Inequality Around the World

We talk about income and wealth inequality in the United States, but compared with some of the world's totalitarian countries, the U.S. is a bastion of equality and opportunity.

Last year, it was reported that just 110 Russians owned 35 percent of the country's total net worth.  Meanwhile, 93.7 percent of Russian citizens had less than $10,000 to their names.  (The figures came from a Credit Suisse report on global wealth distribution.)

But, increasingly, wealthy oligarchs find themselves attracted to investments and lives in places other than those where they acquired their fortunes.

In 2011, New York's tabloids had a lot of fun reporting that that a Russian oligarch had paid the highest price ever -- $88 million -- for a Manhattan apartment for his daughter, a college student in the city.  She had been born in Russia but raised in Switzerland, France, Monaco and the United States.

And why not?  The guy was worth $9 billion.  If you had that kind of money, would you want to raise your kid in Russia?

If you were a Chinese princeling, would you want to live in the foul air of Beijing?

Me neither.

 Roger Cohen explained how this works in an op-ed piece in the Aug. 16 edition of the New York Times.

     "Having made it big in autocratic countries with parlous legal systems (if that), a cowed press
       and rampant corruption -- say Russia and China -- oligarchs and crony capitalists wake up one            day and find that, gosh, they like nothing as much as democratic systems under the rule of law            held accountable by an independent press.  Having trashed the West, they trust the West with
       their money.

      "This then is the way the world works:  Autocratic hypercapitalism without Western checks
        and balances produces new elites whose dream is an American or British lifestyle and
        education for their children, and whose other goal, knowing how their own capricious
        systems really function, is to buy into the rule of law, acquiring real estate, driving up
        prices in prime markets to the point where the middle classes of those countries, with
        incomes often stagnant or falling, are pushed aside."

You really should go to the Times website and read the whole thing.

My only quibble is that what Cohen calls "hypercapitalism" is just plain old crony capitalism -- those on good terms with Putin in Russia and with connections to high Communist Party leaders in China get to "earn" huge fortunes.   Everyday schmucks don't have much of a chance, Jack Ma excepted.

Obviously, it's not just the Russians and Chinese.  Third-world kleptocrats for generations have skimmed proceeds from natural resource extraction and aid money intended to help their impoverished populations and parked it in safer, democratic countries.

The Real Estate Effect

One follow-on effect in world-prominent cities -- New York, London, Hong Kong -- is that very rich people from elsewhere have been buying pieds a terre and in the process bidding up property values to such an extent that normal people, even conventionally prosperous ones, cannot afford to live in the cities where they work.

On Manhattan's Upper West Side, 45 apartments sold for more than $10 million in the second quarter, up from 25 such sales in the second quarter of 2013.  Two new towers overlooking Central Park from 57th Street are commanding condominium prices of $90 million or more.

This phenomenon has been under way for at least the last 20 years in London, another international city, with billionaires and even humble multimillionaires snapping up desirable properties.  A building called One Hyde Park, which opened opened in 2007, recorded 76 units sold at prices ranging up to $214 million by 2013.  According to a Vanity Fair article, many of the buyers made their purchases in the names of corporations based in offshore tax havens.  Most evenings, the building's huge windows are dark, suggesting that the owners spend most of their time elsewhere.

Even if they aren't ready to move permanently, it appears the new class of very wealthy people want to park some of their money in real estate that cannot be seized by capricious governments and where they can live if things get really bad in their home countries.

Earlier this year, Bloomberg quoted a retired London planning officer who spoke of the situation more generally.  "They're buying those apartments, furnishing them, locking the door and leaving them empty," he said. "Large parts of London are becoming ghost towns and a lot of young people who come to work here can't find anywhere to live."