“This is our historic moment of crisis and challenge, and unity is the path forward.” Joe Biden, inaugural presidential address There is a famous mathematical inequality popularised in French economist Thomas Piketty’s influential work, Capital in the Twenty-First Century : r > g. What he means is that in the long run, the rate of return on capital (r) is always greater than the rate of economic growth (g) in capitalist economies. What we have witnessed in recent decades is that r > g is not only true in the long term, but even in the very short term, as in months and years. For example, last March, when global equities hit rock bottom because of the Covid-19 pandemic , American billionaires suffered catastrophic financial losses just as ordinary Americans started losing their jobs. From March to April, in the United States, the unemployment rate jumped from 4.4 per cent to 14.7 per cent. While that was the peak, as the jobless rate has since more than halved to 6.7 per cent, pre-Covid unemployment rates ranged from 4.7 per cent to 3.5 per cent during the time Donald Trump was in office. Since its nadir in mid-March, the S&P 500 has gained more than 66 per cent while repeatedly hitting record highs; bitcoin has gained fivefold and the Nasdaq almost doubled. It’s not just stocks; so long as you have significant hard assets relative to your earnings – be it a commodity such as gold or a gold ETF or real estate – chances are that you are no worse or even wealthier than you were in March. But if you are a wage slave living from pay cheque to pay cheque in North America, you are in a world of hurt and will be so for a long time to come. American billionaires are wealthier than ever, not because of their genius in navigating the Covid-induced economic crisis, but because they can always rely on the US Federal Reserve with its one-sided monetary policy to make them whole, no matter how bad a crisis, or if the crisis was actually caused by the recklessness and greed of those it was bailing out, as in the financial meltdown of 2007-08. It’s not for nothing that Washington’s response to the last global crisis has been described as the greatest transfer of wealth from the poor to the rich in history. Who needs medieval feudalism when you have American capitalism! From the first mathematical inequality, it also follows that r > l, that is the rate of return on capital (r) is always greater than the return on labour (l). It’s well-known that wages have been stagnant across the developed world in the past two decades. Hong Kong workers know all about that. And asset inflation has gone through the roof; Hong Kong people know all about that, too, especially with their real estate market being the most unaffordable in the world. According to the December 2018 global wage report from the International Labour Organization (ILO), excluding China, real or inflation-adjusted wages grew at an annual rate of a mere 1.1 per cent in 2017, down from 1.8 per cent in 2016. That is the slowest pace since 2008. Even workers in developing countries are falling behind, though their wage growth may be higher than their counterparts in the developed world, but only because they start at a low base. Their average wage growth in 2017 was 4.3 per cent, compared to the previous year of 4.9 per cent. Asia experienced the fastest real wage growth, owing largely to China and smaller economies such as Cambodia, Sri Lanka and Myanmar. But, overall, wage growth in Asian economies mostly decelerated in 2017. In Latin America and Africa, some economies even experienced real-wage declines. In the G20 economies, average real wages grew by a mere 0.4 per cent in 2017, compared to 1.7 per cent growth in 2015. Real wages were up by 0.7 per cent in the US, compared to 2.2 per cent in 2015; they stagnated in Europe, where small increases in some countries were offset by declines in France, Germany, Italy, and Spain. This was despite the rapid recovery in labour productivity, according to the ILO, from the last global financial crisis. In other words, workers work just as hard, if not harder, as they were before 2007-08 but earn less now. No doubt the economic devastation from the pandemic will have a serious impact on wages, but we await the data. Of the major economies, China alone has bucked the global stagnant or declining wage trend. China’s average annual wages grew from 42,452 yuan in 2010 to 93,383 yuan (HK$112,000) in 2019, a phenomenal compounded rate of increase of more than 8 per cent per year. Again, the Chinese started at a relatively low base, but then so did most other developing countries. This has, without doubt, contributed to the decade-long decline in its Gini coefficient as a measurement of economic inequality. It is, however, still alarmingly high, at 0.46 in 2019, from the peak of 0.49 in 2007. During the same period, the US Gini went up from 0.46 to 0.48. Some social scientists believe anything above 0.4 is worrying. There is a well-known economic theory called the Lewis Turning Point, named after W Arthur Lewis, who won the Nobel Prize for economics in 1979, which argues that new and more productive economic sectors can fully absorb surplus labour and push up overall wages. China’s wage growth has been a picture-perfect capture of this “turning point”. Consciously or not, Chinese policymakers have long been following Lewis in their struggle to maintain high employment without killing wages – no doubt in response to the need to avoid widespread social conflicts and the delegitimisation of the communist state. Last July, an extraordinary study was published by the Ash Centre for Democratic Governance and Innovation at the Harvard Kennedy School of Government, which seeks to provide a long-term view of how Chinese citizens view their own government at the national, regional and local levels. What began as an exercise in building a set of teaching tools for an executive education class eventually transformed into the longest academic survey of Chinese public opinion conducted by an independent research institution outside China. Its findings? Based on surveys conducted between 2003 and 2016, and face-to-face interviews with more than 31,000 Chinese living in both urban and rural areas, it found that the satisfaction of Chinese people with the central government was as high as 93.1 per cent in 2016, and that of the other three-level governments – provinces, cities and counties – was more than 70 per cent. By 2016, the Chinese government as a whole was more popular than at any time in the previous 20 years. More recently, China’s handling of the Covid-19 pandemic has mostly provoked hostility and criticism among politicians and citizens in the West. However, domestically, most Chinese have looked favourably on their government. According to a recent survey by Cary Wu, an assistant professor of sociology at York University in Toronto, on a scale of 10 (unsatisfied with all levels of government) to 50 (satisfied with all levels of government), Chinese citizens indicated an overall satisfaction score of 39.2 (38.8 in Hubei province, where Wuhan is located). “This suggests that Chinese citizens’ satisfaction with government performance during the pandemic is very high,” he wrote. Presented alternatively on this binary scale of satisfaction (1) and dissatisfaction (0), “about 75 per cent of China’s citizens indicated they were satisfied with government’s information dissemination, while 67 per cent were satisfied with the government’s delivery of daily necessities and protection materials during the pandemic”. Wu’s survey was conducted in April with 17 Chinese academics and 613 university students from 53 universities across China. Together, they collected data from 19,816 people in 31 provinces or provincial-level administrative regions. Wu concludes: “Taken together, it’s evident that Chinese citizens hold very high levels of satisfaction with the performance of their national government during the pandemic. “When citizens have high levels of satisfaction with how government works, they also become more trusting of government. This suggests that China’s handling of the Covid-19 pandemic might have enhanced the legitimacy of its government.” By contrast, in a joint Axios-Ipsos survey conducted this month, four-fifths of Americans – both Republicans and Democrats – agree with the statement that America is falling apart. This reflects, according to the poll, a collision of crises – “a pandemic, recession, decoupling of red/blue America, and racial injustice and the immediacy of the Capitol insurrection, followed by Impeachment II”. In his inaugural address, Joe Biden called for American unity: “We can join forces, stop the shouting and lower the temperature. For without unity there is no peace, only bitterness and fury. No progress, only exhausting outrage. No nation, only a state of chaos. This is our historic moment of crisis and challenge, and unity is the path forward.” Almost half of the US electorate didn’t vote for Biden, and among those voters, a substantial number believe he stole the election. Without the pandemic or without his mismanagement of it, Trump very likely would have been re-elected. Biden and Trump and their political allies didn’t create the divisiveness in the US they all decry; they merely respond to it or exploit it. Job insecurity, falling wages, widening economic inequalities, racial injustice and a widespread perception, amply justified by empirical evidence, that the economic and political systems are rigged against the little guy – these are the underlying causes of social divisiveness and conflicts. An unmistakable trend is that the share of national income accruing to labour is rising in China but falling in the US. This is actually a state-directed policy, rather impossible in the US given its beliefs in free enterprise. Measured as trends or socioeconomic indicators, all those factors are, at least for now, in China’s favour. And if you believe a nation’s strength must draw on its unity, then Americans may be in for a nasty surprise in their country’s rivalry with China.