Against the Establishment

It is generally observed that there is a sentiment of revolt against the established order. It looks like a worldwide phenomenon. There’s a sentiment of rejection of several aspects of public life that are usually taken for granted. It’s necessary to understand why there’s a rejection of collective behaviour that appears to go against the normal trend.

Two examples out of others are the “Brexit” vote in the UK and the Trump phenomenon in the USA.

When the results of the UK referendum started coming down on June 24th this year, some local and international observers took the view that since a little over half had voted in favour of “Brexit”, the other half was sensible enough not to endorse such an “unacceptable” decision, involving a re-definition of a country’s and a continent’s re-configuration.

It was easy to sit behind the four per cent “only” (52 against 48%) which divided the two sides in the referendum and derive comfort that it was not so catastrophic, after all. In reality, had it not been for the ‘voice of reason’ which prevailed among some of the non-Brexit voters, the chasm might have been much larger. The latter must have argued with themselves that it was important not to jeopardise the country’s superior interests by taking position along with the clamorous Brexiters who had another axe to grind. This is what helped the gap not to widen. Otherwise, the general feeling was to throw overboard a public establishment which has been failing for long to deliver in favour of the majority average citizen.

Take the Donald Trump phenomenon in the United States. How come such a seemingly reckless person has had such a massive popular endorsement? The incumbent president worries that Trump “is not fit for the job”. He means it, and possibly not simply in political strategic terms in favour of Democrats. Pictures have shown however that a number of young and disillusioned older Americans are among the Trump supporters. Are they there simply because of racial and such prejudices that Trump has been fanning out during his nomination campaign? No, it’s the same phenomenon as in the UK – a total disillusionment with the manner in which the establishment has been looking after the public welfare. Bernie Sanders’ support in the Democratic camp springs from the very same source: they would have none of establishment-type Hillary Clinton.

People are concerned about bread and butter issues more than about who in the establishment is able to trounce his/her political adversary with tricks, beautiful speeches, etc.. To those in the population who are increasingly feeling left behind, the glamour and glitz of political leaders – who thrust themselves as redeemers on all fronts but with nothing to show in practice in terms of the people’s well-being – have little significance.

Maybe, a new chapter is being written about how really politicians and the establishment should henceforth actually govern themselves. Policy makers – such as the European Commission – who keep making new rules, or those who are running after prestige projects having little bearing on improving the daily lives of citizens, appear to be getting rejected across the board. The disconnect is becoming ever more pronounced. In the circumstances, people are becoming less and less concerned about brash politics replacing the more sober type, unmindful of negative consequences. It is a big risk to throw out purported good governance but, in the face of continuing deterioration of their conditions, voters are increasingly prepared to take the risk.

Major central banks have been responding to the persistent low-growth environment impacting adversely the lives of people lower down by reducing interest rates successively. That has been happening since 2001. There was an acceleration of this process of lowering interest rates since 2008 after the financial crisis. Some central banks – like the ECB and Bank of Japan – have taken interest rates into negative territory, hoping that they would thus push up investment and perk up the economy. Growth has remained timid nevertheless, at times dipping into recession in some of the advanced countries.

Globalisation has come and with it, a vaster amount of international trade liberalisation. New technology has also come which was hailed as the harbinger of a new spurt in global growth based on its productivity-enhancing capability. But popular support for Donald Trump has been coming from anti-globalizers who see their jobs being taken away or their incomes stagnating. And what if new technology had a one-off only productivity enhancing impact and was, in fact, a job killer without compensating for the same by opening up new vistas of activity as did the Industrial Revolution previously?

Despite central banks, despite globalisation, despite new technology, advanced countries are swimming in a low growth environment for the past 15 years at least. Why would investment take off due to continuously falling interest rates if demand was not picking up at the same time? This is what appears to be happening, in contradiction of Say’s law which assumes that supply creates its own demand. Why is it that per capita GDP increased by an average 2.2% from 1947 to 2000 in the US but by an average only 0.9% as from 2001? Why have Western Europe (our export market) and Japan done even worse than that?

The answer is that there has been taking place a lopsided distribution of whatever feeble economic growth has been taking place in advanced countries the past 15 years. Supply is not consequently being backed up by demand supported by adequate purchasing power.

That’s why investment growth is tepid and, with it, that of the economy. Unless this gridlock of what is called “secular stagnation” is broken, vox populi will keep mistrusting the establishment and go for anarchists who promise to bring down the established global order, if that’s what it has come down to. The old order of free markets, supply automatically adjusting to demand in a spiral of sustained growth and equilibrium being restored after a period of disruption, no longer operates.

The Scandinavian countries showed the way out of this situation in which the most powerful grabbed the larger share of the cake, leaving others with stagnating or falling incomes over long stretches of time. They worked under the assumption that the political and public establishment is also bound by a social contract, especially with those who are left behind, unable to fend for themselves in the emerging new shifting production processes. Redistribution through taxation became the means to get out of the rut. Those who were losing out were specifically singled out for support well in time before they sank further. The government restored them to a healthy participation in economic life, with social aid at first, followed by a re-engineering of the production platform and the forming of economic alliances with other countries which did not tie up their hands in this regard.

We can overlook the rebellion against the established order only if we are prepared to pay the high cost of enduring economic stagnation it entails.

Anil Gujadhur

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