Sandra Navidi - SuperHubs - How the Financial Elite and Their Networks Rule our World

What does the financial services industry actually do? Financial intermediaries primarily deal with each other by moving money around in complex transactions, to a large extent through securitization, in which assets are transformed into securities and resold countless times. By far the greatest part of the financial flows is recycled back and forth, with the main purpose to generate profits and outdo competitors. Only a fraction actually flows into the real economy to finance sustainable businesses and create jobs.

Wealth Gap and Inequality

Now the world is faced with extreme income, wealth, and opportunity gaps. In the U.S., only 50 percent of the population still belongs to the middle class, the lowest level since the 1970s.7 Between 1979 and 2013, the wages of the top 1 percent grew by 138 percent; today they earn over 20 percent of the national income, and CEOs on average make 296 times what a typical worker earns.8 In contrast, real wages of the bottom 99 percent have remained flat over the last four decades, while productivity has increased by 80 percent.9 If wages and productivity had grown in lockstep, the minimum wage would currently be over $18 per hour.10So what Americans lacked in earnings, they compensated for with debt, with many of them becoming overindebted. While college graduates are 8 times likelier to live in the upper-income tiers—though often with a debt-albatross around their necks—those without a degree have virtually no chance of improving their station in life.11 As a consequence, Americans have come to realize that the American dream has been just that, a dream, and their typically optimistic outlook has given way to gloom, with only 14 percent foreseeing a better life for their children.12 The life expectancy of American whites has been falling as suicide rates are on the rise.13 As evidenced by a recognized measure called the Gini coefficient, the level of inequality in many parts of the world is dismal.14

Globalization Winners versus Globalization Losers

To make matters worse, many governments, together with central banks and the financial sector, have resorted to using “accommodative monetary policies”—meaning expanding the overall money supply, or what is commonly referred to as “printing money”—to reduce debts and stimulate demand. In effect, this so-called financial repression acts as a tax on savers, transferring benefits from lenders to borrowers. Meanwhile, the 1 percent have benefited the most from these policies, pocketing 95 percent of income growth in the first three years after the crisis.15 In addition, the 1 percent have the expertise and means to play the global system to their advantage, an example of which is the use of tax havens like the Cayman Islands. Leaks such as the Panama Papers offer only a minuscule glimpse into this parallel universe. According to estimates, about 8 percent of global wealth, or $7.5 trillion, is squirreled away in tax havens, $6 trillion of which has not been taxed.16 This hidden wealth distorts the picture of inequality, which if factored in would likely be even greater.17

Approaching the Tipping Point

The situation is so egregious that even members of the establishment have begun going rogue. “Class traitors” such as George Soros, Nick Hanauer, and Paul Tudor Jones have warned of the potentially dramatic consequences of inequality and suggested measures to reduce it. Even Asher Edelman, the real-life Gordon Gekko on whom the movie Wall Street’s ruthlessly greedy protagonist was partly modeled, has turned dissident, arguing for the self-proclaimed democratic socialist Bernie Sanders as the best option for the U.S. economy.18

The economic discontent has led to unprecedented political polarization, pitting the “have-nots” against the “haves,” the proletariat against the intellectual elite, and the young against the old. People are acutely aware of the democratic deficit resulting from the undue collusion of the financial, corporate, and political sectors, and many feel that the system has been hijacked and rigged by special interests. They have come to detest crony capitalism—in which gains are privatized and losses are borne by the public, while bankers continue to award themselves record-setting bonuses.

EU populist parties and “extremist” U.S. presidential candidates reflect the explosive anger of globalization’s losers, who are now lobbying for radical change in greater numbers. Protectionism and isolationism are resurging, manifesting themselves in the opposition to trade agreements, and in separatist movements in the U.K. with regard to Europe, in Scotland with regard to the U.K., and in Catalonia with regard to Spain. Global inequality has also driven mass migration, which in turn polarizes politics even further. According to the WEF’s Global Risk Report, we are currently seeing the highest level of protests since the 1980s, because through access to information on the Internet, people realize the extent of inequality and their own powerlessness.19 Several years ago, former National Security Advisor Zbigniew Brzezinski warned of the impending “global political awakening.” He, too, pointed to the fact that for the first time in history, humanity is politically informed yet mostly disempowered.20 In line with these findings, the global communications firm Edelman reports that trust in the establishment is dramatically declining.21

WHEN AN IRRESISTIBLE FORCE MEETS AN IMMOVABLE OBJECT: BREXIT

In the summer of 2016, the people of the United Kingdom shocked the world when a majority voted to leave the European Union. What has been termed “Brexit” (Britain: Exit) is symptomatic of a global systemic crisis of society, democracy, and capitalism. The revolt against the establishment was primarily driven by renewed feelings of nationalism and a desire to reclaim control of the U.K.’s economy, culture, and communities. While globalization has had numerous positive effects such as lifting millions of people out of poverty, it has also increased the wealth gap and is widely perceived as little more than a pyramid scheme for the enrichment of the transnational elites. According to Oxfam, “The U.K. is the world’s sixth largest economy, yet 1 in 5 of the U.K. population live below our official poverty line, meaning that they experience life as a daily struggle.”22 Thus, unsurprisingly, the proponents of Brexit were predominantly older and less educated individuals who felt marginalized in the Darwinist meritocracy, in which IQ and education are the primary metrics for success, and blue-collar jobs are increasingly replaced by machines and given to migrants. Feeling that their lives and sense of identity were disrupted, they came to resent the elite and the EU technocratic bureaucracy, which they regard as disloyal and exploitative.

At the time of this writing, barely a week after the vote, it is still unclear whether the U.K. will actually leave the European Union, and if so, when and how. However, the paralyzing political “anarchy” and uncertainty following the vote have already impaired the economy—halting vital transactions, putting spending on hold, and curtailing investment. Disruptions to the cross-border flow of trade, capital, and people and rising taxes coupled with austerity could possibly contribute to a self-reinforcing downturn. Ironically, those who most vociferously propagated the U.K.’s exit will likely suffer the most from its repercussions.

Brexit is emblematic of the chaos and the unintended consequences that ensue when a complex system is suddenly short-circuited. It may turn out to merely have been a corrective shock; however, perhaps more likely, it could instead be the harbinger of an incipient global revolt that will eventually change the existing world order.