“Under capitalism, man exploits man; while under socialism, just the reverse is true.” ― John Kenneth Galbraith, A Life in Our Times
The Chinese government has been busy reigning in the country’s technology, for-profit education industries with regulatory changes this year.
Apparently, tech giants in China have grown so powerful they have become a threat to the state’s control of the country and social cohesion.
Inequality has grown so vast that it is starting to threaten social stability. In a matter of only a few months, accompanied by new antitrust laws, China had achieved what the past few United States presidents could only talk about.
Public anger in China over the enormous power and growth of tech companies stemmed from the industry’s reluctance to share their exponential profits with their overworked delivery drivers during the pandemic. There have been reports of gig workers, fed up with low wages and poor working conditions, going on strikes.
In the US, central bankers, policymakers, and academic economists are meeting at the end of August for an annual symposium.
This year’s meeting is a bit unusual as the central bank chose to address an issue they have always skirted around. The theme for this year’s Jackson Hole Economic Policy Symposium in Wyoming, is “Macroeconomic Policy in an Uneven Economy,” an acknowledgement of the economic undercurrent of inequality, and a departure from the normal esoteric themes of past years.
The fight against the global economic crisis, which started about 12 years ago, was led by central banks around the world, with the US Federal Reserve acting as the tip of the spear most of the time. As politicians dithered and governments fell, central banks flooded the financial system with low-interest money. Much of these cheap credit facilities have remained.
Despite saving the financial system from itself, many argued that the benefit of a prolonged low-interest rate environment is severely skewed to people and institutions who leverage on capital to create investment profit, instead of people and small businesses who need assistance just to continue on.
While the former can use borrowed capital and speculate in the financial markets – paying back the loan in one successful trade –the latter can also borrow cheaply, but still struggle to make the monthly repayments.
In other words, while the US central bank’s low-interest-rate policies have stabilised the American economy, and by extension the global one, it also steroid-boosted the stock market and other financial assets. Most people are not stock owners of Apple or Amazon and have not benefited as much from the policy.
The measures taken by Chinese authorities and attempts to publicly think about inequality in the US, where the use of the word ‘equal’ is taken by some as the first shot in a socialist coup, are rooted in the tensions in society and the economy today. Exacerbated by measures taken to curb Covid-19, people who have suffered economically have witnessed how some, associated with the tech industry or finance, not only thrived, but have been flashing their privilege in the face of global suffering.
At the same time, a part of the technology industry has been channelling capital toward the creation of unproductive social media apps and socially damaging financial speculation.
We have also seen a few financial scandals showcasing the excesses of the times. Hedge fund manager, Bill Hwang of Archegos Capital Management, allegedly lost US$20 billion in two days on financial speculation. A blue-collar American worker is right to wonder – what kind of system allows for borrowing for speculation, to the tune of US$20 billion, when a janitor has to jump through barbed-wired hoops just to get a housing loan?
All these tensions have opened fissures in society. The distrust of the system, whether you are in China, the US or Malaysia, manifest itself in very divisive ways – from online hate, radicalisation and hardening of positions to the anti-vaccine movement. Meanwhile, the easy-money-using-technology narrative has given rise to retail financial speculation and online scams all around the world.
The question is not about the selection between more command and control, or more market power. If inequality in society and economy is not addressed, sooner or later, there won’t be either a system to command, or a market to flourish.
This is the personal opinion of the writer and does not necessarily represent the views of Twentytwo13.