page_title: Causes of income inequality in the United States
section_title: Corporatism
hierarchical_section_title: Causes of income inequality in the United States / Other causes / Corporatism
caption_attribution_description: English: The image shows U.S. total compensation and wages/salaries (a subset of total compensation), each relative to GDP, for 1950-2013. These are a proxy for the share of national income going to labor as opposed to capital. It shows the relative share of GDP for labor declining since 1970. Another version with the denominator as national income is included here&#91;1&#93; A NYT article illustrating the concepts is here.&#91;2&#93;
context_page_description: Causes of income inequality in the United States describes the reasons for the unequal distribution of income in the US and the factors that cause it to change over time. This topic is subject to extensive ongoing research, media attention, and political interest.
  Income inequality in the United States grew significantly beginning in the early 1970s, after several decades of stability. The US consistently exhibits higher rates of income inequality than most developed nations, arguably due to the nation's relatively less regulated markets.
  According to the Congressional Budget Office, "the precise reasons for the [recent] rapid growth in income at the top are not well understood", but "in all likelihood," an "interaction of multiple factors" was involved. Researchers have offered several potential rationales. Various rationales conflict or overlap. They include:
  globalization – Lesser-skilled American workers have been losing ground in the face of competition from workers in Asia and other emerging economies.
  skills – The rapid pace of progress in information technology has increased the relative demand for higher-skilled workers.
context_section_description: Edmund Phelps, published an analysis in 2010 theorizing that the cause of income inequality is not free market capitalism, but instead is the result of the rise of corporatism. Corporatism, in his view, is the antithesis of free market capitalism.  It is characterized by semi-monopolistic organizations and banks, big employer confederations, often acting with complicit state institutions in ways that discourage (or block) the natural workings of a free economy.  The primary effects of corporatism are the consolidation of economic power and wealth with end results being the attrition of entrepreneurial and free market dynamism.
  His follow-up book, Mass Flourishing, further defines corporatism by the following attributes: power-sharing between government and large corporations (exemplified in the U.S. by widening government power in areas such as financial services, healthcare, and energy through regulation), an expansion of corporate lobbying and campaign support in exchange for government reciprocity, escalation in the growth and influence of financial and banking sectors, increased consolidation of the corporate landscape through merger and acquisition (with ensuing increases in corporate executive compensation), increased potential for corporate/government corruption and malfeasance, and a lack of entrepreneurial and small business development leading to lethargic and stagnant economic conditions.
  Today, in the United States, virtually all of these economic conditions are being borne out.  With regard to income inequality, the 2014 income analysis of University of California, Berkeley economist Emmanuel Saez confirms that relative growth of income and wealth is not occurring among small and mid-sized entrepreneurs and business owners (who generally populate the lower half of top one per-centers in income), but instead only among the top .1 percent of income distribution ... whom Paul Krugman describes as "super-elites - corporate bigwigs and financial wheeler-dealers." ... who earn $2,000,000 or more every year.
  For example, measured relative to GDP, total compensation and its component wages and salaries have been declining since 1970. This indicates a shift in income from labor (persons who derive income from hourly wages and salaries) to capital (persons who derive income via ownership of businesses, land and assets). Wages and salaries have fallen from approximately 51% GDP in 1970 to 43% GDP in 2013. Total compensation has fallen from approximately 58% GDP in 1970 to 53% GDP in 2013. To put this in perspective, five percent of U.S. GDP was approximately $850 billion in 2013. This represents an additional $7,000 in wages and salaries for each of the 120 million U.S. households. Larry Summers estimated in 2007 that the lower 80% of families were receiving $664 billion less income than they would be with a 1979 income distribution (a period of much greater equality), or approximately $7,000 per family.
  Not receiving this income may have led many families to increase their debt burden, a significant factor in the 2007-2009 subprime mortgage crisis, as highly leveraged homeowners suffered a much larger reduction in their net worth during the crisis. Further, since lower income families tend to spend relatively more of their income than higher income families, shifting more of the income to wealthier families may slow economic growth.
  In another example, The Economist propounds that a swelling corporate financial and banking sector has caused Gini Coefficients to rise in the U.S. since 1980: "Financial services' share of GDP in America doubled to 8% between 1980 and 2000; over the same period their profits rose from about 10% to 35% of total corporate profits, before collapsing in 2007–09. Bankers are being paid more, too. In America the compensation of workers in financial services was similar to average compensation until 1980. Now it is twice that average." The summary argument, considering these findings, is that if corporatism is the consolidation and sharing of economic and political power between large corporatio
caption: Labor's share of GDP has declined 1970 to 2013, measured based on total compensation as well as salaries & wages. This implies capital's share is increasing.
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