By Bruce Livesey
Aug. 15, 2020
If the COVID-19 pandemic has produced winners and losers, then young Canadian billionaire Tobias Lütke is definitely a winner.
Since the start of the pandemic in March, the 40-year-old CEO of Ottawa-based e-commerce company Shopify Inc., has watched his personal worth rise from $3 billion (U.S.) in March — to $8.5 billion today.
That’s because Lütke controls 6.7 per cent of Shopify’s stock, which has shot up from $460 last winter to more than $1,300 this week due to the company’s boffo sales. Indeed, e-commerce has flourished during the pandemic due to people not venturing into stores.
“If you are a high income earner, even in the private sector, hardly any of them have lost work,” says Jim Stanford, a Vancouver-based economist and director of the Centre for Future Work. “So this recession is going to dramatically and directly exacerbate wealth inequality, there is no doubt about that.”
In fact, since COVID-19 deep-sixed the economy, one of the unforeseen consequences has been to make the poor even poorer and the rich even richer — a reality that concerns many economists, especially as that could hamper our ability to recover from the recession. “In my personal view and as an economist, the idea of having greater inequality has economic disadvantages to future economic growth,” says James Orlando, senior economist at the TD Bank. “There are so many positives to having a more equal society.”
Yet Lütke is a mere piker compared to how some of America’s billionaires have been flourishing during the pandemic. Jeff Bezos, the world’s richest man and CEO of Amazon, has a net worth of $189.4 billion. According to Bloomberg, since the start of this year, Bezos’ fortune has grown by $74 billion — and in just one day last month jumped $13 billion.
The Walton family, who owns the Walmart empire, has seen their wealth grow an extra $25 billion over the past year — the same amount Facebook’s CEO, Mark Zuckerberg, saw his wealth climb.
All told, according to a report released last spring by the Americans for Tax Fairness, America’s billionaires saw their fortunes soar by $434 billion during the U.S. pandemic lockdown between mid-March and mid-May.
“At the top end, there is no impact from COVID-19 on their incomes at this point and in fact they are slightly better off,” says David Macdonald, senior economist with the Canadian Centre for Policy Alternatives. “Whereas at the bottom end, about a third of those folks are still without work or without hours.”
Canada’s billionaire class is clearly not suffering either. The Thomsons, Canada’s richest family who oversee the Thomson Reuters media empire, saw their wealth jump from $31.6 billion this past April to $37.7 billion today. The Westons, who control the Loblaws supermarket chain, watched their fortune go from $7 billion in April to $8.4 billion right now.
In fact, Loblaws saw its grocery store sales jump 44 per cent during a two-week period in March, while the pandemic generating an extra $751 million in revenue during its first quarter.
On the other hand, more than three million jobs were lost in Canada over March and April — although some of that employment has since returned. An Ipsos survey carried out in April showed that 40 per cent of Canadians under the age of 55 had only one week’s worth or less of savings to cover costs like food or rent if they lost their jobs due to the pandemic. In the U.S., almost 40 million jobs were lost by the end of May. And 40 million Americans could be evicted from their homes by the end of this year due to the pandemic, according to one report, if state authorities don’t step in.
Why are the rich getting richer during the pandemic?
For one, governments have responded to the pandemic by handing out money to citizens — through programs like the Canada Emergency Response Benefit (CERB) — so they can pay their bills. “(The money) is going to the poor people, but it’s not staying with the poor people,” says Gary Stevenson, a British economist and a former Citibank trader, noting that citizens must use this cash to pay for food, rent, mortgages and other essentials. That’s when the rich receive this money, because they own apartment buildings, food companies, e-commerce companies and banks.
“So the government is coming in and subsidizing the poor, but the money doesn’t stay with them but goes to the rich, who are just not spending any money,” says Stevenson. “They are accumulating the money in their accounts.”
The other reason is the performance of the stock market. In the U.S., Federal Reserve data shows that the wealthiest top 10 per cent of American households own about 84 per cent of the value of all households stock ownership. In Canada, the top one per cent of families hold about 25.6 per cent of the wealth — roughly $3 trillion (Canadian) — which is also at play in the markets.
After crashing in March, the markets quickly rebounded and are now almost at their pre-pandemic levels. “The huge discrepancies in wealth come from huge boosts in wealth and that comes in the ability to exploit financial markets,” argues Louis-Phillipe Rochon, a professor of economics at Laurentian University. “So if you look at where the financial markets were April 1 and today, there is a 30 per cent increase — and that represents a tremendous boost in their wealth.”
“If you are able exploit stock markets and the volatility in stock markets wisely, people are going to get very much richer.”
The trend of the rich getting richer, despite periodic recessions, has been going on since the 1980s. After income inequality in Canada fell from the 1930s until the early 1980s, it began an inexorable climb upwards. “Inequality is now greater than the 1920s,” says Dimitry Anastakis, a historian at the Rotman School of Management at the University of Toronto. Today, the wealthiest 20 per cent of Canadians control 67.4 per cent of the nation’s wealth — while the 20 per cent poorest control no wealth and are, in fact, underwater with debt.
Anastakis says income inequality has grown over the past 40 years due to globalization, which hastened the deindustrialization of Canada and the U.S. This, in turn, led to a decline in unionization among blue-collar workers, which impaired their ability to garner a larger portion of the economic pie. At the same time, governments began cutting taxes for the wealthy and corporations, while offshore tax havens proliferated.
Meanwhile, wages stagnated. “Workers are making approximately the same real wages they did in 1975, effectively,” says Anastakis. As a result, average people have increasingly resorted to credit to buy goods and services, which is why Canadians have accrued $2.3-trillion in consumer debt — almost the highest per capita level in the world. “Since 1990, the richest group of Canadians has increased its share of total national income, while the poorest and middle-income groups has lost share,” says the Conference Board of Canada.
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Moreover, evidence suggests the rich emerge from recessions even wealthier. Emmanuel Saez, an economist at the University of California, Berkeley, found that in the years immediately after the 2008-09 recession, the top one per cent of incomes grew by 31.4 per cent — while the bottom 99 per cent of incomes grew only by 0.4 per cent. Meanwhile, the Conference Board of Canada found that corporate directors’ compensation in Canada jumped 33 per cent from 2008 to 2010.
Still, the pandemic has not affected the wealthy evenly. Canada’s dominant resource sector has been hard hit, especially with a drop in oil and gas prices. Industries such as hospitality, airlines and tourism have been crippled, as have many retailers.
As a result, some CEOs have taken pay cuts. For example, Air Canada’s CEO, Calin Rovinescu, was due to make $12.9-million in salary — but has since fallen to $5.8-million due to the pandemic’s devastating impact on the airline. And in the oilpatch, many executives have taken pay cuts. The CEO of oil giant Cenovus Energy Inc., Alex Pourbaix, will have his annual base salary cut by 25 per cent, while other Cenovus team members took a 15 per cent cut.
Notably, the companies that are prospering are less dependent on large labour forces and heavily invested in the online world — and geared for a world where people work from home. Which is why Facebook, Amazon, Apple, Netflix and Google — the so-called FAANGs — are seeing revenues climb and increasingly dominate the stock market. “Even for the FAANGs, it’s still a speculative machine,” says Stanford. “They may have a real core a profitability at the centre of it, but it’s a speculative herd mentality that drives up the equity values to ridiculous heights.”
Another reason for the growing disparity in wealth is due to stock buybacks — which is when companies use their profits to buy up their own stock.
Between 2010-2019, companies in the S&P 500 Index distributed $5.3 trillion (U.S.) or 54 per cent of their profits, to shareholders in the form of stock buybacks. One effect was to enrich corporate executives, whose income is often dependent on stock prices.
William Lazonick, a Canadian-born economist and president of the Academic-Industry Research Network in Cambridge, MA, notes that stock buybacks mean average workers are not getting this money: instead it’s going to shareholders and senior executives. Moreover, he says this money is not being spent to ensure companies remain competitive by investing in R&D and productive capital — or on technology or medicine which could help stop the pandemic.
“Basically with the people at the top it’s greed,” says Lazonick. “(Stock buybacks) are all they are concerned about. Look at Apple, which has had $344-billion in stock buybacks since 2013 and could have invested in all kinds of new technologies.”
Now, as the impact of COVID-19 continues to grind the economy, the question is whether growing wealth inequality will seriously hamper economic recovery?
Given that economies generate a finite amount of wealth, if most of that money is hoarded by a small group of people and not spread equably among the broader population, the capacity for average people to buy goods and services declines. And if the pandemic is causing more of the wealth to end up in fewer hands, this could well mean there will be less cash in people’s pockets to get the economy moving again.
Economists like Rochon feel it’s up to governments to intervene by redistributing the economy’s wealth to average citizens by placing higher taxes on the rich, and closing down things like offshore tax havens the wealthy exploit. Otherwise, he says, inequity will continue to worsen — which will mean less chance for the economy to bounce back.
“And so the question is not whether we will have another (economic) crisis but when will this next crisis happen?” he says. “And that’s because inequality is not being addressed. We need to have wealth taxes, we need estate taxes … There is a level of inequality that simply crashes the system.”
British economist Gary Stevenson agrees, although he worries that so far Western governments have shown little inclination to redistribute wealth. “So governments are in debt and running their wealth down and people are in debt and running their wealth down, and assuming that the wealth of the world has not somehow collapsed there must be one group that is accumulating wealth more quickly and that’s the rich,” he says.
“And if you can’t convince the rich to spend their money, which they are not, I don’t think you get spending back into the economy and then the economic crisis is not a temporary crisis — it’s a permanent one.”
