The.Economist.2007-02-10 (966424), страница 41
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The issueof inequality prompted Ben Bernanke, the Federal Reserve chairman, to make a speech on February 6thcalling for improvements in education and training to help displaced workers.Ajay Kapur and Niall Macleod, two Citigroup strategists, have invented the term “plutonomy” to describean economy where the spending power of the elite holds sway. They argue that American savings data aredistorted by the top 20% of the population. Whereas many Americans are reasonably thrifty, thewealthiest group spends more than it earns.The rich need not save because financial markets are doing their savings for them.
Rising equity andhouse prices drove up the net-worth-to-income ratio of the wealthiest tenth of Americans from 5.8 in1989 to 8.4 in 2004. That gives them a licence to spend and makes them immune to petty worries likehigher petrol prices.Furthermore, Messrs Kapur and Macleod say the rise of wealthy elites in Russia and Asia may help explainwhy America finds it so easy to fund its current-account deficit.
Emerging-market plutocrats are nervousabout keeping their fortunes at home, lest the political winds change. So they seek to move as much of itas possible to richer countries. This, together with reserve management by the central banks in Asia andoil-exporting countries, provides a steady source of demand for American assets.But what has caused this great dispersion of wealth? It is not happening in all countries. The gap has beenwidening in America, Britain and Canada but has barely budged in France, Japan or the Netherlands. Thetwo strategists cite numerous factors, including rising executive pay and technological innovation, whichhave rewarded high-skilled individuals. Globalisation, which seems to have lowered the relative cost ofunskilled labour and boosted the return to capital, has also played its part.Actually, if one looks at a broad sweep of history, it is the relatively egalitarian 20th century that seemsthe exception.
Mass democracy is only 100 years old and it ushered in both the welfare state andredistributive taxation. The rise of democracy, in turn, was driven by the economic power of workers,especially those gathered in large groups to work in mining, manufacturing and transport. As thoseindustries have ebbed, so have the forces of economic equality.But although the workers have lost some of their economic power, they have not lost their votes and mayyet use them to redress the balance. Messrs Kapur and Macleod suggest there may even be a linkbetween the growth of profits as a proportion of national income and the rising popularity of far-rightEuropean parties such as the National Front in France.If there were such a backlash, it could be a threat not just to globalisation, but to democracy itself.Opinion polls and low voter turnout at elections may indicate widespread public disillusionment withpoliticians. There is also scepticism about the fairness of the political process, given the role companiesplay in financing political parties.
And this is during strong economic growth: imagine what a recessioncould do.The prospects for a tax grab on company earnings are limited, given the ability of corporations to movequickly across national boundaries. But even in countries (like America) without extremist parties on theleft or the right, politicians will be tempted to deflect the voters' wrath away from their corporatepaymasters and towards an easier target—“foreigners” of all types.
Hence the potential appeal ofprotectionist and anti-immigrant policies.In time, this could undermine globalisation and reverse the relative advantages of the rich (and the highertrend in profits). Although many might welcome a more egalitarian world, the risk is that protectionismwould usher in a deep global recession, as it did in the 1930s.It is easy to assume, with globalisation, that a rising tide lifts all boats.
And most people do gain, even ifthe improvement in their way of life can sometimes be hard to discern. But workers whose factories areshut are unlikely to see it that way. For them, it must seem these days that a rising tide lifts only allyachts.Copyright © 2007 The Economist Newspaper and The Economist Group. All rights reserved.About sponsorshipAmerican propertyQuite a performanceFeb 8th 2007 | NEW YORKFrom The Economist print editionBlackstone wins the battle for EOP, but the clear victor is the sellerWHERE better to play out the final act of a hugely entertaining real-estate drama than Chicago's Civic OperaBuilding? That is where shareholders gathered on February 7th to decide the fate of Equity Office Properties(EOP), America's largest commercial landlord.
They had an enviable choice to make. They could take a handsomecash offer from The Blackstone Group, a private-equity giant that valued the company at nearly $39 billion(including debt), far more than anyone had thought it could fetch a few months ago. Or they could go with a bidthat was slightly higher but a riskier mix of cash and shares, from a group led by Vornado Realty Trust, anotherlisted property company. A couple of hours before the vote, Vornado capitulated, leaving Blackstone the winner.The shareholders in Chicago, however, had the most to celebrate.It was a humdinger of a battle.
Sam Zell, EOP's founder, had talked to Vornado about a possible tie-up lastsummer. In November, however, after those negotiations faltered, Mr Zell agreed to sell to Blackstone for $48.50a share, almost $20 more than the stock had been worth only months earlier. Shrewdly, he insisted on keeping alow “break-up fee”—payable to Blackstone if it lost out to another suitor.
This made it easier for other bidders tocome in. Vornado and its partners swooped in mid-January, forcing the private-equity firm to raise its offer twice,to $55.50 a share. That makes the deal the biggest buy-out ever in nominal terms, eclipsing the takeover of HCAlast year, as well as the biggest acquisition of a real-estate investment trust (REIT). No wonder Mr Zell hasearned the nickname “Gravedancer”.Mr Zell has not always been so clever: he overpaid for a cluster of Silicon Valley buildings during the dotcomcrash, for instance.
But this time he did himself proud, squeezing nearly $3 billion more out of Blackstone than ithad originally put on the table.With queues forming to congratulate the canny 65-year-old, Blackstone's victory might look a touch hollow. In itsfavour, America's commercial-property market continues to boom, even as residential prices stagnate or fall.
Themain REIT index—which counts EOP as a member—shot up by 34.4% last year. The office market went up byeven more. Pension funds, keen to diversify out of shares and bonds, have been raising their allocations toproperty.Moreover, Blackstone knows the game, having amassed a large property portfolio—including Trizec Properties,bought jointly with Brookfield last October for $4.8 billion. With interest rates low, it can borrow cheaply againstthe value of EOP's assets and use the cashflow from rents—which are high and rising in most big cities—to coverits interest payments.
Its plan may be to carve out and sell separately some of the firm's trophy properties inNew York, Seattle and Los Angeles. One reason EOP fell prey in the first place was that its shares were trading atless than the estimated value of its assets.But Blackstone's buy-out barons would struggle to make the deal pay if offices were to go the same way ashousing.
The REIT index jumped another 8% in January alone, leading some to wonder about the boom'ssustainability. “I thought we'd reached the peak 18 months ago, but it continues to defy expectations,” says theboss of one conglomerate's property arm.Vornado's chief executive, Steven Roth—like Mr Zell, something of a legend in the world of steel and concrete—will no doubt be feeling sore.
He told shareholders last year that, with the office market soaring, “every singledeal we didn't do [in recent years] was a mistake,” the Wall Street Journal reports. On this occasion he may,given time, have fewer regrets.Copyright © 2007 The Economist Newspaper and The Economist Group. All rights reserved.About sponsorshipPensions for musiciansWhen they're 64Feb 8th 2007 | AUSTINFrom The Economist print editionWhat do musicians do when they rock towards retirement?AFPAUSTIN, the capital of Texas, proclaims itself the “Live Music Capital of theWorld”. Bands blast cowboy and blues songs each evening along Sixth Street,the town's answer to Bourbon Street in New Orleans.
As morning dawns,musicians stumble home to financial drear. Many live below the poverty line.Few have health insurance. Some still hope they will die before they get old.For the rest, pensions are mostly a dream.One Texan band is aiming for change.
Robert Earl Keen, whose eponymouscountry band played at George Bush's inauguration, decided it was time to“run a business just by having good manners”. Some years ago he created apension plan for the self-employed, known as a SEP-IRA, for his bandmembers, and began to pay into it.
His latest addition is a health-care plan.These have helped keep his band together.Such munificence is rare in the music world, where business is unsteady formost travelling bands. Plenty of drummers and singers live from gig to gig.More musicians have insurance for their instruments than they do for theirLongevity riskhealth, notes Jude Folkman of the Music Resource Group, which helpsindependent musicians. Some get insurance through day jobs or spouses, but many go without.
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