Inequality will be the issue for 2014


By Mike Treen, national director of the Unite union (New Zealand)

January 14, 2014 -- The Daily Blog, posted at Links International Journal of Socialist Renewal with the permission of the author -- Everyone from the Pope Francis to US President Barack Obama is bemoaning the effect that inequality is having on the world today. It is even being blamed for the depth of the economic recession and the weakness of the current recovery because it is claimed that poorer people spend a larger portion of their income than the rich who save more and thus more equal income would help revitalise the economy.

In a speech to the Center for American Progress on December 4, 2013, Obama recognised the fact that “the American people’s frustrations with Washington are at an all-time high”. These frustrations are “rooted in the nagging sense that no matter how hard they work, the deck is stacked against them” and that there exists “a dangerous and growing inequality and lack of upward mobility that has jeopardized middle-class America’s basic bargain — that if you work hard, you have a chance to get ahead”.

Obama appeared to have no element of self-awareness when delivering the speech, that the very economic policies he has implemented since coming to office may have contributed to the harsh reality he describes.

Obama became US president in January 2009. A report in September 2013 revealed that 95% of America’s income gains over the four years since then have gone to the nation’s most affluent 1 percent. They also now accrue 20% of the nation’s total pretax income, doubling their 10 % share from the 1970s. A few weeks after his speech, 1.3 million jobless were cut from receiving benefits under a “compromise” two-year budget deal that was passed just before Congress left on its winter recess.

As liberal economist Dean Baker has noted, “Inequality did not just happen, it was deliberately engineered through a whole range of policies intended to redistribute income upwards.”

The Pope’s message was even more radical than Obama’s blustering. Pope Francis released his Evangelii Gadium, or Joy of the Gospel, attacking capitalism as a form of tyranny and calling on church and political leaders to address the needs of the poor. He attacked an “idolatry of money” that would lead to a “new tyranny”.

“Such an economy kills. How can it be that it is not a news item when an elderly homeless person dies of exposure, but it is news when the stock market loses two points? This is a case of exclusion. Can we continue to stand by when food is thrown away while people are starving? This is a case of inequality. Today everything comes under the laws of competition and the survival of the fittest, where the powerful feed upon the powerless. As a consequence, masses of people find themselves excluded and marginalized: without work, without possibilities, without any means of escape.”

“As long as the problems of the poor are not radically resolved by rejecting the absolute autonomy of markets and financial speculation, and by attacking the structural causes of inequality, no solution will be found for the world’s problems or, for that matter, to any problems”, he wrote.


Even the Dalai Lama has joined in. In a speech one month ago in India, he said, “We have to think seriously how to reduce this gap between the rich and the poor.”

He went so far as to describe himself as a Marxist. “As far as socio-economic theory is concerned I am a Marxist. I am attracted to the principle of equal distribution. The poor and helpless need more care. While capitalism is only about minting money”, he said.

The process of wealth concentration has been going on for the last three decades but has accelerated since the world financial crisis. That crisis was in part a product of the grotesque excesses of the super rich and the speculative, indulgent frenzy as they searched for more and more ways to earn profits.

The largest Wall Street firms set aside $91 billion for year-end bonuses in 2013. In effect, these gangster banksters in the US are the biggest welfare recipients of all time. Because the Federal Reserve has been maintaining interest rates at very low levels for such a long period, the US government is in effect subsidising bank profits to the tune of $83 billion a year.

While wages have been squeezed and austerity budgets imposed all across the globe, the wealth of the world’s billionaires has doubled since 2009 according to a report by UBS and Wealth-X, that tracks super-rich individuals.

As CNBC reported, “The global financial crisis was good for billionaires. The combined fortune of the world’s billionaires has more than doubled, to $6.5 trillion, from $3.1 trillion in 2009, according to Wealth-X and UBS Global Billionaire Census 2013. Their fortunes have grown by $226 billion in the past year alone. The group’s number also grew by 810 during the period, to 2,170.”

An annual report by financial advisors Capgemini and RBC Wealth Management records the wealth of high net worth individuals(HNWI) with $1 million or more in investable assets and ultra-HNWI’s with $30 million or more in investable assets. The super-rich, representing just 0.13% of the world’s population own 25% of all financial assets (stocks, bonds and cash in banks). A website called “Luxury Society” notes that the global HNWI population of 12 million increased its investable wealth by 10% to $46.2 trillion. But within that group, “Representing less than 1% of the global HNWI population, the world’s 111,000 ultra-HNWIs control more than one-third (35.2%) of HNWI wealth.” (The full report is available here for those with the stomach for it).

Credit Suisse also produce an annual wealth report and this year they had a great chart to go with it. The chart shows that there are 3.2 billion adults in the world with less than $10,000 in net wealth. They collectively own total net wealth of $7.3 trillion or 3% of total world wealth. At the top we have a group of 32 million or 0.7% of the total with 41% of the world’s wealth – more than the bottom 91% of all adults.


Reuters reports, “Average global wealth has hit a peak of $51,600 per adult but this is spread very unevenly, with the richest 10% owning 86% of the wealth, analysts at the Credit Suisse Research Institute said. The top 1% alone own 46% of all global assets.”

Tax-receipt data collected by Messrs. Piketty and Saez show the top 1% captured 19.3% of U.S. income in 2012. The only year in the past century when their share was bigger was 1928, at 19.6%. The top 10% took more than half of total income – an all time record since 1913 when the US government began taxing income.

Even the Congressional Budget Office has confirmed the trends for the USA. It finds that between 1979 and 2007, income grew by:

  • 275% for the top 1% of households,
  • 65% for the next 19%,
  • just under 40% for the next 60%, and
  • 18% for the bottom 20%.

Other results were:

  • The share of after-tax household income for the top 1% of the population more than doubled, climbing to 17% in 2007 from nearly 8% in 1979.
  • The top fifth of the population saw a 10-percentage-point increase in their share of after-tax income. Most of that growth went to the top 1% of the population.
  • All other groups saw their shares decline by 2 to 3 percentage points.

The increase in incomes has also led to a huge increase in accumulated wealth. A 2006 report by the United Nations University found that “the richest 1% of adults alone owned 40% of global assets in the year 2000, and that the richest 10% of adults accounted for 85% of the world total. In contrast, the bottom half of the world adult population owned barely 1% of global wealth.”

Michael Roberts Blog on the “The Story of Inequality” reports on an very interesting speech by Sir Anthony Atkinson, a senior research fellow at Oxford University and one of the world’s experts on inequality. Roberts said that Atkinson had noted there had been an average rise in inequality of about 10% in OECD countries since the 1980s. But importantly “Atkinson then asked the question: why? What were the causes of the rise in household inequality of income in the advanced capitalist economies after the 1980s?

The usual reason given by mainstream economics is that new technology and globalisation led to a rise in the demand for skilled workers over unskilled and so drove up their earnings relatively. This is the argument presented by Greg Mankiw recently in his defence of the top 1% of earners.

Roberts explains that “Atkinson dismissed this neoclassical apologia. The biggest rises in inequality took place before globalisation and the revolution got underway in the 1990s. Atkinson pinned down the causes to two. The first was the sharp fall in direct income tax for the top earners under neoliberal government policies from the 1980s onwards and the sharp rise in capital income (i.e. income generated from the ownership of capital rather than from the sale of labour power). The rising profit share in capitalist sector production that most OECD economies have generated since the 1980s was translated into higher dividends, interest and rent for the top 1-5% who generally own the means of production. In 2011, capital income constituted 60% of the top 10% earners’ income compared to just 32% in the 1980s.”

Nobel Prize winning economist Paul Krugman points out that since 1973 in the US, gross domestic product (GDP) per household has increased 46% in real terms but median income per household has only increased 15 percent. Where did the other 31% go? It went to the wealthy.

Corporate profits are also setting new records. In the third quarter of 2013, profits after taxes accounted for more than 11% of US gross domestic product (the sum of all goods and services). That’s the highest such percentage of GDP ever recorded. For workers, income from wages and salaries has shrunk from more than 50% of the GDP pie in 1970 to 42.6% in 2012 – the smallest piece ever measured. At the same time, fewer people in the USA are working than at any time in the past three decades.

One estimate I saw reckoned that if labour income share had remained the same in the USA, wages would on average be 25% higher, or $13,000 a year.

As Warren Buffett, the second richest man in America, famously said, “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.”

This story has a very familiar ring to us in New Zealand as well. Something I will be looking at a more closely in my next blog.

Even the World Bank and International Monetary Fund (IMF) and Organisation for Economic Development (OECD) have got in on the act. It is extraordinary to have these institutions express their concerns at growing inequality when they have operated as the policemen for international capitalism – enforcing the neoliberal “Washington Consensus” – that has contributed so much to creating the inequality in the first place.

An IMF report in September 2012 called Income Inequality and Fiscal Policy confirmed widening inequality. The GINI coefficient (a measure of inequality of income between the top and bottom income earners) in the US jumped from 30.5% in 1980 to 38.6% in 2010, the largest rise in the whole world with the exception of one country, China, where it has risen from a relatively low 28% to a very high 42% during ‘the move towards the market’ in China over the last 30 years.

New Zealand had one of the largest increases going from 27 in 1980 to 34 in 1995 before dropping back slightly to 33 in 2008 – the latest figure available. Only the UK (27 to 34.4) and the USA (30.1 to 36.3) had similar sharp increases over the 1980 to 1995 period. The most equal society in the advanced capitalist world is Norway (24%), which is also the richest. All the Scandinavian ratios are relatively low while Germany and France are in the middle (low 30%).

Branko Milanovic, lead economist at the World Bank’s Research Department, has updated his 2005 study Worlds Apart which found that the world was “20:80” – that is, 80% of the world’s then-6.6 billion people could be classed as poor and the situation was deteriorating. His new report confirms the situation has worsened. He concludes: “Take the whole income of the world and divide it into two halves: the richest 8% will take one-half and the other 92% of the population will take another half. So, it is a 92-8 world. In the US, the numbers are 78 and 22. Or using Germany, the numbers are 71 and 29.” (Global Income Inequality By The Numbers: In History And Now – An Overview)

The OECD report is headed Divided We Stand: Why Inequality Keeps Rising. Its introductory paragraph states: “The gap between rich and poor has widened in most OECD countries over the past 30 years. This occurred when countries were going through a sustained period of economic growth, before the Great Recession. What will happen now that 200 million people are out of work worldwide and prospects of growth are weak? New OECD analysis says that the trend to greater inequality is not inevitable: governments can and should act.” (Full report available here).

The reason for all this sudden concern for the growth in inequality is political. The capitalist rulers are concerned that the inequality debate will focus attention on their monopolisation of wealth and power and we may seek ways to curtail it or, even better, end it for good.

The January 5 Christian Science Monitor headed a feature article on the issue: “Income inequality: Does wider gap between rich and poor threaten capitalism?” They quote Bill Gross, one of the largest bond managers in the US, saying that the inequality in the USA “can’t go on like this, either from the standpoint of the health of the capitalist system itself or the health of individuals and the family”.

The Wall Street Journal had an article on November 10 headlined, “Worry Over Inequality Occupies Wall Street – Gulf Between Haves and Have-Nots May Hurt Economy”. The chart that accompanied the article shows that the average income of the bottom 90% of families actually fell by 10% from 2002-2012 while all the top income groups grew. The top 0.01% saw their incomes grow 76.2% to an average of over $21 million in the same period. And those figures are adjusted for inflation and exclude capital gains.

graph on inequality

Journalist Justin Lahart commented: “Even if they have found the widening gulf between America’s haves and have-nots troubling, inequality isn’t something fund managers have worried about professionally. That may be changing.

“Over the years, the only way inequality has really mattered to investors has been as a factor when considering stocks. If the rich are getting richer, companies that cater to them have better prospects…

“Lately, though, some big investors have worried increasing income and wealth gaps threaten the economy’s ability to expand. They also fret that public anger over it, which Democrat Bill de Blasio tapped in his successful run for New York City mayor, is creating dangerous political tensions.”

Here we get to the real reason the issue of inequality has become in Obama’s words “the defining challenge of our time”.

Big Business fears the issue will be captured by left wing forces independent of them and the parties they control. By giving vent to some of the dissatisfaction through the Democratic Party they hope to keep it contained within acceptable boundaries. Opinion polls are showing a growing desire for a third party alternative in US politics.

In Lorain County, Ohio, 24 councillors were elected in November on a union-backed Independent Labor Party slate against the local Democratic Party machine. The last straw was when the Mayor scabbed on a strike. At this stage, the union campaign is still aimed at putting pressure on the Democratic Party rather than forming a truly “independent” labour party. But the strong vote is a signal of what is possible if a revitalised labour movement were to break from the shackles that have tied it to the Democratic Party for decades–with nothing to show for their loyalty.


Kshama Sawant at her swearing in.

Kshama Sawant, a very public socialist, was also recently elected, to the Seattle City Council. She had broad union and working class support. Her campaign themes targeted inequality and the need for the labour movement to break with the twin parties of big business in the USA. Her inauguration speech summarised these themes as follows:

This city has made glittering fortunes for the super wealthy and for the major corporations that dominate Seattle’s landscape. At the same time, the lives of working people, the unemployed and the poor grow more difficult by the day. The cost of housing skyrockets, and education and healthcare become inaccessible.

This is not unique to Seattle. Shamefully, in this, the richest country in human history, 50 million of our people – one in six – live in poverty. Around the world, billions do not have access to clean water and basic sanitation and children die every day from malnutrition.

This is the reality of international capitalism. This is the product of the gigantic casino of speculation created by the highway robbers on Wall Street. In this system the market is God, and everything is sacrificed on the altar of profit. Capitalism has failed the 99%.

Despite recent talk of economic growth, it has only been a recovery for the richest 1%, while the rest of us are falling ever farther behind.

In our country, Democratic and Republican party politicians alike primarily serve the interests of big business. A completely dysfunctional Congress does manage to agree on one thing – regular increases in their already bloated salaries – yet at the same time allows the federal minimum wage to stagnate and fall farther and farther behind inflation. We have the obscene spectacle of the average corporate CEO getting $7000 an hour, while the lowest-paid workers are called presumptuous in their demand for just $15.

To begin to change all of this, we need organised mass movements of workers and young people, relying on their own independent strength. That is how we won unions, civil rights and LGBTQ rights.

A major feature of Sawant’s campaign was in solidarity with the struggle of fast food workers and others to increase their pay and win union rights. A referendum in the city of SeaTac just south of Seattle at the same time as the election approved a raise in the minimum wage to $15 an hour for hospitality and transportation workers in and near Seattle-Tacoma International Airport. The current minimum wage in Washington State is $9.19.

A December 11 Bloomberg poll found that “64% of Americans no longer believe the country offers everyone an equal chance to succeed, compared with 33% who do…. And for those making $50,000 or less, 73% see the economy stacked against them.”

Another recent poll found that 64% of Americans believe Federal government policies favour the well off. Fifty seven% thought the government should pursue policies to reduce that gap.

US lawmakers are following the opposite course. In addition to cutting income support for long-term unemployed, budget cuts kicked into effect November 1 that lowered the nation’s average federal food stamp benefit to less than $1.40 per person per meal. Today, there are a record 48 million Americans dependent on food stamps, 22 million of whom are children.

We need a new social and political movement that tackles inequality. But such a movement has to understand that capitalism and inequality are two sides of the same coin. There can be no lasting attack on inequality without also attacking its source.

Submitted by Rupen (not verified) on Wed, 01/15/2014 - 20:24


Inequality has always been the issue. Prior to the 2008 capitalist economic collapse, inequality was disguised, hidden beneath a veneer of 'middle class' aspirations. Since capitalist states have become ever more nakedly barbaric with their austerity measures, the inequality generated by the capitalist process becomes ever harder to cover up. It is more difficult to blame the poor for their penurious circumstances when 99 percent of the population are struggling while the one percent are accumulating staggering amounts of wealth.

Currently it feels like the rich really are getting richer, ceo's of big companies are getting more 380 times more than the average worker the last time I checked in the US, this is far greater than its ever been. The 99 percent are all of us. Some positives have been made such as taxing those making over a given amount a little more, but generally the wealthy pay far less taxes than the average guy. I hope more positive gains can be made, but it feels like its just getting worse.