What do Narendra Modi, Luke ‘Ming’ Flanagan, Nigel Farage, and Marine Le Pen have in common?
This seemingly disparate group of politicians are all surfing a huge wave of popular discontent with establishment politicians and by extension, with big business.
Modi, the fiery nationalist leader of the right-wing BJP movement has just swept to an overall majority in the general election in the world’s largest democracy, India, on the back of huge discontent with the Congress, which has dominated the country since independence in 1947, ruled by a dynasty, the Nehru-Gandhi family and which was viewed as mired in corruption.
Modi started life as a tea boy. He may have handled silver spoons, but he was not born with any in his mouth.
‘Ming’ is an energetic figure of protest who made his name supporting people’s right to smoke marijuana. In more recent times, he has backed up people’s right to extract turf from native bogs in breach of environmental laws that have their origins in Brussels.
Many contend that without such laws, even more of our sacred spaces would have disappeared, but clearly Deputy Flanagan represents people who feel disenfranchised and much put upon. He looks set to poll strongly in this week’s European Parliament elections.
Nigel Farage is a former stockbroker whose UK Independence Party could possibly emerge as the largest party in Britain’s European elections.
Ukip has attracted large numbers of less well-off people, not all of them ‘white’. Farage, who enjoys his pint of English ale, has cleverly linked the huge surge in immigration to Britain from Eastern Europe, in particular, to the issues of low and stagnant wages, unemployment and problems of access to public services. He insists he is not racist, but enjoys regular digs at the expense of Romanian migrants.
Le Pen is the daughter of Jean Marie Le Pen, founder of the ‘Front Nationale’. Marine has toned down her father’s racist ideas and has skilfully linked the country’s unemployment problem to the issue of control from Brussels. She is beginning to harvest large numbers of votes in former strongholds of the Socialist party.
Similar waves of protest are gathering force across much of the EU and have forced Europe’s elites on the defensive.
It is not hard to understand why they are occurring. They are the result of the combined impact on ordinary people of the post Lehman Bros financial crisis, a crisis made particularly acute in Europe as a result of policy mistakes.
Globalisation and rapid technological change have played their part, combining to create a new elite of very highly paid executives. At the apex stand characters such as Mark Zuckerberg, net worth $27bn and Sergey Brin (Google co-founder), net worth : $30bn. Jan Koum, founder of WhatsApp, has managed to amass $6bn. But social media companies often work young talent like slaves for salaries of under €20,000. Amazon.com is non unionised, a tough employer, often great for the customer, but a displacer of thousands of retail jobs.
The wealth amassed by financiers is well known, as is the sharp disconnect between their activities and that of the common good.
Some of the proponents of globalisation have amassed vast wealth while working for investment banks which have benefited most from the removal of international capital barriers. Governments appear helpless to control the process, though smaller states like Ireland, which have relied successfully on international tax competition strategies, could face a crackdown from organisations such as the OECD.
Britain’s Office for National Statistics has just released some very interesting findings. Average household wealth in 2012 stood at just under £220,000.
However, 44% of the country’s wealth was held by the richest 10%, while the wealthiest 20% of households were more than 100 times better off than the poorest 20%. The divisions between top and bottom in the US are even greater, the country’s underclass even more disconnected and in very many cases, literally disenfranchised.
The French economist Thomas Piketty is currently making a big splash with his book, Capital in The Twenty First Century, in which the author seeks to understand the forces driving the increased concentration of income and wealth across the globe (a trend which has happened side by side with the emergence of hundreds of millions of people from poverty, in Asia especially) The author and his team collected large amounts of data covering three centuries. This, he claims, is by far the most extensive database available with regard to the historical evolution of income and wealth.
According to Piketty, “in the very long run, the most powerful force for rising inequality is the tendency of the rate of return to capital to exceed the rate of output growth.” This happened in the 19th century and seems quite likely to do so again, in the 21st century, he suggests.
Ironically, wealth became more equally distributed in the 20th century. Piketty believes this reduction in inequality was due mainly to the capital shocks of the period, times of war, runaway inflation and related asset destruction.
Established families experienced a wipeout of sons and grandsons as well as the evisceration of accumulated savings. In the political world, this produced fascism and a rash of populist nationalism. After the Second World War, new fiscal and social institutions emerged with the aim of binding society together. This was the era in Britain, of the Beveridge Report and the launch of the NHS. In Ireland, the process was more skewed towards the early part of the period and the flight of capital in the run-up to Independence.
Reconstruction promoted equality, the 1950s and 1960s being a period of low unemployment in Europe and the US.
Piketty predicts a slowing in global output growth from the average of 1.6% a year enjoyed — despite wars and recessions — between 1700 and 2012, this deceleration due to the tailing off in world population growth now under way.
While annual growth in global output will be no more than 1%-1.5%, rates of return on capital could reach 4%-5%.
According to the Forbes global billionaires list, the top holders of wealth have enjoyed an increase of 6%-7% a year since 1987 in their stash (with quantitative easing recently giving the wealthiest another big boost — at the expense, largely, of the modestly well off, with savings in the bank .)
Piketty claims that US inequality is back to the levels that prevailed in Europe during the era of the Belle Epoque (around 1900, resulting in the “capture of the political process by a tiny high-income and high-wealth elite.”
But clearly, an electoral blowback of sorts has begun, one that is paralleled by a similar revolt led by shareholders against company boards and top managers.
Investors in the Irish-UK engineering group, Kentz have just delivered a bloody nose to management, with half of investors failing to back the proposed executive pay package.
The move caps a growing trend whereby shareholders have been rebelling against top executive payouts.
A crackdown on tax avoidance schemes has also put Gary Barlow of Take That in the dock of public opinion. The mood is militant. The question is whether real reforms to the system reaching institutions such as the ECB, as well as Wall St and the City of London, can divert this tide of discontent, harnessing it in a more positive fashion.
Failure to address the concerns of the protesters, very many with legitimate grievances, being stuck in economically stagnant population centres with skills deemed outdated could prove costly. Much of the genuine progress of recent decades towards a more liberal international trading economy and a more unified Europe could be put at risk.
It is perhaps best to think of people like ‘Ming’ more as canaries singing in the mine, warning of trouble, rather than as sources of the problem.
Thomas Piketty believes that progress is possible provided an effort is made to spread knowledge and skills among the population and provided changes are made in our tax system aimed at reversing this trend towards the concentration of wealth in the hands of the few.
He argues for a property tax skewed heavily towards the wealthy as opposed to targeting younger people still trying to accumulate assets.
His ideas bear serious consideration — we ignore them at our peril.