the pitchfork solution to world inequality

Each year Oxfam delivers a report about how the inequality in the world is getting worse and how this needs to stop. This year, I was encouraged by a marginal note from Nick Hanauer, one of the Super Rich, who warns his fellow billionarie's that:

‘No society can sustain this kind of rising inequality. In fact, there is no example in human history where wealth accumulated like this and the pitchforks didn’t eventually come out.’
- the pitchforks are coming ... for us Plutocrats

Now, what did that Oxfam report say?

• Since 2015, the richest 1% has owned more wealth than the rest of the planet.
• Eight men now own the same amount of wealth as the poorest half of the world.
• 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.
• 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 (Financial Times Stock Exchange 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.

more details here

PREVIOUS BLOGS ON THIS TOPIC
Oxfam report: AN ECONOMY FOR THE 1%
the strengths and weaknesses of capitalism
Land of the Free, Home of the Poor

Oxfam report: AN ECONOMY FOR THE 1%

This is my summary of Oxfam's summary. I haven't included their "solutions" since they depend on the collective good will of the wealthy, which is unrealistic. I have read their summary (12pp) but not their full report.

SITUATION FOR THE WEALTHY

• 62 individuals have the same wealth as the poorest 3.6 billion people of the world (This figure is reduced from 388 individuals as recently as 2010.)
• $542 billion – the increase in wealth of the richest 62 individuals since 2010
• 50% the amount of the global wealth increase since 2000 received by the top 1%

SITUATION FOR THE POOR

• $1 trillion – the fall in wealth of the poorest 3.6 billion people since 2010 (a drop of 41%)
• Since 2000, the poorest half of the global population received only 1% of the increase in global wealth
• $3 rise in the average annual income of the poorest 10% of people in the world

1) Apologists for the status quo claim that concern about inequality is driven by ‘politics of envy’. They often cite the reduction in the number of people living in extreme poverty as proof that inequality is not a major problem. But this is to miss the point. As an organization that exists to tackle poverty, Oxfam is unequivocal in welcoming the fantastic progress that has helped to halve the number of people living below the extreme poverty line between 1990 and 2010. Yet had inequality within countries not grown during that period, an extra 200 million people would have escaped poverty. That could have risen to 700 million had poor people benefited more than the rich from economic growth.

2) Rising economic inequality also compounds existing inequalities. The International Monetary Fund (IMF) recently found that countries with higher income inequality also tend to have larger gaps between women and men in terms of health, education, labour market participation, and representation in institutions like parliaments. The gender pay gap was also found to be higher in more unequal societies. It is worth noting that 53 of the world’s richest 62 people are men.

3) One of the key trends underlying this huge concentration of wealth and incomes is the increasing return to capital versus labour. In almost all rich countries and in most developing countries, the share of national income going to workers has been falling. This means workers are capturing less and less of the gains from growth. In contrast, the owners of capital have seen their capital consistently grow (through interest payments, dividends, or retained profits) faster than the rate the economy has been growing. Tax avoidance by the owners of capital, and governments reducing taxes on capital gains have further added to these returns. As Warren Buffett famously said, he pays a lower rate of tax than anyone in his office – including his cleaner and his secretary.

4) Oxfam’s experience with women workers around the world, from Myanmar to Morocco, is that they are barely scraping by on poverty wages. Women make up the majority of the world’s low-paid workers and are concentrated in the most precarious jobs. Meanwhile, chief executive salaries have rocketed. CEOs at the top US firms have seen their salaries increase by more than half (by 54.3%) since 2009, while ordinary wages have barely moved. The CEO of India’s top information technology firm makes 416 times the salary of a typical employee there. Women hold just 24 of the CEO positions at Fortune 500 companies.

5) A powerful example of an economic system that is rigged to work in the interests of the powerful is the global spider’s web of tax havens and the industry of tax avoidance, which has blossomed over recent decades. It has been given intellectual legitimacy by the dominant market fundamentalist world view that low taxes for rich individuals and companies are necessary to spur economic growth and are somehow good news for us all. The system is maintained by a highly paid, industrious bevy of professionals in the private banking, legal, accounting and investment industries. 6It is the wealthiest individuals and companies – those who should be paying the most tax – who can afford to use these services and this global architecture to avoid paying what they owe. It also indirectly leads to governments outside tax havens lowering taxes on businesses and on the rich themselves in a relentless ‘race to the bottom’.

6) In the garment sector, firms are consistently using their dominant position to insist on poverty wages. Between 2001 and 2011, wages for garment workers in most of the world’s 15 leading apparel-exporting countries fell in real terms. The acceptability of paying women lower wages has been cited as a key factor in increasing profitability. The world turned its attention to the plight of workers in garment factories in Bangladesh in April 2013, when 1,134 workers were killed when the Rana Plaza factory collapsed. People are losing their lives as companies seek to maximize profits by avoiding necessary safety practices. Despite all the attention and rhetoric, buyers’ short-term financial interests still dominate activities in this sector, as reports of inadequate fire and safety standards persist.

7) Inequality is also compounded by the power of companies to use monopoly and intellectual property to skew the market in their favour, forcing out competitors and driving up prices for ordinary people. Pharmaceutical companies spent more than $228m in 2014 on lobbying in Washington. When Thailand decided to issue a compulsory licence on a number of key medicines – a provision that gives governments the flexibility to produce drugs locally at a far lower price without the permission of the international patent holder – pharma successfully lobbied the US government to put Thailand on a list of countries that could be subject to trade sanctions.

Full Oxfam reports here includes full report, summary and methodology

Inequality is increasing

Whatever happened to Occupy Wall Street?

• Almost half of the world’s wealth is now owned by just one percent of the population.
• The wealth of the one percent richest people in the world amounts to $110 trillion.
• That’s 65 times the total wealth of the bottom half of the world’s population.
• The bottom half of the world’s population owns the same as the richest 85 people in the world.
• Seven out of ten people live in countries where economic inequality has increased in the last 30 years.
• The richest one percent increased their share of income in 24 out of 26 countries for which we have data between 1980 and 2012.
• In the US, the wealthiest one percent captured 95 percent of post-financial crisis growth since 2009, while the bottom 90 percent became poorer.

- source, Oxfam

the strengths and weaknesses of capitalism

A recent article by Bill and Melinda Gates (Three Myths on the World's Poor) gives the impression that capitalism is an unparalleled success story:

In our lifetimes, the global picture of poverty has been completely redrawn. Per-person incomes in Turkey and Chile are where the U.S. was in 1960. Malaysia is nearly there. So is Gabon. Since 1960, China's real income per person has gone up eightfold. India's has quadrupled, Brazil's has almost quintupled, and tiny Botswana, with shrewd management of its mineral resources, has seen a 30-fold increase. A new class of middle-income nations that barely existed 50 years ago now includes more than half the world's population.

And yes, this holds true even in Africa. Income per person in Africa has climbed by two-thirds since 1998—from just over $1,300 then to nearly $2,200 today. Seven of the 10 fastest-growing economies of the past half-decade are in Africa.

Here's our prediction: By 2035, there will be almost no poor countries left in the world.

This reminds me of a stunning video by Hans Rosling, the Director of the Gapminder Foundation which shows how much the wealth of the world has increased in the past 200 years:
You Tube version

brown – Europe
red – Asia
green – Middle East
blue – Africa
yellow – Americas

Most of the commentaries on the web praise this video to the skies. It deserves praise for its overall assessment of the progress of capitalism but there is also a tendency to fast forward through the bad times.

In 1810 the wealthiest countries were the UK and the Netherlands. The average life expectancy of every country was below 40.

Enter the industrial revolution and the wealth and life expectancy begins to dramatically improve for the countries which do industrialise. This is true although there is no mention of the appalling working conditions, the very long working hours, the child labour in the emerging factories of Britain and elsewhere. The birth pangs of capitalism led to major upheavals in 1848, the shortening of the working day, the Factory Acts, etc.

As the wealth of countries increases then so does the gap between rich and poor countries. Rosling does mention this (at 2:35). It also needs to be emphasised that the scale he is using on the horizontal wealth axis is logarithmic, showing the per annum categories of $400 (roughly one dollar per day), $4000 ($10 per day) and $40,000 ($100 per day). If he had used a linear scale then the gap between rich and poor countries would be far more pronounced. The gap between the richest and poorest countries taken from the closing and opening screens of this video is at least 100 times today compared with less than 10 times in 1810

He does mention the catastrophe of WW1 but then fast forwards through The Great Depression and WW2. It is far easier to fast forward through the bad times than live through them or explain them.

His focus is on post 1948, the boom years of capitalism.

By 1985 even in the poorest country, Mozambique on just $366 per year, the average lifespan was three years higher than Britain in 1810.

Wealth has increased but so has inequality. Rosling visually extracts Shanghai out of China towards the end, showing that it is similar in wealth to Italy. Then he extracts the poor inland province, Guizhou, and compares it to Pakistan. Finally, he shows how the even poorer rural part of Guizhou has a wealth index similar to Ghana, Africa. Certainly in this section there is no brushing over the real world problem of inequality in China.

He finishes on an optimistic note. The gap between the rest and the west is now closing. In the future it is possible that everyone can make it to the healthy and wealthy corner with more aid, trade, green technology and peace. Rosling slips into an optimistic version of political correctness in this parting message.

Some people are optimistic about the future of capitalism because of its productivity; others are pessimistic because of its inequality, anarchy of production, environmental destruction, and alienation . We need to see both sides of this picture. In evaluating the rosy picture of Gates and Rosling, I would use three criteria: standard of living, inequality and stability.

The overall standard of living has increased dramatically. Correct, capitalism has delivered in this respect.

Inequality has increased too. This is totally ignored by Bill and Melinda. It is mentioned by Rosling in places but the logarithmic wealth scale distorts the huge and growing gap here

Stability: Apart from the post war boom period (relatively stable and prosperous) capitalism has been an unstable system which can’t seem to avoid periodic economic crises. Over the next few years we will see how acute this problem will become. I'm really uncertain. I don't think anyone fully understands the inner dynamics of capitalism and its tendency to crisis. That elephant is still in the room.