Monday, April 17, 2006

This post starts in London and ends with Armageddon

Here's a thoughtful and well-researched article by James Meek on the habits of London's super-rich, who have been enjoying something of a purple patch in recent years. In it we learn that 0.3% of Britain's population own almost half the country's liquid assets and that this group is, on average, 66% richer than it was five years ago. Meanwhile 30% of the country do not possess any liquid assets at all. Meek, incidentally, is also author of The People's Act of Love - an entrancing novel on the Russian revolution, which I wholeheartedly recommend.

London is chosen as a base for its pre-eminence in topend financial and legal services; something of a competitive advantage we should exploit, many would argue. This attitude is based on the idea that it's better here than over there and let's take what we can in the process.

There are no billionaires sitting in a room staring at their wealth stacked, liquid, in bundles of dollars around them. The bulk of their wealth is always in motion, breathing, expanding and contracting. Only by the sparkly feathers that flutter to the forest floor, the golden spoor on the trail and the remnants of its prey can you tell that there was a billion and that it passed this way.

The billions never stand still for long. Those who hope to catch a piece of them as they race by have to be adept at slicing bits off them as they pass, or by helping them to pause and feed, or by providing a nice rough bit of bark for them to scratch on. And London is very good at that.

But what of the institutions needed to service the needs of the rich? Surely it's a fine hope that they are compatible with an equitable outcome for the poorest? Apparently not.
...the direst Marxist predictions of the consequences of rampant capitalism have not come about - inequality, says Hamnett, isn't the same as polarisation. There aren't more poor Londoners now than there were 30 years ago; but most Londoners are poorer relative to the very richest residents.
With an increase of fortunes on this scale - that 0.3% average £76m each in liquid assets - inequality indeed becomes something of an irrelevance. What matters is that the welath is trickling down, not sloshing around the stratosphere It would be interesting to delve deeper and look at how wealth accumulation has changed for the broader population - if for instance the assets of the poorest 10% have increased substantially in real terms over the last decade. I imagine that house price rises would not have benefited this group, nor would the one million employed in money managemnet be belong to this group. One would imagine the provision of luxury services raises employment the chains of causality from hereon become so complicated as to escape any empirical analysis, and the debate becomes one of conjecture.

The other question is how much do the Mittals and Abramoviches actually shape institutions to their own advantage, and the impoverishment of others. Are they gusting by with their billions without effect or is Britain, kowtowing for fear of losing what little it can take, evading its opportunity for an equitable society?

A question of more far-reaching implication is whether Britain, by dedicating swathes of its expertise to increasing the stock of the mega-rich, is helping to entrench current international structures which leave the majority of the world impoverished.

There is a transition in financial instruments which may be encouraging. The market for hedge funds has become so saturated that many are moving now into private equity deals - many of which are in the third world. If a large number of these are used to establish new businesses, then jobs increase, helping some to work thmeselves out of poverty. However, the nature of private equity is that it is efficiency obsessed Takeovers with the aim of increasing margins will have little regard for the consequences of their actions and governments, with far less power than Britain, will be even more reluctant to scare off such investment.

For those who believe market efficiency is an unqualified good, this does not seem such bad news. The consequences for social welfare, however, could be dire. Religious extremism, French protests, rural protests in China and fascism - such separately complex phenomena but all, I believe, explained by society's reaction to the marginalising effect of market reform. A world economy governed by the whims of private equity would be one so disassociated from social need as to cause unparalled damage to the world's most vulnerable. If Europe's correction was World War II (the lessons of which have been forgotten in our Washington Consensus world), the consequences of another correction, this time on a far larger scale, would dwarf anything expewrienced by humanity before. Our post-Thatcherite consensus could do with a little correction of itself to ensure this does not happen.


Anonymous said...

Inequality is negative, we all know this. The reason that wealth is not more fairly distributed is two fold :
i) over time the market bsed system will naturally cause the accumulation of capital and wealth, not in a diverse way but in an ever denser concentrations. the rich get richer and more powerful. Note that :
if x invest £1 on project P, and y invests £10 on the same project P; if the return is a 100% then x will have £2 while y will have £20...and this process continues on ad nauseum...just like a good drinking bender, until something breaks...
ii)although it is never conceded (or very rarely)in debate the one single reason for this accumulated wealth not being better or more faily distributed is that those who are wealthy are also powerful and basically they do not want to give up the pleasures of luxury and excess.

Lastly, further to what was already written on the original post, in Scotland over 30% of the land is owned by 103 people... in england, nearly 70% of the land is owned by 0.67% of the population...
welcome to the 21st century comrades...


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