The feral rich

For too long we've problematized the poor and overlooked the wealthy. It's time to turn the tables, argues Vanessa Baird.

Now here’s a puzzle. The world economy is in a fix. Most people are getting poorer. Household income is down by more than five per cent on last year. That’s the global average; in some countries it’s much worse. We need 80 million new jobs to get us back to pre-crash employment levels. And the progress on reducing world hunger has stalled, leaving one in seven people without enough to eat.

But for one group of people life just gets better, no matter where they live. Known as HNWIs – High Net Worth Individuals – this global élite’s fortunes just keep rising.

The richest man in the world - telecoms tycoon Carlos Slim - is courted after giving a lecture at the UN in Geneva. Valentin Flauraud / Reuters

In the past year, the 400 richest Americans have seen their wealth grow by $200 billion – enough to provide every student in the country with free education, except, of course, it isn’t spent that way.

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During the same period, the 1,000 richest Britons have watched their fortunes swell to record levels – to $667 billion – a nearly five-per-cent increase on the previous year.

India’s ultra-rich increased in number by 30 per cent in 2012. Sri Ram Khanna of the Delhi School of Economics observes: ‘The better-offs continue to prosper in a slowdown and are largely immune to it... The lower your income, the more you are at risk. It is a global phenomenon.’

How did we get here? How did members of this new plutocracy manage to peel themselves off from the rest of humanity, to feed off the crisis?

But first: let’s have a look at who they might be.

Rich? Moi?

Meet Carlos Slim Helú, the richest man in the world. A Mexican telecoms tycoon, the portly 72-year-old is worth $69 billion. Young Carlos was just 12 when he bought his first shares in a bank. He invested heavily during Mexico’s 1982 financial crisis, buying into a wide variety of interests, including tobacco. But it was the privatization of the state telephone utility that really made his fortune. It is said (though he denies this) that his close links with the Institutional Revolutionary Party (PRI) government secured him an effective monopoly. This cosy relationship has persisted, regardless of which party is in power. Today, Slim has so many business interests that it is said you cannot spend a day in Mexico without putting money in his pocket.

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Meet Australian mining heiress Gina Rinehart, aged 58. The world’s richest woman (worth $28 billion), she suggests that poor people should ‘spend less time in the pub’ and that the minimum wage should be reduced. She funds climate sceptics and is now trying to use her growing share in the Australian media to fight against carbon cuts. Rinehart, who inherited Hancock Prospecting from her father, is currently engaged in an acrimonious battle involving three of her children and the family fortune.

Slim and Rinehart share the billionaire cachet with around 1,200 individuals in the world today. Beneath them is a legion of millionaires, now numbering around 29 million. Their wealth comes from various sources. Around a third of the super-rich have inherited it. Two-thirds are described as ‘self-made’. A fair number are maths graduates who have gone into IT and software development. Few are complete rags-to-riches cases; most have comfortable backgrounds and university educations. Financiers are disproportionately well represented among the wealthiest.

Many of the super-rich have had friends in high places. The oligarchs from the former Soviet states, for example, were close to political power at the time of transition and took advantage of the fire-sale of public companies and utilities; the growing army of super-rich Chinese are largely the offspring of Communist Party officials.

As to be expected, many of the rich have been busy augmenting their wealth through the services of hedge fund operators and private equity wizards.

New York City’s Upper East Side is now home to a lot of people, many aged under 40, who are making $20 or $30 million a year from their hedge funds, reports business journalist Chrystia Freeland in her eye-popping book Plutocrats: the rise of the new global super rich.

But, naturally, maintaining the super-rich lifestyle has certain requirements, as Egyptian telecom billionaire Naguib Sawaris explained to Freeland. ‘To cover the fringe benefits, the plane, the boat, it takes a billion.’

Luxury goods and services are in high demand. A London domestic service agency, Bespoke Bureau, placed 430 British-trained butlers last year, catering in particular to demand from Russia, China and the Middle East.

It may come as no surprise that many of the rich do not actually feel wealthy.

Economist Angus Deaton has shown that the richer you are the more covetous you become. Millionaires control 40 per cent of the world’s wealth. But Fidelity, a consultancy firm that regularly surveys millionaires, finds that whatever their wealth, they generally say they need double that amount. A recent survey of 1,000 millionaires, with an average net worth of $3 million, revealed that a quarter felt they needed an extra $5 million to feel wealthy.

How it’s happened

To find the origins of today’s feral incarnation of wealth we have to go back to the 1980s.

Free market policies were embraced by conservative governments on both sides of the Atlantic which cut through regulation, privatized state utilities and opened up new business opportunities.

While most wages grew at a sluggish pace, top executive pay started to race ahead.

How did members of this new plutocracy manage to peel themselves off from the rest of humanity, to feed off the crisis?

New laws eroded union power, while globalization enabled transnational corporations to outsource production to the country that offered the cheapest, usually non-unionized, labour.

Profit margins grew, benefiting shareholders and business owners. This was accompanied by fierce cuts in tax paid by both corporations and high earners.

But the most important factor was the decision to deregulate financial markets, taken initially in New York and London. Pay scales in the finance sector went through the roof, bonus culture went wild, greed was good. As we now know, it was a house of cards.

The political response to the 2008 financial crisis – first to bail out banks, then to cut public spending – has produced the crowning irony of our times: those who made the mess have come out virtually unscathed while the rest of us are being punished.

Even government efforts to stimulate growth have lined the pockets of the already prosperous by pushing up share prices and other assets. In Britain, the richest households were $561,000 better off as a result of the Bank of England’s quantitative easing programme; the average increase for the poorest households was $1,900.

How do they spend it? A few goods and services catering for the seriously rich:

The rich can afford to speculate with high-risk, high-return investments. If they are prepared to touch the toxic-looking stuff, the rewards can be thrilling. Vulture funds, for example, buy up debts from entities that are weak, or on the edge of default, at knockdown prices. Dart Management, registered in the Cayman Islands, made a killing on Greek debt it bought at just 35 per cent of the nominal price but which was paid back by the Greek people at a much higher value.

Even the dogs in the street know that the financial sector needs a radical overhaul. But reforms to make it safer keep getting sabotaged. The crime scene is strewn with clues as to why. Exhibit number one: the $150 million mustered by the British financial services industry to lobby politicians and regulators when the Barclays Libor rate-fixing scandal was provoking renewed calls for tougher rules. Exhibit two: the $355 million the US finance industry spent on political lobbying in Washington in 2012, second only to the health industry lobby.

Politicians and regulators still persist in arguing in favour of light-touch self-regulation, saying that otherwise the high-finance ‘talent’ will leave their jurisdictions, with a resulting loss in tax revenue. The same argument is used in support of low taxes on corporations and high earners. The corporate rich, especially those linked to finance, have governments in their pockets. To compound the problem, many in government are themselves millionaires and have close links to the industry.

This crisis has many victims, including democracy. British writer and commentator George Monbiot is not exaggerating when he describes the state we are in as one akin to ‘totalitarian capitalism’.

‘Rich people are successful and that’s good for society’

Underpinning all this is an enduring set of beliefs about the acquisition of wealth.

For some, especially those who remember the Cold War, the amassing of personal fortune is synonymous with political freedom. Others simply believe that ‘rich people deserve their wealth’. Some 60 per cent of Australians surveyed said they agreed with this statement, as did 58 per cent of North Americans. British people were not so sure – at 45 per cent – while only 16 per cent of Russians and 9 per cent of Greeks concurred with the statement.

A quarter of millionaires surveyed said they needed an extra $5 million to feel wealthy

It is said that ‘rich people create jobs’. Nick Hanauer, a wealthy entrepreneur who founded the online advertising company aQuantive and then sold it to Microsoft for $6 billion, thinks the idea is absurd. For him it’s like saying ‘squirrels create evolution’. Even if entrepreneurs or investors establish and build companies that eventually employ thousands of people, it is the customers and a healthy economic system surrounding the firm that create the jobs, not the owners.

Current reality is undermining the idea that the rich are ‘wealth creators’ who add to the economy in a way that benefits society at large. In booming India, for example, many of the country’s new millionaires are not software developers or manufacturing innovators, but what economists call ‘rent-seekers’. Their predominant sources of income are land, natural resources and government contracts or licences. Rather than create something new, they use contacts and cronyism to get a bigger slice of a pre-existing pie.

It turns out that the rich are actually doing more harm than good. London is rapidly pricing out locals. Homeless people can be seen laying out their cardboard in the doorways of Mayfair’s elegant Regency houses. There is a housing crisis partly due to shortage and recession – a million builders are jobless. But there’s another reason. The city’s real estate has become the number one haven for rich international investors, who are buying almost 60 per cent of properties valued at $3.2 million or more. These buildings are often left empty for months on end but harsh new laws have made squatting an imprisonable offence. Local councils, meanwhile, are breaking up communities and shifting their poorer residents to other cities, which may be hundreds of miles of away.

What’s happening in London is symptomatic of the distortions created by runaway wealth and overheated property values.

Thousands of miles away in Peru is another casualty of feral capitalism. Gold is a prize commodity in times of trouble – and mining is bringing fat returns for corporations, investors and purchasers. Peasants have been shot as they protested against gold and other precious-metal mining projects that are poisoning their water and polluting their land.

The rich, says French writer Hervé Kempf, are quite literally destroying the earth. With their investments in oil and mining, the new global oligarchs are making the planet uninhabitable. And, like Gina Rinehart, they are using their clout to block the changes desperately needed to tackle climate change.

What next?

When young rioters rampaged the streets of British cities 18 months ago, looting shops and setting buildings alight, they were severely punished; many received harsh prison sentences. Media reports at the time used the words ‘feral’ and ‘underclass’ to describe them.

A word of advice to the wealthy: 'Look at your Rolex, the hour of revolution is approaching.' Masante Patrice / ABACA / PA Images

But one commentator, Peter Oborne of the usually conservative Daily Telegraph, pointed to another group of people that had ‘forgotten they have duties as well as rights... the feral rich of Chelsea and Kensington’ who had been nurturing ‘an almost universal culture of selfishness and greed’.

Not all rich individuals, of course, are venal, greedy, selfish and oblivious. Some may use their wealth to try to do good in the world. Even the monopolistic Microsoft boss Bill Gates seems genuinely concerned to improve public health in Africa. Currency speculator George Soros candidly blasts the system that has enriched him and he promotes democratic values though his Open Society Foundations. But while such individual actions may fill pockets, they won’t change the big picture. And the rich still give a smaller share of their income to charity than those earning average incomes, and much less than those on the lowest.

There are signs, though, that some natural political allies of the rich – and some rich people themselves – are feeling increasingly uneasy. The perversity of the current situation and its egregious unfairness is damaging capitalism, they say. They are reminded of Marx’s prediction about capitalism having within it the seeds of its own destruction.

Mouthing nice words about equality is not enough – it has to come with redistribution

There are even indications of tensions between the millionaires and the billionaires – the latter having become so much richer, so much faster, than the mere millionaires who are struggling to keep up. Equality is a buzz word that has entered all spheres now – including élite gatherings of business and world leaders at the World Economic Forum and in the pages of The Economist. Widening inequality is seen as a danger, a source of social unrest that disrupts the workings of capitalism.

This is where hope lies: in disruption from below. Today’s inequality is the result of years of deliberate action to crush unions, drive down wages and create a self-serving élite of plutocrats. Mouthing nice words about greater equality is not enough. It has to come with serious redistribution of wealth and a dismantling of the institutions and practices that are perpetuating privilege and inequality. What the young British rioters of 2011 were doing was redistribution in action, but without discipline or a political framework. When Uncut protesters occupy Starbucks coffee shops and turn them into crêches – because that’s the kind of thing that’s being cut when the coffee giant dodges its taxes – it’s smart and appropriate and wins public support. When 800 council workers in Caerphilly, Wales, walk out in protest at a 30-per-cent hike in pay for their bosses, it shows a significant shift in focus.

The mobilization around corporate greed and aggressive tax avoidance in various parts of the world is revealing a long list of culprits – Apple, General Electric, Vodafone, Starbucks, Google, Amazon, PepsiCo, Goldman Sachs, Facebook – and generating widespread feelings of anger and revulsion. The mood has changed. In Greece, a country where tax avoidance was previously the social norm, the journalist who was put on trial for revealing the names of 2,000 high level tax dodgers is viewed as a hero by the people.

This coming year will see more austerity measures, as governments try to convince the people that the national deficit is their fault and they must pay for it with their jobs and their public services and their pension and their savings. They may encounter more resistance than they expect. Remember, the political class, like the rich, are in the minority. The plutocracy, and those in power who do their bidding, need the co-operation of the 99 per cent, even if they think and behave as if they don’t. They detach themselves from the rest of humanity at their peril. And we ignore them – or accept their hideously distorting power – at ours.

This article is from the January-February 2013 issue of New Internationalist.

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