Meaning of ’Occupy Wall Street’

The common man of the developed countries is agitated. Hundreds are camping in a park across the Wall Street which houses the New York Stock Exchange. People are holding demons-trations at City Square in Melbourne and in front of the Reserve Bank of Australia in Sydney. Similar demonstrations are taking place in Athens, Tokyo, Taipei and Seoul. The reason is unemployment and inequality. These youth believe the bankers have speculated, made huge losses and brought down the global economy along with them. They are demanding that governments make effective regulation of these banks so that people are put before profits. This problem afflicts the developed and developing countries equally. The widespread public support for Anna Hazare and the Maoists in India is indicative of the disaffection among the people. Such disaffection has been of long standing in the developing countries. The recent development is that it has spread to the developed countries.

This much is true that the immediate cause of the problems faced by the common man in the developed countries is due to the collapse of the banking system that was started by Lehman Brothers about three years ago. The problems of Europe arise from excessive borrowing by governments such as those of Greece much beyond their incomes. These are not the fundamental reasons of the problems, however. Banks are failing because companies are not making profits. They are not employing workers. Consequently workers are not able to repay loans on the houses purchased by them. European governments are under stress because their economies are slowing down and revenues are falling below the targets. The fundamental problems are lack of profits of the companies and less revenues of the governments. It is not correct to blame the rude behaviour of the manager for customers going away if the hotel is in a dilapidated condition. Similarly, it is not correct to blame the speculation by bankers or borrowing by governments for the collapse of the world economy because the fundamental problems lie elsewhere.

The main problem is that jobs are evaporating into thin air while the profits of bankers are rising. This is rooted in the ‘trickle-down’ theory so favoured by the economists. The thinking is that a part of the increased incomes of the rich will trickle down to the poor and thereby provide increased incomes to all people. The income of the banker will increase when the price of shares owned by him rises. The price of share will rise when the company increases production and makes profits. The increase in production will require employment of larger numbers of workers. In this way the incomes of the rich will trickle down to the common man. President Obama pushed for the bailout of the troubled American banks following this logic. The belief was that survival of banks will help generate more economic activity. Prime Minister Manmohan Singh is pushing the corporate-led development paradigm in India based on precisely such belief.

Trickle down does not work, unfortunately. It is not necessary for the businessman to employ larger number of workers in order to increase production. Production can be increased by the use of automatic machines. In that case increase in production and reduced employment can go together. Readers will note that share markets generally applaud whenever a company goes for downsizing, that is, reducing the number of employees. Workers are nowadays treated by businessmen as a necessary evil. So production and profits are increasing while the common man is left high and dry.

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THE problem of the developed countries is deeper because they are additionally afflicted with the negative effects of globalisation. It is profitable for the developed countries to establish factories in low-wage developing countries like China and India and import goods. They no longer want to undertake production in high-wage home countries like the United States. The mega-retailer Walmart imports more than 80 per cent of its goods from China and other developing countries. The common man of the developed countries is, therefore, doubly hit. New jobs are not trickling down because of the use of auto-matic machines and existing jobs are being transferred to the low-wage developing countries. The profits of the bankers are increasing, however, because use of automatic machines and downsizing of the workforce increases their profits. Moreover, their area of operations has now expanded to the whole world. Almost all big banks are now global players.

It will be clear that increasing profits of the bankers are not the real problem. The problem is use of automatic machines and transfer of jobs to the developing countries. The shopkeeper sells potatoes and tomatoes expensive when there is a natural calamity such as Tsunami. That does not mean that his selling of expensive potatoes is the cause of the Tsunami. Similarly the bankers are making profits when companies are using automatic machines and downsizing; or when they are transferring jobs from the high-wage home countries to low-wage developing countries. That does not mean that bankers are the cause of the loss of jobs. Bankers are only making profits from the circumstances that they see unfolding before them because of the policies implemented by their governments.

Economists will have to think afresh. ‘Work’ is increasingly becoming irrelevant because of the development of various technologies. In a way this is a happy development. Mankind is no longer forced to work in order to earn its bread. Few hundred workers working with tractors and automatic looms can produce all the food and cloth that is required by thousands of households. The remaining workers are no longer required by the economy. This is good if those who are left out can be provided with the wherewithal to live and realise their potential. However, the same redundance is painful if they have to beg for unemployment compensation and have no wherewithal to paint, fish, dance and explore the beauty of life.

We will have to establish an economy where every household has the income to live gracefully and fulfil its desires. This can be done in two ways. One, capital-intensive production must be taxed and subsidy must be given to employment. This will lead to lowering of the rate of growth because expensive labour will be used instead of cheap machines. This reduction in growth must be accepted as a payment for employment generation. Two, every household must be given a basic income as a right, not as ‘unemployment compensation’ or welfare doles. Those who want additional incomes may seek work but it should not be necessary for every person to work and earn his livelihood. Leaders of the world, including Manmohan Singh, should recognise that corporate-led growth will not deliver.