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Income Inequality in Silicon Valley and Asia

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Silicon Valley is the true epicenter of the New Gilded Age:

As Silicon Valley boomed after the recession, its middle class shrunk, creating one of the widest gaps in the nation between the ultra-wealthy and everyone else.

Here, fewer than 50% of households are now middle class and half of all income gains flowed to the top 1% of earners, said a new report released Wednesday.

At the same time, housing prices skyrocketed while incomes at the lower end of the spectrum were stagnant.

The three county region of Santa Clara, San Mateo and San Francisco, home to employees from hundreds of tech companies including Facebook, Google and Apple, is a far more unequal place that it was a quarter of a century ago.

The report, Inequality and Economic Security in Silicon Valley, was produced by the non-profit, non-partisan California Budget & Policy Center, based in Sacramento, Calif. It looked at income equality in Silicon Valley from 1989 to 2014, the last year for which full data was available.

In San Mateo county, the average income of the top 1% earners climbed 36% between 2009 and 2013, to $4.2 million, meaning that sliver of the population took home 46 times more pay than the average of the bottom 99%.

In Santa Clara county, the average income of the top 1% of households increased 83% to $2.7 million. That was 30 times more than other households in the county.

For San Francisco, which is both a county and a city, the average income of the top 1% rose 51%, to $2.7 million. That was 43 times the average income of the bottom 99% of city residents.

While income inequality is an issue nationwide, in Silicon Valley it’s become a chasm that could affect the nation’s center for tech innovation long term, the report cautioned.

Could affect? I think that ship has sailed. What’s worse is that this extreme inequality is spreading to other areas where overpaid techies build gigantic homes, like Austin, Portland, and Seattle. What poor people do in these places is have ever-longer commutes, now reaching two hours for the service workers in the Bay Area.

Speaking of such things, for as much as free trade fundamentalists love to talk about Asia, they ignore the gargantuan income inequality problems in those industrializing countries that have now reached Latin American levels.

The more recent increase in Asia’s income inequality is another potential disaster.

Strong growth has seen hundreds of millions of people lifted out of poverty in Asia but, since the beginning of the 1990s, that growth has been accompanied by a dramatic increase in income inequality.

Income inequality in the region’s mega economies, China and India, is now at Latin American levels.

More worrying is the inequality of opportunity that has accompanied it: the dual labour markets with unskilled workers in “informal sector” poorly paid with no opportunity for training; the limited access of lower-income individuals to health care, education and financial services.
In India, the IMF says, there are large gaps between the top and the bottom of the income distribution in educational attainment, access to health care and access to finance, while at least 70 per cent of non-agricultural workers are employed in the informal sector.

There is roughly the same reliance on the informal labour market in Indonesia and The Philippines, and similar gaps in access to education in Cambodia and in access to financial services in Indonesia, The Philippines and Vietnam.

A temporary increase in income inequality plays a positive role in economic development and poverty reduction, because it induces under-employed rural workers to relocate to the cities.

But entrenched income inequality is likely to undermine political stability and economic growth. We have seen that most spectacularly in Thailand.

This has the potential to be a huge problem, as we have seen in the political turmoil in Thailand over the last decade, which is fundamentally a class war between the poor on one side and the rich and the military on the other. This income inequality is not sustainable if Asian nations want long-term stability. Which is also true for the United States.

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  • Ronan

    I came across this recently and thought it was quite good (and on point)

    https://morecrows.wordpress.com/2016/05/10/unnecessariat/

    • Origami Isopod

      It is good. Thanks for sharing it. A few tangential thoughts:

      1. Big surprise that Johnny Hart drew a homophobic cartoon.

      2. The commenter going by “Someone” really ought to read Loomis’s piece on STEM supremacists.

      • Origami Isopod

        3. Dreher seems to have linked to it. To what purpose, I don’t know, as I don’t wish to visit his blog.

        • To clarify, Dreher links to the More Crows post, not to Erik’s piece. I wouldn’t have clicked through if I’d realized that. Dreher quotes a reader who shows amazing smugness regarding the alt-right, who would be ordinary authoritarian paleoconservatives, if their parents had brought them up right.

          eta: Oh and I didn’t get to that. Dreher claims the right’s racism and anti-Semitism problems are the cause of these alt-right people who weren’t brought up Christian.

          • Origami Isopod

            To clarify, Dreher links to the More Crows post, not to Erik’s piece.

            Right.

          • DocAmazing

            Gott Mit Uns.

      • Ronan

        Yeah, she(I think) really can write.

        Another article linked in the post was really good as well.

        http://www.washingtonpost.com/sf/national/2016/04/08/we-dont-know-why-it-came-to-this/

        Edit: I don’t know if, considering the subject, “good” is the word I should use. Empathetic, generous, informative, important..worth reading anyway

    • BigHank53

      I will also recommend that essay.

  • DrDick

    For all the claims of globalization enthusiasts to the contrary, almost all of the gains from development in Asia have gone to the wealthy, with some relief to the worst poverty,

  • Silicon Valley is not just the epicenter of the New Gilded Age. It is epicenter of the New Aristocracy.

    • Is there a difference?

      • I believe so, in so much as what we are witnessing is the probable irreversible evolution of the U.S. from a democracy to an aristocracy ruled by those who have inherited their wealth.

        The difference between now and the Gilded Age is the aristocrats of today have the example of the Gilded Age to learn from in terms of how to preserve their power.

        • No Longer Middle Aged Man

          Most of those in Silicon Valley didn’t inherit their wealth, though what happens next may fit your example. One of the things about the tech elite though is that having money and power isn’t enough, they expect adulation from the press and the public as well. The finance masters of the universe at least spare us the latter indignity in their Shermanesque march through the middle class.

          • Most of those in Silicon Valley didn’t inherit their wealth, though what happens next may fit your example.

            To your point, the ‘formal’ aristicracy will arise from the next generation. What we are seeing now is the laying of that foundation.

          • Aexia

            Didn’t inherit their wealth but almost universally came from fairly privileged backgrounds that enabled them to take big risks without fear of being completely ruined and homeless if their bet failed.

  • J. Otto Pohl

    Granted this is wiki but it has an easy to read map on Gini coefficients from 2014. The worst inequality isn’t in Latin America but in Southern Africa. The post-apartheid regimes of South Africa and Namibia and the diamond rich country of Botswana are the most inequal countries. In Asia China, Malaysia, and Papau New Guinea are listed as the worst for the continent. A lot of former socialist countries in Asia other than China and Russia still do pretty well on equality. That is Kazakhstan, Mongolia Central Asia, and Indochina. Of course things might have changed a lot in the last couple of years.

    https://en.wikipedia.org/wiki/List_of_countries_by_income_equality

  • Steve LaBonne

    Oh, I think stability despite massive inequality is all too achievable given a sufficient level of repression. (Anybody think the Chinese Communist Party is going away any time soon?) Trump is not the last, or most successful, fascist politician we’re going to see in the US.

    • BigHank53

      The problem with that sort of repression is that it requires social, political, and technological stasis in order to last more than a few years–decades, at most. Compare China and North Korea, for example. While there are those that would consider turning the USA into a theocratic backwater a fair trade if it meant they could be rich and powerful forever, climate change and fossil fuel depletion are already knocking on the door. They will be coming into the room, and any society devoted to social, political, and technological stasis will turn itself into a historical footnote very quickly.

      • Steve LaBonne

        I consider China an example of repression that, Last Leopard style, changes in order to remain the same. Surely better than North Korea, but that’s pretty cold comfort if our future looks something like China.

    • Just_Dropping_By

      Well, yes, Trump is certainly not the “last, or most successful, fascist politician we’re going to see in the US” because he isn’t a “fascist” by any definition of the term other than “right-wing politician I don’t like.” To the extent Trump has an ideology, it’s probably best characterized as sultanism: https://absurdbeats.net/tag/sultanism/

  • JL

    I would guess that the techies who are in the top 1% in this case, or can afford to build homes in these cities, are not making that money because of high salaries, they’re making that money because they founded or had a bunch of equity in a company that cashed in. The average techie salary for someone with eight years of experience in Silicon Valley is roughly $140k-$150k for developers and $150k-$165k for managers. Make no mistake, that’s a really high income, tremendous privilege in an economically precarious world, and if you’re a dual-techie couple it’s putting you into >$300k territory. According to Pew’s definition, even a single income in that territory makes you “upper class” for a family of three (they define upper class as 2x median income for household size). But you’re not building a giant house in an expensive metro area with it.

    Edited to add: I got so interested in the details that I left out the broader point. Yes, vast income inequality is bad for stability, political legitimacy, the quality of life for people who get the short end of the stick, lots of things, and it’s as much true in the US as in Asia or any other faraway place that people in the US are prone to seeing as “This can’t happen here.”

    • JL

      Ran out of time to edit, so here’s another one: Those numbers, I realized, were only for venture-backed startups. But my understanding is that the numbers are pretty similar at the established companies.

      • Philip

        They are, but there’s a but. At public companies, where the stock has actual value, yearly equity grants can end up adding a lot on top of salary.

  • j_kay

    China, I think, has an aristocratic culture. It’s always had exams to oood effect.

  • marcel proust

    This has the potential to be a huge problem, as we have seen in the political turmoil in Thailand over the last decade, which is fundamentally a class war between the poor on one side and the rich and the military on the other.

    This has been going on a lot longer than just the last decade: I remember at least one unusually brutal coup back in the 1970s, probably before the flight from Saigon. My recollection is something on the order of Pinochet’s coup, so not at the level of Suharto’s but still, …

    Was there a lull or some other change in the weather between the ’70s and the aughties? (obviously, I have not been paying attention, other than noticing the boom and bust in SE Asia during the nineties).

  • pdge

    It is strange to find a labor oriented blog complaining about how much labor is valued, eg. “overpaid techies”

    That term could come right out of management’s playbook in the valley.

    • Linnaeus

      Yeah, I thought that missed the mark, too. The problem is that too many people are underpaid.

  • Joe Bob the III

    I find the 1% meme a little problematic, and this is a perfect example of why:

    In San Mateo county, the average income of the top 1% earners climbed 36% between 2009 and 2013, to $4.2 million, meaning that sliver of the population took home 46 times more pay than the average of the bottom 99%.

    The 1% includes everyone earning from about $350K to infinity per year. $350K is a lot of money but these aren’t Gilded Age households, especially with real estate prices in San Mateo County.

    Separately, you could not ask for a better example of journalistic innumeracy than using average income as a benchmark in a place like San Mateo County. Do you know who lives in San Mateo Co.? Larry Ellison, former CEO of Oracle, among who knows who else. Ellison is worth about $50 billion and routinely pulled down $80 million or more per year in his heyday at Oracle. This is right up there with “Bill Gates walks into a bar and, on average, everyone there is a millionaire.”

    • LosGatosCA

      Woodside, Atherton, Hillsborough in a relatively small county. Smaller than San Francisco in population, 1M fewer people than Santa Clara, yet a magnet for the ultra rich.

      San Mateo County is anomalous even within the Bay Area.

  • wengler

    Is there an app for heads on pointy sticks?

  • Sebastian_h

    This is one of those innumeracy problems. The few ridiculous houses are indeed ridiculous, but the underlying problem is that 80% of the people who own homes in the area have a vested interest in making sure that large condos or apartments don’t go up anywhere within miles of them. Even large luxury condos would help relieve the price craziness. But no, try to put up anything more than 5 units in most neighborhoods and you’re up for a complete knock down drag out fight.

    It is like promising to never have middle class tax hikes only worse. You literally can’t solve the problem without massively more building, and even (especially?) in the most progressive cities you can’t do that.

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