A guide to inequality for the Occupy Movement

This is a working draft for an article to be published in an economics journal next month. Opinions not necessarily my own. Polemicism intended.

A guide to inequality for the Occupy Movement

Macro trends in global and sovereign inequality.

Over the last few decades, there has been a generalised global trend towards increasing wealth divides, as measured for example by gini coefficients.

Since the summer of 2011, a protest movement has emerged, first in Wall Street and then spreading to many of the major financial centres in the Western world.

The Occupy movement claim to represent the impoverished 99%. its members, broadly, protest at the increasing wealth divide – the rich have gotten richer, the middle class have been left behind and poor have become poorer. Even more gallingly, all this has happened under democratically elected governments supposed to represent the popular interest but which in their eyes in fact exists to support a politico-capitalist complex. In other words this is a protest against inequality, and Occupy have turned a highly stereotyped 1% into the bogeyman.

 

This article is an evaluation of the merit and morality of this protest. More importantly perhaps, it tries to identify whether Occupy have recognized the underlying problem. I would suggest not. The movement has not recognised the real macro-trends underlying these inequality shifts: the trends we have seen over the past few decades have less to do with governments and much more to do with globalisation.

We are living through a period of global economic convergence, in which the BRIC are experiencing their first Gilded Age, and the West is experiencing its second and they are both mutually reinforcing each other. The result is a new divergence – one of income inequality; spawning a new plutocracy hazily referred to as the 1%.

The root driver for this second Gilded Age we are entering is not government. It is globalisation. Why? Because the opening up of new commercial and labour markets that number in the billions changed the whole paradigm: technology is turbo-charging development in the BRICS, and the massive economic opportunity this presents is increasing the number of market entrants – forcing everyone into competition. Global overseas investment stood at $18 trillion in 2008, up from $2 trillion in 1990. What we are witnessing is, in effect, the beginnings of a corporate land-grab on a global scale. The first Gilded Age produced international companies that defied the imaginations of its contemporaries. This second Age will do much the same.

Companies everywhere are becoming even bigger, outsourcing and keeping (labour) costs down while still ensuring the best talent comes to them. Apple’s market capitalisation is larger than the GDP of Greece, Argentina or Austria, it outsources manufacturing to China and pays it’s CEO hundreds of millions – it also makes some of the best technology products in the world. Scandalous? Maybe. But it is a new reality. Stop thinking of top-level pay as a function of mid-level pay, it isn’t. It is a function of what we might term ‘dollar responsibility’. The larger the company, the more efficiencies it can find, the more revenue it generates, the more the CEO is paid. Expect this macro trend to continue:  nominal corporate profits will rise, so will director remuneration, and they will rise more or less in line. Thus pay level inequality is set to increase, not because of governments, but because of globalisation.

To make things more unequal, taxing these people will not help. Globalisation means increased international flow of money, jobs, goods and people. Remove tax incentives and companies, and their people, will go somewhere else. Companies provide jobs and create wealth, they are the motors of sovereign prosperity. As such, countries compete to attract companies in the same way companies compete to attract talent. If the costs of running a business in one country are greater than its benefits then it will relocate or be overtaken by foreign rivals. Globalisation offers massive economic opportunity, but at the same time it blasts open the competitive landscape, not only for companies, but for countries. It seems Cameron is one of the only politicians to accept this.

The West has promised prosperity, security and comfort to all. Wonderful. But as the economies of the world converge the welfare model becomes decreasingly realistic. Because social models are fundamentally uncompetitive; and every OECD country has more entitlements than the government can deliver.

What we are witnessing today is a renegotiation of our social contracts – contracts paid for largely by debt. If the G7 wish to maintain their historic economic position they must renege on many (though not all) of their social contracts, and this will be a very tough tightrope to walk. Whether they succeed we will see.

One thing is for sure: this is the mother lode of global restructuring. We are witnessing the most profound structural shifts in three hundred years, and technology is amplifying both their speed and their scale. As a consequence, inequality has risen and will continue to worsen as the global economy is re-built. The volatility and economic destruction we have seen since 2008 is often portrayed as a once in a generation perfect storm of economic headwinds. To me it is the beginnings of an extended period of volatility as the economies of half the world’s population converge on the US and Europe. Look forward to a tough fifty years for the middle class.

All of which brings us back to the Occupy movement – a motley sample of our own disenchanted middle class, who were naïve enough to believe the politicians who promised them everything and paid for it with debt. When the illusion came crashing down in 2008 they blamed the rich 1% for not sharing in their suffering. How dare they. Here’s a nice statistic I found: guess what the average graduate starting salary is? £26,000. Guess what the threshold is for the global 1%? £25,800.  We will all (ok, an average of us will) join the global one percenters. Except for the masochistic we will all attempt to minimise our tax contributions, and except for the most generous we will donate only modestly to good causes. I would like to ask our student Occupiers where, morally, is the difference between a sovereign one percenter and a global one? Country of residence does not determine the value of a human. When self-proclaimed 99 percenters leave their comfortable homes to set up protest camps they would do better to be more self-conscious of their own privileged position before condemning others’. I take my hat off to any sincere egalitarian, but Occupy’s position today is either hypocritical, imbecilic or immoral. They are a parody of their own short-sightedness.

Another sticking point is this unquestioned obsession with inequality – should this be the number one political priority? If so then why? Inequality so far has largely been fuelled by asymmetrical income growth, not redistribution. The difference between the two is subtle but fundamental. Wages are rising across the board. The pie continues to grow. Is there any strength to an argument that says we can tolerate more inequality as long as everyone is better off in absolute terms? When and why did our popular consciousness skip over this debate?

Finally, I would suggest that Occupy has been a disappointment to our generation. They are neither working against the political system nor with it. The various Occupy movements have failed to develop a serious manifesto, failed to structure themselves as a cogent national or trans-national political body, failed to dialogue with regional and national politicians, and failed as far as I can see to get anyone more articulate than a lemon in any of the major news studios.

If the Occupy movement is to succeed it needs to take advantage of the modern political toolset and contribute productively towards a solution. But before that it would do well to get an education (now freely available online). Because Occupy is misidentifying the causes of the inequality it decries.


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