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From The Socialist newspaper, 15 December 2006

The wealth gap widens

The unleashing of free-market, capitalist forces has deepened the chasm of inequality between rich and poor, capitalist and worker, both across the globe and within all countries. Recent reports show that inequalities of wealth ownership and income are accelerating everywhere.

Lynn Walsh

Wealth inequality has reached grotesque levels. Worldwide, the richest 1% of adults consists of 37 million adults owning at least $515,000 of assets each (property, shares, cash, etc). Between them, they own 40% of the planet's wealth, totalling $125 trillion.

The richest 10% own 85% of the wealth, while the bottom half of the population own only 1.1% of global wealth. The assets of the world's typical person (median wealth) are around $2,200. Globalisation, it is claimed, is good for everyone. Yet there are still over 1,000,000,000 people struggling to survive on less than $1 a day.

Most of the super-rich are based in the USA, Europe and a handful of Asian countries - Japan, South Korea, China, etc - but super-rich elites are growing in many of the developing countries.

These figures for the year 2000, at the height of the world financial bubble, were produced by the United Nations-sponsored World Institute for Development Economics Research (1).

Acceleration of inequality

The gap between the richest and poorest countries has been growing for a century or more. On the eve of the first world war in 1913, per capita GDP (total national output divided by the population) was 22 times higher in the rich countries. By 1970, it was 88 times higher. But after globalisation began to accelerate in the early 1980s, the gap widened dramatically. In 2000, per capita GDP in the rich countries was 267 times that of the poorest countries.

At the same time, economic growth on the basis of the market has increased inequality within the poorer, developing countries. China, for instance, which has experienced growth of over 10% a year, is one of the most unequal countries in the world. The average income of the bottom 20% of the population is less than 5% that of the top 20%.

Richest of the rich

Finance companies and luxury goods merchants are naturally very interested in the growth of the global super-rich elite. Investment bankers, Merrill Lynch and Gap Gemini Consultants, produce an annual wealth report, tracking the international spread of High Net-Worth Individuals (HNWIs), people with liquid assets of over $1 million excluding their primary residence, vehicles, etc. (2)

There are 8.7 million HNWIs worldwide, with total liquid assets of $33 trillion. Their number is growing rapidly, by 6.5% during 2005. There is even faster growth of the number of ultra-HNWIs, people with liquid assets of over $30 million. This elite 1% of the world's richest 1%, made up of 85,000 people, controls 24% of global wealth.

Not surprisingly, finance houses and others are eager to cash in on this profitable market.

Early in December, an International Herald Tribune writer commented on an upmarket retailers' conference in Istanbul: "As the rich get richer and the ranks of the wealthy expand in markets from Russia to China, the world's luxury houses are unfurling new waves of ultra-expensive goods to attract the most prosperous clients... Luxury sales are increasing because of a growing wealthy class in Russia, China and India, countries that are expected to generate 32% of total luxury sales by 2014..." (3).

The Gucci Group is planning a marketing strategy for its $19,000 handbags, while Cartier is promoting a 30,000 service preparing custom-mixed fragrances for individual clients.

Increased exploitation

Meanwhile, War on Want has published a report on poverty-level wages in Bangladesh (4). Big retailers like Primark, Asda and Tesco claim they have a 'living wage' policy and uphold 'ethical standards' for workers overseas. Yet they are supplied by subcontractors who, in Bangladesh for instance, pay workers 5p an hour for an 80-hour week.

The guardian reported two typical examples: "Nazmul, 24, whose job is to stick pins into shirts, said he regularly works more than 80 hours a week, with only one day off a fortnight. With overtime he makes 2,400 taka (17) a month."

Women make up two-thirds of the workforce. "Veena, 23, said she was accused of stealing a piece of cloth and sacked after complaining of sexual harassment. 'I did not steal and I refused to do what the manager asked me [to do]. There is no union. Who can I complain to? Who will get my job back?'"

After allowing for inflation, wages in Bangladesh have halved in the last ten years. A living wage would be about 3,000 taka, while most workers earn only around 1,150 taka a month for a 48-hour week.

Persistent poverty

World Bank programmes to reduce poverty have had little or no effect. This is the conclusion of a study of 25 poor countries by the bank's Independent Evaluation Group (5). Only eleven countries experienced reductions in poverty, marginal at best, while 14 had the same or worsening poverty rates over the last five years.

"Achievement of sustained increases in per capita income, essential for poverty reduction, continues to elude a considerable number of countries," declared the report. This is despite the fact that developing countries collectively grew by about 5-6% a year, excluding China and India which have grown by around 10% a year.

"The study emphasised that economic growth is, by itself, no fix: How the gains are distributed is just as important. In China, Romania, Sri Lanka and many Latin American countries, swiftly expanding economies have improved incomes for many, but the benefits have been limited by a simultaneous increase in economic inequality, putting most of the spoils into the hands of the rich and not enough into poor households...". (6)

Fears, but no answers

Billionaires are laughing, financial speculators have never had it so good. Yet some capitalist leaders who occasionally think about the future of their system fear a political backlash from the extreme polarisation between the wealthy elite and the impoverished majority.

Recently, Ben Bernanke, the new chairman of the US Federal Reserve bank, called for "fairer" globalisation, advocating a "consensus for welfare-enhancing change" to head off "social and political opposition to openness"; that is, free-market fundamentalism (7). Bernanke fears growing international tensions and increased risk of terrorism, fed by inequality and the plight of poverty-stricken workers.

Lawrence Summers, former US treasury secretary under president Clinton, has also warned about the effects of growing inequality. In the last five years, the world economy has grown at an unprecedented rate, yet, "we see an anxiety about the market system that is unmatched since the fall of the Berlin wall and probably well before." (8)

Apart from improving education and technical training for workers, however, neither Bernanke nor Summers offer any real solution. Summers says that governments should "improve on the outcomes [the market system] naturally produces". But he suggests no concrete policies.

The capitalist market inevitably produces a polarisation between the capitalists, who accumulate capital and wield the real power, and the working class, whose labour is the real source of society's wealth. Over the last 25 years this polarisation has been sharpened by the pro-market policies of governments throughout the world: deregulation of markets, privatisation of former public services, restriction of trade union rights, and so on.

The grotesque inequalities will not be overcome by tinkering with government policies. We need global system change.

We will move towards equality only when the workers and small farmers who produce the wealth take over the economy, nationally and internationally, and run it democratically under a socialist plan of production. The aim of the super-rich capitalists is to accumulate more and more personal wealth. The objective of the majority under socialism will be to create a better life for humankind as a whole.

1. Reported in The guardian and New York Times, 6.12.06

2. Guardian Weekly, 30.6.06

3. Luxury Sector Focusing on Richest of the Rich, International Herald Tribune, 8.12.06

4. The guardian, 8.12.06

5 & 6. Washington Post, 8.12.06

7. Financial Times, 25.8.06

8. Financial Times, 29.10.06

Karl Marx

Karl Marx's observations, 1856

"On the one hand, there have started into life industrial and scientific forces, which no epoch of the former human history had ever suspected. On the other hand, there exist symptoms of decay, far surpassing the horrors recorded of the latter times of the Roman Empire... The newfangled sources of wealth, by some strange weird spell, are turned into sources of want..."

Karl Marx, speech at the anniversary of the People's Paper, 1856.

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