Poll supports state action on gap

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International investors believe the gap between rich and poor hampers economic growth and governments should act to reduce income inequality, according to a Bloomberg poll.

Fifty-eight percent of global respondents said the disparity hindered the economy and 68 percent said governments should confront the problem, according to the survey of 477 investors, traders and analysts who are Bloomberg subscribers. The research was conducted on January 16 and 17.

The income gap emerged as a key theme at the annual meeting of the World Economic Forum in Davos, at a time when global growth is accelerating and asset prices are rising.

US President Barack Obama warned last month of a “fundamental threat to the American dream” and Pope Francis in November attacked the “new tyranny” of “an economy of exclusion and inequality”.

“This is really one of the most pressing and delicate tasks for governments over the next 10 years,” said poll respondent Mario Cribari, the head of asset management at Veco Invest in Switzerland.

“The decreasing real wage of the huge majority of the population” and “a very polarised” economy risked “social, investment and consumption stagnation” and “potential social unrest”.

A study by the Davos forum of 31 risks identified the income divide as the most likely peril to the global economy over the next decade. The disparity – driven by globalisation and fuelled by the financial crisis – threatened to breed poverty and social disorder, it said.

Development charity Oxfam released a report before the forum showing that the richest 85 people control as much wealth as the poorest half of the global population.

The richest 10 percent of Americans earned a larger share of income in 2012 than at any time since 1917, according to Emmanuel Saez, an economist at the University of California at Berkeley. Those in the top 10 percent of income distribution earned at least $146 000 (R1.6 million) in 2012, almost 12 times what those in the bottom 10th made, Census Bureau data show.

Investors in the US are not as alarmed about the gap as their foreign counterparts.

Among US respondents, 52 percent said inequality hampered growth, compared with 46 percent who said it did not; 51 percent said it was appropriate for government policy to address the disparity, while 48 percent said it was not.

“Income is a direct result of the effort put towards earning the income,” said Ron Anari, a senior vice-president in the New Jersey office of ICAP, the largest inter-dealer broker of US government debt.

“Our greatest shortcoming is not the income inequality of the top 2 percent from the bottom 2 percent, but the systematic destruction of the middle class through handouts creating the entitled and complacent class,” he said.

Investors said they preferred incremental steps to address income inequality rather than rapid action. Worldwide, 22 percent wanted ”urgent” action, 46 percent incremental action and 30 percent no government action. Just 13 percent of US respondents favoured aggressive action.

“It is an issue that needs addressing,” said poll respondent Kit Murray, a corporate bond broker at Eiger Securities in London. “It remains a very difficult problem as excessive taxation of the business leaders/entrepreneurs of the world would only cause a larger hindrance to economic growth.”

Across the world, poll respondents said the income gap was greater in the US than in other developed countries, though more investors outside the US were certain of it: 59 percent of American investors said income inequality was greater in the US compared with 72 percent of investors in other countries who held that view.

The majority opinion is consistent with statistical data.

Among members of the Organisation for Economic Co-operation and Development, only Chile, Mexico and Turkey have more unequal societies than the US, according to the standard statistical measure of inequality known as the Gini coefficient.

The US’s Gini score rose to 0.48 in 2012 from 0.39 in 1968.

Developed by Italian statistician Corrado Gini in 1912, the scores range from 0 (each person enjoying equal shares of income) to 1 (one person has all income).

Obama has signalled that income inequality would be a central focus for the rest of his administration, with an agenda that included an increase in the minimum wage and a drive for universal access to pre-school education.

Investor opinion of the president is rebounding from a dip in November following the 16-day partial shutdown of the US government in October and a partisan political stand-off over raising the US legal debt limit.

Forty-one percent of poll respondents said they were “optimistic” about the impact of Obama’s policies on the US investment climate. That is the same number as in September, after a drop to 27 percent in November.

Forty-five percent had a favourable opinion of the US president, up from 38 percent in November although still below the 50 percent support level in September.

US investors were less enthusiastic about Obama than their counterparts elsewhere, a divergence of opinion registered consistently in the poll since the first survey in July 2009. Twenty-six percent of US respondents had a positive opinion of Obama, compared with 55 percent of respondents outside the country.

Federal Reserve leaders, who have managed a monetary stimulus since the global financial collapse in 2007, were more popular with investors than the president. Sixty-eight percent held a favourable view of Janet Yellen, who will take over the reins of the central bank on February 1. Seventy-nine percent had a positive opinion of Ben Bernanke, the outgoing chairman.

The poll, conducted by Iowa-based Selzer, has a margin of error of 4.5 percentage points. – Mike Dorning from Bloomberg


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