A widely held view is that whilst GDP has increased significantly over the past thirty years, incomes - particularly middle-class incomes - have stagnated. It is further argued that in order to maintain their living standards, middle class families - the ‘hard working families’ that have now entered our political life – have been forced to increase their indebtedness rather than see a fall in the standard of living that they enjoy. Part of the persuasiveness of this story is that it happens to be supported by the facts. In the 25 years between 1985 and 2010, real nominal GDP (in 2009 prices) rose by 410% whilst the real value of average earnings (again in 2009 prices) only rose by 142%. During this period, the share of wages as a percentage of GDP has fallen by 3%, emphasizing the stagnation of incomes. At the same time, profits in real terms rose by 191%.
It is this disparity (wages growing by 142% whilst profits rose by 191%) that has given rise to a new modern bogeyman – the 1%. It is generally held that the economy is worked by the 99% (i.e. the vast majority of the workforce) on behalf of the 1% (a new shorthand for ‘the rich’). This has a very appealing sound to it. The rich make the poor work so that they can become richer. It is a view that has gained currency in the light of soaring executive pay and what is seen as the scandal of banker’s bonuses. It provides the theoretical underpinnings for the ‘Occupy Movement’, which has gained currency in recent years. And yet, exactly how much of this has a basis in fact? How much of it represents a modern conspiracy theory?
Delving into data provided by the Office for National Statistics (ONS) [1], we can examine the structure of ownership of UK quoted companies in 2012. In 2012, the latest year for which data is available, about half of the shares on the London Stock Exchange were owned domestically, and about half were in the hands of overseas owners. Of the domestic holdings, about one fifth of the holdings were by individuals, whereas four fifths were held by UK institutions of various forms. Of the overseas holdings, only 1% were held by overseas individuals, with 99% of the ownership being through overseas financial institutions of varying forms. Taken all together, about 11% of the London Stock Exchange was owned by individuals from both home and abroad, with about 89% of the holdings being in the hands of both UK and foreign institutions.
The institutional holdings consist of three key constituents – pension funds, insurance companies, and unit trusts (a form of mutual ownership). The question then arises of who owns the institutional funds. These represent a long term obligation on the part of the financial institution towards it’s pensioners, policy holders, and unit trust holders. In many cases, these beneficial owners are not those normally associated with the 1% elite. We would normally associate these people with the 99% workforce. On this level, the answer to the question: who are the 1%? Is: we all are! If you have a pension plan, if you hold an insurance policy, if you have saved a bit in the form of unit trusts, then you are part of the largest group that owns the London Stock Exchange.
It could be objected that this view is just a little too simplistic. Many one-percenters would put their money into collective funds rather than in straightforward share holdings. Many would prefer the tax wrappings that insurance and pension products could offer. All of this is true. It could also be objected that the London Stock Exchange is not the only depository of wealth. Much wealth in the UK is tied up in property. This is also true, but, excluding the owner-occupation of residential property, the spread of property ownership also tends to reflect the spread of share holdings. Both objections are valid, but do they essentially change the story?
In his review in Prospect Magazine of Thomas Piketty’s book ‘Capital’ [2], Robert Skidelsky makes an interesting point. On one level, we are part of the 1% by virtue of the complex ownership structure of wealth in a modern economy. To this extent, the 1% as a concept reflects a world that no longer exists. There is a slight twist to the tale. In a modern economy, it is not a case of who owns the wealth in the economy, but one of who controls it. Skidelsky points to the move away from a ‘hyperpatrimonial society’ (you are rich by virtue of your family and inherited wealth) to a ‘hypermeritocratic society’ (you are rich because of the job you hold in a ‘winner takes all’ economy). The modern wealthy elite have accessed their wealth by managing the wealth of others. In that sense, these are the 1%.
As long as the system continues where the wealthy elite pay themselves their own inflated value of their worth, inequality will continue to increase. This provides an interesting canvass for the future. Is there a limit to the growth of executive pay? If so, what is it, and where will it come from? The wilder end of the conspiracy theory spectrum talks about insurrection and rebellion, but there are little signs of that so far. Perhaps it is possible for the system to devour itself? If so, how would that work? How much of a financial crash would be needed to make an impact on current levels of wealth? And what would be the collateral damage in the real economy?
I can’t pretend to have an answer to all of these questions, but I do have a better idea of who the 1% are. I also have an idea of where to look next for clues of an emergent future.
Stephen Aguilar-Millan
© The European Futures Observatory 2014
References:
[1] http://www.ons.gov.uk/ons/rel/pnfc1/share-ownership---share-register-survey-report/2012/stb-share-ownership-2012.html#tab-Key-Points
[2] http://www.prospectmagazine.co.uk/magazine/book-review-capital-in-21-century-thomas-piketty/#.U2O1oFdLpqC
It is this disparity (wages growing by 142% whilst profits rose by 191%) that has given rise to a new modern bogeyman – the 1%. It is generally held that the economy is worked by the 99% (i.e. the vast majority of the workforce) on behalf of the 1% (a new shorthand for ‘the rich’). This has a very appealing sound to it. The rich make the poor work so that they can become richer. It is a view that has gained currency in the light of soaring executive pay and what is seen as the scandal of banker’s bonuses. It provides the theoretical underpinnings for the ‘Occupy Movement’, which has gained currency in recent years. And yet, exactly how much of this has a basis in fact? How much of it represents a modern conspiracy theory?
Delving into data provided by the Office for National Statistics (ONS) [1], we can examine the structure of ownership of UK quoted companies in 2012. In 2012, the latest year for which data is available, about half of the shares on the London Stock Exchange were owned domestically, and about half were in the hands of overseas owners. Of the domestic holdings, about one fifth of the holdings were by individuals, whereas four fifths were held by UK institutions of various forms. Of the overseas holdings, only 1% were held by overseas individuals, with 99% of the ownership being through overseas financial institutions of varying forms. Taken all together, about 11% of the London Stock Exchange was owned by individuals from both home and abroad, with about 89% of the holdings being in the hands of both UK and foreign institutions.
The institutional holdings consist of three key constituents – pension funds, insurance companies, and unit trusts (a form of mutual ownership). The question then arises of who owns the institutional funds. These represent a long term obligation on the part of the financial institution towards it’s pensioners, policy holders, and unit trust holders. In many cases, these beneficial owners are not those normally associated with the 1% elite. We would normally associate these people with the 99% workforce. On this level, the answer to the question: who are the 1%? Is: we all are! If you have a pension plan, if you hold an insurance policy, if you have saved a bit in the form of unit trusts, then you are part of the largest group that owns the London Stock Exchange.
It could be objected that this view is just a little too simplistic. Many one-percenters would put their money into collective funds rather than in straightforward share holdings. Many would prefer the tax wrappings that insurance and pension products could offer. All of this is true. It could also be objected that the London Stock Exchange is not the only depository of wealth. Much wealth in the UK is tied up in property. This is also true, but, excluding the owner-occupation of residential property, the spread of property ownership also tends to reflect the spread of share holdings. Both objections are valid, but do they essentially change the story?
In his review in Prospect Magazine of Thomas Piketty’s book ‘Capital’ [2], Robert Skidelsky makes an interesting point. On one level, we are part of the 1% by virtue of the complex ownership structure of wealth in a modern economy. To this extent, the 1% as a concept reflects a world that no longer exists. There is a slight twist to the tale. In a modern economy, it is not a case of who owns the wealth in the economy, but one of who controls it. Skidelsky points to the move away from a ‘hyperpatrimonial society’ (you are rich by virtue of your family and inherited wealth) to a ‘hypermeritocratic society’ (you are rich because of the job you hold in a ‘winner takes all’ economy). The modern wealthy elite have accessed their wealth by managing the wealth of others. In that sense, these are the 1%.
As long as the system continues where the wealthy elite pay themselves their own inflated value of their worth, inequality will continue to increase. This provides an interesting canvass for the future. Is there a limit to the growth of executive pay? If so, what is it, and where will it come from? The wilder end of the conspiracy theory spectrum talks about insurrection and rebellion, but there are little signs of that so far. Perhaps it is possible for the system to devour itself? If so, how would that work? How much of a financial crash would be needed to make an impact on current levels of wealth? And what would be the collateral damage in the real economy?
I can’t pretend to have an answer to all of these questions, but I do have a better idea of who the 1% are. I also have an idea of where to look next for clues of an emergent future.
Stephen Aguilar-Millan
© The European Futures Observatory 2014
References:
[1] http://www.ons.gov.uk/ons/rel/pnfc1/share-ownership---share-register-survey-report/2012/stb-share-ownership-2012.html#tab-Key-Points
[2] http://www.prospectmagazine.co.uk/magazine/book-review-capital-in-21-century-thomas-piketty/#.U2O1oFdLpqC
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