Some causes of inequality

1. Corporations, working for those at the top

[T]he world’s 10 biggest corporations together have revenue greater than that of the government revenue of 180 countries combined.

Businesses are the lifeblood of a market economy (and have a big role to play)…. In pursuit of delivering high returns to those at the top, corporations are driven to squeeze their workers and producers ever harder – and to avoid paying taxes which would benefit everyone, and the poorest people in particular.

2. Squeezing workers and producers

While many chief executives, who are often paid in shares, have seen their incomes skyrocket, wages for ordinary workers and producers have barely increased, and in some cases have got worse.

Across the world, corporations are relentlessly squeezing down the costs of labor – and ensuring that workers and producers in their supply chains get less and less of the economic pie. This increases inequality and suppresses demand (emphasis added).

3. Dodging Corporate taxes

Corporations maximize profit in part by paying as little tax as possible. They do this by using tax havens or by making countries compete to provide tax breaks, exemptions and lower rates. Corporate tax rates are falling all over the world, and this – together with widespread tax dodging – ensures that many corporations are paying minimal tax.

What is driving this behavior by corporates? Two things: the focus on short-term returns to shareholders and the increase in “crony capitalism.”

4. Super-charged shareholder capitalism

(Maximizing returns to shareholders) means not only maximizing short-term profits, but paying out an ever-greater share of these profits to the people who own them. In the UK, 10% of profits were returned to shareholders in 1970; this figure is now 70%…. This has been criticized by many, including Larry Fink, CEO of Blackrock and Andrew Haldane, Chief Economist at the Bank of England.

The increased return to shareholders works for the rich, because the majority of shareholders are among the richest in society, increasing inequality.

Every dollar of profit given to the shareholders of corporations is a dollar that could have been spent paying producers or workers more, paying more tax, or investing in infrastructure or innovation.

5. Crony capitalism

[C]orporations from many sectors – finance, extractives, garment manufacturers, pharmaceuticals, and others – use their huge power and influence to ensure that regulations and national and international policies are shaped in ways that enable continued profitability.

Even the technology sector, once seen as a sector that is relatively above board, is increasingly linked to charges of cronyism. Alphabet, the parent company of Google, has become one of the biggest lobbyists in Washington and is in constant negotiations in Europe over anti-trust rules and tax.

Crony capitalism benefits the rich, the people who own and run these corporations, at the expense of the common good and of poverty reduction. It means that smaller businesses struggle to compete and ordinary people end up paying more for goods and services as they face cartels and monopoly power of corporations and those with close connections with government.

6. The role of the super-rich in the inequality crisis

The 1,810 dollar billionaires on the 2016 Forbes list, 89% of whom are men, own $6.5 trillion – as much wealth as the bottom 70% of humanity. While some billionaires owe their fortunes predominantly to hard work and talent, Oxfam’s analysis of this group finds that one-third of the world’s billionaire wealth is derived from inherited wealth, while 43% can be linked to cronyism.

Once a fortune is accumulated or acquired it develops a momentum of its own. The super-rich have the money to spend on the best investment advice, and the wealth held by the super-rich since 2009 has increased by an average of 11% per year. This is a rate of accumulation far higher than ordinary savers are able to obtain.

Whether via hedge funds or warehouses full of fine art and vintage cars, the highly secretive industry of wealth management has been hugely successful in increasing the prosperity of the super-rich.

But the super-rich are not just benign recipients of the increasing concentration of wealth. They are actively perpetuating it.

7. Avoiding Taxes & Buying politics

Paying as little tax as possible is a key strategy for many of the super-rich. To do this they make active use of the secretive global network of tax havens, as revealed by the Panama Papers and other exposés. Countries compete to attract the super-rich, selling their sovereignty. Super-rich tax exiles have a wide choice of destinations worldwide (and $7.6 trillion of wealth is estimated to be hidden offshore.)

Africa alone loses $14bn in tax revenues due to the super-rich using tax havens – Oxfam has calculated this would be enough to pay for the healthcare that could save the lives of four million children and to employ enough teachers to get every African child into school.

Many of the super-rich also use their power, influence, and connections to capture politics and ensure that the rules are written for them. Billionaires in Brazil lobby to reduce taxes, and in São Paulo would prefer to use helicopters to get to work, flying over the traffic jams and broken infrastructure below.

Some of the super-rich also use their fortunes to help buy the political outcomes they want, seeking to influence elections and public policy.

This active political influencing by the super-rich and their representatives directly drives greater inequality by constructing “reinforcing feedback loop” in which the winners of the game get yet more resources to win even bigger next time.

But the report falls short in one aspect. It fails to name some of the main culprits: central banks. Is Oxfam too afraid of them? It doesn’t even mention “central bank” or any specific central bank, such as the Federal Reserve or the ECB, not even in passing, though they’ve been the engineers of the described wealth and income inequalities, with their very vocal and successful efforts to fire up rampant asset price inflation at the expense of everyone else mentioned in the report, including “savers.” And that omission, given its magnitude, cannot possibly be a mere oversight.

— source wolfstreet.com By Wolf Richter

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s