Income Inequality Poses Global Risk of Riots and Revolution

By Daily Editorials

February 3, 2014 7 min read

In the mid-1930s, as the Great Depression festered, America saw the rise of movements demanding radical economic reforms. These ranged from the communist party on the far left to the EPIC (End Poverty in California) coalition to the Farmer-Labor Party in the upper Midwest to Democratic Sen. Huey Long's "Every Man a King" demagogic crusade in Louisiana.

In an article in the Hoover Institution's Digest in 2001, the political historians Seymour Martin Lipset and Gary Marks wrote that as the 1936 election approached, President Franklin D. Roosevelt was alarmed enough that he shifted his policies and rhetoric to the left, "consciously seeking to steal the thunder of his populist critics. ... (T)he president stated that to save capitalism from itself and its opponents he might have to 'equalize the distribution of wealth,' which could necessitate 'throw(ing) to the wolves the forty-six men who are reported to have incomes in excess of one million dollars a year.'"

Many conservatives today take issue with the notion that FDR saved capitalism; World War II and widening post-war prosperity may have been more responsible. But the fact remains that the anger of the dispossessed was dissipated. And except for the race riots of the 1960s, it has stayed dissipated.

Some very smart people are wondering how long that can last.

The world's economic and political elite were warned last week — by a study that they commissioned and in which many of them participated — that widening income disparity presents a growing and increasingly imminent threat to social stability. Everything from riots to revolution is on the table.

Those who believe that income inequality is not an issue would be advised to read "Global Risk 2014," published by the World Economic Forum. The WEF held its annual conference of billionaires, millionaires and global leaders last week in Davos, Switzerland.

Every year the WEF asks a committee of experts in pricing risk — insurance companies for the most part — to assess risks capable of "causing breakdowns of entire systems and not only their component parts."

The most worrisome risk for the 700 "stakeholders" who were surveyed was fiscal crisis — a repeat of the kind of systemic breakdown that occurred in 2007-2008.

Second was "structural unemployment and underemployment as many people in both advanced and emerging economies struggle to find jobs. The youth and minorities are especially vulnerable as youth unemployment rates hover around 50 percent and underemployment (with low-quality jobs) remains prevalent, especially in emerging and developing markets.

"Closely associated in terms of societal risk, income disparity is also among the most worrying of issues. It raises concerns about the Great Recession and the squeezing effect it had on the middle classes in developed economies, while globalization has brought about a polarization of incomes in emerging and developing economies."

Indeed, on a chart that measures the potential impact and likelihood of a problem, income disparity and structural unemployment ranked among the biggest systemic risks facing the world.

"The risks considered high impact and high likelihood are mostly environmental and economic in nature: greater incidence of extreme weather events, failure of climate change mitigation and adaptation, water crises, severe income disparity, structurally high unemployment and underemployment and fiscal crises in key economies."

Those who believe that every story is connected to another may find some validation here: "The risks perceived to be most interconnected with other risks are macroeconomic — fiscal crises, and structural unemployment and underemployment — with strong links between this macroeconomic risk nexus and social issues, such as rising income inequality and political and social instability."

Driving much of this is what the WEF report calls "Generation Lost."

"The generation coming of age in the 2010s faces high unemployment and precarious job situations, hampering their efforts to build a future and raising the risk of social unrest."

"The generation of digital natives is full of ambition to improve the world but feels disconnected from traditional politic," the study says. "Their ambition needs to be harnessed if systemic risks are to be addressed."

Aside from extremists at both ends of the political spectrum, no one is predicting riots or revolution in the United States any time soon. But some academic experts see social unrest as inevitable as income disparity rises and job opportunities continue to fall.

One of the few mainstream politicians to raise the issue was then-New York Mayor Michael Bloomberg — one of the richest men in America — who said in 2011, "You have a lot of kids graduating college, can't find jobs. That's what happened in Cairo. That's what happened in Madrid. You don't want those kind of riots here. The damage to a generation that can't find jobs will go on for many, many years."

Consider the odds raised by a study released by OxFam, the global aid organization, ahead of the Davos meeting. The richest 85 people in the world control as much wealth as the poorer half of the world's population of 7 billion people, OxFam said. Sooner or later, at least a few of those 3.5 billion are going to take to the streets.

Very few of them live in the United States. The economy here leaves fewer people completely dispossessed, and thanks to the kinds of social programs begun under Franklin Roosevelt, a safety net catches many of them. Self-interest alone argues that further cuts in that net are not a good idea.

Increasingly the dispossessed spurn the political system, which has been captured by wealthy elites, OxFam said. A political system that benefits the few at the expense of the many is asking for trouble.

If the Global Risk 2014 Cassandras are right, trouble might not be that far off. It would behoove the world's elite to fix things before that happens.

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