By Khaled Diab
Governments need to rethink their economy policies to make them more equitable and responsive to citizens' needs.
Reading the business pages is like wading through a nuclear wasteland littered with ‘toxic assets'. Gordon Brown is now working to limit the damage from this radioactive debt with a multi-billion pound safety net for the financial system. This, along with the hundreds of billions the government has already pledged, not to mention the tens of billion it has already spent, has sparked warnings of possible bankruptcy for the UK.
Since it rippled out from the subprime scandal in the United States, the global financial crisis has seen taxpayers exposed to mind-boggling liabilities, potentially counting in the trillions. While the financial sector sends the wider economy into a recessionary tailspin, what have the architects of the disaster been up to?
Rather than face paying the price for the ruin they have visited on others, top executives have been giving each other golden handshakes before donning their diamond-encrusted parachutes and leaping out of the blazing wrecks they have left for governments to keep airborne with both engines burning.
But even in the United States, it seems that people have lost patients with the executive caviar train. Last week, the Senate said it would not approve any more bailout money without strict limits being imposed on executive pay.
The brewing outrage is hardly surprising when you consider that, as millions face the prospect of the dole and losing their homes, top managers are sitting pretty and laughing. Take the Merril Lynch executive who got $25 million for three months work or, on this side of the Atlantic, the €4 million payoff received by the former chief financial officer of Belgian-Dutch Fortis Bank, which benefited from a government bailout to the tune of €11.2 billion.
Even George W Bush, a leading cheerleader of neo-liberal economics who has probably done more than any other president to fatten the bottom line of corporate America, has been making ominous threats. “Anyone engaging in illegal financial transactions will be caught and persecuted,” he recently said. Appalled as I am by the exuberant excesses at the top, as a strong believer in human rights, I cannot tolerate talk of persecution.
What needs to be done is not only to limit executive pay in banks receiving government bailouts but across the board. We need a general cap on earnings, which would be high enough to provide an incentive for people to perform and strive but low enough to prevent major economic injustice.
But that, in itself, is not enough. We need to rethink our approach to the economy and herald in a new age of what I call equanomics, where the success of an economy is judged by how well it improves citizens' well-being, narrows the gap between them, and truly provides them with equal opportunities.
At present, there is too much of a tendency to regard the economy as somehow existing outside of society. But this false separation has led policy-makers in many countries to put the interests of the market ahead of the interests of the people. Equanomics would remove the false barriers between the economy, markets and society, and social indicators – such as quality of life, education and health – would count as much as macro- and microeconomic indicators.
In addition to maximum and minimum limits on income, under equanomics, salaries would be determined not only according to a job's market value but also its social worth through, say, an impartial index which draws on the views of experts and the general public to assess the social value of different jobs. Of course, this might mean that top executives will be taxed extra to raise the pay of nurses.
Some will argue that only free markets can create the wealth needed to improve people's lives and that communism only succeeded in impoverishing societies in its quest for equality. I am not advocating the imposition of a communist dystopia, but the sort of enlightened blend of socialism and capitalism that served Europe well in the post-war years and has helped Scandinavia to have its cake and allow the majority of citizens to eat it.
Besides, free market capitalism has failed dismally to create the utopia it promised. Despite the laudable talk of equal opportunities, economic disparity robs millions of the opportunity to shine and succeed. For example, an upper-class boy in the UK is 30 times more likely to land a top job than a boy from the unskilled working class. Contrast this with the countries with the highest social mobility, such as the Nordic countries and Canada, which also happen to be the countries with the lowest inequality. This means that there can be no equal opportunity without greater economic equality.
The free market, as we currently know it, is actually not an ‘invisible hand' that dispenses impartial economic justice. The big players, from oligarchs to dominant or pseudo-monopolistic corporations, have a massive distortionary effect on the efficient functioning of the market.
This is reflected in the rapidly rising levels of global income and wealth inequality, which has led the UN to sound the alarm on the possibility of widespread social unrest, not only in developing countries, but also in the United States, Britain, Spain and Greece (which was recently plagued by riots).
In the UK, since income disparity rose at unprecedented rates in the 1980s, those Thatcherite levels of economic inequality have been perpetuated, with the super rich racing even further ahead, the middle classes getting a modest piece of the action, and the lowest income groups being left behind to eat everyone else's dust.
Of course, given the fact that multinationals are of a size to rival small, prosperous nation states and the financial markets can punish governments for stepping out of line, the need for coordinated intergovernmental action has become all the more urgent. In this regard, governments can harness the power of the EU and other regional blocs, and even reinvent the World Trade Organisation, to make globalisation fairer and more equitable.
The current crisis risks deepening the wealth gap, as millions in the middle and lower income brackets face the prospect of imminent unemployment and pay cuts, while government funds are exhausted underwriting the welfare of the wealthy. We need governments to put equanomic principles at the heart of their policy if we are to avoid widespread social conflict and enhance socio-economic justice.
This column appeared in The Guardian Unlimited's Comment is Free section on 19 January 2009. Read the related discussion.
This is an archive piece that was migrated to this website from Diabolic Digest