[SCMP Column] Challenge of Stagnation

August 28, 2017

Now is the season of inequality. It is the time when companies like WPP meet shareholders and tell them why CEO Martin Sorrell deserved £48m last year. It is when sports fans across bars in Europe fantasize about earning what Paris St Germain has just paid Barcelona for the Brazilian goalscorer Naymar da Silva Santos Junior – in dollar terms around $268m.

For those worried about inequality as a cancer at the heart of the west’s democracies, kindling the political madness that feeds Donald Trump, and led to Brexit, there has in the past week nevertheless been a little bit of good news. According to Deloitte and its annual remuneration report, and Britain’s High Pay Centre, the average British CEO earned 20 per cent less last year.

Britain’s Teresa May is trying to jump on this bash-the-rich bandwagon by announcing plans to force companies to publish the ratio between their CEO’s pay package, and the salary of the company’s average worker.

One suspects this will do her little political good – and provide no noticeable comfort to the toiling envious masses at the wrong end of the inequality spectrum. On latest reckoning, an FT 100 CEO still earns 229 times what the average worker earns in a year. Put another way round, a British worker earning the average income of £28,000 a year would need to work for 160 years to earn what the likes of Martin Sorrell earn in a year.

Do you really think the average British office manager will feel comfort that our CEOs have seen their median pay come down from £4.3m to £3.5m? Or to bring things closer to home, what shop assistant in Hong Kong is going to celebrate that Hutchison’s Canning Fok has seen his annual salary fall from HK$210m to HK$200m, or that Charles Li at HK Exchanges has seen his pay packet trimmed from HK$25m to HK$21.6m? Dream on.

To imagine that publication of such ratios will bring peace to our streets, and wellbeing to the hearts of our hard pressed workforce is to misunderstand why inequality is a cancer, and where we can find a cure.

Surely the anger and alienation is rooted in the reality that even though we see around us daily evidence of fortunes being made, most in Hong Kong (in particular the young) have for the past two decades tasted no share of this, see no prospect of ever tasting it, and do not see any clear evidence why the lucky top 5 per cent deserved to do so well.

Simple envy of the rich seems not to be very important in the upswelling of populist political rage, though it would help if those that continue to prosper more clearly deserved to be doing well. Why, for example, should Howard Schultz at Starbucks see his remuneration jump 8.5 per cent to US$21.8m when the company’s return to shareholders fell 5.4 per cent?

But I feel no hackles rise when I learn that the top 100 tech billionaires worldwide are together worth more than US$1 trillion, or that Jack Ma is worth US$37.4bn.

Much more important is that sense of stagnation and relentless struggle in a setting where evidence of wealth lies in plain sight all around. McKinsey reported a couple of months ago that up to two thirds of families in many high-income countries have suffered flat or falling real incomes since 2005. In the US, over 80 per cent of households report flat or falling real incomes from wages and capital. In Italy, an astonishing 95 per cent of families report such stagnation.

When I wrote in May last year about why inequality was such a serious challenge in need of urgent political attention, strongly influenced by World Bank economist Branko Milanovic’s brilliant book “Global Inequality”, it seemed that solutions would not come from punishing the lucky rich, but from tackling this morbid grinding sense of stagnation. I identified seven clear factors:
·         Economic growth: it goes without saying that strong economic growth would calm many frayed nerves. Policies focused on sustainably stimulating our economies need urgent attention.
·         Access to homes: this is not just about prices, though these are pivotal. Nor necessarily is it about owning versus renting. Rather, it is about ensuring that Hong Kong families have a place to live that they can properly call a home. It is a crime that Hong Kong’s regulators have not forced on developers minimum standards based on an idea of a home.
·         Access to education: a good education is the best possible passport to future economic wellbeing, and a powerful equaliser. All Hong Kong families should have access to affordable, high quality education - lifelong.
·         Health and wellness services: Hong Kong people need not just affordable access to health care, but speedy access – in particular to community-based services that help keep them well rather than just help them when they are sick, and which provide care for the fragile elderly.
·         Redistribution of some of the egregious wealth: there is a good case for more significant death duties. And for substantial taxes on blatant or discretionary luxury spending – what I like to think of as “sin taxes”. And for extra duties on second homes.
·         Elite domination of politics: the blatantly self-serving antics of the Liberal Party, empowered by an electoral college system that concentrates extraordinary political power in the hands of a small elite group, is an embarrassment.
·         Remind ourselves we are lucky: no matter how tough life may feel, we can never forget that from a global perspective we in Hong Kong are actually extremely lucky. To be part of the “evil empire” – the “Top 1%” that have captured most of the economic gains accumulated worldwide over the past three decades – a household has to earn US$71,000 a year. That is about HK$46,000 a month. Hong Kong’s household income statistics tell you that over 23% of Hong Kong families have household incomes above that level.

It is true that there are many in Hong Kong who struggle to get by. But by comparison with most parts of the world, we live in a lucky place.
David Dodwell researches and writes about global, regional and Hong Kong challenges from a Hong Kong point of view. Opinions expressed are entirely his own. 
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