'Recovery' for the rich, unemployment and lower wages for workers
The world economy is gradually recovering from the crisis that hit in 2007-08, and things will soon be back to normal, right? Wrong. The recovery from the international recession has so far applied mainly to the biggest capitalists and the highly paid executives who manage their businesses.
Figures for individual big capitalists are often not easy to come by, but what their executives get paid is a pretty good indication of how well a corporation is doing and hence of how much money its owners are taking in. And executive salaries are soaring.
According to the New York Times (July 3), executive pay at 200 big US companies last year went up by an average 23% over 2009. The median executive salary was US$10.8 million. The article, by Pradnya Joshi, noted a shift in executive bonuses. Before the 2008 crisis erupted, bonuses were typically in the form of stock options, so when the corporation’s stock price declined, so also did executive bonuses. In 2010, many corporations shifted to paying cash bonuses, which shot up 38%. Some areas pay better than others. In 2009, the top 10 hedge fund managers between them took in US$18.7 billion.
Executives who own all or a large part of a corporation may have only small or even token salaries, the article noted, because they rely on the increase of the value of their stock. A prime example was billionaire Warren Buffett, whose stocks went up in value 16%. That wasn’t as much as the 23% received by executives on salaries, but it still amounted to an increase of more than US$6 billion. The previous year, the Forbes 400 wealthiest people in the US grew 8% wealthier, to a total holding of US$1.37 trillion.
By contrast, Joshi reported, “The average American worker was taking home $752 a week in late 2010, up a mere 0.5% from a year earlier. After inflation, workers were actually making less.”
The rich get richer
Profits are up, real wages are down, and so of course the rich are getting richer. The June 22 issue of the British Guardian described the content of “the annual world wealth report by Merrill Lynch and Capgemini” on “high net worth individuals”. These are defined as people who have at least US$1 million of spare cash or easily convertible assets lying around. “The globe’s richest”, Jill Treanor wrote, “have now recouped the losses they suffered after the 2008 banking crisis. They are richer than ever, and there are more of them - nearly 11 million - than before the recession struck.”
Some rich are richer than other rich. “Ultra-high net worth individuals” are people who have at least US$30 million under the pillow to buy a yacht or a penthouse or a few dozen politicians. Their global number rose by 10% in 2010, to 103,000, and the total of their wealth went up by 11.5% to US$15 trillion. The total wealth of high net worth individuals was US$42.7 trillion, US$2 trillion more than in the previous peak year of 2007.
If you are planning to become one of the wealthy, it helps to be older and male. More than 80% of them are over 45, and almost 75% are men. More than half of the wealthy live in the United States, Germany or Japan, “but it is Asian-Pacific countries where the ranks of the rich are swelling fastest”, and which now have more high net worth individuals than Europe, mainly due to the increase of private wealth in India and China.
The study used by the Guardian included information on Australia, which was reported by the ABC on June 23. The number of millionaires here increased by 11.1%, and their total wealth went up 12.1%, to A$550 billion.
A similar study by the Boston Consulting Group was reported by the Wall Street Journal on May 31. This looked at households with US$1 million or more “in investible assets, excluding homes, luxury goods and ownership in one’s own company”. Perhaps because it looked at households rather than individuals, it found somewhat more millionaires - 12.5 million - than the other study.
“The U.S. continues to lead the world in millionaires, with 5.2 million millionaire households, followed by Japan with 1.5 million millionaire households, China with 1.1 million and the U.K. with 570,000”, the WSJ reported, as quoted by Martin Hart-Landsberg in an article on the Truthout website.
However, “the most important trend”, in the view of the Journal, was that the already obscenely wealthy were monopolising even more of the world’s wealth: “... the world’s millionaires represent 0.9% of the world’s population but control 39% of the world’s wealth, up from 37% in 2009. Their wealth now totals $47.4 trillion in investible wealth, up from $41.8 trillion in 2009.” That is, in a single year, fewer than 1% of the world’s people took US$5.6 trillion that they didn’t need from people most of whom did need it. Looking at it another way, if that 0.9% of the world’s population continue increasing their ownership of the world by 2% every year, by the middle of 2041 they will own everything, and the rest of us will have to beg permission to remain on their planet.
The BCG study, like that of Merrill Lynch and Capgemini, also looked at the richest of the rich, although it defined them as families with more than US$5 million rather than individuals with more than US$30 million. People in this BCG category, the Journal said, were 0.1% of the world’s population but owned 22% of the world’s wealth, compared to 20% in 2009.
The other 99%
My suggestion that the millionaires might end up throwing the rest of us off the planet was not really serious. This is not because they aren’t greedy enough to do it, but because they need us. We produce all the wealth that they own and consume, and most of the point of their accumulating wealth is to give them control over what the rest of us do (that is, work for them). However, as science and technology advance, they need fewer of us to perform all the production and services they are capable of desiring, and so an increasing part of the world’s population appears to them to be surplus, unnecessary — “overpopulation”. Initially this generally appears as unemployment.
According to the International Labour Organisation’s (ILO) Global Wage Report 2010/11, the economic crisis has dramatically increased global unemployment, from a rate of 5.7% in 2007 to 6.4% in 2009 — almost 29 million additional unemployed persons. In the world’s largest economy, the United States, 107,258,000 people were employed in private (that is, non-government) jobs in June. This is a decline of more than 8 million jobs from a peak of 115.6 million at the end of 2007. Government jobs are also disappearing: between June 2010 to June 2011, the number of jobs at all levels of government fell by 700,000. Another million could be lost in the next year, as federal, state and local governments are all cutting spending. In May, there were 54,000 new jobs in the US, and in June only 18,000. Close to 150,000 new jobs a month are needed to keep up with the growth of the workforce.
Rising unemployment of course tends to depress wages. The ILO’s wages study covered wages in 115 countries in 2008 and 2009 (despite its title). Leaving out China (because the statisticians thought the data not comprehensive enough), it found real average wages growth of 0.8% in 2008 and 0.7% in 2009, compared to 2.2% in 2007. The figure for overall wages growth was positive mainly because of continued economic growth in underdeveloped countries in Asia. In one-fourth of the countries surveyed, real wages declined in 2008, and in one-fifth of the countries in 2009.
Stagnant or falling wages and rising profits are amplifying what was already a long-term trend toward increasing inequality. The most reliable and readily available figures are from the United States. Countries differ considerably, but the world’s largest economy tends to set the trends that other countries are compelled to follow.
An interesting article on inequality in the US appeared last September 3 on the website Slate, which is a division of the Washington Post. The author, Timothy Noah, wrote that the first systematic study of incomes in the US was conducted in 1915. It found that the richest 1% of the population received 18% of the country’s income. At that time, Noah pointed out, “The socialist movement was at its historic peak, a wave of anarchist bombings was terrorising the nation’s industrialists, and President Woodrow Wilson’s attorney general, Alexander Palmer, would soon stage brutal raids on radicals of every stripe. In American history, there has never been a time when class warfare seemed more imminent.” Today, he continued, the richest 1% receive 24%.
Noah outlined three relatively long periods characterised by different degrees of inequality. The period from 1917 to 1940 was highly unequal, the top 10% of income earners obtaining a growing share of total income, from 40% in 1917 to around 49% in 1929. Their share declined a bit during the Great Depression but still averaged around 45% through the 1930s. From 1941 to 1979 was far more equal; the top 10% received more than 35% of total income in only four years, all of them near the beginning of the period. From 1979 to the present, there has been a fairly steady rise of the share of the top 10%, which reached 50% in 2007 and about 48% in 2008. In an article on the Countercurrents website in October, Bill Quigley listed some other measures of this growing inequality. “In 1967, the middle 60% of households received over 52% of all income. In 1998, it was down to 47% ... From 1979 to 2006, the richest 1% more than doubled their share of the total US income, from 10% to 23% ... For the last 25 years, over 90% of the total growth in income in the US went to the top 10% earners … In 1973, the average US CEO was paid $27 for every dollar paid to a typical worker; by 2007 that ratio had grown to $275 to $1 … Eleven million homeowners (about one in four homeowners) in the US are ‘under water’ or owe more on their mortgages than their house is worth.”
The US Economic Policy Institute points out <http://www.stateofworkingamerica.org/articles/view/7> that from 1979 to 2007, the top 1% of US income earners took 38.7% of the total increase in incomes. The same source pointed out that from 1947 to 1973, the lowest 20% increased their real incomes by 117.4%, more than any other layer, and the highest 20% increased their income the least: by 88.7%. But between 1979 and 2009, the top 20% increased their income by 49%. The second highest quintile increased 22.7%; the middle quintile increased 11.2%; the second lowest quintile increased only 3.7%. The real income of the bottom 20% actually fell by 7.4%.
Ben Stein is a conservative US lawyer whose hobby horse is reforming the US taxation system. In the November 26, 2006, New York Times, he described a conversation with Warren Buffett in the latter’s office in Omaha. Buffett told Stein that he had asked the clerks, secretaries and others in his office what percentage of their income they paid in income tax. All of them paid a much higher percentage than he did. Furthermore, Stein wrote, “Mr. Buffett doesn’t use any tax planning at all. He just pays as the Internal Revenue Code requires.” That is, the rich in the United States don’t have to do anything illegal to avoid taxes. The laws are written so that they don’t have to pay.
Stein said he commented that when he or anyone else calls for making the rich pay a bit more, that person is “accused of fomenting class warfare”. To this, Buffett replied: “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning”.
At the moment, the only places in the world where the capitalists aren’t winning the class war is in countries where there are new or surviving socialist revolutions. And the capitalists’ success is not really due to their strength. It is much more due to our slowness to build the kind of organisation and movement that can overthrow them.