Is Government Behind the Rising Fortunes of the Rich?
It is tempting in this time of U.S. bailout-rage, government austerity and tax warfare to think Washington determines the fate of the American rich.
Soda and juice magnate Zong Qinghou, China's richest man.
Both parties play into this view. The left argues that just about every problem besetting America today–from fiscal deficits and rising poverty to a crumbling education system and poor health–are the result of the runaway and unfair riches of the wealthy.
The right argues that if government taxes the rich, it will destroy the most productive, job-creating members of our society. Only lowering taxes, they say, will generate wealth for the wealthy and trickle-down wealth for everyone else.
But anyone who has watched the rise of huge wealth overseas knows there is something bigger going on in the global economy. The rise of huge personal fortunes, and the creation of the breakaway state of Richistan, isn't the result of taxes falling to 35% from 50% for the wealthy. It is the result of the explosion in global financial markets, global competition, new technologies, the demand for highly specialized skills and the "river of money" that is racing around the world searching for the highest returns.
Consider today's news from Russia and China. In Russia, the wealth of the top 20% has doubled in the past 20 years, while about two-thirds of the population has seen little or no wealth growth.
China may be even more extreme. The Hurun report announced that China now has nearly a million millionaires. The number of millionaires in China rose 9.7% in 2010, to 960,000, Hurun said. Granted, counting millionaires in the U.S. is an inexact science: counting them in China is one step away from guesswork.
Yet Dr. Joseph Wong from the University of Toronto, explained to the Winnipeg Free Press that the soaring wealth of the rich in China has become a top concern of the Chinese government. The nation's gini coefficient–a measure of inequality–is over 0.45, or roughly equal to the U.S.
The government is trying to impose new real-estate taxes, create a better social-safety net and encourage better worker pay, he said.
It could be argued, of course, that government policy in China, Russia and the U.S.–and other countries with rising inequality–is being directed by and for the rich. The path to wealth in China and Russia inevitably passes through government. And tax policy can no doubt have an impact on inequality.
Yet the ginis of many countries in the world–including the more socially-minded nations of Sweden, Canada and Belgium–also have increased in recent years. (France and Norway are notable exceptions, with declining ginis).
The ginis suggest that broader forces creating all this wealth around the world are bigger than any single lobbyist or president. What the economist Robert H. Frank (no relation) and Philip Cook described so presciently in their 1995 book "The Winner-Take-All Society," has become the "Winner-Take-All" World.
The great tension for governments everywhere in coming years will be to manage the expectations and needs of nonwinners.
Do you think government policy, or broader global economic forces, are behind the winner-take-all world?