How extreme wealth and absolute poverty have returned to disfigure the West

The rediscovery of inequality is one of the more startling realisations of the post-global financial crisis, post-globalisation world. A Berkeley University professor Emmanuel Saez with colleagues has recently published a series of studies on the growth of absolute poverty in the United States. He…

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The rise of extreme wealth has gone hand-in-hand with absolute poverty in the US. AAP

The rediscovery of inequality is one of the more startling realisations of the post-global financial crisis, post-globalisation world.

A Berkeley University professor Emmanuel Saez with colleagues has recently published a series of studies on the growth of absolute poverty in the United States.

He reports that the top 10% of income earners in 2007 accounted for 49.7% of total US income, higher than in the roaring 1920s.

It is as if President Lyndon Johnson’s great war on poverty launched in the 1960s had never happened.

Incoherent, idealistic, and a little tragic as the Occupy Wall Street demonstrations that have spread around the world have been in recent weeks, they are protesting a residual truth: that poverty, inequality, and extreme wealth have returned to disfigure the Western world in ways that would have been unimaginable in the buoyant post war decades of economic growth and social democracy.

How on earth did this occur?

The return of poverty

There are three dimensions to poverty: absolute poverty, relative poverty, and social exclusion.

The website poverty.org provides a handy definition for each, saying “the concept of absolute poverty "is that there are minimum standards below which no one anywhere in the world should ever fall.

“The concept of relative poverty is that, in a rich country… there are higher minimum standards below which no one should fall, and that these standards should rise if and as the country becomes richer.

Social exclusion is an all-encompassing term to describe situations where people lack many of the opportunities that are available to the average citizen.”

The Occupy Wall Street movement has been fuelled by excessive corporate pay. AAP

The United States (which remains the most prosperous country in the world) has led the way in reintroducing the ugliness of naked poverty and inequality.

Child poverty in the United States stopped declining and began to increase again in the US, rising from 18% in 2007 to 19% in 2008 and then to 20.7% in 2009 (while in the UK, confronted by similarly high rates of child poverty, a concerted government effort has reduced this trend dramatically).

According to the US Census Bureau the number of Americans living in poverty has increased from 31.6 million in 2000 to 41.6 million in 2010, where the poverty line is calculated as an annual income of $22,314 for a family of four and $11,139 for an individual.

The increase lifted the poverty rate to 15.1% of the US population, while unemployment presently stands at 9.1%.

Growing Inequality

During the periods of rapid economic growth in the 1990s fuelled by the Nasdaq boom, and in the 2000s fuelled by the financial sector boom, average wages in the US virtually stalled, and the minimum wage declined.

Barack Obama: the rich shouldn’t pay less tax than the poor. AAP

Meanwhile chief executive pay and the rewards for senior executives in the finance sector sky-rocketed.

Two forces disguised, while intensifying, the growing inequality occurring in the US and in much of the western world.

The first force was globalisation as more than a billion people entered the global labour force, linking up in advanced production networks to provide every kind of consumer product at increasingly low prices.

Who in the West paused to think that the gleaming new electronic products and high fashion accessories were assembled in the sweat shops of Asia?

Globalisation may have lifted hundreds of millions of people out of poverty in the developing world, but there has been a worsening of poverty among the world’s poorest billion citizens.

Rampant consumerism in the West was turbo-charged by the apparent unlimited access to personal credit that was made available in the 2000s (the financialisation of everyone).

Then the “we had never had it so good” days ended in tears (we had never been had so good!). The indebtedness of those enticed into the expanding housing market in the US, bundled into toxic securities, exploded in the global financial crisis.

Making connections: CEO Pay

The increasing prevalence of inequality in the West – as well as the public outcry against this – has even been acknowledged recently in the pages of free market publications such as the Financial Times and The Economist.

The Financial Times reported that income tax which traditionally has been designed to progressively tax the rich more in the US has become fiercely regressive – taxing those on lower incomes the most.

It conceded in an editorial that: “the political class has not acknowledged the human dimensions of the financial crisis.”

There is even acknowledgement of the possible need to reintroduce a supertax being considered in several European countries, and some sympathy for President Barack Obama’s proposal that no household making more than US$1 million should pay a lower average rate than lower earners.

A taped sign at the Occupy Wall Street camp. AAP

But the connection between growing inequality and the rampant inflation in CEO pay that has become heavily entrenched in the US over the last 20 years is rarely made.

CEO pay in the US in the middle decades of the 20th century was up to 50 times average pay (a much higher ratio than the rest of the world).

In the 2000s CEO pay in the US inflated to several hundred times average pay. The arrogation of an increasing share of the wealth of corporations by CEOs impacts upon relationships with other employees, shareholders, and the wider community.

Excessive and unrestrained CEO compensation displaces objectives that drive the development and success of the company to individual strategies of how to maximise their personal reward.

For example, making large scale redundancies in the post-gfc recession normally will ramp up share prices and executive compensation.

There is a real danger that the inflated compensation secured by US executives will become the benchmark for executive reward in other regions of the world where, up till now, executive rewards have remained modest in comparison.

As well as inducing economic instability and social inequality, it is both socially unacceptable and economically inefficient.

In Australia we have had the authoritative Productivity Commission report on executive pay.

The controversial “two strikes” remuneration law rule introduced following the inquiry empowers a 25% voting bloc of shareholders to spill a board if they consistently fail to consider shareholders concerns on executive remuneration.

Already shareholders are pursuing this action, and perhaps this is the beginning of the long awaited revolt on executive pay.

Join the conversation

21 Comments sorted by

  1. Rob Brooks

    logged in via Facebook

    Fabulous article - a great primer on the causes of inequality. It is so important that the realisation is really taking hold that it isn't just poverty that matters but rather inequality.

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    1. Hilton Holder

      Businessman

      In reply to Rob Brooks

      Rob

      Say you're a student and you take on a job at Mackers so you can pay for your student loan. After a few months you've saved a bit of cash as you're still staying at your parents. One day while browsing the net you run into a whizbang waterproof kind of MP3 player that plugs into your iPhone, and you know all the boaties would love one of these.

      You then order about 10 and sell them on ebay, and they fly out the door like hotcakes. You triple your order and soon you're renting a small warehouse…

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    2. Rob Brooks

      Rob Brooks is a Friend of The Conversation.

      Professor of Evolutionary Ecology; Director, Evolution & Ecology Research Centre at University of New South Wales

      In reply to Hilton Holder

      I got the first part of what you were saying, Hilton, but then it got a bit heated and I had to wonder if we were reading the same article.

      If I understand you correctly, Hilton. It seems to me you are saying that 99 percent (or 90 or whatever) of your fellow humans are slothful dole bludging thieves? That's a pretty dim and morally upsetting view you take.

      Nothing I say and nothing the original article says suggests theft or any form of coercion, let alone redistribution. I'm talking about the…

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    3. Hilton Holder

      Businessman

      In reply to Rob Brooks

      Rob

      The 99%er/1%er equation is a typical leftist class war construct. Of course that 99% is split into the vague sectors of middle class, upper lower class and lower class.

      Your posit of me suggesting that 99% of society are dole bludging thieves is absurd and insulting.

      For you to then exonerate both the article and your glowing tribute as being free from the notion of coercion is beyond incredulous.

      Are you intoning that force when initiated by government for the sake of stealing the private…

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    4. Rob Brooks

      Rob Brooks is a Friend of The Conversation.

      Professor of Evolutionary Ecology; Director, Evolution & Ecology Research Centre at University of New South Wales

      In reply to Hilton Holder

      I'm trying to resist getting involved in these online comment-based screaming matches. You seem to be at least as angry as the somewhat muddled folks who are occupying Wall St and other city financial districts, which I find hard to understand.

      I understand your case for Laissez Faire Capitalism, and I have read arguments like yours many times. Yet it is an extreme position, and it amazes me how seldom you hear it put forward by folks who would see themselves as working class.

      I have no desire…

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    5. Hilton Holder

      Businessman

      In reply to Rob Brooks

      Rob

      I can see you are afraid to death of being labelled extreme or radical, despite the fact that "extreme" in this context means no more than being consistent.

      Thus I beg you to be consistent, albeit for the sake of preserving your self respect.

      Either you recognise that a mans life and private property belongs to him by right, or you consent to the notion that mans life and property belong to the tribe and may be expropriated for experimental reasons in the name of some fallacious "public good…

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    6. Rob Brooks

      Rob Brooks is a Friend of The Conversation.

      Professor of Evolutionary Ecology; Director, Evolution & Ecology Research Centre at University of New South Wales

      In reply to Hilton Holder

      I think you may have me mistaken for somebody else. There is a wonderful piece by Michael Shermer in the lasted Time magazine on why American politics is so polarised, and how folks tend to choose sides and then fall into line on all points of that side's policy / dogma. You might enjoy it.

      I am happy to admit my thinking may be wrong on some points, and to be open to reasonable argument and empirical evidence. I'm also happy to admit I may be biased toward certain views and against others - often in ways I'm not aware of. It always disturbs me to come across true believers who swallow an entire doctrine whole. Worse still to encounter them as evangelists.

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    7. Hilton Holder

      Businessman

      In reply to Rob Brooks

      Ahh, Polarization, how terrible (wringing hands in abject fear and trepidation)

      Lefties the world over seem to use the terms "polarization" together with "extreme", "radical" and of course "racists" as a kind of "argument from itimidation" to shut up all dissent, and you have the temerity to suggest that it is I who has drunk too deeply from some or other coolaid?

      Is the term "polarization" intended to hide and obfuscate a clash of fundamental political principles here perhaps? Is this term used together with me being painted as "angry" as a sort of intellectual package deal that will invalidate any credibility my argument could have had?

      PS! And you thought this was a safe place to suck up to this dear old prof :)

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    8. Mike Hansen

      Mr

      In reply to Hilton Holder

      Hey Hilton - I have no trouble labeling you an extremist. Businessman - my toe. You are an aggressive Randian libertarian wing nut.

      http://www.solopassion.com/node/3761

      You start off by likening the 99% to dole bludging thieves then fake outrage when you are called on it.

      Clearly honesty is not your strong point.

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    9. Hilton Holder

      Businessman

      In reply to Mike Hansen

      So Mike, how does the following paragraph of mine lead you to conclude that I bag 99% of society for being dole bludgers? Are you "gramatically challenged"? Can you honestly not see that I infer to a singular dole bludger from among the the lefts newly coined "percenter" class war?

      "Now suppose some dole bludging 99%er stakes you out and while you're out playing golf one afternoon, he decides to take direct action to flatten the inequality gap between the two of you and cleans you out."

      As for…

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    10. Amanda McCormack

      Student

      In reply to Hilton Holder

      So your example is not supposed to be abstracted from the singular to the general?
      Given that you yourself abstract from the singular example to make a general statement on the state of affairs (see below), once again you are changing the goal posts.

      [ Hilton Holder said: "Now would you call that theft, or would you sing the praises of the thief who took affirmative action by using your private property to reduce the inequality gap between you (a 1%er) and himself, a 99%er?

      Now please tell me when…

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    11. Hilton Holder

      Businessman

      In reply to Amanda McCormack

      So where was I supposed to find the hypothetical "dole bludger" Amanda? From the hypothetical 1%ers?

      You're too funny :)

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    12. Mike Hansen

      Mr

      In reply to Hilton Holder

      "... envy-ridden mobs in cohoots with powerlusting pollies trample the freedoms all individuals..."

      Built your panic room yet Hilton?

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    13. Hilton Holder

      Businessman

      In reply to Mike Hansen

      Washed your Che T-shirt after your recent trip to the portapotty at the occupy protest yet Mike?

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    14. Hilton Holder

      Businessman

      In reply to Rob Brooks

      I have to give you a hat tip Rob. You are certainly one of the most civil opponents I have yet run into. Wish all of you had a similar disposition to debate, and apologies if I appeared too passionate. It's in my blood.

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    15. Felix MacNeill

      Environmental Manager

      In reply to Hilton Holder

      Hilton, I find it grossly hypocritical that you engage in long, irrational and insulting diatribes then sulk when peopole respond in kind (not that they actually do respond 'in kind' as I couldn't find anything to match nonsense like "PS! And you thought this was a safe place to suck up to this dear old prof").

      This is meant to be a place for honest debate - intense, yes, but abusive and hysterical, no. And that excuse about it being 'in your blood' doesn't begin to wash - grown-ups are meant to control their impulses.

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  2. Amanda McCormack

    Student

    @Hilton - so far you have shown yourself to not be engaging with the core of the debate going on here. You have used ad hominem attacks, false dichotomies, changed the goal posts, and not engaged in this debate fairly (practicing symmetry and good will).

    @Rob Brooks, wow, you have more patience than me. Your analysis adds depth to this article.

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    1. Hilton Holder

      Businessman

      In reply to Amanda McCormack

      Amanda. Please "Illucidate"* me as to where and how I have been guilty of these heinous debate crimes. I was simply pointing out to Rob that if we are to have a civilised society, it is the initiation of force (governmental or otherwise) that we have to ban from social relationships.

      Now please you impatient student you, how would you validate and justify the act of treason that occurs when government uses the public legislature and armoury to initiate the use of force against its own citizens at the behest of a mob (and in exchange for their votes of course)

      Is the envy ridden leftist notion of "tall poppy bashing" or egalitarianism sufficient moral validation for this act of violence and theft against the citizens of our country?

      *(from the Aristocats movie)

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    2. Mike Hansen

      Mr

      In reply to Hilton Holder

      The only example I can recall here of the "government uses the public legislature and armoury to initiate the use of force against its own citizens at the behest of a mob was the attacks on the Occupy protesters in Melbourne and Sydney.

      Is that what you are complaining about?

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    3. Hilton Holder

      Businessman

      In reply to Mike Hansen

      Yep, I guess the prospect of bucketloads of excrement running down the streets together with the spectre of effete teenagers throwing hissy fits in sing-song chants while yet others, latte in hand and chasing after the homeless for steeling their iPhones was too much to bear, even for the authorities who are so desperately trying to coddle the votes of your ilk.

      Actually, think of the word occupy? Does it not denote the kind of violent overtones you're always trying to pin on the right? Does the act of occupying public parks and areas by means of a sit-in not constitute the initiation of force, by forcefully witholding from the public their right to these spaces?

      If so, dont you think the cops were acting according to their mandate, in retaliation to this act of force perhaps?

      If it werent for the irony here :)

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