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