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The concentrated wealth of the global plutocracy is the dark matter of the world economy: it is rarely glimpsed and difficult to measure, yet it reshapes everything around it.
Two recent reports – the UBS/PwC report on the “new Gilded Age” of the international billionaire class, and the “Paradise Papers” released by the International Consortium of Investigative Journalists (ICIJ) reveal ways corporations and the ultra-wealthy avoid taxes. In doing so, they offer a glimpse into this darkness.
Together, these releases tell us a lot about the wealthy few who run the world.
We now know that the British royal family has been less than open with the people they rule, who preserve their dubious privilege to monarchy. And we have learned that, by investing in a Lithuanian shopping center as an end run around taxes, U2’s Bono may have finally found what he’s looking for.
But these reports also help us see how much we still don’t know about the powerful few. In an era when, according to the Institute for Policy Studies, only three Americans – Bill Gates, Jeff Bezos, and Warren Buffett – own more wealth than half of our entire population, we need to do more to understand – and confront – the super-concentration of resources.
The Swiss bank UBS and the American accounting firm PriceWaterhouseCoopers weren’t looking to write an exposé when they prepared their annual “Billionaires Insights” report for 2017. On the contrary. So-called “very high net worth individuals” are the financial industry’s most sought-after clients. The report is entitled, without any apparent irony, “New value creators gain momentum.”
And gain momentum these billionaires did. As the report notes, “Globally, the total wealth of billionaires rose by +17% in 2016, up from USD $5.1 trillion to USD6.0 trillion.”
Did your net worth grow by 17 percent last year? Unless you’re one of the world’s 1,542 billionaires, chances are it didn’t.
Analyses from economists Thomas Piketty, Emmanuel Saez, and Gabriel Zucman show a dramatic gain in income for the very wealthy – and no one else – in recent decades. In a useful explainer, David Leonhardt of the New York Times concluded:
Yes, the upper-middle class has done better than the middle class or the poor, but the huge gaps are between the super-rich and everyone else. The basic problem is that most families used to receive something approaching their fair share of economic growth, and they don’t anymore.
Meanwhile, the Federal Reserve reports that millions of Americans continue to struggle. 30 percent of adults, roughly 73 million people, are finding it difficult to make ends meet or are barely getting by. Just under one fourth of all adults said they could not pay all their bills for the current month. 44 percent said they could not cover an emergency expense of $400, and one fourth of all adults reported that they had to forgo medical treatment during the past year because of the cost.
As of last report, America’s ten wealthiest men – they are all men – are collectively worth more than $633 billion. The combined wealth of these 10 men has risen by nearly $116 billion since the start of this year alone.
The explosive growth of billionaire wealth, at a time when the middle class is dying and millions of Americans are struggling, has implications for democracy as well as the economy.
The work of political scientists Martin Gilens and Benjamin Page has shown that the preferences of the majority have very little effect on government policy, while the political wishes of the wealthy few are far more likely to become reality.
As history teaches us, centralized wealth often leads to political oligarchy. Our country is no exception. Expand this oligarchical effect across the globe, and you get a sense of the global reach of the billionaire class. As Oxfam international reported earlier this year, just eight men possesses as much of the world’s wealth as half the global population.
The author of the UBS/PwC report commented that “We are now two years into the peak of the second Gilded Age,” with levels of inequality not seen since 1905. He also says that “this is something billionaires are concerned about,” leading to fears that the world’s population could “strike back.”
It’s a rational fear.
The report lists some of the ways the billionaire class spends its money. Art collections, sports clubs, and philanthropy all rate a mention. Recent political events in the U.S. demonstrate that they’re also using their power to further enrich themselves and keep the majority from “striking back.”
One thing the wealthy are apparently not doing with their money is paying much in taxes. The ICIJ’s Panama Papers revealed that many people are using illegal means to avoiding taxation.
The Paradise Papers reveal something equally important: how billionaires and corporations can evade taxation – and public scrutiny of their wealth – through legal means. These documents were obtained from Appleby, one of the world’s leading law firms specializing in offshore accounts.
The New York Times recently profiled two billionaire political donors, one Democratic and one Republican, in an article about the papers that also cited an Appleby publication on the ultra-wealthy’s problem of “motivating children with means.”
The Appleby brochure includes the picture of a small boy in a three-piece suit; apparently that counts as cute to the super-rich. Another handout shows “a handsome couple” rushing to board a private jet, while another is captioned “wealth seeks out safe harbours.”
Appleby clients include prominent Democrats like Penny Pritzker, Commerce Secretary under President Obama, George Soros, and the aforementioned donor, James Simons. They also include prominent Republicans like Sheldon Adelson, Carl Icahn, and billionaire Robert Mercer, who used some of the money he saved avoiding taxes to set Steve Bannon up with a media empire.
When it comes to disseminating their ideas, it’s striking how many hard-core conservatives don’t trust the “free market” to get the job done.
Sen. Bernie Sanders has called for an investigation into the papers, noting that corporations such as Wells Fargo, Citigroup, Apple, and Nike are implicated in the documents.
Offshore havens do more than just help clients evade taxes. They also help them avoid responsibility. As the Times reports, “another offshore firm… advertises that it helps clients ‘preserve wealth from the ravages of litigation, political tumult and divorce.’”
Pop stars also availed themselves of Appleby’s services, including the aforementioned Bono, who took advantage of Malta’s generous tax rates for foreign investors when he funneled money into that Lithuanian shopping center.
But then, the self-satisfied singer has a long history of giving high-minded speeches while failing to deliver for the poor, either personally or politically.
In his book The Frontman, author Harry Browne writes that Bono’s politics are “broadly … conservative” and can be seen as “fundamentally non-threatening to the elites that have wreaked havoc on the world.” To Browne, Bono is “a slick mix of traditional missionary and commercial colonialism, in which the poor world exists as a task for the rich world to complete.”
In an oligarchical world, figures like Bono matter. They provide the singer’s “friends,” who range from Bill Clinton to George W. Bush to Jesse Helms, with a veneer of conscience. They inoculate members of the global elite from the guilt that is rightfully theirs.
Speaking of “frontmen”: the papers also show that Britain’s Prince Charles invested millions of pounds offshore. His estate insisted that the investment, which may have indirectly benefited from the prince’s environmental campaigns, be kept secret. The Queen also invested heavily in offshore companies, including one that has been criticized for exploiting poor families.
The Royals insisted that they obtain no tax advantage from these investments, which suggests that the public face of Britain’s government may well have been trying to hide its wealth from Britain’s people.
The authors of the UBS report probably didn’t intend these words to sound as ominous as they do:
Billionaires are leveraging their networks. They have always worked with groups of peers for business, investment and philanthropic ends. But they are using them more, for example to access significant funding outside the capital markets. Better connectivity is helping them to work together more effectively.
They are undoubtedly correct. Americans need look no further then Donald Trump’s cabinet and circle of advisers, where billionaires gather to plot everyone else’s future while the rest of the Republican Party dutifully falls in line. Treasury Secretary Steve Mnuchin, Commerce Secretary Wilbur Ross, and Chief Economic Advisor Gary Cohn were among those implicated by the Paradise Papers.
The effect of billionaire “networks” may also be found in the Democratic Party’s struggle to develop a platform that reflects the needs of working Americans without alienating very many high-net-worth donors. Hint: It can’t be done.
Concentrated wealth tends to be amoral, and the ultra-wealthy are growing more powerful all the time. And since small businesses usually can’t afford the services of firms like Appleby, legalized tax evasion increases inequality among both individuals and businesses.
How can the United States and the world respond before it’s too late? Economists like Piketty and Zucman have called for a global wealth tax, although that would be difficult to enforce.
The International Monetary Fund (IMF) argued that taxes on the western world’s 1 percent should be “significantly higher.” The Paradise Papers illustrate the importance of ending legalized tax evasion, and Zucman wrote an op-ed on the topic for the New York Times.
But it is hard to pass such measures in today’s political world. Here in the United States, there’s a strong chance Trump and Congress will cut taxes on billionaires and corporations instead. That’s what that happens when wealth becomes too concentrated and political power follows suit.
The undemocratic and unequal state of our own country can no longer be hidden. These reports are informative, but so far we’ve only glimpsed the oligarchy’s reach and power.
This concentration of power must be investigated, and then it must be confronted – by a majority determined to take back the economy and democracy from the powerful few who have made it their plaything, before it’s too late.
It’s time to “strike back” – not against wealthy individuals, but against oligarchy itself.
First published in Our Future. Reprinted in Vox Populi with permission.