March 17 of 2003 was Don Bauder Day in San Diego. (I suspected that most city council members voted for it because they were gleefully celebrating my departure from the Union-Tribune.) The honor was no big deal because a lot of people get it. But mine was memorable, because in accepting it, I lashed out at the council, charging that San Diego’s form of government was turning into a plutocracy, or government by the wealthy.
Had I known about research that was to come out two years later, I would have also mentioned that the San Diego economy was in danger of becoming a plutonomy, in which the majority of wealth is controlled by an ever-shrinking, super-affluent minority. In a plutonomy, economic growth is powered and consumed by the wealthiest upper class. Public policy should be aimed at massaging the superrich. A rising tide lifts all yachts.
The word “plutonomy” usually applies to a country, but there is no reason it can’t describe a metropolitan area. The concept was introduced by an economist at New York’s Citigroup in 2005. He concluded that of the major industrial countries, the U.S., U.K., Canada, and Australia were plutonomies and therefore were likely to enjoy better growth than other developed countries with more income equality. Continental Europe (with the exception of Italy) and Japan represented the “egalitarian bloc,” sneered the economist, and they would do worse economically than the plutonomies.
Like most forecasts, this one was only partly right. Both the plutonomies and egalitarian bloc countries got whacked in the mayhem that began in late 2007 and is still drawing blood. Canada, a plutonomy, is doing relatively well. Europe is doing worse than the U.S., although Italy, supposedly a plutonomy, is in sick bay, and the plutonomic U.K. is a mess. (Of course, Citigroup, which got the largest bailout of any U.S. bank, is itself a disaster.)
The Citigroup economist was right in several respects: he predicted that the rich would continue to get richer. Bingo! Between 2001 and 2007, two-thirds of income gains in the U.S. went to the richest 1 percent. The most affluent 1 percent owns well over half the nation’s stocks and rakes in more income than the bottom 50 percent of Americans. In 1950, top executives earned about 30 times what the average worker earned; now it’s 300 to 500 times. Last year, the top 25 hedge fund managers raked in $25 billion. The 400 highest-paid Americans had an average income of $345 million in 2007 and only paid an effective tax rate of 16.6 percent.
Now, as company profits zoom, consumer sentiment has plummeted to lows that are seldom seen. That’s because one reason profits are going up is that companies aren’t hiring and continue to send jobs overseas.
In the U.S. today, retail sales are soaring in upscale stores but not in downscale ones — just as the Citigroup economist predicted. Indeed, he said the economy can grow just fine without the poor and middle class; the upper crust’s purchases will keep it going.
Crucially, a plutonomy needs friendly, cooperative governments, said the Citigroup guru. That’s what San Diego has. The business overlords essentially run government, which then makes sure that taxpayer money flows to the affluent.
A classic example is the abuse of redevelopment money. It was originally meant to help the poor and middle class by creating affordable housing and eliminating blight. The San Diego downtown establishment hijacked the concept for the building of corporate welfare projects that benefit the developers, builders, and the affluent. Petco Park made John Moores an even richer billionaire. A new Charger stadium would make a billionaire family, the Spanoses, even wealthier. Upscale hotels, condos, and retailers downtown get fat subsidies while the neighborhoods, infrastructure, maintenance, fire service, and outlying libraries are ignored.
Normally, the City gets 17 percent of property tax receipts, and the rest goes to the County, school districts, and special-purpose governments. But in a redevelopment, 80 percent of the tax increment goes to the City and redevelopment agency, and the money has to be spent in the project area where it was raised. But there has to be “blight.” So despite all the redevelopment money poured into downtown, the establishment still claims it is blighted. “In San Diego, CCDC [Centre City Development Corp.] has so much power that the money goes back downtown,” says Vlad Kogan, doctoral candidate at the University of California San Diego.
In Los Angeles and San Francisco, governments have made sure that redevelopment funds go into the neighborhoods. But in San Diego, Centre City utterly dominates the city council, which is the redevelopment agency. That’s plutocracy.
“In San Diego, the establishment has a feeding trough, a dedicated revenue stream for pet projects, and it is not interested in the rest of the city,” says Steve Erie, professor of political science at the University of California San Diego. “In Los Angeles, the money is going to the neighborhoods,” but nonetheless, there is a downtown renaissance financed by private capital. “In San Diego, the only way we do business is with public money for private purpose and private benefit.”
San Diego will now pay a consulting firm half a million bucks to look, essentially, at the possibility of a Charger stadium. Big question: Is there blight? Why hire a consulting firm? You know what the answer will be: Gawd, yes! It’s blighted! Build! Subsidize!
“There was a time when downtown was blighted and needed an infusion of subsidies,” says Murtaza Baxamusa of the Center on Policy Initiatives. Today, “It’s like giving a blue [parking] placard to somebody who was handicapped but is no longer handicapped. The market can now take care of itself.” And the money that goes to subsidizing the wealthy “is money that could go for health care, to schools.”
But the political apparatus helps keep the rich stealing from the children. Centre City wants to triple the tax increment cap for its project area. The motivation is to permit an insolvent city to subsidize a Charger stadium to the tune of $600 million to $900 million. Councilmember Kevin Faulconer, whose district includes downtown, asked the independent budget analyst Andrea Tevlin to see if the raising of the cap would hurt the City’s finances.
The study she signed concluded that while the general fund would lose $300 million over 32 years, there would be increases in such things as hotel and property taxes that would more than offset that loss. (Have you heard this whopper before?) Civic activist Mel Shapiro points out that Faulconer’s wife runs a downtown business and Tevlin paid $575,000 for a downtown condo that is now assessed at $433,000. Both have a financial interest in downtown, he says. Both deny it.
Yes, a plutonomy works best under a plutocracy. San Diego is the paradigm.