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Shockwaves from the West

by Kevin Rafferty

Special To The Japan Times

A nervous calm has returned to the streets of England after last month’s widespread riots, arson and looting across London and other cities sent shockwaves around the world. As far away as Japan people were asking if Britain was safe any more, and one German politician suggested moving next year’s Olympic Games to safety in Germany.

Key questions remain about what sparked riots in so many different places, some far from the initial north London area where police killed a black gang suspect. None of the explanations is satisfactory, but Britain and the West generally should take careful stock of the dangerous ways that inexorable economic decline may lead to potentially worse social upheaval.

Prime Minister David Cameron blamed street gangs and opportunistic looters and declared that criminality would be punished. Magistrates and judges duly obliged. Two men who tried to foment “massive lootin” (their expression) using Facebook, got four years each in prison, even though only one of them turned up at the scene of the proposed riot. Hundreds of others received stiff prison sentences where previously they would have escaped with non-custodial sentences.

Cartoonists on both sides of the Atlantic put a different spin on the English riots, depicting financiers in swanky stretch limousines driving away with bags of cash to the applause of politicians, while hooded looters steal through broken shop windows with single pairs of sneakers or television sets. The suggestion was that there is one law for the rich and another draconian version against the poor.

Cameron conceded that he had a job ahead to tackle “120,000 most troubled families” in a “social and security fightback” against what he termed the “slow-motion moral collapse” of Britain.

Former Prime Minister Tony Blair quickly rushed to deny that Britain was in a state of moral decline. He complained about “a highfalutin wail about a Britain that has lost its way morally” and asserted that, “today’s generation is more respectable, more responsible and more hard-working than mine was.”

It’s true that the writings of Charles Dickens or Henry Mayhew in Britain’s Victorian heyday of empire show a long history in Britain of a criminal underclass, but they knew their place, and did not challenge the established order.

Blair tried to brush aside any connections between the riots and looting and the high salaries of bankers. He would, wouldn’t he since it was he who, following former Prime Minister Margaret Thatcher’s damage of British industry, boosted the role of the City of London as the center of a supposedly winning service economy.

Western economies generally are in a mess and marked by slow growth, unsustainable levels of debt, an overpaid overclass, a growing underclass and a massive army of unemployed. In the United States, unemployment two years into a so-called recovery is still above 9 percent and would be much higher if hundreds of thousands of people had not stopped looking for work. In Spain unemployment is 21 percent and youth unemployment 43 percent. In the United Kingdom, youth unemployment is about to hit one million. In many of these countries, slowing growth and layoffs by the private sector are biting just as governments try to cut their deficits, all increasing the prospects of double dip recession.

Some people have never had it so good. Corporate profits in the U.S. are at record levels of almost $1.7 trillion. Multibillionaire Warren Buffet urged the government to stop coddling the super-rich. He noted in the New York Times that he paid income tax of $6,938,744, but that was only 17.4 percent of his taxable income. He and other high-rolling financiers benefit from tax breaks “showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species.” Middle class people without Buffet’s tax breaks are paying 33 to more than 40 percent tax.

The reaction among many of Buffett’s peers was that if he wanted to pay more tax, the U.S. revenue had a gift window allowing him to do so. As former investment banker William Cohan noted, while Main Street U.S. suffers from rising unemployment, “the financial industry is dancing a jig after paying itself about $150 billion in compensation in 2010.” It should be worrying that high financial salaries on both sides of the Atlantic are accompanied by a sense of entitlement with no understanding or caring about what is going on in the rest of the economy.

The economic mess is compounded by head-in-the-sand politics. In the U.S., the Republican Party, which controls the House of Representatives, has been captured by the right wing, which wants to curb the economic powers of the White House and cut the entitlements of the underclass. Rick Perry, the governor of Texas, increasingly favored to challenge Barack Obama for the presidency next year, wants to repeal the 16th Amendment to the U.S. Constitution, giving the federal government income taxation powers.

In Germany, Chancellor Angela Merkel stubbornly rejects any initiative to help hard-pressed southern European members of the eurozone, declaring that they must reduce their debts, not much help for Greece, where growth is predicted to be a negative 5 percent. She conveniently forgets that Germany’s rise as the world’s second biggest exporter was helped by profligate euro-zone spenders.

Who knows what can spark a riot or revolution. Some countries and groups of people tolerate oppression and even torture for years without protesting. The evidence is that the French Revolution was sparked because people became relatively prosperous enough to glimpse and resent the privileges of the rich and powerful. The same could surely happen on the way down as the growing underclass refuses to share Blair’s smug view that the rich financiers are entitled to their massive looting of a declining economy.

Some economists hope that, as one put it, “Today, at the height of the Western financial crisis, only China can save capitalism.” I wish too, but fear that it is wishful thinking. For all its soaring success China accounts for less than 10 percent of global GDP, whereas the U.S. and European Union countries together account for 55 percent, so as the West slows, China’s export model will look increasingly fragile.

Equally important, there is no indication that the rulers in Beijing are yet interested or understand the implications and restrictions on domestic freedoms of a global role for China.

Kevin Rafferty was editor of independent daily newspapers during annual meetings of the IMF and World Bank.