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The inequality craze

By MARTIN WALKER, UPI Editor Emeritus   |   Jan. 27, 2014 at 12:03 AM   |   Comments

PARIS, Jan. 27 (UPI) -- U.S. President Barack Obama, Pope Francis, the International Monetary Fund and this year's Davos meeting have all agreed that rising inequality is one of the great issues of our time.

The Davos organizers, after consulting their expert network of some 700 thinkers worldwide, called it "the top global risk."

"I ask you to ensure humanity is served by wealth and not ruled by it," was the pope's message to Davos.

Christine Lagarde, head of the IMF, headed toward Davos warning: "Business and political leaders at the World Economic Forum should remember that in far too many countries the benefits of growth are being enjoyed by far too few people. This is not a recipe for stability and sustainability."

And Obama plans to make inequality a key theme of his State of the Union message this week. He is expected to call for an increase in the minimum wage to $10 per hour, an extension federal unemployment benefits that expired last month and new measures to slow the spiraling costs of college education.

The topic was fueled by the emergence of a telling factoid last week, a report from the British charity Oxfam said the world's 84 richest individuals had amassed as much wealth as the half the world's population, the 3.5 billion poor.

The problem is that when people talk of inequality they tend to mean different things. The Argentina-born pope, the first Roman Catholic Church leader to hail from an emergent market country, thinks in terms of poor countries and the moral duty of the rich world to help them.

Obama tends to think of the shrinking and battered U.S. middle class and of the super-rich who have done well through the recession, even as the U.S. economy labored to develop a still sub-par recovery. The top 1 percent of American earners had grabbed 95 percent of the wealth gains since 2009, said University of California, Berkeley, economics Professor Emmanuel Saez. And as the Oxfam report suggested, one reason they did well had been cuts in taxes on the rich.

For the IMF, the real concern seems to be political, the capacity of inequality within countries to fuel resentment, protest and instability. The riots in Brazil and Turkey, after years of impressive economic growth, are cited as potent examples. But the big impact could come from China, after the emergence last week of a leaked cache of financial records showing some 22,000 wealthy and well-connected Chinese with secretive offshore companies in tax havens, including family members of the political elite.

They include a property company co-owned by the brother-in-law of President Xi Jinping, Virgin Islands corporations set up by the former son-in-law of former Premier Wen Jiabao, members of the National People's Congress and top executives from state-owned companies.

"The political families and the elites never assumed that you could have such a public list of names coming out," said Yves Tiberghien, a political science professor at the University of British Columbia and director of its Institute of Asian Research.

Publicized by Washington's International Consortium of Investigative Journalists, the bank records also show that relatives of five present or past members of the Politburo Standing Committee, the group of seven (formerly nine) officials who lead the Communist Party and rule the country, have incorporated companies in the tax havens of the Cook Islands or British Virgin Islands.

Keep this in proportion. There are three separate factors at work. First, the last 30 years have seen more people, by the hundreds of millions, emerging from poverty and prospering as never before. That created a tidal wave of new consumers, just as new technologies and opportunities were giving them new things to buy like cellphones and computers.

Second, the great industrial, technological and financial disruptions that came with this huge change meant that a handful of people who helped to promote this process became exceedingly, rich, just as their predecessors did at similar times of global growth in the late 19th century when the super-rich like Rockefeller and Astor were known as robber barons. But some of them, like Henry Ford and Andrew Carnegie, were creating the industries and jobs that helped fuel the great expansion.

That is happening again, but its effects are limited because of the third factor: the explosion of robotics, automation and computing that is reducing the need for a mass working class and is now eating into the incomes and prospects of the mass middle class.

A report last year from the National Employment Law Project stated that three-fifths of all jobs lost during the recession paid middle-income wages, while roughly three-fifths of new jobs created during the economic recovery pay low wages.

These three different aspects of the economic revolution we are experiencing are both good and bad, damaging and beneficial. But above all they are dynamic, they are about change, and change is the only constant.

After all, fewer than 10 of those 84 richest individuals inherited their wealth, and only one of the 12 companies in the original Dow Jones index of 1896 is still in the index today. (General Electric is the sole survivor.)

The challenge now is to exploit change to create more freedom and more opportunity for more and more people even as we try to grow the global economy in ways that neither provoke wars nor overwhelm the fragile biosphere. The record of the human race so far is mixed but we are learning.

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