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


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

Recruitment Genius: Finance Director

£65000 - £80000 per annum: Recruitment Genius: Finance Director required to jo...

Recruitment Genius: Medico-Legal Assistant

£15000 - £25000 per annum: Recruitment Genius: This is a unique opportunity fo...

Ashdown Group: (PHP / Python) - Global Media firm

£50000 per annum + 26 days holiday,pension: Ashdown Group: A highly successful...

The Jenrick Group: Quality Inspector

£27000 per annum + pension + holidays: The Jenrick Group: A Quality Technician...

Day In a Page

Read Next
David Cameron faces the press as he arrives in Brussels for the EU leaders summit on Thursday reuters  

On the Tusk of a dilemma: Cameron's latest EU renegotiation foe

Andrew Grice
John Profumo and his wife Valerie Robson in 1959  

Stephen Ward’s trial was disgraceful. There can be no justification for it

Geoffrey Robertson QC
Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas