An economic problem
I would like to start by sharing some very interesting data:
Gross World Product (GWP) – 2007: $72 Trillion approx.1
World Population – 2007: 6.6 Billion approx. 2
Per Capita GWP – 2007: $11,000 approx. 1
World Bank Poverty Line – Present: $1.25 per day per person 3
US Poverty Level – 2010: $11,139 annual income for an individual 4
Size of Global Derivatives Market – 2012: $1200 Trillion approx. 5
People living below World Bank Poverty Line – 2005: 1 Billion at least 3
GWP, albeit ambiguous, is the sum total of all the goods and services produced in the world expressed in PPP or Purchasing Power Parity terms. Any economist / statistician / mathematician / analyst would rightly argue that this data is not sacrosanct; it is an oversimplification of much more complex calculations that need to be taken into account prior to presenting that which I intend to present. Fact: these are the standards used world-wide, by economists and analysts alike, to make all sorts of analogies; I would request you to extend to me the same courtesy and discount the exactitude of these stats, for the point I wish to make is much larger.
US is the world’s richest country, so their standards for poverty are much higher than say India’s or Uganda’s. In 2007, enough goods and services were produced worldwide to completely wipe poverty off, with respect to the standards of the richest country in the world. If we consider the much more generous World Bank standards, we could’ve wiped poverty off some 24 times. What’s even more staggering is that at least 1 Billion people, an extremely conservative estimate, 15% of world’s population lives in abject poverty, closer to 25% if we consider more recent estimates. The precision of this data notwithstanding, the sheer inequality we all live amidst is clear, present and mind-boggling. (For the sake of simplicity, other qualitative measures of economic well-being such as Human Development Index (HDI) have been ignored).
Any rational mind would there after ask the obvious question? Why then are we letting so many of our fellow homo sapiens live in such awfully impoverished conditions? The answer provided by contemporary economics is ‘improper allocation’. Wealth as we all know is skewed substantially in favour of the developed nations and primarily towards the top 1% of the large developing / developed economies 6. What is even more intriguing is how the same individuals keep propping up every time Forbes conducts its top-ten billionaires survey in emerging nations such as Mexico, Russia, India year after year, a fact so vividly elaborated by Ruchir Sharma in his bestseller book ‘Breakout Nations’. This is testimony to the poor churning of wealth and its concentration in private hands in these nations.
Finance and our complicity
The next apparent question then: why do we allow such poor distribution of wealth in our nations? To find clues to this amazing puzzle, we have to go back in history, and examine the roots of finance and capitalism. Finance was created only as a means to allow the ‘proper allocation’ of capital; to provide excess unused capital to those who needed it most and could put it to productive use, a process that required financial ingenuity and provided a lot of power to the harbingers of this ingenuity, namely the Financiers or the Bankers. Recent and frequent turmoil in the global financial sector is testimony to the use and abuse of power by these harbingers. Credit Default Swaps (CDSs) and Credit Debt Obligations (CDOs) might have been the immediate cause of the 2007 crisis but there is something more profoundly wrong with and intrinsic to Capitalism: systemic risk or ‘internal contradictions of capital accumulation’, a term coined by Marx, which essentially implies how Capitalism never solves its crises, it just geographically shifts them (US, now under recovery, has managed to shift the crisis to Europe), a concept beautifully articulated by David Harvey here:
Psychological factors such as human frailty; greed and cultural origins play their part in exacerbating the inherent systemic problem of Capitalism. Raghuram Rajan examines the roots of consumerist culture and its consequent effects in this exacerbation with his award winning book ‘Fault Lines’. I attempt to explain the mind-set of the politicians who use credit expansion as a means to appease the economically weak with this excerpt:
“…it is not income that matters but consumption. Stripped to its essentials, the argument is that if somehow the consumption of middle-class householders keeps up, if they can afford a new car every few years and the occasional exotic holiday, perhaps they will pay less attention to their stagnant monthly paychecks.”
Politicians endorse consumerism amongst the sluggish poor by using credit expansion policies and eventually end up feeding the greed of the bankers. This helps the banker coup amass huge wealth and culminates in the sort crisis we’re accustomed to seeing and is immensely detrimental largely to the poor. The sheer size of the derivatives market, $1200 trillion, at least 15 times the GWP, is another glaring mishap waiting to happen yet again.
I want to be clear, this problem is not local to the US or Europe or the other NATO countries; these issues encompass all their trading partners, essentially almost the entire world, especially because western economic policies are shadowed across the globe. Those of us who abuse or even use the system are just as complicit in this ungodliness as the financiers. What is unfolding is clear evidence to how we all lie in the direct path of economic instability.
One might argue that this is the bankers’ problem, or the problem of an empowered isolated group, regulate them properly and we are solved. However, this is not how I see it at all. Poor distribution of wealth is inherent in our system, no amount of regulation or morally correct behaviour on the part of parties involved will help resolve it. Till most major players (nations) accept responsibility and alter their policies to act towards a common global goal, we will have to witness crisis after crisis, meltdown after meltdown. Those of us with means will keep surviving at the expense of the poor, and inequality will keep raging. An open debate with mutual understanding, between people of intellect and significance, is crucial to preventing future economic disasters and the further widening of income inequality.
If we, the educated, the people with means, lie blind to what is staring us in our face, are we not complicit? Are we not then living under a facade?
Philosophy; the search for who we are
A true master of philosophy said the following words to me which stuck, “Recognizing systems of values we are all part of uncover[s] structural oppressions we are all unconsciously complicit in”. How our system is structurally oppressive and we complicit I have dealt with above, now I want to talk about ‘systems of values’. Matthew Taylor masterfully expresses the need for a new enlightenment; system of values here:
His wonderful logic states the case for new ideals to lead us into the 21st century. He explains the need for a concrete understanding of who we are as human beings and what progress really means to us now, today. Progress cannot just be measured in terms of material or money. Progress has to include the well-being of others. Responsibility and sustainability are key to future progress, and in turn our own existence. He also discusses the arguable decline of widening human empathy and the imperative role of empathic capacity in our collective future. For only a feeling of empathy will force us into action and truly be able to eliminate inequality.
Who we should aspire to be; consciousness
So how do we contribute? There are some of us who think the answer lies in charity. I would like to quote the great Slavoj Zizek in this respect, “In charity there is hypocrisy”. He goes on to argue that we should be trying to eradicate the very problem that created the need for charity; poverty in the first place, instead of delaying the inevitable with our charity 7.
There are a few among us who are aware and are working toward solutions. The need of the hour is clear: business decisions cannot be taken just to create more money, for there is already too much money in the world. Decisions have to be taken to create value, to fulfil a real need. We need to produce strictly what the world needs production of, nothing more, nothing less. There is need for sustainable businesses, clean, green energy and education of the unprivileged. There is a need to stop wasteful consumption and expenditure; reduce our own carbon-footprint (I don’t wish to stress the obvious importance and enormity of climate change here; there are new found threats of geo-engineering and weather manipulation which need to be looked at right away). There is a need to conserve water. There is a need to re-use and recycle. There will always be a need for research in science and technology. There is a need to alleviate the conditions of the poor and bring them up to a decent standard of living; the onus is squarely on the able shoulders of the privileged. There is a need to ask questions, of the government and of policy; of ourselves. Do we need more foreign capital? Will it really benefit the farmer? Do we really understand the consequences of our own decisions? Do we know the flip-side to every cause we support? Does the social construct of means I was born into give me more of a right to a fulfilling life, more than that of the average Joe? Is it even fulfilling then, now that I know what I know?
To those of us who don’t see or comprehend the gravity of the situation, this has been my effort to create a little bit of awareness, the tip of the iceberg if you will. For now is the time for real reflection and deep introspection. Moreover, there is a need to change the way we perceive and conceive life itself.
It is only when we ask questions, do we come close to unearthing real answers. I certainly haven’t found all the answers, but I sure as hell won’t stop asking questions! I think it is about time we all do the same.