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Capitalism and Worldwide Inequality

by Conrad Schuhler and Thomas Fromm Wednesday, Aug. 01, 2018 at 10:14 AM

Thomas Piketty's motto "Inequality is always a problem when it is excessive" introduces the new World Inequality Report. Inequalities of income and wealth swell globally and in individual regions and nations.


By Thomas Fromm

Whoever strives and works becomes prosperous. That is the promise of the market economy repeated again and again. However this promise is not true. Whoever is on the bottom stays on the bottom. The British sociologist Andrew Sayer describes this in his book “Why We Cannot Afford the Rich”

[This article published on 11/13/2017 is translated from the German on the Internet, The lower social strata do not benefit from prosperity and luxurious investments in the economy.]

There were times when the distribution of prosperity was envisioned like a vegetable bed. Water was regularly poured from above and everyth8ng grew. The whole bed developed evenly since the water seeped down to the roots.

The economy was declared a bed under former president Ronald Reagan. His economic advisor David Stockman called this variant of a supply-oriented economic policy the “trickle-down effect.” Tax cuts and other charities for the rich would spread their prosperity – bound with luxuriant investments in the economy and a resulting turbo-growth – to the lowest social classes.

This trickle-down theory was not uncontested at that time. 30 years later, it is refuted. A political economy does not function as simply as a vegetable bed.

Undeserved Wealth

The British sociologist Andrew Sayer from the University of Lancaster was not the first to show where economic prescriptions like Reaganomics lead. But he did this in a very concise and understandable way

“The rich may claim their riches trickle down and creates jobs when they spend it. Ultimately, all the villas and yachts must be seen. They spend a lesser part of their income on goods and services since they have more than they can spend.”

The luxury Mediterranean tour of a group of billionaires on a super-yacht in one afternoon can burden the environment more than an African resident over his whole life. Bishops Avenue in London is another example. Every third house is vacant most of the year be cause their properties are part of the tax-saving model of rich foreigners.

Wealth is often the undeserved consequence of inheritances, interests, high dividends and rental incomes…

Economic growth was rather average in those years – compared with the boom of the postwar years. Great crises occurred; the largest was the serious financial crisis of 2007 and 2008 which the wealthy survived much better than the less wealthy, Sayer explained. They already had vast wealth before.

Higher Taxes

Sayer urges higher taxes. Different from Thomas Piketty in his bestseller “Capital in the 21st Century,” the author spares his readers pages of graphs on the origin of wealth concentration.

Sayer brings together many things in a stirring way: economics, empirical sociology, philosophy, history and much Karl Marx. Class membership, the author says, is “the greatest unspoken problem” today. His book could obviously be categorized as “leftist.”

“How you classify it does not matter to me. That the arguments are convincing – and if not, what the counter-arguments are interest me.”

Sayer has his strengths when he discusses the mechanisms of the financial sector and its speculators. His conclusion is that mammoth gambling at the expense of society and nature continued in the years after the great global financial crisis. Profits are still private and the costs of the tragedy are shifted to everyone.

Primal Capitalist Fall of Man

Sayer is weak when he gets stuck ideologically. Unfortunately, this happens now and then. A book about social inequalities could do better in these times without the language repertoire of Marxism...

The inequality researcher Sayer already senses the primal capitalist fall from grace or policy misconduct. Still, one could exclaim: Let the woman alone with her success when she earned it. We do not need the billionaires on the Mediterranean. Successful female entrepreneurs should be able to afford that!


By Conrad Schuhler

[This article published on 7/21/2018 is translated from the German on the Internet,]

The “2018 World Inequality Report” by Piketty, Alvarado and others and the “social question” are global and be come ever more urgent.

Thomas Piketty’s motto “Inequality is always a problem when it is excessive” introduces the new World Inequality Report. The inequalities of income and wealth swell globally and in the individual regions and nations. The top 1% of income earners worldwide profited twice as much from growth since 1980 as the lower 50% of the world population. However, the incomes of this poorer half clearly increased thanks to high growth particularly in China and India. Persons with an income between the lower 50% worldwide and the top 1% experienced a sluggish income growth or even a negative growth. All lower and medium income groups in North America are counted in this group. The share of the top 1% worldwide rose from 16 to 22% between 1980 and 2016. Since 1980, the lower 50% worldwide realized around a 9% gain.

Income inequality develops at different speeds within the individual regions. In the “West,” the US shows by far the greatest inequality. In 1980, the top 1% of income recipients both in North America and Western Europe gained 10% of the total income. In Western Europe, it rose slightly since then to 12%. In the US, it skyrocketed to 20%. In the same time period, the share of the lower 50% in the US fell from 20 to 13%.

In Europe, the share of the top 10% from 1980 to 2016 rose from 33 to 37%, in China from 28 to 41%, in Russia from 21 to 40%, in the US and Canada from 34 to 47% and in India from 31 to 55%.

Neoliberal journalism attacks the finding of growing social inequality of the Piketty team. In the Handelsblatt journal, ifo-chief Clemens Fuest rejects the conclusions for Germany (HB 7/20/2018). Germany is “as country with moderate income inequality and a strongly developed social state that redistributes an enormous amount of money. Facts oppose this neoliberal propaganda. Since 1983, the income share of the top 1% in Germany increased 33% while the lower 90% fell.

The core statements of the Inequality Report are true for the export-surplus world master Germany and for the global economy. That the top 0.1% of income distribution since 1980 has as large a share in the global income growth as the lower half of the adult world population raises questions of morality, political instabilities and mobilizations and not only questions of demand development. If productive possibilities were used in globally sensible ways and the results were distributed justly, all persons could live according to their desires and needs and develop and turn to one another. But if the rich and super-rich draw more and more of the income to themselves, then the absolute and relative misery of the poor will be ever greater. This is ultimately hidden behind the formula of “growing income inequality.”

With their long-term charts, Alvarado, Piketty and Co. assume worldwide income inequality will continue growing. The stronger divergence forces (increasing inequality in the countries) face the convergence forces (rapid economic growth in the threshold countries).

The authors propose measures for reducing inequality. Firstly, they repeat that progressive taxation of income is a means in the struggle against growing income- and wealth inequality. The tax progressivity in rich countries has clearly diminished since the 1970s.

Secondly, tax avoidance should be fought. At present, assets amounting to more than 10% of the global GDP are hidden in tax havens. This offshore wealth has grown snce the 1970s. Identifying the owners of financial wealth has also become increasingly difficult. A global financial register must disclose the owners of stocks, shares and other financial wealth.

Thirdly, access of the lower half of the population to education and good-paying jobs must be made easier. In the US, only 20 to 30% of 100 children whose parents are in the lower 10% of income distribution obtained a university education while the share of children whose parents were among the top 10% of the population is at 90%. Social inequality is inherited.

Fourthly, Piketty and colleagues point out that investments in the future will be harder and harder to finance because the public authority in rich countries is impoverished.

Zero deficits are the guarantee for the intensification of the social question.

All the proposals of international experts on combating inequality imply the questions: Who owns the city? Whose interests are reflected in the decisions? Today, it is in the hands of big capital and the profitable foundations of the super-rich. Measures against inequality can only be expected when their influence is pushed back. That is banal on one hand and fundamental on the other hand. The juxtaposition is here monopoly capital and there the many dependent on their labor.

Alvarado, L. Chancel, T. Piketty, E. Suez, G. Zucman, The Worldwide Inequality, 2018, C.H. Beck, Munich

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