Certainly, there are many who argue that equality is something to be aimed at, although when you ask people if they really mean equality or less inequality, they are likely to choose the second. Defining how far to take the lessening of inequality then becomes an exercise in the measuring of the length of a piece of string. The concept of inequality, however, was given fresh impetus when this year's wealth comparisons were issued by Oxfam. They told us that the 8 richest people in the world (all men) have wealth equal in value to the bottom 50% of the world’s population. Last year it took the top 64 wealthiest people to achieve this rather strange form of equality. So then the world is becoming less equal. It’s a striking comparison.
But the figures can be criticised in various ways. Some say that they lack relevance. If for instance you bought old masters as an investment, you could die of hunger while being their owner unless you could somehow make them income producing. Again, If we take Mark Zuckerberg, the founder of Facebook as an example, then we know that a very large proportion of his wealth lies in his shareholding. This gives him an eye-watering income, but the value of the shares is not actually money in the bank - unless he sells them. There is nothing very much he can do in the mean-time with their potential value except receive income in consequence. And so it is really the income produced by assets which is important.
There also those who argue that such figures are simply misleading. According to 'The Economist' the world’s least wealthy include over 420m adults whose debts exceed their assets, leaving them with negative net worth. The vast majority of this is down to the use (or misuse) of credit cards and so the vast majority of this net debt is owed by people in high-income countries. There are, for example, over 21m Americans with a combined wealth of minus $357bn. Only people with relatively good prospects, by global standards, can be so poor. The wretched of the earth could never borrow so much. If all of the people with sub-zero wealth are excluded from the comparison, the poorest half of the remaining population would have a combined wealth equivalent to the richest 98 billionaires rather than Oxfam’s top 8.
But we can go further. Although we imagine that, ignoring those with large debts, the vast majority of the bottom 50% must nonetheless be in the undeveloped countries, this may not be true. In today’s Western society, we can see that many people have little or no actual wealth even if they do not have negative wealth because of credit card debt. If you rent a house then you have no stake in it. If you own a house, then it saves you the cost of renting, but unless you rent it out, then it has no realisable value until you stop needing to live in a house at all and so can sell it without buying another. Which means that most people will only achieve house-based wealth after their deaths. If you buy goods, whether on credit or not, then it is almost certain that they will not be resalable at anything like the same price. By the time you have taken delivery of them, the value of the item bought will be negligible and so our purchases are only rarely ‘investments’ i.e. made in order to produce wealth. We are paying to have food, a roof over our heads, the mains services we require and the hundred and one other things which we want in our lives. But none of these give us any increase in our net wealth. We work to fund all these things from our income, although at the same time we may try to make investments in pensions so that at some time in the distant future we can get off the tread-mill. So then, there is little difference in wealth terms between many people living in the West and those living in sub-Saharan Africa - who may at least have some goats which they can sell.
From an income point of view, however, there is a considerable difference and that difference explains the extraordinary life-style which we have in the West as compared to the developing countries, whether we are billionaires or not. At the moment, because of the Oxfam wealth data, the parties of the left are telling us that inequality has markedly increased, but the Gini index is telling us something different. The income distribution in each country is measured by the World Bank and published as the ‘Gini index’ (after the Italian statistician Corrado Gini). A figure of 0 indicates complete income equality in that state and 1 indicates that just one person has all the income. The Gini index can of course be the same for countries of wildly differing average income levels - all it measures is income distribution within a country, which could in theory be the same in Great Britain as in the Gambia. Although in this country there was a rise in income inequality after 2003, since 2008 there has been a trend downwards and now we’re back down to the fairer income distribution we had in 2002 - (0.358), the earliest year for which I can find data. We are though still above, for example Germany (0.292), France (0.294) and Italy (0.325). but we’re more equal than the USA which is on 0.396.
Another factor of course is the cost of living. The mere fact that I have an income twice as great as someone in another country or another part of this country does not mean that I can buy twice as much. For a start, I have to pay local taxes and housing costs. What I will want to buy or will be available in the shops may well be different and either cheaper or more expensive than the equivalent in that other locality. My personal cost of living is partly down to my life-style choices and partly down to where I live, It’s more expensive to live in London than in Liverpool. So then, the whole idea of equality is far more complex than first appears from the simplistic figures often put forward by well-meaning protest groups and political parties.
Now clearly we would all want to show sympathy to the poorest of this world, but I would like to put in a plea for rich people, because I do not think we know how much they suffer. The pressure upon them to behave like other rich people is immense. This pressure comes from our innate desire to keep up with the Joneses (or in their case the Gates and Zuckerbergs) or, somewhat lower down the pecking order, simply to maintain a celebrity profile. I think here of the Kardashians and the Beckhams whose celebrity, rather than their ability or intelligence is their source of wealth. So then, they have to conform to the stereotype for such people or risk losing their fans and so the value of their endorsements or brands. But what does this mean? Well it means that although they have a fantastic income, they have to spend it on high value items. Their cost of living is immense. They cannot live in mid-value houses, but have to buy numerous properties worth tens of millions of dollars. They have to buy jewellery, not from H Samuel, but from Tiffany’s. The furniture in their houses has to be designed for them by artisans and their walls adorned with works of art which they may or may not appreciate, but which are in fashion - and so cost a lot. As for cars, they cannot drive a Ford Focus, but more likely will have to own a fleet of Aston Martins. And when it comes to boats, they become bigger, more elaborate and more expensive each year. Maintaining them, paying the crew and writing off the depreciation each year must bring a tear to the eye of even Sir Philip Green and his lovely tax-efficient wife. In fact there is a whole industry of poorer people feeding off the super-rich, giving them what they aspire to have and charging them huge amounts of money in the process. It costs a vast amount to be wealthy. Poor things.
25th January 2017