the coming decades. No one knows what can happen, but it’s clear where the action should be.

That is, to say, build as strong and powerfully and as intelligently as we can in the new direction and then see what happens. One of the really important things I think that we tend to ignore about the U.S.—and I use that language about the internal empire—this is a very large country, and there are lots of places locally where things can be built, slowly in ways that build up over time. It allows for the rebuilding of local politics and local people, people who learn to become leaders in doing. It’s unusual in that.

The scale question. Let me say a word about this, because I think a lot about scale these days. Bill Williams always thought about scale. The architect of the American Constitution, James Madison, formulated the problem first in exactly the way Karl Marx did. Politics depends upon who owns property, and the people with property need to control. And secondly, you’ve got to keep the people without property, without capital, out of the game. He also said—and Marx didn’t have it as clear as Madison did— that if we can build a very large country, we can keep dividing and conquering. That’s straight Madison in Federalist 10. The larger the sphere, we can keep the people without property from ganging up. You can drop Germany into Montana. People don’t realize that the scale of the U.S. is radically decentralized and very different. In Germany you can build a social democratic polity much more easily. Here it’s different. Conversely, at the external parts of the society, lots of things are possible in a decentralized way that can build up over time and lots of initiatives are taking place. That possibility also exists.

We all have a vested interest in pessimism. If you’re pessimistic, you don’t have to do anything. If you say maybe there’s a shot, then the responsibility is basically on our shoulders. Since we don’t know and since I see as a historian, revolutions are as common as grass in world history. Things radically change over time. We’ll see.

The task now is obvious: laying groundwork and building a base and understanding more clearly what makes sense. I want to emphasize that, because I think that’s really interesting, to get beyond rhetoric to really what makes sense. Like this design question. You can talk to a lot of Americans about it. They may be scared off by some things, but they’re not scared off by “You tell me how it’s going to work.” “Really?” You would probably get the Tea Party willing to nationalize the Wall Street banks. The anger is building up.

We’re talking mostly local, but the next big financial crisis—and everyone knows there’s going to be another one, experts left, right, and center know there’s going to be another financial crisis because they can’t regulate these guys—one of these days, they’re going to say, “Take them over.” Indeed, with Citicorp and AIG, Bank of America, probably the U.S. government, had it wanted to, could have used its power already, instead of giving it back, because they put so much taxpayer money in, to have a controlling share. I think that part of it is also going to happen.

We did nationalize two big auto manufacturers, Chrysler and GM. So there are other levels of the crisis. But the thing that I think is most important, if we’re to have a democratic system, is the rebuilding of local experience, individuals locally learning how to do this in a democratic way as the precondition of any kind of system.

A theme you keep coming back to is American values. You talk about liberty, equality, and democracy. I just want to get underneath that a little bit, because it seems that there’s a huge gap between the historical record and the historical fact.

Oh, indeed, indeed. If you look at the way democracy has been practiced in the destruction of liberty and certainly inequality, there is a great gap between the ideals and the practices. What is interesting about this time in history is that all the trends are going south. That is to say, inequality is getting worse and worse.

That’s why Occupy, as we said, was so successful. At a certain point something breaks and people say, “Hey, there’s something really wrong here,” partly because we proclaim ourselves as a society that cares about equality and democracy. I think that’s what we’re seeing.

In terms of liberty, it hasn’t yet broken. There’s awareness that there’s a danger. But in terms of the trends on liberty, you can talk about it in terms of civil liberties, where there’s been a narrowing, and that requires you to get into the law and the Constitution. But the simplest test of liberty in any system is what percentage of the population is put in prison. That’s how you take people’s liberty away. It’s the first place to look. In this country seven times as many people per capita than in all the other advanced industrial systems are in jail, a large percentage of whom are black people. Something going on that is changing what actual liberty is, to say nothing of technical aspects of civil liberties, which are also going south.

So there is an erosion of the value base. Proclaim, liberty, democracy, equality often enough and then begin to destroy it, and people begin to say, “Something is profoundly wrong here.” That’s the precondition of really fundamental change. I think that’s where we’re going, and in many areas that’s where we are. So this is an extremely important period. It’s just not the next election or some pendulum swinging.

Is that why you put “democracy” in quotes?

I think that is why, because real democracy, genuine democracy—we were talking earlier that the “Red Mayor” of London wrote a book saying that if democracy allowed you to achieve anything, they wouldn’t let you vote. Meaningful democracy.

And the U.S. version of that: If God wanted us to vote in elections, he would give us candidates.

Right. That is to say, what is a meaningful electoral process? A meaningful electoral process really gives choices and sufficient power to actually make the choices real. Right now it’s almost a joke, the way in which politics and the primaries is going. It is a joke. That is to say, the money is so powerful and so important, how much gets on television, and has nothing to do democracy. It has to do with very large amounts of money competing for the airwaves. You’ve seen the ridicule of this, Stephen Colbert doing this, and he’s doing it in a very brilliant way. Because he’s saying, This is total fraud, and everybody knows it. It’s not like this is 10 years or 20 years ago. It wouldn’t have rung true. Now it’s obvious.

So the decay of ideology, the decay of consciousness, the loss of belief in the standard nostrums is a critical precondition. You’ve got to get it out of the way, the old ideas, before you can begin to take seriously the next direction. That’s happening right before your eyes.

Let me stray a little bit from the actual topic of America Beyond Capitalism but ask a related question. That’s about imperialism, the U.S., with its string of bases around the world, with its massive military force. Are democracy and liberty and these values that we’ve been talking about compatible with empire abroad?

No. The reason I got to this book started with American imperialism. In particular, it started with the atomic bomb and the bombing of Japan. I wrote two books on that subject, asking why was it that this culture was able to kill that many people, knowing that it was unnecessary. We now know that they knew that it was unnecessary, that the war was about to end, that as soon as the Russians came in, that shock would end the war well before there could be an invasion. That’s what drove me.

That takes you to the question of why systems expand in either formal colonialism or informal empire, the American kind. We were talking about William Appleman Williams and his work on that. Essentially, the source of this, in my view, is an expansionary system, a system that has to expand. There are other sources. There have been empires that were not based on capitalism and corporate expansion. Whatever we call the former Soviet Union, there was a Russian equivalent that was not capitalist. But there is certainly a drive in capitalism and in corporate capitalism in particular, but also agricultural capitalism, for control of markets, for control of investment. And more than that, even a genuine belief that this is a way to spread democracy—genuine, authentic— mixed with that ideology.

You must go back to the base. The system that doesn’t do this would be a system that is not necessarily based on expansion. So that’s another way of asking the question, If you don’t like corporate capitalism and you don’t like state socialism, can you begin to get serious about nonexpansionary systems, where you both change the nature of ownership and change the structure of the system so it doesn’t have to expand.

Actually, that’s how I got into these questions myself. And we can get way into it. The same question is involved in climate change and in resource use and in growth: systems that don’t have to grow. If a big corporation stops growing and its numbers start changing on Wall Street, boom, its stock will be out, the management will be out, and the business will be out of business. That’s the nature of the game. You have to grow, out of either greed or fear. If you can’t change that institutional dynamic, you are into an expansionary system, which tries to control, control, control. And whatever you call it, that’s implicitly imperial.

In this cosmology, as you’ve been describing it, of worker- owned—I believe the acronym is ESOP. What does that stand for?

ESOP is one form of worker ownership: employee stock ownership plan. It’s a very American breed, very interesting, because it was put together by Huey Long’s son, who was at that point chairman of the Senate Finance Committee, and a maverick corporate banker named Louis Kelso. The way it works is very simple. Basically, if you have started a company and your kids, your son and daughter, doesn’t want it when you retire, you have a choice to sell it to a big corporation. They will probably take the productive capacity away from the city. You might make money on it. If you sell it to your workers— this is what they did—the law now gives a tremendous financial benefit to the boss who sells to his workers. That’s a very, very unusual American thing. Part of our maverick tradition. And the ESOPs—there are 11,000 of them and some 13 million people involved in these employee stock ownership plan—are a different form of worker ownership, many of which in the original stage were set up without voting power. So they’re not democratic, most of them. However, there are reasons why they wanted to keep the financing under a trusteeship.

But now what’s happening within here, as you can imagine, as the workers get more ownership, they’re beginning to break that down and get more direct formal and informal power, and some of them are beginning to unionize. So there’s a trend within the trend. It’s very intriguing. I think of it this way. If you’re in a nondeveloped country, the means of production is land. And if you want to get the land from the landowner, you’ve got to bribe him big time or you’ve got to take it. So the way you do it is essentially to get the means of production. You give him a very large chunk of money, if you can do it politically, or you take it. What these are is another way to find democratized capital with major taxpayer financing.

Perhaps one of the better known of the international worker co-op efforts is based in the Basque country of Spain, Mondragon. Explain what Mondragon is. And why is it significant?

It’s a very interesting development, because it’s now roughly 85,000, at the last count, people involved in a very complex worker-owned set of co-ops that are integrated and operate very successfully, everything from construction to supermarkets to high-tech equipment to advanced research. These are not little co-ops. The rate of pay from the top to the bottom in 90% of the co-ops is about 4 or 5 to 1, that the boss has only five times as much as the lowest worker, and then in the biggest parts it’s 9 to 1. Compare that to the American. It’s 250 to 1 in most big corporations.

It’s been very successful. It is running into the world market, however. This is not a part of a socialist plan. There’s no state plan. It’s kind of separate and grew up out of Catholic Worker tradition and a Basque culture and suppression by the fascist regimes, creating a hothouse culture, and Catholic social thought. Very interesting worker participation within. But it is now running into the world market, and that’s a difficulty. It’s looking for markets, and it’s up against competition. So there are some questions about it. Nonetheless, it has a great deal to teach us about how you can organize internally within co- ops and worker-owned companies. In the Cleveland discussion, part of it, the revolving fund, has been drawn straight from Mondragon. And the linking of different co- ops rather than being just separate is drawn from that principle. Mondragon has not used the public or quasi- public ownership market, the hospitals and universities, buying from it. That’s not its design. So it’s problematic in some areas. Nonetheless it has a great deal to teach.

Explain what happens to the profits? Are they plowed back into these efforts or are they paid out to the workers?

It’s critical, because in the early period of worker co-ops and worker ownership, they did not make provision for this problem. So if you pay out all the profits, what happens is that you don’t have investment and new technologies and new equipment. So most modern worker co-ops have a provision that a certain percentage has to be plowed back into investment and new technology and research, otherwise you’re going to fall behind. So most of them now do that.

I think a lot of people are familiar with the going-local movement. There has been an increase in farmers’ markets and what are called CSAs, community-supported agriculture, and food co-ops, all coming under this rubric of going local. But there’s much more than just the food aspect to it, isn’t there?

That’s an allied kind of vision, I think, building around the notion of local community. So there are various forms of new currencies that are trying to break the hold of the dollar. Many parts of the country are experimenting with that such as Ithaca, New York. There is a big one in the Berkshires and elsewhere in the country. The local merchants will take these paper “dollars” and recirculate them to rebuild the local economy. That’s partly what I was talking about. When I say internal empire, I mean the cities are dying within different parts of the country, the local areas. And one way to reverse it is agriculture, another is small co-ops, another is these currencies that say buy local, increase the local multiplier.

Notice that the vision there is communitarian: it’s community, not simply worker ownership, which is a syndicalist model. It has a very different flavor to it. I think there’s going to be a mix of these two different directions. And certainly political alliances are being built between the worker ownership model and the community kind of green model. There’s a lot going on at the grass- roots level where these things are coming together.

You say the appeal of many of these ideas that we’re talking about such as cooperatives reaches across traditional left-right political divisions. What’ s the evidence of that? And where does the Tea Party factor in?

I had a very strange experience recently, because I was asked to come talk to the Chamber of Commerce, of all places, in one of the suburbs of Washington. And I was describing things like what’s going on in Cleveland, the worker-owned model, and the hospitals buy from it and they stabilize and it builds up the tax base. And I pointed out that the local small businessmen like it because it helps them, too, more customers.

And here’s the Chamber of Commerce saying, “That’s fantastic. We ought to do that here.” Everyone at this particular meeting said, “That’s a great thing. Why can’t we do that here? It will help the community, help the tax base. That’s a good thing to do. It will recycle money.” That same evening I was talking to radical organizers in Baltimore, and exactly the same response. It has a way of speaking to different groups.

Again, it has to make sense. It gets beyond rhetoric. We’re changing, in this case, the ownership of the means of production, if you like, towards a collective ownership structure that is worker-owned. Done in an intelligent way, it will help them and the community. People, even very conservative people, at the local level, not the ideologues, like the idea that why shouldn’t everybody own parts of their work. This is a positive thing, not a negative thing, when you get down to the nitty-gritty. It doesn’t mean to say that the national ideologues don’t have very different ideas and propaganda. And the Tea Party, you can find ideologues, obviously. It isn’t quite clear where they break down on this. But the experience I’ve had and the experience of many people I know is, in many of these local areas what looks to be quite radical in fact, when done intelligently, when you’ve done your homework, makes sense to people. And it ought to make sense. If what people who care about changing this system want doesn’t make sense, you shouldn’t do it. So it’s very important to understand that if you can’t explain it to an ordinary citizen, why what you’re proposing is a better way of doing things in life, then you probably don’t know what you’re talking about.

Rational, intellectual arguments aside, that make perfect sense, still many people are not persuaded. This is any entrenched economic system, and there’s fear of change. How do you overcome that fear?

I think what’s changed in my lifetime is that the pain levels have gotten to a place where people now know personally or in their family or in their friends or in their neighbors something has to change or it’s going to get worse. That’s a big deal when that happens in a society, that you get beyond talk to see the pain levels change. People have a really different way of listening, when everything else is failing and you begin to offer both an explanation and answers that might build up. Even if building over time, even if there’s a long developmental process, even if that’s necessary, you find people listen differently and talk differently because of the pain levels and the failures.

But given the in extremis financial situation that millions are in right now, the unemployment, the foreclosures and the like, is there that kind of space in terms of time? Can we wait during what you’re suggesting might be a decades-long process?

The answer is no and yes. That is to say, of course we can’t wait. The pain levels are terrible. There either is a path forward that we can make or the pain will get worse. So it’s an agonizing reality. It’s a horrible experience that’s going on when the society goes through the wringer as we are going through the wringer.

The choice is to try to get to build away out of it or let it get worse. So, no, there’s not enough time, and, yes, that’s the only way forward.

You mentioned ideologues. George Will is certainly one such ideologue in the corporate media. He’s a widely circulated columnist. He writes about redistribution in extremely pejorative terms. To him it’s tantamount to a Stalinist gulag and a code word for a socialist takeover and elimination of so-called American freedoms.

That is pure ideology, as far as I’m concerned. There is a concern that a state can be too powerful. The conservatives were right to worry about a state that’s too powerful. Fair enough. And very often liberals and radicals didn’t take seriously the dangers of statism. I give them that and I think we ought to respect that, in genuine conservatives.

I did a book on this with Lew Daly called Unjust Deserts. If you look at the sources of wealth in America and in virtually all countries, overwhelmingly it is technological change that makes the difference.

That is to say, in 1790, if you go from then till now, one person can now produce 40 to 50 times as much per hour. That’s where all the wealth comes from, this increase in productivity. Who gets to benefit from that? Everybody is working as hard. It’s not a question of envy and greed.

That’s a social construction. Indeed, think of Bill Gates or Steve Jobs. They would have been nowhere, literally nowhere, without the Internet. Who paid for the Internet? Taxpayers paid for it. And the development of all the schools that led to the place where you could actually develop the knowledge for the Internet, who paid for that? The American people paid for that.

You can go right down the list and find that virtually all of what is modern wealth, the cream of which is taken off at the top, is a social construction. So that the source of what we’re having is not some guy who did a wonderful thing. People did do creative things such as Steve Jobs and Bill Gates. But their contribution is like a pebble on top of a Gibraltar of both taxpayer creation and historic creation of generations that created chemistry and physics and math, without which you couldn’t do anything.

Think of it this way. If the technological changes that come from both social processes and government processes continue at the rate they have been continuing in the last century, in 2100 the income levels will be something like seven times as much as they now are— none of which will have been due to the work of the people then, all of which will be the construction of taxpayer investment and social development and science and resources that they get to rip off then. They won’t have done any more work. So when George Will says this, it seems to me blatantly ignorant of the sources of wealth and who gets to control them.

There should be, perhaps, a study on really existing capitalism, not this laissez faire fantasy that is put forth in economics departments at Harvard and other learned institutions of higher education. You could add to that list of the Internet that it was taxpayer money that paid for avionics, the jet planes that we are flying, the airports, pharmaceuticals and all the medicine and vaccines developed at the National Institutes of Health. So there’s this really existing capitalism and then there’s the fantasy version of capitalism.

Exactly. The easy part is when you begin looking at pharmaceuticals, the jet airplane, radar, the sources of the computer. Bill Gates was under contract at MIT when he first started doing all of the developmental work. That’s one part of it. The other part is, schools and high schools, bringing the vast majority of the people to the level where they can actually create and invent, is all social investment. So I think that’s even more important than the easy ones to understand, like the computer and the Internet.

I’m looking at the pie chart of where income tax money really goes. It’s the U.S. federal budget for 2010. It’s published by the War Resisters League in New York. Anyone can access it at warresisters.org. What does this pie chart tell you about where money is going?

Certainly the military is a big piece of it, 30% on this chart; past military, 18%; general government, 8%; physical resources, infrastructure, 6%; human resources, 38%, but that means Social Security and health care primarily, and Medicare, which are being paid for out of your very, very regressive taxes, working taxes. The actual spending, federal government programs are financed in two ways. And it’s worse at the state and local level, which use the sales tax often. We have payroll taxes, which are Medicare and Medicaid, which is extremely regressive. That is to say, it’s $107,000 now, capped, so that anything above that just doesn’t get taxed. Which is amazingly regressive, when you think about it. And then the income tax, which has gotten worse and worse and more regressive as time goes on. I’m obviously not a Republican, but I think we ought to go back to Eisenhower’s income tax, because in the greatest American economic boom, the post-war boom, when Eisenhower was president, the marginal tax rate for people at the top was 91%. Now it’s down to 35-37%, depending on which year.

There has been a major change in the distribution of income, where the top 1% has gone from 10% of the income to 23%. Now, because of the recession, it’s down a little lower than that. Somebody lost that income, the other 99%. And then the tax rate went down on the top 99%. Mitt Romney’s being taxed at 15% because it’s all investment income. They tax working-class income and worker income at 20% and 25% and up to 35%, but if you make your money by investment, 15%. It’s wonderful to see an illustration in the national arena. Economists know this, but now the public is treated to the inside knowledge. Hey, he’s only being taxed 15% and I’m being taxed 30%. What’s going on here?

“Worker Owners of America, Unite” was the title of your New York Times. You say, “A long era of economic stagnation could well lead to a profound national debate about an America that is dominated neither by giant corporations nor by socialist bureaucrats. It would be a fitting next direction for a troubled nation that has long styled itself as of and by and for the people.” What are the prospects of that vision being realized?

All great revolutions look impossible before they happen. That isn’t to say great revolutions always happen. But it is to say, if you look at the folks who started the civil rights movement, the odds in Mississippi in 1930 and 1940 of achieving a civil rights revolution appeared to be far worse to people at the time. They would hang you from a tree if you made any kind of trouble. The odds even in the Middle East to break loose were greater than anything we face. The odds of the women’s movement. The greatest cultural revolution in modern advanced history, the cultural revolution of women in the last 40 years, I can still remember when it was not possible for women to be taken seriously in work, life, culture. That’s a radical shift that looked impossible. It is not to say it’s inevitable. But I think that a cool assessment from this historian and political economist is that it is within the range of reasonable possibilities that a transformation can be achieved and that this next two to three decades is the prehistory of such a transformation. In any event, all of the positive changes that would be necessary are useful to do, no matter what. So I’m cautious on it, but I think, there is a finite, realistic, and very much worth doing chance to build the basis of a next possibility.

You say America Beyond Capitalism is “a tool box” of practical precedents that can be built upon.

That’s what I think is very important, to realize that we can get beyond rhetoric, to the thousands of things on the ground that the press doesn’t cover, which alter the nature of the power base of most systems, who owns capital, and do it in a very American way. So I think there’s a lot that you can do. Worker-owned companies, neighborhood corporations, municipal ownership, state ownership. Twenty-seven states already own shares in companies and take ownership positions. That’s another interesting thing in America. There are state banks. There are something like 20 states that are considering single payer legislation. In another 15 states there are movements for state banking, public banking. So if you look beneath the headlines, and as the pain level grows, there are very real practical embodiments of a different idea, the democratizing of wealth. As I said, that’s the prehistory. That breaks the idea of system. That opens up a different debate. That’s not the history of the next transformation; that’s the step that’s necessary without which you can’t get to the next stage.

But it’s very well underway, if you look beneath the headlines.

(Due to time constraints some portions of the interview were not included in the national broadcast. Those portions are included in this transcript.)

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©2012

interview with Richard Wolff
by David Barsaminan
New York, NY
December 29, 2011

available from Alternative Radio

You can listen to Richard Wolff speak for himself here.

Richard Wolff is Professor of Economics Emeritus at the University of Massachusetts in Amherst and currently a visiting professor at the New School in New York. The New York Times called him “America’s most prominent Marxist economist.” He is the author of numerous books including Capitalism Hits the Fan and Occupy the Economy with David Barsamian.

In a time of acute economic stress, where municipalities, states, and the federal government are pressed to generate more revenues to cover such things as unemployment insurance and providing basic services, talk about the Tax Code and how it is structured, and about property taxes, real estate taxes.

This is an immense topic, the structure of taxes in the U.S., and you would think that our population was reasonably well educated about our tax system given how often it comes up in conversation, given how often politicians rail about the tax system in efforts to get votes and so on. But the truth of it is that Americans know very little about their tax system. And when you try to explain why, there really is no explanation that I’ve ever found anywhere near as persuasive as the following.

If you actually understood the structure of taxes in the U.S., you would be so angry as a working, average American that it’s not clear that you would tolerate the society to continue the way it operates. So maybe there’s a method to the madness of not teaching people about something they seem to care about. So let’s begin.

Taxes are levied by the government on a variety of entities, and you have to keep that separate. For example, taxes are levied on income, on the money you get; they’re levied on corporations for the money they get from selling their goods and services; and they’re levied on individuals, like you and me, on the income we get, the income from our wages and salaries, the income from our interest, if we have a savings account, the income on dividends or capital gains. Whatever kind of income we get, the governments tax us. So income is one thing that’s taxed. The second thing that’s taxed is expenditures. We get taxed when we spend money, for example, a sales tax when we buy a shirt or an excise tax when we fill our car with gas or buy a bottle of beer, and so forth. And the third thing that gets taxed is wealth, property. Let’s keep them separate. You tax income, you tax expenditure, and you tax wealth. Those are three different things, and they have to be kept separate.

Things get a bit more complicated when you discover that different governments tax different things. So, for example, the federal government taxes income. State governments tax income, but particularly also expenditures. And local governments, cities and towns, tax mostly property. So the different levels tend to focus on different things to tax.

All of us pay all of these taxes, so the notion that sometimes you hear people claim, “Gee, it’s not fair for us to be double-taxed,” is silly. We’re all taxed many times. For example, when I earn my income, there’s money withheld from my paycheck to pay income tax to the federal government and to the state government in which I live. I keep the rest of the money. But then when I go and buy a shirt, I pay a sales tax. So now I’m taxed a second time by the state in which I live with an expenditure tax. But on top of that, out of the money left over, I still have to pay a property tax on the house I own, on the car I own. So the notion of being double-taxed or triple-taxed is not something that’s fair or unfair, because it’s universal. Every one of us pays multiple taxes almost every day in one way or another.

Let’s look at them. And let’s start at the bottom. Let’s start with property taxes, because they’re very, very interesting in the U.S. The federal government does not tax your property: it doesn’t tax your house, it doesn’t tax your car, that is, on the property it doesn’t tax it, it doesn’t tax your bank account, it doesn’t tax your stocks and bonds. Those are properties that you have. It doesn’t tax your land. Neither does the state. Who taxes your property? Your local town, your local city.

Here’s how it works. In every town and city they have an official called a tax assessor. His job, her job, is to go around and figure out who’s got what property so that the city or the town can tax that property. But here’s the interesting part and here’s the first example of what people might think about and how angry they would get if they understood it. The job of the tax assessor is to assess the value of the property subject to taxation. So the tax assessor typically will look at your land, if you own any, for example, the land value of the house that sits on that land, if you own your home. So they will go and they will do a study of your land value, of your house’s value, if you’re a business and you have an inventory, you use machines. And then the tax assessor will say, “Okay, this company has this property, this person has that property.”

And you have to give the local town 2%, 4%, 6%. Some percentage of the value of that property has to be paid in taxes to the community.

Why is this interesting? Fundamentally, for the following reason. It is the normal, traditional practice in the U.S. to count as taxable property only a portion of the property, not all property is taxed. Many kinds of property are not taxed at all. The ones that are taxed are land, housing, business structures, and business inventories and automobiles. Those are the major kinds of property. This is interesting because what I’ve left out, all stocks and bonds are exempted from property tax. There is no property tax on stocks and bonds in the U.S., not by the federal government, not by the state government, and not by the local government. There is no property tax on your savings account. Money, that’s property you own. I own a savings account that has $50,000 in it, that’s my property. I’ve accumulated that over the years, I’ve inherited it. However I got it, it’s part of my property. To show you how dramatic this is, if I have a house worth $200,000 in Yipsidoodle, Mississippi, I have to pay a property tax to the town of Yipsidoodle on that property. If I sell that house for $200,000 and instead of having a house, I invest that $200,000 in tax and bonds, my tax bill to Yipsidoodle, Mississippi, is zero. There is no property tax. Neither by Yipsidoodle, Mississippi, nor by the state of the Mississippi nor by the U.S.

What kind of a society would tax some property and not other property, when we all know that the kinds of property average Americans have, if they have any at all, is a house and a car. And that’s what’s mainly taxed in America. Whereas what the rich have, that makes them rich, are stocks, bonds, and cash, which are not subject to property tax. You would revolutionize the financial conditions of every American city and town if its property tax were simply extended from the property now taxed— land, houses, business inventories, and so on—to tax also stocks, bonds, and savings accounts. If you want a quick solution to our problems as a nation, that would be one. And even if you didn’t believe in that solution, it’s worth it to think what it means that we have a so-called property tax that exempts the property of the richest amongst us. If ever there was an example of the point of occupy Wall Street’s 99% versus 1%, there it is.

There are other tax exemptions of property. Here are some examples. You will have to decide which of these are suitable dinner conversation. We do not tax the property of religious institutions. Every piece of land upon which a church, a mosque, or a synagogue sit is exempted from property tax. The buildings of all these churches are exempted from property tax. Here’s what that means. If you live in a town that has lots of religious institutions, it means that lots of the property is owned by somebody, a church, who doesn’t have to pay any tax to the community. The local community still has to deliver to these entities: police services, fire services, public education for their children services. All the things that cities and towns do with the money they raised has to be provided to the local churches and synagogues and mosques. But they don’t have to pay anything for it. There’s no way out of that other than to understand that if you deliver free services to tax-exempt properties, it means the rest of the community has to pay extra to deliver those services to those parts of the community that do not pay for them themselves.

This can become really bizarre if you have, in addition to the churches and synagogues and mosques who are tax-exempt from property tax in a town, the misfortune of having, I don’t know, a big, powerful, rich, private university. Here I can use as an example the city of New Haven in Connecticut, whose largest landowner and whose richest citizen is Yale University. Yale University, which has over 200 buildings in New Haven, and is the largest employer, the largest landowner, and by far the richest citizen of New Haven, pays no property taxes on its educational property, which is about 95% of all the property it has. That means the rest of the people of New Haven must pay more to deliver the police services, the fire services, the education for all those Yale employees, children, etc. And remember, the City of New Haven educates these people, who then go on to work for Yale and are productive employees for Yale because the City has paid for their education from kindergarten through high school and perhaps beyond. Yale pays nothing for that.

Here’s the irony, and it’s emblematic of what this all means. Yale is considered the third or fourth richest university on earth. It lives in New Haven, which is counted by the U.S. Census Bureau as one of the ten poorest cities in the U.S. So here we have it. New Haven, Connecticut, one of the 169 towns that make up the state of Connecticut, has the highest property tax rate of all 169 towns in Connecticut because its poor citizens have to pay higher property taxes to deliver free public services to Yale, that makes no payments for them. That’s called Robin Hood in reverse: the poor people of New Haven are subsidizing the third or fourth richest university on earth, who last year counted as its endowment, its wealth, something on the order of 18 or 19 billion—that’s with a B—dollars. That is an unbelievable story, in which a property tax system takes from the poor and brings it to the rich.

So that’s the property tax. Long ago critics of this system have said, all of the so-called public finance problems of American communities could be solved if you simply extended the property tax to include at least stocks and bonds of private individuals. By the way, we would be taxing those most able to pay, because only those most able to pay have significant quantities of stocks and bonds. If you didn’t want to punish poor people who have a little bit of stocks and bonds, you could always make the first $10,000 or $20,000 or $30,000 or $40,000 or $50,000 worth of stocks and bonds exempt, if you wanted to give those people a break. But the idea that people with tens of millions of dollars of stocks and bonds pay no property tax on that property while you tax the person with a 10-year- old jalopy for having that car is really outrageous. If the cities and towns could tap that property revenue, they would need a lot less help from the state governments, which in turn would need a lot less help from the federal government. So it would be a boon to the whole tax system if you just corrected the injustice of our property tax exemptions.

Let me turn next to the expenditure taxes. Most of those are called sales taxes. They’re taxes that you pay when you buy something. The criticism of them that ought to be made is that they make no effort to discriminate according to your ability to pay. If Rockefeller goes in and buys a T-shirt, he pays exactly the same tax as you or I do. So clearly there’s no effort to distinguish among them. There would be lot of ways of doing that, if you wanted to keep to a sales tax, one of which would be to make the rate change with the price of the item. So if you’re buying a very expensive automobile, the sales tax would go up relative to what you pay for a T-shirt or a pair of shoes, and so on. So you would be able to build in a capacity to pay, the way we do with our income tax. So the first rule would be, let’s talk about that.

The other thing about an expenditure tax is that it has built into it a fundamental inequality. Most Americans, for example, have to spend pretty much everything they earn, because they don’t earn enough to save. If you get an income that you have to spend all of, you’re going to get whacked by taxes twice: first you have to pay an income tax on all the money you get; and then, since you have to spend all of your money for food, clothing, shelter, and so on, you get whacked by the sales tax when you spend it. Compare that to a person who gets a very high income.

What that person can do is save some of their income and not spend it. Every dollar you save is a dollar that doesn’t have to pay a sales tax because you’re not spending it. So, for example, if you save money in this country and you use it to buy stocks and bonds, there’s no sales tax on that. No government comes in and says, you ought to pay a sales tax on buying a share of stock, just the way you do on buying a pair of shoes or getting a hamburger. That is also as grotesque inequality that rewards people whose income is high enough that they don’t have to spend all of it.

Let me turn finally to income taxes. They are by far the largest tax that Americans deal with. The federal government basically relies on income taxes. I’ll come to that. But many states also have income taxes, and there are even a few cities across the U.S., for example, New York City, that has a local, municipal income tax. It means, for example, that if you’re a resident of New York City, you pay a tax on your income to New York City, a tax on the same income to New York state, and a tax on that same income to the federal government. You pay three levels of taxes. Most Americans pay only to the federal government or to the federal government and to whatever state they’re in. But there are quite a few states in the U.S. that do not have an income tax. A minority of states, for sure, but still a significant number. And some of our bigger states, such as Texas, are like that.

Let’s look at the income tax. First of all, I’m going to focus only on the federal government because that’s the major place we pay our income taxes. The first thing to understand is that the income tax is the only tax in the U.S. at the federal level that has built into it the notion that you ought to pay more if you’re rich than if you’re not. We call that a graduated income tax. It’s sometimes referred to as a progressive income tax. The basic way it works is this: Everybody pays the same percentage on the first $10,000 of income, then everybody pays a slightly higher percentage on the next $10,000 or $20,000, and so it goes. The higher the income you get, the higher the percentage on the last portion of it. The federal income tax in the U.S. today peaks at 35%, so if you earn above whatever it is these days—I haven’t looked at the numbers recently—say, $70,000—then every dollar over that that you earn, you must give 35 cents to uncle Sam and you keep the other 65 cents for yourself. That’s the top income tax bracket, it’s called. So at least we see there some effort to tax people according to their ability to pay. I think that principle is very important. It’s been the principle of the income tax now for an entire century. The income tax began around 1910, so here we are, literally 100 years later, and nobody, however conservative, has basically been able to get rid of that. The American people, Republicans and Democrats alike, have endorsed a progressive structure of the income tax.

However, rich people, who don’t want to pay taxes and who I’ve already told you don’t pay property taxes on their stocks and bonds and get out of paying sales taxes by having enough income to put a lot of it into savings and investments, have not limited themselves to getting out of local and state taxes. They’ve also worked on the federal level. Let me show you how.

First, it’s interesting that progressivity stops at 35%. Why in the world does it stop there? Why doesn’t it continue? $20,000 more, you pay 40%; $20,000 above that, you pay 48%, and so on. Why does it stop at 35%? That’s, of course, a tremendous benefit to the rich— people who earn 200,000, 400,000, 800,000, 1 million, 2 million, 6 million, 10 million. And we have Americans in those categories, lots of them. Why are they not required to pay higher steps? That is a perfectly reasonable, logical question for a tax system that says it’s progressive but stops being progressive at a relatively low standard of, say, $70,000 or $80,000 and at a relatively low tax rate.

To drive my point home, let show you that at other points in American history we have been very different. For example, in the 1950s and 1960s, the top income tax bracket that the highest income tax payers had to pay was 91%. Let me make clear, everybody, say, in the 1950s and 1960s who got over whatever the top bracket was, say, $70,000 or $60,000, every dollar a man or woman got over that, they had to give Uncle Sam 91 cents, they got to keep 9. I’m not describing the Soviet Union or China or Cuba or places like that. I’m describing the United States not that long ago.

Something happened between the 1950s and 1960s and today which can only be described as a mammoth tax break, giveaway, to the richest Americans. Their top bracket went from 91% to 35%. No average American ever saw in those years a tax break even remotely that large or enormous. So there’s no way out of the conclusion that over the last 40 to 50 years the number one beneficiaries of tax cuts in the United States were the richest Americans. Part of the reason the gap between rich and poor has become so extreme in the U.S. is precisely because of the success of the rich in buying the political muscle needed to reduce their tax burdens so dramatically.

But that’s not all. Alongside the cut in the tax rates of American individuals, let’s remember that the income tax also falls on corporations. And they, too, have been busy shifting the burden of taxes off of them. The way I summarize that is with a simple statistic. In the 1940s, the end of the Second World War, for every dollar the federal government got from individuals it got about $1.50 in income taxes on the profits of corporations. In 2010 the same number reads as follows: For every dollar the federal government gets from individual income taxes, it gets 25 cents from corporate income taxes. In other words, corporations have reduced the burden of taxes drastically and shifted it over on to individuals.

Now put these two things together.

Corporations shifted the burden of taxes on the individuals, and rich individuals shifted the burden of their taxes onto the middle and the bottom. There we have a large portion of what is the economic history of the U.S. in terms of taxation over recent years.

The solution, therefore, to the tax problems of our federal government not having enough money to maintain a health service, not having enough money to provide decent Unemployment Insurance, of cities and towns not having enough money to keep their streets clean, to build proper public housing and all the rest is not about there being enough money. The real issue is and should be addressed as a country that has systematically reduced the taxes it used to get both from business and from the rich. The only thing that’s worse than having cut taxes on those who can afford it the most is to think that now the way to solve that problem is to cut the services that the middle and lower class need, because that is punishing the victim rather than the beneficiary of what’s been done with our taxes. So as I said at the beginning, if Americans understood even part of what I’ve just summarized, you would have a tax revolt of a very different kind, of a very different intensity than what we’ve seen.

When somebody goes to have a cup of coffee and a sandwich for lunch, they can’t use that expenditure as a tax write-off. But when a CEO or some bankers go to The Four Seasons, a very expensive restaurant here in New York, for lunch, they can write that off as a business expense.

It’s one of the many examples of how the Tax Code, which, by the way, takes hundreds and hundreds of pages, if you ever actually get it from the IRS—all those hundreds of pages have to do with countless details and regulations and rules that have been written into the Tax Code under the pressure of lobbyists for corporations, for rich people, and so on, to get them little gimmicks that will alleviate the taxes.

Let me address the big one that you referred to. Years ago, the Internal Revenue Service said to the mass of Americans, Look, you have the right to go and use the Tax Code and find each and every gimmick that might conceivably be used by you to lower your tax bill. But you don’t have the expertise, the language is legalese, hard to understand, and you don’t pay enough taxes for it to pay for you to hire a tax accountant or a lawyer to do that work for you, because it will cost you more to pay for that specialist than you will get as a saving in taxes. So we give you something called a general exemption. We give you the right to write off 15% or something like that of your income as somehow a summary of all your expenses. That’s probably more generous to you than you would be able to afford if you went through the trouble of finding little gimmicks or paid someone to do it.

But for rich people that’s not case. Rich people earn enough that for them paying $5,000, $10,000 to an accountant to make sure that every gimmick is used is well worth it, because they will save you 20 times what it costs you to hire them. They, therefore, go and not only get those gimmicks written into the law but make sure they take advantage of them.

Here’s how your example works. One of the gimmicks is to say that if you have an expense that is part of your business income, well, then it can be counted against that income. So, for example, if you had to spend $300 on a lunch to win a contract for your company, then the $300 for lunch is an expense of getting your income, and you’re allowed to deduct that from the income because you only get what’s left over from the profit. So now it means that an executive who goes and has a $300 lunch with a client can say, “This was an expense,” and that reduces their income tax. You can’t do that when you get a sandwich because it doesn’t pay you, you don’t make enough. But a rich person does.

That gets even more fancy because, for example, that same rich person can have a property, say, in some elegant resort in Vail, Colorado, where they go skiing, and they take a client from time to time. And therefore they claim, “The only reason I have this lovely place with a butler and maid and a chauffeur to get me from the airport to there is to do business.” And the little detail that they take their family five times a year also for having a good time, well, that’s a little detail no one quite pays.

Basically, we have to understand that those with the resources have been able over the years to rewrite, to add to, to modify the tax code in an innumerable number of ways to create for themselves opportunities to get out of paying taxes that simply have not been created on anything like that scale for the average American. As a result, you have the same thing in the existing Tax Code that I already described in terms of all the tax exemptions, where you don’t even have to pay anything.

And one of them is this whole notion of charging off allowable expenses of your life. The average person doesn’t do it, using the standard exemption, because it doesn’t pay. But if you’re rich enough, it pays, so you get out of it. That’s, by the way, why not only can you deduct fancy apartments in Colorado or costly meals in a restaurant, but you can do all kind of other things.

One of my favorite examples is, using this thing called the charitable deduction, you can give something you own to a charity of some sort and you can deduct the market price of what you gave them from your own income and reduce your income tax. This has led to some creative manipulation among wealthy institutions and wealthy people. Suppose you are wealthy enough to have a very expensive painting by Pablo Picasso hanging in your living room. And you realize that you’re earning so much money, you need some deductions, you need to reduce the amount of money for tax purposes so your tax bill is reduced. Here’s what you can do. Suppose you earn $10 million a year, you’re some hotsy-totsy executive, and you have this Picasso on your wall. Let’s say it’s worth $1 million, which many of his paintings are, they’re worth much more than that. So you have a $1 million Picasso, a little sketch. You can give it to—I don’t know, let’s pick Harvard University. Harvard University and you will work out the following deal, and this is legal by the Tax Code. You give to Harvard the painting this year, 2012, and that gives you the exemption this year. So suppose this year you earn $1 million but you give this painting to Harvard in this year worth $1 million. You then take the $1 million worth of painting you give to Harvard, deduct it from your $1 million worth of income this year, which means you have no income for tax purposes at all. The $1 million you actually earned has deducted from it the $1 million worth of painting you give to Harvard. So your tax bill this year will be nothing, even though you earned $1 million.

But that’s only the beginning. Now step two. Harvard, to whom you have given the painting, has the legal right to lend it back to you. Oh. And for how long? They can legally lend it to you for the rest of your life. Therefore, it never leaves your wall in your living room, it never goes to Harvard. This is all done on paper. It stays right on your wall, and it will stay there for the next 10 years or 20 years, however long you live. And then when you die, it will go to Harvard. Harvard is happy because it will eventually get it and it costs them nothing. You’re happy because now, many years before you die, you get the full value of that exemption. That’s all legal. That all had to be written into the Tax Code to make it legal.

That’s what’s done in a thousand ways to make rich people have—what? The results you read in the newspaper from time to time when some inquiring reporter goes and checks big corporations or wealthy individuals and discovers that they don’t pay anything like the taxes they’re technically supposed to pay. That was the famous example last year when Warren Buffet, one of the richest men on earth, explained that he pays as lower tax out of his income than the secretaries in his office do, and that’s because he has a tax accountant who takes advantage of all his expensive meals, all his fancy jets, all his multiple homes around the world, and makes them all into the legal expenses that reduce his burden.

The sales tax is often called regressive by those who are critical of it. Maybe just to give one example, let’s say you pick up a very expensive piece of electronic equipment for your home, not something essential to one’s existence. But then you have the whole issue of food being taxed, which is hardly a discretionary or luxury item.

Again, a sales tax can either be regressive, namely, it hits “everybody” at the same rate, precisely what the federal income tax does not do, or you could make it progressive. There are many ways of making it progressive. For example, you could charge a higher sales-tax rate for more expensive items. So on something that costs, say, between zero and $100, you pay a 1% sales tax, something that costs between $100 and $500, you pay—etc., etc. That could be easily done. Or even better—and that has been done in a few places where people mobilize to get it done—classes of items are simply exempted from the sales tax, for example, food. Or for a while many states have had a situation that any article of clothing worth, say, less than $50 is just not taxed. And the cash registers at department stores are set up so that if you buy something for $40, there is no tax part of that. And so on and so on. So if you wanted to make it progressive, that would be easy to do. But you would have to mobilize the political force of the mass of people to get that done. If you don’t, you leave the field to the wealthy, who use their tax lawyers and accountants and their political contributions to get a Tax Code that tilts in their favor. That’s what we have.

Grover Norquist, a Washington lobbyist and operative, has been almost single-handedly successful in demonizing taxation. He’s also managed to change the actual vocabulary. For example, the estate tax is now called the death tax. When you tell that to an average person who is going to die, they’ll probably think, I don’t want to have a tax when I die. But that’s not what this is about.

It’s clever to use names. It occurs to me sometimes, we ought to call the property tax a privilege tax. If we called it a privilege tax, everybody would wonder, whose privilege, and then we would explain to them the privilege of all the people who don’t pay property tax, whether they’re rich universities or folks with stock and bond portfolios and so on. Yes, the whole demonization of taxes has been brilliant, because you’re playing on people’s resentment that they have to pay any tax by trying to frame the issue as whether we pay or don’t pay rather than what the issue really is, which is who pays and who gets out of paying. If you framed it that way, then, of course, the logic would be, gee, who is getting out of it? And then people like me could explain exactly who is being privileged in this way and who isn’t. So, yes, I think Norquist and other tax battlers have been able to basically pull the wool over a lot of people’s eyes by not facing up to the real history, which is why I stress it as a historical example, in which one part of the community shifts the burden of taxes off of itself and on to the other part.

I think another example that might be interesting to people is Social Security. That’s a very big part of what the government has to do now. It has to help people who have done a whole lifetime’s worth of work. They retire at age 65. They have had money withheld by the government for their entire working life. And that then provides them with a pension of sorts. The pension is very modest. Social Security does not provide very much money to people. But it’s a lot better than getting nothing. And people are kind of grateful in America. It’s a very popular program, and always has been, to provide some help not only for the people who reach age 65 but, obviously, for their children, who therefore don’t have as big a burden to take care of their parents as they would otherwise have. So it really doesn’t just benefit the older folks; it benefits everybody in the society.

We don’t have a progressive Social Security system. We actually have a regressive one. Let me explain. Under the current system, the Social Security tax, the money raised to pay pensions and to help people who have debilitating injuries or loss of a parent, things like that, we don’t raise that money in a progressive way, we raise it in a regressive way. It’s very unfair, and I think it’s an important thing to understand, especially these days, when so much is made of the claim, which is false, that the Social Security system is in some kind of financial trouble, can’t pay its way, will dry up, things like that.

So let me explain. Under the law, an individual has a certain amount of money, a certain percentage of their income, withheld for Social Security, 4.-something percent, and the employer has an equal share withheld that they have to pay. So you get put into your account the 50% of what’s put into your account that’s taken out of your salary and an equal amount matched by your employer.

Here’s the interesting thing. It’s only on the first $107,000 of income. On the first $107,000 you earn, everybody pays the same percentage. If you earn $10,000 a year, $40,000 a year, $80,000 a year, up to $107,000, you have the same percentage, 4%. So there’s no progressivity there. But now it gets worse. On every dollar you earn over $107,000, nothing is withheld. So notice again, if you’re rich, if your income is $150,000 or $200,000 or $300,000 or $600,000 or $1 million or $2 million or $5 million, all of the money you earn over $107,000 has no Social Security withheld from you at all. And if you think that’s unfair, you’re just at the beginning. Social Security taxes are withheld only on your wages and salaries, not on any other kind of income. If you have dividends you earn from your stocks, interest you earn from your bonds, capital gains you make by buying stocks and selling them, or rentals you get, if you own property, all of those kinds of income have no Social Security deduction at all. It’s the rich in America who get those kinds of incomes. So there again, you see that the Social Security system puts the burden of taxes on everybody who earns $107,000 or less from wages and salaries. Everybody else, the rich, are exempted. It’s unfair, it’s not progressive. It’s the opposite. It’s regressive.

The Occupy Wall Street movement has certainly brought attention to some of the inequities and contradictions of the Tax Code, but in general, why is so little known about the intricacies of the Tax Code?

I think partly, and the least important, it’s complicated. Again I remind you, take a look at the Tax Code books issued by the Internal Revenue Service and you will see. These are tomes. These are mammoth volumes of immense numbers of pages. The Tax Code is effectively reworked almost every year. If you’re wealthy enough to use a tax accountant, you will get a memo from the tax accountant at least once or twice a year simply letting you know what some of the major changes are each year that might affect you if you’re rich. This is a kind of income that is now more or less taxed. And a clever tax accountant, well paid by a rich client will move assets, will get rid of a horse ranch and buy a painting or get rid of a painting and make a contribution to some university, in order to take advantage of the constant changes. Most Americans have no incentive and don’t have the resources to take advantage of this.

Remember, all the time, interests looking for a new tax break will pay high-priced lobbyists to do the work in Washington or the state house of a state to get the Tax Code adjusted, to get the regulation shifted, to get a new law passed. This adds up. That’s why particular groups have what we’ve come to call loopholes—all those little arrangements that get slipped into a bill at the last stages of it going through passage. Just before it reaches the president’s desk or the governor’s desk for signature, a little amendment is stuck in. Nobody pays much attention, because it’s such a little deal that only 16 sugar farms will be able to take advantage of it. But they will save hundreds of millions of dollars, so it will have paid them to spend $10 million giving some lobbying firm in Washington the ability to hire 50 people to bother the six congressmen and congresswomen they need to vote in a different way, to give them all kind of contributions and all the rest of it to get the thing written that nobody will notice but will save them $100 million over the next five years. And by them saving $100 million of taxes, we all have to remember, the government has to make up somewhere else the money it’s not going to be getting from the people who have gotten that loophole. You add that up, all the people getting loopholes, that’s why we pay the taxes, those of us who can’t get that kind of benefit, under this system.

Lotteries, now run by most states are, you say, disguised forms of taxation. Explain what you mean.

Over the last several decades the American tax system has faced a revolt, understandably, by the middle- and lower- income people, who pay a disproportionate amount of taxes given what the tax system is supposed to do, which is in the sense of the federal income tax, tax people according to their ability to pay. In all the ways I’ve described, that goal, that objective, which is in the interest of most Americans, has been systematically thwarted, frustrated, and indeed the opposite has been produced. Therefore, it’s not surprising that Americans, in general, are angry about taxes, want their taxes cut.

This has left the state in a kind of difficulty. How are you going to deliver all the services, particularly to the rich and the corporations who want those services, if you can’t get the taxes, either from them or from an angry population, to pay for it? One solution, one avenue of dealing with this that political leaders have found is gambling, that is, to reverse the long American distaste for gambling that has made it illegal to have lotteries, to have racetracks, to have all those things in most parts of the U.S. All that has had to be chucked out the window. We can’t afford these religious taboos. The government saw a way of taxing that they didn’t have to call a tax, so they wouldn’t have to admit, Oh, we’re taxing the people. They have to get rid, however, of the taboo on gambling. Why? Because the state could then become the monopoly gambler. Those who have ever lived in an urban area in the U.S. know that the numbers racket and lotteries have long been in existence, but they have been one of the black-market activities in our society, money to be made by illegal means, whether it’s run by criminal gangs or neighborhood folks.

Over recent decades, squeezed by the mass of people, angry about the taxes that have been shifted on them, even if they don’t understand that that’s happened, the politicians came up with lotteries. Here’s a way to tax the mass of people without calling it a tax while having the mass of people kind of enjoy the whole process. It’s a politicians dream—getting money out of the mass of people without offending them, without appearing to be doing what you’re doing because that can get you voted out of office, if you levy a tax.

Here’s how it works. The government establishes a lottery. It says to the mass of people, Here. Give me your money, in the form of buy lottery tickets. I’m going to then give a tiny handful of you a ton of money and the rest of you are going to get a fantasy, a few hours in which you can say to yourself, Gee, what would life be like if I won $1 million, or whatever it is. If you look at the statistics, here’s how it works. Every government—and it’s mostly been state governments—every government that has instituted a lottery takes in more money from ticket sales than it pays out. That’s the whole point of a lottery. So what we have here is a net flow of money out of the hands of masses of individuals in to the government to help pay for what the government already is doing, whether it be schools or highway maintenance or anything else. So it is a kind of tax. It’s taking more money from people than they otherwise would have. It’s just you’ve cleverly sold them a fantasy, an imaginary moment of thinking what life would be like if they actually won the lottery.

But when you think about it, here’s two facts about it that should show you what the real meaning is. I once spent some time in the state of Connecticut, where I used to live, looking at a map of the state. It showed where people lived who had different levels of income: where the poor people lived, where the middle-income people lived, where the rich people lived. Superimposed on that map of Connecticut was a map of where lottery tickets were sold. Guess what? The lower the income level of the people, the more lottery tickets were sold. In other words, the lottery is a regressive tax: it takes much more money from middle- and lower-income people than it takes from the rich. So it not only pleased politicians to earn more money for the government, it also allowed them to do something that basically fell as a burden on middle- and, particularly, lower-income people.

Economically speaking, lotteries are also a disaster, and it’s easy to explain. What lotteries do is take $2 or $3 or $4 a day, often from poor people. Here’s what economics teaches us. The poor people and the middle- income people, who are the overwhelming majority purchasers of these lottery tickets, would have spent that money on goods and services that would have given jobs to other people. What the state does is take that money from all the little ticket sales and give a huge amount of it to two or three or four individuals, making them suddenly very rich. But here’s what we know in economics. If you’re very rich, if you’re suddenly a millionaire, a huge portion of your income will no longer be spent on goods and services, because you don’t need to, you’re now a very rich person. You will save a lot of it, you will invest a lot of it. You will buy shares of stock, you will put it in a foreign bank account. You will do all kinds of things other than using it to buy goods and services. So this is moving money from people who would have spent it and thereby created a demand for jobs and giving it all to a handful of people who will not spend a good portion of it. It is therefore the very worst thing you want to do in an economy that needs stimulation, that needs demand, that needs consumers buying things, because you’re basically invading consumption by moving money from the masses who would have spent it to a tiny number of people whose very wealth guarantees that they won’t spend a significant part of it. So it is economic nonsense. It simply solves the problem of bankrupt governments unable or, more likely, unwilling to tax the rich and the corporations who have been exempted by their lobbying and their political contributions for the last 50 years.

You say lotteries are also powerful ideological and political weapons. In what way?

They sustain illusions. They sustain that this is a system and a society in which you can become suddenly rich. It’s interesting that at a time when the job situation makes the idea of everybody becoming rich by work look further and further away, look less and less likely, people have an even greater need to turn to the fantasy of a lottery as a way to sustain the illusion that wealth, comfort are within reach. Gee, by just buying one of those little tickets that’s available at every corner store. So, yes, it sustains that notion. Remember also that all the state lottery authorities make a big point of doing public relations, giving you the picture of the mother who won the lottery so you could imagine yourself, too, like her, being a winner. So it sustains the illusion. It plays the role that used to be played by the Horatio Alger myth. You tell a story about a person who came from poverty and worked real hard, and then he or she finally made it into the ranks of the rich. This is a story you tell to offset the misery and depression of all the people who can’t do that, who never did do that. The lottery keeps that going now that the notion of working your way to wealth has become the real fantasy.

(Due to time constraints some portions of the interview were not included in the national broadcast. Those portions are included in this transcript.)

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