Of Davos, Luxury Boats and Downward Spirals

By Suhaib Riaz.

At the recently concluded gathering of world elites, also known as the World Economic Forum at Davos, one issue seemed to come up more than it has in the recent past: societal inequality. Oxfam released a well-timed report on economic inequality and directly asked for world elites at Davos to turn their attention to it.

The report highlighted how the 85 richest people in the world (who could hypothetically fit Oxfam reportinto a double-decker bus) now own wealth equal to the lower 3.5 billion people (half the world’s population). Interestingly, the Oxfam site’s link to the report had the picture of a boat, or more precisely, that of a luxury yacht – presumably the kind that those elites may own or have access to. The water all around it seems stable and beautiful as ever. It is hard to resist a metaphor here, which I will expand on through this article.

On the face of it, the call by Oxfam can be puzzling. The fact that societal elites are being asked to give attention to inequality raises a fundamental question: Why should they care?

Research reveals that societal elites, including business elites – those who command a huge say in how business organizations will shape the world, typically favor the status quo when their boat is rocked. In fact, they actively engage in maintaining existing institutional arrangements such as witnessed in the wake of the global financial crisis. For example, not much headway has been made on major changes in the financial industry despite their culpability.

From their perspective, this is an entirely expected course of action. After all, why rock the boat on which you are sailing? – even if many around you are drowning or are on the verge of drowning. Except that these efforts at maintenance of the status quo ignore a fundamental socio-economic reality: what is being maintained is motion on a downward spiral, not on a two-dimensional circle. That boat in the picture mentioned earlier seems to be stable as always, going around on the water surface. But it is not stable water. It’s a vortex – a spiral of water on a scale that is so much bigger than the boat, that it could make life in the boat quite difficult as well.

It is no surprise and yet not mentioned frequently enough that one of the most important associational relationships of the last two major crises – the recent one and the Great Depression – is that both crises took place close to peak levels of economic inequality that had been building up for several prior decades. Economic inequality – as economist Stiglitz has warned recently and as others such as French sociologist Bourdieu warned much earlier – translates into political, social and cultural inequality. Together, these lead to inequality of access and intergenerational inequality– because life is shaped by a variety of norms, beliefs, and outright regulations and policies to favor those who are already rich.

It is in this sense, that the call by Oxfam and others, and the attention that some at Davos tried to give to this issue, makes sense. To do nothing – or to maintain things as they are – means to spiral downward. The socio-political power that economic elites have already accessed means we’re past the stage of stability as it used to be. We are, as has been said – in a new normal. But the new normal is not about being on the rung on which we are – it is about heading further and further lower on that spiral.

After the Great Depression, there were changes in the social compact that are well documented. After the recent financial crisis, the changes are more easily being averted –  pushbacks on regulation to curtail financial excesses are taking good shape, as evident from banks’ response to Basel III stipulations.

Where will the spiral lead? What does the view downwards look like?

What would be next for business organizations? When the middle classes shrink or disappear, business will increasingly be about catering to the remaining few ultra-rich. Or to the poor masses. Will business organizations survive? They will, but the products or services they offer will look nothing like they do today. Think more gold-plated devices of the future on one hand and more cheap junk food for bare survival on the other.

Despite surviving in some form, business could also suffer. It has been argued that reduced purchasing power of the masses may ultimately have a negative impact on business bottom lines. In addition, there will be more monitoring costs across a society that is fractured – to hold things together and stabilize society by force. Not by trust in the system, but by force on those who have lost hope in the system. Which means more ‘guard labor’ both in business organizations, in their interface with society, and in society in general. Will business organizations always be able to externalize these costs? Not really. All of these lead to direct costs for businesses, with the last one also leading to indirect costs through taxes to monitor society.

But if businesses somehow survive, then what’s there to worry about for business elites? Plenty. Because society as we know it won’t survive. Society as elites know it won’t survive either.

What kind of life would it be for business elites and other societal elites? More luxuries available, but harder and harder to enjoy them in any reasonable way. Amazing cars, bad roads. Mesmerizing villas, gated communities. Many servants for cheap, but none trustable. The direction is clear – increased impoverishment of the masses can only lead to third-world type lifestyles. In India, industrialist Mukesh Ambani’s staggering “house-skyscraper” (such a word now needs to be invented) needed to engage in some ‘elite capture’ of the neighborhood police station as well – which is now practically within its bounds even if not inside the building as he originally wanted.

In the US, it means putting a guard outside places such as the Harvard Coop bookstore in Cambridge because the number of homeless within its doors may increase to a point where it is hard to not notice. Ditto for many malls. And other spaces that are taken for granted in current society. How would that feel? Not much different than the world described by Aravind Adiga in India where rising inequality means modern malls for chauffeur-driven elites, but organized in a way to be clearly off limits to chauffeurs.

Will the ongoing increase in inequality be somehow consistent with a stable society, particularly one where elites have little to worry about?

Or could it be that the elite boat with all luxuries in it may survive – but it will be a heck of rocky ride when the waters all around are full of instability-causing waves from the vortex of poverty, disease, deficient education, debt and crime. Will all that luxury inside the boat keep anyone on it from being seasick? Or from being free of worries about the next rocking wave? May not be a whole lot of fun. Even in a luxury boat.

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