It should have come as no surprise this week that Australia’s billionaires collectively added more than 50% to their wealth in 2020 – the year of the pandemic. That is what extreme wealth, and most extremely wealthy people, do when unchecked. They take advantage of things, especially adverse conditions.
When the pandemic struck and people struggled to make ends meet, they ate into savings, especially superannuation and shares. Asset prices fell, especially shares and property. Very wealthy people, unconcerned about making ends meet, snapped up the bargains, in the sure knowledge that they would rise again.
Leading the pack were Gina Rinehart rising from $13.8 billion to $28.9 billion and Andrew Forrest from $8.0 billion to $23.0 billion.
Bloomberg News said this week that the wealth of Australia’s approximately 104 billionaires went up by 52.4%.
Averages wages, by contrast, have stagnated. It took average wages 13 years to increase by the same percentage as the billionaires’ income rose in just one year.
The stupendous growth in income and wealth for those as the top while the income and wealth of those in the middle and below stagnates is changing the way the world and national economies are behaving – for the worse.
It has been going on gradually for 30 or 40 years. Labour’s share is going down while capital’s share is going up. Since 1975 capital’s share has gone from 25% to 40% and labour’s down from 62% to 47%. (The remainder to add up to 100% is mixed).
Corporations are making their increasing income for shareholder dividends not by making and selling more stuff from innovation and investment in more efficient production methods. Rather they are making it by taking it from what has hitherto been labour’s share of income.
The consequences will most likely lead either to some sort of economic rupture or a re-working of the whole system because the very contributors of labour, from whom capital-owners are taking income share, are also the consumers upon whom capital-owners usually rely upon to make profits.
It can only go on so long. While consumer demand stagnates, company profits and the sharemarket can continue to hold up while ever companies can claw back labour’s share of income.
But companies, aware of that stagnating demand, are reluctant to invest in productive capacity. But they still have profits, which have to go somewhere. Where do they go? In asset purchases, like property, shares in other companies and share buy-backs.
Central banks, meanwhile, desperate to stimulate demand, cut interest rates to next to nothing. But it doesn’t help, at either end of the economy. At the middle and bottom any money from lower mortgage payments is going to pay down debt, rather than in consumption, because they feel insecure in their employment. They know that their income is not going to rise anytime soon. And they know that constant austerity means that they cannot rely on government to provide even basic health, education and income support.
Those concerns have been caused by the very measures of de-unionisation, casualisation and out-sourcing that have enabled capital to get a greater share of total income in the first place.
Meanwhile, at the top end, the money that lower interest rates provides, does not go to consumption as the Reserve Bank would like, because the very wealthy already have everything they need. So, instead, they invest it in assets, such as property and shares, which, in turn, cause their prices to rise, again, much to the Reserve Bank’s consternation.
In short, the Reserve Bank, despite its independence, appears powerless.
The only way to break this horrible descending helix is for governments to act to increase labour’s share of national income and for them to have the courage to tell their corporate donors that this is in those donors’ long-term interest, even if they cannot see it themselves.
Internationally, it is worse. In China, labour has forever received much less in reward than what it should, given what it produces. Crony communism has put large power and wealth into a few hands. More importantly, it has created a huge surplus of funds that have to go somewhere.
Where do they go? Into US assets, especially US-dollar denominated bonds – in their trillions of dollars. That helps keep the US dollar high, making its exports dearer and imports cheaper – the real cause of much of the US’s economic woes.
China has been doing this since the Asian financial crisis of the 1990s because the communist party, seeing the overthrow of the autocratic Suharto government in Indonesia, thought to itself: “That’s not going to happen to us. We are going to grab a chunk of what otherwise should be labour’s share of national income and put it into foreign-currency reserves.”
Capitalists and communists alike have been clawing away at labour’s share of national income for a long time now. They may think they have been pretty smart and built up a lot of wealth and security. But in the longer term not so.
Economically and politically, something will have to give, if it has not already in the rise of Trump and other populist demagogues. Those demagogues of themselves may pose little immediate effect.
Rather the danger comes when they inevitably fail to correct the imbalance – when there is no Brexit or other nationalist nirvana; no renewal of rustbelts; no reversal of perpetual budget-balancing austerity; a continuing rise in extreme inequality and the resentment that it causes; and a continuation of the myths of trickle-down economics and all-boats-rising on the tide.
As this week’s figures show, only the billionaires’ high-powered yachts rise on the tide. The leaking labour-intensive rowing boats remain stuck in the mud.
Happy new decade.
This article first appeared in The Canberra Times and other Australian media on 2 January 2021.