Eighty-Five People Have More Wealth Than Half The World

It is undeniable that wealth and income inequality is growing in the U.S. and across the world. But the scale and extent of it is far more than previously imagined. Although about six months by the time of this post, the report by  Oxfam International — titled “Working for the Few” — is no less stark and relevant in its identification of a “growing tide of inequality” (to use the report’s own description).

You can read the report yourself, but Laura Shin of Forbes did a good job of breaking down the sobering statistics:

  • Almost half of the world’s wealth is now owned by just one percent of the population.
  • The wealth of the one percent richest people in the world amounts to $110 trillion. That’s 65 times the total wealth of the bottom half of the world’s population [3.5 billion people].
  • The bottom half of the world’s population owns the same as the richest 85 people in the world.
  • Seven out of ten people live in countries where economic inequality has increased in the last 30 years.
  • The richest one percent increased their share of income in 24 out of 26 countries for which we have data between 1980 and 2012.
  • In the U.S., the wealthiest one percent captured 95 percent of post-financial crisis growth since 2009, while the bottom 90 percent became poorer.

The following chart compiled from this data highlights just how much the problem has grown: while every country saw some growth in inequality, the U.S. by far saw the most dramatic increase:

Although the report makes clear that some economic inequality is necessary to foster growth (in line with mainstream economics) it also warns that wealth concentration at this severity “threaten[s] to exclude hundreds of millions of people from realizing the benefits of their talents and hard work” — also in line with what we’ve learned from both history and economic research.

In particular, the Oxfam report emphasizes the corrosive effect that such inequality can have on democratic governance and social mobility, due mostly to the fact that “when wealth captures government policymaking, the rules bend to favor the rich, often to the detriment of everyone else”

According to polls conduct by Oxfam in Spain, Brazil, India, South Africa, the U.K. and the U.S. — a mix of developed and developing economies — the majority of people in these countries believe that “laws are skewed in favor of the rich” in a variety of areas, including financial deregulation, tax laws favoring the wealthy, economic austerity, policies that disproportionately harm women and the poor, and the use of oil and mineral revenues.

Despite all the grim news, the report does point out that such trends aren’t irreversible: there are plenty of historical examples of countries minimizing inequality and creating broader prosperity (notably the U.S. and Europe following the Second World War). In fact, since the turn of the century, Latin America has made significant inroads in reducing its historically high rate of inequality and underdevelopment, although it still has a long way to go.

Is there enough political will in each country, not to mention on a global level, to resolve this problem before it worsens? Or is this issue overblown? What do you think?

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New polling out from NBC and the Wall Street Journal shows a huge shift in attitudes towards poverty and the poor over the last 20 years. According to the survey, 46 percent Americans believe that poverty is caused by circumstances beyond people’s control, versus 44 percent who think it’s caused by impoverished people not doing enough to improve their station in life. The last time the survey asked that question, in 1995, a full 60 percent of Americans felt that the poor weren’t doing enough to lift themselves out of poverty, compared to just 30 percent who blamed extraneous factors. Hard times, it would seem, have made us more sympathetic to the plight of the poor. There’s nothing like a massive economic downturn to foster a little empathy.

And that makes sense. When the economy so rapidly and viciously turns on so many people, it’s hard to maintain the sense of idealism that leads one to believe that hard work and ambition are all that’s required to secure a comfortable, reasonably prosperous existenc

Simon Maloy, Salon

New polling out…

Five Disquieting Examples of Extreme Inequality in the U.S.

Nowadays, there is no shortage of evidence that the American economic and political system is fundamentally unjust — and subsequently inefficient and dysfunctional. Yet, despite the dire consequences, many of these problems remain under the radar of both media and the public as a whole.

Just consider these five perturbing examples of greed highlighted in a recent article in AlterNet, all of it on a scale most of us can scarcely imagine. As you go down the list, consider the many problems that bedevil this country — crumbling infrastructure, stagnant incomes and wages, etc — in juxtaposition with the following:

1. $1,000,000,000,000,000 in Sales. Not One Cent for Sales Tax

The trading volume on the Chicago Mercantile Exchange (CME) reached an incomprehensible $1 quadrillion in notional value in 2012. That’s a thousand trillion dollars. In comparison, the entire U.S. GDP is $17 trillion.

On that quadrillion dollars of sales CME imposes transfer fees, contract fees, brokerage fees, Globex fees, clearing fees, and contract surcharges, many of them on both the buyer’s and seller’s side. As a result, the company had a profit margin higher than any of the top 100 companies in the nation from 2008 to 2010, and it’s gotten even higher since then.

But not a penny in sales tax for the taxpayers who provide publicly-funded infrastructure, technology, systems of law, and security to help them process billions of financial transactions.

Instead — incredibly — CME complained that its taxes were too high, and they demanded and received an $85 million tax break from the State of Illinois.

2. A Single Tax-Avoider Made More Money in 2013 Than ALL the Emergency Responders in the U.S.

Warren Buffett watched his net worth grow by $12 billion in one year, much more than the $8.3 billion our country spends on almost a quarter-million Emergency Medical Technicians and Paramedics.

Meanwhile, his company, Berkshire Hathaway, hasn’t been paying its taxes. According to the New York Post, “the company openly admits that it owes back taxes since as long ago as 2002.” A review of Berkshire Hathaway’s annual report confirms that despite profits of almost $29 billion in 2013, a $395 million refund was claimed, while $57 billion in federal taxes remain deferred on the company’s balance sheet.

Berkshire Hathaway does report an income tax expense. But all of it, in the company’s own words, is hypothetical.

3. Walmart: $13,000 per U.S. Employee Taken in Profits, $4,000 per U.S. Employee Taken from Taxpayers

It gets worse. In addition to Walmart’s $19 billion in U.S. profits last year, the four Walton siblings together made about $29 billion from their personal investments. That’s over $33,000 per U.S. employee in profits and family stock gains. Yet they pay their 1.4 million American employees so little that the average Walmart worker depends on about $4,000 per year in taxpayer assistance, for food stamps and other safety net programs.

How does Walmart spend its profits? Instead of providing a living wage for its workers, company management spent $7.6 billion, or about $5,000 per U.S. employee, on stock buybacks, in order to further boost the value of their stock holdings.

4. U.S. Wealth Grew by $25 Trillion in the Recovery, but 90 Percent of Us Got NONE of It

U.S. wealth grew from $47 trillion to $72 trillion in the four years after the recession, largely as a reflection of continued American productivity. In other words, a full one-third of the total wealth in the U.S. in 2013 was generated since 2009. But the richest 10% took all of it.

That’s $6 trillion per year in new wealth for the rich. In contrast, the total annual cost of ‘entitlements’ and the safety net is less than $2 trillion.

One consequence of this redistribution of wealth is that more money has been transferred from minorities to prosperous white Americans. The richest 1% took 95 percent of the gain. Less than two out of every hundred individuals in the richest 1% are black.

5. Extreme Fees: Nickeled and Dimed until the Retirement Fund is Almost Gone

The one- to two-percent fees don’t seem like much, but savvy financial minds know better. It has been estimated that the average underserved household spends $2,412 each year just on interest and fees for alternative financial services. Food stamp recipients have to pay companies like JP Morgan to process their benefits. The unemployed are getting their benefits through banks who issue fee-laden debit cards instead of cash. And it’s not just low-income households paying the fees. A two-earner household with median incomes will pay an average of over $150,000 in 401(k) fees over their lifetimes.

The fees are not only draining us individually, but also at the levels of local and state government. Los Angeles last year spent more on Wall Street fees than it did on its streets. In Detroit, financial expenses might approach a half billion dollars, in a city where homeowners can barely afford the water services. Chicago may end up paying Morgan Stanley $9.58 billion for a $1.15 billion parking meter deal. And in Rhode Island, it has been projected that the state will pay $2.1 billion in fees to hedge funds, private-equity funds and venture-capital funds over twenty years, the same amount the state will be taking from workers by freezing their cost of living adjustments.

Even setting aside matters of justice and ethics, it is inconceivable from a practical point of view that cash-strapped local governments must pay billions to already-profitable financial firms, or that an institution presiding over an unfathomable $1 quadrillion in capital does not pay a cent in taxes.

This could all be well and good if such private sector actors took the initiative to pay their workers better, donate more to charity, and the like, but as usual the majority of such individuals and institutions show little inclination for social responsibility — they neither want to take the initiative on their own accord nor submit to any state-led mandate via taxation.

So what’s the solution? Well the article ends with these simple but politically challenging solutions:

wealth tax for (1) and (4) above; a minimum wage increase for (2); a speculation tax for (3); public banksand Post Office banks for (5).

What are your thoughts on the matter? Do you see any discrepancy with the data and claims made? Any better solutions that can be offered? I would weigh in further, but time is short on my end, so I leave the floor to you all. Thanks for reading.

The Top Cities for College Graduates

While major metropolises like Los Angeles and New York City have long served as Meccas for young talent, new research by CityLab and the Martin Prosperity Institute reveal several medium-sized but fast-growing cities that are overtaking these traditional destinations. Here is the data in question, which is based on the net domestic migration of workers from one city to another between 2011 and 2012.

Not that the map doesn’t necessarily reflect larger trends, but rather which cities are seeing growth or decline in their skilled workforce; nevertheless, this gives us a pretty good idea of which cities will likely do better in the long run as their talent pool grows. Here’s an analysis courtesy of PolicyMic (my source for this data).

[The] cities that are attracting a coveted educated workforce are “knowledge and tech hubs like San Francisco, Austin, Seattle and Denver, and also Sun Belt metros like Phoenix, Charlotte and Miami.” In particular, “Seattle, San Francisco, D.C., Denver, San Jose, Austin and Portland, as well as the banking hub of Charlotte” are attracting Americans with professional and graduate degrees.

Overall, large metros (especially ones that cost a lot to live and work in) have seen their share of educated workers grow, even as lower-class workers get priced out. San Francisco; Los Angeles; Washington, D.C.; and Miami, for example, all saw a net reduction in less-educated workers. Meanwhile, the cities that saw the biggest influx of workers with just a high school diploma were all in Sun Belt states, mainly with thriving tourist and/or service economies.

Moreover, the analysis also determined that the cities most appealing to graduates and educated professionals tended to have the following characteristics: high concentrations of high-tech and venture capital firms, which tend to invest in the sort of start-ups younger people are more likely to launch; a strong cultural scene with a large creative class; and a high level of diversity and tolerance, particularly with respect to LGBTQ people (indeed, there was a correlation between a large LGBTQ population and growth in the number of young talent moving in).

None of this is too surprising, given that younger people typically favor more tolerance, culture, and social progressiveness. Such values create an atmosphere more conducive to creativity, innovation, and the exchange of ideas — which in turn are vital for a knowledge-based economy (I am also speaking from experience as a lifelong Miami resident currently working for a young marketing start-up that in turn works with other young start-ups).

Well, you might be wondering how it is that LA and NYC don’t perform better in this regard, given that they certainly fit the prerequisites that have benefited other cities. Unfortunately, there’s a clear reason for this: high rents and high levels of gentrification are basically pricing younger grads (among others) out of these cities; furthermore, their overall fast growth and size makes them a bit too crowded for younger people, who increasingly prefer medium-sized cities that offer something of a balance.

Granted, I find that there is a lot of inequality, gentrification, and poverty in the majority of medium-sized cities that have become popular (especially my own hometown of Miami, which ranks as the second-most unequal census area in the country). Will it be that the recent growth in professionals and talent help counteract these trends and bring prosperity? Or is their growth in this area a reflection of widening inequality, such that whole sections of these metros can thrive and growth while others languish and decline?

Again, speaking for Miami, I can say that the latter trend seems to be the case: a drive around the city will simultaneously take you past affluent and vibrant communities as well as blighted slums and ghettos — often right across the street from each other. The growth in talent is important, but how it’s harnessed and where is important. I welcome this trend of course, but I hope it leads to broader change rather than more yawning inequality; otherwise, these now-attractive cities may fall to the wayside just as previous metros have.

Your thoughts?

 

Ten Myths About Poverty

Misconceptions about the origins of poverty are a dime-a-dozen, especially if they place the blame on the poor themselves. But thankfully Mother Jones clears up ten of the most popular and persistent myths bedeviling efforts to address poverty in the U.S.

1. Single moms are the problem. Only 9 percent of low-income, urban moms have been single throughout their child’s first five years. Thirty-five percent were married to, or in a relationship with, the child’s father for that entire time.*

2. Absent dads are the problem. Sixty percent of low-income dads see at least one of their children daily. Another 16 percent see their children weekly.*

3. Black dads are the problem. Among men who don’t live with their children, black fathers are more likely than white or Hispanic dads to have a daily presence in their kids’ lives.

4. Poor people are lazy. In 2004, there was at least one adult with a job in 60 percent of families on food stamps that had both kids and a nondisabled, working-age adult.

5. If you’re not officially poor, you’re doing okay. The federal poverty line for a family of two parents and two children in 2012 was $23,283. Basic needs cost at least twice that in 615 of America’s cities and regions.

6. Go to college, get out of poverty. In 2012, about 1.1 million people who made less than $25,000 a year, worked full time, and were heads of household had a bachelor’s degree.**

7. We’re winning the war on poverty. The number of households with children living on less than $2 a day per person has grown 160 percent since 1996, to 1.65 million families in 2011.

8. The days of old ladies eating cat food are over. The share of elderly single women living in extreme poverty jumped 31 percent from 2011 to 2012.

9. The homeless are drunk street people. One in 45 kids in the United States experiences homelessness each year. In New York City alone, 22,000 children are homeless.

10. Handouts are bankrupting us. In 2012, total welfare funding was 0.47 percent of the federal budget.

The sooner we discard this inaccurate and damaging misconceptions, the sooner can address the root causes of poverty and end the suffering of millions.

Forty-Five Sobering Facts About Global Poverty

Although many readers have no doubt heard this before, it bears reaffirmation: around one billion people — one out of every seven human beings on Earth — live on a daily budget equivalent to just $1.25. That unconscionably meager amount is intended to cover food, healthcare, and shelter, much less any of the pleasantries in life that we take for granted.

While the percentage of people living in such abject poverty was halved by 2010 — and is set to decline by half again in the next two decades — extreme poverty remains a persistent problem in most parts of the world. Although we have greater means and resources than ever to resolve the problem, we still have a long way to go, as indicated by the following 45 facts about poverty in today’s world (courtesy of PolicyMic).

[Apologies for the bad formatting, WordPress seems to be acting up a bit.]

  1. The number of people living on less than $1.25 per day has dramatically decreased in the last three decades, from 52% of the citizens in the developing world in 1981 to 21% in 2010. But, there are still there are still more than 1.2 billion people living in extreme poverty.
  2. The top five poorest countries in the world are India (with 33% of the world’s poor), China (13%), Nigeria (7%), Bangladesh (6%) and the Democratic Republic of Congo (5%).
  3. Adding another five countries — Indonesia, Pakistan, Tanzania, Ethiopia and Kenya — would include almost 80% of the world’s extreme poor.
  4. Sub-Saharan Africa accounts for more than one-third of the world’s extreme poor.
  5. Combining results from 27 Sub-Saharan African countries, 54% of residents are living in extreme poverty — the highest proportion among global regions worldwide.
  6. About 75% of the world’s poor people live in rural areas, depending on agriculture for their livelihood.
  7. About 22,000 children die each day due to conditions of poverty.
  8. In 2010, the average income of the extremely poor in the developing world was 87 cents per capita per day, up from 74 cents in 1981.
  9. Approximately 1.2 billion people — nearly as many as the entire population of India — still live without access to electricity.
  10. If the developing world outside of China returns to its slower pace of growth and poverty reduction of the 1980s and 1990s, it would take 50 years or more to lift 1 billion people out of poverty.
  11. India has a greater share of the world’s poor than it did 30 years ago. Then, India was home about one-fifth of the world’s poorest people. Today, close to one-third of the world’s extreme poor are concentrated in India.
  12. But poverty is not just an issue in the developing world. There are 16.4 million children living in poverty in the United States. That’s about 21%, compared to less than 10% in the U.K. and in France. The percentage of poor children in America has also climbed by 4.6% since the start of the Great Recession in 2007.
  13. In 2012, a North Carolina legislator claimed there was no such thing as extreme poverty in the state. However, three of the top 10 poorest areas in America are located in the North Carolina.
  14. Israel has the highest poverty rate in the developed world, about 20.9%, according to a study by the Organization for Economic Cooperation and Development.
  15. The “extreme poverty rate” among women in the United States climbed to 6.3 percent in 2010 from 5.9 percent in 2009, according to census data.
  16. One out of every six Americans are enrolled in at least one government anti-poverty program. One in four children in America participated in the Supplemental Nutrition Assistance Program (SNAP), also known as food stamps, in 2011.
  17. One in 3 American women — about 42 million — either live in poverty or on the brink of it. And, 1 of every 6 elderly people in America live in poverty.
  18. More than 7.5 million women fell into the “extreme poverty category” in 2010.
  19. Taking food stamps, housing subsidies and refundable tax credits into account, the number of American households in extreme poverty is 613,000, which is about 1.6% of non-elderly households with children.
  20. Poverty is the main cause of hunger because the poor lack the resources to grow or purchase the food they need.
  21. Even though there is enough food produced worldwide to provide everyone with an adequate diet, nearly 854 million people, or 1 in 7, still go hungry.
  22. Around 1 in 8 people in the world, about 842 million people, were estimated to be suffering from chronic hunger between 2011-13.
  23. About 2.8 billion people still rely on wood, crop waste, dung and other biomass to cook and to heat their homes.
  24. Despite the fact that China has achieved more than any other nation in energy efficiency, the country still faces some of the world’s greatest energy poverty challenges. Almost 612.8 million people, nearly twice the population of the United States, lack clean fuel for cooking and heating in China.
  25. More than 6.9 million children died under the age of five in 2011 — that’s about 800 every hour — most of whom could have survived threats and thrived with access to simple, affordable interventions.
  26. The 500 richest people in the world have an income of more than $100 billion — more than the combined incomes of the poorest 416 million. Put differently, the richest 85 people in the world control as much wealth as the poorest half of the world.
  27. A child born in the world’s poorest nations has a 1 in 6 chance of dying before their fifth birthday. In high-income countries, the odds are about 1 in 165.
  28. The world’s 100 richest people earned enough money in 2012 to end world extreme poverty four times over, according to a report by Oxfam.
  29. Rich people who live in neighborhoods with other wealthy people usually give a smaller share of their income to charity than rich people who live in economically diverse communities, according to this study of tax records in the United States.
  30. About 47% of those surveyed believe that if poor people received more assistance, they would take advantage of it.
  31. According to a survey titled “Perceptions of Poverty: The Salvation Army’s Report to America,” almost half of those surveyed agreed that “a good work ethic is all you need to escape poverty.”
  32. Almost 43% agreed that if poor people want a job, they could always find a job, while 27% said that people are often poor because they are lazy. Another 29% even said they have lower moral values.
  33. The median income for people in the developing world is $3 or less. That’s less than the cost of a frappuccino at Starbucks.
  34. The “global middle class” income bottoms out at about $10 a day.
  35. The Pew Research Center’s Project for Excellence in Journalism found that out of 52 mainstream media outlets analyzed, coverage of poverty issues amounted to less than 1% of available news space from 2007 to 2012, a period that covered the historic recession.
  36. The report also concluded that media organizations chose not to cover poverty because “it was potentially uncomfortable to advertisers seeking to reach a wealthy consumer audience.”
  37. An online game titled “Survive125,” was launched by Live58, an NGO devoted to ending extreme poverty and challenges gamers to survive one month on $1.25 a day by facing a series of daunting questions that millions of people face every day just to survive.
  38. However, campaigns like one have been criticized for being “patronizing”: “The idea that you can simply dip your toe into human suffering for a week is spurious and patronising to those who actually live in poverty,” wrote Maya Oppenheim for Ceasefire Magazine.
  39. Given the number of occasions that world leaders and influencers have promised to eradicate poverty, the world should be much further along than it is. In April 2013, Jim Kim, president of the World Bank, said “For the first time ever, we have a real opportunity to end extreme poverty within a generation.” Eight years before that, Nelson Mandela said “in this new century, millions of people in the world’s poorest countries remain imprisoned, enslaved, and in chains. They are trapped in the prison of poverty. It is time to set them free.” Before that, President Lyndon B. Johnson launched his war on poverty by saying “for the first time in our history, it is possible to conquer poverty.” That was back in 1964.
  40. In order for the world to effectively reduce poverty, countries need to focus not only on achieving growth as an end in itself but implement policies that allocate resources to the poor including raising income growth among the bottom 40% of earners.
  41. One report warns of poverty’s “revolving door,” alluding to the fact that climbing out of extreme poverty and staying there can be very difficult unless more is done by 2030 to support the world’s poorest populations in hard times.
  42. The world achieved Millennium Goal Development 1 — to halve the poverty rate among developing countries — five years ahead of schedule in 2010.
  43. If we maintain the same rate of progress toward eradicating poverty that we’ve had since 2000 (or hopefully, accelerate it), we would reach the target around 2025-2030.
  44. The world’s richest man, Bill Gates has even gone so far as to say there will be “almost no poor countries by 2035.
  45. Despite financial crises and surging food prices, the share of people living in extreme poverty across the globe has continued to decline in recent years.

Needless to say, it helps to have a bigger picture about this complex and often poorly understood issue. While there has definitely been progress, the human toll of slow, inefficient, and half-hearted efforts to address the problem remains disturbingly high — especially when compared to our potential to do more.

The Worst Places To Be A Worker

Labor rights are among the newest group of legal and human rights conceptualized in history. The ability to join a union and engage in collective bargaining with employers is something we all take for granted — it wasn’t all that long ago that workers throughout the industrialized world fought and often tied for such basic freedoms, and to this day many continue to do so.

In fact, if the results of the Global Rights Index is any indication, there is still a long fight ahead. Conducted by the the International Trade Union Confederation (ITUC), a labor rights alliance, this comprehensive study examines the state of workers’ rights in 139 countries based on 97 indicators, such as the ability to join unions, access due process ,and receive legal protection. Nations are ranked one a scale of 1 (best) to 5 (worst).

As PolicyMic reported, the conclusions are a mixed bag, with a plurality of nations being difficult places for workers to organize:

Among the countries with the best rating were Uruguay, Togo, Sweden, South Africa and Slovakia. Some countries received such poor assessments that they actually went off the scale: Central African Republic, Libya, Palestine, Somalia, South Sudan, Sudan, Syria and Ukraine had the dubious distinction of being awarded a 5+ rating.

As for the U.S., it received a lowly 4 for weak union rights and uneven collective bargaining.

“Countries such as Denmark and Uruguay led the way through their strong labour laws, but perhaps surprisingly, the likes of Greece, the United States and Hong Kong, lagged behind,” ITUC general secretary Sharan Burrow wrote. “A country’s level of development proved to be a poor indicator of whether it respected basic rights to bargain collectively, strike for decent conditions, or simply join a union at all.”

As the following map shows, the worst places to be a worker include China and India — large, poor, and corrupt countries that each have the largest labor forces in the world — and major conflict zones such as the Middle East and North Africa. Unsurprisingly, the more authoritarian and unstable a country, the least likely it is to have a high score (which often goes the same for other rights too).

 

For a developed country, the U.S. scores poorly, with its second-worst numbered score placing it in the ranks of  Thailand, Sierra Leone, Peru and Panama. In comparison, the best rated countries — unsurprisingly — were Western European countries like France, Germany, Belgium and the Netherlands.

The ITUC’s report couldn’t have come at a more topical time, as the issue of workers’ rights continues to gain media and academic attention. It was only last week that workers in over 150 U.S. cities and 30 countries staged the biggest fast-food strike in history, bringing attention to low wages, sparse benefits, and poor treatment (such as inflexible hours and no sick days).

Sure enough, the ITUC also found that the act of striking — one of the most common forms of  addressing employment grievances — was also the most frequently violated right in the past year.

Courtesy of ITUC and PolicyMic

America’s poor rating is particularly concerning to me, not only as an American citizen and resident, but also for the fact that the U.S. remains very influential in promoting economic and business policies abroad. As the study points out, the U.S.’s relatively high level of development has yet to amount to better conditions for workers. While America remains a rich country (and still the richest by a wide margin) it also has the largest poverty rate of any comparably developed nation (as the article notes, it doesn’t bode well for the U.S. to match up to Sierra Leone in a human rights issue).

Similarly, corporate profits continue to soar while the average worker faces wage stagnation, longer work hours, and poorer working conditions. The contradictions inherent in this report and similar observations — that the U.S. developed but still poor, economically vibrant as a whole but financially stagnant across classes, nominally democratic but lacking in workers’ rights — speaks to the unsustainable nature of this system.

Of course, this is an increasingly global problem, one that is being felt far worse in the parts of the world that are most becoming prominent in the global economy, such as China and India. As global inequality rises and production shifts to oppressed third-world workers, will we soon reach a breaking point? We’ve already seen history’s largest fast-food strike thus far. What else is in store for workers and the global economy?

 

Unions vs Plutocrats

Over at Salon, columnist Thomas Frank scrutinizes Thomas Piketty’s bestselling book on inequality, “Capital in the Twenty-First Century”. While he agrees with many of the author’s observations and points regarding the extent and seriousness of the problem, he takes issue with Piketty’s lackluster suggestion that the solution lies in a top-down approach (via some sort of global taxation regime).

I haven’t read the book yet so I can’t speak to this critique, but I do think Frank’s suggested solution is spot on in both its simplicity and empirical validity:

Turning to the problem of income inequality here in the United States, there is an even simpler solution, by which I mean a more realistic solution, a solution that builds on familiar American traditions,that works by empowering average people, that requires few economists or experts, that would involve a minimum of government interference, and that proceeds by expanding democracy and participation rather than by building some kind of distant and unapproachable global tax authority: Allow workers to organize. Let people have a say on the basic issues affecting their lives.

Piketty’s biggest blind spot is that he has virtually nothing to say about labor unions. He starts Chapter 1 of “Capital” with an anecdote about a bloody strike in South Africa and he returns to that same tragic episode at the very end of the book, but in between he addresses the matter almost not at all. Piketty talks a good game about democracy, but like other economists who have made inequality their subject, he prefers solutions that are handed down from the lofty heights of expertise.

The best remedy for inequality, however, is the one that comes up from below. Economists may not think very highly of those hardened people in SEIU t-shirts—some of them smoke too much, some are suspicious of “free trade,” some of them (gasp!) didn’t go to college—but the fact remains that in nearly every particular they represent the obvious and just about the only social force on the ground in America that might bend the inequality curve the other way.

It is not a coincidence that labor’s rise in the 1930s happened at the same time as the One Percent’s fall from grace, nor is it a coincidence that labor’s long decline has been almost a mirror image of the One Percent’s recovery of its nineteenth-century heaven. These things happened the way they did because labor’s most basic function is to turn the bright light of democratic scrutiny on economic power. When labor is strong, our composers write things like “Fanfare for the Common Man” and blue-collar workers buy cars and boats and snowmobiles. When labor is weak, we bow down before “job creators” and McMansions sprout like mushrooms after a rainstorm.

Indeed, a study by the Economic Policy Institute reached a similar conclusion: as unions decline in both numbers and political influence, inequality rises, as this graph so clearly conveys:

The reasons for this inverse relationship aren’t complex or surprising: without unions to bargain with, the upper echelons of any given company will simply take it upon themselves to allocate profits and assets to mostly suit themselves. As Frank notes:

Consider the crazy imbalance in the current capital-labor split, which is the central thread holding together Piketty’s enormous book. Well, having strong unions that are able to negotiate effectively would remedy this situation almost by definition. That’s the idea of unions in the first place.

Consider the problem of out-of-control executive compensation, of Piketty’s “supermanagers” who stuff their pockets with stock options simply because no one will stop them: As it happens, this is an issue of particular significance to organized labor, as you will learn from one look at the AFL-CIO’s shocking website, “Executive Paywatch.” Allowing workers to bargain fairly with bosses would put the brakes on the runaway CEO freight train instantly.

The disappearing middle class? This is labor’s grievance par excellence. The minimum wage? Labor is always the loudest voice calling for an increase. Stratospheric college tuition and student debt? The AFL-CIO has been admirably forthright on the issue. Social Security and the rest of the welfare state? There is no more dedicated supporter than organized labor. Were labor strong instead of weak, privatization and the other attacks on the welfare state would probably never even come up. Certainly no Democratic president would be able to say, as Barack Obama did in one of his debates with Mitt Romney, that his own position was “somewhat similar” to the Republican’s on this issue.

Nor is it utopian or even unrealistic to imagine labor staging a comeback. It would probably happen overnight if the workplace rights we are told we enjoy actually had force behind them. A large percentage of American workers consistently tell pollsters they’d like to have some kind of collective bargaining organization at work, and yet only a tiny sliver of them actually have such organizations—6.7% in the private sector, according to the latest data. The reason for the difference, to put it bluntly, is that management doesn’t want their workers to have such organizations, and bosses routinely threaten and fire workers who try to bring such organizations together, law or no law.

Granted, as Frank himself notes (and I concur) a powerful labor movement is not the complete solution to plutocracy, but it’s certainly a start and would go a long way to mitigating the present and long-term effects of excessive inequality.

Other solutions include protecting beleaguered and discouraged unionization with Civil Rights laws (which would allow workers who are fired for joining a union to sue their bosses directly rather than go through the sclerotic federal channels); helping new bargaining units to negotiate their first contract with management; and better punishing bosses who try to circumvent labor organizing.

Ultimately, it rests on workers to come together, organize, and take charge of their workplaces — no small feat given the entrenched and powerful opposition to such an approach, not to mention the taboo of organized labor (especially in the Deep South, which incidentally is the poorest region in the country).

But I feel this is a solution that people across the political spectrum can agree on: individuals acting on their rights as agents in the market to organize and bargain on their terms. As Frank noted, this would minimize state interference (baring the legal protections for such unions) while giving a more grassroots and democratic approach to solving these problems.

What do you all think?

America’s Middle-Class: The World’s Richest No More

As the world’s richest country by a significant margin, it’s little surprise that the American middle-class — long the bedrock of our society, culture, and identity — has also long held the top spot for being the most well off globally. But a recent study just reported in the New York Times has confirmed what many in the U.S. have begun to notice: that in addition to its relative decline in global and economic clout, America’s  middle-class is following suit:

While the wealthiest Americans are outpacing many of their global peers, a New York Times analysis shows that across the lower- and middle-income tiers, citizens of other advanced countries have received considerably larger raises over the last three decades.

After-tax middle-class incomes in Canada — substantially behind in 2000 — now appear to be higher than in the United States. The poor in much of Europe earn more than poor Americans.

The numbers, based on surveys conducted over the past 35 years, offer some of the most detailed publicly available comparisons for different income groups in different countries over time. They suggest that most American families are paying a steep price for high and rising income inequality.

Although economic growth in the United States continues to be as strong as in many other countries, or stronger, a small percentage of American households is fully benefiting from it. Median income in Canada pulled into a tie with median United States income in 2010 and has most likely surpassed it since then. Median incomes in Western European countries still trail those in the United States, but the gap in several — including Britain, the Netherlands and Sweden — is much smaller than it was a decade ago.

In European countries hit hardest by recent financial crises, such as Greece and Portugal, incomes have of course fallen sharply in recent years.

…..

The struggles of the poor in the United States are even starker than those of the middle class. A family at the 20th percentile of the income distribution in this country makes significantly less money than a similar family in Canada, Sweden, Norway, Finland or the Netherlands. Thirty-five years ago, the reverse was true.

The results are all the more surprising given that the U.S. is not only still the world’s richest country overall, but a leader in various other metrics such as per capita gross domestic product that have continued to grow healthily. The discrepancy exposes the fact that these average do not reflect the actual distribution of income: a big share of all those continued gains in wealth and income gains is going to a relatively small number of high-earning households, a trend that’s far less pronounced in most other nations.

When one looks at median per capita income as opposed to average, it is $18,700 in the United States in 2010 — or, to put it another way, an after-tax income of around $75,000 for a family of four. While that’s up 20 percent since 1980 — when the U.S. middle-class was still the richest in the world — it’s been stagnant in real terms (e.g. after factoring in inflation) since 2000.

By comparison, when applying the same measure in to other countries in that span of time (between 2000 and 2010) the U.K. saw medium per capita income rise to about 20 percent , the Netherlands by 14 percent , and Canada by 20 percent. Furthermore, recent data mentioned in the article suggest that pay in Canada has risen faster than in the United States — and is now most likely higher — and has also risen higher in several European countries.

According to the study, one of the only other large economies to experience a similar level of stagnation over the past 15 years is Germany, whose heavily export-oriented economy has led policymakers to hold down the cost of exports by taking steps such as restraining wage growth.

But even in Germany, the poor and middle-class have fared better than in the U.S., where per capita income has declined far more rapidly across various income percentiles, and where Germany’s fairly generous public spending on things like healthcare and education don’t offer much respite from the ravages of poverty.

So what gives? Well, the Times article offers three probably explanations:

First, educational attainment in the United States has risen far more slowly than in much of the industrialized world over the last three decades, making it harder for the American economy to maintain its share of highly skilled, well-paying jobs.

Americans between the ages of 55 and 65 have literacy, numeracy and technology skills that are above average relative to 55- to 65-year-olds in rest of the industrialized world, according to a recent study by the Organization for Economic Cooperation and Development, an international group. Younger Americans, though, are not keeping pace: Those between 16 and 24 rank near the bottom among rich countries, well behind their counterparts in Canada, Australia, Japan and Scandinavia and close to those in Italy and Spain.

A second factor is that companies in the United States economy distribute a smaller share of their bounty to the middle class and poor than similar companies elsewhere. Top executives make substantially more money in the United States than in other wealthy countries. The minimum wage is lower. Labor unions are weaker.

And because the total bounty produced by the American economy has not been growing substantially faster here in recent decades than in Canada or Western Europe, most American workers are left receiving meager raises.

Finally, governments in Canada and Western Europe take more aggressive steps to raise the take-home pay of low- and middle-income households by redistributing income.

Indeed, the study confirms that wealthier Americans nonetheless retain their top spot despite the declining circumstances of most other groups:

 Americans at the 95th percentile of the distribution — with $58,600 in after-tax per capita income, not including capital gains — still make 20 percent more than their counterparts in Canada, 26 percent more than those in Britain and 50 percent more than those in the Netherlands. For these well-off families, the United States still has easily the world’s most prosperous major economy.

Granted, we mustn’t let the “grass is greener” mentality take hold. Middle-class families in other countries obviously have many worries of their own, some specific to their nation and others not unlike in the U.S. For example, many Europeans also wonder how they will pay for college, and hold a similar sentiment that the older generations had it better. Meanwhile, many Canadians nonetheless still struggle with the high cost of modern living, ranging from education to various bills. Furthermore, unemployment remains a consistent worry just about everywhere, with rates relatively higher now for most countries than before.

However:

“The crisis had no effect on our lives,” Jonas Frojelin, 37, a Swedish firefighter, said, referring to the global financial crisis that began in 2007. He lives with his wife, Malin, a nurse, in a seaside town a half-hour drive from Gothenburg, Sweden’s second-largest city.

They each have five weeks of vacation and comprehensive health benefits. They benefited from almost three years of paid leave, between them, after their children, now 3 and 6 years old, were born. Today, the children attend a subsidized child-care center that costs about 3 percent of the Frojelins’ income.

Even with a large welfare state in Sweden, per capita G.D.P. there has grown more quickly than in the United States over almost any extended recent period — a decade, 20 years, 30 years. Sharp increases in the number of college graduates in Sweden, allowing for the growth of high-skill jobs, has played an important role.

Elsewhere in Europe, economic growth has been slower in the last few years than in the United States, as the Continent has struggled to escape the financial crisis. But incomes for most families in Sweden and several other Northern European countries have still outpaced those in the United States, where much of the fruits of recent economic growth have flowed into corporate profits or top incomes. This pattern suggests that future data gathered by LIS are likely to show similar trends to those through 2010.

In other words, often-cited metrics of prosperity — such as economic growth, stock-market health, corporate profits, GDP (per capita and national) — mean little if the amount of wealth they represent isn’t actually being allocated in a way that benefits the broader society. Whether that redistribution occurs via the private sector — through investing more corporate capital in higher wages, benefits, etc — or through state-mandated welfare programs doesn’t seem to matter except in the technical details.

Ultimately, wealth needs to be better invested through some sort of mechanism — private, public, or both — to make the most out of a nation’s potential prosperity. This is especially relevant given that too much inequality and the subsequent decline in a broad, middle-class consumer base could  cause serious problems in the economy — for everyone. The U.S. clearly has the potential to do great things — from developing world-class nationwide infrastructure to funding big science initiatives and promoting a higher standard of living — but various socioeconomic structural problems are imposing visible limitations.

What are your thoughts?

What Makes Countries Rich or Poor?

Jared Diamond, best known for the Pulitzer Prize-winning book Guns, Germs, and Steel, recently reviewed Why Nations Fail by Daron Acemoglu and James Robinson, a book I’m deeply interested in that explores the question in the title: why are some countries prosperous and developed, while others seem chronically poor and unstable?

As you’d imagine, the answer is complex and debatable, and Diamond offers his own interesting two cents while reviewing the book’s central thesis that effective economic and political institutions play the most central role in determining a nation’s fate. It’s quite a long read, but I definitely recommend it. While there are many interesting points made — for example, that soil quality or climate are major factors in determining national wealth — here’s an excerpt that stood out to me:

But it’s obvious that good institutions, and the wealth and power that they spawned, did not crop up randomly. For instance, all Western European countries ended up richer and with better institutions than any tropical African country. Big underlying differences led to this divergence of outcomes. Europe has had a long history (of up to nine thousand years) of agriculture based on the world’s most productive crops and domestic animals, both of which were domesticated in and introduced to Europe from the Fertile Crescent, the crescent-shaped region running from the Persian Gulf through southeastern Turkey to Upper Egypt. Agriculture in tropical Africa is only between 1,800 and 5,000 years old and based on less productive domesticated crops and imported animals.

As a result, Europe has had up to four thousand years’ experience of government, complex institutions, and growing national identities, compared to a few centuries or less for all of sub-Saharan Africa. Europe has glaciated fertile soils, reliable summer rainfall, and few tropical diseases; tropical Africa has un-glaciated and extensively infertile soils, less reliable rainfall, and many tropical diseases. Within Europe, Britain had the further advantages of being an island rarely at risk from foreign armies, and of fronting on the Atlantic Ocean, which became open after 1492 to overseas trade.

It should be no surprise that countries with those advantages ended up rich and with good institutions, while countries with those disadvantages didn’t. The chain of causation leading slowly from productive agriculture to government, state formation, complex institutions, and wealth involved agriculturally driven population explosions and accumulations of food surpluses, leading in turn to the need for centralized decision-making in societies much too populous for decision-making by face-to-face discussions involving all citizens, and the possibility of using the food surpluses to support kings and their bureaucrats. This process unfolded independently, beginning around 3400 BC, in many different parts of the ancient world with productive agriculture, including the Fertile Crescent, Egypt, China, the Indus Valley, Crete, the Valley of Mexico, the Andes, and Polynesian Hawaii.

Pretty interesting stuff. As always, feel free to weigh in.