A TPDEARR Article
Trans-Pacific Dynamic Equity Allocation Research Report
For this Demographic Trends article of the SEP.23 issue of the TPDEARR, we would like to focus on the economic stratification of individuals and how it plays out along a spectrum from homelessness to billionaire. In essence, we can’t help but come to the conclusion that such economic “processing” of consumers, residents and market participants is a phenomenon that occurs “naturally” within the predominant global system of capitalism-as-usual. There is virtually no means of participation in the modern world that does not lead, inexorably, through this stratification process, designed as it is by the cornerstones of the system to evaluate the capitalistic value of each individual. In other words, it is a process by which people are valued in accordance with how and how much capital may be allowed to flow through their modern existence. As such, it underlies modern capitalism as the part of the system which defines and perpetuates inequality and its effects, and it metastasizes within an economy in measurable and predictable ways, as we explain below.
Inequality as a Function of Globalization
To understand how our postmodern society can produce such great demographic extremes as multi-billionaires (whose personal wealth can exceed the treasuries and annual GDP of small–to-medium sized nations) at the same time as pervasive homelessness, we must step back to view the economic picture as a whole. Buckle up, as we will cover a lot of ground quickly in order to make a point before fatigue sets in.
In the prevailing and ubiquitous system of capitalism-as-usual, economic inequality is a feature, not a mistake. Because modern/post-modern capitalism is founded on the concepts of valuation and trade, it is only “natural” that the method of valuation be agreed upon by all parties involved, simply in order for prices to be set. Mathematics and computation have combined in such a capacity to determine monetary values (via consolidation of real features into numerals) for everything from goods to services to companies to people, and the creature of capitalism “accepts” these numerical values as inputs in equations used to analyze and enact commercial transactions. In a nutshell, this is “how things work” in modern finance, and this is where we begin.
Once a (usually national) economy can establish a base of mostly-trustworthy valuation among its economic participants, it has reached a point where it can be considered that its people agree on the reality of prices (ie: products, services, wages) in their now-commercial lives, and they transact accordingly. This psychological hurdle is the first of many that contribute to rampant future inequality, for once the reality of prices becomes societally shared, outside participants begin to flock in droves. These outside participants can be other governments, companies, organizations, investors or entrepreneurs, but they all already live in the world of capitalism-as-usual, and are trained in buying and selling in the commercial marketplace and interacting with international supply chains. Fundamentally, whether the outside participant is 1 or 1,000 kilometers away, this “opening up” to outside participation is referred to as globalization. Once outside participants are involved, the pricing regime adjusts in accordance with the unique degree to which the host economy is subject to its resource limits and outside influence, but no longer are prices determined solely domestically.
As globalization is occurring and percolating through a given society, its participants/consumers tend to experience growth in the amount of money they experience in a given lifetime; another similar metric popular among economists is a rise in GDP, though that doesn’t really mean much to the ordinary citizen of the town of Anywhere. This increased exposure to capitalistic value is often interpreted as an increase in the quality of life, and comes along with many such features as modern homes and building architecture, plumbing and electricity, banking, access to more and better goods and services (as defined by capitalism-as-usual) and even access to computing power and the internet.
As consumers are exposed to the newest features of capitalism, according to history, they tend to start demanding them. This generally manifests itself as a demand for more buying power, which is usually a thrust for higher wages. Economic Levers and Pulleys engage and prices throughout the economy start to rise in tandem with wage increases. Remember, this is all occurring during globalization, during exposure to new and novel products and services from foreign markets. Consumers, now more comfortable with commercial turnover from increased exposure to updates in the index of products/services available to them, start to seek higher-quality goods. Higher-quality goods (and services) are manufactured and delivered by higher-quality producers, which represents a broadening of the production spectrum.
To produce continually-higher-quality-goods and services requires persistent growth within the manufacturing/production sector, as well as constant branching and exploration. Entrepreneurs as well as major corporate research departments both contribute to this quest, and both weigh on the “value” of the new products and services being discovered, produced and delivered. As consumer demand for higher-quality goods rises, so does the need for higher-skilled jobs to supply and fulfill that consumer demand. Of course, higher-skilled workers, within capitalism-as-usual, will demand higher wages for their effort. This is a positive feedback loop. One of the only options a company has (within capitalism-as-usual) to alleviate exorbitant growth in the wages they must pay to their employees is to outsource some or all of their labor to wherever it is cheaper for a similar quality.
For example, many Americans will be familiar with this process and how it played out in IT/customer service in the ‘90s and ‘00s; “help desk” services could be provided for less than half the labor costs by the English-speaking class in India and around South Asia, so that’s where companies outsourced such services from, further globalizing their business. It made things cheaper for US corporations (which padded profit margins for shareholders and the capitalist class), and also for consumers, while advantaging the international community by spreading out USD wages to new regions. Many American call center workers had to find a new line of work as these “lower-skilled” jobs became hollowed out of the domestic economy. In effect, it made the rich richer and reduced access to earnings for the relatively poorer lower-skilled workers. Though nobody was trying to hurt anybody else specifically, inequality in America was fueled by this process.
For another example, consider why the PRC became the “factory of the world” throughout much of the same time period. Because of cheap labor costs, many major corporations began outsourcing their physical manufacturing operations to China to lower expenses and increase their margins. What followed was the same hollowing out effect of the US workforce, along with a similar bolstering effect in China by supplying its economy with domestic jobs and internationally-sourced wages, which in turn helped it to expand beyond what would be otherwise capable with only a domestic effort.
As an economy continues to get “richer”, the stakeholder/string-pullers-in-charge keep finding new ways to redesign their operations to provide more profit assurances for the capitalist class, while disenfranchising the lower-skilled workforce and offloading their opportunities to other economies, whose relatively-less-rich citizens then have new chances with which to climb their own economic ladders. All the while, the body of citizenry who continually demand better, higher-quality, cheaper, and more various goods/services from their market are the very same ones who are largely being disenfranchised by the reduction in earnings potential and expanding economic inequality. The catch-22 of economic inequality hinges on a particularly sinister trade-off: you can have access to all the trappings of the developed world, or you can have all the jobs, but you can’t have both in a globalized economy. Something will always be cheaper to produce with someone else’s labor somewhere else.1
Thus, inequality must be viewed as being particularly promulgated by globalization. Yes, bias and systemic discrimination and other domestic issues also produce economic inequality, but so does the very essence of the globalized modern economy. Repairing some won’t heal the others. The accelerated accumulation of wealth for the capitalist class is not just a social issue, it is mathematically incorporated into the contractual obligations that bind companies together and govern their internationally-sprawling operations in modern society. The profit motive of capitalism-as-usual is paramount, and shareholders will either eject corporate leaders who do not respect this ideology, or pull their capital and let the business devolve into total failure, bankruptcy, and takeover (so “they” think).
Homelessness in the Land(s) of Plenty
The ongoing production of “un-housed” individuals is not a new feature of humanity. In some parts of the world it has become particularly visible, while modern media also allows it to be highly visible virtually anywhere else. Though many motivating factors contribute to the population of the un-housed, it is particularly cruel that the standard operating procedure of capitalism-as-usual itself (via globalization, in particular) contributes so significantly to the issue.
As jobs fade away due to increased globalization, the lack of both higher-paying work, as well as jobs more generally, functions to hollow out the “middle class” of an economy, and expand the “lower class”. As we all know, it is from that lower class that the homeless population draws. People with wealthy connections virtually never become homeless and economically destitute; a lifeline is always thrown to them from a family member or other elite from the upper crust. Thus, the larger the lower class, the greater chances of increasing homelessness in a given society.
One would think that, once this cause-effect relationship is established, a federal administration would prioritize addressing the issue with designated housing. Alas, this is not generally the case.2 Further still, governments which actually can manage effective housing assistance programs (like in Japan, whose total number of homeless in 2022 was estimated to be less than four thousand people according to the Ministry of Health, Labor and Welfare, smaller than the homeless population in just the single US state of Hawaii) are putting a Band-Aid on the effects of the primary issue, not preventing it causally. Homelessness and unemployment are inextricably intertwined, with fewer “good-paying jobs” invariably leading to less opportunity for independent financial living, greater strain on supporting family members, and increased risk of homelessness. Since governments cannot force companies in a market economy to offer certain jobs in certain numbers at certain pay rates, this situation is endemic to capitalism-as-usual—the predominant state of affairs.
“Free” market economic activity is naturally stratifying, and in a world wherein growth is necessary to survival, any work situation that lags the present level of inflation is devastating for economic subsistence. A helpful discussion paper recently released by the Bank of Japan’s Institute for Monetary and Economic Studies entitled “Automation and Nominal Rigidities” goes into detail about how the so-called “automation effect” operates to motivate companies to further automate their enterprises and reduce “costly” human labor in a rising wage environment. Though there are myriad macroeconomic effects to this transfer of labor from worker to machine, we feel that the demographic impact is particularly under-realized in contemporary discourse. The net result in such cases is usually an immediate loss of “good-paying” jobs, a middle class hollowing on the current generation of workers that increases economic anxiety on the lower levels while padding economic comfort for the capitalist class. Fewer people thus have more money to spend while more people have less, straining class demographics and forcing shifts in the way citizens and market participants engage politically; rich people vote for different priorities than poor people.
For an overview, according to the World Population Review, in the United States, there are over half a million homeless across all fifty states. Mexico, the US’s relatively-less-rich southern neighbor, has nearly as many, but it represents three times as many as a percentage of the population. The PRC has more than 2.5 million homeless out of their enormous total population of 1.4 billion, which is a similar percentage of the whole as in the US, though it’s difficult to determine how much of an understatement this might represent from the CCP’s official statisticians.
In Southeast Asia, Indonesia hosts more than 3 million homeless, nearly an order of magnitude more than in either of the two global poles (US and PRC); and the Philippines’ homeless population is estimated at north of 4.5 million, more than 22 times the rate of the US. However, Indonesia and the Philippines are rapidly climbing the development ladder and many lower-rung people will find new, “official” wage labor work, as their economies expand, for the first time in their families’ histories. The number of unhoused in these, and other, lower-GDP economies will hopefully shrink dramatically before their middle classes are hollowed out in similar fashion. The level of overall development in an economy is a significant factor in the aggregate standard of living, hewing closely to the globalization ties incorporated into the economy’s operation. Nonetheless, all modern international financial activity must play-in to the standards adopted within capitalism-as-usual, and no country or economy is immune to the domestic wealth stratification impacts of globalization. Comparative advantage is real, and the profit motive is ubiquitous and politically rewarded.
Can it (read: any advanced economy) even be called a “rich nation” if it’s only the capitalist class who is rich? And what, then, do the capitalists want? Simply crying out, “The rich want to get richer!” is an unhelpful oversimplification of the phenomenon. These days, the rich are the billionaires, and the power and control that they want is that over tomorrow’s market.
The Billionaires’ Agendas
On the opposite of the wealth curve from the homeless is the billionaire class, which increasingly manipulates market levers that they (and their armies of analysts) have determined will grant them the most control over future industries. The days of wealth accumulation for wealth accumulation’s sake, a la the Oracle of Omaha, have clearly waned in the rising glow of the new era of powerhouse industrialists who dominate high-tech economic sectors. The new age of billionaires/wealthy elites must also host a publicly-viewable agenda that highlights their course goals and “promises” to “give the people what they want”. Though it’s impossible to know what’s actually going on in their minds3 the trajectories of their business efforts are highly illustrative to that point. The impact of reusable rockets, for example, is both increased profitability AND a fundamental reshaping of humanity’s relationship with astronomical expansion. It is not only about wealth increase; an agenda that stretches far into the future is clearly in play.
Wealthy industrialists who effectively force the reorientation of key commercial sectors have the power to influence the way in which ordinary citizens (ie: wage laborers) interact with the modern world. In fact, they are likely more capable of this type of influence than even federal governments. Everybody uses cell phones now because of capitalists, not the government. Jobs are being automated away because of machines innovated by capitalists, not elected officials. The billionaires’ agendas must be considered in tandem with proposed policy adjustments in order to fully comprehend near- and intermediate term trajectories. Capitalism-as-usual has given us a modern world that messily combines the two influences; we can’t pretend like we can avoid the agendas of the wealthy.
So what are the billionaires doing with their capital now? According to the foundation we’ve laid, they are:
1. allocating their efforts (ie: resources) towards those elements of the market society which will have the most disruptive impact on (and profitability from) society today, while
2. positioning themselves (their capital, rather) to have the most prominent roles in society tomorrow.
One owns the future (#2) by disrupting the present (#1), and the largest disruptions to the present, though perfectly unpredictable, aren’t necessarily entirely unpredictable to those with the greatest access to information and the most resources to capitalize on it. More money generally buys access to more resources (ie: companies, workforces, patents, lawyers, idea generators, etc.), and having more resources is more advantageous than having fewer. Since it is possible to predict some of the challenges humanity will be facing tomorrow, such as climate change, it is possible to reverse-engineer at least some of the ways in which society will be required to address it. This logic is why major technology and environmental efforts are being more and more populated by high-profile billionaires as time goes on, with much less emphasis on the scientists who drive the innovation at the R&D level. And let it not go unsaid that R&D is largely paid for with excess profits generated through the countless commercial offerings of major conglomerates, which are owned by very rich individuals in combination with large pools of capital (such as investment funds like Blackrock, Vanguard and State Street) whose ownership is made up of individuals in the same ultra-wealthy class, and who also desire the same positioning for wealth accumulation from the future. Because the capital drives and funds the R&D, the capitalists are really the ones calling the shots, though if those wealthy capitalists are in the PRC, they better do it within the policy parameters and ideological safe operating space designated by Xi and the CCP. Otherwise, as we’ve seen (and covered in past TPDEARR issues) recently, their wings will get clipped and their efforts either stymied (such as in canceled IPOs) or their presence on the innovator’s stage revoked entirely.
As investors, we want our capital to be aligned with, and slightly ahead of, the billionaires’ agendas.4 Furthermore, when the billionaires’ agendas align with each other, ideological and capital synergies can create the right conditions for truly accelerated return on equity performance. One pronounced example of this is [SEP.23 Squad asset #3]. When one billionaire’s company’s advanced products are a necessary component within another’s, you can be fairly sure that mutually beneficial progress is on the horizon, particularly so when the math and science involved are in agreement, and at the forefront of the domain. When a billionaire’s company is in competition or partnership with another, such as [SEP.23 Squad asset #2], economic activity is sure to follow.
According to Japan’s Nikkei, the Asian region has more billionaires than any other. Though Xi’s press for “common prosperity” stemming from mid-late 2021 has slightly dampened some of the excessiveness of said wealth with certain Chinese individuals, the population and economic growth across Asia has continued to fuel massive gains for hundreds of prominent capitalists. Thus, although the distinct net worth of given individuals doesn’t quite compare to that of billionaire celebrities from the West, the strength of their capitalistic endeavors goes even further throughout the relatively-less-wealthy populations in Asia.
In Southeast Asia, [SEP.23 Squad Asset #3] is a prime example of this type of economic might. It is Vietnam’s largest conglomerate, and it is owned and founded by Vietnam’s first billionaire, giving it unparalleled clout in the economy’s transactional growth.
The bottom line we wish to impress here is that in the modern environment of capitalism-as-usual, it is unwise to cross the billionaires with an alternative agenda. They will drown you with their enormous pools of resources until you either sell, yield, join, or perish.
- The economics principle of comparative advantage also helps to explain the strength of this inequality phenomenon. Because of the natural variation in resource distribution across the surface of the planet, certain minerals, agricultural crops, marine products and other goods, combined with relatively disparities in the cost of labor, will always be cheaper to extract and produce in some places versus others. ↩︎
- JP is an exception to this tragic trend, with a well-established housing program for unhoused individuals. Though, economic anxiety absolutely pervades the lives of Japanese citizens in a highly inescapable way. It is exceedingly difficult to rise to a higher economic class in Japan, and the restrictive interest rate environment makes many of the typical maneuvers of capitalism unviable. ↩︎
- Even their public announcements/interviews/etc. must be taken with a grain of salt. Whatever “the people” think about them is significantly less important to an industrial magnate’s future profitability and commercial dominance than is what “the people” actually do with their money. In most cases, people will happily bash a billionaire while simultaneously buying their products, or at least buying into how and what their products/services have done to reorient the marketplace to the collective advancement of their quality of life… in their opinion. ↩︎
- Powerhouse corporations run by the wealthy elite make easy work of gobbling up new and small competitors with promising innovations through (hostile, if need be) acquisitions; getting in at the ground level or seed level can produce sudden returns on capital in this way for investors, while also frequently disenfranchising the relevant startup operators from future control over their creations. In this way, for highly scrutinized sectors like tech and environmental-based, returns are slanted towards the capitalists more than the entrepreneurs. ↩︎
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