The Posh Boys & Girls @TheEconomist now find it necessary to address the vexing question of ‘inequality’ ? In this very narrow political/historical context:
Headline: The Mittelstand’s corporate success comes at a cost
Sub-headline: Germany’s rising current-account surplus has been accompanied by wider income inequality
The imf has long wrung its hands at the savings glut. Last month, in its annual report on global imbalances, it repeated a warning that Germany’s current-account surplus was “substantially” stronger than warranted by economic fundamentals. In a separate paper it presented evidence that the growing current-account surplus was accompanied by increasing inequality (see chart). The link, it says, is high corporate profitability.
Around the turn of the millennium Germany’s exports took off, as rapidly growing emerging economies started to buy its high-value-added manufacturing goods in bulk. That, together with stingier welfare benefits and government policies encouraging wage restraint, helped push up profits. But corporate success did nothing for poorer households because of a highly unequal distribution of wealth.
To localize the political phenomenon of ‘inequality’ is to denature its global effects!
But note that it isn’t The Economist’s Posh Boys and Girls making the claim of ‘increased inequality,‘ but the IMF! In sum its Germany’s ‘stingier welfare benefits and government policies encouraging wage restraint, helped push up profits.’, Austerity is the culprit? The Virtuous Northern Tier Mythology of 2014 is kaput!
Germany’s corporate wealth tends to be kept in the family. The country has relatively few listed firms: 60% of corporate assets belong to privately owned firms. Many are family-run. Even among the publicly listed ones two-thirds are family-controlled, and controlling shareholders hold larger stakes than those in, say, Britain or Sweden. This leaves less equity for outsiders.
The rich tend to spend a smaller share of their incomes than the poor. German tycoons are also thriftier than their peers elsewhere. Though Germany’s authorities tend to blame an ageing society for its high savings rate, the true culprits appear to be the moguls of the Mittelstand.
But the ‘solution’ to this problem is framed in the notion of an ‘economic model is in need of repair.’
Government officials say that some of these trends are reversing. The labour market has tightened, allowing wages to rise and profits to fall. But the imf reckons that in order for disposable household incomes to regain their 2005 share of gdp, wage growth would have to outstrip nominal gdpgrowth by 1.5 percentage points for the next decade—a tall order.
Policy could speed things along: tax relief for low-income households to reduce the concentration of income, and property and inheritance-tax reform to reduce the concentration of wealth. But that would mean recognising that a much-vaunted economic model is in need of repair.
Looking back to 2014 a short review, that appeared in The Economist, was Anti-Piketty Propaganda, in service to a denial that ‘inequality’ was problem in need of being addressed. It was both Occupy Wall Street and Piketty that focused on the vexing question of inequality. Not the IMF nor The Economist!
As rebuttal to this short essay, look to the first of a set of essays considering Piketty’s Capital, titled ‘Reading “Capital”: Introduction, that is less framed in political hysteria- the fact that these essays were, to say the least, more considered, written by R.A. , at least at the time of my reading, proves that sometimes honesty trumps ideological fixations? The links below are from 2014.
P.S. Also, consider John Cassidy’s New Yorker essay titled ‘Piketty’s Inequality Story in Six Charts’ :