At a ‘listening session’ in January, twelve senior executives from big businesses sat around the newly-elected president, Donald Trump. Big corporations and financial institutions were wary and apprehensive about the incoming administration but what Mr Trump said during the meeting immediately endeared him to them.
“I think we can cut regulation by 75 percent, maybe more,” he told those present. As for the reduction of the corporate income tax rate, currently 35 percent, Trump said “we’re trying to get it down to anywhere from 15 to 20 percent.”
Music to the ears of big business is rarely so sweet.
However, it was rumours about an executive order rolling back financial regulations made by the Obama administration in the Dodd-Frank bill that really made Wall Street lick its lips. Spearheading the re-regulation: Gary Cohn, a former top executive at Goldman Sachs, and Treasury Secretary Steve Mnuchin, a former Goldman Sachs trader and hedge fund manager.
On the very same day, wondering aloud at the decrepit state of the roads, parks and paths in my area, I was told that they are the way they are because “people in this area don’t vote”.
It was a strangely poignant statement, incredibly rudimentary but illustrative of a wider consensus we’ve all heard: that government concerns itself primarily with those who contribute to it, namely the high income earners and business, and those who concern themselves with governance.
Thus, it was not surprising to see some weeks later the beautifully manicured gardens and parks of a small, affluent city suburb, complete with pristine roads and paths and innumerable glistening shopfronts. Here, if you believed the maxim, people were well-informed – and well-paid.
As human beings we struggle to comprehend the astronomical and the minuscule. For instance, trying to imagine the enormousness of our galaxy is counter intuitive. We cannot intuit the sheer size of our galactic neighbourhood, let alone our universe. Similarly, we struggle to comprehend the tiny, the size and movements of protons and electrons.
It is for this reason, and due to a failure of imagination, that a global phenomenon such as climate change isn’t met with urgency. We’ve accepted the planet is heating up, and that it is human-related, but the problem is too big and serious for us to engage. So, too, with the issue of global and domestic wealth inequality. We’re also averse to jargon; the language used by certain groups to heighten a sense of exclusivity. And we’re easily distracted by obfuscation; we’ll be doubtful about the veracity and manageability of grandiose issues.
Astronomical numbers, such as the wealth of individuals or the death rate of children in Africa, trouble us. For one, our empathy does not generally extend very well when we discuss people who are not within our perceived ‘group’ or like us in some way. (Yale psychologist Paul Bloom’s intriguing book Against Empathy describes empathy as being a poor guidance for moral reasoning. We care hugely for one individual within our own lives but applying the same level of empathy for millions of murdered and displaced Syrians is problematic. We just don’t have the range.) And two, we cannot fathom the gigantic wealth of individuals.
It was in January the charity Oxfam released its annual report into global wealth inequality. Within it some truly astonishing facts are illustrated; eight mainly American men, with a net wealth of over $426 billion, control the same wealth as the bottom half of humanity. Also, the world’s 10 biggest corporations have a combined revenue greater than the governmental revenue of 180 ‘poorest’ countries combined, a list that includes Ireland, Greece and Israel.
In 2014, the report found that approximately 85 people controlled the same amount of wealth as the bottom half of humanity. This year we find that the wealth of the bottom 50% of the global population was lower than previously estimated, and it takes just eight individuals to equal their total wealth holdings.
Considering the widespread practice of tax evasion and the use of tax havens, these figures and the extraordinary wealth of the few may indeed be much higher.
Economists such as Branko Milanovic, Joseph Stiglitz and Thomas Piketty, not to mention Oxfam, the IMF, the World Bank, the UN and the OECD, are deeply worried about these issues.
How did this concentration of wealth and inequality happen?
In the early-to-mid 20th century, the economy of the United States was booming and the New Deal was on the horizon. Roosevelt was a pro-union president who passed several very important pieces of legislation regarding labour laws and regulations for big business, such as financial institutions. This was done primarily in response to the “past evils in the banking system”, mainly the 1929 crash. The Great Depression was firmly in the mind of many Americans, and there was present in the court of public opinion a bitter resentment toward banks.
The country emerged after the Second World War as a global leader, and domestic wealth inequality in the country decreased. Taxes on wealth were much higher; taxes paid by the very wealthy was high, corporation tax was high and tax on dividends was high. This was what Noam Chomsky calls the ‘Golden Age’, decades of wealth accumulation in all classes and a general improvement in the inequality gap.
Since the late 1970s and 1980s, neoliberal economic principles have shaped globalisation, and subsequently ensured the concentration of wealth and the growing divide between the ‘rich’ and ‘poor’. These principles allow companies to capitalise on free markets and relaxed regulation, and cultivate huge revenues. It also championed privatisation of public services. Similar policies were simultaneously occurring across the pond in Britain.
This model, it was thought, would inevitably lead to a trickling down of capital which would benefit everybody equally. This hasn’t necessarily been the case. In fact, the incomes of the poorest 10% of people on the planet increased by just $65 between 1988 and 2011, equivalent to less than $3 extra a year, while the incomes of the richest 1% increased 182 times as much. Oxfam’s research has revealed that over the last 25 years, the top 1% has gained more income than the bottom 50% put together, and almost half (46%) of total income growth went to the richest 10%.
According to the IMF, if the income share of the top 20 percent (the ‘rich’) increases, then GDP growth actually declines over the medium term, suggesting that the benefits do not trickle down.
In contrast, an increase in the income share of the bottom 20 percent (the ‘poor’) is associated with higher GDP growth.
“More importantly, we find an inverse relationship between the income share accruing to the rich (top 20 percent) and economic growth. If the income share of the top 20 percent increases by 1 percentage point, GDP growth is actually 0.08 percentage point lower in the following five years, suggesting that the benefits do not trickle down. Instead, a similar increase in the income share of the bottom 20 percent (the poor) is associated with 0.38 percentage point higher growth.”
Between 2009 and 2016 the number of billionaires in the world doubled. As of March 2016, Forbes reported that the world hosted 1,810 billionaires (over 2,100 at last count, March 20), over double the 793 billionaires Forbes counted in 2009, at the depth of the Great Recession. These billionaires together hold over $7.5 trillion in wealth.
This enormous and gross concentration of wealth is one of the main reasons for wealth inequality, along with the erosion of unions and the collective bargaining of labour, the relaxing of regulations and the decrease in tax on wealth are some of the main reasons for the inequality we see today.
We also tend to vastly underestimate wealth inequality. According to research by Carina Engelhardt and Andreas Wagener, sociologists have long since established that individuals systematically underestimate the real extent of inequality.
“This occurs mainly due to the failure to locate their own position in the income distribution. Several reasons may account for this phenomenon, ranging from limited availability of social comparisons – which leads individuals to falsely believe that they are close to the average income earner – to so-called self-enhancement biases – individuals are inclined to see their own (income) position rosier and relatively better than it actually is… the inequality is frequently underestimated to a very considerable degree.”
But is inequality bad in itself?
According to economist Thomas Piketty: “Inequality is not bad per se. Inequality up to a point can actually be useful for growth and innovation.
“The problem is that, when inequality gets too extreme, first it’s not useful for growth any more. It can even have a negative impact on growth, because extreme inequality often goes with limited mobility and perpetuation of inequality across generations, which can be bad for growth.
“And extreme inequality can be a danger for our democratic institutions, because it leads to extremely unequal access to political voice and political influence.”
The poor and the middle class matter the most for growth via a number of interrelated economic, social, and political channels. Wealth and income inequality have serious consequences (which we will discuss in the second part of the trilogy); increased child mortality, lack of education, poor health, increased risk of conflict, poverty, being just some.
When a large share of wealth is in the hands of a few privileged people, equal access to nominally public goods such as education or an independent judicial system may not be guaranteed.
So the benefits, instead of trickling down, are funnelled up into the hands of the very few.
It is in America that this growing discrepancy between the super rich and poor is apparent. Estimates suggest that almost half of the world’s wealth is now owned by just 1 percent of the population, amounting to $110 trillion—65 times the total wealth of the bottom half of the world’s population. A third of the total wealth in the United States is held by 1 percent of the population. Similar statistics apply to China.
These facts are astounding, but they are abstract, they are counter-intuitive and their desired effect on how we as civilians think is negligible.
In a neoliberal economic society, the wealthy convince themselves their acquired capital is the result of merit (over the next 20 years, 500 people will hand over $2.1 trillion to their heirs – a sum larger than the GDP of India, a country of 1.3 billion people). Some do, but inheritance is the main source of the majority of wealth. We live in a quasi-meritocracy where we tell ourselves our failures our are own doing, and that we are not smart or enterprising enough. Those who find themselves at the bottom are there because they’ve not worked hard enough. We’ve convinced ourselves of the self-perpetuating idea that this is the natural order of things, that the rich will prosper and the poor will stagnate.
The neoliberal project was at first an optimistic one which seemed for all purposes as a coherent and progressive set of ideas. But ultimately it became an absurd monstrosity which has favoured an elite few. Neoliberalism is the failure of the left, it is the legacy of the lackluster performance by the left in recent decades to reign in big business, promote labour rights, hold government to account, fight for human rights around the world and develop sustainable energy alternatives.
We are leaving 2016 behind but its ramifications, primarily Brexit, the rise of populist and far-right parties and the election of Donald Trump, will be widespread in the coming years. These are direct consequences of the neoliberal project. Trump has already signalled his intention to continue with the economic policies which have made the United States the most egregious offender when it comes to wealth inequality. Seen through the lens of wealth inequality his proposed economic strategies will invariably widen the gap between rich and poor, wreak havoc on the environment and reduce democracy in the United States.
There is a glaring irony at the centre of Brexit and the election of Donald Trump. Both phenomena occurred as an indirect reaction to perceived inequality in Britain and Europe and the United States. But each incident has resulted in the empowerment of the exact parties which will further increase the widening gap between the obscenely rich and the abysmally poor. The cycle will continue – and probably hasten.
References and Reading