Over the past few decades, strong growth in China and India has lifted hundreds of millions out of poverty; providing opportunities that were out of reach only a generation ago. But while giant strides have been made in the world’s two most populous countries, global wealth continues to become increasingly concentrated in the hands of the few.
A recent publication from Oxfam, Wealth: Having It All and Wanting More, paints a remarkable and depressing narrative. It is a story characterised by a growing ‘elite’ society, with the financial clout to dominate business and politics and tilt the odds in their favour.
Unfortunately, we are not simply talking about Wall Street or members of the Russian oligarchy. Australia is no exception and by some measures we are worse than most.
The statistics are staggering.
Eighty individuals have as much wealth as the poorest 3.5 billion people. That’s not even the richest 1 per cent -- merely a small fragment -- the richest 1 per cent of adults have almost as much wealth as the other 99 per cent combined.
Oxfam estimates that the top 1 per cent will possess over half of all global wealth in 2016. That may come to pass but their methodology -- assuming that changes in the wealth share will continue on its 2010-2014 trend -- appears overly simplistic.
From the outset it must be acknowledged that some economic inequality is necessary. Society needs to recognise those with specialised skills and talent and to reward entrepreneurialism, innovation and hard work. But a high level of inequality curbs economic growth and increases poverty; generates crime and terrorism; and erodes the very foundations of democracy.
There is a balance to be had between inequality and opportunity and we have failed to get that balance right.
One interesting characteristic of the recent trend is the apparent role played by the global financial crisis. In the years leading up to the crisis, the wealth of the poorest half of the global population was rising at a faster pace than among the world’s 80 richest people.
Naturally, you’d expect the wealthy to take a hit during the crisis -- what with stocks and other assets accounting for a majority of their wealth -- and that’s exactly what happened. But after falling during 2009, the wealth of the global elite has staged a staggering comeback while the wealth of the poorest half of the population has continued to fall.
That trend would appear, at first glance, to be driven by the quantitative easing programs pursued across the United States, Japan and the United Kingdom. These programs led to a sharp rise in global equities but from the perspective of the real economy provided very little bang for its buck.
Those who owned a significant value of equities or real estate made out like bandits. For those who derived their wealth through their wages it has been a disaster.
But the longer run trends are more complicated. The most important driver may relate to the important role played by wealth in the political process. There is a clear disconnect between those who need to lobby the government and those who can afford to.
Our democracy is founded on the notion of ‘one person, one vote’ and yet a vast majority of people have votes that simply don’t matter. By comparison, a small minority have votes that matter a great deal.
According to Oxfam, “during 2013, the finance sector spent more than $400 million on lobbying in the USA alone”. During the election cycle of 2012, firms within the finance sector spent $571m on campaign contributions.
By comparison, the pharmaceutical and healthcare sectors spent more than $487m on lobbying in the US during 2013 and a further $260m during the 2012 election campaign.
Is it any wonder that no US government has been able to deliver universal health care? A private system benefits those companies within the sector; an entirely public system merely benefits the entire population. Yet there is no shortage of politicians at the state and federal level willing to create roadblocks to the detriment to their voters.
Australia is, unfortunately, no different. Last May it was reported that federal Treasurer Joe Hockey had provided privileged access to select business people who ponied up thousands in campaign contributions to the Liberal Party.
According to Fairfax Media, members of the North Sydney Federal Electoral Conference were allegedly rewarded with private meetings with Hockey in return for annual fees of up to $22,000 a year.
That sort of behaviour is quite common within political circles, from both sides of the floor. Surely no one hands over thousands of dollars without some expectation of superior access or favourable decision-making.
Unfortunately we don’t have timely data -- the dataset only goes to 2010 -- but the top 1 per cent of income earners in Australia account for almost 10 per cent of annual income. Given Australians have also benefited from loose monetary policy and quantitative easing, it appears reasonable to assume that the actual rate is now significantly higher.
Steps taken at the May federal election appear to only exacerbate the problem. While the world is slowly waking up to the problem of inequality -- US President Barack Obama declared it the “defining challenge of our time” -- the lesson has been lost on Australian policymakers.
The Australian economy has enjoyed an unprecedented period of prosperity that has provided ample opportunity for governments at the state and federal level to address poverty and inequality and pursue equality of opportunity where possible. We appear to have failed on that front.
But inequality is a problem that can always be addressed. The moment of truth will come for the federal government in May when it will have an opportunity to right past wrongs. Will it continue to put obstacles in the way of Australians universal right to education and health care? Or will it recognise the global shift on inequality and act accordingly?