Reliable financial institutions such as the International Monetary Fund, the World Bank, the Credit Suisse Research Institute confirm a new reality that has been gradually consolidating over the last decade and which has deteriorated dangerously over the last two years due to the peculiarities of the pandemic.
In general, both billionaires and multimillionaires have increased their wealth by 18% and 16% respectively in the last two years. 1% of the world’s population owns almost half of the world’s wealth. On the other hand, it is estimated that 3 billion people worldwide, approximately 55% of the adult population, have assets of less than $ 10,000.
The Credit Suisse report concludes that the widening of income inequalities pervades most countries, both nationally and between rich and poor.
Historically, valuations were calculated from their annual profitability and the associated multiples. Today, however, valuations are driven by speculative incentives, market prospects, and even marketing policies. Never before have there been such large discrepancies between economic reality and stock values. Traditionally, the contribution of labor is an important factor in creating value and particularly added value.
But in today ‘s reality, things are changing very fast and abruptly. More specifically, artificial intelligence and automation devalue the contribution of labor. New production methods based on new technologies disproportionately increased profitability and, consequently, equity values.
Those who do not participate in this wealth-producing framework, ie the traditional workforce, have no profit to record. The conclusion is obvious. In recent years we have a steady increase in the concentration and unequal distribution of wealth, with ominous consequences and prospects for the future of wage labor. The Pandemic offered a useful service: it forced us to see the future.
The plunging of the world economy into an unprecedented crisis has dramatically reduced labor incomes. Governments acted like last-minute cavalry to help and save the situation. They provided, almost generously, state subsidies. But this can only be a temporary solution. What will be the impact if this need becomes permanent? Exhaustion of government subsidies, reduction of disposable income and demand, increase of budget deficits, negative effects on growth.
These tectonic shifts raise major concerns about the ability of markets, and the economy in general, to self-regulate for the benefit of participants and to maintain their own longevity.
The purpose of creating market rules and control mechanisms was to establish a strictly defined framework that would ensure the maintenance of economic activity for the benefit of all participants in the production process. If the system continues to improve its productivity while reducing labor costs, we face a new paradox. Increased wealth production, increased levels of income inequality and reduced social well-being. This is not good news for all societies.
In the next ten years we will have to expect huge job losses in the manufacturing sector due to automation and in the management sector due to digital modernization which in theory will increase over time.
What we should expect is that employees with low qualifications and skills will have to be retrained for new jobs by gaining higher qualifications. Lifelong learning programs are certainly not an easy solution as they are neither economical, nor cheap, nor easily accepted by societies.
Many believe that in the coming of perfect storms either due to extreme weather events or due to pandemics. What we have not understood is the passing of a perfect storm that is gradually developing with the automation of production, digital governance and the unequal accumulation and distribution of wealth.
Of course, societies and economies are not known for their suicidal tendencies. But this should not reassure us of the risk that if we do not act with prudence, program and goals, the future of a deregulated market can have a catalytic effect on the world economy as we have experienced it to date.