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Mind the growing gap

from David Ruccio

8-billionaires-in-the-worldOxfam’s headline-grabbing numbers are bad enough: “Eight men are as rich as half the world.” But the international organization has presented an even more serious and severe indictment of current economic arrangements—which can’t be glossed over by merely encouraging those at the top to pay more taxes.

In the background paper, “An Economy for the 99 Percent” (a follow-up to last year’s “An Economy for the 1%“), Oxfam researchers both document the existence of grotesque levels of economic inequality in the world today and analyze the main causes of that inequality.

Regular readers of this blog will recognize the numbers indicating the obscene levels of contemporary inequality: 

  • Since 2015, the richest 1% has owned more wealth than the rest of the planet.
  • The incomes of the poorest 10% of people increased by less than $3 a year between 1988 and 2011, while the incomes of the richest 1% increased 182 times as much.
  • A FTSE-100 CEO earns as much in a year as 10,000 people in working in garment factories in Bangladesh.
  • In the US, new research by economist Thomas Piketty shows that over the last 30 years the growth in the incomes of the bottom 50% has been zero, whereas incomes of the top 1% have grown 300%.
  • In Vietnam, the country’s richest man earns more in a day than the poorest person earns in 10 years.

But it’s the analysis behind those numbers that, in my view, deserves even more attention.

Oxfam starts where they should, with the key institution within global capitalism: corporations.

Businesses are the lifeblood of a market economy, and when they work to the benefit of everyone they are vital to building fair and prosperous societies. But when corporations increasingly work for the rich, the benefits of economic growth are denied to those who need them most. In pursuit of delivering high returns to those at the top, corporations are driven to squeeze their workers and producers ever harder – and to avoid paying taxes which would benefit everyone, and the poorest people in particular.

Corporations are where much of the world’s surplus (at least the surplus that is created within the bounds of capitalism) is both appropriated and distributed. In recent years, corporate profits have been rising because they’ve been able to squeeze their own workers, by forcing more of them to work not for themselves but for corporate giants and, when they do, paying them a smaller and smaller share of the value that is created. And corporations have managed to get even more of the surplus by squeezing small producers, who are forced to have the freedom to sell their goods and services to those corporations, and by using “their huge power and influence to ensure that regulations and national and international policies are shaped in ways that enable continued profitability.” Then, once they’ve managed to get more surplus, corporations have been able to keep more of it, by “paying as little tax as possible.” Finally, corporations have been “paying out an ever-greater share of these profits to the people who own them,” such that the small group of already-wealthy shareholders have been able to receive a large share of the surplus.

What we have then is a Second Gilded Age, “in which a glittering surface masks social problems and corruption.” And, of course, “once a fortune is accumulated or acquired it develops a momentum of its own.”

The huge fortunes we see at the very top of the wealth and income spectrum are clear evidence of the inequality crisis and are hindering the fight to end extreme poverty. But the super-rich are not just benign recipients of the increasing concentration of wealth. They are actively perpetuating it.

One way this happens is through their investments. As some of the biggest shareholders (particularly in private equity and hedge funds), the wealthiest members of society are huge beneficiaries of the shareholder worship that is warping the behaviour of corporations.

The end result is exactly what one would expect: “Eight men now own the same amount of wealth as the poorest half of the world.”

  1. January 19, 2017 at 12:28 am

    It boils down to one thing: Massive organized fraud.

  2. antireifier
    January 19, 2017 at 1:14 am

    So the Americans lost the war in Vietnam because they were opposing communism. Today Vietnam is described as a communist country. How does that square with this data? “In Vietnam, the country’s richest man earns more in a day than the poorest person earns in 10 years.” https://en.wikipedia.org/wiki/Communism_in_Vietnam

  3. January 19, 2017 at 2:31 am

    The names are known. Those few lost souls most afflicted with insatiable want are dangerous to life on Earth. They are driven by deep fear that some one might leap ahead and grab whatever is out there first. Their rude lust for more at any cost is becoming tiresome.

    The notion of crimes against humanity is maturing to include wanton destruction of viable Earth life support systems.

  4. Grayce
    January 19, 2017 at 2:52 am

    if you divide the fortune between Bill and Melinda Gates, does he still come out as richest? He is a different category from Warren Buffet, for example, because he actually put a new idea together: How a disc operating system (DOS) could free computing from a giant building in Texas. Then, his company made an affordable IBM-compatible computer for home use. That was productive of new value.
    The Microsoft stock offer did not just scrape together enough votes to outbid stockholding companies that had other people’s money and pension funds in them. It produced new value and a lot of jobs, too.
    The hedge fund managers are the people who exploit the economic rules of the game that would keep it replenishing itself. They siphon out value without putting any back. That game cannot last forever before the host economy suffers.

  5. patrick newman
    January 19, 2017 at 10:30 am

    The extraordinary wealth and lives of the mega rich have become a developing form of acarnal pornography. Yes some have contributed to the advancement of society but in all cases they ceased to be productive entrepreneurs well back in the last century. For example what does Martin Sorrel (WPP) currently contribute either to his company or more relevantly to society in the UK and beyond for his £70M pay package, 2000 times the average pay of the WPP employee.
    The economists have only analysed the inequality, the point is to change it. However the question is how! Not many signs of emerging radical parties to prosecute a fundamental redistribution of wealth, power and income!

  6. January 19, 2017 at 1:17 pm

    Again be careful of treating all inequality as a headline number. Squeezing the pay of workers in order to pay CEOs is one way inequality happens. Artificial monopolies created by excessive IP rights is another way. Natural monopolies caused by network effects such as Facebook (where one platform had to succeed and Zuckerberg got lucky) is another way. These are different effects and require different remedies, for example more labour power wouldn’t stop Google’s dominance unless you adopted a draconian approach where they’re not allowed to displace travel agents, mapmakers, etc. That would do a lot of economic harm.

    Or on the spending side, if the CEO of a Zara uses the profits from sweatshop labour to buy a super yacht you can make a straightforward moral case that this is wrong based on inequality of consumption. Bill Gates and Warren Buffett would agree! But if you then complain that Gates uses the billions in his control to fight malaria or Buffett makes investment decision for American industry, and instead they should surrender their money and that power to some government entity, you’d hear more objections. You can’t have a useful argument based on headline numbers. You have to separate and discuss the scenarios of how differential wealth is gained and how it is spent.

    • January 19, 2017 at 3:10 pm

      The problem with a multibillionaire like Gates using his money to feel good fighting malaria is that he also uses his money a a vile dictator attempting to push mechanized chemical based agriculture that destroys Earth and requires human semi-slave labor that has been displaced from a more productive agricultural system by guns, trickery and corruption of education at, for example, Harvard and most other top western universities.

      • January 19, 2017 at 4:26 pm

        My point is simply that Bill Gates using $1 billion for personal consumption, or for startup investments, or for interventionist charity, or for political lobbying all have different moral weights. If you wish to convince the world that Gates should not have $1 billion to spend because all of these are bad, good luck with that. If you say instead $1 billion personal consumption is not allowed and we’ll tax it away, investment is OK, charity has some conditions, and politics has some limits, the discussion will get further.

      • January 19, 2017 at 5:59 pm

        Interesting, Pavlos,

        I don’t think any of has the individual personal skill to say how much someone should earn or what they should spend their money on once they have it.

        Even so. When a school like Harvard is educating young economists from African nations that industrial agriculture outproduces traditional ecoagriculture and then the Harvard endowment land grabs the land after the people who have lived there since the beginning have been removed upon the advice of the young economist, we can see obvious premeditated systemic corruption.

        Enter Bill Gates. He might be a very nice guy and genuinely want to help. Yet he believes that industrially farmed genetically modified crops are the future. He accepts this as a religion based on faith. His belief has nothing to do with science and completely ignores what his eyes could see if he let them look.

        It is totally okay for a person to invest according to faith with no science. The problem develops when immortal corporate scale faith based humanitarianism effects regular people by requiring they conform to an uneducated illusion. (The one I’m using is Bill’s assumption that industrial agriculture, which produces about 30% of total agricultural output and requires semi-slave labor, is somehow superior to traditional agriculture where it has been used since humans first stood on two legs).

        Reality expressed as a reduction in Earth’s life support systems is proving the existing corporate financial hierarchy system is not going to be around for the long term. The riddle is how to replace corporatism and keep a modern society viable.

  7. January 20, 2017 at 5:11 am

    Depends on the objectives. Piketty presents a graphic of wealth distribution since 1915. It’s stark about the changes in wealth distribution. Not since the 1920s has the distribution been so unequal as it is today. The major questions aren’t about why this unequal distribution exists or whether the rich use their wealth morally or not. Rather, the basic question is this – is this the kind of economy, society, and personal life we want? By we I mean democratically chosen. I say it is not. We need to first have a conversation and then a vote on the shape and functions of economies. I doubt the current arrangements would be chosen. Fom Piketty’s graphic it’s clear that between 1940 and 1980 the distribution was more equal. But still the top 10% controlled 30% of all income. Is 30% okay, too much, or maybe too little? Distributions that warp society and democracy cannot be tolerated. So what level of inequality is acceptable? I don’t know. And it’s not a question that can be answered scientifically. If we don’t choose it democratically as a society, it will chosen for us. Often by people and groups with little interest in equity, justice, or societal welfare.

    • January 20, 2017 at 7:27 pm

      Ken, The autonomousdemocracy.org voting tool I am shepherding is approaching first level functionality in version 2. I began this because we need a tool to focus distributed intelligence and am ready to accept policy selection questions from real world economics. At this point I am a dictator as far as selecting the policy statements and questions into the first primitive distiller. garrett@ferrocement.com has placed a science fiction story about Distiller at http://zerowastenews.org/chapters-web/Pacifica-ch0.html

      I am asking for help by requesting ballot proposals that describe the course scientifically oriented ecologically sensitive democratic economy that avoids distortions caused by excessive wealth concentrations.

      I imagine we here might be voting on what should be included in a world ballot.

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