Can we afford the super rich?

October 22, 2015

     By Duncan Green     

Max Lawson, Oxfam’s Head of Global Campaigns and Public Policy, unpacks the political implications of the recentmax lawson Credit Suisse report on global wealth.

At the beginning of this year the Economist, a right leaning newspaper, criticised Oxfam for predicting that by 2016 the world’s wealthiest 1% would hold more net wealth than the other 99% put together, calling our projection ‘simplistic and arbitrary’.

Last week, Credit Suisse published its 2015 Global Wealth Report, with the headline that the top 1% own 50.4% of global wealth, a year earlier than we predicted.   At the same time, and with a certain grim symmetry, Credit Suisse also calculated that the bottom half of humanity, 2.4 billion adults, own just 1% of world wealth.  This of course includes most of the people in most of the countries where Oxfam works.

Whether or not this turns out to be peak inequality remains to be seen.  What is clear is that we haven’t seen this level of inequality for almost a century, not since the time of the Great Gatsby.

The Economist went on to say that far more relevant than the runaway wealth of the 1% has been the rapid growth in the income of the middle classes in emerging countries  like China, Indonesia and India in the first part of this century. It argued that this incredible good news story eclipses the wealth accruing to those at the top.

China

China

The Credit Suisse Report also spends some time looking at the middle class worldwide.   We know that a growing middle class has historically often been key to the development of democracies and vibrant politics. The good news is that by any measure, the growth in the numbers of middle class individuals since 2000 has been huge.  Credit Suisse estimate that the number of middle class adults has risen by 140 million or 27%.  Every region contributed to the massive expansion, but China is a huge part of the story.  China is rapidly catching up with US history – in the year 2000 it had the same wealth as the US in 1939.  Fifteen years later, it has the same wealth as the US did 33 years later (in 1972).

Inequality is growing fast in China, and it now has the second highest number of Ultra High Net Worth Individuals – UHNWIs – (9600), with fortunes over $50m. However it is coming from a relatively equal base, given the legacy of Communism and a relative lack of inherited wealth, meaning that much of this newfound wealth has been fairly evenly distributed  so far, contributing to the rising numbers of middle class individuals.   China now has the largest number of middle class adults anywhere in the world, 109 million, more than the U.S.

That contrasts with India. There, the starting point is one of much greater inequality.  In this sense China was similar

Future PM?

Future PM?

to Europe after the two world wars when a huge amount of wealth had been destroyed, levelling the playing field. (Interestingly China also probably holds the record for killing its UHNWI’s , executing 14 yuan billionaires in 8 years on corruption charges.)

What the Credit Suisse Report goes on to show however, is that this huge progress came to a juddering halt with the

financial crisis in 2007.  Most countries saw a big drop in middle class wealth following the crisis, and numbers have not recovered to their pre-crisis level in any region (including China) apart from North America.  In Africa, Europe and Latin America they have continued to fall since 2008.  At the same time the wealth of those at the top has continued to rapidly increase, meaning that the overall share of wealth going to the middle class has declined in all regions except China for the whole of this century, with the highest decline in North America of 16%.

Across the world since 1990 the share of national income going to workers instead of the owners of capital has steadily fallen in many countries as wages have stagnated and instead the returns to those with assets or money in the bank has continued to outpace wages and growth.   This in turn has fuelled inequality and also reduced demand in the economy. People have been able to keep buying things and governments keep going largely because of huge amounts of cheap debt, but it is far from clear how long this fragile and ultimately unsustainable economic model can continue.  Already the economic storm clouds are gathering and a new financial crisis seems not far away.

This decline in the share of income going to workers, the runaway wealth of the super-rich and now the collapse of the middle class since the financial crisis are all signs of an economic model that is increasingly running out of steam and only delivering for those at the top.  Yet it is an economic model that continues to dominate.

We can do better than this. We urgently need to get the middle classes growing again across the world, raising the US inequalityincomes of ordinary families whether they are in Dar es Salaam, Dhaka or Detroit.  To do this we need to redistribute wealth away from the bank accounts of billionaires and into the wages of workers across the world.  We must reverse the hollowing out of the middle-class since the financial crisis, with all the negative implications that has for democracy and economic progress.  We must bring an end to the runaway wealth of those at the top of our society, which corrodes our politics and mutates our economy.

We know today’s extreme, obscene inequality is bad for the global economy, and bad for the future of humanity, yet as the Credit Suisse numbers so graphically demonstrate, it is rapidly getting worse and not better.  Despite much hand wringing and new found concern, there has so far been little change in the policies that have driven this great divergence.  It simply makes no economic sense to have so much money in so few hands.  Unless of course those hands are on the steering wheel of a super yacht, in which case it makes all the sense in the world.

October 22, 2015
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Duncan Green
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