Law and Capitalism
Many countries, including the United Kingdom, follow a philosophy of market capitalism to have a functioning economy. This system could not exist without the legal pillars that hold it up. It is exceedingly difficult to own or sell property and goods without law. You couldn’t contract workers, engage in agreements with other businesses, or even provide services reliably without the law protecting and regulating all parties involved. I do not need to harp on the importance of law in the business environment; it is essential to every facet of life, especially in business. Yet, it’s worth looking at how these laws are designed. They are, in theory, there to protect the interests of all the different parties involved in business and provide regulations to follow. In practice, they protect businesses and the business environment. Yet there is more to human life than business, and protecting business interests often conflicts with human interests. The law has aided the spread of capitalist ideals and failed to regulate business conduct in a way that benefits humanity.
Law and the ultra-wealthy
It is commonly known that many wealthy individuals use charitable organisations as a way to get tax write-offs and make extra money. There is inherently nothing wrong with that, as it encourages those with more money to give back to those less fortunate. In theory, an excellent system. Yet in the largest philanthropy hub in the world, the United States, over 41% of donated funds have gone to intermediaries such as private foundations. These foundations only need to give 5% of their assets to charity annually. As such, the ultra-wealthy can receive massive tax write-offs, paid for in tax dollars, while simply relocating their money to a private foundation they could own. In the US in 2022, over 73 billion dollars were given as a subsidy for charitable giving, yet less than 70% of donations went directly to charities. The law allows the highly wealthy to use these charitable write-offs to gain more money without ensuring donations reach charitable organisations. Many argue that we need these private foundations and tax write-offs to encourage the wealthiest people to donate, and I agree. Private foundations serve an essential purpose in society.
A great example is the Bill and Melinda Gates Foundation, which has done wonders for the world. Yet not all foundations function as well, and a simple increase in the minimum amount of money that private foundations must donate per year would do wonders in ensuring philanthropy benefits the causes it claims. These foundations' primary objective is supposedly to endorse charitable activities. There isn’t a tangible drawback to increasing the amount they need to donate; it’s simply holding them accountable.
Ultimately, the issue of philanthropy is simply a symptom of a much larger problem: the ultra-wealthy are being egregiously undertaxed. A significant reason is that the main methods of increasing wealth for multi-millionaires aren’t taxed to the same standard. Most average people have a salary or are self-employed as their primary source of income. This is all subject to a personal income tax. However, the wealthiest people in society are amassing their wealth through different sources, such as dividends, capital gains, and property. Only 0.5% of adults in the UK receive capital gains annually. Over half of those gains went to only 5000 people, who received almost 7 million per person. This is commonplace in many countries, not just the UK. Yet, one in five countries doesn’t tax capital gains, and the average tax rate is only 18%. The average personal income tax rate, the rate the average person is paying, is 20.85%. This doesn’t even account for the fact that unrealised capital gains are not taxed, yet they can still accumulate more money for the ultra-rich. Income tax hits the average person far more complex than the wealthy simply due to their sources of income. Significantly, the richest people can expand their wealth without increasing their taxable income. ProPublica and Forbes published a report showing how much taxes the 25 wealthiest Americans paid compared to how much their wealth increased simultaneously. This report showed that from 2014 to 2018, their wealth rose by a collective 401 billion dollars. Yet they only paid 13.6 billion in federal income taxes, a mere 3.4% of their increase in wealth. Warren Buffett’s wealth grew by approximately 24.3 billion dollars, yet only 125 million was reported as income. He paid 23.7 million in taxes, barely 0.1% of his increase in wealth. And to top it all off, almost half the world’s billionaires are from countries with no inheritance tax. Trillions of dollars will be passed on tax-free, continuing the current cycle we are stuck in. Our current laws do not tax the ultra-wealthy in the correct places.
Some simple measures could be taken to help lower the disparity in taxation between the average person and the wealthiest members of society. To be as blunt as possible, simply tax the markets dominated by the rich. Increasing a capital gains tax would affect almost exclusively the wealthiest members of society. Another potential option would be to target gains off dividends and property. Yet, my favourite approach to combating this issue is a wealth tax. A wealth tax of merely 1.7% on those making more than 3 million pounds would generate 2.7 billion in tax money. This would only affect 0.27% of adults in the UK. A 3.5% wealth tax on only the 17,000 wealthiest people in the UK would yield over 4.6 billion pounds. A wealth tax on those making exorbitant money would remove many workarounds millionaires use to avoid paying taxes. The main arguments against a wealth tax are that it stops people from attempting to save money and harms those who hold many assets but little cash, such as farmers. These arguments only carry weight if we apply a wealth tax to everyone. I am proposing a tax that doesn’t affect 99% of the population, merely the 1% that have gained disproportionate wealth.
Law and businesses
Yet another way the law has failed to regulate businesses is in handling monopolies. Current antitrust laws are not doing enough to combat massive multinational corporations. The Competition Act 1998 requires anti-competitive behaviour or abuse of a dominant position to be enacted. Companies can become monopolies without standing in violation of antitrust laws. The massive corporations' sway over a market is unhealthy for the economy and consumers, regardless of whether antitrust laws have been violated. The Competition Act 1998, as well as articles 81 and 82 of the Treaty Establishing the European Community, exist to try and prevent monopolies and have little in the way of limiting corporations once they have taken over a market. They’re narrow-minded policies targeting a symptom, not the problem itself. The most significant 10% of companies generate 80% of profits globally. This causes many societal issues, placing far too much power in the hands of a few large corporations. Companies like Google feel nigh untouchable and have too much power in global markets. Realistically, no single market can even attempt to regulate such massive corporations with such a far reach. This was a failure by the law, allowing companies like Disney to acquire all of their competition and achieve a stranglehold on their market. Antitrust legislation failed, and it feels beyond repair.
A primary characteristic of capitalism is that goods and services are not valued at their benefit to society but their exchange value. The valuation of these products is at the whim of the economic market. While this can help foster a functional economy, it can also gatekeep essential products and services from those who need them. A great example is feminine hygiene products, which cost significantly more than their production cost despite being necessary for many people. A box of 20 tampons from Tampax cost 2 pounds, so around 10 pence per tampon. The production cost of a tampon is 2 pence. Despite being an essential product, it is marked up five times the original cost. The spread of market capitalism has caused a cultural shift in which nobody questions how much products should cost; they only ask how much they do. We’ve also seen this in the ever-present inflation of the housing market. Landowners will continue to increase prices consistently because there is no way to challenge that increase. Culturally, people have simply had to accept that businesses control the market. This mentality is reflected in all aspects of business, including salaries. Salaries are not prescribed due to the difficulty of work or benefit to society; businesses have set standards for specific jobs that everyone has simply accepted. These issues become even more problematic when considering the concept of monopolies that was previously discussed. We need essential services at the whims of markets, which a few considerable companies control.
This all leads to the overall point: the law has failed us in regulating the priorities of capitalism. There is no inherent problem with capitalism, yet we have been left with an exploitative system that puts the economy in the hands of a few wealthy companies and, thus, a few rich people. Capitalism has caused a societal shift in which people work to uphold the system rather than vice versa. Regardless of whether the economy is prospering or not, a society built to make money will never serve the needs of its people. It was the job of the law to hold these large corporations to equitable standards that would benefit people, not the companies.
This is where the question is raised: why don’t lawmakers attempt to create change? If capitalism is built on pillars of law, the law should be able to keep things in check. It’s quite a simple answer: lawyers benefit from capitalism. Historically, lawyers have worked for businessmen and have always protected corporate interests. Many lawyers go to work directly under a company, and even those in law firms need corporate clients to survive. Quite simply, people go where the money is, and lawyers are consistently the benefactors of capitalism. That being said, many determined lawyers and politicians still wish to address social issues. Pointing out all our problems is simple, but finding a solution is far more challenging. Historically, communism has rarely ever been successful in practice. Capitalism isn’t going away anytime soon, and realistically it shouldn’t. It has been an effective economic system that stimulates growing economies and has become fundamental to how we live in most Western countries. However, society should not revolve around increasing shareholder value for massive corporations. In a recent poll, over 84% of respondents believe corporate greed is a leading cause of inflation. People are not content with the current system and want more accountability. I am not suggesting that society should tear down the current system or that capitalism cannot benefit the average person. I am simply suggesting that small, individual changes can be made to target economic inequalities caused by capitalism. The law has a responsibility to hold businesses accountable. It’s time that responsibility be upheld.
Kurtis Pacheco
Bibliography
Legislation
Competition Act 1998.
Treaty Establishing the European Community
Reports/ Publications:
Hudson A, ‘Law as Capitalist Technique’ (2018) 29 King’s Law Journal 58.
Martin Partington, Introduction to the English Legal System (15th edn, OUP 2021) ch 2.
Raymond Wacks, Understanding Jurisprudence (6th edn, OUP 2020) ch 7.
Websites and Blogs:
Advani A, Summers A and Chamberlain E, ‘A Wealth Tax for the UK’ (LSE International Inequalities Institute)
Collins C and Ocampo O, ‘Revealing the True Cost of Billionaire Philanthropy’ (Inequality.org).
Consultancy. uk, ‘Superstar Companies Capture 80% of Economic Profit’ (Consultancy.uk, 2 July 2019).
Giorno T, ‘Corporate Greed Increasingly Seen as “Major Cause” of Inflation: Poll’ (The Hill, 14 February 2024).
Eisinger J, Ernsthausen J and Kiel P, ‘The Secret IRS Files: Trove of Never-before-Seen Records Reveal How the Wealthiest Avoid Income Tax’ (ProPublica, 8 June 2021)
Jain S, ‘Surface at Syracuse University’ (SURFACE Site)
London School of Economics and Political Science, ‘More Capital Gains Are Received in One Neighbourhood in Kensington than in Liverpool, Manchester and Newcastle Combined’ (London School of Economics and Political Science)
Putaturo C, ‘The Super-Rich Pay Lower Taxes than You – and Here’s How They Do It...’ (Views & Voices, 19 January 2023)
TUC Press Office, ‘Modest Wealth Tax on Richest 0.3% Could Yield £10bn for the Public Purse – as TUC Calls for “National Conversation on Tax”’ (TUC, 11 August 2023)