Wednesday, July 4, 2007

World Wealth Report and Rising Profit Shares

Oh but the pie is getting larger giving us all a bigger piece even though a smaller share. A rising tide raises all the boats but not all equally it seems. In some cases the absolute amount people get may be falling and in the face of increased expenses required for a basic standard of living.

The Wellesley Institute blog compares and contrasts a recent CCPA publication with the World Wealth Report:
Two days, two reports, two very different worlds

The World Wealth Report 2007 released on Wednesday by Merrill Lynch and Capgemini reports that the very rich (so-called high net worth individuals – HNWI) are getting even richer. And the forecast is the extremely wealthy are going to get even richer due to their dominance of global capital markets, especially commercial real estate and real estate investment trusts.
Meanwhile, the Canadian Centre for Policy Alternatives released a detailed research report on Thursday called Rising Profit Shares, Falling Wage Shares which shows that real hourly wages for workers (the people that do things, rather than own things) “have been stagnant for 30 years running”.
The two studies make fascinating reading, when set side-by-side.
First, the very rich. In 2006, there were 9.5 million people globally who held more than US$1 million in financial assets – an increase of 8.3% over 2005 – according to the World Wealth Report: “Global wealth continued to consolidate in 2006 – a trend that we have reported for the past 11 years – with assets of the world’s wealthiest individuals accumulating at a faster rate than the growth of the overall HNWI population… In large measure, the continued growth of HNWI wealth has been driven by the world’s wealthiest individuals – the Ultra-HNWIs: those whose financial assets exceed US$30 million… another sign that global wealth is rapidly consolidating among this ultra-wealthy segment.”
The main reason that the rich (especially the very rich) are getting richer is rapid economic gains in real GDP and market capitalization, according to the WWR. In other words, wealthy people already own large parts of the global economy and private markets, and they are benefiting from the tendency of private markets to reward those who are dominant players.
On the Canadian front, the number of High Net Worth Individuals grew from 232 in 2005 to 248 in 2006 – an increase of 6.9%.
But it’s not easy being rich. The WWR reports that the Forbes’ Cost of Living Extremely Well Index (CLEWI) is rising at almost double the rate of inflation. CLEWI rose by 7% in 2006, compared to 4% for the U.S. Consumer Price Index. “Investments of passion” are getting more expensive; these include: luxury cars, boats and airplanes; jewelry, art and sports-related investments (such as purchasing an entire professional sports team). Despite the increased cost, the WWR notes that the sales of privately-owned jets are robust. Boeing reports orders for 11 wide-body private jets being outfitted as “mobile mansions” at a cost of $150 million each.
While owners are raking in the proceeds from sky-high profits, workers are not getting the same benefits. The CCPA report notes that the Canadian economy has had sustained prosperity over the last three decades, growing by 72% between 1975 and 2005. By 2005, Canadian corporate profits were at an all-time high – with operating profits at Cdn$217 billion.
While those sky-high profits benefited those who own corporations, the people who work in corporations were not so lucky. “Astoundingly, after steady increases in Canadian workers’ real hourly wages between 1972 and the late-1970s, their real wages have been stagnant for 30 years running,” reports the CCPA. Worker productivity is up, the economy is growing and, in years before the 1970s, workers’ wages did grow. But all that ended in the 1970s.
The CCPA points to what they cite as an “unmistakeable trend”: “Corporations’ profit share has been persistently increasingly while workers’ wage share has been persistently decreasing since the late 1970s.”

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