There's optimism in the global economy - but only the wealthy are feeling the effects

In the UK, it is ‘fat cats’; here in the US, it is Wall Street versus Main Street

Share

You hear it in Davos; you see it here in Washington DC, where I am at the moment; and you are certainly made aware of it in Britain. It is the sharp contrast between economic optimism and social pessimism. The great global wealth machine is at last on the move again and is starting to pull up even the laggards – the countries who through bad luck or mismanagement have so far failed to make much of a recovery. But the benefits of that recovery, by contrast to previous upswings, have been narrowly shared. It is hard to see quite why this should be so, and, until we understand why, it is even harder to know what can be done about it. Hence the pessimism.

The run of news captures the optimism. Equity markets demonstrate that investors are more positive by the week, with the S&P500 just a couple of points off an all-time high, European shares at a six-year peak and the possibility that the FTSE100 will pass its previous zenith – reached in 31 December 1999 – in the next few days. Another rather different measure of the shift is Ireland back borrowing from the markets, with an interest rate on its five-year debt lower than that of the UK. Still another measure is the British housing market. And so on.

This mood extends beyond the developed world. Bill Gates has just predicted that there will be almost no poor countries by 2035, a thought made more credible by the news that Africa is now the fastest-growing continent. To be sure, China is slowing – but to rather more than 7 per cent growth, which by any other standards would be stunningly rapid. It seems that Beijing may be achieving the “soft landing” as hoped.

But embedded in all the good news is the bad. A housing boom benefits the owners of houses, not the people who must borrow to buy them. Soaring equity prices benefit the owners of shares, not (or at least only indirectly) the people who work for the companies. Indeed, the measures that the authorities have used to boost developed-world economies, such as quantitative easing, actually increase inequality by pushing up asset prices and thus benefiting the owners of those assets (though this of course was a side-effect, not the aim).

Those left behind vary in different regions. Here in the US, the contrast is not only between the high-earners and the rest. It is also between those with jobs and those without. Though GDP is well above its previous peak, employment is not. Joblessness is down, but more because many have withdrawn from the workforce than from job-growth. In Britain, we have had massive growth in jobs but falling real wages. In Germany, there have been plenty of jobs but many paying little, hence plans for a minimum wage. In Italy, those in secure jobs are fine, but the young find themselves excluded from any employment at all.

On both sides of the Atlantic, the reaction has been shaped by politics. In the UK, the outrage is about “fat cats”. Here, it is Wall Street versus Main Street. But if the rhetoric sounds different – and different again in Europe – the underlying concern is the same: that something has happened to the structure of the economic system that increases differentials.

There is a cyclical problem – as noted, the measures to tackle the recession may have increased inequality – but it should eventually correct itself. The deeper issue is the structural problem that seems universal – in China, India and the rest of the emerging world as well as in North America and Europe. That will not go away even when the upswing reaches its peak.

No one really knows why this is happening but there are two broad strands of thought. One is that rising inequality within countries is an effect of globalisation. Remember that between countries inequality is plunging, in that the emerging world is narrowing the wealth gap with the developed world. That means that people with skills that are in high demand (or maybe are just lucky) can go for the best return on those skills wherever in the world they are needed. But people without those skills (or the luck) find themselves underbid by people from other countries prepared to accept lower wages.

The other approach is to see this as a function of technology rather than geography. Many of the middle-skilled jobs are being eliminated by new technologies. Many middle-manager/admin-assistant jobs have already disappeared and another swathe may follow. Could many legal functions be next? We simply do not know how much further this will go, but here in the US the contrast between well-paid and poorly paid ones is particularly stark.

We will see. The best hope is that these two forces, both squeezing the middle, are nearing their natural conclusion. If they don’t, we’ll have to think more about how to make all jobs more rewarding and respected. Actually, we should do that anyway.

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

(Senior) IT Support Engineer - 1st-3rd Line Support

£40000 per annum: Ashdown Group: A successful IT service provider that has bee...

Wind Farm Civil Design Engineer

£55000 - £65000 Per Annum: The Green Recruitment Company: The Green Recruitmen...

Principal Marine Mechanical Engineer

£60000 - £70000 Per Annum: The Green Recruitment Company: The Green Recruitmen...

Principle Geotechnical Engineer

£55000 - £65000 Per Annum: The Green Recruitment Company: The Green Recruitmen...

Day In a Page

Read Next
A Russian hunter at the Medved bear-hunting lodge in Siberia  

Save the Tiger: Meet the hunters tasked with protecting Russia's rare Amur tiger

Oliver Poole
Save the Tiger: Meet the hunters tasked with protecting Russia's rare Amur tiger

Hunters protect Russia's rare Amur tiger

In an unusual move, wildlife charities have enlisted those who kill animals to help save them. Oliver Poole travels to Siberia to investigate
Transfers: How has your club fared in summer sales?

How has your club fared in summer sales?

Who have bagged the bargain buys and who have landed the giant turkeys
The best swim shorts for men: Bag yourself the perfect pair and make a splash this summer

The best swim shorts for men

Bag yourself the perfect pair and make a splash this summer
Dress the Gaza situation up all you like, but the truth hurts

Robert Fisk on Gaza conflict

Dress the situation up all you like, but the truth hurts
Save the tiger: Tiger, tiger burning less brightly as numbers plummet

Tiger, tiger burning less brightly

When William Blake wrote his famous poem there were probably more than 100,000 tigers in the wild. These days they probably number around 3,200
5 News's Andy Bell retraces his grandfather's steps on the First World War battlefields

In grandfather's footsteps

5 News's political editor Andy Bell only knows his grandfather from the compelling diary he kept during WWI. But when he returned to the killing fields where Edwin Vaughan suffered so much, his ancestor came to life
Lifestyle guru Martha Stewart reveals she has flying robot ... to take photos of her farm

Martha Stewart has flying robot

The lifestyle guru used the drone to get a bird's eye view her 153-acre farm in Bedford, New York
Former Labour minister Meg Hillier has demanded 'pootling lanes' for women cyclists

Do women cyclists need 'pootling lanes'?

Simon Usborne (who's more of a hurtler) explains why winning the space race is key to happy riding
A tale of two presidents: George W Bush downs his paintbrush to pen father’s life story

A tale of two presidents

George W Bush downs his paintbrush to pen father’s life story
Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover

The dining car makes a comeback

Restaurateur Mitch Tonks has given the Great Western Pullman dining car a makeover
Gallery rage: How are institutions tackling the discomfort of overcrowding this summer?

Gallery rage

How are institutions tackling the discomfort of overcrowding this summer?
Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players

Eye on the prize

Louis van Gaal has £500,000 video surveillance system installed to monitor Manchester United players
Women's rugby: Tamara Taylor adds fuel to the ire in quest to land World Cup

Women's rugby

Tamara Taylor adds fuel to the ire in quest to land World Cup
Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

The day America’s love of backyard tigers led to a horrific bloodbath

With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable