Income concentrate on the hands of very few people in the world. The richest 1% could be owning 20% to 40% of American's wealth. Such extreme inequality is bad for economic growth, argued OECD. When coupled with unemployment, income inequality could lead to extreme activities, such as nationalism and ISIS, according to top economists.
In his book "Capital in the Twenty-First Century" (Harvard University Press, 2014), Thomas Piketty derives a grand theory of capital and inequality. The Economist hailed Mr Piketty as "the modern Marx".
The Economist (4 May 2014) explained:
"Capital" is built on more than a decade of research by Mr Piketty and a handful of other economists,
detailing historical changes in the concentration of income and wealth. This pile of data allows
Mr Piketty to sketch out the evolution of inequality since the beginning of the industrial revolution.
In the 18th and 19th centuries western European society was highly unequal.
Private wealth dwarfed national income and was concentrated in the hands of the rich families who sat atop a relatively rigid class structure.
This system persisted even as industrialisation slowly contributed to rising wages for workers.
Only the chaos of the first and second world wars and the Depression disrupted this pattern.
High taxes, inflation, bankruptcies, and the growth of sprawling welfare states caused wealth to shrink dramatically,
and ushered in a period in which both income and wealth were distributed in relatively egalitarian fashion.
But the shocks of the early 20th century have faded and wealth is now reasserting itself.
On many measures, Mr Piketty reckons, the importance of wealth in modern economies is approaching levels last seen before the first world war.
Piketty's research suggests that wealth concentration is the natural course, which is only interrupted by war and depression. However, the 2007-08 financial crisis has not disrupted income concentration! According to research by the The Organisation for Economic Co-operation and Development (OECD), income inequality is growing.
The top 1% of American have nearly 20% of the country's total income, according to OECD. Despite global income growth, many are no better than they were in the 1980s. The top earners pay far less tax than the poor, because they have the knowhow to avoid paying tax legally. (Of course, they also know how to avoid tax illegally.) The rich can use capital to increase their wealth, which is much easier than using labour, as the poor do. The rich have more resources to invest in their children. So their children have more chance of earning more. (The Economists explains how family dynasties emerge.)
Another research in 2012 suggested that the richest 1% in America owns 40% of the American wealth! It has got worse in the last 20-30 years (1976 to 2012), according to this report. the richest 1% takes home 24% of the income in the society. They own 50% (half) of the country's stock, bonds and mutual funds.
Income inequality leads to social tension. Social tension leads to challenges to law and order. Social tension mixed with unemployment (luckily UK unemployment is relatively low), especially among young male, is a recipe for disaster: unemployed young men have a lot of energy which demands outlet. These people could be attracted by radical activities, such as nationalism and ISIS, according to Thomas Piketty, Paul Krugman (2008 Economics Nobel Prize winner) and Joseph Stiglitz (2001 Economics Nobel Prize winner) in an interview on Friday 6 March 2015 at Harvard Law School.
In a TED Talk in October 2012, Glattfelder explained that he studied ownership networks, where nodes represent entities such as firms, people, governments. Each node has a value. Links represent ownership. He focuses on transnational organizations (TNCs); there are 43,000 of them. By taking their owners, and their owners' owners, the network has 600,000 nodes and 1,000,000 links.
Glattfelder found that 35% of the TNCs make up 95% of all TNCs' value.
When one owns more than 51% of a company, one gains control of a company. One could leverage by gaining control of a small company, which controls a bigger company, which controls a bigger company, etc. This way, Mr Tronchetti Provera leverages 26 times, i.e. for every Euro he invest, he can influent 26 Euros in the process. This allows him to control Teleitalia.
Glattfelder found that 737 top players (mostly financial institutes), i.e. 0.123% of the players, have control over 80% of the TNCs' value!
that shows how concentrated wealth is.
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