Elite Networks, the Cause of Persistent Economic Inequality
Vuk Vuković, Ph.D and author talks about political power and economic impact
Society may not realize the complexities that are often behind economic inequality.
Elite networks, writes Jacob N. Shapiro at Princeton University, are “informal social networks between political and economic leaders, which act as a key mechanism behind the steady accumulation of wealth by small elites in almost all societies.”
Vuk Vuković, the author of “Elite Networks, the Political Economy of Inequality, Exploring the misuse of political power — the underlying cause of persistent economic inequality and its global impact,” informs and educates readers about what they may not yet know and may like to learn and would benefit from learning.
Vuković holds a Ph.D. in political economy and is the founding partner and CEO at Oraclum Capital and Oraclum Intelligence Systems — and in his book he conducts, “groundbreaking analysis of how privileged groups exploit their positions to secure economic resources,” according to Ben Ansell at the University of Oxford and the author of “Why Politics Fails.”
Vuković talks today with Communication Intelligence about his book, which, “elucidates how extractive political power drives this pervasive problem (income inequality), unveiling the intricate web of informal relationships between politicians and influential corporate figures,” writes Josip Glaurdic at the University of Luxembourg.
“The book's strength lies in its ability to connect the dots between intra-elite trust, loyalty and the alarming income disparities we witness today.
“What sets the book apart is its bold assertion that income inequality is not an inherent feature of economic systems but a result of deliberate actions stemming from the quest for centralized political power,” Glaurdic adds.
The inspiration for this work originated from Vuković’s doctorate studies.
“The book was actually adapted from my Oxford PhD, based on my ongoing research for more than 10 years prior, specifically focused on corruption, political power, democracies versus autocracies and the historical sources of inequality.
“In the book, I tied all these topics together with the underlying theory, supported by overwhelming empirical and historical evidence, that inequality is and always was the outcome of the misuse of political power.”
He elaborates on why the problematic connection of power with networks sets inequality into motion.
“We know, from the vast and instructive inequality literature, that the rise of income inequality in the US in particular and the West in general in the past 40 years has been the growth of top 1% and top 0.1% incomes, or better yet, the disparity between this group and the rest of income earners. So I decided to look within this group, the majority of which are top corporate executives of large companies.
“I found that there is a markable difference between corporate execs who are politically connected as compared to their colleagues within the same company who are not politically connected,” Vuković says. “Specifically, connected top execs tend to have a higher salary of about $150,000 more per year compared to non-connected top execs.
“This is therefore a crucial overlooked cause of the rise of top 0.1% incomes — the fact that many executives used political connections to secure advantages for their firms and hence a wage premium for themselves.”
Vuković provides a brief look at history and evolution of the practice he’s discussed.
”It's always been like this: proximity to political power was the key source of wealth accumulation for centuries, ever since the start of first civilizations.
“Today, instead of kings and the nobility, we have governing politicians and corporate executives, what (Thomas) Piketty calls ‘supermanagers,’ but the driver of inequality is the same,” he says.
Vuković goes into greater depth about these networks and their societal impact.
“Elite networks are spontaneous, informal connections between people in positions of power; governing politicians on one hand and corporate executives on the other. These networks get created at societies these groups belong to: clubs, various organizations — university, charity, religious, political, etc. or a connection that is established from working together before, or studying together.
“The key part is a mutually-dependent relationship, that is not necessarily illegal — unless corruption is involved — but serves to advance the interest of both parties,” he details.
Vuković goes deeper.
“Corporate executives secure lucrative business deals for their companies or get favorable legislation or regulation, while politicians get money for campaigns. They get to stay in power and in corrupt countries, they get a share of the loot,” he points out.
“These executives rise in the ranks within their companies and get rewarded for securing the deal, translated directly through greater earnings,” Vuković states.
This of course isn’t a simple societal issue to address and solve. It’s not impossible however. There is a helpful strategy.
To "lower inequality and prevent incentives of elite network formation, we must first and foremost, lower centralized political power and re-empower the citizens and the community by rebuilding trust and relying on the democratic trial-and-error mechanism,” Vuković writes.
He speaks to the specific, clear mechanics of the how.
“Full transparency of all government budgets — every single receipt, every single expense, every single decision, fully and easily accessible to everyone and participatory budgeting, for a start for local public goods, would be the first steps to achieving something like this,” Vuković says.
He realizes this does not sound, at first, all encompassing and effective.
“It doesn't seem like much, but it creates a powerful disincentive for the misuse of power,” Vuković asserts. “We can also talk about simple KPIs for politics, in the form of stringent fiscal and monetary rules — or health, education and climate outcomes —which, if triggered, induce immediate punishment to everyone in Congress.
“We can talk about these reforms as only the first initial steps but if implemented correctly they do produce positive second-order and third-order effects in improving selection into politics, curbing political and corporate power and eventually, reducing inequality.”
An important point of interest that Vuković also writes about in the book is just how much politicians can steal before getting punished. “This is based on a paper I did for Croatian local elections, over two political cycles,” he says.
“I found that there is an optimal level of corruption, allocating around 25% of all government procurement contracts suspiciously, to firms with zero employees and only bidders at a tender or firms with low revenues where the government contract more than doubles their average annual revenues.
“If you go over 50%,” Vuković adds, “you get punished, so there is an upper limit to corruption, but it's quite high.”
Corruption can be noticeably mitigated — and significantly limited — by term limits.
“I think this is an important political mechanism that needs to be applied to all levels of government, from local mayors to Congress,” Vuković says.
“It forces persistent change and increases selection into politics. We won't always elect the good guys but if we change them often, we increase our chances of doing so.
“As Mark Twain used to say, ‘politicians and diapers need to be changed often and for the same reason.’”
This has been a Communication Intelligence author conversation and book preview.