What Are We To Do By TAN SRI LIN SEE-YAN
Movements against bailouts, cutbacks and inequality picking up streamSINCE its obscure beginnings, the “Occupy Wall Street” (OWS) movement has spread its wings, joining the “Indignant” of Spain (a movement born on May 15 when a Madrid rally sparked a worldwide campaign focussed on outrage over high unemployment and opposition to the financial elite).
The OWS group which has camped out in lower Manhattan's Zuccotti Park (nearby Wall Street) now in its 5th week, has a valid complaint: its young social-media connected generation is losing faith in traditional structures of government and business, arguing it has been betrayed and denied opportunity. “We got sold out; banks got bailed out” was their chant as thousands marched from Wall Street to Times Square.
Inspired by these movements, rallies rippled across the globe last weekend targeting 951 cities in Europe, Africa, Asia, Australia, and North and South America to take part in the demonstration. It's unclear how long protestors plan to stay. Some fear this could only be the beginning, as the world faces a systemic rise in anger, protest and political volatility that could last for years. With Middle-east unrest stirring again, a winter of discontent looks likely. It's not easy to pinpoint the underlying cause of their woes. Checkout their websites: they seem to demonstrate against corporate greed (bank bailouts and bonuses) and income inequality (government cutbacks). Worldwide they demand for a more fair and equal society.
Since the 2008 financial crisis, US bank profits were up 136%, but bank lending, down 9%. Indeed, bank lending has fallen in 10 of the past 12 quarters. To the OWS demonstrators, banks haven't fulfilled their part of the social bargain: bailouts for Wall Street in exchange for lending on Main Street. While banks now have more capital, they still aren't lending. Lending will continue to shrink. Banks say the demand isn't there. But 73% of small businesses say they are still being affected by the credit crunch. As I see it, banks remain very much risk adverse. Unlike in medicine, banks don't have the ability to quarantine financial contagion. There is a dangerous world out there.
What also irks protestors are Wall Street bonuses which have returned while ordinary workers suffered retrenchment and job insecurity with little help from Washington. A recent New York State report predicted that the financial industry will likely lose another 10,000 jobs by end 2012. That's on top of the 4,100 jobs lost since April and 22,000 since early 2008. Overall, New York area employment in finance and insurance had declined by 8.9% since late 2006.
The OWS movement has gained widespread support and encouragement, including from economics Nobel Laureates Stiglitz: “We have too many regulations stopping democracy and not enough regulations stopping Wall Street from misbehaving. We are bearing the cost of their misdeeds. There's a system where we have socialised losses and privatised gains”; and Kurgman: “Wall Street pay has rebounded even as ordinary workers continue to suffer from high unemployment and falling real wagesAnd their outrage has found resonance with millions of Americans. No wonder Wall Street is whining.”
Harvard's historian Niall Ferguson regarded the movement “still worth taking seriously” even though he concluded: “So occupying Wall Street is not the answer to this generation's problems. The answer is to occupy the Tea Party Call it the Iced Tea Party. Way cool.” Even the in-coming president of the European Central Bank has expressed support. However, the Times of London labelled the protests “Passionate but Pointless.”
By far, the cause of OWS's frustration and outrage is best articulated in my friend Jeffrey Sachs' (Columbia University) latest book: “The Price of Civilisation.” In the US, the top 1% of households accounted for almost 25% of all households' income. The last time this happened was in 1929. In the first 3 decades of the 20th century, rapid industrial development raised income and wealth at the top, while mass immigration set the low bar. Then came the 1929 Great Depression and the New Deal four years later which railed against “a small group (who) had concentrated into their own hands an almost complete control over other people's property, other people's money, other people's labour and other people's lives.”
But, prosperity wasn't always accompanied by large-scale inequality. The 1950s and 1960s brought about rapid economic growth and a narrowing of inequality as a result of a more robust social safety net, fresh New Deal measures, World War II (WWII), and the vigorous post-war recovery which reversed the 1920s inequalities.
Since the 1970s, the United States tasted the fury of globalised competition but failed to grapple effectively with it. The deterioration in Main Street's earning prospects was papered over for the next 20 years by debt mortgage debt and consumer credit. Bear in mind median earnings of male workers peaked way back in 1973. The United States collects less tax as a percentage of national income (25% in 2009) than most advanced European nations (40-50%).
This reflected partly the Republican's one-idea approach: cut taxes permanently and impose fiscal austerity, often at the expense of lost competitiveness (reflecting insufficient public investment in education, infrastructure and human capital). OWS young demonstrators have a valid argument to make: they are frustrated trying to find a place in an economy where there is one job for every five jobseekers, and where youth unemployment is 18%. So much for the clich of Wall Street vs Main Street; “the greedy 1% uses the hard-done-by 99%.” The wider middle-class fears its prosperity has evaporated, demanding for a way to deliver growth once more. It's about time Americans get wise to the source of their economic woes it's a few hundred miles south of Wall Street.
According to the US Census Bureau, there are now more poor persons in America than at any other time in the 52 years records were kept. More than 15% of US families live below the poverty line in 2010. The line is set at US$22,000 a year for a family of four. This reflected the high unemployment of 9.1% 6.5 million jobs were lost in the recent recession. An additional 3 million Americans would fall below the poverty line if not for “doubling-up”, that is, adult children who can't afford life on their own return to live with their parents.
Today marks the first time in 20 years when US employment (as a percentage of population) has fallen below the rate in advanced European nations like UK, Germany and the Netherlands. The average weekly earnings (adjusted for inflation) of a typical US blue-collar worker is lower today than in 1964. Indeed, median inflation adjusted family income rose only about a fifth as much between 1980 and 2007 as it did in the generation following WWII. The US poverty profile is unlikely to change soon. That is why people are protesting. Many believe the current anger against autocrat politicians, bankers and elites is symptomatic of fundamental shifts in the structure of US (and indeed, global) population. Already, there are strains caused by aging populations driving up budget costs, reducing growth and blocking jobs from younger people.
Coincidentally, both the Boomerang generation and the Babyboomers generation are demonstrating together in OWS as they could very well end up in a political battle for dwindling government benefits. That is, the elderly fights to keep their entitlements (social security and medicare) to ward off poverty, and the younger population pushes for spending on education and training to avoid falling into it. Demographic issues are driving much of what we see today. A win-win is to continue pressuring the richest Americans to carry a larger share of the load. Despite congressional resistance, many of the wealthy in the United States do see it's in their interest to foster a less divisive society.
While the benefits of globalisation are clear and I think, well appreciated (especially the rapid spread of technology embodied in the Internet and mobile telephony, and reduced poverty in emerging nations), the real problems associated with it are less well understood but nevertheless need to be urgently addressed.
Globalisation has (i) raised the scope for tax evasion; (ii) led to a loss of competitiveness among the less educated in advanced nations, particularly in the United States; and (iii) fuelled contagion, especially in finance.
In his latest book, Jeff Sachs pushed hard for a highly effective government to deal with these problems. Smart public policies are needed to (a) promote high quality education; (b) raise productivity by building modern infrastructure and inculcate science and technology; and (c) co-operate globally to regulate cross-border issues (e.g. finance and environment). His proposal is controversial at this time since it calls for more government not less, especially in the United States where economic inequality has reached a high not seen since the Great Depression.
Sachs also points to growing signs world-wide that people are fed-up with governments that cater for the rich and the powerful, and ignore everyone else. They call for greater social justice (not confined to the Arab Spring; also serious protests from Tel Aviv to London to Santiago to Sydney, and all over Europe, and now, in New York); and also more inclusive politics, rather than corrupt politics.
There are even calls for higher taxes on the very rich across nations (the United States has proposed the rich to pay more taxes; several European governments have talked of a new wealth tax; the European Commission has suggested a new financial transactions tax to raise US$75bil a year). Sachs refers to the most successful well-balanced economies today being in Scandinavia using high taxes to support smart public services, balancing economic prosperity with social justice and environmental sustainability. Sachs bemoaned that for 30 years, the United States has been going “in the wrong direction, cutting the role of government in the domestic economy rather than promoting the investments needed to modernise the economy and workforce.” It all started when President Reagan declared in 1980 that “government is not the solution to our problems it is the problem.”
Today, the solution lies in how the United States is going to fund its future competitiveness through building skills and raising productivity to fight for markets in the 21st century. This is also the way to go for the euro-zone.
Historically, Americans haven't been inclined to be aggressive enough to riot, as the Europeans, over inequality (contrast the protests in Rome, Athens, Madrid and London with those in New York). But the United States is in a new situation now where protestors are getting desperate in the face of intransigency, especially the uncompromising Tea Party. It is hard to rule that out when the American Dream is very much at stake.
At worst, I think the present situation can result in an economic malaise that lasts for decades. It makes politics most unpredictable. There is already political paralysis. But dramatic shifts in policy are possible. The rise of ideologues in a modern guise is also probable as we saw in the 1930s. I am afraid this is the new reality. We have to deal with it.
> Former banker, Dr Lin is a Harvard educated economist and a British Chartered Scientist who now spends time writing, teaching & promoting the public interest. Feedback is most welcome; email: email@example.com
Occupy Wall Street booming, now Occupy London Stock Exchange!