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

Associate Recrutiment Consultant

£18000 - £23000 per annum + Uncapped OTE: SThree: SThree Group have been well ...

Trainee Recruitment Consultant

£18000 - £23000 per annum + OTE: SThree: Real Staffing Group is seeking Traine...

Year 6 Teacher (interventions)

£120 - £140 per day: Randstad Education Leeds: We have an exciting opportunity...

PMLD Teacher

Competitive: Randstad Education Manchester: SEN Teacher urgently required for ...

Day In a Page

Read Next
 

Letter from the Political Editor: Cameron's unexpected tax pledges give the Tories home advantage

Andrew Grice
President Barack Obama walks with U.S. Secret Service agents to Air Force One at Los Angeles International Airport in Los Angeles, Calif., May 8, 2014.  

Obama's Secret Service has become sloppy with its delusions of Hollywood grandeur

David Usborne
Italian couples fake UK divorce scam on an ‘industrial scale’

Welcome to Maidenhead, the divorce capital of... Italy

A look at the the legal tourists who exploited our liberal dissolution rules
Time to stop running: At the start of Yom Kippur and with anti-Semitism flourishing, one Jew can no longer ignore his identity

Time to stop running

At the start of Yom Kippur and with anti-Semitism flourishing, one Jew can no longer ignore his identity
Tom and Jerry cartoons now carry a 'racial prejudice' warning on Amazon

Tom and Jerry cartoons now carry a 'racial prejudice' warning on Amazon

The vintage series has often been criticised for racial stereotyping
An app for the amorous: Could Good2Go end disputes about sexual consent - without being a passion-killer?

An app for the amorous

Could Good2Go end disputes about sexual consent - without being a passion-killer?
Llansanffraid is now Llansantffraid. Welsh town changes its name, but can you spot the difference?

Llansanffraid is now Llansantffraid

Welsh town changes its name, but can you spot the difference?
Charlotte Riley: At the peak of her powers

Charlotte Riley: At the peak of her powers

After a few early missteps with Chekhov, her acting career has taken her to Hollywood. Next up is a role in the BBC’s gangster drama ‘Peaky Blinders’
She's having a laugh: Britain's female comedians have never had it so good

She's having a laugh

Britain's female comedians have never had it so good, says stand-up Natalie Haynes
Sistine Chapel to ‘sing’ with new LED lights designed to bring Michelangelo’s masterpiece out of the shadows

Let there be light

Sistine Chapel to ‘sing’ with new LEDs designed to bring Michelangelo’s masterpiece out of the shadows
Great British Bake Off, semi-final, review: Richard remains the baker to beat

Tensions rise in Bake Off's pastry week

Richard remains the baker to beat as Chetna begins to flake
Paris Fashion Week, spring/summer 2015: Time travel fashion at Louis Vuitton in Paris

A look to the future

It's time travel fashion at Louis Vuitton in Paris
The 10 best bedspreads

The 10 best bedspreads

Before you up the tog count on your duvet, add an extra layer and a room-changing piece to your bed this autumn
Arsenal vs Galatasaray: Five things we learnt from the Emirates

Arsenal vs Galatasaray

Five things we learnt from the Gunners' Champions League victory at the Emirates
Stuart Lancaster’s long-term deal makes sense – a rarity for a decision taken by the RFU

Lancaster’s long-term deal makes sense – a rarity for a decision taken by the RFU

This deal gives England a head-start to prepare for 2019 World Cup, says Chris Hewett
Ebola outbreak: The children orphaned by the virus – then rejected by surviving relatives over fear of infection

The children orphaned by Ebola...

... then rejected by surviving relatives over fear of infection
Pride: Are censors pandering to homophobia?

Are censors pandering to homophobia?

US film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence