PART III LOOKS AT the rich and whether they are good for society or not. Few will be surprised to discover that the answer is that sometimes they are and sometimes they aren’t.
Chapter 8 ‘Who are the super-rich?’ looks at how the rich live and how and where they spend their money. It is clear that there are a number of global cities in which the world’s rich, who mainly operate on a global scale, congregate. The chapter looks at their knock-on spending, which is considerable. Although sometimes the spending, especially on property, has negative knock-on effects on others, there are ways in which this damage could be mitigated or eliminated.
Chapter 9 ‘The undeserving rich’ looks at crony capitalism, overpaid bankers and CEOs and tries to determine when they move over from being good for the economy to being bad. The worst excesses of cronyism tend to be outside the West, and it should be possible to use administrative measures such as travel bans and freezing of assets to affect their activities. Because the rule of law remains prevalent in much of the Western world, many of the beneficiaries of crony capitalism need the West to enable them to store their stashes of loot and to enjoy the high life. So travel bans and asset freezes can be highly effective and clearly cause enough pain for some to engage in a powerful lobbying effort to end them.
This chapter also draws attention to overpaid bankers and CEOs and makes an unusual case: that here the market is finally starting to work, although only after a long delay. The pay of FTSE CEOs indeed appears to have fallen by 17% on average in the financial year 2016/17. And bankers’ bonuses are less than half of their 2008 peak. Aggressive shareholder groups and the long-term effect of a sustained period of low yields have hit CEOs and bankers, while automation is affecting finance dramatically.
It has taken a long time for the market to work, but this seems to be the case with labour markets – that they work in aggregate surprisingly much more slowly than free-market zealots would wish. Because of the institutional constraints on pay and all the psychological factors associated with it, the labour market is one of those markets that clears remarkably slowly and often can take as long as a generation. Many of the effects of Mrs Thatcher’s reforms didn’t really affect the UK economy until after her departure as Prime Minister and came to fruition during the Blair years, more than two decades later. The benefits of the Clinton welfare reforms kept boosting the US economy until the late Obama years, when the problems of time limited welfare payments started to show.
Chapter 10 ‘Clogs to clogs in five generations’ looks at a different factor: how long wealth survives. We have been very lucky to have been able to collaborate with the Sunday Times Rich List and have analysed its data to see how long wealth survives in a family after it has been made. The answer is much as ancient proverbs such as ‘clogs to clogs in three generations’ suggest – wealth disappears surprisingly fast. And wealth is increasingly new money and not inherited money. Studies by the Federal Reserve Bank of St Louis show the same effects in the US.
So the rich are a changing cast. Some do good for the world, others not. But the money disappears surprisingly quickly. Analysis of the impact of the top 1% needs to be aware of the fact that this group is a surprisingly rapidly changing set of people.