Split By Decision

At the national level, state-sanctioned privatizations have repeatedly pushed valuable state assets into the hands of well-connected individuals, allowing them to create huge fortunes overnight. "Because of the massively corrupt way that the natural-resource sector was privatized in Russia, some early huge gains were reaped by very small, politically powerful groups within the society," says Sachs. Russian oligarchs like Roman Abramovich have parlayed investments in formerly public resource companies into other assets, like the British football team Chelsea FC. In China, transfers of state land and other assets beginning in the 1980s and accelerating in the 1990s has resulted in a slew of politically connected insiders with large ownership stakes in key enterprises. One of the wealthiest men in the world is now Mexico's Carlos Slim, who accumulated his fortune thanks in large part to government protection of the monopoly status of Telmex, his telecommunications conglomerate. In South Africa, the post-apartheid Black Economic Empowerment efforts have funneled assets into the hands of a privileged few. Cyril Ramaphosa, the former African National Congress activist and committed socialist, has been reborn as a private-equity magnate.

As friendly as public policy has have been to the wealthy, public policy in many economies has been distinctly unfriendly to the poor. Aneel Karnani, an economist at the University of Michigan, notes the widespread "self-applause" in India over the booming private sector, with the increased penetration of consumer items like cell phones, but is critical of the nation's failure to provide basic health and a social infrastructure to the masses of citizens. "The representative image of contemporary India is not a cell phone, but rather defecating in public," he says. "In Mumbai, the business capital of India, about 50 percent of the people defecate in the open."

According to the World Wealth Report, the number of people with assets of at least $1 million in India rose by 20.5 percent last year, to 100,015. And the wealthy have every service at their disposal—from world-class hospitals to luxury retailing. But for the majority of the country's 1.1 billion people, most of them in the countryside, the new prosperity remains a mirage, and basic services are a dream.

A recent study conducted at New Delhi's state-run All India Institute of Medical Sciences found that 76 percent of women from mainly well-off backgrounds suffer from obesity. Meanwhile, a World Bank survey says that about 45 percent of Indian children under 5 are malnourished, and the government hasn't devoted sufficient public resources to begin making a dent. Mani Shankar Aiyar, India's minister of Youth Affairs & Sports, noted earlier this year at a meeting of industrialists, "India's system of governance is such that an allocation of 6.5 billion rupees [about $165 million] for village development is considered wasteful, but 70 billion rupees [$1.75 billion] for the Commonwealth Games is considered vital."

Around the world, capital is strong and labor is weak. Increasingly, developing economies—many of them formerly socialist countries allegedly run by workers' parties—resemble the America of the 1890s, with no powerful unions, few worker-safety laws, and little or no enforcement of minimum-wage laws. India's National Commission for Enterprises in the Unorganised Sector notes that 394.9 million workers, or 86 percent of India's working population, are not unionized. Nearly 80 percent of these workers live on less than 20 rupees (about 50 cents) a day. In China, the wage share of GDP fell from 53 to 41 percent from 1998 to 2005, according to a study by economists Louis Kuijs and He Jianwu. Officially, the typical worker earned $240 per month in 2006. Yet Standard Chartered bank concluded that official surveys overstate income by centering on a privileged minority that includes state enterprise workers, civil servants and professionals—segments that employ just a third of China's 330 million-strong urban work force, many of whom are migrants from the countryside who receive low pay and no benefits, and who enjoy little job security. Factoring in low-end workers, the bank estimates the average urban salary is $160 a month, and is rising at 9 to 10 percent a year, or about the annual economic growth rate. Meanwhile, the rich are making exponential gains on their vast fortunes. "The share of the gains of China's growth taken home by workers is falling; those who get rich by putting their own (or borrowed) capital to work are winning a bigger share of the pie," writes Stephen Green, a Shanghaibased economist with Standard Chartered.

Even in nations that have celebrated egalitarianism and social benefits, the safety nets are fraying.The number of Japanese applying for welfare payments has reached record highs. Today fully one third of Japan's workers are part-timers, most of them young, who usually work on temporary contracts that offer little in the way of health care or pension benefits. In western Germany, in the wake of the Hartz IV labor reforms, which slashed payments to the long-term unemployed, soup kitchens are reappearing.