Something has to give. What then?

This has more than a grain of truth in it. In the past, those with capital earned higher returns compared to those without capital e.g.ordinary workers who have to rely on growth and productivity improvements to see any increase in their income levels.

Nov 21, 2014

Anil Netto

By Anil Netto
How often have you heard that you need money to make more money?

This has more than a grain of truth in it. In the past, those with capital earned higher returns compared to those without capital e.g.ordinary workers who have to rely on growth and productivity improvements to see any increase in their income levels.

This differential in returns between those with access to capital and those without, coupled with policies favouring the former, has contributed to a relentless widening in wealth and income inequality.

In the post-war era, this gap may have been kept in check by government spending on free health care, almost free education and affordable public housing for the masses.

In the third quarter of the 20th century, however, especially following the collapse of the Soviet Union and the onslaught of the neo-liberal agenda, market forces, which had been previously restrained were let loose on an unsuspecting public.

Whereas in the past the economy was mainly about the production of goods and services, unrestrained market forces now began greedily eyeing new ‘commodities.’ Suddenly, even essential services such as water — provided free in Nature — and education and health care grew to be seen as commodities, and you began hearing terms such as the ‘water industry,’ the ‘health care industry’ and the ‘private education market.’

Even money, and labour, and land, have been turned into the playthings of market forces. We see this in the financialisation of the economy (financial institutions have grown more powerful and now reap colossal profits), the use of migrant labour to suppress wages and speculation in property development — which now includes land reclaimed from the sea for high-end housing.

Progressive tax systems — where higher tax rates are imposed on the rich — are being gradually reversed in favour of a regressive tax regime. For example, under the GST, the burden of tax is spread on the larger population while tax rates for the wealthy and their corporations are slowly reduced bit by bit.

Meanwhile, we hear of multinational corporations going through tax havens, such as Luxembourg, to secure even lower effective tax rates — sometimes as low as one per cent — than in their home countries.

The voracious appetite of market forces has imposed a tremendous strain on workers, who have to work long hours for almost stagnant real wages (after adjustment for inflation) even as social security benefits are reduced.

But how long can market forces continue like this, given that inequality is growing around the world, resources are being depleted and green-house gas emissions are setting us on course for catastrophic climate change?

In the past, we had some form of check-and-balance to full blown market forces such as elected governments intervening to protect public interest and to ensure that they have a social safety net of free education, health care and affordable housing.

But what do you do when corporations now exert growing clout over even elected governments, which are supposed to protect the people’s interest?

What do you do when the trade union movement has been weakened by the use of unprotected migrant workers and by gimmicks like the ‘contractor for labour’ system and labour outsourcing? The wide inequality is in turn hurting the common good, as people find it hard to cope with the rising cost of living. They have to resort to loans to buy houses and cars (in the absence of public transport). More and more people find that they need private medical insurance to give them peace of mind. They have to obtain loans even for higher education. The result: household debt has soared.

Not only that, as tax collections are constrained by the fall in tax rates for the super rich, government finances, aggravated by rampant corruption, are hit and the federal government debt remains high.

To make up for this, the government says it has no choice but to slash ‘subsidies,’ privatise assets and introduce the GST.

But the increasingly indebted workers’ now find they cannot afford to buy the goods, such as houses, cars and non-essential but desirable gadgets that the companies want to sell them. So easy credit is provided, adding to the debt burden of more households.

This in turn reduces consumer demand, lowers profits in manufacturing and services and a stagnation in real wages. In turn, economic activity and consumer demand slows down further.

Companies now find they have to turn to other activities to maintain their high returns — and they turn to financialisation and speculation in property, and even in food or commodity futures.

But this — rising debt, slowing wages and economic activity and inequality — cannot go on forever. Something has to give, and we could be in for a turbulent ride.

If that’s not bad enough, the economic system we now have is fast leading to climate change and global warming, as the IPCC has warned. If there are no quick moves at mitigation and adaptation, the consequences could be catastrophic.

So what do we do? Given that trade unions have been so weakened and a culture of selfish individualism has taken root, how are we to come up with alternatives to promote a healthier framework for an economy based on a foundation of human dignity and reverence for the environment?

It is here that the Church can play a prophetic role in discussing alternatives that are in keeping with the Gospel imperative to feed the poor, come to the aid of those who are sick and those in need, and ensure that limited natural resources are stretched to fulfil the needs of the many without any waste (as in the Parable of the fish and loaves).

Catholic Social Teaching points out that there is an alternative to the current framework — one based on the dignity of the human being, stewardship of the environment, and fair and just wages for workers. The economy should serve the people, including the workers, and not the other way around.

Upholding the equilibrium of the ecosystem, of which human economic activity should be seen as a subset, should be paramount — instead of the present tendency to view the ecosystem as a subset of the corporate economy. The Bishop of Rome is bound to examine this in greater detail in his forthcoming and timely encyclical on the ecology.

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