Never miss a great news story!
Get instant notifications from Economic Times
AllowNot now


You can switch off notifications anytime using browser settings.
12,053.95-32.75
Stock Analysis, IPO, Mutual Funds, Bonds & More

View: The rising discontent with development

The current global economic structure has inherent tendencies towards concentration of wealth in the hands of the few. And when this skew occurs in conjunction with a slowdown, its presence is felt more acutely. So, it is not a coincidence that th...

ET CONTRIBUTORS|
Nov 12, 2019, 04.15 PM IST
0Comments
By Amit Kapoor

A developing pattern of discontentment is hard to miss across the world. Just last month Ecuador witnessed a series of violent protests and riots in response to the austerity measures taken by the government. A week later, the Chilean capital Santiago succumbed to a civil unrest as a result of the rising cost of living in the face of growing income inequality. Like clockwork, a week after that protests sprung up right next door in Bolivia after the incumbent president Evo Morales was re-elected amidst allegations of electoral fraud, eventually leading to his resignation. These series of uprisings took place in the span of a month. And this was just in South America.

Hong Kong has been embroiled in protests for months. In London, hundreds of thousands of protesters descended on the streets to protest Brexit last month. Meanwhile, protesters have brought Beirut and other parts of Lebanon to a standstill through widespread roadblocks. Haiti has been similarly paralysed with protests since a month. Catalan protesters demanding independence from Spain have made violent demonstrations on the streets of Barcelona. A similar scenario has been visible on the streets of Iraq since over a year. The yellow vests movement in Paris against the deteriorating economic conditions is being carried out in a similar vein.

While every protest carries a level of indigenousness to it, there is a broader underlying cause behind the recent upsurge. The primary factor of commonality is the nature of the economies. More specifically, the turmoil in Ecuador, Chile, Lebanon, Haiti, Iraq and France are direct outcomes of worsening economic scenario in these countries. The GDP growth of most of these nations has reached near-zero levels. Problems of inequality (Chile), corruption (Iraq) and indebtedness (Lebanon) have further accentuated the feeling of discontentment.

The protests in places like Hong Kong are an expression of the demand for autonomy by the regions. But there are strong economic connotations to these as well. The level of inequality in Hong Kong provides an explanation for the ongoing ferment. The city-state is essentially run by its plutocratic elites while most people cannot even afford basic housing. A majority of Hong Kong locals work for small and medium-scale enterprises, which have hardly seen the extent of economic growth experienced by multinationals. As a result, income inequality in the city-state has reached its highest level in more than four decades. The public demonstrations against the establishment can, thus, be traced back to the feeling of economic discontentment among the people with a system that seems to be unilaterally serving the rich.

The current global economic structure has inherent tendencies towards concentration of wealth in the hands of the few. And when the skewed nature of growth occurs in conjunction with a slowdown, its presence is felt more prominently. So, it is not a coincidence that the rise in protests across the globe is taking place at a time when the International Monetary Fund is warning of a slowdown in 90 percent of the countries around the world.

The foundations of today’s global economic order were established towards the end of World War II in Bretton Woods where a new system was built around the ideas of open markets and free trade through monetary cooperation. A closer global economic integration was understandably thought to be the more conducive to peace and prosperity in the backdrop of the War.

The new system was initially limited to the developed world and it worked well for the first two decades. The United States, Western Europe and a few East Asian countries experienced exceptionally high and sustained growth along with full employment. However, the oil shock and stagflation of the 1970s forced an alternate model of thinking that was led by free marketeers like Milton Friedman who argued for complete trust in the markets and widespread deregulation. These arguments were slowly tied with the economic aid given to the developing world by the World Bank and the International Monetary Fund – both a product of Bretton Woods.

However, in a globalised world, production quickly moved out of the developed economies to benefit from the cheap labour abroad. Thus, the working class in advanced economies lost out in the process and average real wages stagnated while the economy grew – implying that the concentration of wealth was disproportionately skewed at the top. On the other hand, the developing world grew rapidly, and the largest number of people emerged out of poverty led by the economies of China and India.

But these trends only worked until the economic crisis of 2008. Since then, the world has struggled to revive growth. The problems have been further exacerbated as the developed nations like the United States are responding to the demands of its domestic population for closing up their economies after having barely benefitted from globalisation. Meanwhile, growth in the developing world has also been sharply unequal; but until the size of the pie was growing for everyone, it was hardly noticed. In the last few years as economies around the world are experiencing slower growth, the inequality is beginning to be noticed and is emerging in the form of violent demonstrations.

The fact that these protests across global cities are continuing even after their demands are met – like in the case of Hong Kong – is a reflection of the fact that people have not just lost their faith in the economic system but in the ability of government to fix it as well. The world has experienced a similar situation in the inter-war period exactly a century ago. Economies like Germany were reeling under economic stagnation and inflation giving fascist leaders like Hitler a chance to rise to power. Only the extremes of war extricated the world out of the mess. Thus, the current shoots of discontentment sprouting across the world need to be addressed with new and innovative ways of economic thinking before something gives sooner or later. History here is not worth repeating.


(Amit Kapoor is chair, Institute for Competitiveness, India. He tweets @kautiliya and can be contacted at amit.kapoor@competitiveness.in. Chirag Yadav is senior researcher at Institute for Competitiveness, India).
(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)
Comments
Add Your Comments
Commenting feature is disabled in your country/region.
Download The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.

Other useful Links


Copyright © 2019 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service