Corrupt Capitalism Destroys the Economy and Society

One of the most powerful sustaining characteristics that make us unique among the animal kingdom is hope.  It is what sustains us in times of hardship, tragedy and despair.  Austerity mania, for the 99%ers, that is currently sweeping Europe, is getting close to killing hope.

The evidence that austerity measures are not working is all around us; however, politicians insist that the good times are not far away and we should hold our nerve and persevere. There is no alternative, they say.

Research conducted by the Institute for Employment Research and the Institute for Fiscal Studies, commissioned by the Resolution Foundation, paints a frightening picture of the economic well-being of those on the bottom half of income distribution in the UK up to the year 2020 (benefit reliant and those in the lower to middle income, LMI, groups). This is what researchers predict:

Living standards for working-age households in 2020 are likely to be substantially lower for those in the bottom half of income distribution (the benefit-reliant and LMI groups) than they were for households in the same position a decade earlier. Over the 2008 to 2020 period as a whole, the modelling suggests a decline in real terms income of around 5 percent for low to middle income households and around 19 percent for households reliant on benefits. Only higher income households—those above middle income—see income growth, of around two per cent over the period.

What are the economic assumptions made in the research?  Here they are:

All the projections [above] in this report rest on GDP forecasts of modest growth to 2015 and of annual average growth of 2.5 per cent from 2015-2020 which, by comparison to more recent forecasts, now look optimistic. The forecasts also assume no additional changes to public spending beyond those announced by the Chancellor’s 2011 Autumn Statement (and so don’t include, for example, further cuts to welfare spending).

The above predictions imply that income inequality will increase further; the researchers predict an increase in inequality of 18% between the richest and poorest households.

Joseph Stiglitz, the Nobel laureate economist, puts the economic argument against the concentration of wealth and power in the hands of the 1%ers thus:

It is no accident that the periods in which the broadest cross sections of Americans have reported higher net incomes—when inequality has been reduced, partly as a result of progressive taxation—have been the periods in which the U.S. economy has grown the fastest. It is likewise no accident that the current recession, like the Great Depression, was preceded by large increases in inequality. When too much money is concentrated at the top of society, spending by the average American is necessarily reduced—or at least it will be in the absence of some artificial prop. Moving money from the bottom to the top lowers consumption because higher-income individuals consume, as a fraction of their income, less than lower-income individuals do.

He sums up the effects on society as a whole as follows:

The rich do not exist in a vacuum. They need a functioning society around them to sustain their position. Widely unequal societies do not function efficiently and their economies are neither stable nor sustainable. The evidence from history and from around the modern world is unequivocal: there comes a point when inequality spirals into economic dysfunction for the whole society, and when it does, even the rich pay a steep price.

Richard Wilkinson and Kate Pickett demonstrate in their book The Spirit Level that most of the ills that afflict rich countries rise with income inequality. Mental illness, alcohol and drug abuse, obesity, stress, anxiety, homicide and prison population are higher in less economically equal societies. Positive traits such as life expectancy, social mobility, and trusting each other are lower in less economically equal societies.

Inequality, injustice and grinding poverty lead to the whole of society becoming the poorer. We all lose, rich and poor.  Faced with such a future, politicians of all persuasions need to be radical in drastically altering the corrupt capitalism model we currently have.  Tinkering around the edges will not significantly alter the dark

Adnan Al-Daini (PhD, Birmingham University, UK) is a retired University Engineering lecturer. He is a British citizen born in Iraq. He writes regularly on issues of social justice and the Middle East. Read other articles by Adnan.