Inequality will be the issue for 2014

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SPECIAL FEATURE: Everyone from the Pope to Obama is bemoaning the effect that inequality is having on the world today. It is even being blamed for the depth of the economic recession and the weakness of the current recovery because it is claimed that poorer people spend a larger portion of their income than the rich who save more and thus more equal income would help revitalise the economy.

 

greed

In a speech to the Center for American Progress on December 4, 2013, Obama recognised the fact that “the American people’s frustrations with Washington are at an all-time high.” These frustrations are “rooted in the nagging sense that no matter how hard they work, the deck is stacked against them” and that there exists “a dangerous and growing inequality and lack of upward mobility that has jeopardized middle-class America’s basic bargain — that if you work hard, you have a chance to get ahead.”

Obama appeared to have no element of self-awareness when delivering the speech, that the very economic policies he has implemented since coming to office may have contributed to the harsh reality he describes.

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Obama became US president in January 2009. A report in September 2013 revealed that 95 percent of America’s income gains over the four years since then have gone to the nation’s most affluent 1 percent. They also now accrue 20 percent of the nation’s total pretax income, doubling their 10 percent share from the 1970s. A few weeks after his speech, 1.3m jobless were cut from receiving benefits under a “compromise” two-year budget deal that was passed just before Congress left on its winter recess.

As liberal economist Dean Baker has noted, “Inequality did not just happen, it was deliberately engineered through a whole range of policies intended to redistribute income upwards.”

The Pope’s message was even more radical than Obama’s blustering. Pope Francis released his Evangelii Gadium, or Joy of the Gospel, attacking capitalism as a form of tyranny and calling on church and political leaders to address the needs of the poor. He attacked an “idolatry of money” that would lead to a “new tyranny”.

“Such an economy kills. How can it be that it is not a news item when an elderly homeless person dies of exposure, but it is news when the stock market loses two points? This is a case of exclusion. Can we continue to stand by when food is thrown away while people are starving? This is a case of inequality. Today everything comes under the laws of competition and the survival of the fittest, where the powerful feed upon the powerless. As a consequence, masses of people find themselves excluded and marginalized: without work, without possibilities, without any means of escape.”

“As long as the problems of the poor are not radically resolved by rejecting the absolute autonomy of markets and financial speculation, and by attacking the structural causes of inequality, no solution will be found for the world’s problems or, for that matter, to any problems,” he wrote.

pope

Even the Dalai Lama has joined in. In a speech one month ago in India, he said “We have to think seriously how to reduce this gap between the rich and the poor.”

He went so far as to describe himself as a Marxist. “As far as socio-economic theory is concerned I am a Marxist. I am attracted to the principle of equal distribution. The poor and helpless need more care. While capitalism is only about minting money,” he said.

The process of wealth concentration has been going on for the last three decades but has accelerated since the world financial crisis. That crisis was in part a product of the grotesque excesses of the super rich and the speculative, indulgent frenzy as they searched for more and more ways to earn profits.

The largest Wall Street firms set aside $91 billion for year-end bonuses in 2013. In effect, these gangster banksters in the US are the biggest welfare recipients of all time. Because the Federal Reserve has been maintaining interest rates at very low levels for such a long period, the US government is in effect subsidising bank profits to the tune of $83 billion a year.

While wages have been squeezed and austerity budgets imposed all across the globe, the wealth of the world’s billionaires has doubled since 2009 according to a report by UBS and Wealth-X, that tracks super-rich individuals.

As CNBC reported, “The global financial crisis was good for billionaires. The combined fortune of the world’s billionaires has more than doubled, to $6.5 trillion, from $3.1 trillion in 2009, according to Wealth-X and UBS Global Billionaire Census 2013. Their fortunes have grown by $226 billion in the past year alone. The group’s number also grew by 810 during the period, to 2,170.”

An annual report by financial advisors Capgemini and RBC Wealth Management records the wealth of high net worth individuals(HNWI) with $1 million or more in investable assets and ultra-HNWI’s with $30 million or more in investable assets. The super-rich, representing just 0.13% of the world’s population own 25% of all financial assets (stocks, bonds and cash in banks). A website called “Luxury Society” notes that the global HNWI population of 12 million increased its investable wealth by 10% to $46.2 trillion. But within that group, “

Representing less than 1% of the global HNWI population, the world’s 111,000 ultra-HNWIs control more than one-third (35.2%) of HNWI wealth.” (The full report is available here for those with the stomach for it).

Credit Suisse also produce an annual wealth report and this year they had a great chart to go with it. The chart shows that there are 3.2 billion adults in the world with less than $10,000 in net wealth. They collectively own total net wealth of $7.3 trillion or 3% of total world wealth. At the top we have a group of 32 million or 0.7% of the total with 41% of the world’s wealth – more than the bottom 91% of all adults.

 

suisse

Reuters report, “Average global wealth has hit a peak of $51,600 per adult but this is spread very unevenly, with the richest 10 percent owning 86 percent of the wealth, analysts at the Credit Suisse Research Institute said. The top 1 percent alone own 46 percent of all global assets.”

Tax-receipt data collected by Messrs. Piketty and Saez show the top 1% captured 19.3% of U.S. income in 2012. The only year in the past century when their share was bigger was 1928, at 19.6%. The top 10% took more than half of total income – an all time record since 1913 when the US government began taxing income.

Even the Congressional Budget Office has confirmed the trends for the USA. It finds that between 1979 and 2007, income grew by:

  • 275 percent for the top 1 percent of households,
  • 65 percent for the next 19 percent,
  • just under 40 percent for the next 60 percent, and
  • 18 percent for the bottom 20 percent.

Other results were:

  • The share of after-tax household income for the top 1 percent of the population more than doubled, climbing to 17 percent in 2007 from nearly 8 percent in 1979.
  • The top fifth of the population saw a 10-percentage-point increase in their share of after-tax income. Most of that growth went to the top 1 percent of the population.
  • All other groups saw their shares decline by 2 to 3 percentage points.

The increase in incomes has also led to a huge increase in accumulated wealth. A 2006 report by the United Nations University found that “the richest 1% of adults alone owned 40% of global assets in the year 2000, and that the richest 10% of adults accounted for 85% of the world total. In contrast, the bottom half of the world adult population owned barely 1% of global wealth.”

Michael Roberts Blog on the “The Story of Inequality” reports on an very interesting speech by Sir Anthony Atkinson, a senior research fellow at Oxford University and one of the world’s experts on inequality. Roberts said that Atkinson had noted there had been an average rise in inequality of about 10% in OECD countries since the 1980s. But importantly “Atkinson then asked the question: why? What were the causes of the rise in household inequality of income in the advanced capitalist economies after the 1980s?

The usual reason given by mainstream economics is that new technology and globalisation led to a rise in the demand for skilled workers over unskilled and so drove up their earnings relatively. This is the argument presented by Greg Mankiw recently in his defence of the top 1% of earners.

Roberts explains that “Atkinson dismissed this neoclassical apologia. The biggest rises in inequality took place before globalisation and the dot.com revolution got underway in the 1990s. Atkinson pinned down the causes to two. The first was the sharp fall in direct income tax for the top earners under neoliberal government policies from the 1980s onwards and the sharp rise in capital income (i.e. income generated from the ownership of capital rather than from the sale of labour power). The rising profit share in capitalist sector production that most OECD economies have generated since the 1980s was translated into higher dividends, interest and rent for the top 1-5% who generally own the means of production. In 2011, capital income constituted 60% of the top 10% earners’ income compared to just 32% in the 1980s.”

Nobel Prize winning economist Paul Krugman points out that since 1973 in the US, Gross Domestic Product (GDP) per household has increased 46 percent in real terms but median income per household has only increased 15 percent. Where did the other 31 percent go? It went to the wealthy.

Corporate profits are also setting new records. In the third quarter of 2013, profits after taxes accounted for more than 11 percent of US gross domestic product (the sum of all goods and services). That’s the highest such percentage of GDP ever recorded. For workers, income from wages and salaries has shrunk from more than 50 percent of the GDP pie in 1970 to 42.6 percent in 2012 – the smallest piece ever measured. At the same time, fewer Americans are working than at any time in the past three decades.

One estimate I saw reckoned that if labour income share had remained the same in the USA, wages would on average be 25% higher, or $13,000 a year.

As Warren Buffett, the second richest man in America, famously said, “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.”

This story has a very familiar ring to us in New Zealand as well. Something I will be looking at a more closely in my next blog.

Even the World Bank and International Monetary Fund (IMF) and Organisation for Economic Development (OECD) have got in on the act. It is extraordinary to have these institutions express their concerns at growing inequality when they have operated as the policemen for international capitalism – enforcing the neoliberal “Washington Consensus” – that has contributed so much to creating the inequality in the first place.

An IMF report in September 2012 called Income Inequality and Fiscal Policy confirmed widening inequality. The GINI coefficient (a measure of inequality of income between the top and bottom income earners) in the US jumped from 30.5% in 1980 to 38.6% in 2010, the largest rise in the whole world with the exception of one country, China, where it has risen from a relatively low 28% to a very high 42% during ‘the move towards the market’ in China over the last 30 years.

New Zealand had one of the largest increases going from 27 in 1980 to 34 in 1995 before dropping back slightly to 33 in 2008 – the latest figure available. Only the UK (27 to 34.4) and the USA (30.1 to 36.3) had similar sharp increases over the 1980 to 1995 period. The most equal society in the advanced capitalist world is Norway (24%), which is also the richest. All the Scandinavian ratios are relatively low while Germany and France are in the middle (low 30%).

Branko Milanovic, Lead Economist at the World Bank’s Research Department, has updated his 2005 study Worlds Apart which found that the world was “20:80” – that is, 80% of the world’s then-6.6 billion people could be classed as poor and the situation was deteriorating. His new report confirms the situation has worsened. He concludes: “Take the whole income of the world and divide it into two halves: the richest 8% will take one-half and the other 92% of the population will take another half. So, it is a 92-8 world. In the US, the numbers are 78 and 22. Or using Germany, the numbers are 71 and 29.” (Global Income Inequality By The Numbers: In History And Now – An Overview)

The OECD report is headed Divided We Stand: Why Inequality Keeps Rising. Its introductory paragraph states: “The gap between rich and poor has widened in most OECD countries over the past 30 years. This occurred when countries were going through a sustained period of economic growth, before the Great Recession. What will happen now that 200 million people are out of work worldwide and prospects of growth are weak? New OECD analysis says that the trend to greater inequality is not inevitable: governments can and should act.” (Full report available here).

The reason for all this sudden concern for the growth in inequality is political. The capitalist rulers are concerned that the inequality debate will focus attention on their monopolisation of wealth and power and we may seek ways to curtail it or, even better, end it for good.

The January 5 Christian Science Monitor headed a feature article on the issue: “Income inequality: Does wider gap between rich and poor threaten capitalism?” They quote Bill Gross, one of the largest bond managers in the US, saying that the inequality in the USA “can’t go on like this, either from the standpoint of the health of the capitalist system itself or the health of individuals and the family.”

The Wall Street Journal had an article on November 10 headlined, “Worry Over Inequality Occupies Wall Street – Gulf Between Haves and Have-Nots May Hurt Economy.” The chart that accompanied the article shows that the average income of the bottom 90% of families actually fell by 10% from 2002-2012 while all the top income groups grew. The top 0.01% saw their incomes grow 76.2 percent to an average of over $21 million in the same period. And those figures are adjusted for inflation and exclude capital gains.

graph on inequality

Journalist Justin Lahart commented: “Even if they have found the widening gulf between America’s haves and have-nots troubling, inequality isn’t something fund managers have worried about professionally. That may be changing.

“Over the years, the only way inequality has really mattered to investors has been as a factor when considering stocks. If the rich are getting richer, companies that cater to them have better prospects…

“Lately, though, some big investors have worried increasing income and wealth gaps threaten the economy’s ability to expand. They also fret that public anger over it, which Democrat Bill de Blasio tapped in his successful run for New York City mayor, is creating dangerous political tensions.”

Here we get to the real reason the issue of inequality has become in Obama’s words “the defining challenge of our time.”

Big Business fears the issue will be captured by left wing forces independent of them and the parties they control. By giving vent to some of the dissatisfaction through the Democratic Party they hope to keep it contained within acceptable boundaries. Opinion polls are showing a growing desire for a third party alternative in US politics.

In Lorain County, Ohio, 24 councillors were elected in November on a union-backed Independent Labor Party slate against the local Democratic Party machine. The last straw was when the Mayor scabbed on a strike. At this stage, the union campaign is still aimed at putting pressure on the Democratic Party rather than forming a truly “independent” labour party. But the strong vote is a signal of what is possible if a revitalised labour movement were to break from the shackles that have tied it to the Democratic Party for decades–with nothing to show for their loyalty.

Kshama Sawant, a very public socialist, was also recently elected, to the Seattle City Council. She had broad union and working class support. Her campaign themes targeted inequality and the need for the labour movement to break with the twin parties of big business in the USA. Her inauguration speech summarised these themes as follows:

Sawant

Kshama Sawant at her swearing in

“This city has made glittering fortunes for the super wealthy and for the major corporations that dominate Seattle’s landscape. At the same time, the lives of working people, the unemployed and the poor grow more difficult by the day. The cost of housing skyrockets, and education and healthcare become inaccessible.

“This is not unique to Seattle. Shamefully, in this, the richest country in human history, 50 million of our people – one in six – live in poverty. Around the world, billions do not have access to clean water and basic sanitation and children die every day from malnutrition.

“This is the reality of international capitalism. This is the product of the gigantic casino of speculation created by the highway robbers on Wall Street. In this system the market is God, and everything is sacrificed on the altar of profit. Capitalism has failed the 99%.

“Despite recent talk of economic growth, it has only been a recovery for the richest 1%, while the rest of us are falling ever farther behind.

“In our country, Democratic and Republican party politicians alike primarily serve the interests of big business. A completely dysfunctional Congress does manage to agree on one thing – regular increases in their already bloated salaries – yet at the same time allows the federal minimum wage to stagnate and fall farther and farther behind inflation. We have the obscene spectacle of the average corporate CEO getting $7000 an hour, while the lowest-paid workers are called presumptuous in their demand for just $15.

“To begin to change all of this, we need organised mass movements of workers and young people, relying on their own independent strength. That is how we won unions, civil rights and LGBTQ rights.”

A major feature of Sawant’s campaign was in solidarity with the struggle of fast food workers and others to increase their pay and win union rights. A referendum in the city of SeaTac just south of Seattle at the same time as the election approved a raise in the minimum wage to $15 an hour for hospitality and transportation workers in and near Seattle-Tacoma International Airport. The current minimum wage in Washington State is $9.19.

A December 11 Bloomberg poll found that “64 percent of Americans no longer believe the country offers everyone an equal chance to succeed, compared with 33 percent who do…. And for those making $50,000 or less, 73 percent see the economy stacked against them.”

Another recent poll found that 64% of Americans believe Federal government policies favour the well off. Fifty seven percent thought the government should pursue policies to reduce that gap.

US lawmakers are following the opposite course. In addition to cutting income support for long-term unemployed, budget cuts kicked into effect November 1 that lowered the nation’s average federal food stamp benefit to less than $1.40 per person per meal. Today, there are a record 48 million Americans dependent on food stamps, 22 million of whom are children.

We need a new social and political movement that tackles inequality. But such a movement has to understand that capitalism and inequality are two sides of the same coin. There can be no lasting attack on inequality without also attacking its source.

 

13 COMMENTS

    • Thanks Mike, great article. The ground swell for change is almost upon us. The masses need to realise the power they have and force the changes from the ground up. The people that care must get out and vote for change this time in NZ, that means looking outside the big two parties. Remember that one is the party of capitalists and the other is the party of capitalism. The progressive thinkers are in the fringe parties.

  1. I think that we need to learn what the real enemy is. The real enemy in my view is “big”, and it is outsourcing and it is mechanization.
    Enterprise/capitalism on a small scale is fantastic, just as collectivism/socialism on a small scale is.
    The problem once you get to large numbers you have to apply some sort of coercion or force to keep things on something of an even keel. In big capitalism (corporatism even) the force is applied via low wages for the masses and lack of choice and high living costs under big socialism it is a bit more simple, it is applied via rule of law, but the end result is almost always the same, bloated big guys at the top and unhappy masses at the bottom.

    I want a country that favours smaller enterprise and does not allow rampant corporatism, I want a country with a good solid mixed economy where certain things are done by and for the collective – supply of power is one, education and health are others, feel free to offer suggestions. I look to countries like Norway for my examples

    • Raegun…you make some excellent points. There are some areas where a larger, corporate style enterprise is necessary, such as with global marketing – Fonterra is a good example where smaller enterprises just could not achieve the same result for NZ. On the supply of power, there is no evidence that a ‘collective’ model can do any better than the market model NZ currently deploys, in fact quite the opposite.

      • Bollocks. Pharmac is some pretty big evidence. So are the constant increases in power since the partial privatisation SOE style competitive model has been employed. Fonterra, though partially listed, is in fact a collective. End of debate. Try not to talk out a hole in your arse.

        • I suspect you didn’t actually read raegun’s post or my response. I was responding to raeguns point about ‘big’, not corporate.
          Besides, the idea of Fonterra being a ‘collective’ relates to ownership not structure. Fonterra is a corporate in structure, and as such has delivered benefits to NZ well beyond what smaller marketing enterprises could have.
          NZ’s power model is a highly efficient one that delivers both future capacity investment and sustainable supply. The type of intervention envisaged in the Labour/Greens model would compromise supply and would deliver no cost benefit to the consumer.
          You’re just plain wrong on all counts.

  2. After reading all that, and acknowledging the reality of our economic situation, it becomes clear that a 6-9 year term of Labour’s thirdway neoliberalism will only entrench this inequality for a longer period of time.
    Unless Cunliffe brings in some decent policies then we the voters need to start working towards a Greens-Mana government for 2017 because that is achievable.
    We need to stop voting by looking ahead 2-5 years and start voting for the NZ we want in 12-15 years time.

  3. Money to those who adore it, is like a junkie with their favourite drug. The current systems in place which allows them to benefit from massing ever greater wealth, is the crack pipe for their addiction. Ever tried taking a crack pipe from a long time hooked junkie? They will resort to any means humanly possible, including the keeping of the essential tools required to retain their habit. If this election is focused on dealing with the fiscal inequities in society, which may well equate to the wealthy having to give up some of their drug of choice, expect every devious trick in existence in order to maintain their addiction.

  4. Great blog Mike – the situation here in Aotearoa has a direct parallel with the US. They have the two big political parties – Democrats and Republicans – of corporate capitalism working for the 1% while we have Labour and National doing the same thing here with Labour supported by the Council of Trade Unions.
    We need independent trade unions and new political movements to bring revolutionary change to our economy so it works for the 99%.

    • That “Labor Party” argues for unions to support the Democratic Party. It actually seems more like a mechanism to prevent a real Labour Party emerging.

      • Wasn’t aware of that Mike. Here’s what they say on the site about their electoral strategy:

        “Electoral Strategy of the Labor Party
        (as passed by delegates to the Labor Party’s 1st Constitutional Convention — November 1998)

        I. Introduction
        The Labor Party is unlike any other party in the United States. We stand independent of the corporations and their political representatives in the Democratic and Republican parties. Our overall strategy is for the majority of American people — working class people — to take political power. Within this framework of class independence, with the ultimate goal of achieving power, we accept the electoral tactic of running candidates. The Labor Party will run candidates for public office in order to elect representatives to positions where they can help enact and enforce laws and policies to benefit the working class. We will run at governmental levels where we can best advance the goals and priorities of the Labor Party. Unlike other political parties, public officials elected by the Labor Party will be accountable to the party membership and required to follow the positions outlined in the party platform. Although we accept electoral politics as an important tactic, we do not see it as the only tool needed to achieve working class power.

        Unlike other political parties, the Labor Party will be active before, during and between elections, building solidarity in our communities, workplaces and unions. Labor Party candidates will be run only where our basic organizational criteria are met. The Labor Party will build into its electoral campaigns, and the periods between them, procedures to ensure political education and mobilization of the working class, further development of the party structure and growth in membership, and strengthened relationships to community and labor allies.”

        I’m not a supporter of electoralism at all. I was only trying to point out that the idea of renewed independent labour representation in the US has been around for a while.

  5. “Inequality will be the issue for 2014” Mike Treen

    It should be, but it won’t.

    The inequality won’t be televised

    Inequality should be what this election, should be fought and won over.

    But it won’t

    Ponder this:

    Dr Grant Duncan Associate Professor Politics Massey University

    The lose-lose-lose strategy

    …..in 2011 the non-voters were about one third of those eligible….

    “…..These people tend to be young, lower-income, and/or Maori or Pasifika. Many are those “left out” by the economic reforms of recent decades, and they’ve become politically disengaged. Their worries are likely to be a job, a wage and paying the rent. Saving the planet can wait for another day…..

    “….Labour is now pitching for the “unclaimed” disfranchised left.

    “….National must be happy Labour isn’t contesting the centre this time around.

    Winston Peters must be pleased too, because those who might have voted National but are too grumpy about their government will vote for him in protest rather than switch to Labour.

    For every party vote that Labour fails to gain in the centre, it will have to mobilise two or more supporters in the likes of Mangere or Tamaki Makaurau to lift its polling out of the low 30s.

    Labour’s nightmares could return at the next election if, despite its best efforts, those low-income neighbourhoods just don’t turn out to vote for Labour. They may not hear or believe the message about hope and equality, and they may not see Labour’s leader as representing anything new or hopeful or relevant. Heavy rain on election day could be enough to tip the balance.

    “…..So chances are we will see a National-NZ First government after the next election.

    Now Ponder this:

    “Spectacularly Wrong”

    “Everywhere I go people ask my opinion about things that are important to them and ask for my help with problems they’re having, and every day I try to guess what they might want to talk about … and every now and then I get it spectacularly wrong!

    Like last week for example when I was approached on 3 separate occasions by Pacific Islanders, working men, all wearing those high-viz jackets.

    First guy’s a traffic warden out at the airport. He comes over and asks me what MANA is going to do to stop that “spying that’s looking in our homes”.

    ….The next guy’s on a road gang in the city, sees me coming out of a shop and comes over to tell me in heavily accented English that he’s Samoan but he wants to wish me well with the MANA / Maori Party discussions. He has a few not-so-polite words to say about the Maori Party’s relationship with National and tells me to be careful.

    And then on Sunday I’m strolling along at the Avondale fleamarket when this security guy in a high-viz, also with a very strong accent, blows me away with his query … “Hone, can you help me … how important is sustainability?” (Sustainability is the view that because our well-being depends so much on our natural environment, we should ensure that man and nature exist in harmony).

    Hone Harawira Ae Marika

    The editor and founder of this Blog, Martyn Bradbury has already voted with his feet.

    To win the Left need to find a new issue.

    An issue that the Left will own, because the Right can’t touch it without alienating their big business, and wealthy backers.

    An issue that resonates with all sections of society especially with the middle classes.

    An issue that they are trying to keep hidden and suppressed, but they can’t because it just to big.

    The snake that swallowed the elephant in the room

    You know what really strikes me about climate change in the election? It’s the absence. It is as if climate change is nearly completely absent from the campaign. When climate change does pop up, it’s portrayed in simplistic soundbites.

    Nick Smith (National) says anthropogenic climate change is real and complex and ‘wicked’. But promises more moderating, balancing and delaying of the NZETS.

    Labour says anthropogenic climate change is real and we will fiddle with some NZETS details for agriculture slightly earlier than National as farmers don’t vote for us anyway.

    The Greens say anthropogenic climate change is real and we have a detailed wonk-friendly exposition on our website, but for this election we are running with “jobs, kids, rivers”

    Simon Johnson at Hot Topic

    To win this election the Left must raise the danger of climate change and the lack of action against it, as as an issue at least as important as inequality.

    Not least, because if the Left don’t raise climate change they cannot win.

    But also because it is our constituency that will be hurt most by it.

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