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The Luxury Fortress in Your Future
Income gaps in the United States are approaching Brazilian levels, and that's not good.
A dozen years ago, Brazil ranked as the world’s most unequal major nation. Brazil’s most affluent 10 percent were grabbing nearly 50 times more income, on average, than Brazil’s poorest tenth, over double the U.S. gap.
Amid this intense inequality, wealthy Brazilians found themselves spending $2 billion a year on private security. Kidnappings in São Paulo, Brazil’s largest city, became so common that some plastic surgeons started specializing in ear reconstruction. The reason: Kidnappers had taken to including cut-off ears with the ransom notes they sent their wealthy victims.
Over in Brazil’s second-largest city, Rio de Janeiro, carjackings were taking place so often that police were assuring well-heeled drivers they wouldn’t “be fined for running red lights at night.” Thousands of those drivers took no chances. They armored their cars — or commuted via helicopter from fortified home to fortified office.
Could inequality this stark ever take root in the United States? Luxury fortress life, suggests new work from the Brazil Center at the University of Texas, may actually be closing in upon us. If current trends continue, Center director Fernando Luiz Lara calculates, the United States will probably “be as unequal as Brazil” before the end of President Obama’s second term.
Two trends are driving this “convergence.” The first: Brazil’s most desperately poor have become less poor. New government social programs have halved the number of Brazilians living in “extreme poverty.”
The second: U.S. income has become much more concentrated. Since 2009, the top 1 percent of U.S. incomes has jumped an average 11.2 percent while the bottom 99 percent have slipped 0.4 percent.
Economists typically measure inequality with a statistic called the “Gini coefficient.” A nation with all income divided equally would have a Gini of 0.0. The reverse, one person grabbing everything, would leave the Gini at 1.0.
The world’s most equal nations have Gini ratings that hover around 0.3. Outrageously unequal nations hover around 0.6. Brazil’s gap has dropped from that 0.6 to just over 0.5, and the U.S. Gini, just 0.35 in the early 1970s, now sits at 0.477. The current trajectory, notes Lara, has both nations converging at just under 0.5 by “2015 at the latest.”
Neither nation, unfortunately, seems likely to nudge the Gini needle down from there. They haven’t made much progress shrinking the income share that goes to the richest of its residents.
Wealth in both Brazil and the United States remains concentrated at the top. And with concentrated wealth comes concentrated political power — enough power to derail policy moves that might roil the rich.
In South Africa, as in the United States and Brazil, elected leaders these days are talking cutbacks in the public services that help narrow gaps in income. But COSATU, South Africa’s labor federation, is pushing back.
COSATU wants more money invested in jobs, health, and education. And that funding, says the labor group, should come from higher taxes on the rich. COSATU is urging a new tax rate on the super-rich and a stiff tax on financial transactions to “encourage productive investment” and discourage “hot money” speculation.
In South Africa, top CEOs are taking home 1,728 times the average income of South African workers. COSATU is also calling for a new tax on firms that continue to be “stubborn in closing the wage gap.”
Fernando Luiz Lara from the University of Texas sees one possible plus from the impending inequality “convergence” between the United States and Brazil. Americans, he notes, “will probably be quite disturbed (and correctly so) by becoming as unequal as Brazil.”
This embarrassment, he suspects, just might “trigger a national conversation” about how to move toward greater equality. If that conversation takes place, maybe South Africa’s labor federation should sit at the table.