onomies’. From the early 1990s, the surge in inequality created a giant mountain of global footloose capital: a mix of corporate surpluses and burgeoning personal wealth. Levels of bank credit grew much more quickly than the needs of the economy, while the surplus funds held by the global rich more than doubled in the decade to 2008 to $39 trillion, a sum more than three times the output of the American economy. It was this tidal wave of hot money caroming around the world in search of the quickest returns that created the bubbles – in housing, property and business – that eventually brought the global economy to its knees.
Despite the evidence of its impact, the great wealth divide has continued to grow. While seven out of 10 UK employees have experienced either a pay freeze or a pay cut in 2011, executive pay and city bonuses are continuing to rise. The number of global billionaires has continued to swell through the crisis.
It is this rising income divide that lies behind the faltering of recovery. Falling real wages are stifling demand across the world’s richest economies. The globe’s billionaires and largest corporations are sitting on near-record volumes of cash, while the productive economy is being starved of funds. Unless these great concentrations of wealth and income are broken up, we are heading for an era of near-permanent slump.
Stewart Lansley is the author of The Cost of Inequality: Three Decades of the Super-Rich and the Economy, Gibson Square.