Bloomberg’s coverage of a new report by Boston Consulting Group emphasizes that wealth creation in the US is increasingly being driven by existing financial assets – e.g., rising stock prices – rather than through creation of new wealth (i.e., entrepreneurial capitalism).
Ben Steverman (June 16, 2017). The U.S. Is Where the Rich Are the Richest. Bloomberg, https://www.bloomberg.com/news/articles/2017-06-16/the-u-s-is-where-the-rich-are-the-richestHere is the actual report:
Globally, about half of new wealth comes from existing financial assets—rising stock prices or yields on bonds and bank deposits—held predominately by the already well-off.
The rest of the world’s new wealth comes from what BCG classifies as “new wealth creation,” from people saving money they’ve earned through labor or entrepreneurship.
In the U.S., the creation of “new” wealth is a minor factor, making up just 28 percent of the nation’s wealth increase last year. It’s even lower in Japan, at 21 percent….
… In fact, while global inequality is simply accelerating, in America it’s gone into overdrive. The share of income going to the top 1 percent in the U.S. has more than doubled in the last 35 years, after dropping in the decades after World War II (when the rich were taxed at high double-digit rates). The tide shifted in the 1980s under Republican President Ronald Reagan, a decade when “trickle-down economics” saw tax rates for the rich fall, union membership shrink, and stock markets spike.
Now, those policies and their progeny have helped put 63 percent of America’s private wealth in the hands of U.S. millionaires and billionaires, BCG said. By 2021, their share of the nation’s wealth will rise to an estimated 70 percent.
Global Wealth 2017: Transforming the Client Experience (June 13, 2017) By Brent Beardsley , Bruce Holley , Mariam Jaafar , Daniel Kessler , Federico Muxí , Matthias Naumann , Jürgen Rogg , Tjun Tang , André Xavier , and Anna Zakrzewski https://www.bcg.com/publications/2017/asset-wealth-management-financial-institutions-global-wealth-2017-transforming-client-experience.aspx
Of course, this trend is nothing new and has been remarked upon by labor economists, such as Joseph Stiglitz and Michael Hudson, and documented so persuasively by Kenneth Phillips, among others.
Academic critics such as David Harvey described the captured state under late capitalism as abdicating democratic principles in order to “facilitate conditions for profitable capital accumulation on the part of both domestic and foreign capital” with decreasing regard for human welfare.[i]
As described by Harvey, late capitalism, is characterized by the consolidation of global ownership of resources and centralization of political decision-making within transnational corporations, powerful and co-opted government agencies, and non-democratic international governance entities, such as the World Trade Organization (WTO).
Citigroup, one of the most powerful global financial corporations, appears to agree with Harvey’s characterization of gross consolidation of ownership. Such a world is implied in their October 16, 2005 report: “Equity Strategy: Plutonomy: Buying Luxury, Explaining Global Imbalances.”[ii]
In this report, Citgroup adopted the term “plutonomy” to describe a world “dividing into two blocs—the plutonomies, where economic growth is powered by and largely consumed by the wealthy few, and the rest”[iii]
The U.S. is cited as a “key” plutonomy characterized by “disruptive technology-driven productivity gains, creative financial innovation, capitalist-friendly cooperative governments, an international dimension of immigrants and overseas conquests invigorating wealth creation, the rule of law, and patenting inventions.” The financial elite, as represented by Citigroup, maps the distribution of power in relation to increasingly centralized capital ownership.
Who are the wealthy monopolists? Within the U.S., this elite group has been described as “the one percent.” However, there exists overall a transnational class of wealthy individuals and formalized organizational entities with disproportionate influence over decisions impacting economic development, energy policy, daily living conditions, and human health.
Globally, in 2006, prior to the Great Recession, one percent of the world’s population was believed to control 40 percent of the world’s wealth.[iv] Ownership of the world’s largest corporations is highly centralized in a core group of 1318 corporations with interlocking ownerships, according to a revealing network analysis of 43,000 global corporations published in 2011 by Stefania Vitali, James B. Glattfelder, and Stefano Battiston.[v]
Each of the core 1318 corporations was found to have ownership links to two or more other companies, although most are linked to twenty other corporations. The 1318 corporations own through their shares the majority of blue chip and manufacturing companies, controlling 60 percent of global revenues.
Further analysis revealed a tightly linked “super entity” of 147 corporations, mainly in finance, with interconnected ownership. Consequently, less than one percent of corporations essentially controlled 40 percent of the entire network. Furthermore, the study found that 734 “top holders of stock accumulate 80% of the control over the value of all TNCs.” The authors conclude:
“this means that network control is much more unequally distributed than wealth. In particular, the top ranked actors hold a control ten times bigger than what could be expected based on their wealth.”[vi]Consolidated ownership results in consolidated control over decision-making over important societal issues – such as finance and energy – impacting future generations. Consolidation of wealth shapes social organization through centralization of decision-making in markets and politics by corporations, powerful government agencies, and international governance organizations....
EXCERPTED FROM Nadesan Crisis Communication, Liberal Democracy and Ecological Sustainability
[i] David Harvey, A Brief History of Neoliberalism (Oxford, UK: Oxford University Press), 7.
[ii] Ajay Kapur, Niall Macleod and Narendra Singh, “Equity Strategy: Plutonomy: Buying Luxury, Explaining Global Imbalances,” Citigroup, October 16, 2005, http://www.scribd.com/doc/6674234/Citigroup-Oct-16-2005-Plutonomy-Report-Part-1
[iii] Kapur, Macleod and Singh, “Equity Strategy,” 1-2.
[iv] “40% of world's wealth owned by 1% of population,” CBCNews, December 5, 2006, accessed January, 3 2012, http://www.cbc.ca/news/business/story/2006/12/05/globalwealth.html; and James Randerson, “World's richest 1% own 40% of All Wealth, UN Report Discovers,” The Guardian, December 6, 2006, accessed January 3, 2012, http://www.guardian.co.uk/money/2006/dec/06/business.internationalnews.
[v] Stefania Vitali, James B. Glattfelder, and Stefano Battiston, “The Network of Global Corporate Control,” PLOSone (2011), accessed December 3, 2011, doi: 10.1371/journal.pone.0025995.
[vi] Vitali, Glattfelder, and Battiston, “The Network of Global,” 36.