• lawandorderblog

Billionaires Vs. the Pandemic: Does the Economy Belong to the Top 1%?

Written by Antara Mandal

Associate Editor, Law & Order



Disclaimer: Please note that the views expressed below represent the opinions of the article's author. The following does not necessarily represent the views of Law & Order.


Introduction


It is incomprehensible how large a number one billion [1] is. Is such a huge amount of money needed in one’s lifetime? It’s crucial to understand the ethical and practical implications of being a billionaire in a world divided by poverty, disease, hunger, and other social injustices. The pandemic has exacerbated the plight of the working class worldwide. For a minimum wage earner in India [2], it would take them 925,925 years to earn a billion dollars. During the pandemic, India and South Asia collectively accounted for losses of 110 million full-time jobs (Pandey, 2020). India’s informal sector has been hit the hardest with 100 million migrant workers left stranded and without income (Uwe et al., 2020). Even though many countries have successfully managed to reduce the number of people living under extreme poverty in recent years, the economic gap between the rich and the poor has been on the rise for several decades. A concerning trend has emerged in the last decade wherein the wealth of the bottom 50% has shrunk significantly compared to the wealth of billionaires. In 2009, it took 380 billionaires to equal the wealth of the bottom 50%; by 2018, it only took 26 billionaires (Inequality.org, n.d.). In other words, global wealth is getting hoarded by the top 1%.


One would expect that an unprecedented health crisis like the COVID-19 pandemic would take a toll on everyone’s wealth, including the billionaires. However, the pandemic has affected everyone disproportionately depending on their income, caste, race, gender, age, etc. Research has consistently shown that more unequal countries suffer from a greater number of mental and physical illnesses like schizophrenia, cardiovascular diseases, and have higher infant mortality rates indicating that higher income inequality “undercuts social cohesion and capital and increases chronic stress” (Inequality.org, n.d.). While unemployment rates have continued to rise, and the majority of the global population is being pushed to extreme poverty, the wealth of the billionaires suffered a minor brunt, after which it increased rapidly.


The total wealth of the American billionaires grew by USD 931billion in just six months of the pandemic, registering a 32% spike while 62 million people lost their jobs in the U.S. economy (Americans for Tax Fairness, n.d.). Even though billionaires have donated billions to relief funds and vaccine trials, it only affects a minuscule portion of their net worth which they regain much faster than an average citizen.


What are the underlying causes of wealth concentration during the COVID-19 pandemic?

The article mainly seeks to explore this question and further analyzes and emphasizes the merits of wealth redistribution.


A World Unbalanced


The pandemic has set the world several decades back. Factors like the poor implementation of lockdown measures, rising food insecurity due to the locust swarms as well as the wars in Yemen and Syria, lack of global leadership, and politicization of the virus have significantly increased economic inequalities and have consequently threatened social well-being (Van Barneveld et al., 2020).


According to the World Bank, extreme poverty [3] is set to rise for the first time in two decades affecting around 9.1% to 9.4% of the world population in 2020.

This is corresponding to nearly 700 million people around the world, whereas 2,189 billionaires [4] of the world remain immune to this trend, and instead have become richer compared to 2019. Their wealth increased by 27.5% to USD 10.2 trillion [5] between April and July of this year when the pandemic was at its peak (Pattnaik, 2020). While their total wealth has increased tremendously, the number of billionaires has increased only slightly, thus indicating that wealth has largely become concentrated to the top 1%. According to a 2017 Oxfam report, just eight rich people [6] owned a combined wealth of half the human race (Mullany, 2017). The pandemic did not impede this tendency and “has further exposed the vast gap between the few and the many” (Uwe et al., 2020).


Wealthy individuals own a huge number of shares in the stock market which is subject to fluctuations Thus, wealth distribution is not easy to measure since a dip in the stock prices indicates that the world is more equal, whereas a rise in the prices indicates greater wealth inequality without accounting for factors such as economic and social well-being. No matter the fluctuations, though, during a crisis the prices are bound to crash (Pattnaik, 2020).


As a result, when the pandemic hit, the small owners sold their stocks in a panic, but the affluent billionaires bought these stocks from the small owners because of their huge purchasing power and the ability to absorb any financial turmoil.

The stock market witnessed a V-shaped recovery [7] and those who expanded their stock portfolio gained massively. Meanwhile, 400 million jobs were lost worldwide in the second quarter of 2020 and prospects continue to be uncertain in the labour market amidst a second wave of the pandemic (Pandey, 2020).


Who is the economy for?


Billionaires benefiting from economic troubles aren’t unprecedented and are enabled by the government bailouts. For instance, during the Global Financial Crisis, the government bailouts were disproportionately benefitting big banks and corporations mostly (Woods, 2020). The top 1% in the US retrieved all of their losses in just a year after the Financial Crisis and continued to make more money (Woods, 2020) whereas, in 2016, most Americans did not even regain their wealth from 2007 (Blyth & Lonergan, 2020). Benefiting from interest cuts, corporations around the world have also contributed to an increasing debt totaling USD 13.5 trillion at the end of 2019 (OECD, 2020). On top of that, money from corporate debts has been used to pay back the shareholders of the companies and engage in massive buybacks of their shares (Blyth & Lonergan, 2020). This implies that corporations went into debt to pay most of the profit to their shareholders instead of productively investing the money, for example, to create better and clean jobs. Despite this common knowledge, even a pandemic could not change the pattern of this vicious cycle of corporatization. Blyth & Lonergan (2020) ask a pertinent question


“Why do we continue to aid and abet a small class of insiders using their fragile, overleveraged companies to generate their own profits and extort bailouts from society?”

How many once-in-a-lifetime crises does the economy have to go through to realize this fundamental question?


The financial rescue efforts during the pandemic aren’t all that different from the 2008 bailouts— it is still disproportionately favoring the wealthy. In the United States, the Federal Reserve has cut the interest rates to zero [8] and is engaging in massive quantitative easing to get the cash flowing in the economy as a response to the pandemic-induced financial crisis. This resulted in a fresh demand for asset stocks no matter how risky they were to invest in (Sasi, 2020). This is why the stock market quickly recovered as investors bought more equities, particularly in Big Tech and Big Pharma (Sasi, 2020). Google and Microsoft have paid their shareholders over USD 15 billion and USD 21 billion respectively since January (Uwe et al., 2020).


Increasing shareholders’ value only means increasing the wealth of the already wealthy, thereby exacerbating economic inequalities further. At the same time, big corporations also rely on extracting labour value for lesser remuneration and benefits for the working class.

A public health crisis occurring in such a system is a collapse of socio-economic well-being.


Should Billionaires Exist?


One might argue: while billionaires do hold significant wealth, they are also responsible for creating jobs as they are the drivers of any economy, hence billionaires should exist. Why, then, are their employees being furloughed while their shareholders keep maximizing their wealth?

Another argument in favor of billionaires is, they are charitable and hence do-gooders. All billionaires have donated billions of money to the coronavirus relief funds. Jeff Bezos, the CEO and founder of Amazon, for example, donated USD 100 million to Feeding America (Hamilton, 2020), which accounts for 0.08% of his fortune. He earns USD 1243/second (RS Components, n.d.), so it wouldn’t be hard to recover what minimal contribution he has made. Additionally, he has pledged to donate USD 10 billion to climate change nonprofits, activists, and scientists, and still, he is on track to become the world’s first trillionaire by 2026 (Yoder, 2020). Bill Gates did more than the Trump government by donating USD 150 million after Trump withdrew funding from the World Health Organization (Hamilton, 2020). Philanthropy is expected from billionaires, but a deeper question is, why should anyone depend on private individuals, who citizens cannot hold accountable, to save them instead of democratically elected governments who they pay their taxes to, to assure them a decent living? Secondly, billionaires who pledge billions of dollars for climate change issues, for instance— what about the fact that they themselves are the biggest polluters [9]? Thirdly, when the responsibility of bringing social change is assumed by the wealthy, it is essentially handing over the power to a few rich individuals who control what social change is according to them while making sure they always remain the winners (Yoder, 2020).


Economic inequality is not a homogenous phenomenon. It is financially engineered by the affluent 1% that is largely disproportionate due to the existence of a social hierarchy. The pandemic has hit the vulnerable the most, like garment workers in South East Asia, workers in the meat-processing industries of the US, informal workers in Lagos, New Delhi, and Sao Paulo, most of them being women, racial and ethnic minorities, and migrants (Uwe et al., 2020). Just like it is impossible for minimum wage earners from India to acquire a billion dollars in their lifetime, it is also impossible for billionaires to spend all of their fortunes in their lifetimes. There is thus no reason for billionaires to keep hoarding wealth and resources especially at the cost of the economically impoverished section of the society.


Conclusion: From Here, Where To?


A recently released Oxfam report poignantly states, “the discrepancy in the economic impacts of COVID-19 is no accident. It is the result of an economic model that delivers profits for the wealthy while extracting value from the many” (Uwe et al., 2020).

Not only do the top 1% hoard wealth, but they fuel patterns of consumerism— this is not desired from both the perspectives of human and environmental well-being. It is evident that structural policy changes must happen in order to counter the burgeoning socio-economic inequalities. Firstly, it must be repeatedly emphasized in the reform policies that no big corporation is too big to fail. The financial markets need to get reformed seriously with long-term goals (which the recovery policies of the previous financial crisis failed to do) such that corporations get exempted from buybacks of their shares (Blyth & Lonergan, 2020). Credit rating agencies must be restructured to efficiently detect companies piling up corporate debts and appropriately downgrading them— a company’s reckless spending is the society’s bailout burden.


Secondly, since the major problem with income inequality is it exacerbates social plight, excessive financialization of public utilities needs to be drastically reduced. Public health, education, transportation, environmental, food security, etc. require heavy infrastructure spending and private expenditure on these resources is neither realistic nor fair. With economic liberalization becoming the norm around the world, free-market tactics have excessively commodified education and healthcare. Who gets healthcare coverage should not be dependent on their employability. The COVID-19 pandemic reveals a convincing case for universal income in the form of a sovereign wealth fund (SWF). As noted in the previous sections, billionaires tend to buy heavily discounted shares sold in panic by small investors. Instead of directing these shares exclusively to large investors, they should be financed in an SWF. Such a fund, managed by the government, would accumulate assets such as stocks, bonds, and real estate, and “as the value of the publicly managed assets increases, the value of the shares would also rise.


Citizens would receive a “universal basic dividend” every year from the income earned from the fund’s investments” (Cohen, 2018).

Currently, there are already 70 funds existing in the world. These funds would ensure a steady income, universal healthcare, and education, food security, in a way that the economic disparity, currently prevalent in the world, is reduced while ensuring the quality of life.


In conclusion, the current market interventions must stop favoring the top 1% because they are already more than well-off. There is evidence that suggests the recovery policies are no different during the pandemic than the ones adopted in the previous financial crisis that failed to work. It is illogical to keep increasing the profits of a few while the majority of the world suffers from poverty. The bottom line is — as we move ahead in the future, there will be plenty of other unprecedented crises. Instead of relying on short-term policies which only treat the symptoms of inequality, long-term financial reforms and social wealth management are the need of the hour.




[1] One billion = 1,000,000,000. The total wealth of American billionaires grew by 931,000,000,000 during the pandemic (Americans for Tax Fairness, n.d.). Something to think about.


[2] “India's minimum wage is 176 Indian rupees ($3) for an eight-hour workday, but local authorities can set their own lower rate and at least six states do so” (Srivastava, 2019). This is roughly USD 1080/year and subject to inflation. As of November 2020, INR 1 = USD 0.013, so INR 176 will be ~USD 2. This is much worse.


[3] The World Bank defines extreme poverty as living on less than $1.90 a day.


[4] As of July 31, 2020. In April, there were 2,058 billionaires (UBS & pwc, 2020).


[5] The previous peak was USD 8.9 trillion in 2017


[6] All of them being white men— Bill Gates, Amancio Ortega Gaona, Warren E. Buffet, Carlos Slim Helú, Jeff Bezos, Mark Zuckerberg, Lawrence J. Ellison, Michael R. Bloomberg (Mullany, 2017)


[7] According to Investopedia, “A V-shaped recovery is characterized by a quick and sustained recovery in measures of economic performance after a sharp economic decline.”


[8] Not to mention, when the Fed cut the interest rates to near-zero during the ‘08 Crisis, it remained like that for a decade and hence “paved the way for a historic bull market on Wall Street that began in 2009 and lasted until March 2020, when the pandemic hit.” (Woods, 2020)


[9] “A 2015 Oxfam report showed that the world’s richest 10 percent were responsible for nearly half of global emissions.” (Yoder, 2020)


Bibliography


1. Americans for Tax Fairness. (n.d.). Billionaires by Numbers.

https://americansfortaxfairness.org/billionaires/


2. Blyth, M., & Lonergan, E. (2020, March 20). This Time, Can We Finally Turn a Financial Crisis Into an Opportunity? Foreign Policy.

https://foreignpolicy.com/2020/03/20/this-time-can-we-finally-turn-a-financial-crisis-into-an-opportunity/


3. Cohen, R. (2018, August 28). A “SOCIAL WEALTH FUND” COULD BE THE NEXT BIG IDEA. The Intercept.

https://theintercept.com/2018/08/28/social-wealth-fund-united-states/


4. Hamilton, I. A. (2020, April 18). Here's how much of their wealth Silicon Valley billionaires like Bill Gates and Jack Dorsey are donating to fight the coronavirus. Business Insider. https://www.businessinsider.in/tech/news/hereaposs-how-much-of-their-wealth-silicon-valley-billionaires-like-bill-gates-and-jack-dorsey-are-donating-to-fight-the-coronavirus/slidelist/75211260.cms#slideid=75211330


5. Inequality.org. (n.d.). Global Inequality.

https://inequality.org/facts/global-inequality/


6. Inequality.org. (n.d.). Inequality and Health. Inequality.org. https://inequality.org/facts/inequality-and-health/


7. Mullany, G. (2017, January 16). World’s 8 Richest Have as Much Wealth as Bottom Half, Oxfam Says. The New York Times.

https://www.nytimes.com/2017/01/16/world/eight-richest-wealth-oxfam.html


8. Organization for Economic Co-operation and Development. (2020, February 18). Corporate bond debt continues to pile up. OECD. https://www.oecd.org/corporate/corporate-bond-debt-continues-to-pile-up.htm


9. Pandey, K. (2020, April 23). COVID-19: Where are those pushing for privatised healthcare? Down to Earth.

https://www.downtoearth.org.in/blog/health/covid-19-where-are-those-pushing-for-privatised-healthcare--70651


10. Pandey, K. (2020, July 2). COVID-19: 400 mln jobs lost in Q2 2020, says ILO. Down to Earth.

https://www.downtoearth.org.in/news/economy/covid-19-400-mln-jobs-lost-in-q2-2020-says-international-labour-organization-72086


11. Pattnaik, P. (2020, October 25). In Pandemic, India’s Super Rich Get Richer by 35% While Common People Suffer the Most. The Leaflet.

https://www.theleaflet.in/in-pandemic-indias-super-rich-get-richer-by-35-while-common-people-suffer-the-most/#


12. RS Components. (n.d.). You VS a Billionaire: How long does it take the world’s richest billionaires to earn your salary?

https://uk.rs-online.com/web/generalDisplay.html?id=i/you-vs-billionaire


13. Sasi, A. (2020, July 1). Explained: Why, despite the pandemic, some billionaires are becoming richer. The Indian Express. https://indianexpress.com/article/explained/coronavirus-pandemic-billionaires-wealth-unemployment-6480380/


14. Srivastava, R. (2019, August 2). India passes 'historic' minimum wage law amid activist worries. Thomas Reuters Foundation News.

https://news.trust.org/item/20190802170845-5q2uq/#:~:text=India's%20minimum%20wage%20is%20176,least%20six%20states%20do%20so.


13. UBS & PWC. (2020). Riding the storm: Market turbulence accelerates diverging fortunes. https://www.pwc.ch/en/publications/2020/UBS-PwC-Billionaires-Report-2020.pdf


14. Uwe, G., Nicholas, L., & Irit, T. (2020, September 10). Power, Profits and the Pandemic: From corporate extraction for the few to an economy that works for all. Oxfam International. https://oxfamilibrary.openrepository.com/handle/10546/621044


15. van Barneveld, K., Quinlan, M., Kriesler, P., Junor, A., Baum, F., Chowdhury, A., Junankar, P., Clibborn, S., Flanagan, F., Wright, C. F., Friel, S., Halevi, J., & Rainnie, A. (2020, May 25). The COVID-19 pandemic: Lessons on building more equal and sustainable societies. The Economic and Labour Relations Review.

https://journals.sagepub.com/doi/full/10.1177/1035304620927107


16. Woods, H. (2020, August 3). How billionaires got $637 billion richer during the coronavirus pandemic.

https://www.businessinsider.in/finance/news/how-billionaires-got-637-billion-richer-during-the-coronavirus-pandemic/articleshow/77333000.cms


17. The World Bank. (2020, October 7). COVID-19 to Add as Many as 150 Million Extreme Poor by 2021.

https://www.worldbank.org/en/news/press-release/2020/10/07/covid-19-to-add-as-many-as-150-million-extreme-poor-by-2021


18. Yoder, K. (2020, May 26). Why are we waiting for billionaires like Jeff Bezos to save us? Grist.

https://grist.org/climate/why-are-we-waiting-for-billionaires-like-bezos-bloomberg-gates-to-save-us/




0 comments