“Higher wealth tends to be associated with capture of government and state institutions by the elite,” Francisco Ferreira, director of the International Inequalities Institute at the London School of Economics (LSE) said. This, he said, can take different forms in different democratic contexts. But the result is the same. “The bargaining power of the rich increases due to various tools they use such as lobbying,” he said. “Policies end up benefitting the wealthy and that again creates a cycle. But, this time, it’s a political cycle.”
According to the Bloomberg Billionaires Index, 131 billionaires more than doubled their net worth during the pandemic.
The world’s richest person, Louis Vuitton chief Bernard Arnault, was worth $159bn on December 27, 2022, up by around $60bn compared with early 2020.
Elon Musk, the planet’s second-wealthiest man, boasted a $139bn fortune — it was less than $50bn before the pandemic.
And India’s Gautam Adani, third on the index, has seen his wealth increase more than tenfold in this period, from approximately $10bn at the start of 2020 to $110bn at the end of 2022.
At the same time, close to 97 million people — more than the population of any European nation — were pushed into extreme poverty in just 2020, earning less than $1.90 a day (the World Bank-defined poverty line).
The global poverty rate is estimated to have gone up from 7.8 percent to 9.1 percent by late 2021.
Now, skyrocketing inflation is affecting real wage growth, eating into the disposable incomes of people around the world.
Billionaires saw their fortunes increase as much in 24 months as they did in 23 years, according to Oxfam’s “Profiting from Pain” report released in May this year. Every 30 hours, while COVID-19 and rising food prices are pushing nearly one million more people into extreme poverty, the global economy is also spawning a new billionaire.
A year into the pandemic, capital markets had risen $14 trillion, with 25 companies — mostly in the technology, electric vehicles and semiconductors segment — accounting for 40 percent of the total gains, according to an analysis of stock performance of 5,000 companies by consulting firm McKinsey.
“The result is that this pandemic period has seen the biggest surge in billionaire wealth since the records began,” Oxfam America’s Director of Economic Justice Nabil Ahmed told Al Jazeera. “And we are still coming to terms about how extraordinary that rise has been.”
143 of 161 countries analysed by Oxfam froze tax rates for the rich during the pandemic, and 11 countries reduced them.
When the pandemic began o save the economy from collapsing, central banks slashed interest rates, thereby lowering borrowing costs and increasing the supply of money. They also pumped trillions of dollars into financial markets with the aim of encouraging companies to invest in the economy. Major central banks have infused more than $11 trillion into the global economy since 2020. These interventions triggered a boom in the value of stocks, bonds and other financial instruments — but the rise in asset prices wasn’t accompanied by an increase in economic production.
“The easy money policy that began after the global financial crisis led to really low to negative interest rates and big liquidity in the financial system,” Jayati Ghosh, professor of economics at the University of Massachusetts Amherst, told Al Jazeera. “So, in the past 15 years, corporations chose to reinvest the money into buying more financial assets chasing high returns, rather than increasing their production.”
Yannis Dafermos, a senior lecturer in economics at SOAS University of London explains, “Even when inflation has increased, the profit margins of firms have not declined.” Large companies are retaining profits to give dividends to their shareholders rather than increasing wage incomes, even as smaller companies suffer due to a lack of investments by bigger firms, he said.
“Because of the way the global financial system works, there will be a lot of pressure on developing countries to implement austerity measures,” Dafermos said. “That can create more inequalities and for me, this is perhaps more significant because it limits their capacity to provide social protection to the poor.”
According to Oxfam, lower-income countries spent approximately 27 percent of their budgets in repaying their debts – twice the money spent on education and four times that on health.
Why do the rich get richer — even during global crises? | Business and Economy | Al Jazeera
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