Tag: Wealth

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Our Special, Dysfunctional Relationship With China

We send them money, they send us more or less everything. Simple.

Actually there’s a lot more to it than that. It may seem that our money is going there never to return (except in the form of loans and – perhaps – investments), but China’s increasing wealth is little more than a side-effect of the highly integrated role that it now plays in the world economy. China is a machine for transferring wealth all right, but while some of it goes to the rich in China and some even goes to the poor there, most of it flows from our poor to our rich, here in the West. It’s the great money pump. As such it plays a very useful role in the destruction of democracy, by democracy.

Think back to those far-gone days when Capitalism seemed to actually work. Owners of businesses would employ people who would then be able to buy things from businesses. It was a two-way street and it worked well enough. The owners arguably got more than their fair share and working conditions were downright dangerous in the early days, but overall it was a benign circle where people saw their incomes rise.

It began to fail only when everyone, more or less, had a job. This meant that the labour supply was no longer an endless resource, and that very much strengthened the position of the “working class” in their campaign for a bigger share. Labour was still a renewable resource though, so at this point things might conceivably have reached an equilibrium. But capitalism is driven not by profit, as you might assume, but by increasing profit. Its most powerful members after all are not those who create wealth, but those who have it already. Investment will go not to what might make a sustainable economy or society, but to whatever can return the biggest immediate margin.

And one of those things was China, where labour seems again to be in infinite supply and working conditions can be just as dangerous as the good old days. Now instead of paying people in their own countries, businesses can pay people in China to make things to sell to the people of their countries. As owners of the patents, the brand names, the “intellectual property”, they still get the lion’s share of the profit from these Chinese-made goods. The transfer of wealth thus becomes a one-way street, from the poorer to the richer in our society, with China merely taking a commission as agent.

Most people in the West are still employed of course, but more and more they’re employed in secondary jobs that have little control over the production of actual saleable goods. I don’t think government is ever going to be brought to its knees by a mass stoppage of supermarket managers or Web designers. Robbed of this bargaining chip, people’s incomes are falling in real terms. It’s just that we don’t notice because the cost of many goods is rapidly falling too – thanks to them being made in China. It’s the tasks we cannot effectively outsource – health and education for example – that show how the real wealth of our society is decreasing.

Thanks to China. the rich no longer really need the rest of us as much as they once did. Which explains why the wealth gap is rapidly increasing. So China does turn out to be a threat to democracy, if not in a way that anyone expected back in the Red-Scare 50s. My question is this: If we encourage Chinese investment here, will it help us focus on finding solutions to this very dysfunctional relationship – or will it simply buy our silence?

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Wake Up, America

The Statue of Liberty front shot
"Give me your tired, your poor, your huddled masses, yearning to be tired, to be poor, and to huddle."

Discussing the social frustrations that led to the riots in the UK, an American friend suggested that the situation was probably exacerbated by the British class system, which he characterised as “You’re born in your class, and you’re stuck there”. While not denying that the USA had its class system too, he thought that they at least had the illusion of social mobility.

Indeed. I don’t think the vast majority of Americans appreciate just how much that is an illusion now.

You have to differentiate between social class as culture and social class in the sense of income group. Traditional class, with all its funny accents and different tastes in wallpaper, may still be a major part of the British cultural tapestry, but just as in America, what really matters is how much money you have. And the really important thing, the thing the American Dream is based on, is your ability to change that. In both countries, social mobility is mostly about being significantly better off than your parents.

But surely it is more difficult to move up the scale in the UK, with all its prejudice about accents and schools and forks, than it is in the US where self-advancement is a core cultural value?

Prepare yourself for a shock.

2005 – Source, Other, better known Source.

In 2005, social mobility in Britain was as good as, or better than, in America. And that was after a period of decline.

In good news for team USA, it has edged back ahead of the UK in the last few years. Possibly because the UK also adopted neo-liberal low tax economics? But comparing social mobility in Britain and America is like comparing fuel economy in fires. The sad truth is, if you want the American dream these days, you need to go to northern Europe or Canada.

Strength of link between an individual’s and their parents’ earnings, 2010 – Source

Oh and where does Ireland fit on this scale, you may ask, if you’re in Ireland? Well it’s hard to compare because of our far smaller and less developed economy, but as the top diagram shows, income inequality tends to go hand-in-hand with lack of social mobility.

Income inequality in Ireland? Don’t ask. It ain’t pretty.

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America’s Praying Politicians

American cultural icons, apple pie, baseball, ...
No One Gets A Slice

Disturbing to watch Tea Party representatives talking about how they’re praying for guidance as the economy teeters on the edge. This is the American Taliban. They have their own fundamentalism, ostensibly Christian rather than Islamic perhaps, but like the original Taliban they hate the American government. Unlike them, they have a real chance of harming, possibly destroying it. And they don’t even need weapons, because they attack from within.

On whose behalf are they fighting? That of America’s greatest enemy: Its own wealthy.

Many of America’s rich want to divest themselves of any responsibility towards their fellow Americans. It’s not as if they were ever under a lot of pressure to help out anyway, but in recent history at least it has worked better that way. You would employ Americans to make things to sell to other Americans, who could afford to buy things because they were employed to make things… Not everyone was included within this benign circle of course, but the general upshot was an optimistic land where it was at least believed that everyone’s lot could be improved.

But now that circle has been broken. The simple fact of the matter is America’s rich don’t need other Americans anymore. They buy, make and sell globally. America is just one market, and they don’t need to invest in it. Americans do get cheaper goods that way, but less and less are they buying them off each other. So though the super-rich are making more money than ever before, a large part comes from effectively taking a cut out of the export of America’s jobs and wealth. We can only watch in horror as what was once a country of opportunity for the poor grows an ever-widening gulf between a tiny minority that becomes more fantastically rich all the time and the vast majority whose position is deteriorating.

How can that ever happen in a democracy, when it is up to the people how the country is run? It’s simple really. The super-rich sponsor all the parties. But the Tea Party is taking it to new extremes, preaching a blatantly wealth-favouring agenda while using prejudice, fear and religion to manipulate others into voting against their own interests.

The irony is that it’s named after the Boston Tea Party, an incident leading up to the American War of Independence, yet the people its policies favour want to run America exactly like an exploited colony –  milking it for what can be got, giving as little as possible back. The US has a new aristocracy, and they will be a lot harder to dethrone than one based far overseas.

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