The report also tells us that before the financial crisis in 2008 the gap between the rich and the poor worldwide was narrowing – primarily because a lot of people in China were being dragged out of poverty. Since 2008 the gap has widened dramatically and even more so in the last couple of years. The cause has been a huge surge in asset values in the US as the stock market there has risen.
These figures are of importance for a number of reasons beyond the obvious morality question of how much does any one person need and what is life like for those at the very top, where you can afford to spend £400 million on one painting, and at the very bottom where you can’t afford to eat. There is, for example, the rather important question of where we end up as a society and as an economy if this trend continues.
Uncontrolled markets have always shown a strong tendency to concentrate wealth in a very few hands. There was a period from 1945 to around 1970 when that tendency was managed at a national level and wealth within nations was starting to be more evenly shared out. Globalisation has changed that. Not because a global economy or a global society are bad things. Because an uncontrolled and unmanaged global economy allows the very wealthy to get even richer and enables them to keep a lot more of that wealth. Some of the super-rich are of course wonderfully philanthropic and do their best to use their wealth constructively. Bill Gates comes easily to mind. The vast majority use it more selfishly and are finding it easier and easier to shelter that wealth offshore and to ensure that larger and larger shares of the world’s resources are used on that next luxury yacht or that must have private plane.
There are two good ways of dealing with this. One is to have strong international legislation that controls tax avoidance and punishes any country that dodges international agreements. That is very easy to say and very hard to achieve. The other way is to frame the laws within each nation to ensure that tax is paid. The UK could stop most tax dodging by companies tomorrow if it passed a law giving a jury the right to determine the tax bill of any company with large sales in the UK but a low tax bill. It could limit private tax dodging very dramatically if it heavily increased the taxes on property owned in this country – and insisted on foreign citizens paying that tax here. That would also be the quickest way to make a huge difference to the London property market and start tipping the balance of affordability of homes in favour of young working people instead of super rich second home owners. Finally it would be easy to copy the excellent US law which insists that any US citizen must pay US tax equal to the difference between what they pay abroad in a tax haven and what would be required in the US.
So it is entirely possible to control and manage the tendency for wealth to concentrate in a few very rich hands. Our government simply lacks the will to do it and is pressured into weak action by the wall of money the rich put behind ownership of the media. A lot of fuss has been made about Donald Trump winning the white collar racist vote. Exit polls reveal a very different picture. The majority of the working class in America voted against Donald Trump. The group which voted rock solidly for him were white affluent women who hadn’t been to college. What did happen in the US election was that a larger proportion than usual of the white working class were persuaded to vote Republican by a very well organised campaign paid for by some very shadowy people. The determination to protect privilege runs deep and strong and has to be fought afresh with every generation.
The second trend identified in the Credit Suisse data that I think is particularly important is that the majority of wealth recently has been created not in the emerging countries like China and India but in the US. This seems to defy logic. For a couple of decades leading up to the 2008 crash it was places like China that were creating most wealth and this was in fact resulting in greater equality of incomes between countries. That trend has continued and if anything strengthened. Income in China is still growing a lot faster than the US and countries like India are now also recording very rapid growth and creating a middle class. Income inequality within the newly emerging countries is increasing rapidly but the gap between average incomes in the richest and some of the previously poorest countries has narrowed.
So how can it be that the incomes are rising fastest in China and India but wealth is growing more rapidly in the US? The answer is simple. There is an asset price bubble in the US. The stock market has roared ahead since Obama dealt with the horrible economic mess he inherited by creating trillions of dollars of free and easy money out of thin air. That isn’t a loose wild exaggeration or a colourful phrase. By October 2014 the Fed had purchased $4.5 trillion of assets from banks and financial institutions and that money didn’t come from taxes it was created electronically. The amount is staggering. $4,500,000,000,000. Four and a half million new millionaires worth of easy money. At the same time as ordinary people were being told they must tighten their belts and pay for the crash by experiencing years of austerity the very people who were responsible for the crisis were being bailed out with huge quantities of public money. No wonder it was easy to persuade people that the political establishment had let them down and something drastic had to be done.
I believe that this is the real reason why extreme political forces have prospered whilst the centre ground has hollowed out. A lot of people feel in their bones that something isn’t quite right. Real incomes were down again this month in the UK. We’re about to go through a budget which will once again focus on the need for constraint and maturity and leave nurses, doctors, police, social workers, and teachers struggling to simply stand still and get by. Yet the stock market is booming on the back of the loose money that has been created. Property prices are up again and beyond the reach of those who simply save up an ordinary wage. The bankers are back to many of their old tricks and are awarding themselves very nice bonuses whilst lecturing the rest of us on the merits of working harder.
This is a situation which is unlikely to last. The absence of effective control and guidance of a genuinely global economy means that economic booms and busts are not being dampened out or managed. It is a matter of time before the next bust. A rapid increase in asset values and share prices in the US that massively exceeds any increases in income or changes in technology is usually a very dangerous sign of instability. The system is in much worse shape to survive a financial crash than it was in 2008 and that crisis was nearly terminal.
We have an insecure and unstable system which is not working in the interests of ordinary people. In these circumstances what we need is to build a sustainable stable economy that focuses much more on delivering the needs of ordinary citizens. That means a sensible degree of government intervention to invest in a long term transformation of our economy away from an over dependence on finance and fossil reserves.
So on one count Theresa May is right. We really do need strong and stable government. It is just a shame that she is completely incapable of providing it and lacks vision.