Not so long ago, inequality was a dirty word. The experience of my friend Branko Milanovic, the world’s foremost expert on global income inequality, was typical.
“I was once told by the head of a prestigious think tank in Washington DC that the think tank’s board was unlikely to fund any work that had income or wealth inequality in its title,” Milanovic said in his 2011 book on the subject.
These were the days when Mitt Romney said discussions of income inequality should be conducted only in quiet rooms and when an American private equity tycoon compared an effort to raise taxes on his industry with Hitler’s invasion of Poland. To mention the increasing concentration of wealth at the very top was to court accusations of class envy — indeed, in his 2011 book, even Bill Clinton admonished Barack Obama for his tone in talking to and about the US’ super-rich. After my book, Plutocrats, was published in 2012, I was even disinvited to a Davos dinner party.
Just three years later, inequality has not merely become a subject fit for polite company, it has become de rigueur. It was a central preoccupation at a conference on inclusive capitalism at the Mansion House and Guildhall in May last year. The event was organized by Lady Lynn de Rothschild and the opening speaker was Prince Charles. And at Davos, income inequality has gone from taboo to top of the agenda.
There is a good reason for this pivot. Rising inequality is becoming so pronounced, it is impossible to ignore. The latest jaw-dropping statistic is Oxfam’s calculation that by next year, the top 1 percent will own more of the world’s wealth than the bottom 99 percent. What is less apparent is how those of us who have been worried about income inequality for a long time should respond to the embrace of this issue by the plutocrats themselves.
It is easy to be skeptical. However, we should welcome the plutocratic critique of plutocracy. Here is why. Surging income inequality is a symptom of a broader transformation in how capitalism is working in the 21st century. This change has brought tremendous benefits — it has helped to lift hundreds of millions of people out of poverty in the emerging markets and provided cheaper goods and services — and many brand new ones — for us in the industrialized world.
However, it is also hollowing out the incomes and wealth of the Western middle class, even as it enriches those at the very top.
This distributional shift is the great economic and political challenge of our time. It will tear some societies apart. The successful ones will be those that figure out how to solve it together.
The technology revolution, which has been turbocharged by globalization, is an economic upheaval comparable in its scale and scope with the Industrial Revolution. Just as the Industrial Revolution did not bring the end of farming, the technology revolution will not bring the end of manufacturing. However, just as the agricultural sector shrank as a share of the overall economy, particularly in terms of employment, the relative size of the industrial sector is set to decline, too.
Mike Moffatt, an economist at the Ivey School of Business in London, Ontario, likes to use the example of Gary Works, in Indiana, to illustrate what is going on. It was once the world’s largest steel mill and remains the largest integrated steel mill in North America. At its postwar peak, Gary Works employed 30,000 people and could produce 6 million tonnes of steel a year. Today, Gary can produce more than 7 million tonnes of steel working at full capacity, but it takes just 5,000 workers to do that.
The same forces that have transformed Gary Works are changing every sphere of human activity. This is not just about the assembly line any more — 99 percent of us are, metaphorically, Gary steel workers.
The lucky 0.1 percent own a Gary Works or have invented the technologies that transformed them, and the rest of the top 1 percent work for them. Until now, these winners in our winner-take-all economy have backed a set of political measures — weaker unions, deregulation, lower taxes — which have exacerbated the distributional impact of the new economy.
As even the man in Davos has realized, that is not sustainable. The weak economic growth that much of the Western industrialized world is currently experiencing suggests that an economic system that hollows out the middle class will struggle to grow. And the vicious political polarization should make us worry that an economy that produces cheap goods, but even cheaper jobs will ultimately erode mass democracy.
Some think a violent confrontation between the new economy’s winners and losers is inevitable.
As US technology billionaire Nick Hanauer warned last year: “If we don’t do something to fix the glaring inequities in this economy, the pitchforks are going to come for us.”
He is right. After all, the last time a comparable political and economic transition was negotiated — the Industrial Revolution — it took economic depression, two world wars and communist revolutions in Russia and China before a new, economically and politically sustainable status quo was able to be established.
That is a very high cost indeed. Which is why the smartest plutocrats understand it is in their best interest to work to build a 21st century version of inclusive capitalism. For our own sakes, we should give them a chance to join the rest of us in figuring that out.
Chrystia Freeland, a former deputy editor of the Financial Times, is a Liberal MP in the Canadian parliament.
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