Business

Monday 25 September 2017

Talking about revolution when inequality reigns

SLIPPERY SLOPE: A staff member cleans a stair inside the congress centre at the annual meeting of the World Economic Forum in Davos. Photo: Ruben Sprich/Reuters
SLIPPERY SLOPE: A staff member cleans a stair inside the congress centre at the annual meeting of the World Economic Forum in Davos. Photo: Ruben Sprich/Reuters

Tom Molloy

ONE statistic stood out from the thousands that were bandied around at Davos last week: Oxfam's calculation that the 85 wealthiest people in the world are now richer than the poorest 50 per cent of the world's population combined.

You don't need to be a Nobel prize-winning economist to know that something is wrong when the the number of people attending a small wedding can own more than 3.5 billion other people. But perhaps you do have to be a Nobel prize-winning economist to find a solution.

What was interesting in Davos was the decision to place rising inequality at the centre of the debate and begin thinking about a solution. It was also interesting to hear open acknowledgments by so many participants, from IMF boss Christine Lagarde downwards, that inequality on this scale is plain dangerous and could spark revolution.

Jennifer Blanke, the World Economic Forum's chief economist, warned that "disgruntlement can lead to the dissolution of the fabric of society" and warned that revolutions begin when young people conclude that the risks and costs of destroying the society are preferable to letting things continue as they are.

We live in peaceful times, bar the odd riot in Croydon or Stockholm, but the rich know that this will not continue indefinitely. Too much inequality can spark revolts like the French and Russian revolutions which sweep everything away.

London and Dublin's beautiful Georgian squares were built with this in mind; the squares and houses were protected with wrought-iron gates which could be closed if the hoi poli ever followed the French and revolted.

Both these revolutions followed long periods of relative decline which saw the merchant classes squeezed and an oligarchy grow rich from commercial developments such as the slave trade.

Today's middle classes are also under tremendous pressure as technology and globalisation makes millions of white-collar workers redundant. When an X-ray can be read in Mumbai or a legal document drafted in Shanghai, few traditional jobs are safe anymore.

This hollowing out of the middle class poses challenges to both the middle class and the uber-wealthy.

One (foreign) billionaire told me in Davos last week that he believes he is underpaid while most of the middle class were overpaid. He maintained that many traditional middle-class jobs are relatively easy and can be performed for a fraction of the price, and usually better, elsewhere.

In his world view, doctors, accountants and lawyers all fit this description and only command high salaries because they are protected by legislation.

"They don't create a single job," the plutocrat murmured as his fellow financiers networked furiously around him. "Most of them are not even particularly skillful. Most of them have never taken a risk in their lives. Quite why they get away with paying themselves what they do beats me."

His argument is not without merit and it may go some way towards explaining why the middle classes are shrinking in the West and those who remain are feeling increasingly insecure and unable to cope. What it fails to do is address the question posed by Davos which is how can income distribution be kept fair enough to prevent revolution and when does too much wealth into too few hands erode spending power to a degree that damages even the billionaires themselves? His argument also fails to acknowledge that the very rich routinely rig the system in their favour.

In 2005, a perceptive report by Ajay Kapur, a Citigroup global strategist, predicted the growth of what he called plutonomy. A plutonomy exists when the wealthy own and consume so much of a society that everyone else is irrelevant both politically and economically.

Kapur seemed to see little wrong with this although Citigroup later used copyright to force many websites to remove a follow-up report when the idea was mocked by polemicist Michael Moore's film Capitalism: A Love Story.

Kapur showed little concern about the rise of plutonomy but as this trend accelerates there are reasons to be worried. Great technological changes or political upheavals always offer opportunities for the clever and industrious to make vast fortunes. It is what inevitably happens next that creates real danger.

The great disparities enable the wealthy to use their economic power to make sure rules favour the rich, often to the detriment of everyone else.

The consequences include the erosion of democracy and vanishing opportunities for everybody else.

History seems to teach us that great hereditary wealth is often the trigger for revolution and it is not difficult to see why. It is easy to admire self-made men such as Bill Gates or Steve Jobs who have created something new and useful. It is much harder to admire their grandchildren who continue to live from the proceeds of these inventions and a manipulation of the tax system to ensure that great wealth can be passed from generation to generation.

Here in Ireland we lack detailed figures on inequality which are accepted by most economists. The nearest we come are the CSO's surveys on income and living conditions reports which suggest that the cuts introduced during the financial crisis broadened the inequality gap.

That apparent widening came at a time when the Economic and Social Research Institute found that most recent Budgets have hit the rich harder than the poor and the middle classes least of all.

Still, as with all things economic, there is much room for argument and debate about methodologies and outcomes.

At the MacGill summer school last year, a series of anti-poverty bodies told the same story of widening inequality but the claims were predictable and the agencies involved did not back their claims with evidence.

That's a shame because the issue is too important to be left to vested interests in the charity sector. Plutarch wrote 2,000 years ago that "an imbalance between rich and poor is the oldest and most fatal ailment of all republics."

Perhaps that is the lesson of Davos for Ireland: that we need to begin tracking that imbalance seriously and then asking ourselves what we are going to do about it before the fraying social fabric leads to extreme political responses of the kind that we are likely to see elsewhere on the Continent in the European elections this May.

Irish Independent

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