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At the start of every year, influential figures from the business and political world come together in the Swiss mountain town of Davos to congratulate one another, participate in discussions about the “fourth Industrial Revolution” – a somewhat vague concept- and reflect on the current state of the world. The concentration of wealth in such a small group of conference rooms is quite remarkable. And every year, the international charity Oxfam seizes this opportunity to analyze the level of inequality on a global scale. Oxfam’s results are usually attention-grabbing, but this year they are particularly striking.

According to recent findings, the combined wealth of the top five individuals in the world has significantly increased from $405 billion in 2020 to $869 billion in late 2023. This massive growth equates to an average of $14 million per hour, a remarkable achievement by any standards. Oxfam predicts that if current trends continue, the world will witness its first trillionaire in the next decade. At present, the wealthiest person is Elon Musk with a net worth of $210 billion, approximately one-fifth of the projected trillion dollars.

Oxfam’s prediction may take longer to come to fruition, but the overall global trends indicate it is probable. Looking back ten years, the wealthiest individual was Mexican telecommunications mogul Carlos Slim with a net worth of $70 billion, only one-third of Elon Musk’s current estimated value. It appears highly probable that if significant changes are not made, the world will see its first trillionaire by the 2040s.

In the field of macroeconomics, where large numbers are common, one trillion dollars is considered a significant amount. To put this into perspective, the entire annual economic output of the United Kingdom is approximately $2.9 trillion. To understand the magnitude of this amount, we can look back in history. In 1916, newspapers declared John D Rockefeller as the world’s first billionaire with a fortune of one billion dollars. At that time, the US GDP was around $50 billion, making Rockefeller’s worth equivalent to 2% of the country’s income. However, with the current US GDP being around $27 trillion and expected to grow to $40 trillion by the mid-2030s, a trillionaire in today’s time would be worth between 2.5% and 3.5% of the output of the world’s richest country. This is a larger proportion compared to the wealthiest individual in recent economic history.

Currently, there is a record high number of super-rich individuals, surpassing the amount seen before the financial crisis in 2008. Before the crisis, there were 1,000 billionaires, but now there are over 2,000. One notable sign of this trend is the increase in luxury yachts in the marinas of affluent vacation spots. In the year 2000, there were less than 2,000 superyachts, but now there are over 5,000, with approximately 150 new ones being launched each year.

Does any of this have significance? Is the presence of billionaires, and perhaps even trillionaires, indicative of a thriving economy? To fully understand, we must examine the factors that led to this current state. Three major economic trends stand out: the rapid rise of asset prices, far outpacing growth in wages; a decade of low interest rates driving up the value of assets such as stocks, real estate, and art; and a continuation of this trend despite potential increases in interest rates, as evidenced by the record high reached by the S&P 500, the primary stock index in the US, in February of 2024.

Next, there is a rise in profits for corporations. A significant number of the richest people in the world have accumulated their wealth through successfully managing companies, particularly in sectors with limited competition. These corporations, which hold significant shares of the market, are able to increase prices without negatively impacting their profits, as their customers have limited alternative options. According to Oxfam, the average global mark-up, or the difference between the cost of producing a product and its selling price, has increased from 7% in 1980 to 59% in 2020.

Over time, taxation systems have become less skewed towards higher earners. In the UK, the highest tax rate for income was 83% in 1979, while in the US it was 70%. Today, these rates have decreased significantly to 45% and 37%, respectively. To summarize, not only have the wealthiest individuals gained from increased asset values and bigger profits, their tax burdens have also been cut in half compared to two generations ago.

While capitalism does inherently involve some level of inequality – as some individuals may work harder or take more risks than others – it has been found that extreme inequalities are not natural and can actually be politically dangerous and harmful to the economy. Studies have shown that societies with high levels of inequality are more prone to economic shocks and political unrest. Research from the International Monetary Fund, not known for its leftist leanings, has even found that inequalities and decreased worker bargaining power were major contributors to the 2008 financial crisis. Some economic experts and philosophers, such as Ingrid Robeyns, argue that implementing a maximum limit on individual wealth is not just a moral and social responsibility, but also beneficial for the economy.

Yes, we should be concerned about the potential rise of the world’s first trillionaire. However, preventing this would involve making significant and transformative changes. It would mean politicians understanding that taxation serves a greater purpose than just generating income – combatting extreme inequality is a valuable goal in itself. This would require a renewed emphasis on enforcing competition policies to dismantle and prevent monopolies. It would also call for a shift in corporate governance, where the interests of shareholders are not the sole focus and the well-being of employees, suppliers, and customers is also taken into consideration.

Looking back at the example of Rockefeller, there is reason to stay optimistic. Despite being a part of a group of wealthy businessmen known as the “robber barons,” the fact that he was viewed in a negative light by the public speaks to the discontent with extreme wealth. This led to policies during the progressive era that aimed to increase competition, raise tax rates, and give more rights and power to workers. While it took a market crash and a period of economic struggle for significant change to occur, we now have the benefit of hindsight in evaluating these policies. The recent discussions among G20 leaders about implementing a global minimum tax for billionaires is a positive step, but more action is needed. The possibility of someone becoming the world’s first trillionaire should serve as a motivation to take action before it becomes too late.

Further reading

Ingrid Robeyns argues against extreme wealth in her book “Limitarianism” (published by Allen Lane, priced at £25).

“The Decline and Fall of Empires: The Role of Elites, Resistance Movements, and the Unraveling of Society” by Peter Turchin (Penguin, £10.99)

Grace Blakeley’s book, “Vulture Capitalism: Corporate Crimes, Backdoor Bailouts and the Death of Freedom” (published by Bloomsbury for £20), delves into the issues of corporate greed, deceitful tactics, and the erosion of our liberties.

Source: theguardian.com