The Guardian reported the emergence of a new 'gilded age' yesterday as the concentration of the world's wealth in the hands of a relatively few families reached levels not seen since the era before the First World War.
The report on which they base their story offers a number of explanations for this new concentration of wealth, which is as likely to lead to a significant social backlash as the last, saying:
Billionaires' fortunes increased by 17% on average last year due to the strong performance of their companies and investments, particularly in technology and commodities. The billionaires' average return was double that achieved by the world's stock markets and far more than the average interest rates of just 0.35% offered by UK instant-access high street bank accounts.
What the report does not say is that the reasons for this astonishing growth can be explained in four ways.
First, most of the wealth is not taxed. That's because we do not have wealth taxes; capital gains taxes can be avoided by simply holding on to assets and wealthy families long ago found how to get round inheritance tax laws. All this happens with willing political connivance onshore.
Then there is, of course, offshore, which exists in no small part to serve the interests of such families, alongside its role in crime facilitation. The so-called 'tax neutrality' of offshore is a euphemism that means 'no tax' in practice. And if you are wealthy, with assets rising in value, no tax just compounds that growth in ways that guarantee an increase in inequality when compared to the position of the vast majority of the world's population.
Third, there are trusts, and in particular offshore trusts, to take into account. As Copenhagen Business School academic Brooke Harrington has pointed out, the changes in offshore trust laws over the last twenty or so years have had a profound impact on the wealth management industry. In effect, that wealth is not dispersed any more. Passed over to professional trustees for safe keeping a combination of the collective paranoia of those establishing such trusts and those managing them means that access to the capital of these families is now denied to next generations, who to secure the funding they want for their gilded lifestyles are beholden to the wishes of both the older generations of their family and the peculiarities of professional trustees dedicated to wealth preservation at all costs, including to those meant to benefit from it. As a consequence these next generations become dependent, compliant, individuals unable to exercise normal mature judgements on their own behalf because their position in the world is entirely dependent on their not doing so.
Fourth, there is, of course, the whole issue of the companies that these families own. In the modern era these are not looking for entrepreneurial profit: their aim is to secure rents generated off the back of the endeavour of others. This is now the very clear direction of the IT, and so gig, economies, where monopoly power in a sector is used to squeeze out competition, crush innivation and exploit casualised labour (until it can be replaced) in pursuit of monopoly profit. Other sectors follow suit, pursuing rents in the form of land, PFI contracts, outsourced government services and the like, hidden behind the power of intellectual property laws, all with the aim of securing the preservation of wealth by ring-fencing it from any risk of assault from newcomer market entrants.
And, as I argue in my book Dirty Secrets, this is the reason why this gilded era cannot last. That's because what it represents is an assault on three things. One, of course, is the state that is denied revenue from, and is in turn exploited by, this wealth. The second is the ordinary people left behind, and who are aware of that fact. The third is capitalism itself, because the last thing that these families are is entrepreneurial. Their role is not innovative wealth creation. It is defensive wealth protection, and the latter has to crush competition, which is precisely why we now see zero wage growth.
We may be living in a new gilded era. And those few enjoying the benefits may be trying philanthropy to persuade the world of the merits of their retaining their position. But the truth is that the seeds of the destruction of this system have been created within its own foundations (double meaning intended). An assault on this wealth and the barriers it creates to innovation, equality and possibility is inevitable. It will be a revolution, but I stress, bloodshed is not needed. Nor are weapons stronger than a good dose of wealth taxation and a willingness to reject the shams of offshore trust arrangements required, coupled with some decent anti-monopoly legislation. All are available with just a little more political will.
Surely the left is capable of delivering that?
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If you bank roll political parties where’s the will?
Labour is proving there is an answer to that
There’s an article in The American Prospect by Paul Starr from 2015 that elaborates on many of the topics in your piece. http://prospect.org/article/how-gilded-ages-end
The penultimate para seems to presage the triumph of Trump. Thing is, we all know the “what” (thanks to blogs like this one) – it’s the “how”, when the only politicians & parties that have a chance of power are part of the problem.
Mass participation is a pre-condition of change
That is the good thing about Labour
On a similar theme J. Stiglitz has an excellent piece on monopoly power.
https://www.thenation.com/article/america-has-a-monopoly-problem-and-its-huge/
Excellent
Recommended
The left in WM , I suspect, may not want to deliver this
Why?
Hopefully we wil see a revolution in the collective consciousness.
Take the four issues you cite. How many of us have agreed to the rules that allow the accumulation of the wealth of the few to the detriment of the many.
These rules theoretically emerge through democratic procedures and if you take this at face value you are left with the paradox of the many creating and maintaining legislation that benefits a tiny minority.
As Harrington states there is now a wealth protection industry, an army of professionals whose sole purpose is to protect the wealth of the few. There is no comparable countervailing force, these people have been pushing at open doors.
What use has parliament been? MPs do not seem to understand the detail, there is no publicity to be gained in the discussion of LLPs or the abuse of Limited Liability or the creation of money in, say, Blackburn. Meanwhile the wealth protection army becomes stronger by the day.
At times I can see hope in the discussions of web sites like this but then you are faced with the astounding ignorance of economics and financial issues in the everyday world.
The instruments that perpetuate wealth are no more than social constructs and yet no one in society understands them apart from a tiny elite.
So we keep on keeping on until change happens
As most trusts are designed to circumvent inheritance tax, could/should they be taxed as if wealth had transferred from one generation to another at an average inter-generational period? This would result in trusts having to pay 30% (or whatever the applicable rate is) of their value every 25 or 30 years.
Trusts have many more uses than that
But that is an incidental benefit
Onshore this has been tackled, to a fair degree in the UK
Offshore it is still a massive issue
George Monbiot has written an excellent article about the proposed distruction of 6000 trees in Sheffield as part of a vast PFI highways deal. What he describes is a suitation where a cpmmercial body not only secures enormous rent from the public but also harnesses the legal and protective powers of the state for its own purposes. In essence an example of money and power filtering upwards and stiffling any protests at the same time.
https://www.theguardian.com/commentisfree/2017/oct/24/sheffield-state-corporate-power-subvert-democracy-pfi
This is madness…
The destruction of trees in Sheffield was appalling and senseless. The people there need to vote accordingly for councillors who would stop it. I am sure there are alternatives among the parties (what are the Greens saying?) and if there are not, local independents could stand on the issue.
Andrew,
This is what George says of the Greens;
‘As soon as a PFI contract is signed, the public sector must become the guardian of private sector interests. On Friday two local people, Calvin Payne and the Green councillor Alison Teal, will be tried under another hybrid instrument: a civil case with potential criminal penalties. Sheffield city council has accused them of contempt of court, by breaking the injunction it served to prevent them from obstructing the felling of the trees they love. It has asked for custodial sentences.’
Pretty sick, isn’t it
It is fairly clear that we cannot carry on as we have for the last 40 years. There are big demographic changes on the way in Africa, where the population may quadruple in the next century; the Chinese government will not be able to keep the lid on the aspirations of their billion people forever; Russia is going to have significant internal problems before too long; we need to digest the impact of technological changes; climate change will shortly become impossible for even the deniers to ignore, but by then the trajectory may be irreversible. Resources are limited, particularly water and food and energy. There are tensions everywhere.
Something is going to break and I fear it is not going to be pretty.
It may not be
I hope it is peaceful
It cannot be guaranteed
Of course you’re 100% right. Radical change will only come from the ‘bottom up’, when there is a large enough critical mass of protest. So one must never give up. As Margaret Meade said (allegedly): “Never doubt that a small group of thoughtful, committed citizens can change the world; indeed, it’s the only thing that ever has.”
However (and with me there’s always an ‘however’) I do believe the situation has some distinctive differences today than it had in the past. One is the sheer eye-watering scale of the transfer of wealth to so few people. Wealth translates into power and the recipents of this wealth are exceptionally powerful. Think the Koch Brothers. They totally control the MSM and increasingly the new technology. This gives them unprecedented mind-control over the global population. And, while there will be sufficiently enlightened to understand the responsibility that comes with such power, most will consolidate it, protect it and do everything to increase it. It’s the DNA that makes them wealthy in the first place.
To get the change we know is needed for a more equitable and sustainable economy is going to be a long, hard slog. And because the stakes are so high -i.e. what the super rich (individuals and corporations) stand to lose, it might not be as peaceful as one would prefer. Achieving the level of public awareness for change is not a given, either. The oligarchs & plutocrats will dish out just enough material crumbs to keep the pitchforks at bay. And the technology to dumb down upcoming generations. They hope.
I know history doesn’t go in straight lines, and the human stuggle for social justice is irrepressible – against often seemingly impossible odds. So I’m optimistic in the long term. But pessimistic in the short to medium term. And there could well be some violence. A UK government, like any other, wouldn’t hesitate to call out the military if street protest exceeded what they considered to be within the acceptable bounds of democratic expression. As self-proclaimed zillionaire Nick Hanauer called to his fellow zillionaires: “Wake up!”. (https://www.politico.com/magazine/story/2014/06/the-pitchforks-are-coming-for-us-plutocrats-108014).
We need people like you to remind us of the odds
Maybe we could sell pitchforks, and clean up.
I mentioned Walter Scheidel’s “The Great Leveller” previously. It’s the only analysis I’ve come across that has looked at what forces have reduced inequality throughout known history. I think he’s right, contra the alleged quote from MM, I afraid. Naomi Klein (This Changes Everything) thinks climate change, or rather, our understanding of its implications, will bring about political and social equalisation and other desirable outcomes, if we have the will. We don’t have the will, so we may be headed for a significant extinction event.
The young know this
They will be the deliverers of change
I simply cannot see them being locked out of front doors forever
Of Walter Scheidel’s “Four Horsemen of levelling” that he says have destroyed the fortunes of the rich – mass-mobilization warfare, transformative revolutions, state collapse, and catastrophic plagues – warfare is surely a massive wealth earner, hence currently the mainstay of the American economy. And wealth that is lost by some in revolutions is invariably stolen by others, with no trickle-down efect. Sustained improvement in wealth distribution has surely only come about by long-term attrition, one small step at a time.
I do agree that the environment presents a unique opportunity to bring about positive change as it directly challenges capitalism’s growth imperative. And the under 35s are likely to be more sensitive to environmentl issues. Topics such as fracking, non-biodegradable plastic and industrial livestock production are getting exponential attention – threatening the profitability of large corporations.
Invariably one returns to the issue of Neo-liberalism. Sustainable change cannot be achieved until this corrupt ideology is overturned. Maybe capitalism is – as Marx predicted – sowing the seeds of its own demise (https://www.globalresearch.ca/the-crisis-this-time-us-capitalism-continues-to-decline-with-no-end-in-sight/5526127) providing the space in which a better economic system can grow naturally. And I agree with RM that it will be the young who embrace the opporrtunity. If they don’t step up to the plate then Fascism usually fills such a vacuum.
Allons enfants de la Patrie, le jour de gloire il et arrive or words to that effect.
So is there a way of taxing hard assets – art, antiques, land, gold etc etc, in fact anything that the uber-wealthy will acquire to store their wealth? If there isn’t, are we not on a hiding to nothing with all this, however the level of clamour and protest from us at the bottom may increase.
I explain how to do this in The Joy of Tax
We need a progressive wealth tax charged as a percentage of self-certified worth
Under declaration of worth would give the right to the state to buy the asset at certified under value. Of course some tolerance would be required, but the principle is entirely valid
It’s not rocket science
‘Under declaration of worth would give the right to the state to buy the asset at certified under value. Of course some tolerance would be required, but the principle is entirely valid ‘
I like the sound of this, but one question. Who would get to decide the fair market value of the asset ? Surely we couldn’t leave it to the vested interests of the private sector to decide, so the State would surely need to employ experts in Art, vehicles, stamps and all other alternative stores of value to make a ‘fair’ assessment ?
I suppose that would be a boon for public sector employment, but we would have to watch out for private sector ‘plants’, working against the forces of right ?
I have no doubt such experts would be required
But there are markets
And these days many more things are valued than before on line
Companies may be the hardest things to value
Thanks, Richard. I’m off to buy the book!
Thanks
The Japanese edition is just out in case that’s your preference…..
‘Gilded age’?
How about a ‘gilded cage’? With the mega rich looking out at the rest of us puzzled and wondering why we complain so, or why many of us are not eating enough food?
And look at this post from Jolyon (that corroborates one of the issues Richard raises about the mechanics of this wealth problem):
https://waitingfortax.com/2017/10/27/something-is-very-wrong-at-hmrc/
It’s not looking good is it?
The Americanisation of our polity is now complete perhaps? As the phony war that is BREXIT goes on, others have been rather busy it seems just getting on with hollowing out State reinvestment policies and infrastructure that benefits everyone.
This ‘new wealth’ – new in that it has been created by being more unfettered than previous wealth creation – has got to be looked at and condemned from the POV of POWER. This power to inculcate institutions such as HMRC for example is antithetical to democracy and is the biggest interior threat to any country – let alone ours.
Democracy has got to be about FAIRNESS. The power of money has nothing to do with being fair. It is about obtaining and retaining power. That is to say it is exclusive to those with the biggest wallet and not inclusive of those with smaller ones.
These are the weaknesses (well – some of them I hope) so lets make sure everyone knows about them.
But Richard, thinking about it, do you really think governments can rely on ‘self-certification’, for this wealth tax, by the sort of families you describe, who are able to hide wealth all over the word by various means? Am I missing something?
Remember there is now automatic information exchange from tax havens
My confidence is in part based on that
Richard, have you entertained the idea that capitalist competition itself creates the conditions for competitors(companies,families,etc) to favour and want monopoly?
Of course it does
So regulation is needed because the reality is that smaller companies do benefit society
Taking a slightly geekihs turn if I may, I think we might find that the “long-term”change that both blogger and commenters are looking to has already been inherently determined.
It is determined by a number of unsustainable patterns but most especially the rate of concentration of the ownership of wealth. There are actually, at least two relevant rates . First the overall pattern of inequality and the rise of the ‘1%’ We can see that broadly reflected in simple, easy to read charts like this:
http://graphics8.nytimes.com/images/2011/09/04/opinion/04reich-graphic/04reich-graphic-popup.jpg
or the chart that appears in this article:
https://www.economist.com/blogs/dailychart/2011/10/income-inequality-america
(btw if you’re reading this, do click on these links)
The other trend/rate/pattern concerns the intense and exponential concentration of wealth whereby the 10% becomes the 1% becomes the 0.1% etc. See here:
https://rwer.wordpress.com/2011/10/23/top-0-1-top-1-bottom-90/
and here for example:
https://www.theatlantic.com/business/archive/2014/02/the-rise-and-rise-and-rise-of-the-001-percent-in-america/283793/
On this particular point those that are less interested in charts may have been struck by simple but extreme findings such as this one from Oxfam: “Eight men own the same wealth as the 3.6 billion people who make up the poorest half of humanity”.
https://www.oxfam.org/en/pressroom/pressreleases/2017-01-16/just-8-men-own-same-wealth-half-world.
Now, putting social justice aside for a minute. We are now in a situation where the proverbial “pie” isn’t growing ( see the chart on this page for example:
http://www.economicvoice.com/chart-of-the-week-uk-gdp-per-capita-2 ) and, accordingly, those that are making the billions aren’t producing (creating new wealth) they are rent-seeking (capturing existing wealth).
That situation cannot continue indefinitely. Aggregate demand gets diminished to a level where the masses don’t have the money to buy the stuff that the elite are trying to sell them and the coming wave of technological unemployment will only make that worse. Those problems inevitably exacerbate the 2nd tendency. A point occurs where the fortunes of the 0.1% ultra-elite and the regular 1% can no longer grow in tandem. The 0.1% are then sustained at the expense of the other 1%ers, the 10%ers and the top quintile as well as everybody else.
Through a pattern of non-growth and rent-seeking combined, the ruling elite (for want of a better term) starts to cannibalise itself – and I can’t see the majority of them, priveleged, entitled and enabled as they are, putting up with that for too long. It is this 2nd point that I think will be decisive.
“Zillionaire”, Nick Hanauer tells us that “the pitchforks are coming” (as John D notes above) but it won’t just be the masses that are weilding them, it will be some of the bosses as well.
Many thanks Marco
I recommend others take a read
Marco
When you say this:
‘Aggregate demand gets diminished to a level where the masses don’t have the money to buy the stuff that the elite are trying to sell them’.
You may well be describing how capitalism will end my friend!
It seems logical to me.
But it will not be nice I fear. We’ve known that banks in the financial system do not create wealth (new money) for some time. All they do is move existing money around – which is why we need a real cash injection for the people (People’s QE). Oh and they create debt which also destroys the value of what remaining cash there is the economy.
At best what we may be seeing is a last frantic grab by the rich before time is called on this monstrosity that is unfettered wealth. I hope so but I need to be convinced. A lot of crap economics has survived 2008 but people’s awareness seems to be growing but it may well be a long hard road to the Day of the Pitchforks.
Pilgrim,
It’s hard to say. The inherent and unsustainable patterns that I have presented do represent ‘a long hard road’ as you put it. Even if the advent of the AI/automation takeover were to accelerate the tendency, the uptake of that technology will be slow.
But the whole point of my comment was just to say that this “gilded age” can’t go on indefinitely. The greater likelihood , however, is that it won’t ultimately come down to the final grind . Changes will probably intervene well beforehand. The mystery is what changes exactly but I do suspect that the process is already underway (albeit messy).
I will digress a little with this anecdote: years ago I recall someone saying that the well-to-do, middle class were content to put up with factory and call-centre jobs being off-shored or automated but as soon as that happens to the high-paid, white-collar jobs things will start changing.
It already started happening to the high-paid white collar jobs.
[…] Cross-posted from Tax Research UK […]