Big Business Catches a (Tax) Break--Again

It's no secret that most markets are dominated by only a few large firms: think Lowe's and Home Depot when it comes to home improvement, Target and Walmart when it comes to discount stores, or Delta, United, American, and Southwest when it comes to airlines. Or at least it shouldn't be a secret. Economists and other observers have been pointing that out since at least the 1930s, when economists such as Joan Robinson and Edward Chamberlin began identifying so-called imperfect or monopolistic competition.

The last few years have seen a renewed attention to the subject. In 2017 and again in 2018, for example, the business school at the University of Chicago held two conferences on the dangers posed by oligopoly, the technical term for a market dominated by only a few companies. That such events were held at Chicago is notable in itself: Chicago has long been identified with an approach to economics that emphasizes that people make good decisions. If oligopoly exists, it must be because consumers deem it good for themselves.

Missing from recent discussions, however, has been taxation. That's where an article in the June 2020 issue of Politics & Society comes in. The article, titled "The Tax Advantage of Big Business: How the Structure of Corporate Taxation Fuels Concentration and Inequality," is by two political economists in London, Sandy Brian Hager and Joseph Baines. Hager and Baines show that the taxes paid by the biggest corporations have declined over the past forty years to the point where the biggest now pay a smaller percentage than those below them.

In other words, taxation, when it comes to corporations, is regressive. According to Hager and Baines, in the mid-1970s, the biggest corporations had an effective tax rate of 37%. Today, the rate is 28%. At the same time, the rate for all other corporations has risen from 34% to 41%.

Hager and Baines are the first researchers to "map" the effective tax rates of corporations. They are able to take into account and distinguish among domestic, foreign, state, and federal tax rates. Their sample consists of US corporations, and it numbers anywhere from more than 1,300 to more than 5,000 companies.

Hager and Baines argue that the regressive tax rates on the largest corporations is all of a piece with the trend toward regressive tax rates overall. Corporate concentration, income inequality, employers who reward their stockholders rather than their workers—as the authors conclude, their results give an emphatic lie to the idea that cutting taxes on the rich frees up money that is then invested in the rest of us. No such thing is happening. Instead, the rich simply keep getting richer.

China Is Authoritarian--That Makes Things Easy for Beijing, Right?

China is vast—about as big as the United States. It also has an authoritarian government, whose capital, Beijing, is near the eastern edge of the country, a thousand or more miles away from any number of provinces. What's more, many provinces have special circumstances that, ideally, require nuanced leadership. For example, some provinces are located on militarily sensitive international borders; others are socioculturally diverse and thus may not feel particularly sympathetic to Beijing; still others have large populations in their own right that are governed by dozens of local jurisdictions.

What, then, are Communist leaders to do? Come down heavy-handed and take a one-size-fits-all approach to governing? Do whatever it takes to oppress the population and deal with whatever unrest might result?

Quite surprisingly, no. Beijing, as it turns out, pays attention to the ways in which provinces require specialized and localized knowledge to govern them effectively. For that reason, the Communist Party often appoints provincial governors with considerable local standing and knowledge but who may have few or no close ties to the central state. When there is a crisis in a particular province, Beijing may indeed install leaders who are part of the president's inner circle; but it does so in a balanced manner.

In sum, China's authoritarian system relies on local expertise and experience as well as top-down control. To be sure, Beijing can appoint and remove provincial leaders at will. But far short of that, the central state balances central control and responsive regional governance.

A discussion of the governance challenges outlined here is found in an article by David J. Bulman of Johns Hopkins University and Kyle A. Jaros of the University of Oxford. The article appears in the June 2020 issue of Politics & Society.

Welfare Policies: Who Matters?

The results: That's what most people care about. What does a given study conclude? But results are no good if the scholar's data and methods are no good.

The authors of a paper that appears in the March 2020 issue of Politics & Society make that clear. Like other researchers before them, they wanted to know if the government listens to voters when it comes to welfare programs. In addition, they wanted to know if some voters—namely, the rich—count more than other voters, namely, the poor.

There is a big problem, though, in trying to answer such questions: There are two kinds of data at issue, and the two need to be linked. One are data on attitudes toward particular policies; the other are  data on changes in the generosity of the policies.

The authors manage to link the two kinds of data. The first set of data consists of survey data from many countries in different periods on attitudes toward three kinds of welfare programs: health programs, pension programs, and unemployment programs. The second set consists of data on the generosity of the programs.

What they find is what they expected: The government listens to voters, but they listen to rich voters more than poor voters. In other words, when governments adjust their welfare policies, they respond more to the wants of the rich than to the wants of the poor.

The true scholarly contribution of the paper, though, is not the findings but the data and method. The same can be said of many other academic studies.

The paper is titled "Real but Unequal Representation in Welfare State Reform" and is by Wouter Schakel of Leiden University, Brian Burgoon of the University of Amsterdam, and Armen Hakhverdian, also of the University of Amsterdam.

Political Upheaval in Bolivia

For years, politics in the United States has been dominated by a two-party system. One party is said to represent the conservative point of view; the other, the liberal point of view. In other words, the political party system in the United States divides itself or "cleaves" along a conservative-liberal axis.

How stable is that division or cleavage? Does it reflect the true divisions of the country? Or is it a division that has been forced on the electorate?

Another country that until recently had a stable political party system was Bolivia. There, the main cleavage was between workers and capitalists. But the system in Bolivia suddenly collapsed in 2002. Why?

According to Jean-Paul Faguet, a professor of the political economy of development at the London School of Economics, the system in Bolivia collapsed because the cleavage on which it rested was artificial. The major parties represented either workers or capitalists. But in fact, Bolivia had precious few of either.

The real cleavage in Bolivia, Professor Faguet says, was between a rural population who identified along ethnic lines and an urban population who saw themselves as cosmopolitan. The conflicts were regional and ethnic—not those of economic classes. The true cleavage eventually made itself felt and in the process tore apart the existing political party system.

How was the actual cleavage formed in the first place? Professor Faguet points to the legacy of 300 years of Spanish colonization. That, he writes, "was a significantly more powerful and sustained experience that changed society in far deeper ways than Bolivia's modest industrialization."

Professor Faguet's article appears in the June 2019 issue of Politics & Society.

Housing for the Poor

Who builds housing for the poor?

There was a time when community-based organizations built much of the housing for the poor. For example, in Chicago in the 1980s, an organization called Bethel New Life built housing for thousands of poor Chicagoans.

What made a lot of that construction possible was the Low-Income Housing Tax Credit, enacted by the federal government in 1986. The credit allowed organizations like Bethel New Life to access capital for its projects.

The tax credit it still around. But today, a new kind of organization captures the bulk of its benefits. This new kind of organization differs in important ways from the traditional CBO such as Bethel New Life. Whereas traditional CBOs are located in the communities they serve, are staffed largely by blacks and Hispanics, and come from a religious, advocacy, or social service background, the new organizations claiming the tax credits are usually located outside poor communities, are staffed mainly by whites, and come from a real estate, finance, or public administration background.

According to John N. Robinson III, an assistant professor of sociology at Washington University in St. Louis, these new organizations are generally more interested in furthering their own ends than serving poor communities. He calls the new organizations "grassroots for hire," or GHOs.

GHOs, he says, can potentially be as beneficial as traditional CBOs. As he points out, GHOs are "geographically rootless in a way that enables coordination of affordable housing policy on a broader geographic scale." In turn, that could actually "advance fair housing and reverse patterns of segregation."

But in fact, GHOs, he argues, largely represent the preferences of those who run them. As a result, "tax-credit dollars are less likely to go toward housing the most vulnerable residents and neighborhoods, the production of good-quality units in financially neglected areas, or the preservation of housing affordability after initial investor agreements expire or in gentrifying areas." Housing, rather than forming one part of the larger safety net for the poor, becomes an isolated benefit.

Professor Robinson is clear that his purpose is not to promote CBOs or denigrate the new organizations. In an ideal world, each would receive ample support. Still, GHOs do not—indeed, cannot—duplicate the services of the traditional CBO, and something important is lost in the bargain.

Professor Robinson bases his findings on 105 in-depth interviews, supplemented with ethnographic, archival, and secondary data. His results appear in the June 2020 issue of Politics & Society.

Pensions in China

China remains a strange country, a mixture of socialism and capitalism, of centralization and local governance. A good example of the latter is the country's pension system. For years, there have been two pension systems. One is a so-called employment-based system. In that system, pensions are provided to people who are formally employed. The other is a so-called residency-based system. In the latter, one qualifies for a pension because he (or she) is officially registered as a resident of a particular locale.

For most of its existence, though, the system left many people, especially informal workers and workers who had moved away from their place of birth, without pensions. Then in 2011, Beijing passed the Social Insurance Law. The law makes, at least in principle, a greater number of people eligible for one of the two pensions systems, and it gives local leaders incentives to expand pension coverage accordingly.

How have local leaders responded to the new directive? That is the question that Yujeong Yang, an assistant professor of political science at SUNY Cortland, tries to answer in a paper that will be published in Politics & Society.

According to Professor Yang, local leaders have been strategic in deciding who gets pensions and who doesn't. They have to be strategic because they face conflicting incentives. On the one hand, Beijing wants them to increase pension coverage; on the other hand, there are other top-down goals and institutions that discourage them from increasing coverage.

As it turns out, the decisions of local leaders depend a lot on the makeup of the local labor market, specifically, the mix of formal and informal workers. In short, in provinces with a lot of locally born informal workers--those tend to be provinces in inland China that export labor to the coastal provinces—the residency-based pension system has been expanded. In the coastal provinces, in contrast, the employment-based system has been strengthened; and any informal workers who have moved to the coastal provinces are left to register for residency-based pensions funded by their cities of origin.

The effect has been paradoxical: although pension coverage has in fact been expanded, the ways in which it has been expanded have worsened regional inequality in China.

Professor Yang bases her findings on national survey data as well as data she herself gathered from 31 provinces. Her findings have important implications for the decline of welfare states globally in the current era--an era in which more and more workers are only informally employed and an increasing number have to move to find work.

"Metropolitan Fragmentation," or, When Cities Divide and Hoard

Until 2012, two separate public school systems operated in the greater Memphis area. Memphis City Schools consisted of schools within the city limits. Shelby County Schools consisted of schools outside Memphis, in such small towns as Arlington, Germantown, and Bartlett. Then in 2012, Memphis City Schools gave up its charter. All schools formerly in its jurisdiction were assigned to Shelby County Schools, which by default became a single, county-wide system.

There was one problem, though. The students who were enrolled in what used to be Memphis City Schools were mostly black and Hispanic. All of a sudden, the Arlingtons and Germantowns and Bartletts of the county, whose populations are mostly white, were sharing a system with lots of black and brown students, who attended schools that many county parents regarded as "bad."

So what happened? The small towns in the county began forming their own school systems, systems that were independent from the new, county-wide system, arguing for the virtues of "local control." Where there was formerly a single, county-wide system, there are today seven or eight separate systems.

What happened in Memphis and Shelby County is a perfect example of what three researchers at MIT call "metropolitan fragmentation." Metropolitan fragmentation happens when multiple jurisdictions are created out of one and when those new jurisdictions organize to "hoard" resources.

The researchers—Yonah Freemark, Justin Steil, and Kathleen Thelen—discuss metropolitan fragmentation in an article that appears in the June 2020 issue of Politics & Society. In their article they produce evidence showing that fragmentation occurs far more frequently in the United States than in other advanced Western countries. To be sure, "no rich democracy," they write, "escapes the problems of spatial inequality that characterize metropolitan life." Nevertheless, as they explain,

the degree to which municipal boundaries are associated with highly unequal policy packages and public services is particularly pronounced in the United States. Indeed, the strategies commonly deployed by affluent US communities to separate themselves—administratively and fiscally—from their less affluent neighbors are virtually unthinkable in many other industrialized democracies.

As Freemark, Steil, and Thelen point out, there are pros and cons to local control. They build on those arguments by comparing different cities over time: Boston, San Francisco, Toronto, London, and Paris. What they find is that Toronto, London, and Paris have worked to make fragmentation harder and less rewarding, whereas Boston and San Francisco have done just the opposite. The authors hope that the example of London, Toronto and Paris can be a model for US lawmakers who want to combat fragmentation—who want to prevent communities from leaving larger jurisdictions and hoarding resources.