Tag Archives: Piketty

Class war returns, this time as a global issue

JONATHAN MANTHORPE: International Affairs
January 8, 2016

By the time 2016 is two weeks old, each one of Canada’s 100 best paid corporate chief executives will have pocketed more than three times as much as the average Canadian can expect to take home in the entire year.

On average, Canada’s top 100 CEOs banked $8.96 million* each in 2014 while other Canadians earned on average $48,636. Thus in only four days the plutocrats were paid the equivalent of the average annual salary of the rest of us.

These are the headlines in a new report by the Canadian Centre for Policy Alternatives. This is, of course, a “left-leaning” institution, and under normal circumstances that would be a useful caveat for readers to keep in mind. But the issue of income and wealth disparity between a minute elite and the rest of us is now a matter of global concern, well beyond tub-thumping by the political left or right.

Canada and many other mature democracies, previously characterised by the broad social harmony that defines equitable societies, are being sucked into a new world order. We are joining the rapidly rising developing countries into what looks increasingly like a system of global oligarchy. We are entering a world in which most wealth, and with it political power, is in the firm grasp of a tiny minority of people who have acquired their status either by luck, imagination, skill, or — in far too many cases — feral instincts.

And the minority is tiny. A report by Credit Suisse late last year said half the world’s entire human wealth is now owned by only one per cent of people. This followed a stream of equally disturbing analyses by other prestigious organizations that have started looking seriously at the implications of global disparity and inequality. One said that the world’s three wealthiest people possess assets worth more than those of the poorest 48 nations combined. Another said the world’s 85 richest individuals have a combined wealth equal to that of the bottom half of the world’s population: about 3.5 billion people.

This is a shift in the structure of human society with very real and unappetizing implications. The prospect that young Canadians will never be able to afford to buy or even rent a suitable home in Vancouver or Toronto because of the assault on the property market by foreign oligarchs, mostly Chinese, is one obvious fall-out. Russian oligarchs’ money is having a similar effect on the housing market in New York and London, where Middle Eastern petro-dollars are also a major influence.

But there are many deeper and darker long-term concerns. Oligarchy is a system that tends to entrench itself ever more firmly as the very wealthy bend the political and social system to their own interests. Just look at the campaign for this year’s presidential election in the United States. Paul Krugman, the Nobel prize winning economist, recently noted in a scathing attack on the influence of money on American politics that half the contributions to this year’s presidential campaigns have come from fewer than 200 families.

Even in the most well-established democracies, money buys influence.

The wealth gap between the rich and the rest has been growing since about 1990 and the end of the Cold War. In the last 25 years in the United States, for example, Census Bureau statistics show the real incomes of the vast majority of people, including the most highly skilled and educated, have hardly shifted.

Meanwhile, the pay for the CEOs of the 350 largest companies in the U.S., which was 20 times that of an average worker in 1989, was 273 times higher in 2012. The gap has continued widening since then.
The picture is similar in most developed industrial countries and even more exaggerated in developing countries or those emerging from Marxist economic management or extreme socialism such as China, Russia and India.

The post-Cold War globalization of the economy has had the remarkable success of halving from two billion to one billion the number of people in the world living in absolute poverty. But at the same time, disparity in rapidly developing countries such as China, India and Brazil has rocketed ahead even faster than the improvement in general livelihoods.

Inequity in China has for well over a decade been over the red line where disparity triggers social upheaval. This is usually measured by what is known as the GINI Coefficient. This system looks at several factors in the distribution of wealth in a society and then ranks them from zero to one. Zero is perfect equity where wealth is equally distributed among the population and one is where all assets are in the hands of one person.

Most analysts reckon that 0.4 is the red line, and that once a society becomes more unequal than that, social disruption will ensue. China’s GINI number has been fudged by the Beijing authorities for several years, like many of the country’s other embarrassing statistics. Beijing admits to a GINI number of 0.45, though various outside estimates put it much higher, some well over 0.7.

Canada’s GINI Coefficient number is about 0.32, which sounds impressive until one looks at it in context.
In the 1980s Canada was a much more equitable country than it is now, with the GINI rolling along between 0.28 and 0.29 for much of the decade. As in the rest of the world, the end of the Cold War triggered the era when the rich got much, much richer.

A recent report by the Conference Board of Canada divided the Canadian population into five income brackets – quintiles – and looked at how they had done over the past 25 years.

The richest group, the top quintile, now owns 39.1 per cent of Canada’s economic pie, up from 36.5 per cent in 1990. This top group is the only section of society to have benefited in the last 25 years. The wealth of every other economic group of Canadians has either remained stagnant or shrunk.

The picture is no prettier if we look beyond Canada’s borders. The same Conference Board report compares Canada’s GINI ranking with those of our 17 fellow industrialized nations. Canada comes in at 12th, between Switzerland and Japan. As might be expected, it is the northern European countries Denmark, Norway, Belgium, Finland and Sweden in that order who have the least wealth disparity, though they also have suffered attacks of plutocracy.

The main spark for the current stream of analysis of disparity was the 2008-2009 global recession, set off by the collapse of several of the main pillars of capitalism in the U.S. Questions about the sustainability, durability and suitability of American-style capitalism spurred the Occupy movement, which mounted demonstrations at several international economic summits. These sometimes violent protests gave an alarming glimpse into the future if the issues of social instability caused by wealth disparity are not addressed.

The collapse and the protests therefore launched much scholastic study, such as the 2013 tome Capital in the 21st Century, by French economist Thomas Piketty. Piketty’s 700-page manifesto boils down to the argument that when the rate of return on capital is greater than the rate of growth of an economy, widening economic disparity between the rich and the rest is inevitable.

It is a compelling argument that has set off much political and academic exploration of the socially acceptable limits of capitalism and free market economics.

There are many lists, some long, some short, setting out what has triggered the drive towards global oligarchy. But there are two associated events at the core. One was the collapse of the Soviet Union and the realization both in the old Soviet Bloc and in China that classic communist central economic planning doesn’t work. The opening of these countries to a form of managed free market economics had a profound effect, especially in China where it opened to the world a vast storehouse of cheap labour used to working under conditions of near slavery. Western investors jumped at this opportunity with little concern for the repercussions on their own societies. Manufacturing industries in the North Atlantic basin migrated east in droves.

This economic globalization is the second factor in growing disparity. In every case one looks at, the fruits of globalization have gone disproportionately to the oligarch classes.

An interesting example is Taiwan, once like Canada a highly equitable society with a GINI Coefficient ranking of around 0.3. That was until the current Taipei government of President Ma Ying-jeou, which came to power in 2008, embarked on a drive to improve relations with China by removing economic barriers to trade and investment. This resulted in an Economic Co-operation Framework Agreement, which came into force early in 2010.

The agreement did indeed boost the economic relationship across the Taiwan Strait. The bottom line numbers look good. But the profits went into the pockets of already rich industrialists in Taiwan while the jobs of many of the island’s 23 million people disappeared into China. Taiwan’s GINI Coefficient now stands at over 0.5 according to several analysts, well over the red line.

Still, unlike China, Taiwan is a democracy and next weekend the island’s voters will choose a new president and parliament. All the indications are they will back the opposition Democratic Progressive Party, which has serious doubts that cozying up to China under its current regime is a good idea for anyone.

Copyright Jonathan Manthorpe 2015

Contact: jonathan.manthorpe@gmail.com

*Funds in Canadian dollars

Please address queries about syndication/republishing this column to jonathan.manthorpe@gmail.com

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Manthorpe B&WJonathan Manthorpe is a founding columnist with Facts and Opinions and is the author of the journal’s International Affairs column. Manthorpe has been a foreign correspondent and international affairs columnist for nearly 40 years. Manthorpe’s  nomadic career began in the late 1970s as European Bureau Chief for The Toronto Star, the job that took Ernest Hemingway to Europe in the 1920s. In the mid-1980s Manthorpe became European Correspondent for Southam News. In the following years Manthorpe was sent by Southam News, the internal news agency for Canada’s largest group of metropolitan daily newspapers, to be the correspondent in Africa and then Asia. Between postings Manthorpe spent a few years based in Ottawa focusing on intelligence and military affairs, and the United Nations. Since 1998 Manthorpe has been based in Vancouver, but has travelled frequently on assignment to Asia, Europe and Latin America.

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