Seshat: Global History Databank is a non-profit organisation which systematically collects all the information known about the social and political organisation of human societies and how civilisations have evolved over time. A large interdisciplinary and international team of experts helps the Seshat project to produce a database that is historically rigorous enough to study the past, using well-established scientific techniques. Its mission is to use this information to test different hypotheses about the rise and fall of large-scale societies through history.
Nearly 250 years before the birth of this initiative, the historian Edward Gibbon published his book The History of the Decline and Fall of the Roman Empire, to much acclaim. Gibbon famously commented that living under the Roman Empire in the second century was “the period in the history of the world, during which the condition of the human race was most happy and prosperous.” Periods like this — which could include Medieval China, Classical Athens, early modern France, among others — are often lauded for their flourishing economies, luxurious consumption and incredible artistic achievements. However, these seemingly grand eras are typically ‘golden’ for only a few wealthy elites and for a limited period only, after which they meet their demise in some form or another.
What causes these exceptional societies to fail?
This is one of the questions the team at Seshat have set about trying to answer. They have examined dozens of variables, including population numbers, measures of well-being, forms of governance and the frequency with which rulers are overthrown. The researchers found that the precise mix of events that leads to collapse varies, but two drivers of instability loom large. The first is immiseration — defined as the process of impoverishing or making people worse off. The second, and more significant, is elite overproduction – when a society produces too many super-rich and ultra-educated people and not enough elite positions to satisfy their ambitions.
What is particularly noteworthy is that immiseration and elite overproduction tend to go together. This is because the entrenched elites have historically found ways to extract wealth out of the poor over long periods of time. They typically achieve this by increasing rents, keeping wages low, taxation, forced labour, or even slavery. This extra wealth accumulates quickly and even though most people are getting poorer, the numbers of the very wealthy are increasing as this ‘wealth pump’ becomes more efficient.
Returning to the period during which Gibbon declared humanity’s ‘happiest,’ it is estimated the richest 1% of the population controlled almost 30% of Rome’s total wealth. They monopolised land and property ownership, leaving the rest of the population with expensive leases in rural areas or living in crowded cities where space was tight, and conditions provoked rising disharmony and discontent
Are these patterns, once again, hiding in plain sight?
Based on Q1, 2024 data, (Wealth distribution U.S. 1989-2023 | Statista) the top 1% of the US population controlled 30.4% of the nation’s wealth. The researchers at Seshat have dug deeper into wealth trends and this reveals, back in 1983, 66,000 American households were worth at least $10 million. That may sound like a lot, but by 2019, controlling for inflation, this had increased tenfold. The number of households worth $5 million or more increased sevenfold, and the number of millionaires went up fourfold.
On its surface, having more wealthy people does not sound like such a bad thing. But at whose expense did the elites’ wealth swell? Starting in the 1970s, although the overall economy continued to grow, the share going to the average US worker began to shrink and real wages levelled off. By 2010, the relative wage of an unskilled employee had nearly halved compared with mid-century. For the 64 percent of Americans who did not have a four-year college degree, real wages shrank in the 40 years before 2016.
Even college-educated Americans are not doing well across the board; moreover, to get ahead of the competition, more college graduates have sought out advanced degrees. From 1960 to 1970, the number of doctorate degrees granted at US universities more than tripled. This was manageable in the post–World War II period, when the number of professions requiring advanced degrees shot up. But when the demand eventually subsided, the supply did not. By the 2000s, degree holders greatly outnumbered the positions available to them.
This is part of a broader trend. Compared with 50 years ago, far more Americans today have either the financial means or the academic credentials to pursue positions of power, especially in politics. But the number of those positions has not increased, which has led to fierce competition. This should be considered healthy for society, in moderation – but one of the spokesman for the Seshat project – Peter Turchin – argues the competition we are witnessing has been anything but moderate. ‘It has created very few winners and masses of resentful losers. It has brought out the dark side of meritocracy, encouraging rule-breaking instead of hard work.
Too many kings?
Turchin has declared that the key predictor of internal crises within nations is the overproduction of elites and this leads to conflict between them. But who are they? Through history, elites have fallen into 4 categories: those that exert coercive power (typically the military); those with bureaucratic power (civil servants, lawyers, politicians); groups able to exert financial power (civil servants, CEOs, billionaires) and those possessing ideological power (media figures and government propagandists).
Ten years ago, Turchin famously predicted the US would experience a turbulent 2020s. He contends that since the 1980s, wealth has been pumped from the poor to the rich in the US and this has funded a huge increase in the number of billionaires and elite aspirants; this state of affairs has peaked only now, when competition for the top jobs has reached high levels, against the backdrop of popular discontent resulting from the financial crash, COVID, inflation and the high cost of housing. Elite educated aspirants and entitled old wealth (Donald Trump?) are using this discontent to gain power. But instead of attempting to turn off the wealth pump, so far, they are just directing anger away from wealth inequality and towards the fuelling of ‘culture wars’.
The two drivers of instability are looming large but who is taking notice?
Implication for portfolios
In political, diplomatic and military circles the US is increasingly termed as a dysfunctional superpower; isolationist abroad and – as described – increasingly polarised at home. However, in the investing world, the term ‘American exceptionalism’ is hotter than ever. Equity market outperformance and relative dollar strength have brought us to the point where the US, with 4% of the world’s population, roughly a quarter of global GDP and a third of global profits, now accounts for more than two-thirds of the MSCI World index’s capitalisation. Active asset allocators who over the past five years owned anything other than US growth stocks have been up against it. The decision to overweight, or underweight, US large-cap growth has been far and away the most impactful determinant of investment returns.
Prevailing consensus is the gap between the US and the rest of the world is typically justified by citing the earnings power of these top US companies, their global reach and their leading role in tech innovation. These strengths are all real, but at what stage does the faith in exceptionalism go too far and expectations become very difficult to live up to?
Separately, we have recently been reminded US federal debt has doubled since 2015. Indeed, it took the US over 200 years to run up $18tn of government debt and just 9 years for the next $18tn. The ongoing sustainability of this is rightly a focus of market participants and policymakers alike.
Equity market allocations and performance are extremely concentrated today. By numerous measures, the US is over-owned, overvalued and overhyped to a degree rarely seen before. We are not predicting a spectacular decline for US equities, but we are very mindful that the current valuations of large-cap leaders have historically resulted in modest to negligible returns over the following 10 years. While it is easy to get caught up in the hype that accompanies such periods of performance, we remain committed to our investment principles, including a belief in the importance of valuations and diversification.
While the US has been the standout market success story since the Global Financial Crisis, the rise and fall of empires throughout history provides fair warning that recent performance is not a guarantee of future returns.
Russell Waite and Jon Proudfoot
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