The news that the richest one per cent of the world's population will shortly own more than the other 99 per cent is an important symbolic moment.
Whether it was by accident or design, the way the financial world is currently structured is hoovering up the assets from everyone else, with serious implications - not just for the poor, but also for the middle classes, as I explained in my book Broke.
This is not just the structure of the system that has emerged. It is also a by-product of the vast transfer of public money to the banks from 2008 onwards (£1.5 trillion in the UK alone).
What is less understood is that there is something bigger going on: a huge transfer of assets from the middle classes to the new elite. Labour’s business secretary Peter Mandelson once said that the Labour Party was ‘intensely relaxed about people getting filthy rich’, but actually it does matter.
House prices are higher as a result, the salaries of those lower down the food chain are squeezed, pensions are top-sliced, while the financial class has become a new kind of landlord, living off the rents and charges of the financial system which funnel wealth upwards – while real wages, and real salaries, haven’t risen in real terms since 1970, and since 1960 in the USA where the process is most established.
The financial world has known about this process for some time. In 2005, the first of three reports was published privately by the US banking giant Citigroup, especially for their wealthiest clients; they coined a word to describe the phenomenon and tried to explain it. The first report was called ‘Plutonomy’, and it explained the idea like this:
"The world is dividing into two blocs – the plutonomies, where economic growth is powered by and largely consumed by the wealthy few, and the rest. Plutonomies have occurred before in sixteenth century Spain, in seventeenth century Holland, the Gilded Age and the Roaring Twenties in the US. We project that the plutonomies (the US, UK, and Canada) will likely see even more income inequality, disproportionately feeding off a further rise in the profit share in their economies, capitalist-friendly governments, more technology-driven productivity, and globalization. In a plutonomy there is no such animal as ‘the US consumer’ or ‘the UK consumer’, or indeed the ‘Russian consumer’. There are rich consumers, few in number, but disproportionate in the gigantic slice of income and consumption they take. There are the rest, the ‘non-rich’, the multitudinous many, but only accounting for surprisingly small bites of the national pie . . ."
Two more reports followed in 2006, explaining that plutonomy was a result of a kind of financialization of the economy – a huge expansion into financial assets, which are the target for investment rather than real assets, and which the financial sector repackages and repackages, inflating their prices each time. When the financial bubbles burst, they buy back the assets again at a lower cost. Even bursting bubbles make the One Per Cent better off.
The financial world has known about this process for some time. In 2005, the first of three reports was published privately by the US banking giant Citigroup, especially for their wealthiest clients; they coined a word to describe the phenomenon and tried to explain it. The first report was called ‘Plutonomy’, and it explained the idea like this:
"The world is dividing into two blocs – the plutonomies, where economic growth is powered by and largely consumed by the wealthy few, and the rest. Plutonomies have occurred before in sixteenth century Spain, in seventeenth century Holland, the Gilded Age and the Roaring Twenties in the US. We project that the plutonomies (the US, UK, and Canada) will likely see even more income inequality, disproportionately feeding off a further rise in the profit share in their economies, capitalist-friendly governments, more technology-driven productivity, and globalization. In a plutonomy there is no such animal as ‘the US consumer’ or ‘the UK consumer’, or indeed the ‘Russian consumer’. There are rich consumers, few in number, but disproportionate in the gigantic slice of income and consumption they take. There are the rest, the ‘non-rich’, the multitudinous many, but only accounting for surprisingly small bites of the national pie . . ."
Two more reports followed in 2006, explaining that plutonomy was a result of a kind of financialization of the economy – a huge expansion into financial assets, which are the target for investment rather than real assets, and which the financial sector repackages and repackages, inflating their prices each time. When the financial bubbles burst, they buy back the assets again at a lower cost. Even bursting bubbles make the One Per Cent better off.
This is helped by the fact that the most powerful governments of the world see the value of those assets – property, bank shares etc. – as the touchstone of economic success, which is why so much of the banking bailout was designed to reflate their value.
Citigroup came to regret publishing these reports, presumably because it encouraged the idea that they were cheerleaders for plutonomy. Over the years, copies began to leak out via the Internet, much to their horror. There was a concerted attempt to suppress them.
Citigroup came to regret publishing these reports, presumably because it encouraged the idea that they were cheerleaders for plutonomy. Over the years, copies began to leak out via the Internet, much to their horror. There was a concerted attempt to suppress them.
By 2010, Citigroup lawyers had managed to remove them all from the Web, only to find them seeping back again. The revelations are important because not only are these vital resources sucked out of the middle classes, just as they are sucked out of all classes.
They also affect the middle classes in other ways: unless they work in the financial sector themselves, they find their factories and real-world businesses starved of investment and their professional skills automated.
Why is this not the most important political issue of the day? Because none of the political parties have a prescription for doing anything about it, apart from putting the clock back to a time before plutonomy was a phenomenon.
Why is this not the most important political issue of the day? Because none of the political parties have a prescription for doing anything about it, apart from putting the clock back to a time before plutonomy was a phenomenon.
But make no mistake. When the middle classes wake up to what it is doing to them, there will be trouble. Find out more in my radio documentary Clinging On, on Radio 4 on February 3 (8pm).
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