Deep and pervasive economic disparities threaten national and global stability.
By Joel S. Hirschhorn
Published January 10, 2007
To overturn the current elitist plutocratic system we should add the term economic apartheid to our vocabulary. Better than economic inequality, economic injustice and class warfare, economic apartheid is loaded with richly deserved negative emotions.
How ironic that the Bush administration successfully talked up the global threat of terrorism while promoting economic apartheid, a far greater and more pervasive threat to national and global stability.
The human race on planet Earth, taken as a whole, may be getting richer. But a new report from the World Institute for Development Economics Research of the United Nations University shows that wealth creation is remarkably, even criminally, unequal.
At the top of the wealth pyramid, the richest one percent of people owned 40 percent of global assets in the year 2000. The richest two percent owned more than half of global household wealth. The richest ten percent of adults accounted for 85 percent of the world's wealth.
Meanwhile, the bottom half of the world adult population owned barely one percent of global wealth. Over a billion poor people subsist on less than one dollar a day.
Every day, according to UNICEF, 30,000 children die due to poverty. That's over 10 million children killed by poverty every year!
Average wealth amounted to $144,000 per person in the U.S. in 2000, not as much as the $181,000 in Japan, but more than most others: $127,000 for the U.K., $70,000 for Denmark, $37,000 for New Zealand, $1,400 in Indonesia and $1,100 in India.
In 2000, to count among the richest 10 percent required $61,000 in net wealth. More than $500,000 was needed to belong to the richest one percent, a group with 37 million members worldwide according to the study.
The statistical measure of inequality is the Gini value, which measures inequality on a scale from zero (total equality) to one (complete inequality). For income, it ranges from .35 to .45 in most countries.
Wealth inequality is usually much greater, typically between .65 and .75. This reflects the greater difficulty in accumulating wealth (capital) than increasing income.
Two high wealth economies, Japan and the United States, show very different patterns of wealth inequality, with Gini values of .55 and .80 respectively. The incomes of the top fifth of the Japanese population are only about three times that of the bottom fifth, compared to more than nine times in the U.S.
Both countries have a huge number of wealthy people. Of the wealthiest ten percent in the world, 25 percent are Americans and 20 percent are Japanese. Despite high numbers of very wealthy people, economic apartheid is absent in Japan and abysmal in the U.S.
Global wealth inequality is higher still. The study estimates that the average global wealth Gini for adults is .89. This is like one person in a group of ten takeing 99 percent of a pie, leaving the other nine to share the remaining one percent.
As worldwide communications increasingly make the obnoxious wealth of the upper class more visible, even modest increases in income are unlikely to satisfy the vast majority of the global population without wealth.
Even Western democracies with considerable personal freedoms can risk deep social instability from class warfare as they approach a two-class system. Here are some recent examples of economic obscenities:
The Tucson-based Miraval Life in Balance Resort is now completing a 41-story wellness tower community on Manhattan's Upper East Side. Three-bedrooms in the new luxury development will run from $1.4 million to $3.65 million, with monthly maintenance charges almost twice the Manhattan high-rise average.
A new federal report says the top-heavy income distribution is squeezing out the middle class. Wall Street's top 1,000 investment bankers will average somewhere between $2 million and $3 million in bonuses this year, more than 10 times their $100,000 to $250,000 salaries.
Is overpaying CEOs a crime? A five-judge panel in Germany avoided that question by accepting a settlement in the first case ever to bring criminal charges against corporate directors for lavishing excessive pay on company executives.
Deutsche Bank CEO Josef Ackermann, Germany's most powerful banker, will pay out of his own pocket a $4.2 million fine, without having to plead guilty to charges that he helped engineer a $31 million bonus six years ago for Klaus Esser, the top executive at Mannesmann, a German mobile phone company.
An impressive new study by IRS and Ernst and Young researchers has produced reliable new data on how things have changed for the worse in recent years. Back in 1979, earning $233,539 placed an American taxpayer in the rarified air of the top 0.1 percent earners.
By 2004, things had changed considerably – it took a whopping $1,639,047 to rate in the top 0.1 percent, an over 600 percent increase above the 1979 threshold. Wealth shifted. The share of nation's income going to the top 0.1 percent more than tripled, from 3.28 percent in 1979 to 10.49 percent in 2004!
In 2004, another analysis of IRS data found the 130,500 U.S. taxpaying households that make up the top 0.1 percent wealthiest Americans averaged about $4.9 million each in income. The 300,000 Americans in these households took home significantly more pretax income combined than the poorest 120 million Americans.
In 1979, by contrast, the poorest 120 million Americans took home three times more than the richest 300,000.
Though the United States economy has seen GDP growth averaging 3.1 percent annually from 1980 to 2005, the benefits of this growth have gone overwhelmingly to the richest 10 percent of families, and among this group, disproportionately to the richest one percent.
American upward economic mobility is a myth. The United States has the lowest share of low-income workers that exit their low-income status from one year to the next (29.5 percent). The corresponding rates in several European countries are greater than 50 percent: Ireland (54.6), the Netherlands (55.7), the United Kingdom (58.8), and Denmark (60.4).
Why are Americans at the top of America's income distribution raking in so much more income today than they did a generation ago? The American Bar Association reports that "fewer law school graduates are going into public-interest law or government jobs."
In medicine, where doctors can now make millions evaluating drugs for bio-tech start-ups, the Medical Group Management Association "says the nation lacks enough doctors in family practice, where the median income last year was $161,000."
"The bigger the prize, the greater the effort that people are making to get it," sums up New York University economist Edward Wolff. "That effort is draining people away from more useful work."The December 1, 2006 New York Times editorial, When the Joneses Can't Keep Up, noted:
[T]he very richest earners are increasing their earnings at twice the rate of their onetime peers, and the average-rich are taking resentful note. Investment bankers are jealous of hedge-fund wunderkinds and, from the sound of it, almost every last person in Silicon Valley is envious of the founders of YouTube (with the likely exception of the Google billionaires who bought their company). ...
Neither policymakers nor society at large need sympathize with the longing of millionaires to become billionaires. But we do need to worry about the effects on society as a whole when members of the educated elite think they are grossly underpaid. The more they feel as if they are losing ground against their peers, the more likely they are to ditch professions in which the pay is only good - like delivering babies - in favor of less useful careers in which the compensation is off the charts - like eliminating lines from wealthy people's foreheads.
The Education Trust charges in a new study that the nation's top public universities are rapidly becoming "enclaves for the most privileged of their state's young people." Their spending on financial aid for students from families that make over $100,000 a year jumped 400 percent between 1995 and 2003.
Over that same period, spending for students from families making less than $40,000 increased just 20 percent. The financial aid grants that major state universities are now handing students from $100,00-and-up families - $3,823 on average - are larger than the grants given to students from low- or middle-income families.
Families with over $1 million in nonresidential assets make up a tiny fraction of the world's population, less than a hundredth of one percent, but hold 28.6 percent of global wealth.
How long will the vast majority of people stay submissive and peaceful as American and global economic apartheid worsens? Here in affluent America there are 37 million people living in poverty. Thirty-five million could not put food on their table at least part of the year, and over 45 million lack health insurance.
Dr. Gar Alperovitz says that the top one percent of our population now own 98 percent of the nation's wealth. There is a war on the middle class, and it is going well.
Two thousand years ago, Plutarch wrote that, "An imbalance between rich and poor is the oldest and most fatal ailment of all republics."
Is anyone listening? Or is the nucleus of the Second American Revolution forming now?
As compulsive consumers, Americans are spending their way deeper into economic apartheid. The more that Americans spend rather than save, the more they make the rich richer and themselves poorer.
If Americans take back their government and economy and end their economic apartheid, then they can work on erasing global economic apartheid. That's a big "if".
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