The New Legalist editor's comment:
This article says: "To some extent, differences like these have always existed between rich and poor. But what is new, analysts say, is the extent to which they have risen within individual societies and the extent to which they are being passed down from one generation to the next... the idea that anyone could rise up from humble roots was always a big part of the American dream... 'why is this not working for us anymore?' "-- The answer might be here: A General Crisis of Capitalism will Soon Break Out  (2010-08-09)

Source: nytimes.com

DAVOS, Switzerland -- A year ago at the World Economic Forum here, Jamie Dimon, the chief executive of JPMorgan Chase, lashed out at what he saw as unfair criticism of the world's financial wizards.

''I just think this constant refrain, 'bankers, bankers, bankers'- it's just a really unproductive and unfair way of treating people,'' he said. ''People should just stop doing that.''

After several years of financial crisis, during which the word banker had become a catchall epithet for the undeserving rich, the global economy appeared to be on the mend. Perhaps the bankers, and the other millionaires and billionaires, could put on their pinstripes with pride again, and get back to business as usual.

Yet even as Mr. Dimon was speaking, a new wave of anger was welling up, one that, over the past year, would shake up old assumptions about the ultrarich, the middle class and the growing gulf that separates them.

Today, the gap between the haves and the have-nots is no longer just a rallying cry to incite anti-capitalist activists. It has become a mainstream issue, debated openly in arenas where the primacy of laissez-faire capitalism used to be taken for granted and where talk of inequality used to be derided as class warfare.

In the United States, the issue surfaced when protesters proclaimed that they were the ''99 percent'' of the population who were paying for the sins of the wealthy ''1 percent,'' taking their grievances directly to the epicenter of capitalism. The Occupy Wall Street protest, which began in New York, later spread to other cities around the United States and across the world.

In Spain, thousands of ''indignados'' converged on Madrid and other cities to vent their frustration over mass unemployment and government austerity measures. In the Arab world, a wave of unrest that toppled governments began with a protest over a lack of economic opportunities in Tunisia.

But now, as the Republican Party chooses a nominee for the U.S. presidential election, rivals of one candidate, Mitt Romney, are rounding on him over his wealth and his background in the private equity business. Meanwhile, the World Economic Forum, in a recent report, named the growing income divide as one of the biggest risks facing the world in the years to come.

''In developed economies, such as those of Western Europe, North America and Japan, the social contract that has in recent decades been taken for granted is in danger of being destroyed,'' the forum said in its report, warning of the threat of a ''dystopian future for much of humanity.''

In the past, the conventional wisdom among those attending the World Economic Forum - at least, among the corporate executives who pay their way, rather than the do-gooders who are invited - was that a wide level of inequality was an acceptable price of progress. Economic envy might even be desirable, the thinking went, if this fueled the desire that drives entrepreneurship and innovation. A rising tide of economic growth would then lift all the boats: the supertankers of the rich, to be sure, but also the dinghies of the poor.

Few Davos men or women would have questioned the views of Arthur Okun, an economist at the Brookings Institution, who argued in a 1975 book, ''Equality and Efficiency: The Big Tradeoff,'' that countries faced a choice between equity and economic growth; level, Scandinavian-style societies were doomed to fall behind.

''We can't have our cake of market efficiency and share it equally,'' he wrote.

Over the past year, however, with economies - at least in many Western countries - struggling to recover, a growing number of voices have risen to question this logic. Some inequality is inevitable, of course. But not only is too much inequality bad for society, they say, it may be bad for growth, too.

In a study published last year, Andrew G. Berg and Jonathan D. Ostry, researchers at the International Monetary Fund, studied the long-term economic performances of countries, then fired a broadside at Mr. Okun's conclusions, saying those with more even divisions of the spoils often grew faster.

''A rising tide lifts all boats, and our analysis indicates that helping raise the smallest boats may help keep the tide rising for all craft, big and small,'' they wrote.

The rapid growth of Asian economies over the past few decades has contributed to this change in perceptions, because countries like Vietnam have followed a pattern of development different from that of their counterparts in the West, said Hans Rosling, a Swedish doctor who co-founded the Gapminder Foundation, which analyzes public health statistics.

''In the past, economic growth came first, then you got education, health and two-child families,'' Mr. Rosling said. ''Now it is the reverse. If you have education, health and two-child families, then you get economic growth.''

Beyond the chants of the ''99 percent'' crowd, there is considerable evidence that inequality is on the rise in many places.

According to a report published in December by the Organization for Economic Cooperation and Development, the association of free market democracies, the share of after-tax household income that went to the top 1 percent of earners in the United States more than doubled, from 8 percent in 1979 to 17 percent in 2007.

Across the 34 countries that make up the O.E.C.D.'s membership, the average income of the richest 10 percent of the population is nine times that of the poorest 10 percent. Even in countries like Denmark, Germany and Sweden, which have traditionally been more egalitarian than the United States or Britain, this ratio has risen from five to one in the 1980s to six to one now, the O.E.C.D. said.

What is especially worrying to policy makers is the correlation between inequalities in income and wealth and other criteria, like education and health. The rich eat better and smoke less. They are better educated. They live healthier and longer lives.

One recent study, by the London Health Observatory, showed a widening gap in male life expectancy between rich and poor parts of London. In the well-to-do area of Queen's Gate, for example, it was 88; in Tottenham Green, near where riots that spread across large parts of London began last summer, male life expectancy was 71.

Such divides are not limited to the Western world. According to Gapminder, the average income in Shanghai, for example, is about 10 times the level in the less developed Chinese province of Guizhou. Meanwhile, the difference in the infant mortality rate is even greater, with such deaths occurring less than one-twelfth as often.

To some extent, differences like these have always existed between rich and poor. But what is new, analysts say, is the extent to which they have risen within individual societies and the extent to which they are being passed down from one generation to the next.

A number of studies have shown declines in social mobility in the United States - where the idea that anyone could rise up from humble roots was always a big part of the American dream - and in Britain, confounding efforts to dismantle traditional class barriers.

''There's a deep sense that, hang on a minute, why is this not working for us anymore?'' said Michael Marmot, a University College London professor who is chairman of the Commission on Social Determinants of Health at the World Health Organization.

''If there's one thing we should all believe in, it is that every generation should have a fair chance, and that's not happening,'' he said.

Analysts have put forth a number of theories for the rise in inequality and waning social mobility. Some blame globalization, which has made it easier to outsource jobs to low-income locations and fostered the creation of a class of high-flying, high-earning, stateless executives - Davos men and women, among them - who compete in an expanded, global job pool.

Others say changes in the social fabric have played a big role. A rise in singe-parent families keeps some households locked in poverty, they say, while a phenomenon called assortative mating - in which men and women increasingly look for partners from similar social classes, rather than marrying above or below their station - has tightened the ranks of the wealthy.

The O.E.C.D. study contends that neither globalization nor changes in family structure are the main culprits. Instead, it identifies rapid technological change and the deregulation of employment markets as the main drivers.

How should policy makers respond? The O.E.C.D. says job creation is crucial, along with investments in education. Perhaps more controversially, the group says tax and welfare policies should be reviewed, especially in situations where the portion of the tax burden borne by high-income earners has declined in recent years.

Some wealthy individuals have gone further. Warren E. Buffett, the American billionaire who founded the investment company Berkshire Hathaway, called last summer for higher taxes on the rich, saying it was time to stop ''coddling'' the wealthy. In Europe, prominent chief executives in France, Germany, Italy and elsewhere have issued a similar call.

Others say, however, that this self-flagellation is misguided. Raising taxes on high earners or restricting their pay will do nothing to increase economic growth or to create jobs, said Ben Verwaayen, chief executive of Alcatel Lucent.

To stimulate sluggish Western economies, he said, policy makers will have to make the tough fiscal choices needed to bring budget deficits into line, increasing business confidence. And in Europe, he said, restrictive employment rules should be loosened up to encourage companies to hire.

''If you are standing outside the job market today and you think inequality is the problem, you have an ugly surprise coming,'' Mr. Verwaayen said. ''If you want to kick the cat, kick the cat. If it makes you feel better, fine. But if the pie is not growing, we're not going to create jobs.''

Maurice Levy, chief executive of the advertising company Publicis Groupe, based in Paris, agreed that measures to promote growth were crucial. But Mr. Levy, one of the signatories of an open letter to the French government calling for higher taxes on the wealthy, said it was only fair, at a time when governments are cutting welfare spending to bring budget deficits into line, that the rich should share the burden.

''When you have this situation of fear, and little hope of getting out of the dark, there is also anger,'' Mr. Levy said. ''People see that there is a minority of people who are well-off. This anger should be taken into account by the people who are, if not their target, their preoccupation. We should all be conscious of the money we are receiving for the services we render. We have to be reasonable.''

The New Legalist editor's comment:
This article says: "To some extent, differences like these have always existed between rich and poor. But what is new, analysts say, is the extent to which they have risen within individual societies and the extent to which they are being passed down from one generation to the next... the idea that anyone could rise up from humble roots was always a big part of the American dream... 'why is this not working for us anymore?' "-- The answer might be here: A General Crisis of Capitalism will Soon Break Out  (2010-08-09)