The Wealth Illusion

Monday, 1st June 2015

A much publicised factoid, popularised by many left-leaning campaigners for greater equality, shows that the richest 85 people in the world are as wealthy as the poorest half  or around 3.5 billion human beings. That would make each multibillionaire a staggering 41 million times richer than your typical Sub-Sarahan African, Indian or Indonesian. I’ve done the maths and it turns out the combined financial wealth of the top 85 billionnaires is around £1 trillion, at least according to research carried out by Oxfam as reported in the Guardian last year and retweeted endlessly ever since. 1 trillion is a mind-boggingly large number, ten to the power of 12, a million millions or £11 billion each. By contrast the same sum divided by the bottom 3.5 billion world citizens is just £286.

The upshot is to alleviate poverty we just need to redistribute wealth from the top 85 to the bottom 3500 million. However, this simplistic solution is based on the fundamentally flawed logic that financial wealth bears any direct relationship to real wealth and real living standards. Moreover, transferring abstract financial wealth to billions of the world’s poor may simply fuel inflation and subjugate more people into a debt-driven monetary economy. £286 is peanuts in Europe, but then so is £572. Intriguingly, financial wealth does not necessarily buy more material resources, but merely exclusivity, privilege and power over others locked into a money economy. As I will explain, the real problem is the overconsumption of much larger minority of the world’s citizens and the logic of infinite economic growth. That means if we are to transition to a more sustainable and equitable steady-state economy, we would need to drastically cut consumption and waste in places like Western Europe to let poorer regions enjoy much more of their own natural resources. We would fool ourselves if we believed we could bring about such a change by taxing the very same global corporations and investment bankers who created such grotesque inequalities in the first place.

In purely monetary terms what can £11 billion buy you? Possibly, more power via shares in leading corporations, an art collection, a few luxury villas, a private jet, a helicopter, a yacht, a team of tax consultants and lawyers, a personal security squad and privileged access to various wheelers and dealers in government and finance. At current prices, no normal human being could consume material goods worth £11 billion. A Ferrari 458 Spider may set you back £200,000, but it’s not 10 times better or 10 faster than a more modest VW Golf hatchback. It also consumes a lot more, is harder to park and less versatile for practical purposes. Likewise having 2 cars for personal use does not help you travel twice as far or twice as fast. It merely gives you greater choice, a second option if one car breaks down and takes up twice as much space in your driveway if you’re lucky enough to have one. Owning 200 cars would be sheer insanity as few people would have the time to drive and maintain such a large fleet of vehicles. However, owning a car rather than just a bicycle can change your life. There may be no limits to how much someone can waste or how much junk someone can accumulate, but there are limits to how much a human being can personally consume. When a billionaire, like Roman Abramovich, boards his £20 million Mediterranean yacht to entertain guests, he is not consuming the yacht for his exclusive gratification, but allocating some of his wealth to corporate hospitality. Some would also argue the Russian oligarch’s maritime extravagance also employs boat builders, sailors, catering and security staff. Nonetheless, Mr Abramovich’s wealth certainly leads to a misappropriation of resources.

If we take a wider look at the top 1% of the global population, around 70 million lucky individuals, we see a staggering concentration of both financial and material wealth, worth around £114 trillion in 2013, or just over £1.6 million each. In purely financial terms, that’s astronomically more than the bottom 3.5 billion. If you spend much of your life in international airports, corporate get-togethers, scientific and academic conventions, luxury hotels and secluded holiday resorts, this wealthy cosmopolitan elite may well seem the norm, with the remaining 99% a mere backdrop. But does it mean your average global elitist is 6000 times happier, longer living, better nourished, better educated or smarter than your average bottom 50% guy? They do not own 6000 times more real estate or 6000 times more gadgets. Your average Tanzanian (in the bottom quarter on the global financial wealth scale) lives in a small bungalow or thatched house, owns second/third hand mobile phone or may have a bicycle or motorbike, but as long as someone can eat, has access to clean water and shelter and is integrated into a cohesive community, they do not feel the same kind of extreme poverty of many temporary city dwellers in makeshift housing or sleeping under bridges in cardboard boxes. Yet even the poorest city-dwellers have much more money than rural Tanzanians, simply because they have to buy everything. The global rich simply own properties in more exclusive or strategically located neighbourhoods and have access to the latest, usually much more expensive, cutting-edge technology. A small two bedroom flat in Tokyo or New York has a market value much greater than a 1 square kilometre farm in Tanzania capable of sustaining a small community of approximately 300 people, based on the average yield of the 16% of Tanzanian land that is actually arable.

For a few short years, my income rose way above the UK average (just £27 thousand a year), but because I had to rent a flat in London, pay off some debts and allocate around £1200 to maintain two teenage offspring, I saw pitifully little of this income. Indeed I had diminished and hectic lifestyle. Some people earning £100,000 a year in expensive cities are actually worse off than others on a tenth of that sum in much of the rest of the world. A better measure of wealth is purchasing power parity or PPP, but even that discounts all the extra goods and services that people in high-consumption countries feel they need or deem essential to maintain their way of life or compete in the labour market.

Green Billionaires

If you thought the anti-elitist left always backed green policies, while the billionaire-loving right wanted to despoil the planet, think again. A common argument against the extreme concentration of wealth is that the mega-rich do not spend most of their immense financial fortunes on manufactured products. If the same wealth were redistributed to the poor (and this usually means the relatively poor in high-consumption regions), they would spend it on manufactured goods and thus boost the economy. In reality such a release of financial assets would just trigger inflation as demand for consumer products would rise. If a billionaire owns a vast forest, some may naively conclude he is denying the rest of us of land for more farming, housing or parks. In reality he is just a custodian of natural resource that provides us all with oxygenated fresh air, absorbs carbon-dioxide and plays a vital role in our planet’s ecosystem. A populist government may seize such land and allocate it to other purposes for short-term social and economic needs, but a wise administration would take a more holistic and farsighted approach. Naturally, as a counter-argument we would argue the billionaire forest owner probably made his fortune through profits from wasteful industrial processes, but only to meet consumer demand.

Who pollutes? Consumers or producers?

If you drive a car and shop at supermarkets, as most Western European adults do, why should you complain if the industrial processes required to maintain your lifestyle trash the planet. If a chemical processing plant contaminates groundwater destroying not just natural ecosystems, but food crops, we instinctively blame its evil capitalist owners rather than a system that creates massive demand for inexpensive petroleum-based products. Environmental regulations inevitably increase costs. These days the dirtiest industrial processes are outsourced to regions with lower levels of environmental protection, who we then blame for failing to adhere to our high standards. We often seem blissfully unaware of the massive levels of habitat destruction created by our addiction to more and cheaper gadgets with a very short operational lifespan.

Consider the humble example of a compact smartphone. In some ways it has the potential to act as a green device by avoiding unnecessary journeys, but in other ways it’s very ungreen. All mobile phones require durable lithium batteries, silicon microchips and coltan capacitors as well as specialised plastics and aluminium. Nearly 13 tonnes of water and 18 square metres of land are required to make a smartphone, with two fifths of the water impact due to pollution at the component manufacturing and assembly phases.

What is Poverty?

It used to mean living on the breadline, on the verge of starvation or lacking the bare essentials of human existence. As our needs and relationship with nature have changed, so has the definition of poverty. A car-less citizen of North American suburbia is much more underprivileged than a Nepalese smallholder with just a horse, although the former may still have a greater carbon footprint as nearly everything she consumes has to be shipped from afar. An unemployed North American may feel alienated without the tools required to compete in her world, but her true poverty isn’t the temporary lack of a motor vehicle, but her disconnection from the natural world.

Financial wealth is a mere temporary illusion. It can at best buy us only relative advantage in an endless arms race with diminishing returns. Rather than simply blaming the mega-rich, we should look at our own overconsumption. We cannot solve any fundamental social or environmental problems by misallocating concentrated financial wealth on short-term mass consumption which will only exacerbate existing environmental depredation. We should focus on quality of life and experiences rather than financial worth.