Richest 1% will own more than half the world.
OECD reports that the gap between the haves and the have-nots globally is now at the same level as in the 1820s, citing it as one of the most ‘worrying’ developments over the past 200 years. It pointed that inequality shot up after globalisation took root in the 1980s.
Oxfam research shows that the share of the world’s wealth owned by the richest 1% increased from 44% in 2009 to 48% in 2014 On current trends, the wealthiest 1% are expected to own more than 50% of the world’s wealth by 2016. Such extreme inequality will not only stall the fight against poverty, but could also stymie economic growth.
And the very richest are getting richer: In 2013, Oxfam made headlines by revealing that just 85 individuals had the same amount of wealth as the world’s poorest 50%, or about 3.5 billion people. , Their updated calculations for 2014 show that same enormous amount of wealth now belongs to just 80 people. In cash terms, their wealth doubled between 2009 and 2014. On the other extreme, are the world’s poorest 1 billion who survive on less than $1.25 per day.
Globalisation was supposed to be a win win proposition, bringing opportunity and economic prosperity to all. Though, there has been huge productivity gains and income levels have risen across the board and there have been certain upliftment of the world’s poorest in recent years, the larger share of opportunity and economic prosperity have been taken by the richest.
The primary reason for the widening income inequality is the decreasing share of labour income compared to wealth income leading to a widening gap between the working class and the wealthy. It’s also important to note that wealth income is passive income, which is generated on the basis of ownership and without the wealthy actually having to work. This trend will continue as the labour market already threatened by ever increasing automation will not be in a position to bargain for a higher share of productivity gains and increased income.
The other reason for widening income disparity is the rise of the ‘superstars’ – modern technologies of communication often turn competition into a tournament in which the winner is richly rewarded, while the runners-up get far less than in the past. This is the case for artists, sports persons and corporations too. The advances in IT, communication technologies and automation ensures that the services offered by superstars break the barriers of geography and are available globally at only slightly incremental costs.
Modern corporations are increasing their market share in their industries leaving little or nothing for runners up and small players. For example, Google is the undisputed leader in Internet search, Facebook is the dominant social networking site, Android and Apple iOS are the only two dominant mobile OS, Whatsapp is the leading messaging platform in India. The trend will further continue in non IT based services like retail, finance, etc and leave little room for competitors and especially small businesses further widening the income distribution.
The knowledge era has led to increased demand for the highly skilled and educated so that income distribution favoured brains rather than brawn. Knowledge based professions like lawyers, doctors and bankers commanded high income at the expense of others. The growth of knowledge based economy in the recent years has been astounding and the demand for knowledge workers has led to absorption of even low quality workforce in these domains.
With further advances in AI, the entry level work in even knowledge intensive jobs is being taken over by the robots. These robots, in a matter of time, will do the knowledge work more efficiently and at a fraction of cost than a dozen of their human counterparts put together. The markets in future will handsomely reward only the best among the knowledge based professions. Therefore, in future there will be few jobs or place for mediocre doctor, lawyer, engineer or MBA.
Gazing through the crystal ball
- Growing inequality will be more prominent in the foreseeable future. We have to try hard to be on the right side of the growing divide. And the fight will be hard. Of course, another trend is the growing level of absolute equality, e.g., everyone has a personalised communication device, access to Internet is increasing, access to world class education, health care, entertainment, etc. is potentially democratized.But the relative equality is diminishing. Be conscious of the increasing relative inequality and take professional risks to be on the right side of inequality.
- Increasing income is not really the way to overcome the divide; increasing opportunity to create big wealth is the key. The wealth being created by several new-age entrepreneurs in India is an example of the same.
- Intangible assets are the real means to create wealth and over the next two–three decades, the opportunities are out in the open for all.
- Don’t be complacent with absolute gains in wealth and income; the relative gain in wealth and income is the indicator of development to aspire for. Generally speaking, the level of comfort and basic amenities for the poorest in the developing world are also improving and will keep on improving in absolute terms; the world will be a better place for the poorest too.
- Interestingly, the best business opportunity will count servicing the 1% rich as very important. The easier path to a decent middle-class life will be through the service of the rich.