One barrier to new thinking about economics is the belief that the current system at least works for Americans. That implies the rest of us could benefit if our economies were more American-like. Is this what we really want?
Since the mid-1970s — the start of the global deregulation process — the majority of American households have lost net worth. Debt as a percentage of income rose from 58% to 85% by 1998. In that year average weekly wages were 12% below those for 1973; while average hours of work rose by 163 a year. In those years productivity rose by 33% — all of which, and more, therefore went to capital. The top 1% of Americans now owns more than the bottom 95% — up from 90% only a year earlier. Top executives earned 419 times the wage of blue collar workers in 1999 — up from 326 times a year earlier, and 42 times in 1980.
That is the speed at which wealth is being concentrated in the United States. In the past three decades there has been a collapse of social mobility. The chances of US workers in the bottom 20% moving to the top 60% is lower than in any other developed country. The rich have been enabled, partly through lack of effective inheritance taxes, exclusive expensive private education and networks, to ensure their children inherit and consolidate privilege; while taxes to support services for the excluded ”failures” are minimised. The result is that one in seven Americans cannot read or calculate to Grade 5 level. One in six children lives in poverty, leaving them prone to malnutrition, learning difficulties and delinquency.
The competitive and individualist character of the economy is reflected in the rates of stress and mental illness that arise from the effects of failure. Research shows the closer an economy gets to the American model, the higher the rate of mental illness it displays.
The callousness of the consequent jungle mentality is illustrated by the following New York Times reports in one week in May last year. A 12-year- old boy, convicted of murder for killing a six-year-old classmate, was given a life sentence in an adult prison without parole. A 13-year-old who shot dead his teacher who suspended him from class was imprisoned for 25 years. A mentally disabled woman was convicted of homicide because the stillbirth of her baby was said to have resulted from her cocaine addiction. An 11-year-old boy was taken from his classroom in handcuffs for drawing pictures of weapons.
Life may be a lot more comfortable for the diminishing middle class and the rich; but it is hardly more enjoyable. The ascendancy of ”shareholder value” as the dominant force in business drives out any possibility of human values. Success is divided from failure by the slimmest line; and brutal realities determine how business must be conducted. This terrible defect at the heart of global business is potentially catastrophic for the human race.
The ”Caviar and Cocaine” lifestyle of the super-rich is a snare and a delusion in terms of happiness. Opinion surveys find diminishing satisfaction across the board. In 1970 80% of university students had the goal of ”the development of meaningful philosophy of life”. By 1989 this had fallen to 41%, the majority opting for ”to be very rich”. The rate of satisfaction with life drops with the achievement of riches.
But the over-consumption goes on. The savings rate is now negative: Americans spend about $35-billion more than they earn.
The US is the most indebted country in the world. Foreign borrowing is more than $420-billion a year — 4,2% of gross domestic product. The trade deficit has reached $342-billion. This means Americans consume hundreds of billions a year more than they produce. They are being financed by the rest of the world.
This illusory state cannot last, despite US control of international financial institutions, one effect of which is artificially to raise the value of the dollar. The ”boom” of the 1990s was created by huge investment, which has resulted in massive over-capacity. The computer industry has risen by 40% a year, way over demand; the auto industry sells at 75% capacity; telecommunications use is a fraction of the capacity of the infrastructure. Profits in most sectors are derived largely from mergers to eliminate competition, and speculation in stocky markets and real estate. These are self- limiting and notoriously fragile.
”I’m consulting God and the Virgin Mary,” Argentina’s President Eduardo Duhalde is quoted as saying about his country’s economic devastation. No less rational than the hope that the American model can rescue the world’s economy.
Margaret Legum is with the South African New Economics Foundation in Cape Town