‘The eight include some of the world’s largest philanthropists and those, such as Warren Buffett, left, and Bill Gates, right, who have spoken out against the shocking scale of inequality in the world.’ Photograph: Rick Wilking/Reuters
On January 16, 2017, Mark Goldring, the CEO of Oxfam writes on The Guardian:
Today, eight people have the same wealth as the poorest half of the world’s population. Stop and think about this. It is a mind-boggling concept.
Last year we said we would have needed a double-decker bus to transport the 62 people we thought owned the same as the poorest 3.6 billion on the planet. In 2017, thanks to more accurate data, we find that in fact this group would fit in a single golf buggy.
Today nearly 800 million people – one in nine – across the world will go to bed hungry or undernourished. The adults will wake up uncertain when they will next eat, whether they will have work, fearful for their health and the costs that illness in the family might bring. The eight men – yes, they’re all men – and their fellow billionaires will wake up having slept rather better, and their wealth, invested across the world, will have increased by countless millions even as they slept.
It would be easy to vilify the eight, to make each individual a poster boy of the growing chasm between the richest and the rest. But painting these individuals as the villains would be unfair. The eight include some of the world’s largest philanthropists and those, such as Warren Buffett and Bill Gates, who have spoken out against the shocking scale of inequality in the world. These eight men are not themselves the cause of the poverty so many still live in. But they are the most powerful representatives and beneficiaries of an economic system in which wealth accrues more wealth; where wealth means power and influence, which in turn leads to laws and practices that help the rich get richer.
So this is not an exposé of eight people, but of a broken economics. Narrowing the gap between the richest and the rest requires us to take on a more challenging task than asking eight men to change their behaviour. It requires us to create a more human economy; one that does not result in 1% of the world’s population owning the same wealth as the other 99%. One that encourages and rewards enterprise and innovation, yes, but one that also offers everyone, regardless of background, a fair chance in life and ensures when individuals and businesses succeed, they do so for the benefit, rather than at the expense, of others.
Too often today, our economy rewards rather than discourages bad behaviour. Tax avoidance costs poor countries more than $100bn annually that could be used to provide clean water, lifesaving medicines or education. Rich countries, including the UK, lose countless billions more. Yet governments, anxious to defend their own corporate sectors and perceived national interests, have failed to adequately respond to companies’ use of tax loopholes, corporate power and new technology to avoid paying their fair share. Small, taxpaying businesses are forced to operate at a competitive disadvantage against multinationals, encouraging them to find their own dodges in a desperate effort to level the playing field.
Nowhere is the old proverb “money begets money” more apparent than in how companies seem determined to stuff the pay packets of their top executives, whatever the economic weather. Here in the UK, a FTSE 100 director can expect to pocket about £5.5m a year. A leading UK CEO now earns almost 130 times the wage of their average employee, up from just 10 or 20 times as recently as the 1980s.
Meanwhile, those without economic power feel the pain: the producer in a developing country, the low-paid UK worker, the woman juggling work and childcare, are squeezed until their pips squeak, all in the name of returning as much money as possible to predominantly wealthy shareholders. Last autumn, the Institute for Fiscal Studies warned that their fellow Britons were in the midst of decade of lost wage growth, the worst for 70 years. Justifying such a growing divide in terms of merit will be hard. A recent study by CFA, the global association of investment professionals, found the link between the pay and performance of 350 top executives to be negligible.
In a survey of 700 experts, published ahead of its annual gathering in Davos this week, the World Economic Forum pinpointed inequality as the number one threat to the global economy during the year ahead. It also cited it as a key factor in continuing extreme poverty, political instability, violence and the polarisation of societies. Yet there appears little hope of substantive change being proposed by leaders at WEF. In the short-term at least, GDP growth will remain their answer to all ills.
We have made huge progress in reducing global poverty, and wealth creation has played a major part. But the real incomes of the world’s very poorest have gone up by just $3 a year over the last 25 years. We need to recognise that economic growth and wealth creation are not in themselves enough to ensure decency and dignity for all.
A properly functioning economy requires our companies to see themselves as vital contributors to society, rather than a means of extracting wealth from it. It demands that governments set the rules in a way that reward, rather than penalise, them for good behaviour. It requires us to better balance the important incentives for people to save, invest and create jobs with an approach to sharing the benefits that will allow countries to run the public services that all citizens need, the poor far more than the rich; that allows people to earn a real living; and that supports the most vulnerable.
Moving towards a more human economy also means looking seriously at different approaches to corporate ownership – such as cooperatives and other forms of wider involvement – and how they can help in giving a greater number of people a greater stake in both the national and global economies. There are individuals and companies that are already trying to do it right but they are the exception not the norm.
Responsible and responsive leadership – the theme of this year’s Davos conference – requires governments and companies to really step up if we are to eradicate extreme poverty as the world committed to so bravely in the sustainable development goals just 16 months ago.
This article should be an eye-opener to the reality of concentrated capital asset ownership among a tiny wealthy capital ownership class.
I concur with the statement by the author that the challenge “requires us to create a more human economy; one that does not result in 1% of the world’s population owning the same wealth as the other 99%.”
The system is the culprit. The system has been rigged by the wealthy and their political cronies to put up barriers that inhibit or prevent ordinary people from purchasing capital that pays for itself out of its own future earnings. That is because the system requires “past savings” (denial of consumption) to finance capital formation projects.
In place of retained earnings and debt financing that only further concentrates capital asset ownership among those who already own and who have accumulated past savings, the government should require business corporations to issue and sell full-voting, full-dividend payout stock to more people to underwrite new productive capital formation, with the purpose of providing opportunity for new owners, both employees of corporations and non-employees, to participate in a growing economy by purchasing the newly issued stock using insured, interest-free “pure credit” repayable out of the full earnings generated by the earnings produced by the actual future capital assets. Of course, there needs to be a financial mechanism put in place that will guarantee loan risks; otherwise banks and lending institutions will not make the loans, and the system will continue to limit access to capital acquisition to those who already own capital—the rich. This is because “poor” people have no security or collateral, or sufficient income resulting in savings to pledge against the loan as security, and/or are disqualified on the grounds of either unproven unreliability or proven unreliability.
Capital acquisition takes place on the logic of self-financing and asset-backed credit for productive uses. People invest in capital ownership on the basis that the investment will pay for itself. The fact is nobody who knows what he or she is doing buys a physical capital asset or an interest in one unless he or she is first assured, on the basis of the best advice one can get, that the asset in operation will pay for itself within a reasonable period of time––5 to 7 or, in a worst case scenario, 10 years (given the current depressive state of the economy). And after it pays for itself within a reasonable capital cost recovery period, it is expected to go on producing income indefinitely with proper maintenance and with restoration in the technical sense through research and development.
Still, there is at least a theoretical chance, and sometimes a very real chance, that the investment might not pay for itself, or it might not pay for itself in the projected time period (typically three to seven years). So, there is a business risk. This is why a form of capital credit insurance needs to be provide to secure the loans banks make to finance new capital formation project and create new capital owners. Otherwise, the lender has no reason to loan unless it has two sources of repayment. In addition to determining that the investment is viable and that the company is credit worthy and reliably expected to make loan repayments, there needs to be security against default. Thus, for the lender to make the loan security must be provided. This is the purpose of past savings meaning valuable assets can be seized should the investment not return sufficient earnings as projected.
But there is another way to provide loan security facilitated with private capital credit insurance or a government reinsurance agency (ala the Federal Housing Administration concept).
Accessible capital credit insurance is essential to broadening capital ownership with the benefit that expanded capital ownership drives expanded consumer power to purchase products and services.
Capital formation investments are made by companies annually because they are based on projections a number of years out (at least 5 to 10 years) with the expectation that the investment will pay for itself as a result of sustainable growth and consumer demand. Thus, the concept embraces the idea that capital formation is self-financing. The question is who pledges the security and takes the risk of failure to return the expected yield from which to repay the loan.
Conventionally, most people do not have the right to acquire productive capital with the self-financing earnings of capital; they are left to acquire, as best as they can, with their earnings as labor workers and the pledge of past savings. This is fundamentally hard to do and limiting. Thus, the most important economic right Americans need and should demand is the effective right to acquire capital with the earnings of capital. Note, though, millions of Americans own diluted stock value through the “stock market exchanges,” purchased with their earnings as labor workers, their stock holdings are relatively minuscule, as are their dividend payments compared to the top 10 percent of capital owners. Pew Research found that 53 percent of Americans own no stock at all, and out of the 47 percent who do, the richest 5 percent own two-thirds of that stock. And only 10 percent of Americans have pensions, so stock market gains or losses don’t affect the incomes of most retirees.
What historically empowered America’s original capitalists was conventional savings-based finance and the pledging or mortgaging of assets, with access to further ownership of new productive capital available only to those who were already well capitalized. As has been the case, credit to purchase capital is made available by financial institutions ONLY to people who already own capital and other forms of equity, such as the equity in their home that can be pledged as loan security––those who meet the universal requirement for collateral. Lenders will only extend credit to people who already have assets. Thus, the rich are made ever richer through their continuous accumulation of capital asset ownership, while the poor (people without a viable capital estate) remain poor and dependent on their labor to produce income. Thus, the system is restrictive and capital ownership is clinically denied to those who need it.
Thus, as binary economist Louis Kelso asserted: “The problem with conventional financing techniques is that they address only the productive power of enterprise and the enhancement of the earning power of the rich minority. Sustaining or increasing the earning power of the majority of consumers who are dependent entirely upon the earnings of their labor, or upon welfare, is left to government or governmentally assisted redistribution of income and to chance.”
We need to reevaluate our tax and central banking institutions, as well as, labor and welfare laws. We need to innovate in such ways that we lower the barriers to equal economic opportunity and create a level playing field based on anti-monopoly and anti-greed fairness and balance between production and consumption. In so doing, every citizen can begin to accumulate a viable capital estate without having to take away from those who now own by using the tax system to redistribute the income of capital owners. What the “haves” do lose is the productive capital ownership monopoly they enjoy under the present unjust system. A key descriptor of such innovation is to find the ways in which “have nots” can become “haves” without taking from the “haves.” Thus, the reform of the “system,” as Kelso postulated, “must be structured so that eventually all citizens produce an expanding proportion of their income through their privately owned productive capital and simultaneously generate enough purchasing power to consume the economy’s output.”
It is the exponential disassociation of production and consumption that is the problem in the United States economy, and the reason that ordinary citizens must gain access to productive capital ownership to improve their economic well being.
To read more about how to universally distribute economic power amongst individual citizens and never allow capital ownership to concentrate see my article “Economic Democracy And Binary Economics: Solutions For A Troubled Nation and Economy” at http://www.foreconomicjustice.org/?p=11.
