Looking ahead it’s worth considering if Capitalist societies, can revert the pessimist outlook given by Thomas Piketty in his book “Capital in the Twenty-First Century”? He argues that as population growth slows, economic growth will stagnate with it, leading to increasing inequality. This, in turn, allows the wealthy to exact more control of democracy through monetary contributions.
We know that the concentration of wealth has increased in the last decades, especially in the years following the Great Recession (wealth from the top 0.01% of the population represented roughly 3% of total wealth in the 70’s, in 2014 it represented roughly 11% – with a highly positive slope). But is that level of concentration really affecting overall wealth? Is wealth concentration an inevitable result of wealth creation? And, more importantly, how is this concentration in the top 0.01%, 0.1% and 1%, affecting the wealth creation in the bottom 1%-10%? The answers to these sorts of questions are highly important if we are to transform the economic models of the future.
If wealth concentration is reducing the opportunities of the bottom percentile, then something must be done to improve wealth distribution. On the other hand, if concentration on the top is not affecting –cannibalizing- the wealth of the bottom percentile then policy makers and economist should focus more on the acceleration of wealth creation and not on its distribution.
In the near future, that is during the next 5 to 10 years, it will be very difficult to revert the trend of stagnant growth and high inequality that is seen in many of the richest economies. This will create increasing political tensions inside the economies where the problem of inequality is seen as an important issue.
Increased wealth, resulting in greater consumption, from the biggest countries in the world, namely China and India, will increase the cost of commodities. Depending on the duration of these increases, there will be an economic setback in some the most important commodity importers in the world (Europe and USA). Greater wealth, especially in China also means that there will be more national savings and thus more options to invest large amounts of money in strategic, state-owned projects all over the world. This process has already begun with the rate of infrastructure investment accelerating rapidly since 2008. China is investing heavily in strategic resources in Latin America and Africa (Energy, Mining, Steel, Public Infrastructure, Crude Oil and refinement, etc.). This will create new challenges in the international relationships, considering that the recent crisis has reduced the level of the same type of investments from European and North American companies.