Q: How many people is one rich man worth? A: 6.3 million. Extreme Inequality in the UK
Following his uber killer fact paper (assets of world’s 85 richest individuals = 3.5 billion poorest) Ricardo Fuentes (@rivefuentes) turns his jaundiced but numerate gaze to the UK (and triggers another media splash – see end for links)
Economic inequality is much talked about these days. Two documents have made a splash over the last month: first, an IMF paper highlighting the potential dangers of inequality argued that redistribution does not harm economic growth. And last week, the much awaited English translation of Thomas Piketty’s book Capital in the 21st Century was released, prompting several new reviews.
In January, Oxfam released the paper “Working for the Few”, which got its share of attention. In it, we highlighted the vast global disparities in wealth and the worrying trends for some countries.
Now it’s the turn to look closely at Britain’s numbers. Here are the facts (from a new Oxfam briefing, A Tale of Two Britains):
- The richest person in the UK (Gerald Cavendish Grosvenor, aka the 6th Duke of Westminster) is wealthier than the bottom 10 % of the population in the UK (that’s 6.3 million people).
- The richest 5 families in Britain are wealthier than the bottom 20 % of the population (12.6 million people).
- In the last two decades (since 1993) the income of the bottom 90 % has increased by 27%, while the income of the richest 0.1 % has increased by 101%. In absolute terms the difference is much bigger – 1% of a shedload of cash is much more than 1% of a pittance. The bottom 90% has seen an increase in real income of about £150 per year . The top 0.1%, on the other hand, has seen its income rise by more than £24,000 a year, for two decades.
Since the fiscal year 2002/2003, real after-housing income for the poorest 95% of the population has actually gone down, while the after housing yearly income of the richest 5% has gone up.
The calculations are quite straightforward, using several sources, including the most recent billionaire’s list from Forbes, the Credit Suisse Databook, the World Top Incomes Database and the Family Resources Survey by the Department of Work and Pensions (also analyzed in detail by the Institute of Fiscal Studies in their “Living Standards, Poverty and Inequality in the UK:2013”).
In “Working for the Few”, we argued that this type of extreme inequality creates a vicious circle. Wealth that is concentrated in the hands of a few can then be used to buy political influence to rig the rules in favour of this small elite and perpetuate inequality. This process is not only worrying Oxfam. This week’s Economist has a cover story on “The New Age of Crony Capitalism”. In the accompanying leader, the magazine argues that:
“Capitalism based on rent-seeking is not just unfair, but also bad for long-term growth. As our briefing on India explains (…), resources are misallocated: crummy roads are often the work of crony firms. Competition is repressed: Mexicans pay too much for their phones. Dynamic new firms are stifled by better-connected incumbents. And if linked to the financing of politics, rent-heavy capitalism sets a tone at the top that can let petty graft flourish.”
How does this relate to billionaire’s wealth? The Economist goes on to argue in the full article that “Billionaires in crony sectors have had a great century so far (…). In the emerging world their wealth doubled relative to the size of the economy, and is equivalent to over 4% of GDP, compared with 2% in 2000. Developing countries contribute 42% of world output, but 65% of crony wealth.”
Britain is not immune to this problem. In the Economist’s “Crony-Capitalism Index”, it ranks higher (meaning billionaires’ wealth from crony-prone sectors) than the US, Japan, Germany, France and South Korea and has some pretty unsavoury neighbours in the table.
All this is happening while the use of food banks is increasing across the country.
This is not about politics of envy. It is about ensuring that political representation and voice is not captured by a few. Some degree of inequality is required to reward those with talent, hard earned skills, and the ambition to innovate and take entrepreneurial risks. And plenty of wealthy people contribute to individual good causes. But the observed trends (in the level of wealth concentration and crony capitalism) point to a politically and economically dysfunctional level of inequality that everyone – from the IMF to the late Tony Benn – realize needs to be sorted out. As Paul Krugman wrote recently, while discussing the issue: people aren’t envious, they are angry – and with good reason.
Lots of media coverage on this bit of number crunching, including the Daily Mail, the Mirror, Sky News , ITV, The Independent and Guardian (front page, below). Hope the ‘policy into practice‘ pundits are paying close attention.