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People and Power: 3 Numbers That Will Impact the World

The headlines have been full of numbers recently, particularly as we have just passed a milestone where the 7 billionth person has now joined the world’s population (give or take a few million and a few months either way).  So let’s start there in terms of looking at some important numbers that will impact the world in the next decades.

1.  7 billion: The world’s (estimated) population at the end of 2011

While all the coverage of the seven billionth birth has attracted huge amounts of attention, as Foreign Policy points out, it is primarily a useful fiction – a chance to focus the world's attention on rapid population growth and its myriad implications. So let’s do that: There are a lot of people on the Earth and our numbers have been growing rapidly – and may reach 9 billion by 2050, a threefold increase in just 100 years, on course for 10 billion or more by the end of the century.  Even if the rate of increase is slowing as levels of development and wealth increase worldwide, that still means 2 billion more people to feed, water, shelter and employ in the next decade – and don’t forget the additional waste and environmental impact.

Much has been written in the last couple of weeks on the potential implications of our rising population, so let me just pick out a few points:

  • The Global Footprint Network reminds us that humanity as a whole is already using the planets regenerative capacity 50% faster than it can renew. Whether we like it or not we have to rethink our use of resources in future – or the Earth will do it for us.
  • In the article Demographics Are Not Destiny, Booz & Co. argue that companies and countries can prosper if they prepare effectively for the demographic changes that will impact the regions and markets in which they operate.
  • Joel Cohen in a New York Times opinion piece argues that the greatest challenge of managing population growth is to shift our mindsets away from the notion, fostered over millennia, that growing numbers of people equate to power and prosperity. A further challenge is to rethink consumption of our material, environmental, human and financial capital – looking beyond the short-term to the legacy that we will leave future generations.
  • Andrew Simms in the Guardian, argues that population growth is less of an issue than inequality which is making it harder to find solutions to global issues including climate change.
  • Ian Angus and Simon Butler in Grist look at whether it is the 7 billion causing the most environmental damage in the world or the 1% (the Occupy movement’s protest target).  In favour of the 1% they cite a study for UN Environment Programme Finance Initiative in October 2010 which suggests that the world's largest 3,000 publicly-listed companies are responsible for one-third of global annual environmental costs totalling US$6.6 trillion.

2.  147: The number of corporations that control 40% of total global value creation

All of which brings us on to the second big figure that has substantial implications for the world economy, markets and financial systems. As Occupy protests continue around the world against too much control of economies, wealth and governments by bankers and corporates, recent research from the Swiss Federal Institute of Technology – The Network of Global Corporate Control – suggests that the protesters may well have a point.  Stefania Vitali, James B. Glattfelder, and Stefano Battiston undertook a first of its kind study into the structure of the control network of transnational corporations (TNCs) – essentially who owns whom directly or indirectly, and therefore has the potential to exert influence over value created (operating revenues). Understanding of who holds economic power has clear implications for global market competition and financial stability. While it has attracted some criticism, this first attempt at modelling such a complex system offers some clear and important insights.

Starting from a list of 43,000 TNCs, the team found that the networks of corporate control had a bowtie structure, with a core of 1347 strongly connected corporations that formed the core of the network (analogous to the knot in the centre of the bowtie), with each firm in this core group having, on average, connections to 20 other firms in the group. As a result, about 75% of the ownership of firms in the core remains in the hands of firms of the core itself.

Looking then at the concentration of control over the economic value created by TNCs, the researchers found that only 737 firms (the majority of which are in the core) had 80% of the control over the value of all TNCs. Comparing this to the distribution of wealth in the world, the top ranked actors hold a control ten times bigger than what could be expected based on their wealth.  Untangling this complex web even further, nearly 40% of the control over the economic value of TNCs in the world is held, via a complicated web of ownership relations, by a group of 147 TNCs (50 listed in the report) in the core, which has almost full control over itself.

Almost three-quarters of these 147 companies in what the researchers collectively term an economic “super-entity” are financial intermediaries, including Barclays, J.P. Morgan and Goldman Sachs, raising questions around the stability of the financial system given such dense connections between financial players.  As has already been seen in the financial crisis of 2007-2009, contagion is a key risk and one which remains today, even as we face on going challenges over sovereign debt.  In addition, some of these key financial players have direct regulatory and economic influence – the second audit of the US Federal Reserve Banks boards by US Government Accountability Office released two weeks ago suggests that apparent conflicts of interest by executives serving on boards that regulate financial houses where they also have business relationships need to be rectified. A further question raised by such corporate power is over the impact on market competition – given overlapping domains of activity and cross-ownership, is there potential for this economic super-entity to act as a bloc and negatively impact the competitive landscape?  While anti-trust regulators keep a close eye on their geographic domains, the implications of such densely concentrated control over economic value at a global level still need to be assessed.

Forbes adds a few well deserved caveats about the data set: “It excludes GSEs and privately-held companies and is dominated by banks, institutional investors and mutual funds that don’t always have much in the way of control over assets.” However, the findings are still thought-provoking and important to how economic and financial stability develops in the future.  See also the recent coverage by the New Scientist.

3.  84%: The percentage of total global wealth possessed by the wealthiest 10% of adults

So now we know which corporates control the creation of wealth, which individuals have it?  The Credit Suisse Research Institute has just released its second annual Global Wealth Report 2011, which analyses the wealth of the 4.5 billion adults worldwide.  The good news is that despite the financial crisis starting in 2007 wealth has been rising and is expected to continue to do so: Total global household wealth is forecast rise by 50% in the next five years from US$ 231 trillion in 2011 to US$ 345 trillion in 2016, equivalent to 8.4% growth per annum. In this forecast, on average each adult worldwide is expected to have a net worth of US$ 70,700 by 2016, up almost 40% versus 2011.

The biggest gainers will be people in rapidly developing economies, with wealth in both China and Africa projected to rise by over 90% in the next five years, while India and Brazil are forecast to do even better, with personal wealth more than doubling by 2016. China is also expected to overtake Japan becoming the second wealthiest economy with total household wealth of US$ 39 trillion in 2016, versus US$ 31 trillion US dollars for Japan, but still less than 50% of projected US total household wealth of US$ 81 trillion.  A notable factor is the speed at which rapidly developing economies will increase their wealth, for example during the next five years, India is projected to gain as much wealth as the US achieved over the course of 30 years beginning in 1916.  The emerging global middle class will therefore present huge potential spending power – but the time to start tapping into these new markets is now!

Perhaps more interesting – certainly to the Occupy movement – is how this wealth is distributed geographically and within the global population.  The Credit Suisse report suggests that while the share of global wealth of rapidly developing economies (including new entrants to the EU) is increasing rapidly, the US and Europe still dominate with a respective shares of 28% and 34% of global wealth in 2011, followed by Asia-Pacific with 22% (excluding China and India but including Japan, Singapore and Hong Kong which account for the bulk of wealth in the region), China with 9%, Latin America with 4%, India with 2% and Africa with just 1%. 

So much for geographic inequality – how about between different sections of society?  Now the bad news: The bottom half of the world’s adult population controls barely 1% of the wealth in the world.  The top 10% in sharp contrast owns 84% of the world’s wealth, with the top 1% controlling a staggering 44% of global assets in 2011.  Of the top 10% of wealthy adults globally, unsurprisingly most of these are found in the US and Europe.  However, China dominates the upper middle deciles (5 to 8, where 10 is the top decile in terms of possession of wealth) with 40% of its population in these ranks, reflecting its rapid economic growth. It also boasts the more people in the top 10% of global wealth holders than any country except the US, Japan, Germany and Italy – and is poised to move up to third place in the near future.

Looking ahead, the report suggests that if the economic climate remains benign – a big if – then there is potential for some rapidly developing economies to leapfrog the wealth of developed economies – with nearly 47 million millionaires by 2016, up 17 million from today.  However, there are also some concerns, most notably over the potential for fiscal crises around retirement savings as the world ages, and high levels of household debt.    

For good measure let me also add the headline figures from the long-awaited report of the US Congressional Budget Office on Trends in the Distribution of Income in the US:

  • For the 1% of the population with the highest income, average real after-tax household income grew by 275%
  • For others in the 20% of the population with the highest income, average real after-tax household income grew by 65%.
  • For the 60% of the population in the middle of the income scale, the growth in average real after-tax household income was just under 40%.
  • For the 20% of the population with the lowest income, the growth in average real after-tax household income was about 18%.

So what does all this mean?

The bottom line: The world’s population – and more particularly increasing consumption per capita – is straining our capacity to drive economic growth and improve quality of life and incomes in ways we have traditionally known. Many things are going to have to change in future, from how much we consume, to how we produce goods and services sustainably, to how we ensure opportunities for improvement for all.  It will not be easy and will require unprecedented cooperation, both globally, and between different organizational and social entities from governments to NGOs to corporations. Right now, NGOs along with forward-thinking corporations are leading the way – despite the criticisms suggested in the data above – and given their power we need them to do more to bring the other actors into the process.

However, the bigger challenge may well be addressing inequality both in terms of power and wealth. The Spanish Indignants and the Occupy movement it gave rise to, quite simply, have a point: Inequality is rising and as the population increases there will be more and more people in the “have not” category. And ultimately this level of protest requires both governments and corporations, particularly those with the greatest economic power, to reflect and respond.  If not, we can expect the forces of democratization to exert themselves as has happened elsewhere in the world.