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Monday, Jan. 16, 2012

How glorious to be rich and remote

Special to The Japan Times

HONG KONG — China's supreme leader Deng Xiaoping famously said, "To get rich is glorious." Strangely, the Republican right in the United States have made another Great Leap Forward to claim that the rich are also gloriously important to the economy because they produce jobs and thereby stimulate growth.

I use the word "strangely" because leading American Republicans have been keen to profess a vigorous Christianity, yet Christianity has the gravest warnings against gathering riches, especially at the expense of the poor. Jesus Christ himself suggested that the way to heaven was to give away one's riches, which will perish or rust, for the greater and lasting treasure of loving and caring for one's neighbors.

However, since this is not a religious newspaper, it is neither the time nor the place to dwell on the morality of becoming a millionaire. However, questions about the role of the rich in economic life are important when western economies are in a continuing slump, unemployment is stubbornly high and Republicans offer their creed of small government, diminishing taxation and making the rich richer as the panacea to pull the world out of slump.

Unfortunately for the Republicans, the U.S. and probably the world, the claim that the rich should be encouraged by lower taxes and more opportunities to make even more money is bogus.

Worse, if the advice is followed, it could do enormous damage not only to economies but to political and social order.

All over the world, from the U.S. to China, Hong Kong, India and even Japan, the rich are getting ever richer and taking a bigger share of the pie, while the poor are being pushed to the margins.

The Organization for Economic Cooperation and Development, the club of the rich industrial countries, last month warned that this inequality is becoming one of the biggest challenges confronting governments.

The philosopher Plato declared that the income of the highest paid should never amount to more than five times that of the lowest paid. What would he think now?

The chief executives of the 100 largest companies in the United Kingdom in 2009 earned 81 times the average pay of full-time workers. In the U.S. in 2010, when wages were stagnating and unemployment was high, total realized compensation of chief executives of Standard & Poor's 500 listed companies increased by a median of 36.47 percent, and the highest paid CEO took home $145 million.

OECD secretary general Angel Gurria, declared last month that: "Inequality has become a universal concern, among both policy makers and societies at large. Today in advanced economies, the average income of the richest 10 percent of the population is about nine times that of the poorest 10 percent."

In the U.S. and Israel, inequality has raced ahead and the richest 10 percent get 14 times that of the poorest 10 percent. Even in traditionally egalitarian countries, such as Germany, Denmark and Sweden the income gap has risen from 5 to 1 in the 1980s to 6 to 1. In Japan, South Korea and the U.K., it is 10 to 1.

Inequality in the U.S. is now worse than in Russia of the oligarchs or than in the Roman Empire, according to a study published in the Journal of Roman Studies. Historians Walter Schiedel and Steven Friesen calculated that at the zenith of the empire in the year 150, the top 1 percent of Roman society controlled 16 percent of its wealth. The top 1 percent in the U.S. control 40 percent of its wealth. Schiedel and Friesen even calculated a Gini coefficient for the Roman Empire, 0.42 to 0.44, against 0.468 for the U.S. today.

Throughout the Asia-Pacific region the Gini coefficient is rising. This measurement is a popular tracker of equality: If the coefficient is 0, then there is perfect equality between all people, virtually impossible; at the other end of the scale is 1, where one person collects all income; around 0.45, inequality is getting dangerously high.

According to the OECD last month, using a percentile scale ranging to 100, the Gini coefficient for the Asia-Pacific as a whole is 39.6, higher than the 31.0 for OECD countries. But some leading economies showed extremely high numbers, notably Indonesia on 57, India with 53.6, Hong Kong with 52.5, Singapore with 47.8, and China with 46.2.

The U.S. and many countries are on a dangerously slippery slope, especially where outsourcing of jobs, part-time work and short-term contracts are on the increase, thus cutting the wages and shares of the people who bake the pies while the CEOs take bigger and bigger bites.

Perhaps it is not surprising that Republicans in the U.S. Congress are pushing for the rights of the rich: In the 25 years to 2009, the Washington Post calculated, the median net worth of a member of Congress, excluding home equity, almost tripled to $725,000, while the net worth of the average U.S. family slipped from $20,600 to $20,500.

Henry Blodget who runs Business Insider, "employing 75 people, up from zero four years ago", humorously savages the claims of the super-rich to be the sole progenitors of wealth and jobs. He imagines an economy, Millionaire's Island, an unspoiled wilderness, on which the richest 1 percent of Americans are placed, allowed to take their wealth.

What happens? "There will be a massive grab for all of the island's resources. This will probably lead to years of violence and wars, in which many of the island's new residents will be killed off," writes Blodget.

Slowly, Blodget builds up the island's economy, allowing property rights, small government, basic food, shelter and other necessities. On the way, some of the rich folks will have to do the dirty jobs, construction, sewer cleaning, undertaking, that no one else will do, and they'll be able to charge massive sums — at least until other bankers come along, realizing that the glut of banking and hedge fund management skills have commoditized them so that they are not worth much in the Millionaire's Island marketplace.

Only with a growing sophisticated economy and widespread income can entrepreneurs flourish, claims Blodget. "Entrepreneurs and investors actually don't create jobs, at least not by themselves. What creates jobs is a healthy economic ecosystem, of which entrepreneurs and investors are only parts. The more important part of the job-creation engine is a huge base of people and companies with plentiful disposable income.

"To create self-sustaining jobs, companies need to sell their products into a marketplace that (1) wants them and (2) can afford them. The marketplace needs laws, law-enforcement, property rights, transportation systems, resources, rules, and other attributes of healthy free-market economies that help companies and society function. Without all those things, entrepreneurs can't create jack."

The only thing that can be said for Republicans is that they have not embraced le vice anglais, the economic sado-masochism called austerity that stern German Chancellor Angela Merkel is prescribing for errant European economies.

Kevin Rafferty is editor in chief of PlainWords Media.

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