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Inequality and the Global Crisis

The global financial system is broken, and the global economy that depends on it is in rapid collapse. The global system is broken above all because of reckless decisions made in the U.S., but despite the fact that it’s America’s fault, the rest of the world is aware that no one but America can fix the problem. The U.S. is still the world’s largest economy. Like it or not, the prosperity of people living in Korea, Argentina and South Africa is tied to American prosperity.

Since taking office 50 days ago, President Barack Obama has acted with amazing speed, given the contentious policital climate and the paralysis gripping Washington before his arrival in the White House. On February 17, Obama signed a stimulus bill that is one of the largest pieces of economic legislation in U.S. history. The administration has outlined programs to shore up the banking sector and provide relief to those struggling to stay in their homes. On February 24, Obama gave a powerful speech to Congress outlining his ambitious priorities for the coming year, including reforms in energy, health care and education. No one can accuse him of being timid in the face of a crisis. But it is still far too early to judge whether these ideas will work.

There has been a lot written in recent months about the decline of American power, and the unravelling of global stability as a result. On one end, there are articles like this one by Tom Friedman, which quotes South Korean officials reaffirming America as the world’s indispensable nation. “No other country can substitute for the U.S. … Only the U.S. can lead the world,” says one. “There is no one who can replace America. Without American leadership, there is no leadership,” says another. Their hope is that America will regain its strength, because the rest of the world’s fortunes are riding on it. But far more common, these days, is fear of what will happen if the system we’ve been living in for the past generation isn’t repaired quickly. A recent article by Michael T. Klare in TomDispatch paints a picture of “A Planet at the Brink.”

    As people lose confidence in the ability of markets and governments to solve the global crisis, they are likely to erupt into violent protests or to assault others they deem responsible for their plight, including government officials, plant managers, landlords, immigrants, and ethnic minorities. … It is entirely possible…that, as the economic crisis worsens, some of these incidents will metastasize into far more intense and long-lasting events: armed rebellions, military takeovers, civil conflicts, even economically fueled wars between states.
    Every outbreak of violence has its own distinctive origins and characteristics. All, however, are driven by a similar combination of anxiety about the future and lack of confidence in the ability of established institutions to deal with the problems at hand. … Look for the prices of wheat, soybeans, and possibly rice to rise in the coming months—just when billions of people in the developing world are sure to see their already marginal incomes plunging due to the global economic collapse.

After describing civil unrest that has already taken place in some 20 nations around the world—”protests against rising unemployment, government ineptitude, and the unaddressed needs of the poor,” driven by “economic anxiety and a pervasive feeling that someone else’s group was faring better than yours”—Klare concludes, “It is already essentially impossible to keep track of all such episodes, suggesting that we are on the verge of a global pandemic of economically driven violence.”

He calls our attention to the fears of two pillars of the global establishment, the World Bank and the U.S. intelligence community. Last fall, the World Bank wrote in a survey:

    Should credit markets fail to respond…the consequences for developing countries could be very serious. Such a scenario would be characterized by…substantial disruption and turmoil, including bank failures and currency crises, in a wide range of developing countries…. All of the attendant repercussions, including increased poverty and unemployment, would be inevitable.

Admiral Dennis C. Blair, the U.S. Director of National Intelligence, recently testified before a Senate committee:

    The primary near-term security concern of the United States is the global economic crisis and its geopolitical implications. … The longer it takes for the recovery to begin, the greater the likelihood of serious damage to U.S. strategic interests. … Economic crises increase the risk of regime-threatening instability if they persist over a one- to two-year period.

In a similar vein, it has been reported that President Obama has added global economic unrest to the concerns he hears about in his daily national security briefings. Time Magazine elaborated by imagining how economic troubles might destabilize Egypt and Pakistan.

    Authoritarian regimes…that keep the peace on behalf of the West could be toppled if they lose the funds they distribute to placate their restive populations. The riots triggered in Egypt last year by sharp increases in the price of wheat were a reminder of that danger, while Pakistan’s basket-case economy could act as a significant multiplier on the instability that already plagues the troubled
    nuclear-armed nation.

Klare sums up his case for a “global pandemic of economically driven violence” this way:

    At a popular level…the basic picture is clear enough: continued economic decline combined with a pervasive sense that existing systems and institutions are incapable of setting things right is already producing a potentially lethal brew of anxiety, fear, and rage. Popular explosions of one sort or another are inevitable.

To some degree, this strikes me as the worries of those who, like me, have the luxury of sitting calmly and viewing the world from our privileged perspective. Our sleep may be troubled by the thought of nuclear weapons falling into the wrong hands if Pakistan falls apart, but that isn’t likely, and the riots or revolutions that do occur in the developing world aren’t likely to touch us in any direct way. Whatever suffering occurs in China, India, Egypt, Brazil or even Eastern Europe, the West will remain comparatively secure, with well-stocked cupboards to ride out the storm.

The advantages of wealth become particularly useful in times like this. The poor suffer most from any crisis, whether political, economic or natural (such as Hurricane Katrina), while the rich are well insulated and recover sooner. This is true not just when comparing rich nations to poor ones, but when comparing rich to poor within any nation. If factories are closing in the American Midwest, their executives go to Congress looking for handouts. If crowds are rioting in the streets of Egypt over the price of bread, the elites take a vacation on the Riviera while the army sorts things out.

Is there any chance that the global crisis we are facing will force deeper reforms than in the past, breaking the backs of the elites who have profited until now? For whatever reason, calls for far-reaching reform have been rare. We all know that the excesses of capitalism caused the crisis, yet we hope to revive the old ways once the crisis is over. Yet if the downturn is long enough and deep enough, it could turn into an anarchic spiral in which no one wins, with rich and poor suffering alike.

To avoid this, we need to admit that it may be impossible to return to the magical days of easy growth and abundant resources. What if what we are living through now is a crisis of scarcity? What if much of what we’ve called wealth for the last fifty years was illusory? If our way of life was unsustainable in the first place, even the best policies will never rebuild what we had. In that case, this may be our chance to consider how to build a more sustainable system, in which the inequality of wealth among nations, or between rich and poor within nations, is no longer the engine of prosperity for a few.


Comment from mjB
Time: March 13, 2009, 06:21

the wheels are coming off of the bus everywhere!


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