"For the loser now will be later to win, for the times they are a-changing" sang Bob Dylan from the lyrics of his immortal 1964 song and homonymous album. But that was rather a generational anthem, as in those days, people were really concerned about making an impact - a positive one.
Fast forward to the start of 2020, in the majority of the so-called developed world countries, we progressed immensely under many aspects regarding social issues such as racial discrimination, gender inclusion, welfare, social security and healthcare. Nevertheless, and notwithstanding our efforts, we still find ourselves incapable of shrinking the widening gap between the poor and the rich – or maybe more poetically in the words of Dylan "the loser and the winner".
Today inequalities are often in the headlines and on the mouth of many "writers and critiques who prophesied with their pen". One famous example comes from Thomas Piketty, who more recently re-wrote the Capital for the 21st century, a book that attracted lots of critics and praises. Still, many more people, and in different fashions, have been trying to address the issue of wealth disparity and inequalities, globally. But isn't it that, perhaps since the dawn of times, we have had kings and mendicants in the world? So why inequality matters more to people nowadays? And why precisely much more in the last ten years than before - at least as we perceive it from the surge of various literary involvements on the subject? The answer to these questions may appear in different forms, and indeed one of these traces back towards humans climbing the Maslow Pyramid, one towards economics and politics, and a third towards life in the era of social media (dangerous triad, hum?).
Maslow, to whom I got initially acquainted during my freshman year at university and more so recently after I spent time at the Esalen Institute in Big Sur, California, was a man of observation and intuition, let alone culture. He very well described how peoples' behaviour and their sets of needs change as they satisfy a more basic necessity. To speak more plainly, once someone provides food and shelter for himself or his family, that same individual will begin to pause and, while looking around (now more reassured about her "survivorship"), she will start to compare herself to a new set of social peers. Hence so-called social needs will arise, with people looking to acquire more disposable income to accomplish their newly formed goals of appearance and status. It is in this very section of the pyramid that we can appreciate the formation of consumerism and materialism, and I welcome you to note that I am using these two terms without any morality. Rather, I think it is interesting to see that our economy lies massively upon this section of the pyramid, for disposable income is what's actually widening the gap between the rich and the poor – will the second be later to win? But even more so, how come disposable income is not matching growth expectations? Well, to answer this question, we need to look at economics, politics and regulation in today's world.
Disposable income is generally dependent on the free market itself, on the fiscal environment, and on regulations, all of which unfortunately have been rowing against an egalitarian world in the last decades. In fact, if you look closely at any industry these days, we see a discomforting concentration at the top, meaning that more and more free markets tend to look like oligopolies and sometimes even duopolies. This evidence comes from 30+ years of relentless M&A practices spurred by antitrust deregulation and industries overregulation, lobbing and easy credit granted by governments and investment banks to major corporations and sector incumbents around the world, which all gained pricing power and mercilessly suppressed their competition. Consequently, not only smaller companies got penalised, but also most of the stakeholders outside the boardrooms have been too. In fact, when a company has less competition and more pricing power, not only can pick from consumers pockets by charging higher prices for the same delivered products, but also can negotiate proportionally lower salaries with higher revenues. This contingency, as a consequence, will drive employees and managers to earn almost the same while the stockholders will get a higher cash-in through dividend pay-outs. That's how the gap increases, how the winners gain on the losers, and how inequalities deepen – sounds wrong, right? And if you add to the soup also ten years of central banks flooding liquidity in the markets through their quantitative easings, then you end up with an accretive multiplier for inequalities. For shareholders now see their inflated equity prices skyrocketing, while getting on top cheap credit from investment banks, which they have reinvested not into their businesses, but rather to buy back their stocks and make an additional capital gain profit. Hence who is getting the blame? No one, that's merely human nature playing its role. The issue is that when the rules of the game are poorly stated, people will necessarily try to take advantage of it – it's within every one of us, every single one.
That begin said, there is still a silver lining to appreciate, at least for what concerns the disposable income level that is not necessarily an employer-dependent variable. For on a positive note, today, more and more people decide to become entrepreneurs or self-employed workers, thanks to technology and the internet. A trend that is allowing economic Darwinism and healthy competition to impact the world much more quickly through the fact that these people make money by eating what they kill, and not through their fixed monthly paycheck. Furthermore, other trends like sharing economy and the surge of renting versus owning models help as well – times are indeed changing, but there is still way ahead to go.
And now one last point to touch before the finale: why over the last years we have been talking more about inequalities than before? I believe that the answer lies within the evident surge of media coverage. The social ones and the traditional too, both ever more so involved in producing low-quality information and poor cultural contents garnished with sensationalism - so to monetise by selling ads and publicity. Also, in this context, I think it is no wonder that a lot of political majorities' campaigns are based on populism leveraging on the grief propelled by inequalities and sensationalism funnelled through the media.
Disposable income is generally dependent on the free market itself, on the fiscal environment, and on regulations, all of which unfortunately have been rowing against an egalitarian world in the last decades. In fact, if you look closely at any industry these days, we see a discomforting concentration at the top, meaning that more and more free markets tend to look like oligopolies and sometimes even duopolies. This evidence comes from 30+ years of relentless M&A practices spurred by antitrust deregulation and industries overregulation, aggressive lobbying and easy credit granted by governments and investment banks to major corporations and sector incumbents around the world, which all gained pricing power and mercilessly suppressed their competition. Consequently, not only smaller companies got penalised, but also most of the stakeholders outside the boardrooms have been too. In fact, when a company has less competition and more pricing power, not only can pick from consumers pockets by charging higher prices for the same delivered products, but also can negotiate proportionally lower salaries with higher revenues. This contingency, as a consequence, will drive employees and managers to earn almost the same while the stockholders will get a higher cash-in through dividend pay-outs. That's how the gap increases, how the winners gain on the losers, and how inequalities deepen – sounds wrong, right? And if you add to the soup also ten years of central banks flooding liquidity in the markets through their quantitative easings, then you end up with an accretive multiplier for inequalities. For shareholders now see their inflated equity prices skyrocketing, while getting on top cheap credit from investment banks, which they have reinvested not into their businesses, but rather to buy back their stocks and make an additional capital gain profit. Hence who is getting the blame? No one, that's merely human nature playing its role.
The issue is that when the rules of the game are poorly stated, people will necessarily try to take advantage of it – it's within every one of us, every single one.
That begin said, I think that there is still a silver lining to appreciate, at least for what concerns the disposable income level, as disposable income is not necessarily an employer-dependent variable: on a positive note, in fact, today more and more people, thanks to technology and the internet, decide to become entrepreneurs or self-employed workers, allowing economic Darwinism and healthy competition to impact the world much more easily through the fact that these people make money by eating what they kill and not through their fixed monthly paycheck that would be controlled by a multinational conglomerate. Furthermore, trends like sharing economy and the surge of renting versus owning models help as well – times are indeed changing, but there is still way ahead to go. One last point to touch is why in the last 10 years we have been talking more and more about inequalities than before. A lot is attributable to the surge of media coverage, the social ones and the traditional too, which unfortunately are both ever more so involved in producing low-quality information or cultural contents so to monetise with ads and publicity – never mind that we live in a world where a lot of political majorities campaigns are driven by populists leveraging on the grief propelled by inequalities and sensationalism funnelled through the media to the people.
What shall we do then? In all honesty, I hope that the new ruling generations will help us all, as more entrepreneurial, less materialist and much more against the goliath business model adopted by 20th-century corporations, for “the order is rapidly fadin’ and the one now will later be last, for the times they are a-changing".
This article has been written by Tancredi Cordero. Tancredi is the Founder & CEO of Kuros Associates.
For further information related to this article please visit: https://moneyweek.com/investments/stockmarkets/uk-stockmarkets/602462/the-business-rates-bust-up-as-retailers-hand-back
https://www.ft.com/content/e54712dd-bb35-43e4-8533-f1ae28fec054
