The angst of the poor

October 5, 2011

In late 2010, the Arab-Muslim world was rocked by popular uprisings, which are now called the Arab Spring. At the beginning, some Western observers called this uprising a political awakening by an oppressed populace, long ruled by cruel dictators or corrupt governments. They seemed to imply that similar protests would never happen in a Western country which practices democracy & respects human rights. How wrong they were.

Soon, similar protests sprung up in some European cities, especially in countries affected by high sovereign debts, such as Greece & Spain. In August, London also witnessed similar protest which was blamed on the hooligans or crime elements. This week, the New York’s financial district witnessed a similar protest, which was initially called the "Wall Street Protest" (but later known as "Occupy Wall Street"). Suddenly, this type of protest is no longer someone else’s problem. Like a plague, it can spring up anywhere & everywhere. What do they have in common?

The underlying thread that connects all these protests is the general dissatisfaction with the government of the day. It need not be political in nature. It is very likely due to anger over the unfair sharing of the economic pie. It is my contention that over the past 30 years, the income distribution in many countries has become skewered. This led to a high concentration of wealth in the hand of a very small group. Some called this the rise of Capitalism which is very apt since it began right after the collapse of Communism. With the demise of Communism, all vestiges that are linked to Communism (or its more popular cousin, Socialism) such as lending a helping hand to the less fortunate in any society- are looked upon with disdain. This resulted in a steady rollback of many government programs that serve the society, especially the poor. In many countries, we see the privatization of many government services as well as cutback in subsidies for the poor & the lower income group. All subsidies & expenditures to help the poor & the lower income group are now under close scrutiny.

The recent spike in inflation, which was brought on by sharp rise in the price of many commodities, caused more hardship for the poor. This group, whose income rose at a much lower rate than the rise in inflation rate, is hard hit. To make matter worse, they are subject to higher living cost due to the withdrawal of subsidies which they have enjoyed previously. The argument for reducing subsidies for the poor is to lower the budget deficit. One can easily argue that the same can be achieved by an increase in the income tax rates for the rich. Why are we asking the poor to do the heavy lifting, and not the rich? In fact, if you look back at the tax policy for the past decade, we will see a steady reduction in tax rates for the rich & those in the higher income bracket. Why the dichotomy? The reduction of income tax rates for the rich & the cut in subsidies for the poor led to a flattening of the progressive tax structure.

In economic term, individuals are rewarded according to the resources they owned. So an individual, whose only resource is his labor, is paid wages. A land owner is paid rental while a business person is paid in the way of profit. In the past few years, land owners have seen a steady rise in rental income as well as sharp appreciation in the value of their land. Similarly, business owners have made substantial profit due to the economic boom. Those, who work & toil for a living, can be divided into two broad categories- the professionals & the laborers. The professionals are well rewarded for their high end services, while the laborers have barely seen any improvement in their income level. The government looks after the landed class, the business class & the professionals. Favorable conditions & incentives are granted to the first three categories. On the other hand, the poor laborers are given minimal protection. They are subject to competition from imported migrant workers and this competition has seriously weakened their bargaining position. Some capitalists argued that the poor must work hard to survive & not to be dependent on handouts. Really?

When the recent economic crisis hit America & later spilled over to the rest of the world, the government & the central bank rushed out to save the banks & the financial elites. The argument was this; if the banks failed, the damage to the economy will be catastrophic. Hundreds of billions of dollars were spent on this rescue effort which resulted in huge deficit for many governments. Now, there are some in the government- especially the conservative Republicans in America- who argued that the government must go into an austerity program in order to lower the budget deficit. 14 million unemployed American- victims of the 2008 financial crisis- were told that their unemployment benefit might soon run dry. Meanwhile, Wall Street celebrated last year’s bumper profit by giving out huge bonuses to their staff. Who is getting handout?

In 1950s, President Eisenhower warned America about the danger of the military-industrial complex. This is a group of self-serving individuals or organizations who would perpetuate wars or conflicts in order to justify higher military spending. Today, there is another dangerous axis living among us- the central bank-financier complex. We have seen how the central bank, through the use of easy credit, has grown the banking system into a behemoth that threatens not only the stability of the financial system but the livelihood of many in the society. The easy availability of money or credit led to the financialization of currencies & commodities. Witness how much commodity prices have risen in the past few years. Experts are unable to account for the increase in commodity prices by simple demand alone. The same can also be said about the wild swing in currencies over the past decade due to huge funds betting on their movement. Who say the currencies market is too big to be manipulated? In today’s markets, the amount of money slouching around is comparable to keeping a killer whale in a small swimming pool.

The purpose of this article is to highlight these points so that our government would act fast to address the concern of the poor & the lower income group. We can either do it now or they will be forced upon us. Today, the most powerful force to be reckoned with is the power to vote. Bear in mind that the recent election in Peru was won by a populist candidate who promised to raise tax (no typo error) in order to help the poor. As Malaysians again await anxiously for the tabling of the budget for 2012 on this Friday, my thinking is that this should be a populist budget for two reasons; our Prime Minister needs to win an upcoming election as well as our government must address the concern of the poor & the lower income group. I hope this is so. If nothing is done, the next protest we may see in Kuala Lumpur will make Bersih 2.0 looks tame by comparison.

(This is my latest article in Merdeka Review. For the Chinese version, go here)