One per cent of the world's population now control half its wealth. 

The concentration of more and more resources in fewer and fewer hands has actually accelerated since the global financial crisis. This is no accident. It is the outcome of policy decisions made – or avoided – by political leaders either unable to learn the lessons of the crisis or unwilling to act on them.  

Since 2008, “middle-class wealth has grown at a slower pace than wealth at the top end. This has reversed the pre-crisis trend, which saw the share of middle-class wealth remaining fairly stable over time.”

This is not the finding of a socialist propagandist, but of Credit Suisse and published last week in its latest annual global wealth survey

It reports that wealth per adult in New Zealand declined overall by nearly 20 percent over the past year, from USD$484,800 to $400,800 mainly because of exchange rate movements. But the report also ranks New Zealand with the highest median wealth per adult, at USD$182,600. The ranking by median wealth per adult favours countries with lower levels of wealth inequality.

Before this government takes too much credit, it’s worth pointing out that the Credit Suisse data shows median household wealth grew most between 2000 and 2005 under Clark, Cullen and Anderton. Things have levelled off considerably since. 

I'm sceptical about the accuracy of New Zealand's relative ranking and the rates of change because measurement is difficult and the biggest factor is exchange rate variation.

If New Zealand ranks well on these measures, the global picture must be worse than we thought. After all, we know that a New Zealander on the average wage can't afford to pay the average mortgage on the average house. A family on an average income does not enjoy world class standards of living, and getting by is still a daily battle.

You don’t have to be an avaricious plutocrat to be in the one per cent. You only need to be an adult worth more than USD $759,900, so if you own a home in Pt Chev mortgage free, you are probably in the club. This tells us that this is not the result of the one per cent’s greed or hard work, but the result of bad policy producing predictable results. 

The upward distribution of wealth is a global story – the ultimate megatrend. And, even as total wealth rises, the global crisis of wealth inequality gets worse. The Credit Suisse report bolsters Thomas Piketty's claim that capital earns not just more wealth than other forms of income, but will keep generating a greater and greater share until or unless policy intervenes.

Without the exertion of political will on a global scale, massive disparities in wealth between and within nations will continue to create misery, conflict, famine and disease.

Now is precisely the wrong time for social democrats to turn our backs on the progressive internationalist legacy of which we can be rightly proud. Inequality is not an unfortunate and inevitable abstraction. These trends can be reversed, and we need to spell out alternatives with clarity and confidence.

We need to recognise fair development is the highest priority policy issue for anyone who opposes unfairness and poverty.

We need to support the creation of wealth and ensure it is distributed to the many, not increasingly to the fortunate one per cent. We need both to champion the tools of development and the tools of fairness. Without both, neither will deliver adequately for the 99 per cent. Only social democracy combines development and fairness by viewing the two as inseparable; that's the point of social democracy.

Reversing the trend towards global inequality requires us to take some positions that social democrats in New Zealand have sometimes resisted.

First, we need to be on the side of switching taxes from income to wealth. When the richest 0.1 percent earn almost half of all capital gains and dividends, the unfair distribution of wealth in New Zealand will not be addressed without taxing capital gains and even capital whether or not it produces income. This is possible if we advocate for replacing some of the tax on incomes of working people with tax on ownership of assets - from earning to owning.

Second, managed markets do more to reduce poverty than any other system. Not open slather free markets, which accumulate wealth to the one per cent, but managed markets governed by fair rules that allow for enterprise, trade and development. Managed markets were the hallmark of modern successful, developed social economies. It takes a village to create wealth, and when the benefits from economic development are shared by everyone, everyone has an incentive to contribute.

And therefore, third, because you cannot manage markets without the tools for creating rules, extremes of wealth distribution will not be changed without international cooperation. 

There was a time when international solidarity was an article of progressive faith. We need to be internationalists. We are citizens of the world. Social democracy opposes economic nationalism, inward looking reactionaries, and nativists fearful of foreigners, both because we recognise our responsibility to our fellow global citizens, but also because we recognise that we can gain from cooperating.

We need agreements between governments to harmonise tax systems and minimise avoidance. You can't break down entrenched inequality if the owners of capital can hide in another jurisdiction. This is not something that can be fully tackled by a single nation. 

We can't have effective tax, trade and investment agreements on the one hand and on the other hand also pledge to pick and choose provisions in agreements to honour or ignore. 

Social democrats should advocate loudly for international agreements to include inequality-reducing policy like tax harmonisation and labour rights. And in doing so we can be pragmatic to accept that gains sometimes require tradeoffs. If we are not prepared to accept them, then neither will others and then you might as well give up on efforts to improve the world through cooperation.

Global inequality is the number one issue for the progressive left. We cannot fight for a fairer world of greater opportunity without being confident in our role of caring about people wherever in the world they live. We won’t get a fairer world by opportunistically opposing the taxes necessary to break down the brick walls of privilege, or by opposing the great global trend toward closer integration and more complex value chains.

Justin Trudeau's Liberal party in Canada just won government by running an up-beat, optimistic campaign to tackle inequality, invest in infrastructure, and manage markets so they work for the 99 per cent not just the 1 per cent. That's how progressive parties win.

Comments (11)

by Murray Grimwood on October 23, 2015
Murray Grimwood

'We need to support the creation of wealth'

Then perhaps we need to ask what 'wealth' is, first.

Then ask what underwrites it.

Yes, we need to move to a fairer and an egalitarian society - all other models overshoot and collapse (Tainter, Diamond, Orlov et al).

But try reading 'The Race for What's Left' (Klare),

The 1% are merely levering their current advantage(s) to mop up. While the 'Left' has to sing a 'song of future joy' to swing some of the punters back from the individual-winner dream.

Value added to what, and value added to how much more of the what? If you want to go that way - assigning bigger numbers to limited stocks of physical resources - fine, but we need to ask whether numbers are wealth. I suggest that ultimate depletion overrides all, and that access to resources - food, water, energy - is real wealth.

 

by mikesh on October 23, 2015
mikesh

American economist, Michael Hudson, has on his website (michael-hudson.com), a couple of recent postings that should be required reading for all on the left  - The Paradox of Finanialized Industrialization, and Rewriting Economic Thought. According to Hudson Marx thought that two problems needed to be solved - unearned income (mainly interest and land rent), and exploitation of workers. Marx apparently thought that the first would solved by the rising capitalist class, but this turns out not to have been the case.

Should we nationalize the banking system and use it to support productive activity with interest free, or low interest, loans. Should we make interest, where it is charged, non deductible for tax purposes. Nationalizing land would probably be unstable politically but the imposition of land taxes would be preferable to capital gains taxes as the latter would be unlikely to have any effect on interested rates, while a land tax would reduce the revenue from which interest can be paid. This of course is why the banks prefer CGT to other alternatives.

Marx's thoughts on unearned income seem have disappeared from sight in modern policy making, with only a few economists like Hudson still carrying the torch.

 

 

by Alan Johnstone on October 23, 2015
Alan Johnstone

"A family on an average income does not enjoy world class standards of living"

Here's the thing, get  90%+ of the worlds population to look at the average new Zealander and ask them that question and they'd give you a very different answer.

People in this country enjoy some of the highest living standards in the history of mankind and do so with the protection of generous social welfare and universal health care and education.

Any one that doesn't realize that we are incredibly fortunate to live here, now, has some serious expectation problems.     

by Lee Churchman on October 23, 2015
Lee Churchman

Reversing the trend towards global inequality requires us to take some positions that social democrats in New Zealand have sometimes resisted.

That's a waste of time. Outside of the minority of politically engaged people, not enough voters care about inequality, either because they don't notice it or they just aren't that bothered about it. The era in which democratic politics was able to effectively employ collective action to ameliorate inequality appears to be over. 

by DeepRed on October 27, 2015
DeepRed

"You can't break down entrenched inequality if the owners of capital can hide in another jurisdiction. This is not something that can be fully tackled by a single nation."

The Tax Justice Network has been doing some groundwork in exposing this.

Britain could do worse than to close all the tax loopholes of its remaining Overseas Territories. David Cameron has thought out loud of it, but is he prepared to get offside with what could be many of his wining & dining buddies?

In the long run, some form of FTT/Tobin tax would need global backing to work effectively. It catches speculative flows, which is one activity the 'hyperclass' engage in that just about everyone else doesn't.

by DeepRed on October 27, 2015
DeepRed

Alan J: "People in this country enjoy some of the highest living standards in the history of mankind and do so with the protection of generous social welfare and universal health care and education."

Which is bursting at the seams, because an elite few have cornered the market in public goods for their own gain.

by Murray Grimwood on October 27, 2015
Murray Grimwood

DeepRed - you're looking to fix a sinking by sharing the lifejackets more equitably.

Cameron isn't about 'wining and dining', he's about Party funding - as are Labour-type Parties the world over. Currying funds, don't rock the boat/upset the applecart.

Other comments above, point out the real problem. That in turn points out yours/Josies.

It's not 'the 1%' are the problem. Take them out of the picture completely, and all our resource-depletion, overpopulation, pollution-impact issues are still there, still growing.

So I suggest there's a blame-shift in your argument.

Same ars the 'conservationist/environmentalist' approach - drive a hybrid to a 'save the' meeting. It's still using FF, still a rear-guard move, from those hoping to continue their levels of comfort while choosing to believe that someone else has to do the changing.

Labour will remain future-irrelevant, until they confront the coming paradigms head-on. I offered to give their Policy folk a talk, more than a year ago. They haven't got back yet, and I've heard they filed it under 'Environment' - so they have a ways to go.

If unpleasant paradigms are inevitably ahead, good leadership requires they be confromted honestly and broadly. All else is bad leadership, destined to be laughed-at in the history books.

by Katharine Moody on October 27, 2015
Katharine Moody

@murray

It's not 'the 1%' are the problem. Take them out of the picture completely, and all our resource-depletion, overpopulation, pollution-impact issues are still there, still growing.

DeepRed made a good distinction between what is commonly presented as the 1% and what we really are talking about here: a 'hyperclass' - which if I get DeepRed right - isn't just about individuals, but collections of individuals within major multinational institutions/organisations/corporates/entities that employ movement of capital and other regulatory techniques unavailable to individuals (whether they be in the 1% or not).

But on to your point, regardless of the end-point, suffering the world over occurs today. People die of hunger, people get shot, people commit crimes just to keep a roof over their heads, people commit suicide, .. you get the picture.

The point I'm making is that, no matter whether or not you or I or anyone else thinks that folks are failing to see the end-point/end-game and/or the reasons/impact behind what we are actually witnessing in society - that doesn't mean initiatives such as a FTT/Tobin tax are invalid - as the point is they are likely to reduce present-day inequality/suffering.

 

by Murray Grimwood on October 27, 2015
Murray Grimwood

Good comment - but......

A Tobin Tax (as I understand it, that would tax fiscal traders) isn'y going to solve anything, if the tax is then spent on, say, oil exploration surveys........

If the 1% 'own' say 50% of the 'wealth', then there are two questions. One - if they don't 'spend' it, are they doing the biosphere a better favour that the bottom half spenting it on resource-depleting survival? Two - if you took that 50% off the table (the croupier is a socialist, say :) and assumed a growth-rate of 3%, you'd be back where you were in 24 years rate-of-consumption-wise. Actually, you'dhave never stopped depleting.

That said, an egalitarian society is the only sustainable one outside of a regime of permanent extermination. It's got my vote. No use trying it without the other pieces, though; egalitarianism has to be well-fed, well-watered, well-energied, well-housed and non-polluted to survive long term.

:)

by Murray Grimwood on October 27, 2015
Murray Grimwood

an edit function, my solar array for an edit function. Maybe Mega has a spare?

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