Saturday, November 19, 2011

Anti-capitalism rattles the world: Making sense of the “Occupy Movement”

Dissatisfaction with the systems of capitalism in the West is about to reach a tipping point. Only two months ago a relatively small group of around 2.000 people marched unto Wall Street in New York to protest against political and economic inequality in America. Since then, this “Occupy Movement” has spread worldwide, organizing protests against the control of super-rich over politics and the economy in over 1.500 cities around the world.
When the Nobel-price economist Joseph Stiglitz in May of this year wrote an article to criticize the political and economic state-of-affairs in America, he named it “Of the 1%, by the 1%, for the 1%”. A title which aptly plays on Abraham Lincoln’s famous description of America’s democracy as being “government of the people, by the people, for the people” to describe the reality of the political system in the United States. Stiglitz’s criticism, in short, is that the “democratic” political process in America is fully controlled by only a small group of people, the 1% of super-rich, who use their political influence to ensure that the American economy is organized in such a way that they are its main beneficiaries.
As an economist familiar with economic statistics, Stiglitz knows what he is talking about.
Between 1979 and 2007 the income of middle-class America grew by 40%, and the income of poor America by 20%. At the same time, however, the income of the richest 1% of Americans grew by a staggering 275%! The result of this is that today, the income received by the richest 20% of Americans is higher than the income of the remaining 80% of the population.  And while America remains the richest country in the world, this has left a large number of Americans in deep poverty. For instance, around 17 million American households (14,5%) are “food insecure”, meaning their income is not sufficient to properly feed the member of the family.
It is impossible to imagine that this concentration of wealth could have been achieved without government support. Or in other words, without the enactment of legislation that benefits the already rich and wealthy. Probably the best and most recent examples of such legislation are the Bush II tax cuts of 2001 and 2003, which significantly lowered the tax burden for the super-rich. Already before Bush II the American super-rich were favoured by US tax legislation as that uses a much lower tax rate for income from investments (from which the rich get the bulk of their income) than for income from labour (from which the rest of society gets the bulk of its income). Bush II further expanded this preferential treatment of the rich, giving the American middle class an average tax cut of $647 and America’s millionaires, 0,2% of the population, an average tax cut of $123.600.
According to the theory of democracy, “one person, one vote”, legislation should of course not favour the rich. Rather, it should be expected to favour the poor and the middle class as they usually make up the masses. That the reality of the democratic system is nevertheless different is easily understood.
In the democratic system, after all, official positions are handed out based on the outcome of elections. This means that politicians aspiring an official position need to organize an election campaign in order to convince the voters that they are the right person for the job. Usually, these election campaigns cost large amounts of money. To get a sense of just how much, for the 2008 American presidential elections more than $5 billion was spent on campaigning and the expectation is that this number will rise to over $6 billion for the 2012 elections. This means that in the democratic system, every politician is reliant on money to get elected. So he or she is under constant pressure to please the people who have the money, making democracy the system of “one dollar, one vote” rather than “one person, one vote”.
This concentration of wealth and power in the hands of just a few is not a strictly American phenomenon.
In its recent Global Wealth Report the Swiss bank Credit Suisse calculated that globally the richest 0,5% own 38,5% of all wealth, while that the poorest 68% own just 3,3%. This makes clear that capitalist Indonesia, where the news that the richest 40 individuals own as much as the poorest 60 million sparked much outrage,  is not an exceptional case but rather a typical example of a capitalist country.
It is generally acknowledged, also, that while aspiring politicians promise the masses a lot during election campaigns, they usually only care for the well being of their super-rich sponsors once they are in office. For this reason back in2005 a global opinion poll by the BBC found that 65% of the world population feels their countries are not being run for their interest and that only 13% of the people trust their politicians.
On the 17th of October, 2011, these facts regarding democratic capitalism brought a group of around 2,000 people to streets of New York. They said that to represent the 99% of Americans whose interests are currently not being considered in politics or in the economy they would march onto Wall Street, the epicenter of America’s financial sector, and would not leave from there until the iron grip of the super-rich over politics and the economy had been broken. That is why the movement they started has been named “Occupy Wall Street” as well as the “99% Movement”.
The protestors and their complaints stroke a cord with mainstream America and almost immediately found support amongst them. In the very early stages of the protest roughly 54% of Americans indicated they essentially agreed with the protestors.  This support only grew once the New York Police Department (NYPD) began confronting the protestors. On October 1st, for instance, NYPD used pepper-spray to disburse the protestors and arrested around 700 (!) of them. The revelation shortly thereafter that NYPD had been given a $4,6 million grant by the large Wall Street bank JP Morgan Chase just before the protests began helped the Occupation Movement to go global. And today, demonstration similar to the “Occupy Wall Street” demonstration are being held or have been held in over 1,500 cities around the world, such as Washington D.C., Paris, London, Amsterdam, Berlin and Tokyo.
The question may be asked why the people in the West have only now come to the streets to protest against capitalism, while the injustice in capitalism has been know for much longer already.
Firstly, this is because for a long time the consequences of wealth concentration were kept hidden from the people.
While for many years the rich grew richer and – consequently – everyone else grew poorer, the poor and middle class increased their lending in order to maintain or even increase their standards of living. From the outside, therefore, it looked as though most people were doing very well. And most people probably felt like they were doing very well. So most people in the West only really began to feel the impact of wealth concentration when this became untenable, which was in 2007. At that moment, the decades long increase in lending came to a sudden halt as many people began to struggle with their debt. This caused the financial industry in the West to become insolvent, so they stopped lending to the people. Overnight, therefore, the masses had to go from a situation where they could spend more than their income, to a situation where they had to spend much less than their income. This caused the people to really feel the impact of capitalism’s tendency towards wealth concentration. And this brought about in them strong dissatisfaction with capitalism.
Secondly, this is because the response of the governments of the West to this credit crisis left no doubt as to where their loyalty lies.
Considering the role that the financial industry – especially banks – plays in capitalist economies, the debt problems of the masses threatened the western world with wholesale, 1929 Great Depression like, economic collapse. As in the capitalist economies by far most investment and consumption is financed through bank loans, the insolvency of the financial industry caused investment and consumption to all but dry up. The governments of the West therefore felt forced to intervene in the market, and for this were left with a choice. They could either help the citizens whose backs were being broken by loans they could not carry, and thereby help the banks. Or they could bypass the citizens and directly help the banks. From the perspective of society the first option was clearly preferable, as all would be helped. From the perspective of the banks, however, the second option was preferable. For after all, if the government would take the people out of debt then the profit of the banks would be hurt for years to come. So when the governments of the West acted, they acted to save only the banks, leaving the people to carry their unbearable debt. This was one of the most obvious acts of preferential treatment for the super-rich by the governments of the West ever. But as if this were not enough, no sooner had the banks been “bailed out” by their governments or they started paying billion dollar bonuses again to their chief executives. And these two occurrences together filled the masses with disgust for the capitalist system that brought this about.
For as far as Europe is concerned, there is the added cause that after the banks had been bailed out by their governments, they turned around and began to threaten these same governments. Under no circumstance would they accept a government defaulting on its loans, they made clear, and they would punish any government who would do so by stopping all lending to it. In response the European governments quickly presented new policy to ensure that whatever happened, the banks would continue to receive the payments due on government debt. So they drastically cut back on various types of expenditure, such as social security, health care and education. But as in the capitalist economies government spending makes up a large part of total spending, the result of this was an economic downturn. So people began to lose their jobs, just as life became more expensive and government support for the employed was cut.
It is beyond doubt, therefore, that the global Occupy Movement is an expression of anti-capitalist sentiment. Yet it is very unlikely that the Occupy Movement will cause any meaningful change. The Occupy Movement is unclear, namely, on how to correct the present situation.
Some people call for less capitalism, or more government control over the economy. But this request is unrealistic. It is abundantly clear that the governments in the capitalist world are under the control of the super-rich, so how could one expect the these governments to really reign in the power and influence of these same super-rich? At most what could happen is that the super-rich will agree to some cosmetic measures to limit their own freedom, but only in order to appease the protestors and preserve the system they then continue to control.
Other people in the Occupy Movement call for more capitalism as a solution to the current problems. But as concentration of political and economic power are characteristics of capitalism, this will only serve to make matters worse.
However, as the current political and economic problems of the world are a natural outcome of the capitalist system, anything short of a complete and radical change to the way the world is organized, meaning a complete and radical change of ideology and systems, will leave the world in its present state in which the masses are exploited for the benefit of a few.
Idries de Vries is an economist who writes on economics and geopolitics for various publications. As a management professional he has lived and worked in Europe, America and Asia.

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