Dr. Rakesh Singh
Something strange is going on in the world today. The global financial crisis that began in 2008 and the ongoing crisis of the euro are both products of the model of lightly regulated financial capitalism that emerged over the past three decades. Yet despite widespread anger at Wall Street bailouts, there has been no great upsurge of left-wing American populism in response.
It is conceivable that the Occupy Wall Street movement will gain traction, but the most dynamic recent populist movement to date has been the right-wing Tea Party, whose main target is the regulatory state that seeks to protect ordinary people from financial speculators. Something similar is true in Europe as well, where the left is anemic and right-wing populist parties are on the move” writes Francis Fukiyama in one of the recent foreign affairs issue. He says the world is without any plausible counter narrative. A glimpse of it was faintly visible in France and Greece, but the prevailing economic crisis in Europe is discussed and practiced within rightwing ideology.
Both US and Europe has seen significant declines in the middle class and rise in the sheer number of poor people. As Paul Krugman rightly writes, it is this rising inequality both in Europe and America which has stifled the recovery process and is the major reason why the economy of these two countries are still depressed.
Even before the crisis, if one analyses the data of these two economies, we find that the distribution of income led to a level of inequality not seen since the great depression. With deteriorating income inequality in the crisis ridden European economies of Greece, Spain, Portugal, and others, the present recession will deepen further in Europe as a whole. Is this the beginning of the deepening of the financial crisis? The answer seems to be a definite yes, as we see the major emerging economies like China and India which were seen to be totally decoupled from the Western economies for reasons unknown, have not only slowed down but are heading towards an economic crisis. China as well as India has been stimulating their economies since the crisis. But in the processes what has been ignored is that in both these countries the levels of income distribution has deteriorated significantly.
The ‘Gini Coeficent’ of the income in China is .65 and in India it is now around .55, indicating that any long term sustainable growth may not be possible without correcting these trends. Rising inequality reduces and hence limits private consumption which becomes the driver during a recession and is the only macroeconomic identity that can bring out economies from recession as Investments and exports fall. Such a structural income constraint not only will affect the growth of these economies, but also the global economy which is already in a depressed mode.
When Francis Fukiyama says that the left wing ideologies are absent from the world today and a counter narrative is not available, the world may see a more disturbing trend as we see in China, despite having a better record of managing land acquisition and rehabilitation.
Rising inequality is an outcome of new political elite which is engaged in jockeying of power inside a political oligarchy, typically paralysing new policy making and jeopardising the well being of masses. In India our record of land-acquisition clearly shows that we don’t care for the poor. The rise of the naxalite movements have spread to more than twice as many districts as it was in 2000. The ideology of the few is dominating the interest of large section of the human race and in the absence of a counter narrative, the world is at the edge of not only an ideological crisis, but is on a road from where no one knows where to go?.