Last week, I discussed what I think is clear about the increasing concentration of income in the hands of fewer people in the US. I used a graph of the income earned by the top 5% of US taxpayers as it relates to what party holds the Presidency. For those who didn’t see the graph, here it is once again.
Roughly thirty years of stability, followed by thirty years of an uphill climb until the proportion of income earned by the top 5% has nearly doubled. If you do the same with the top 1% or top 10%, you get the same basic results.
As I said last week, this graph tells me one thing. It tells me that the party identification or the ideological identification of the governing President made absolutely no difference at all to the proportion of income received by the top 5%.
Of course, that is not what politicians will tell you, but that’s another story. Today, I want to answer the obvious question. If politics and ideology have nothing to do with this, then what does? What is the “cause” of this dramatic shift?
So what happened?
Something extremely important happened and I think it’s obvious. But I realize that what is obvious to me may not be quite so obvious to others who are younger. The shift begins in the 1980’s, a period during which I traveled and worked extensively overseas. Unless you’re at least 50, and that’s a low estimate, you will not be able to remember that period three decades ago as an adult. Even if you are my age (69), the impact of what happened in that decade likely did not affect you half as powerfully as it did me.
Consider the period 1976 – 1991. It began with Mao’s death and the struggle for control of China. In 1981, Deng Xiaoping took control and began the modernization process that led to China’s current economy, beginning the slow, but sure, opening up of China to the outside world. Mikhail Gorbachev became the Soviet Union’s center of attention in 1985, the Berlin Wall fell in 1989, and the flag of the Soviet Union was lowered for the last time on December 25, 1991.
That was the period that saw the end of the Cold War and Mao’s China and the opening up of a truly global market. It did not happen overnight. It was (and remains) a process unfolding over time.
I worked through that period overseas, but I had doing that for more than a decade prior to its beginning. I started in 1967 as a Peace Corps Volunteer in the Philippines and, with the exception of a couple years working on the domestic US scene, the 47 years of my life since then have remained focused on global economic development, working in more than 40 nations in Asia, Latin America, and Africa, many of which are called emerging or frontier markets today.
I could write a book on the weird, wonderful, and disconcerting results of this period for those of us who worked globally. We weren’t even one percent of those who do that today. We felt the changes in so many ways. It turned the world upside-down and inside-out.
One thing is certain. That time, it was different. And it still is today, although some folks seem to have trouble catching on, even after all these years.
So that period was a time of great change, but so what? How could that affect the incomes of the top 5% in the US?
The Transportation Revolution
A part of the answer, one that I want to at least mention in passing, lies in the Transportation Revolution that paralleled the geopolitical changes of that period of our history. In my mind, perhaps the most ignored and unappreciated revolution of my lifetime.
It was not a question of how fast it was to get from one place to another. It isn’t that much faster today, if at all, given how early you have to arrive at the airport these days. No, it had nothing to do with speed. It was all about where you could travel, instead of if you could travel. Over a decade or so, nations with roughly a third of the world’s population became open to visitors from the US. Americans actually could visit Moscow as genuine tourists and get their visas with little or no hassle.
And that was just one of countless nations, regions, and cities open to outsiders for the first time. Amazing! You have to have been there at the time and be a global traveler to appreciate the change. It didn’t happen overnight, but it seemed that way at the time. Suddenly, you could visit a country next month that you couldn’t have visited last month. Yes, you could read about it in the US, but nothing was quite like experiencing it.
The joy of money
If you are in the top 5% in income, you obviously have money and that includes the wonderful category, “disposable income”. When the shift was underway, these were not only people with high incomes, but those among the best educated, the most travelled, the most likely to have lived outside the US, the most likely to own properties outside the US, the most likely to have done business outside the US, and so forth prior to and during this period.
This is common sense. If you need a mass of graphs and statistics to demonstrate that rich Americans had more experience working, living, and investing outside the US than the middle class, you will have to look elsewhere. I simply do not have the time for that. But I can share one of many simple examples.
In the late 70’s and early 80’s, it was raw dental work to get an American business interested in Africa. The Japanese had arrived in the early 70’s and carved out quite a market for themselves. I remember the day I was introduced to this new 4-wheel-drive vehicle, the Toyota Land Cruiser, which was blowing the British Land Rover right off the roads of Africa. I was very impressed.
When I met with the commercial attaché of the Japanese Embassy in Ghana in 1973, he sneered at Americans for being so blind to the business potential. An amazingly rude man for a culture supposedly centered on being unfailingly polite. In 1981, I was told bluntly by the leader of a team from Ralston-Purina (now the Nestlé Purina PetCare Company) that they saw absolutely no market in Africa and didn’t believe they ever would. I am amused they were bought by Nestlé, a company that has marketed in Africa for decades.
When I visited Ghana in 1995 after more than a decade of absence, I found plenty of new hotels, all of them stuffed to the rafters with visiting business people, many of them Americans. I could hardly believe my eyes and ears. The “dark continent” was becoming the “new market”. These Americans were not poor people and, with only one exception I can remember, not middle-class. They may not all have been part of the top 5%, but those are the people who sent them.
My point is simple. From its beginning, those Americans with high levels of disposable income (aka, investment income) were people who had the means and experience to take advantage of the new global market opening up all around them and, as an added bonus in recent years, overseas investments might be less vulnerable to the whims and machinations of American politicians. It took them very little time to figure out that what was going on globally was a huge opportunity and they were not afraid to take advantage of it. The top 5% has been globalized. It is hardly a surprise that they have benefited from that in ways not available to Americans with modest means and modest experience outside the US.
There is a new global upper class that has rapidly developed over the last three decades. They are still very much citizens of their various nations, but they really relate better to each other than they do to the rest of us back home, wherever “home” might be. They are not evil people or scoundrels. What they are doing is perfectly ordinary and simply human, but it has some unintended negative consequences for the rest of us. I will leave it at that for the moment, but I will return to it more than once in future posts.
Back to the future
I will close today by sharing the other graph I included last week, a very simple one I created from US income statistics and nothing new to most of you. It presents the same information as the one at the beginning of this commentary, but without the politics.
With my background, I cannot look at this graph without thinking of the end of the Cold War and Mao’s China. It is simply too obvious. I know that the graph would look quite different for many European nations, but there is a reason for that. They had empires. And when the empires were gone, many of their business people remained. Their top 5% has been earning income outside their home nations for generations and were not about to give it up voluntarily. For the US it was a beginning. For Europe, it was a major change in circumstances, but not a beginning.
It is one of the things that concern me the most about what passes for “global analysis” in the US these days. Too much attention to monkeys dancing on the stage and too little to the 800-pound gorilla in the back row of the theater.
Americans are not ignorant of the simple fact that that their “world” has changed. Neither were Europeans in their post-colonial period of the last half of the 20th century, but like the Europeans then, too many American analysts today are still failing to come to grips with the reality of the second decade of the 21st century.
They are not actually “in denial” as some might say. They are “in avoidance”. When the gorilla is too much to deal with honestly and forthrightly, you keep your eyes on the monkeys. It isn’t working for Europe. It won’t work for the US either.
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