The 21st century is a new Gilded Age observes Swiss bank, who should know

What does the world look like when the superrich take off from the rest of us?  A new study by Swiss banking giant UBS gives us a glimpse.

UBS has been conducting a regular survey of billionaires for some time.  These reports aren’t about the 1%, but the 0.0001%.   That’s 1,550 people, according to the paper, and a good amount of data.

I’ll pull out some findings that seem especially noteworthy for those of us looking into the future of education.

They describe our time as a new Gilded Age UBS openly refers to our era as a Second Gilded Age.  They use that term repeatedly: “The past 35 years have been a period of extraordinary wealth creation by billionaires. Only the ‘Gilded Age’ at the beginning of the 20th Century bears any comparison.”  Elsewhere, “The world is in a second ‘Gilded Age’, comparable to the first ‘Gilded Age’ at the beginning of the 20th Century.”

Think about it.  This isn’t a left-wing Sanders/Occupy supporter talking.  This is a Swiss bank.  The “Gilded Age” term is being normalized.  I’m old enough to remember when saying so would have been the sign of a crank. (If you’d like to learn more about the First Gilded Age, start here.)

The Bosses of the Senate

Wild idea from 1889: that the superrich have a lot of power over Congress

Billionaires made a lot more money than anyone else in 2016 They had a good year: “Globally, [their] total wealth grew by 17%, or USD892 billion, from USD5.1 trillion to USD6.0 trillion.” How does that compare to non-billionaires?  “This continued the long-term trend of billionaire outperformance that was twice the 8.5% rise in the MSCI AC World Index, and far more than the 5.8% nominal GDP growth figure”.  For the rest of us, at least in the US, wages rose about 3.3% that year.  So this group is not only ultra-rich, but are getting ultra-richer faster than anyone else is getting merely rich or just growing.

They are more transnational Observers have noted the uberrich tend to be transnational, rather than rooted in one country.  UBS agrees, and sees this as a rising trend:

Families of great wealth are becoming more mobile and global. Their children are going to school and marrying all over the world. Assets are in different countries. The result is a Rubik’s cube of geographies, cultures and generations…

To be clear, the new Gilded Age isn’t an American thing, but a global development.

They increasingly work together to influence the world This isn’t a new idea, as those of us using words like “oligarchy” and “plutocracy” have been remarking for a while.  Yet UBS not only agreed, but argues that billionaires are increasingly organizing to reshape, well, civilization:

Billionaires are turning to networks of peers more than ever, finding common ground and addressing business issues as well as the biggest human problems like climate change and global health. Increasingly, families are cooperating on new ventures and philanthropic causes…

These philanthropists have big ambitions: to address climate change, improve public education, alleviate poverty, eliminate malaria, find a cure for Alzheimer’s and so on…

Interesting details: while the ultrarich continue to buy art for both private and public purposes (UBS references the Renaissance here, citing the Medici), they are also increasingly involving themselves in sports.  They buy up teams and clubs.  Should American higher ed expect more of this kind of thing?

China continues to rise China’s hybrid economy (communist/capitalist) continues to generate uber-rich people: “there are more Asian than US billionaires for the first time”.

For planetary context,

During [2016], the number of Asian billionaires rose by 117 (23%) to 637. By contrast, there were just 25 more (+5%) US billionaires at 563. Europe’s billionaire population was flat. After 3 net new entrants, the number was 342. Asia’s economic expansion saw, on average, a new billionaire every other day, with the population expanding by a record 162. Taken together, the wealth of Asian billionaires grew by almost a third (+31%) in 2016, up from USD1.5 trillion to USD2.0 trillion.

Asian billionaires, while billionaires, don’t have as much as American ones, but are working on it.  According to UBS, “if current growth trends continue, the total wealth of Asia’s billionaires will overtake the US in four years.”

Technology isn’t the leading billionaire-maker Much as many people and media focus on technology, it’s good to remember it’s not the only sector in the world.  UBS finds tech businesses to be a very small contributor to creating billionaires.  Consumer/retail is by far the leading business sector for this.  Then materials and industrials – classic 20th century fields! – are the next leaders, all before tech:

billionaire-making industries_2016_UBS

They really hate the estate tax In case you’re wondering why American politicians are so eager to reduce “the death tax”:

The past 20 years’ exceptional wealth creation will soon be followed by the biggest-ever wealth transfer. We estimate that less than 500 people (460 of the billionaires in the markets we cover) will hand USD 2.1trn to their heirs in the next 20 years, equivalent to India’s GDP.

That money has to go somewhere.

The possibility of social resistance The report’s lead author developed a different point in a Guardian article.  Point being, most people might not be happy with this class, or their new riches and power:

Josef Stadler, the lead author of the report and UBS’s head of global ultra high net worth, said his billionaire clients were concerned that growing inequality between rich and poor could lead to a “strike back”.

“We’re at an inflection point,” Stadler said. “Wealth concentration is as high as in 1905, this is something billionaires are concerned about. The problem is the power of interest on interest – that makes big money bigger and, the question is to what extent is that sustainable and at what point will society intervene and strike back?”

That’s a question some of us have been following closely.  Answering it points to very different futures.

Back on the UBS site we find another expression of concern:

the opportunities that led to this most recent exceptional period of wealth generation are likely to come to an end. Tax, social equality initiatives, asset price deflation and geopolitical tensions – there are approximately 40 civil wars and armed conflicts raging – will likely have significant consequences for great wealth creation.

Does that describe an agenda for political action on behalf of the Gilded Age’s owners?  What forms will their anxieties take: political repression, propaganda, soft power…?

Later in that Guardian article a UBS executive amplifies the point, connecting it with other trends:

“The billionaire population is concerned about [inequality] and that may be why we are seeing this acceleration of publicly displaying art collections or partnering with public institutions so more of the public can enjoy what they have,” said John Matthews, UBS head of private wealth management. “I think it’s a big part of investment in sports franchises – it’s a way for them to say ‘I made all this money and I did it in Cleveland, Ohio, I’ve got to give back to my community and one way I’m going to do that is to make sure the stadium is great’.”

Which brings us back to education.

First, will see see more investment into higher education from the billionaire class in the form of donations, new buildings, scholarship funds, sports teams?  Will giving to colleges and universities be a way for them to continue shaping the world?  Or will they follow Bill Gates in spending to reshape education instead?  At the same time, will these billionaires also lobby governments to defund public higher ed, furthering overall privatization?

Second, if Stadler is right and popular unrest begins to build, we must wonder what education’s role will be.  Some educators and administrators might prefer to avoid supporting this kind of populism if it jeopardizes billionaire support.  Our elite institutions feed students in the billionaires’ direction, from wealth managers to millionaires.

On the other hand, will students and/or faculty and/or staff seek to organize resistance?  Is there the grounds for a new Progressive movement?

Third, is the world ready for an anti-billionaire movement?  We’ve seen populist movements appear in different nations since the 2008 global financial crash.  They have appeared on the left and right, expressing resentment of the new Gilded Age.  There have also been left-wing challenges to plutocracy, from Syriza in Greece to Bernie Sanders in the US.  However, few have won power, and those that have haven’t fared well.  Larry Lessig’s Rootstrikers seems invisible. Perhaps they will remain inchoate.  Maybe they can organize effectively – such are two very different possibilities.  (Apologies for this paragraph’s brevity; there are a *lot* of ways this could go.)

Fourth, it’s easy to see the technology sector as unitary in its pursuit of growth and power.  But the tech sector is large and varied.  We’re already seen hints of squabbles within tech as some turn on each other.  The net neutrality story sees some technology companies (Facebook, Google) opposing others (Comcast, AT&T).  Will the tech sector unite to defend its growing economic and political clout, or will some defect to a anti-billionaire movement?

I want to connect this fascinating UBS report to the recent FCC net neutrality move, but will save that for another post.

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7 Responses to The 21st century is a new Gilded Age observes Swiss bank, who should know

  1. garthster says:

    Good analysis, Bryan. I’ve (of course) seen the report that comes as regular report from PwC for some time now and is based on PwC Data – with some added by the HNW & Wealth Management dept. of UBS and than branded UBS to enable distribution to their UHNW clients and the press.
    Also part in the report, however, is the following interesting reasoning: “This period of great wealth creation is now approaching the longevity of its predecessor, which according to most historians lasted from 1870 to 1910. In our opinion, today’s started in 1980 and has lasted for more than 35 years. We believe that great wealth creation has cycles, tending to move in S-curves rather than growing linearly. If history is a guide, the current upcycle is likely to end in the next 10 to 20 years, possibly prolonged by Asia’s economic momentum and technology’s new businesses. Now check this chart I worked on a little bit to demo this reasoning –
    It is also said – Specifically Asia can be volatile in the near future – risk assessments by the banks operating there or building an operation include the following factor also mentioned – Yet great wealth in Asia remains relatively volatile. Rapid economic development, political uncertainty and erratic stock markets forge fortunes fast but can equally undo them. Some 45 people (34 of them from China) dropped below the billionaire wealth band. Many of Asia’s young fortunes are just above the billion-dollar mark, making them vulnerable to reversals of fortune, whether in the form of falling stock prices, political changes or personal difficulty.
    The Guardian Article has one interesting statement on board – Stadler said media coverage of inequality and the super-rich suggested there would be an “inflection point”, but he said “the perception that billionaires make money for themselves at the expense of the wider population” was incorrect. He added that 98% of billionaires’ wealth found its way back into wider society and said the world’s super-rich employed 27.7 million people – not far behind the number of people in the UK workforce. – If you want to know how others are thinking about that, check this statement 😉
    The International Monetary Fund (IMF) recently said western governments should force the top 1% of earners to pay more more tax to try to reduce dangerous levels of inequality.
    When institutions like the IMF interfere in politics, things can go wrong as politics should always represent the people and their interest and also consider their future as a workforce, so just taxing ‘The 1 %’ like the institution IMF suggests can end up in lay-offs from that 27.7 Million employees as the volatility under the 1% members as seen in this report shows that it might be a struggle to get there, but an even bigger effort is needed to stay there.

  2. Joe Murphy says:

    Boy, that connection of professional sports team ownership and college athletics is really interesting. First, it makes me want to know more about the current composition of athletic booster clubs – who’s giving the money they already take in? But then, combined with the work you’ve already brought us on the rising role of individual super-rich donors, I start wondering about “public-private partnerships.” What are the implications (FERPA, HIPAA, Title IX…) if a billionaire wanted to be a managing partner over a college sports team? Are there models already in existence for schools using privately-owned facilities, instead of owning the buildings? (Undoubtedly there are straightforward facilities rentals, but I wonder if there are other arrangements…)

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