This year has been a particularly tumultuous time in modern history, with the world witnessing a wave of political and social turmoil with people thronging the streets to protest against those sitting in the echelons of power. The Arab Spring, the protests in Greece, the London riots, India’s movement to pass the anti corruption bill, the wall street protests along with Israel’s middle class protests against the deteriorating living standards.
As the power amongst the political, economic and financial elites is growing, these outburst’s signify an increasing concern among the world’s middle and working classes about their prospects in the increasingly globalised world. With high rates of unemployment, inflation increasing more than the increase in salaries, inadequate educational facilities in emerging countries, the growing concern against corruption including legalized versions of it, like lobbying and a sharp rise in socio-economic disparities individuals are getting disgruntled by the worsening socio-political scenario the world over.
It needs to be understood that the increase in private and public sector leverage including credit bubbles are fueling such inequalities with the middle income group facing a negligible growth in income compared to the rich which has widened the fissures between incomes and spending ambitions. The western countries answer to this growing divide was financial liberalization that gave rise to private debt with individuals financing the deficit of income growth through borrowings. In some parts of Europe this deficit was financed by government services like free education, health care facilities etc however these government services were not covered by taxes. As a consequence what was witnessed was that the debt levels in both the cases became increasingly unsustainable.
While many may not agree with the policies of Karl Marx however he was right in identifying that with increased globalisation and unchained capitalism the redistribution of income and the rise of socio economic inequalities will eventually lead capitalism to self destruct. His point was that unregulated capitalism can spark bouts of under consumption, over-spending with credit bubbles fueling the fire leading to a destructive financial imbroglio along with asset price booms and busts. Europes bourgeois had a long time back realized that it was an imperative to safeguard worker rights, to provide them protection in terms of wage and working conditions to avoid a revolution. Thus the concept of a welfare state was born where countries attempted to redistribute wealth and provision public goods like social safety nets, better healthcare facilities and free education.
Therefore the transition to a welfare state was a response to deal with the threat of a revolt, the threat of socialism, communism etc. In the aftermath of the world war 2, people across the globe witnessed a decrease in income disparities as the countries focused on increasing the middle class. The Reagan-Thatcher era witnessed a loss of prudential regulation where massive deregulation ensued mostly as a result of the flaws in the European social welfare model. These flaws bred in fiscal deficits, lack of foresight and economic dynamism which resultantly led to low growth and eventually fostered the sovereign debt crisis being faced by Pakistan today. However, most importantly one thing that stands out is the fact that the western laissez faire model has miserably failed policy makers and now they need to understand that policies which provide a right balance of the market and public goods need to be evolved in the greater interests of the region.
There is also an urgent need to address the problem of inequality and if this is not done, then the world will witness a rise in the protests of 2011 that will fuel political, economic and social instability along with hampering economic growth.
The writer is a banker with 30 years of experience in the banking sector. He is currently working as Chief Manager SME bank.
Exellelent writing my friend . I am part of the Occupy Portland movement . I have been underemployed and unemployed for the last 3 years . As every year passes things get worse money wise . I am 55 but I can see myself becoming a radical . I will fight like hell while I still can . Darrel in Beaverton Oregon [email protected]
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