AN ECONOMY FOR THE 99%, It’s time to build a human economy that benefits everyone

AN ECONOMY

New estimates show that just eight men own the same wealth as the poorest half of the world. As growth benefits the richest, the rest of society suffers. The very design of our economies and the principles of our economics have taken us to this extreme, unsustainable and unjust point. Our economy must stop excessively rewarding those at the top and start working for all people. Accountable and visionary governments, businesses that work in the interests of workers and producers, a valued environment, women’s rights and a strong system of fair taxation, are central to this more human economy.

It is four years since the World Economic Forum identified rising economic inequality as a major threat to social stability, and three years since the World Bank twinned its goal for ending poverty with the need for shared prosperity. Since then, and despite world leaders signing up to a global goal to reduce inequality, the gap between the rich and the rest has widened. This cannot continue; as President Obama told the UN General Assembly in his last speech in September 2016: “A world where 1% of humanity controls as much wealth as the bottom 99% will never be stable.”

Left unchecked, growing inequality threatens to pull our societies apart. It increases crime and insecurity, and undermines the fight to end poverty. It leaves more people living in fear and fewer in hope.

The picture in poor countries is complex and concerning. Hundreds of millions of people have been lifted out of poverty in recent decades, but one in nine people still go to bed hungry. Had growth been pro-poor between 1990 and 2010, 700 million more people, most of them women, would not be living in poverty today. Three-quarters of extreme poverty could, in fact, be eliminated now using existing resources, by increasing taxation and cutting down on military and other regressive spending. Without redoubling their efforts to tackle inequality, world leaders will miss their goal of ending extreme poverty by 2030. It doesn’t have to be this way. The popular responses to inequality do not have to increase divisions.

The Causes of Inequality

There is no getting away from the fact that the biggest winners in our global economy are those at the top. Over the last 25 years, the top 1% have gained more income than the bottom 50% put together. Far from trickling down, income and wealth are being sucked upwards at an alarming rate. What is causing this? Corporations and super-rich individuals both play a key role.

1. Corporations, working for those at the top

Big businesses did well in 2015-16: profits are high and the world’s 10 biggest corporations together have revenues greater than the government revenues of 180 countries combined.

Businesses are the lifeblood of a market economy, and when they work to the benefit of everyone they are vital to building fair and prosperous societies. But when corporations increasingly work for the rich, the benefits of economic growth are denied to those who need them most. In pursuit of delivering high returns to those at the top, corporations are driven to squeeze their workers and producers ever harder. AN ECONOMY 1

2. Squeezing workers and producers

While many chief executives have seen their incomes skyrocket, wages for ordinary workers and producers have barely increased, and in some cases have got worse. The CEO of India’s top information firm earns 416 times the salary of a typical employee in his company. In the 1980s, cocoa farmers received 18% of the value of a chocolate bar—today they get just 6%. In extreme cases, forced labour or slavery can be used to keep corporate costs down. The world’s largest garment companies have all been linked to cotton-spinning mills in India, which routinely use the forced labour of girls. Across the world, corporations are relentlessly squeezing down the costs of labour—and ensuring that workers and producers in their supply chains get less and less of the economic pie. This increases inequality and suppresses demand.

3. Dodging tax

Corporations maximize profit in part by paying as little tax as possible. They do this by using tax havens or by making countries compete to provide tax breaks, exemptions and lower rates. Corporate tax rates are falling all over the world, and this, together with widespread tax dodging, ensures that many corporations are paying minimal tax. Apple allegedly paid 0.005% of tax on its European profits in 2014. Developing countries lose $100bn every year to tax dodging. Countries lose billions more through providing tax holidays and exemptions. It is the poorest people who lose out the most.

4. Super-charged shareholder capitalism

In many parts of the world, corporations are increasingly driven by a single goal: to maximize returns to their shareholders. This means not only maximizing short-term profits, but paying out an ever-greater share of these profits to the people who own them. In the UK, 10% of profits were returned to shareholders in 1970; this figure is now 70%. The increased return to shareholders works for the rich, because the majority of shareholders are among the richest in society. Institutional investors, like pension funds, own ever-smaller shares in corporations. Thirty years ago, pension funds owned 30% of shares in the UK; now they own only 3%. Every dollar of profit given to the shareholders of corporations is a dollar that could have been spent paying producers or workers more, paying more tax, or investing in infrastructure or innovation.

5. Crony capitalism

Corporations from many sectors—finance, extractives, garment manufacturers, pharmaceuticals and others—use their huge power and influence to ensure that regulations and national and international policies are shaped in ways that enable continued profitability. For example, oil corporations in Nigeria have managed to secure generous tax breaks.

Even the technology sector, once seen as a sector that is relatively above board, is increasingly linked to charges of cronyism. Crony capitalism benefits the rich, the people who own and run these corporations, at the expense of the common good and of poverty reduction. It means that smaller businesses struggle to compete and ordinary people end up paying more for goods and services as they face cartels and monopoly power of corporations and those with close connections with government. The world’s third richest man, Carlos Slim, controls approximately 70% of all mobile phone services and 65% of fixed lines in Mexico, costing 2% of GDP.

6. The role of the super-rich

By any measure, we are living in the age of the super-rich, a second ‘gilded age’ in which a glittering surface masks social problems and corruption. The 1,810 dollar billionaires on the 2016 Forbes list, 89% of whom are men, own $6.5 trillion—as much wealth as the bottom 70% of humanity. While some billionaires owe their fortunes predominantly to hard work and talent, nearly one-third of the world’s billionaire wealth is derived from inherited wealth, while 43% can be linked to cronyism.

Once a fortune is accumulated or acquired, it develops a momentum of its own. The super-rich have the money to spend on the best investment advice, and the wealth held by the super-rich since 2009 has increased by an average of 11% per year. This is a rate of accumulation far higher than ordinary savers are able to obtain. The highly secretive industry of wealth management has been hugely successful in increasing the prosperity of the super-rich. In such an environment, if you are already rich, you have to try hard not to keep getting a lot richer.

The huge fortunes we see at the very top of the wealth and income spectrum are clear evidence of the inequality crisis and are hindering the fight to end extreme poverty. But the super-rich are not just benign recipients of the increasing concentration of wealth. They are actively perpetuating it.

One way this happens is through their investments. As some of the biggest shareholders (particularly in private equity and hedge funds), the wealthiest members of society are huge beneficiaries of the shareholder worship that is warping the behaviour of corporations.

7. Offshore accounts

Paying as little tax as possible is a key strategy for many of the super-rich. To do this they make active use of the secretive global network of tax havens, as revealed by the Panama Papers and other exposés. Countries compete to attract the super-rich, selling their sovereignty. Super-rich tax exiles have a wide choice of destinations worldwide. For an investment of at least £2m, you can buy the right to live, work and buy property in the UK and benefit from generous tax breaks. In Malta, a major tax haven, you can buy full citizenship for $650,000. As per an estimate, $7.6 trillion of wealth is hidden offshore. Africa alone loses $14bn in tax revenues due to the super-rich using tax havens.

8. Buying politics

Many of the super-rich also use their power, influence and connections to capture politics and ensure that the rules are written for them. Billionaires in Brazil lobby to reduce taxes, and in São Paulo would prefer to use helicopters to get to work, flying over the traffic jams and broken infrastructure below. Some of the super-rich also use their fortunes to help buy the political outcomes they want, seeking to influence elections and public policy. The Koch brothers, two of the richest men in the world, have had a huge influence over conservative politics in the US, supporting many influential think tanks and the Tea Party movement and contributing heavily to discrediting the case for action on climate change.

Envisioning A Human Economy

Together we need to create a new common sense, and turn things on their head to design an economy whose primary purpose is to benefit the 99%, not the 1%. The group that should benefit disproportionately from our economies are people in poverty, regardless of whether they are in Uganda or the United States. Humanity has incredible talent, huge wealth and infinite imagination. We need to put this to work to create a more human economy that benefits everyone, not just the privileged few.

A human economy would have a number of core ingredients aimed at tackling the problems that have contributed to today’s inequality crisis. In a human economy:

1. Governments will work for the 99%. Accountable government is the greatest weapon against extreme inequality and the key to a human economy. Governments must listen to all, not a wealthy minority and their lobbyists. We need to see a reinvigoration of civic space, especially for the voices of women and marginalized groups. The more accountable our governments are, the fairer our societies will be.

2. Governments will cooperate, not just compete. Globalization cannot continue to mean a relentless race to the bottom on tax and labour rights which benefits no one but those at the top. We must end the era of tax havens once and for all. Countries must cooperate, on an equal basis, to build a new global consensus and a virtuous cycle to ensure corporations and rich people pay fair taxes, the environment is protected, and workers are paid well.

3. Companies will work for the benefit of everyone. Governments should support business models that clearly drive the kind of capitalism that benefits all and underpins a sustainable future. The proceeds of business activity should go to those who enabled and created them—society, workers, and local communities. Lobbying by corporates and the purchase of democracy should be brought to an end.

4. Extreme concentration of wealth and extreme poverty will end. Today’s gilded age is undermining our future, and needs to be ended. The richest should be made to contribute to society fairly and not be allowed to get away with unfair privileges. To do this, we need to see the rich pay their fair share of tax: we must increase taxes on both wealth and high incomes to ensure a more level playing field, and clamp down on tax dodging by the super-rich.

5. There will be work equally for men and women. Gender equality will be at the heart of the human economy, ensuring that both halves of humanity have an equal chance in life and are able to live fulfilled lives. Barriers to women’s progress, which include access to education and healthcare, will end for good. Social norms will no longer determine a woman’s role in society and, in particular, unpaid care work will be recognized, reduced and redistributed.

6. Technology will be harnessed for the interests of the 99%. New technology has huge potential to transform our lives for the better. This will only happen with active government intervention, especially in the control of technology. Government research is already behind some of the greatest innovations in recent times, including the smart phone. Governments must intervene to ensure that technology contributes to reducing inequality, not increases it.

7. Economy will be powered by sustainable renewable energy. Fossil fuels have driven economic growth since the era of industrialization, but they are incompatible with an economy that puts the needs of the many first. Air pollution from burning coal leads to millions of premature deaths worldwide, while the devastation caused by climate change hits the poorest and most vulnerable hardest. Sustainable renewable energy can deliver universal energy access and power growth that respects our planetary boundaries.

Valuing and measuring what really matters

Moving beyond GDP, we need to measure human progress using the many alternative measures available. These new measures should fully account for the unpaid work of women worldwide. They must reflect not just the scale of economic activity, but how income and wealth are distributed. They must be closely linked to sustainability, helping to build a better world today and for future generations. This will enable us to measure the true progress of our societies.

We can and we must build a more human economy before it is too late.

(Extracted from Oxfam’s inequality report titled: “An Economy for the 99%” written by Deborah Hardoon)

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