Growing inequality is pushing companies to serve the wealthy
Apple has always been a premium brand, charging higher prices than the industry standard for a more aethestically-pleasing product, but their recent introduction of the Apple Watch and the redesigned Macbook show the group they’re really beginning to target: the rich. This probably isn’t a very surprising move for Apple, but they’re not the only company shifting their business model to serve the luxury market.
Business Insider reports that Hershey and Walmart are also repositioning their focus as a result of what Hershey’s CEO calls “consumer bifurcation”, corporate talk for the shrinking middle class, resulting from more people falling into poverty and a greater share of the income going to those at the top. The publication points out that the number of middle-income households has “fallen to 43% from 55% since the 1970s” and that such households “haven’t gotten a raise since 1999.”
The shift in corporate strategies as a result of inequality may come as a surprise to some, but it certainly doesn’t to the rich. They’ve been watching this trend for at least a decade, and have been profiting from it. But how do we know?
Between October 2005 and September 2006, Citigroup published three reports detailing how investors could benefit from growing inequality and the higher percentage of total income captured by the wealthy. With catchy headings like “Rising Tides Lifting Yachts”, “Binge on Bling”, and “The Rich Getting Richer”, the leaked reports were dubbed the “plutonomy memos”.
The authors began with the argument that a growing number of countries, particularly in the West, were becoming “plutonomies, where economic growth is powered by and largely consumed by the wealthy few,” and that such countries would “see even more income inequality, disproportionately feeding off a further rise in the profit share in their economies, capitalist-friendly governments, more technology-driven productivity, and globalization.” They observed that the trend of the rich getting richer “looks unlikely to end anytime soon,” an argument where history has proven them correct, despite the financial crash, but instead of seeking to remedy this situation, they provided advice for their clients — presumably all wealthy individuals themselves — to continue to profit from the further enrichment of their own class.
The best way to profit from growing inequality, they argued, “is to buy shares in the companies that make the toys that the Plutonomists enjoy,” listing a basket of companies that included “Private Banking (for example Julius Baer), to traditional luxury goods like Bulgari, through art auction houses (e.g., Sotheby’s), and of course luxury toys, such as Porsche.”
“The Uber-rich, the plutonomists, are likely to see net worth-income ratios surge, driving luxury consumption. Buy plutonomy stocks.”
They also made a very interesting observation that should inform us as to why the wealthy have been doing so well since the recession, stating that “while a stock market boom should help the rich, a housing boom should help the average Joe.” Since the recession, the stock market has soared thanks to corporate stock buybacks and massive quantitative easing programmes by central banks, to the point that four years after the recession ended the S&P 500 had hit new record highs, above even the dot-com boom and its previous record in 2007. However, in that same time period, home prices had largely stagnated, remaining “far below boom levels.”
Considering this information, it should then come as no surprise that the average income of the top 1%, capital gains excluded, has “risen from $871,100 in 2009 to $968,000 over 2012 and 2013,” while those of the bottom 99% “fell by a few dollars from $44,000 to $43,900.” This leads to the conclusion that “all of the gains of the recovery have gone to the top 1 percent.”
If we know why all the income gains are going to the rich, and how that’s completely altering the structure of our societies, why aren’t we fighting for change? Returning to the memos, the authors point out several threats to the continuation of the plutonomy, two of which are particularly relevant to the modern situation.
The first is labour backlash, when those who have been negatively impacted by the outsourcing of work finally decide to fight back against the wealthy being the prime beneficiaries of globalization. They observe that low-end labour “might not have much economic power, but it does have equal voting power with the rich.” Is this backlash not already emerging in growing populist movements like those led by Bernie Sanders in the United States and Jeremy Corbyn in the United Kingdom? The centrepiece of both of their platforms is the empowerment of workers, and the return of good jobs for the masses. While these movements could prove strong enough to fight the power of plutocrats, there’s another reason anger is growing among the masses.
The memos state that another of the reasons people tolerate plutonomy is that “enough of the electorate believe they have a chance of becoming a Pluto- participant.” Anyone who pays attention to political discourse in the United States will recognize this argument, as it’s the backbone of the American Dream. It can be hard to find support for taxes on the wealthy, as the rich have effectively convinced a large enough part of the electorate that they could one day join the 1% themselves. This is despite the growing evidence that the American Dream is just that: a dream.
In 2012, the Economic Policy Institute observed that “while faith in the American Dream is deep, evidence suggests that the United States lacks policies to ensure the opportunities that the dream envisions.” Their report showed that the United States lagged behind almost every other developed country on its ranking of social mobility — far behind the Nordic countries and Canada — but the growing anger over inequality in American society suggests people may be waking up to the fact the American Dream simply isn’t an achievable reality any longer. The plutonomy memos illustrated why this is a threat.
Could the plutonomies die because the dream is dead, because enough of society does not believe they can participate? The answer is of course yes. But we suspect this is a threat more clearly felt during recessions, and periods of falling wealth, than when average citizens feel that they are better off.
This shows why anger may now be growing, as the wealth of the masses is falling. Wages are stagnant, if not decreasing, and huge numbers of people are falling out of the middle class. People are suffering, in part because of the plutonomy dynamic, and now companies are even shifting their focus toward this new elite.
It’s unfortunate that the masses are only now waking up to the changes that have been occuring in our economy for decades, while we can see the rich have been watching — and trying to profit from — these shifts at every step of the way. By controlling the media, they’ve kept us ignorant, but even that doesn’t seem to be working any longer. The plutonomy memos recognized how the rule of the elite would fall, and we’re beginning to see those threats materialize into mass movements. The days seem numbered for this new Gilded Age, but don’t expect the rich to give up their wealth and power without a fight.
If you wish to read the plutonomy memos, you can find them here.
Paris Marx writes about the growing divide within the capitalist system, the movements for alternative forms of economic organization, and ways of living that challenge traditional narratives. He occasionally makes videos on YouTube, and is very active in sharing news and opinions on Twitter.
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