A small number of individuals currently control a disproportionate amount of the wealth in most democracies. In America, the ultra-rich .01% of the populace has 11.1% of the nation’s wealth, with the top 1% owning 39.8% of the wealth, an astounding $32.6 trillion. These numbers do not consider assets held in offshore accounts which would skew the percentages even further. The richest .01% has quadrupled their share of America’s wealth since 1980, a time when they were already quite rich. To a major degree, government policy has been responsible for the affluent being able to accumulate this grossly unequal share of assets, while the middle class has stagnated financially and poverty appears to be intractable. (Just a small portion of the money held by the ultra-rich could completely eliminate poverty in the United States.) Income inequality in the U.S. is greater than in any other nation in the developed world by a significant percentage.
And wealth creates wealth. The more disposable income and excess capital an individual has that is not required for living expenses, the more extra money he or she can accrue through investments. Then, that additional surplus money can be reinvested along with the original sums, creating greater and greater wealth for that individual and his or her family. Thus, those with large amounts of disposable income become wealthier each year. And if governments are unable to restrict this accumulation in some fashion, the wealth is transferred from generation to generation, continuing to grow with each cycle, assuming the heirs are reasonably intelligent and not dissipated. To a certain degree, in democracies the ultra-rich have achieved the same status the nobility were accorded in feudal societies, living in castles with servants and bodyguards, their every desire gratified.
Unfortunately, the result is that over time, democratic states may be transformed into plutocracies, where a small group of affluent people control the government and all the important political decisions, as wealth is also equated with power. Affluent individuals are able to influence the outcome of elections through campaign contributions. And in addition, they can donate huge sums of money, tens to hundreds of millions of dollars, or even billions, to nominally independent groups that sponsor political advertisements and mobilize citizens to vote in certain ways. This provides the ultra-rich with the ability to induce legislatures and executives to do their bidding. The consequences are usually lower tax rates and fewer regulations on businesses.
Thomas Piketty in his book Capital in the 21st Century noted- “When the rate of return on capital exceeds the rate of growth of output and income, as it did in the 19th century and seems quite likely to do again in the 21st, capitalism generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based. There are nevertheless ways democracy can regain control over capitalism and insure that the general interest takes precedence over private interests, while preserving economic openness and avoiding protectionist and nationalist reactions.” Thus, one of the major objectives of democratic societies must be discovering how to lessen the concentration of wealth in only a few hands with continuous generational transfer, and achieving this end in a rational fashion.
And can societies suppress the sentiments of class privilege that inevitably develop as individuals and families amass wealth and power. Though this is not commensurate with the ideal of democracy, it is unlikely to be changed. Mickey Kaus noted in The End of Equality- “in their isolation, these richer Americans not only are passing on their advantages to their children, but are coming to think that those advantages are deserved; that they and their children, are at bottom, not just better off, but better.”
Inequality is inherent in capitalism, where those who are smarter, or those who work harder, will accumulate more wealth and have the advantages that wealth brings. There is nothing wrong with that. The challenge for democracy is cut down on the generational transfer of this wealth so that a plutocracy does not eventually develop. For a democratic society to flourish, equality of opportunity, a meritocracy, must be maintained, rather than control of the state by those with inherited wealth. Can it happen when lobbyists pressure Congress to meet the needs and interests of the most affluent segment of the population, and the wealthy themselves use their wealth to help elect those politicians who will bow to their wishes? It will not be easy.