As the Global Elite Enjoys Their Champagne and Caviar, Inequality Worsens
As the global elite met last week at the annual Davos economic summit, an estimated 200,000 people around the world died during the five-day conference because of poverty-related - and avoidable - afflictions.
The persistence of poverty and rising inequality are stark reminders of how neo-liberal policies promoted by many of the politicians and business leaders at Davos have left behind billions of people as a tiny elite benefits from those policies.
Deregulation, privatization of public assets, tax cuts, austerity, downsizing of government services, the gutting of labor protections and the attack on unions have allowed a small group to accumulate vast sums while the vast majority of the globe’s people cope with stagnating and falling incomes.
But a little redistribution and progressive economic policies could go a long way toward addressing poverty and inequality.
The richest 100 billionaires in the world are worth $1.9 trillion - slightly less than the GDP of the United Kingdom. In 2012, their net income was $240 billion, which a report by the London-based international group Oxfam says “would be enough to eliminate extreme global poverty four times over.” The study was released Jan. 21, two days before the opening of the World Economic Forum in Davos, Switzerland.
“Concentration of resources in the hands of the top 1 percent depresses economic activity and makes life harder for everyone else - particularly those at the bottom of the economic ladder,” said Jeremy Hobbs, Oxfam's executive director.
“We can no longer pretend that the creation of wealth for a few will inevitably benefit the many - too often the reverse is true,” he said. “In a world where even basic resources such as land and water are increasingly scarce, we cannot afford to concentrate assets in the hands of a few and leave the many to struggle over what’s left.”
Oxfam reports that extreme wealth and extreme inequality are worsening dramatically.
The top 1 percent have enjoyed a growth of income of 60 percent during the past 20 years, according to the Oxfam report, “The Cost of Inequality: How Wealth and Income Extremes Hurt Us All.” Meanwhile, wages in many countries have barely risen in real terms for many years, with most of the gains going to capital, the report says. As inequality has risen, social mobility has fallen rapidly in many countries, according to the report.
In many countries, economic inequality has skyrocketed over the past three decades:
• The share of income of the top 1 percent in the United States has doubled since 1980, increasing from 10 percent to 20 percent. The income share of the top 0.01 percent has quadrupled, which is unprecedented.
• In China, the top 10 percent take home nearly 60% of the income.
• Inequality has increased in many developing countries.
The top 1 percent - 60 million people, including 1,200 billionaires - continued to increase their share of income, even after the financial crisis hit in 2008. The luxury goods market has registered double-digit growth every year since then. “Whether it is a sports car or a super-yacht, caviar or champagne, there has never been a bigger demand for the most expensive luxuries,” Oxfam says.
The Oxfam report comes a month after an International Monetary Fund report highlighted global inequality. That report, which studied advanced and developing economies from 1990 to 2005, found that inequality increased in:
•15 of 22 advanced economies and in 20 of 22 emerging market economies in Europe,
•11 of 20 countries in Latin America and the Caribbean (though it subsequently improved in most of them),
• 13 of 15 countries in Asia and the Pacific, and
• 9 of the 12 countries in the Middle East and North Africa.
In Sub-Saharan Africa, inequality increased in 10 of 26 countries. Inequality did, however, go down across the region.
Why Inequality Matters
Conservatives typically argue that inequality doesn’t matter as long as most of us enjoy a decent standard of living. But while that argument may seem to hold some truth in developed countries, it certainly cannot be made in the case of the developing world, where billions live in abject poverty despite economic progress. In fact, the Oxfam, economist Joseph Stiglitz and others make a strong case that inequality undermines the economy - and democracy.
The concentration of wealth and capital in a few hands depresses demand by limiting the spending power of the vast majority of the population. Years ago, a Citigroup report made that point by noting that U.S. corporations are increasingly directing sales to the elite in foreign markets as the purchasing power of the middle class declines in the United States.
If income were spread more equally, demand would be higher, stimulating greater economic growth.
In a recent article in the Guardian, George Monbiot noted that the toleration of inequality, viewed as an incentive for economic innovation, is a benchmark of neo-liberal ideology. And that toleration has proved disastrous.
Monbiot wrote: “The recent jump in unemployment in most developed countries - worse than in any previous recession of the past three decades - was preceded by the lowest level of wages as a share of GDP since the second world war. Bang goes the theory. It failed for the same obvious reason: low wages suppress demand, which suppresses employment.”
The concentration of economic power also has a corrupting influence on politics. The ruling conservative party in the United Kingdom, for instance, receives more than half of its donations from the financial services sector.
Around the world, the financial industry has spent billions lobbying governments to adopt ruinous economic policies, according to Monbiot. “Capture of politics by elites is also very prevalent in developing countries, leading to policies that benefit the richest few and not the poor majority, even in democracies,” the Oxfam report says.
A Global New Deal
What should be done to confront inequality and its corrosive impact on our society?
There are some positive signs. The United States has adopted tax changes that increase what the wealthy pay. And earlier this month, the European Union gave 11 nations the go-ahead to adopt transaction taxes in the financial sector.
Oxfam calls for “a global new deal.”
To begin with, the group proposes the closing of tax havens, which hold as much as $32 trillion, or a third, of all global wealth. That could bring in as much as $189 billion in additional revenue. Other recommendations include:
• reversing the trend toward regressive taxation;
• adopting a global minimum corporation tax rate;
• boosting wages, and
• increasing investment in free public services and the safety net.
“From tax havens to weak employment laws, the richest benefit from a global economic system which is rigged in their favor,” Hobbs said. “It is time our leaders reformed the system so that it works in the interests of the whole of humanity rather than a global elite.”
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