/

Wall Street mans the barricades

by Kevin Rafferty

Special To The Japan Times

In spite of the current economic turmoil, some Americans do not have any problems with jobs, money or housing. Indeed, Houston oil executive John Schiller built a new Cape Cod house for just $50,000 a couple of years ago. A bargain, you might think, except that this was a play-house for his four-year-old daughter, a two-story structure occupying 15.8 sq. meters and complete with running water, a refrigerator and a 32-inch flat-screen television.

Maybe it was a bargain because the New York Times, which wrote almost 2,000 words about the booming business of making play-houses for kids, reported that some of them could cost up to $200,000.

No wonder that restlessness and inchoate stirrings of revolt have reached the very gates of the bastions of capitalism, Wall Street in New York and the City in London. For days, protestors have been encamped in both financial capitals raising banners, flags and voices against injustices of the modern economic system. They have touched a popular global spark and 951 cities in 82 countries have seen similar marches, demonstrations or sit-ins. We represent the 99 percent, the protestors proclaim.

One commentator offered support, claiming that the American Dream, “has been shattered by a crisis brought about by financial excess and political cynicism. The consequence has been growing inequality, rising poverty and sacrifice by those least able to bear it — all of which are failing to deliver economic growth. The cry for change is one that must be heeded.” This was not some radical leftie, but my old employer, the Financial Times.

It is tempting as to say that it is about time someone got together to protest against manipulation of the world by the 1 percent of the super-haves. One real problem is that we live in a so-called Global Village, but the laws, customs, practices as well as the mind-sets of community leaders are still stuck in the old walled village, suspicious of anyone beyond its narrow confines.

It is virtually impossible to go back because globalization has created powerful new forces that have smashed old structures. But any way out of the mess is narrow, rocky and needs a path to be cut by strong, wise and farseeing political leaders, financial and business executives with vision and integrity, judges who can understand both the narrow law and wider principles of justice; all of the above are hard to find.

To get a sense of perspective, the inequities and iniquities that have made anti-Wall Street protestors angry include: U.S. unemployment at the highest level since the Great Depression, while corporate profits are at all-time highs, whether measured in absolute dollars or as a share of the economy; wages as a percentage of the economy at an all-time low; top earners having a higher share of the national income than at any time since the 1920s, whereas real average earnings haven’t increased in 50 years; pay of chief executives skyrocketing 300 percent since 1990 and now at 350 times the average worker’s.

Barry Ritholtz of the influential Big Picture blog offered a three-point plan: bring back real capitalism, meaning no more bail-outs and a return to the days when companies lived or died on their own successes; end “too big to fail” banks and restore competition because if they’re too big to fail, the remedy is make them smaller; and get Wall Street money out of the legislative process. He declared that the United States has become a “corporatocracy” in which “campaign finance and lobbying money has so utterly corrupted congress that we might as well put elected officials up for bid on eBay.” It is easier said than done.

The global village is producing a small number of big winners and an immense number of miserable — unemployed — losers. Ask the sainted Steve Jobs: Apple’s success is built on its outsourcing of jobs to China and elsewhere, allowing the company to make just 16 percent of the world’s new smartphones but 66 percent of global profits on such devices and build a cash hoard of $76 billion, much of which is waiting offshore for a tax concession to attract it back to the U.S.

In the old village community days there was room for whole streets of butchers, bakers, candlestick makers and cobblers. Failure to ensure fair competition meant that oligopolistic superstores gobbled up individual shops, while global production chains outsourced manufacturing to wherever labor was reliable and cheapest. What is left? What Nobel-winning economist Michael Spence calls non-tradable goods, such as hairdressers, plumbers, dentists, not easily outsourced because you have to have the customer present. Even specialist medical skills are on the verge of being outsourced, if you believe claims for the wonders of the Internet.

Then take away the moral restraining anchors of religion or sense of community; add the pernicious god of money and smart banker-gamblers clever enough to manipulate computers and the Internet, and you have a recipe for disaster. It helps to have politicians who worship money and can only see to the looming election, media fascinated by tittle-tattle and instant baubles, and ordinary people distracted by inanities of Facebook and computer games, so that none of them bother to understand what’s really happening.

Getting out of the mess requires a vision that it is hard to see. Just to take the U.S. as the exemplar of “capitalism,” big corporations cut 2.9 million jobs in the last few years, while creating 2.2 million outsourced jobs. Where are 2.9 million new U.S. jobs to come from? Will Americans accept wages and working conditions to compete with China? Or can they upgrade their education — a persistent problem — and productivity to do new jobs higher up the value chain? And are companies imaginative to create new jobs, and bankers to supply the capital?

One of the depressing aspects is the continuing dialogue of the deaf. Bankers in both Wall Street and London complain about the protestors, saying that they should be working not blocking the streets, but that is precisely the point. On the other side, the demonstrators are such a mixed bunch that the Occupy Wall Street manifesto says, “First of all, there are no Official Demands of the Occupy Movement,” though it promises votes on a plethora of proposals.

The dialogue of the deaf is exacerbated at the global level. This is not just a question of the failure of France and Germany to agree how to support the euro. Beijing has been crowing about the failures of capitalism, forgetting both how China benefits and how many demonstrators might spill onto its streets if Beijing allowed them to express their opinions.

This month the G-20 meets in Cannes. What savage irony if police corral the demonstrators safely away, so that global leaders can enjoy their banquets and discussions undisturbed by the squalid real world they supposedly supervise, only to come up with a communique as bland as blancmange, proving it’s a battered world with broken leadership.

Kevin Rafferty was managing editor at the World Bank.