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Economic model

While it has long been blatantly obvious that the global economic model is not working for all, the rate of accumulation of wealth by a small minority is now breathtaking – if not totally obscene.

With the situation only being worsened by the economic impact of the Ukraine War – which has come on top of the effects of the Covid-19 pandemic – could we be headed for mass revolts sparked by a desperate need for change?

The war is causing food shortages, with the world’s poorest the most affected. Though the full impact is yet to be felt, the number of severely food insecure people has already “doubled from 135 million to 276 million” in just two years, leaving “almost 50 million on the edge of famine.”

Though the Global South is the worst hit, poorer communities in richer states are also affected. Here in the UK, where millions of people already live close to the edge, there has been a surge in the need for food banks as many are pushed into critical need. Many schools in more deprived areas are forced to provide breakfasts every morning, not least to avoid having to teach hungry children who cannot concentrate.

Meanwhile, the rich are getting richer. In one three-month period in 2020 – which coincided with the start of the pandemic – the world’s then 2,189 billionaires increased their wealth by 27.5% to $10.2trn, according to Swiss private bank UBS. This represented a 70% increase in their wealth in just three years.

Two years on, there are now 2,668 billionaires. Just last week, Britain’s Sunday Times published its annual ‘rich list’ of the country’s most wealthy – reporting the richest ten individuals and families have a combined GBP 182bn.

In this context, two questions arise. Why has the global rich-poor divide grown so wide? And why has there not been a bigger uprising against it?

The latter is particularly confusing, given our global system has seen such a vast increase in overall wealth in the past 75 years. After all, following the end of World War Two, many countries in the West put considerable effort into public services, developing much-improved health systems, public education, housing, and basic social assistance support for the most marginalized.

What has happened since? The answer is widely recognized to be ‘neoliberalism’, an approach whose essence is that the true foundation of economic success is strong and determined competition, which a political system must work towards to have any chance of success.

This approach was developed in the 1950s, with the work of economists including Friedrich Hayek and Milton Friedman, and has since been shaped by a network of more than 450 right-wing think tanks and campaign groups.

Neoliberalism is aided by taxation designed to benefit the more successful; the firm control of organized labor to minimize opposition; and the maximum privatizations of transport, utilities such as energy, water and communications, housing, health, education and even security.

There are obviously losers from this system, but typically enough wealth will ‘trickle down’ to prevent serious opposition. It is a line of thinking that can reach the fervor of a religious belief and is certainly best seen as an ideology.

The switch to neoliberalism was boosted by the huge economic upheavals that followed the 1973-74 oil price hikes (over 400 percent in eight months). Stagflation became the order of the day and, in the UK and the US, key elections at the end of the decade brought in the Thatcher and Reagan administrations.

Both newly elected leaders were convinced of the need to embrace the new thinking. Throughout the 1980s, the US pursued a firm belief in the need to accelerate tax changes and financial deregulation, while Britain sought to control the trade unions and oversee the large-scale privatizations of state assets – Thatcher’s mantra being “there is no alternative”.

Excerpted: ‘Are We Headed for Mass Revolts to Upturn the Global Economic Model?’

Paul Rogers, "Economic model," The News. 2022-06-01.
Keywords: Economics , Economic success , Economic impact , Economic model , Taxation , Trade , Friedrich Hayek , Milton Friedman , Ukraine , United Kingdom , GBP