US and World Politics

Rising World Inequality

By Michael Roberts

There is a book sweeping the popular media at the moment.  It’s called Factfulness.  It purports to argue that, contrary to the conventional wisdom, the world is becoming a better place.  Poverty is falling, life expectancy is rising; health levels are improving; people have more things and better services.  Even violence and wars are in decline.

This is a hoary old message that has been expounded in the past by billionaire Bill Gates, among others.  Indeed, he gives this new book much praise—as it justifies his view that things are getting better for the majority and with the right policies on health, education, population, climate change etc., the world can progress without any change in its mode of production and social structure.

I have taken up this optimistic message in previous posts and my latest book, Marx 200, discusses the dialectical nature of the development of capitalism—something Marx recognized as early as 1848 in the Communist Manifesto.  Yes, capitalism has taken the productive forces forward like no other mode of production before (slave society, feudalism and Asian despotism) but it also carries with it a dark side of increased exploitation, dominance of the market and machine over people’s freedom and livelihoods; and global wars and even the destruction of the planet.

In contrast to the optimistic Factfulness, the latest World Inequality Report is a sobering analysis.  Inequality between rich and poor is widening at an increasing pace.  The authors, the most highly respected experts on inequality of income and wealth globally, conclude that the number of billionaires rose by the biggest amount ever in 2017, while over half the world’s population lives on between $2 and $10 a day. The report shows the share of wealth held by the top one percent of earners in the U.S. doubled from ten percent to 20 percent between 1980 and 2016, while the bottom 50 percent fell from 20 percent to 13 percent in the same period.

Kofi Annan, former head of the United Nations, called this scale of global economic inequality “staggering and shaming.”  The authors find that income inequality has increased in nearly all world regions in recent decades, but at different speeds.  Since 1980, income inequality has increased rapidly in North America, China, India, and Russia. Inequality has grown moderately in Europe.

At the global level, inequality has risen sharply since 1980, despite strong growth in China. The poorest half of the global population has seen its income grow significantly thanks to high growth in Asia (particularly in China and India.) However, because of high and rising inequality within countries, the top one percent richest individuals in the world captured twice as much growth as the bottom 50 percent individuals since 1980.

When it comes to inequality of wealth as opposed to income, there are some startling findings in the report.  “Economic inequality is largely driven by the unequal ownership of capital, which can be either privately or public owned. We show that since 1980, very large transfers of public to private wealth occurred in nearly all countries, whether rich or emerging. While national wealth has substantially increased, public wealth is now negative or close to zero in rich countries.”

The authors reckon that the combination of large privatizations and increasing income inequality within countries has fuelled the rise of wealth inequality, even if it has not yet returned to its extremely high early-twentieth-century level in rich countries. The rise in wealth inequality has nonetheless been very large in the United States, where the top one percent wealth share rose from 22 percent in 1980 to 39 percent in 2014. Most of that increase in inequality was due to the rise of the top 0.1 percent wealth owners.

In my view, inequality of wealth and income is an inherent feature of class societies, and capitalism is no exception.  But that does not mean it would rise indefinitely, a point made by the Inequality report.  That depends on dynamics of capital accumulation and policy action by governments.

Naturally, the authors (or Kofi Annan) do not propose a radical restructuring of the capitalist system i.e., its replacement.  Instead, they look for progressive taxation of incomes; control of tax evasion and offshore havens for wealth; “more education” and public investment.  The problem with these worthy policies is that they cannot be implemented if the interests of capital are to be protected, particularly when capitalism is struggling to sustain the profitability of capital precisely by holding down trade union strength (which is an important counter to rising inequality ignored by the authors;) maintaining privatizations (not public investment) and “deregulating” labor markets i.e., by increasing the overall exploitation of labor.

Moreover, recurring crises in capitalist production are not the result of rising inequality (although some leftists argue this;) and so the real faultlines of capitalism will not be resolved by reducing inequality.

What is also missing from the report is why wealth inequality has risen—it is mainly the result of the increased concentration and centralization of productive assets in the capitalist sector.  The real wealth concentration is expressed in the fact that big capital (finance and business) controls the investment, employment and financial decisions of the world.  A dominant core of 147 firms through interlocking stakes in others together control 40 percent of the wealth in the global network according to the Swiss Institute of Technology. A total of 737 companies control 80 percent of it all. This is the inequality that matters for the functioning of capitalism—the concentrated power of capital.

Michael Roberts Blog, May 15, 2018