Can we afford the super rich?

Max Lawson, Oxfam’s Head of Global Campaigns and Public Policy, unpacks the political implications of the recentmax lawson Credit Suisse report on global wealth.

At the beginning of this year the Economist, a right leaning newspaper, criticised Oxfam for predicting that by 2016 the world’s wealthiest 1% would hold more net wealth than the other 99% put together, calling our projection ‘simplistic and arbitrary’.

Last week, Credit Suisse published its 2015 Global Wealth Report, with the headline that the top 1% own 50.4% of global wealth, a year earlier than we predicted.   At the same time, and with a certain grim symmetry, Credit Suisse also calculated that the bottom half of humanity, 2.4 billion adults, own just 1% of world wealth.  This of course includes most of the people in most of the countries where Oxfam works.

Whether or not this turns out to be peak inequality remains to be seen.  What is clear is that we haven’t seen this level of inequality for almost a century, not since the time of the Great Gatsby.

The Economist went on to say that far more relevant than the runaway wealth of the 1% has been the rapid growth in the income of the middle classes in emerging countries  like China, Indonesia and India in the first part of this century. It argued that this incredible good news story eclipses the wealth accruing to those at the top.

China
China

The Credit Suisse Report also spends some time looking at the middle class worldwide.   We know that a growing middle class has historically often been key to the development of democracies and vibrant politics. The good news is that by any measure, the growth in the numbers of middle class individuals since 2000 has been huge.  Credit Suisse estimate that the number of middle class adults has risen by 140 million or 27%.  Every region contributed to the massive expansion, but China is a huge part of the story.  China is rapidly catching up with US history – in the year 2000 it had the same wealth as the US in 1939.  Fifteen years later, it has the same wealth as the US did 33 years later (in 1972).

Inequality is growing fast in China, and it now has the second highest number of Ultra High Net Worth Individuals – UHNWIs – (9600), with fortunes over $50m. However it is coming from a relatively equal base, given the legacy of Communism and a relative lack of inherited wealth, meaning that much of this newfound wealth has been fairly evenly distributed  so far, contributing to the rising numbers of middle class individuals.   China now has the largest number of middle class adults anywhere in the world, 109 million, more than the U.S.

That contrasts with India. There, the starting point is one of much greater inequality.  In this sense China was similar

Future PM?
Future PM?

to Europe after the two world wars when a huge amount of wealth had been destroyed, levelling the playing field. (Interestingly China also probably holds the record for killing its UHNWI’s , executing 14 yuan billionaires in 8 years on corruption charges.)

What the Credit Suisse Report goes on to show however, is that this huge progress came to a juddering halt with the

financial crisis in 2007.  Most countries saw a big drop in middle class wealth following the crisis, and numbers have not recovered to their pre-crisis level in any region (including China) apart from North America.  In Africa, Europe and Latin America they have continued to fall since 2008.  At the same time the wealth of those at the top has continued to rapidly increase, meaning that the overall share of wealth going to the middle class has declined in all regions except China for the whole of this century, with the highest decline in North America of 16%.

Across the world since 1990 the share of national income going to workers instead of the owners of capital has steadily fallen in many countries as wages have stagnated and instead the returns to those with assets or money in the bank has continued to outpace wages and growth.   This in turn has fuelled inequality and also reduced demand in the economy. People have been able to keep buying things and governments keep going largely because of huge amounts of cheap debt, but it is far from clear how long this fragile and ultimately unsustainable economic model can continue.  Already the economic storm clouds are gathering and a new financial crisis seems not far away.

This decline in the share of income going to workers, the runaway wealth of the super-rich and now the collapse of the middle class since the financial crisis are all signs of an economic model that is increasingly running out of steam and only delivering for those at the top.  Yet it is an economic model that continues to dominate.

We can do better than this. We urgently need to get the middle classes growing again across the world, raising the US inequalityincomes of ordinary families whether they are in Dar es Salaam, Dhaka or Detroit.  To do this we need to redistribute wealth away from the bank accounts of billionaires and into the wages of workers across the world.  We must reverse the hollowing out of the middle-class since the financial crisis, with all the negative implications that has for democracy and economic progress.  We must bring an end to the runaway wealth of those at the top of our society, which corrodes our politics and mutates our economy.

We know today’s extreme, obscene inequality is bad for the global economy, and bad for the future of humanity, yet as the Credit Suisse numbers so graphically demonstrate, it is rapidly getting worse and not better.  Despite much hand wringing and new found concern, there has so far been little change in the policies that have driven this great divergence.  It simply makes no economic sense to have so much money in so few hands.  Unless of course those hands are on the steering wheel of a super yacht, in which case it makes all the sense in the world.

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Comments

13 Responses to “Can we afford the super rich?”
  1. An interesting read – thanks – but i’m not sure about the conclusions. The label “middle class” means so many different things to different people, so it may not be helpful in this context unless further defined. Are we using it a economic label or a social one? If economic, are we talking about everyone between the extreme poor and the extremely wealthy, or does it refer to those with wealth and income above the average? And will we help the poor just by diverting money from the very rich to the middle classes (the first stage of a trickle down theory) or is some other action needed to change societies attitudes and behaviours, and the power imbalances that keep the poor in poverty?

    • Al-hassan Adam

      Hi Ian,
      I not there is the need to split hair as to the definition of middle class. The middle class in Ethiopia or Nepal are the usually university graduates (middle managers/civil servants) with decent salaries, they have private cars, lives in a decent accommodation and can afford to take their kids to eat out in restaurants.

  2. Gerry Boyle

    Max, To pick up on Ian Chandler’s point, it really irritates me every time I read about the “global middle class” when what it includes people who are only just above abject poverty, who used to be known as the “working class”. Use of the middle class term is a bit of conspiracy to undermine the class consciousness which is needed for people around the world to support the strengthening of unions etc which is the proven mechanism for the non-rich to improve their income and social benefits. Even the IMF recognises the key role that unions play in making sure that the non-rich get a higher share of GDP. I know that the Credit Suisse report will have used the “middle class” label but it is definitely one that everyone in interested in tackling global inequality should treat with great suspicion and deconstruct to some extent.

    • Pete

      The report does define Middle Class. It starts with people in the US and defines middle class as those with wealth between $50k and $500k, so those with approx 2 years earnings and enough to retire on. For other countries it uses the PPP conversion.

      Union membership is not always related to class. Teachers, university professors and doctors make up some of the most prominent unions in the UK.

  3. Pete

    To make a correct prediction from complex data look complicated takes intelligence. To make the same correct prediction look simplistic and arbitrary takes genius!

    Thanks for a really interesting post (which was about so much more than the correct prediction) and I hope there are plans in place to get the policies that drive this growing inequality changed. This is an issue that should concern all 99% of us – and probably the more intelligent among the 1% too.

  4. Rachel

    So, the richest 73 million or so have more ‘wealth’ than the remaining 7.227 billion. Sounds horribly plausible. 73 million is still quite a large number though – how much ‘wealth’ (and how defined) do people have to have to get into that group?
    I’m always nervous about labelling people ‘extremely wealthy’, because that seems to be a label that only ever applies to ‘other people’. I suspect that by international measures a really sizeable chunk of the UK population would count, to their disbelief, as ‘extremely wealthy’. Has anyone got any figures?

    • Pete

      Rachel, the report says:
      USD 759,900 to belong to the top 1%
      USD 68,800 to be a member of the top 10%
      Only USD 3,210 to be among the wealthiest half of world citizens in mid-2015.

      So sole ownership of a house in London or Oxford with no mortgage would more or less get you into the top 1%. There are a couple of widows/widowers in my street who would be very surprised to hear they are nearly in the global elite.

      The figures are all in the report.

      Bizarrely, the least wealthy 10% has a high number from the rich countries as we can get into more debt (it might include student debt – but I haven’t gone that far into the details).

  5. Pamela White

    In a hotel room this week I saw an advertisement on CNN for Quest Means Business. It was commenting on the growing super rich class. But rather than reflecting on what that might mean and the likely downsides, the message was literally “How can I get a piece of the pie?”. I realise I am probably being naïve, but this felt quite obscene. A rejoicing in the message that ‘greed is good’.

  6. Matthew

    Great blog. Judging by the Even It Up report, Oxfam is already working on the policies that can make a difference for the poor as well as the middle class – progressive taxes and global tax reforms; anti-inequality spending on education, health, social protection, water and food; and labour rights and higher minimum wages. But the last sentence of the blog is key – unfortunately the wealthiest are steering the world economy and politics – so we also need to mobilise to fight their political capture !

  7. max

    thanks for all the great comments. I generally agree with Gerry (great to hear from you by the way) that the definitions of the global ‘middle class’ used by the World Bank and others in fact refer to levels of wealth not much above abject poverty really. I think for instance of a primary school teacher in Malawi, who may have a second hand television and electricity but has no running water and can only afford to eat meat once a week. Relatively speaking she is middle class as many many Malawians are a lot poorer, but she is still desperately poor. In fact the Credit Suisse definition is much higher than that, as it is based on wealth, not income, so would only include the very wealthiest in Malawi and excludes almost the entire population. They are looking more at an emerging global middle class that is comparable across countries.

    It is true that some people in rich countries without a mortgage make it into the global 1% because their houses have gone up in value so much, but many of the studies distinguish between those High Net Worth Individuals (HNWI’s) with liquid rather than illiquid assets, so would exclude everyone who just has an expensive house that they live in and just count people with assets they can mobilise. But anyhow in reality the real story of the last two decades has in fact not been about the 1%, but about the 0.01% whose income has grown far faster- the closer you get to the top of the pyramid, the more meteoric the rise in wealth. This is not about a pensioner in north oxford, this is about the explosion in multi millionaires and billionaires, who in no way deserve the wealth they are accruing, could not even spend it all even if they tried, and are a symptom of a deeply flawed and failing economic system.

    Once again thanks for all the comments. Do read the Even it Up report which is a cracking read, and well worth it: https://www.oxfam.org/sites/www.oxfam.org/files/file_attachments/cr-even-it-up-extreme-inequality-291014-en.pdf

  8. Lesley

    I suggest you do a blog on Positive Money’s campaign for money system reform, and the campaign for replacing our existing, illogical, overly complex and regressive system of taxation with one based on land value tax. These two issues are fundamental to inequality and unsustainable development.

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