Too soon after the 2008 meltdown the wobbling global gloom of 2011
Many revolts of our times
By Rajendra Prabhu
The headlines on October 16 and 17 focused a wave of protests by common people across the world financial capitals and metros. Beginning with a movement “Occupy Wall Street” in New York the street protests against bankers and financiers and the fat rich and greedy—the very cream of market economy—became global, from New Zealand to Alaska via London, Frankfurt, Washington, Las Vegas, Chicago, etc. Earlier thousands of people had demonstrated against economic policies of their governments in Madrid, Paris, Athens, Rome and elsewhere in Europe as government austerity policies began to bite through the already hard hit common people. “Occupy London Stock Exchange” shouted the protesters in Britain. Across world financial capitals people’s anger and frustration with the market economy was bursting out. In as many as 82 countries! Is this the end of market economy, many wondered.
Cut back to 1980s when shipyard workers’ protest at the Polish port town of Gdansk ended up ten years later into the collapse of communist regimes across Eastern Europe and Soviet Union, the tearing down of the Berlin Wall as the strident and fearful symbol of communist power and reunification of Germany under free market economy. I saw the Wall in 1989 standing forbidding, a concrete and steel wire behemoth, a warning to East Berlin’s own citizens against any attempt to escape the communist prison house where—as it later transpired- family members spied and lied against one another to the all pervasive secret police, each one to save his own skin. Grim looking fully armed security men searched even under the bus seats as the tourist bus took visitors to the marvellous museums of the communist half of the city.
Three years later on a visit again to Berlin, the Wall had vanished, not even a piece of concrete to take home as a souvenir. And the East German Communist boss Eric Honaker was in jail facing trial. Then in Moscow in 1991 a fearless mayor Boris Yeltsin stood bare chested before Soviet tanks leading a million protesting people and, without a shot being fired, the nuclear armed million army strong Soviet empire came down on its knees, reminding us of T.S. Eliot’s famous lines about the London Bridge falling down “not with a bang but with a whimper”
And coming back to 2010-11, the Arab Spring began with a tiny event of protest against police highhandedness against a street vendor who had lost his salesman job in Tunis. The protest gathered momentum and toppled regimes entrenched in power for decades in half a dozen North African countries. The Arab protests then entered the Gulf region challenging similar regimes in Syria and Yemen…
Back in New Delhi the August fast of Anna Hazare for end to corruption had the central government wobbling as young people massed in demonstration of their anger against crony capitalism of the rulers. Fourteen leading public figures including noted bankers like Deepak Parekh, retired judges like Justice Srikrishna, former RBI Governor Bimal Jalan said in a signed statement: need reforms in land, judiciary, electoral laws, and police. They added what Anna has been campaigning against: corruption. Their statement did not pull punches. It straight away said what has been obvious for years now: “it is acknowledged that a strong nexus exists between certain corporations, politicians, bureaucrats and power brokers. This is one of the greatest threats to Indian economy.”
In yet another market economy though under one party dictatorship, namely China, the sheen of being world’s fastest growing economy is wearing out. Reports of peasants protesting against forcible land acquisition (recall what happened in NOIDA recently for comparison) have filtered out of the bamboo curtain that controls all media. Wages in China for long suppressed to remain low to enable huge export surpluses to be built, are rising and threatening to frustrate the export boom and force revaluation up the Chinese currency. If the West cuts consumption and China revalues upward its currency, the global economy would be shaken to its foundation, say the experts. What we see in the “Occupy Wall Street” protests is a global disillusionment at the rosy pictures once drawn about globalization. The young are now angry that the market economies are keeping the bulk of the people poor while the rich are being given tax breaks and massive stimulant funds at public expense.
Will the beginning of the second decade of the 21 sty century go down in history as marking the end of the market economy just like the last decade of the 20th tolled the end of Communism?
The people’s protest to occupy Wall Street, the symbol of American, in fact global, economic and financial power, is happening in the backdrop of the deepening crisis in the market economy for which there seems to be no remedy with the experts. It is graphically put in the placards we see from snapshots of the protest: “We are the 99 per cent”. The 99 per cent are protesting against the 1 per cent super rich who have wangled tax cuts while the common people have been given cuts in their welfare entitlements. Only the other day the Republican dominated US Congress has shot down President Osama’s 490 billion dollar job creation programme, ending the last hopes of the 99 per cent whose incomes have steadily gone down. Warren Buffet, one of the super rich billionaires. Pays income tax at 18 per cent but his secretary with an income of only 60,000 dollars annually pays 37 per cent as tax.
The iniquity of the system so graphically brought out is now on display by the Wall Street protestors. The 15 trillion dollar US economy, the largest in the world, is caught in a debt trap larger than its GDP. While leading corporations are wallowing with a 1.5 trillion dollar cash surplus, unemployment is nearly at 10 per cent and GDP growth hardly two per cent. That ten per cent is general figure but among the young unemployment is as high as 24 per cent. The US economy is said to be recovering but Federal Reserve chairman Ben Bernanke himself admits that the so called recovery is “uneven” and “frustrating”. How different could it be when the mighty US corporations generated 1.68 trillion dollars in fourth quarter profits but “did not share it with workers”. Middle class income on the other hand has declined last 10years while the top honchos of the very failed banks later rescued through huge government funds, enjoyed bonuses and yachts for their favourite lady friends. Somewhere the people’s anger at this state of affairs would have spilled over into the streets. Arab Spring had come to America.
It is among the very young, the Hispanics and the Blacks who in 2009 carried Obama to the White House, that the President has lost support as the economy refuses to crawl at anything even at two per cent. With globalization once touted as the great achievement of free enterprise and rapidly changing technology even for China and India and other emerging economies where the markets are now, new jobs in America are not even half of the estimated expectations. “Growth and employment are set to diverge” says Nobel Prize winning economist Michael Spence in his book “The Next Convergence”.
In the Temple of capitalism what we see is “a new generation of young workers who are in danger of being permanently side-tracked in the labour markets and disconnected from society” says Rana Foroohar in Time magazine writing on the US economy. Despite a ten per cent unemployment three million new jobs are finding no suitable candidates in America of world class universities and technical institutions( Kapil Sibal who is inviting foreign mainly US institutions to set up campuses in India please take note). In his book The Age of Innovation the late Michigan university business guru C.K. Prahlad pointed out how globalization would force firms to look for resources from anywhere in the world and focus on the customer. With customers for their cars and other goods in China, India, Brazil and South Africa, US firms at the top of the pile are setting up manufacturing abroad—over 50 per cent of their revenue now comes from overseas operations. President Obama is fighting what appears to be a losing battle to retain manufacturing within America. Manufacture is only 22 per cent of the US economy while in China it is now 47 per cent.
The shift to service economy that pumps 77 per cent of US GDP, creates jobs only in government and health care but it is here that the Republican dominated US Congress has forced the President to effect deep cuts in government spending in a swap to save his administration from financial stoppage. All this has fuelled public anger against the market economy and the American political system. Despite the after glow of the American led globalization, in the US itself 45.2 million people are on food assistance programme—that is so many are too poor to afford food. The housing loan collapse of 2009 left millions of others homeless.
Much the same could be said of Europe where the domino effect of a financial collapse stares Greece and its impact could tumble already weak economies of Portugal, Ireland, Spain and Italy leaving a big question mark on the future of what is known as the Eurozone. The miasma of the Eurozone economy persuaded all the 17 member nations to opt for the German standard of living without achieving Germany’s level of productivity and manufacturing capability. The inevitable result was mounting debt- the poor cousins like Greece, Ireland, Portugal etc are unable to pay and the choice is sudden tightening of the belt that people oppose or hope for rich cousin Germany to bail them out which Chancellor Merkel is unable to fulfill for her own domestic reasons. Greece, Italy, Ireland and Portugal have public debts over 100 per cent of their GDP—Greece’s is 109 per cent. Others like more prosperous Belgium are at 97 percent even Germany and France are at over 80 per cent and hence they too are hesitant to prop up their failing poor cousins. Eurozone is seemingly on the verge of split and the pieces would find that their people so far accustomed to higher standards due to a single currency suddenly told to live on half –a- bread.
If the West cuts down its imports to save itself from mountain of debt and deficit, the impact would be felt deep in the Asian economies depending on their exports from China to Bangladesh, even India.
In any case the Indian economy is currently facing many problems much like that of the US for quite different reasons. The NSSO 66th survey results that revealed a fall in employment generation has shocked the planners and questions have been raised about the reliability of the survey methodology. This comes at a time when the government’s credibility is at its lowest. The latest to join the chorus of condemnation of the government is the redoubtable Vinod Rai, the Comptroller and Auditor General whose 2009 report on the 2G scam set the ball of protest rolling in this country. “There is an erosion of people’s faith in government” Rai said in a lecture he delivered at the National Police Academy on October 1.
Like every other things from inflation, high oil prices, to trust deficit and unemployment, for our rulers, everything has an international dimension. They therefore have an excuse to trot out. But the common man is asking as was evident in the surge of popular support at the Ram Lila grounds in August: if the government cannot control corruption and prices what for is it governing? Similar questions are being asked by millions of the young across the world: what for are governments there if the 99 per cent should suffer job losses and income losses, be driven out of mortgaged homes while the big bankers and financial consultants wallow in wealth and the detritus of their wrong decisions fall on the poor?
There is no doubt that the market economy that once gave low cost goods and services to the vast majority is now on notice by the people. What is galling the public is that the bankers and financial institutions that traded trillions of dollars every minute from Tokyo to London to New York have no answers for the challenges the market economy faces. The market economy is accused of shifting government spending from investment in future to consumption and welfare in the present. Thomas Friedman’s latest book on American economy (That used to be US)points out that California that used to spend 10 per cent of its revenue on higher education to create some of the best educational institutions in the world. Now only 3 per cent is for this purpose. Earlier only three per cent of the revenue went to support prisons. The sequence has been reversed. California spends 11 per cent of its revenue for prisons and only three per cent for higher education. The free enterprise economy is creating a soft state where people are attracted to drugs, alcohol, sex etc and to resort to any means to find money for that. So the prison occupancy is surging. Every time I used to visit the US I made it a point to find an opportunity to go to the famous Bell Laboratories in New Jersey that churned out Nobel Laureates almost every year. That institution has folded up as its major funding corporations, the AT&T of he pre-1995 era has simply disappeared.
The market economy needs to churn out new ideas and technologies like a flood. Read all the tributes that came from across the world when Steve Jobs died of cancer after gifting the world with the iPod and the iPad. But for that more money has to be spent on R&D and do it fast with employing more people in research and development to create a product that could create jobs in its production and marketing. A billion dollar has to be spent in developing a single drug that could be a market success story. How will funds of this level be found and who will do it? Corporations that spend such money are mad when they find their product overtaken by competitors and they resort to all sorts of tricks to retain their market share. So we have scams when corporate elite and political elites combine to benefit each other.
The public anger will grow as they find a Rajaratnam making billions through insider trading or Lehman Brothers cheating the whole of the world with pushing up real estate prices through assets that turn toxic in no time. This anger spills over into the streets when people find governments and the great economic experts have no viable answers to the paralysis that has come over the global economy in the wake of debts and budget deficits and financial scandals, except in terms of welfare cuts for the poor and tax hand outs to the rich.
When the Great Depression of the 30s hit the world in the last century, John Maynard Keynes came out with a completely new economic theory to explain the business cycle and suggest workable remedies. There have been several economists who have made peripheral studies on the fundamental faults of the globalizing market economy. But not one that has a fundamental insight and bouquet of suggestions to lift the global bloom as economies are perceived as sinking—the impasse of 2011 has followed so soon after the meltdown of 2008 and governments are wobbling across the world unable to find a silver lining.
(The writer is a senior journalist based in Delhi)