jacobin | I’d like to look at a specific question raised by the discussion of
private returns and social value, namely: can Wall Street, in its
present form, be justified? That is, does the share of income flowing to
corporations and professional workers in the financial sector reflect
their marginal contribution to the total value of social output, so
that, if their work ceased to be done and their skills were allocated
elsewhere, we would all be worse off?
I argue that society as a whole would be better off if the financial
sector were smaller, and received much smaller returns. A political
strategy based on cutting the financial sector down to size has more
promise for the Left than any alternative approach now on offer, and is a
necessary precondition for a broader attempt to make the distribution
of wealth and power more equal.
The financial sector has grown massively since the 1970s, whether
size is measured in terms of the volume of transactions, the number and
remuneration of highly skilled professionals, the share of corporate
profits, or, most importantly, the political power of the finance
capital. As Frase observes, referencing Felix Salmon,
the huge returns extracted by this sector distort the distribution of
income for the economy as a whole. The market return on any activity
must be adjusted for the cut taken by the financial sector. This fact
makes the attempt to assign ethical status to marginal productivity
academic, in the worst sense of the term.
Taking this further, any strategy for the Left that yields more than
modest changes in the distribution of income, wealth and power, must
involve a direct conflict with the financial sector, and must imply a
substantial contraction in the size, wealth and power of that sector. A
necessary condition for such a strategy to be feasible is the premise
that the incomes flowing to the financial sector come at the expense of
the rest of the economy, and in particular, at the expense of working
people.
Conversely, if the financial sector makes a contribution to the
economy that is commensurate with, or greater than, the incomes flowing
to that sector, then a policy that substantially reduces the size of the
financial sector is likely to harm the rest of the economy. In
principle, it might be possible to redistribute income from the
financial sector through progressive taxation, without greatly changing
its operations. In practice, however, the political futility of such a
strategy is obvious. As long as the financial sector commands its
current resources, and is viewed as an essential contributor to
prosperity, it will easily defeat proposals for higher taxation.
