The Great Recession may largely be behind the developed world, but economists are sounding the alarm over one lingering risk to prosperity and peace: the increasing concentration of wealth in the hands of the world’s richest 1%.
So what can the world’s movers and shakers do about it when they gather this week for the annual World Economic Forum at the ritzy Swiss ski resort of Davos?
Not much, in the short term. But organizers of the mountainside winter think fest have put global wealth inequality at the top of their agenda this year.
President Obama is also expected to push for a more equitable world in his State of the Union address Tuesday night, campaigning for his proposals to make education more accessible and tax restructuring that could better balance the burdens on the rich, the poor and the shrinking class of in-between.
On the eve of the Davos gathering that runs Wednesday through Saturday, the Oxfam International charity issued a report warning that by next year, the world’s wealthiest 1% will control as much of the planet’s assets as the other 99%.
“Do we really want to live in a world where the 1% own more than the rest of us combined?” Winnie Byanyima, Oxfam’s executive director, asks of the charity’s findings. “The scale of global inequality is quite simply staggering, and despite the issues shooting up the global agenda, the gap between the richest and the rest is widening fast.”
Since 2009, the world’s richest people have seen their share of the asset pie grow from 44% to 48%, according to Oxfam, and by 2016 they will control at least 50%. The wealth of the 80 richest people in the world doubled between 2009 and 2014, the report said, when 1 in 9 of Earth’s residents couldn’t afford enough food and more than 1 billion were living on $1.25 or less a day.
The report, “Wealth: Having It All and Wanting More,” noted that those at the top of the wealth pyramid — especially in the healthcare and financial industries — have been spending lavishly to lobby governments to defend their opulence against higher taxes and regulation.
In 2013, U.S. finance billionaires increased their collective fortunes by 17%, to $629 billion, Oxfam calculated, and more than $400 million was spent by that wealth sector on lobbying, or 12% of all money spent to influence lawmakers that year.
“It is time our leaders took on the powerful vested interests that stand in the way of a fairer and more prosperous world,” said Byanyima, who will be one of the co-hosts at the World Economic Forum.
The Oxfam report is the latest in a flurry of analyses of income and wealth disparities in the world and how they affect everything from national economic growth to world peace.
Although employment has buoyed since the recession, new jobs are mostly lower-wage positions rather than the medium- and high-paying jobs that were lost during the downturn, a study by the National Employment Labor Project found last year.
Twenty-two percent of the U.S. jobs lost during the recession were in the lower-wage categories, but 44% of the newly created positions have been at that pay level, the law project reported.
The rich-getting-richer trend that has prevailed for decades gained pace in the recovery, according to a study of 2009-2012 income developments by Emmanuel Saez, a professor of economics and director of the Center for Equitable Growth at UC Berkeley. The top 1% of income earners captured 95% of the pay increases in the first three years into the recovery, Saez found.
Those dynamics are contributing to a long-term decline in the size of America’s middle class, the Center for American Progress reported last month.
In 1979, the American middle class made up 59.5% of U.S. households. By 2012, that share — those with incomes then between $30,000 and $90,000 — had fallen to 45.1%, a contraction of nearly one-quarter, the center calculated.
A growing body of evidence suggests income disparity is a threat to long-term economic growth because those at the lower end of the earnings spectrum have too little left for discretionary consumer spending on which developed economies depend, the center concluded.
Economists point out a distinction between wealth inequality and income disparity, the former often inherited or the proceeds of investment windfalls. There is also debate over income disparity’s effects on the economy, with some macroeconomists seeing the allure of upward mobility as potentially inspiring have-nots toward innovation and entrepreneurism.
Howard Shatz, a senior economist with Rand Corp., said he worries the focus on income and wealth inequality at Davos “misses a larger and more dangerous point”: the preparation of people for the jobs of tomorrow and high unemployment, especially among youths in many parts of Europe.
“One of the problems we’ve seen in the United States is that the number of new firms has declined, and entrepreneurism has declined,” Shatz said. “That’s a problem because the bulk of job creation comes from new and growing firms.”
Others see the Davos focus on disparities as appropriate and overdue.
“All of the facts at hand point to an entrenched structural problem with wealth inequality,” said Kent Glenzer, a veteran of international relief work in Africa who is now dean of the graduate school at Middlebury Institute of International Studies in Monterey, Calif.
“The concentration of wealth gives these people the ability to spend on influencing the political powers, which increasingly disenfranchises other people over the long haul,” Glenzer said.
“History tells us that this kind of growing division in wealth creates really palpable social schisms and will lead to unrest and violence, because people will only be pushed so far,” said Glenzer, pointing to the Great Depression that followed the Gilded Age of extremely concentrated wealth and political power.
The recent Occupy movements hint at the disorder to come, although they were poorly organized and lacked overarching themes, he said.
He rests his hopes for easing disparities on the emergence of grass-roots financing instruments like crowdsourcing, which raises capital on the Internet, and the worldwide surge in remittances from emigres.