Inequality and the World Economic Forum

The world’s rulers are getting together at their biggest bash of the year, the World Economic Forum. Prime ministers and other high government officials will also be in attendance.

The theme for this year’s Forum, which began on January 20 at its usual home in Davos, Switzerland, is said to be “Mastering the Fourth Industrial Revolution.” As to what that might mean, the forum’s “jobs strategy” paper asserts:

“We are today at the beginning of a Fourth Industrial Revolution. Developments in previously disjointed fields such as artificial intelligence and machine learning, robotics, nanotechnology, 3D printing and genetics and biotechnology are all building on and amplifying one another. … Concurrent to this technological revolution are a set of broader socio-economic, geopolitical and demographic developments, with nearly equivalent impact to the technological factors.”

Two paragraphs later, the paper genteelly forecasts workforces will undergo “significant churn” due to these developments, which turns out to be an expected global loss of 7.1 million jobs between 2015 and 2020.

CEO vs. worker payAs to what is the cause of ongoing economic difficulties and vanishing jobs, the corporate elites who drive the World Economic Forum agenda wish to assure you that rising inequality, runaway financialization, the mad rush to move production to places with ever lower wages, corporate greed, and the subordination of all human and environmental needs to the plundering of all parts of the planet in pursuit of ever bigger profits have nothing to do with it. The Forum offers this explanation:

“The deceleration in long-term trend growth has been caused by two supply-side limitations: the big slowdown in labour force growth (in some cases into negative territory) and a sharp falloff in productivity growth. Since 2007, demand-side constraints have also been a problem. These include: debt and deleveraging in the developed world; the rapid decline in the pace of world trade; the excess-capacity-driven struggles in China’s construction, heavy manufacturing, and mining sectors; and distress in commodity-linked emerging markets and commodity industries.”

There is a lack of growth because the world is not growing. And it’s China’s fault for not buying so much raw materials and manufacturing equipment anymore.

Why, there surely is no agenda here, is there? Oh dear reader, please try to keep a straight face when reading the World Economic Forum’s description of itself:

“It is independent, impartial and not tied to any special interests. … Our activities are shaped by a unique institutional culture founded on the stakeholder theory, which asserts that an organization is accountable to all parts of society.”

Accountable to “society” — or financiers?

Well, let’s see just how “impartial” the Forum is. Or just how “accountable” to “all parts of society” it is. The Forum is a gathering of the world’s corporate elites where deals can be made and agendas can be set. As to who corporate leaders are accountable to, we need only remember the words of Milton Friedman, who put it plainly in an interview with author Joel Bakan in the context of a former BP chief executive officer suggesting (however disingenuously) the company would make environmental concerns more important:

“Not surprisingly, Milton Friedman said ‘no’ when I asked him how far John Browne could go with his green convictions. … ‘He can do it with his own money. If he pursues those environmental interests in such a way as to run the corporation less effectively for its stockholders, then I think he’s being immoral. He’s an employee of the stockholders, however elevated his position may appear to be. As such, he has a very strong moral responsibility to them.’ ”

Not that corporate executives don’t get in the action as well — CEO pay averaged 303 times that of the average worker in 2014. Although down from the 376-to-1 ratio of the peak stock-market bubble year of 2000, the current ratio is far bigger than earlier decades. Another way of putting all this in perspective is that CEO pay has risen 1,000 percent since 1979, while typical employee pay has risen 11 percent.

But don’t shed any tears for financiers. An International Labour Organization paper found that the financial industry’s share of corporate profits doubled over the course of the 1990s and 2000s, reaching 44 percent of all corporate profits in 2002.

The financial industry acts as both a whip and a parasite in relation to productive capital (producers and merchants of tangible goods and services). It is a “whip” because its institutions bid up or drive down prices, and do so strictly according to their own interests. The financial industry is also a “parasite” because its ownership of stocks, bonds and other instruments entitles it to skim off massive amounts of money as its share of the profits. Financial speculators don’t make tangible products; they trade, buy and sell stocks, bonds, currencies and other securities, continually inventing new instruments to profit off virtually every aspect of commercial activity.

Wages decline around the world

With all this in mind, it comes as no shock that the one percent is grabbing bigger pieces of the pie. Wages as a share of gross domestic product have declined since the 1970s in Britain, the eurozone, Japan and the United States. The long-term stagnation in wages has long been decoupled from any recent flattening of productivity gains — since the 1970s, productivity has soared while wages barely rose.

Wages as share of GDPBut perhaps nothing illustrates the world’s incredible inequality as well as the just released Oxfam report, “An Economy for the 1%.” Oxfam researchers calculate that the richest 62 people have as much wealth as the bottom 50 percent of humanity — 3.6 billion people! Among other conclusions, Oxfam reports:

  • The world’s wealthiest 62 people added US$542 billion to their net worth from 2010 to 2015, an increase in their composite wealth of 44 percent.
  • The bottom half of humanity in terms of wealth lost $1 trillion from 2010 to 2015, a drop of 41 percent.
  • The share of the global wealth increase since 2000 that has gone to the top 1% is 50 percent.

One of the most important reasons for this increasing disparity is the use of tax havens. One estimate of the amount of money that is stashed in tax havens was $7.6 trillion at the end of 2014 — more than the combined gross domestic product of Britain and Germany. Another estimate is $8.9 trillion. And this not limited to the global North — Oxfam calculates that Africa’s wealthiest have stashed $500 billion in tax havens:

“Almost a third (30%) of rich Africans’ wealth … is held offshore in tax havens. It is estimated that this costs African countries $14bn a year in lost tax revenues. This is enough money to pay for healthcare that could save the lives of 4 million children and employ enough teachers to get every African child into school.”

There is no alternative” we are supposed to believe. But if the capitalism to which there is supposedly no alternative works, why do such massive amounts of money have to be shoveled into it? Governments representing the United States, the European Union, Japan and China committed US$16.3 trillion in 2008 and 2009 on bailouts of the financiers who brought down the global economy and, to a far smaller extent, for economic stimulus.

The central banks of the United States, Britain, the eurozone and Japan have so far spent US$6.57 trillion on “quantitative easing” programs supposedly needed to kickstart their economies, although little was achieved other than inflating a stock-market bubble. (And lest we are tempted to wag a finger at, say, the Federal Reserve, we should be reminded that central banks are simply institutions of capitalism. If you don’t like the Federal Reserve, what you really don’t like is the capitalist system.)

“Let no billionaire be unheard” would seem to be a far more accurate slogan for the World Economic Forum to adopt.

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13 comments on “Inequality and the World Economic Forum

  1. troutsky says:

    I’m wondering how many more ways they can rearrange the deck chairs? After all that stimulus and “easing” and despite artificial intelligence and Space X we are slipping back into negative growth territory. Not like they can lower interest rates!

    Expand credit? Sure, American’s can be talked into buying inflated crap with no-money down (again) but everyone else? Not so sure. Gold, anyone?

    • Perhaps space exploitation is the card they are waiting to play — strip-mine the Moon and the asteroid belt. Certainly not cost-effective now, but I do believe this hope is what lies behind NASA’s big push to privatize space travel and supply. But even the solar system is not infinite.

  2. Well, I guess the recent wipe out of trillions of dollars from global stock markets will give them something more productive to talk about.

  3. troutsky says:

    Another problem here might be one of linguistics; if we say they “spent” 6.57 trillion, the average non-economist thinks in terms of someone going into WalMart and spending 6.75 trillion on stuff. But of course the “money” is just digits on a computer that they generated/”produced” on someones desk, produced through the sale of more bonds in exchange for more collateralized debt obligations and on down through the accounting Looking Glass. Possessing neither use-value nor exchange-value, this is a new form.

    I’m no economist but I know that money at this level is not like money at our level, it is reified and abstracted such that we who get paychecks would not recognize it. Same with stock markets: we say trillions are “wiped out” but little of that is actual liquidity, it comes back the next trading day when the exuberance returns.

    • The stock market is never actually “worth” the composite paper value of the listed stock. If there is a mass selling of a stock, its value collapses and thus only the first few to sell actually realize their stock’s paper value during a selloff. Much of such activity is subjective — stock prices go up because traders believe other traders believe prices will go up, and act accordingly.

      When I worked on a financial wire service during the 1990s bubble, I lost track of how many times I heard a speculator say the rise in prices couldn’t go on, but as long as the bubble was inflating they were going to stay in. Of course, one never knows when the bubble will burst.

      But derivatives and other financial instruments aren’t necessarily new in concept, even if the specifics are ever new and more complicated. Dutch “tulip mania” in the 1630s was fueled by futures contracts; short selling played a part in uncontrolled speculation in the 1710s in the English South Sea Company and the French Company of the Indies; a real estate bubble in the U.S. burst in the 1830s; and an 1870s bubble inflated by speculation in railroads and construction in North America and Europe burst when the Vienna stock market crashed, followed by waves of bank failures.

  4. Alcuin says:

    “Financial speculators don’t make tangible products; they trade, buy and sell stocks, bonds, currencies and other securities, continually inventing new instruments to profit off virtually every aspect of commercial activity.”

    So how are “financial speculators” any different than any other kind of capitalist? They invent “new instruments” so that they can reap the profit from doing so. How is that different from non-financial speculators inventing better widgets that puts their competition out of business? Aren’t capitalists, by definition, speculators?

    The quest for profit is why capitalism is so wildly successful. The fact that there is a dark side to capitalism, which we who frequent this blog are all quite familiar with, means nothing to the myopic capitalist. Capitalists are like King Midas, in that they are so mesmerized by their greed that they do not realize that they cannot eat gold.

    • They are different in this sense: Industrialists use money to buy and assemble materials into a product (which we can call a “commodity”), which is then sold for a higher amount. Or, to use Marx’s formula, M-C-M’. Under financializtion, the formula is shortened to M-M’. Money is used in pure financial speculation, through a variety of instruments and securities. Nothing of value is actually created, only profit for the speculator.

      What I didn’t mention in this particular blog post is that there is no neat separation between industrialists and financiers. Although they compete fiercely between them for the bigger piece of the pie, they have a symbiotic relationship. Their businesses also overlap. For a time, GE Capital was one of the most profitable arms of General Electric, for example, and both Ford and General Motors at times have made more money from loans to their buyers than from the cars themselves. And speculators, in particular hedge funds, often buy and operate companies that make tangible products, even if as an investment that will be sold off for a profit within a few years once they strip as many assets as they can.

      But what has happened is that a rough parity between the two gradually turned into financiers gaining the upper hand. One manifestation of this is the use of stock to pay top executives’ salaries. The Wall Street euphemism for this is “aligning management with stockholders’ interest.” The CEO gets more pay when the stock price rises, and so becomes even more incentivized to squeeze more out of the employees. CEOs justify their pay by saying they created “shareholder value” — they boosted their company’s stock price.

      Some of these profits are diverted to financiers, and this share has been rising over time. These profits — the fruits of management extracting surplus value from workers — are ultimately the source of the money that financiers play with. As you point out, industrialists’ motivation is to make money, full stop; if they so happen to fill a need while doing so that is a happy outcome but nonetheless a byproduct. But at least they are producing something.

      • Alcuin says:

        Financial “instruments and securities” are commodities and no different, in essence, than money itself, which is largely electronic. Just because paper stock certificates no longer exist and financial instruments are legal agreements doesn’t mean they are not commodities to be sold for a profit. The underlying capitalist mind-set applies to both traditional commodities (cars, CDs, toasters, etc.) and to mortgages and stock certificates, whether electronic or physical. If “nothing of value is actually created,” then why would anyone buy the product? Is the Mona Lisa worth $23 million?

        My point is that capitalism underlies every single action we take in the marketplace. I restrict the phenomenon of capitalism to the marketplace because in social groups and the family, communism is quite common and capitalism takes the back seat.

        • My point is that capitalism underlies every single action we take in the marketplace.” We are in agreement here.

          As to why a work of art is worth millions of dollars, it is because someone is willing to pay that — an example of a disconnect between exchange value and use value. Financial instruments that are traded are indeed commodities to be sold for a profit, and some basic instruments retain a connection to something material, such as buying stock in a company, which at bottom is a gamble on future profits in addition to the hope that the stock will be sold at a higher price. Other financial instruments are increasingly disconnected from the broader economy and are simply a form of gambling and exist simply as a mean for a financier to gouge money from others, as, for example, the plundering of Detroit.

  5. Sugumaran says:

    Really , very good article and exposed wef.

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