The numbers tell a chilling story. Today the top 1 per cent of Americans own 40 per cent of all asset wealth in the country and take home 24 per cent of all income. Meanwhile, the bottom 80 per cent takes home only 7 per cent of the national income; shockingly, almost one in five Americans lives below the poverty line. The numbers in Canada and other developed economies are less extreme, but the underlying trends are the same.
Regrettably, agreement on the numbers is where the consensus ends. And exactly what to do about the problem of inequality has become something of a political ‘hot potato’.
Much of the excitement in the progressive camp has revolved around the work of Thomas Piketty, particularly his controversial Capital in the Twenty-First Century.
Piketty’s research charted the distribution of wealth in western economies since the industrial revolution. His observations on capital concentration were shocking; he concluded that wealth has (almost) always grown faster than economic output.
On the basis of his research, Piketty concluded that inequality is structural in modern capitalism and recommended that governments step back from popular assumptions about the ‘perfection’ of markets and become more interventionist. He supported a global tax on wealth to prevent a return to the elitism that existed prior to the First World War.
Piketty’s work has inspired another reform movement its proponents are calling Inclusive Capitalism.
Inclusive Capitalism also puts forth the idea of using tax reform to combat inequality. Unfortunately, the tax numbers don’t add up. According to Lance Taylor and his associates at the Institute for New Economic Thinking, you’d have to raise the top marginal tax rates to over 70 per cent in order to make a real difference. Almost impossible in todays globalized world. The alternative of raising the wages of the lowest 20 per cent is also only a partial solution. According to Taylor it would only slow the inevitable accumulation of wealth in the top 1 per cent.
In order to create a long-term solution to inequality requires a serious reform of capitalism; and – more importantly – a reallocation of asset ownership in society. In other words, steps to widen the estate of ownership should be undertaken to make the distribution of assets more equal.
Proponents of Inclusive Capitalism are currently recommending some of these asset-based solutions. For example, U.S. President Barack Obama favours free tuition at community colleges and share ownership programs for employees in private enterprise. Both would involve creating individual ownership of valuable tangible or intangible assets. Such policy reforms would create ownership opportunities for the majority, increasing their ability to command valuable forms of wealth.
Perhaps more importantly, the economy is generating a host of new digital and other intangible asset classes today. This asset revolution is transforming the workplace, and opening the doors of opportunity. A more equitable approach to ownership of these intangibles would allow some real inclusive solutions to come forth.
One of the most valuable new asset classes to emerge in the past decade is ‘big data’. At present, companies like Google, Facebook and other network controllers capture and analyze the content of individuals’ lives, gleaned from social media sites, interpersonal communications, Internet search histories, medical records or through access to private emails. These corporations then freely exploit this data to generate large profits for themselves.
A truly ‘inclusive’ capitalism would perhaps strengthen the data-ownership rights of citizens. Under such a policy regime, the citizen would ‘own’ their life and retain priority rights to all their related data. Perhaps individuals’ could then amalgamate their data, including some personal wellbeing data, social interests, commercial preferences, (non-personal) medical records or other relevant behaviours. This data could then be converted into a socially-owned big data asset. This asset could then be leveraged in lieu of taxes.
Efforts to reform capitalism are gaining ground with an increasingly agitated public because growing inequality is more than a threat to the economy. It undermines the health of society and ‘equality of opportunity’.
Leaving inequality to the market, as many economists suggest, will simply continue the trend towards a Downton Abbey economy. The rich will get richer, the poor will get poorer and the middle classes will find themselves on an increasingly slippery slope. More and more middle class citizens will find their wages stagnating, their prospects diminishing as they fall out of property ownership into dependency.
The Asset Revolution offers a golden opportunity to reverse the present trend toward greater inequality and finally leave the elitist world of Downton Abbey where it truly belongs – the history books.
Robert McGarvey is an economic historian and former managing director of Merlin Consulting, a London, U.K.-based consulting firm. Robert’s most recent book is Futuromics: A Guide to Thriving in Capitalism’s Third Wave.