Global leaders are once again meeting this week in Davos, Switzerland to discuss and – one hopes – find solutions to the increasingly volatile economic and political forces shaping our world.
In a marked change from past get-togethers, mainstream economists will be talking about something more usually associated with the development community: Rising socio-economic inequality.
We have known for some time that the world is getting less equal; so much so that, today, we are hardly surprised to learn that one percent of the world’s population controls 44 percent of the world’s wealth (Global Wealth Report pdf).
Even during the heydays of the great industrialists in the United States – when the Rockefellers and Carnegies were carving up the oil and steel sectors – the richest one percent ‘only’ controlled a third of the wealth.
In short, the ‘haves’ have never had it so good, with the trends in southeast Europe and Central Asia mirroring those in other developing regions. Until very recently, the increasing level of inequality was broadly accepted by most of those living in developed and developing societies alike, as the poor and middle class saw some prospect of social mobility and advancement of the type which could pull them up and afford them a better quality of life than their parents.
So what has changed?
For the poorest of the poor: Not much. The very poor remain so. What is different about this crisis is that it is not just the very poor that are being affected. In Europe – where the crisis is at its most intense – hard working, aspirational young people no longer see themselves advancing; in many middle-income countries, families who had just pulled themselves into the middle class are now contemplating falling out of it. This predicament is particularly apparent in those economies – like Hungary and Romania – with large external trade imbalances, indebted consumers and a high vulnerability to further fiscal shocks.
Part of the problem is connected with the consequences of global shocks on volatile economies. As the credit crunch morphed into the financial crisis; the contagion of which has led to sovereign debt crises, countries with expansive welfare systems across this region started to slash social cushions, while employers in all but the most recession-proof industries and economies, began cutting their workforces.
The sobering reality is that now the majority of the low and middle class – no longer see themselves advancing socially or economically. An increasing number of people – particularly in developed economies, but increasingly in developing countries – are no longer willing to accept what they regard as gross inequalities perpetuated by the privileged elite (See: People or $: Will Davos answer the call?) . The radicalization of the middle class appears a very real phenomenon.
This is now much more than an economic problem. Economists and sociologists speak of purchasing power, deflation, liquidity crises and negative equity but this terminology masks the deeply human impact that political and economic mismanagement is having on people.
It is apparent that governments in particularly unequal societies have taken for granted that there is nothing particularly volatile or dangerous about the long-term poor. The same complacency soon dissipates when growing middle-class anxiety turns into popular protest about the dysfunctional political economy in developed countries.
What is different now is that those people who were recently climbing into the middle class in Bucharest or Aktau (Kazakhstan), for example, now see no way in; and they are angry. What is emerging in this region and beyond are dangerous fault lines between the elites and the rest which are manifesting in protests, crime, and violent disorder – and in the case of the Middle East – regime change. With the right trigger this discontent looks capable of morphing into a much broader, more radical movement.
The voice of the discontent
The response from affected governments has been entirely mixed. While the G20 and International Monetary Fund (IMF) discuss attempts to marshal the insolent financial sector into some type of compromise (haircuts, write-offs and deleveraging in the terminology of the money-men), on the streets, governments have been meeting social unrest with a reactionary mix of surprise, denial, repression, faux reform and – less commonly – with tentative steps to restore the social contract’ between individuals and government.
People’s discontent with their governments’ elitism, corruption and cronyism is a plea for genuine constitutional liberalism – a political system that sees revenue from state oil firms benefit public infrastructure; a government that is itself beholden to the rule of law and subject to censor by an independent judiciary; and a progressive tax system which funds services and sustainably expands the middle class.
From a peace and stability perspective this makes sense as a large middle class is one of the best indicators of a stable society. Indeed, the fact that democracies rarely go to war with one-another is well known; however, the statistics are even more compelling when one looks at the unwillingness of states with large middle-classes to risk it all and engage in conflict.
As 2012 gets underway and the financial crisis rolls on, regimes that respond with denial, repression or faux reform do so at their peril and stand to make their hold on power all the more brittle. What is for certain is that the ubiquitous nature of social media will continue to give a forceful – and potentially violent – voice and organizing platform to the ‘have-nots’. The era of the radical middle may have arrived in earnest.
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