The Glorious Rewards of Neoliberalism
The Glorious Rewards of Neoliberalism
Noam Chomsky once remarked that it was necessary to carefully read The Economist and Business Week because these were the house magazines of the dominant classes where the richest and most powerful, along with their supporters, were talking to each other. What you find by way of analyses, arguments, judgements and prescriptions there was important precisely because they bluntly expressed what was in the best interests of these social layers. One may therefore be similarly grateful for Merrill Lynch's (ML) eighth annual World Wealth Report for the year 2003. By the end of 2003 there were 7.7 million High Net Worth Individuals (HNWIs) or those with financial asset-wealth of over US $1 million with a total wealth of $28.8 trillion.
This financial disposable wealth "includes the values of private equity holdings stated at book value as well as all forms of publicly quoted equities, bonds, funds and cash deposits. It excludes collectibles, consumables, consumer durables and real estate used for primary residences." World GDP in 2003 grew at 3.5% but the asset wealth of HNWIs grew by 7.5% in the same year through greater stock market capitalization. Indeed, whatever might be the travails of the real economy of goods and services, the Report confidently predicts a 7% compound growth over the next five years so that total HNWI wealth should reach $40.7 trillion by the end of 2008. Money, after all, makes more money and who thinks the only or even the main routes for achieving this must pass through the time-consuming process of actual production of goods and services!
The average per-person holding of HNWIs (they increased by 7.7%) in 2003 works out to $3.74 million. However, there is another category of what is called Ultra-High Net Worth Individuals (UNHWIs), each having over $30 million in financial asset-wealth. Their global number is 70,000 and their rate of growth in 2003 was over 15% or more than twice as fast as that of mere HNWIs. Unfortunately, the Report does not give total or average holdings of UHNWIs. But some simple back-of-the-envelope calculations show that if we assume that all 70,000 have only $30 million each - that there are no individuals even close to being or becoming billionaires, let alone multi-billionaires - then we get a total of $2.1 trillion. If we assume a spread among UHNWIs that is broadly equivalent to that of HNWIs then we would get a total wealth of $7.85 trillion or 23.3% of the total. If we assume, as is entirely reasonable, that the higher we go up the wealth ladder, the more uneven the spread, say one-and-a-half times greater than that of HNWIs, then the super-rich would hold $11.78 trillion or 41% of the total.
What this really means is that for all the talk about the importance of stronger stock markets and freer capital movements for "wealth creation" the world over, you are talking about an arena dominated very disproportionately by the truly 'big players'. Of these 7.7 million HNWIs 2.27 million are in the USA, 2.6m in Europe (UK accounting for 383,000), 236,000 in China, 200,000 in Canada, 117,000 in Australia, 84,000 in Russia, 80,000 in Brazil and 61,000 in India. But the rate of growth of HNWIs in 2003 was at 22% the fastest in India, followed by South Korea and Spain at 18%, the USA at 14%, and 11% in Canada! If the North American and European stock markets account for over 70% of the world's stock market capitalization, it is the smaller financial markets in the developing world that offer the potentially quickest and highest gains for financial investors. Europe had the slowest rate of growth of HNWIs and UHNWIs.
The language and tone of the Report is as revealing as it is unsurprising. ML, after all, is in the business of wanting to do "wealth management" for the world's richest, to be their investment banker and "Global Private Client Wealth" manager. It is not the purpose of the Report to highlight in horror or anger the scale and depth of global wealth inequality, let alone to propose rectification or reversal of such realities and trends. Since Europe, because of the historic strength of its workers' movements has the strongest welfare systems as well as more progressive taxation structures, inequalities are to some extent curtailed. But the Report describes such controls as "restrictive", "burdensome", as having "impeded" what is called "HNWI wealth creation".
The ML report then provides not just a partial snapshot of how unequal the world economy is, it also expresses implicitly the mind-set of a neoliberalism that would justify this in the name of "wealth creation" and would promote stock markets as ever more central to economic prosperity not just for the few but for all. Yet how important are stock markets for productive investment, which is the real engine for genuine and meaningful growth with more and better jobs and prosperity for all? While it is true that there is an ongoing process of greater Americanization of the world economy thereby giving stock markets greater importance, there is still a significant difference between the Anglo-US economic model and the Japanese-German bank-based investment systems. India falls between these two investment models. But even in the US, most corporate capital spending comes from retained earnings, depreciation allowances, bank credit and then stock markets!
Stock markets are not mainly about raising capital for investment but about making money/profits through changes in ownership of stocks, bonds and other financial instruments. As the ML Report should make clear, financial markets concentrate wealth in ways that have little relationship to the actual or 'productive' contributions of asset holders. In the US, the model economy for neoliberalism, the richest one-half of a percent have a higher share of national wealth than the bottom 90% of the population, while the richest 10% account for almost 80% of non-residential wealth or net worth. The richest 1% of households own over 40% of US stocks held by individuals and over 55% of bonds. The top 10% own over 90% of all individual stocks and bonds. As for new wealth creation, some 70%-75% of all wealth comes from appreciation of existing wealth and only 20%-25% from new savings. At a minimum, 70% of personal wealth acquisition comes from inheritance.
The greatest economist of the twentieth century, John Maynard Keynes, understood clearly that financial markets are not 'positive' allocators of capital but conservative or destabilizing mechanisms mainly directed at promoting rentier wealth. It is real investment that drives the economy forward but this real asset creation is hostage to financial markets, which shape and influence the overall credit system. In general, financial investment and real investment are two distinct activities carried out by distinct sets of people with distinct motives, not paying much attention to each other. The two 'worlds' are connected but in a way whereby the capacity of stock markets to do harm to the real economy and to the lives of ordinary people is considerably greater than its capacity to do good. The 'truth' revealed by stock markets and documents like the World Wealth Report, is that the world's richest are not the saviours of today's global economy, merely its (largely undeserving) prime beneficiaries.
Copyright 2004 The Telegraph, Calcutta