Sunday, January 24, 2010

Plutonomy: why the rich get richer

I encountered some articles about the subject "plutonomy": this is the recent phenomena in the UK and the US where all the benefits of economic growth go to a small elite and as a consequence the inequality is steadily increasing. The concept comes from a "Citibank paper from 2006.

The key reasons it gives for the phenomena are:

1. They are all created by “disruptive technology-driven productivity gains, creative financial innovation, capitalist friendly cooperative governments, immigrants…the rule of law and patenting inventions. Often these wealth waves involve great complexity exploited best by the rich and educated of the time.”

2. There is no “average” consumer in Plutonomies. There is only the rich “and everyone else.” The rich account for a disproportionate chunk of the economy, while the non-rich account for “surprisingly small bites of the national pie.” Kapur estimates that in 2005, the richest 20% may have been responsible for 60% of total spending.

3. Plutonomies are likely to grow in the future, fed by capitalist-friendly governments, more technology-driven productivity and globalization.

Inequality is something that fascinates me as it may have been a major cause of the economic crisis of the 1930s. The 1920s were a time of increasing inequality too and that inequality lasted until World War II. During the war it decreased fast and after the war it stayed at the much lower level.

The paper raised some indignation when it became public as it seemed to justify the increasing inequality. I am more interested from an academic point of view. I don't think the paper is the whole story, but it is an interesting contribution. One of the thing that I miss in the paper is attention to power: as the rich get richer they get more power to influence politics so that it favors them even more.

1 comment:

Anonymous said...

The inclusion of "immigrants" is a tip of the hat to the xenophobes. The heat-busters of France and Germany. Pat Buchanan in the US.

However, inequality of wealth really doesn't matter at all. People will earn different amounts. Different jobs have different values. Some people are lucky enough to have rich fathers, and some are not. Life's not fair. no big deal.

What does matter is poverty. Which has nothing to do with whether or not the wealthiest own 10 cars each on average or if they own 20 cars each on average.