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The New Winners and Losers 402 |
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Whenever the economic system suffers a serious setback, there tends to be an outcry against the system itself and all its workings. Capitalism is seen as the author of its own troubles. Is this fair? No. The fact is capitalism has delivered huge economic benefits. It has fostered innovation. We have seen the alternative, namely command systems totally fail. It has also entered command systems like that in China and helped modify them in a capitalist direction. At one point it seemed that command systems were taking over from the capitalist world. But that phase has passed. Capitalism despite all the difficulties has emerged as the world’s choice.
Yet, there does seem to be one serious flaw in its operation. The idea was that the richer an economy got, and the richer the rich people in it became, the better off the rest of the community would become. This was because of the so-called trickle down effect. However, during the past couple of decades, if there was a rule that operated like this, it clearly was failing in its job.
Take America for example. Its economy has long been regarded as the richest and most successful in the world. That, in particular, is how the Americans themselves saw it. It was the land of opportunity. It was where, if you wanted to get on, you could do so and get on further than in any other competing economy. But the fact is the American system has disappointed a large section of the middle class of the country. The rich have got much richer, while the middle class are little better off today than they were twenty years ago. How so?
Once upon a time the wealth of America was largely generated by physical industries like the making of steel or building railways and the hugely successful auto industry. These activities showed all the benefits of the trickle down theory. They generated masses of jobs. While the middle classes made money by managing these industries and to a large extent owning the whole process.
Today the money making process is in the hands of a new race of inventors who have become entrepreneurs in the way that they handle their inventions. They are largely centred in Silicon Valley. The brightest and the best of that culture start early. They tend to begin having their ideas while they are still at university. Often they become millionaires in their early twenties. They are linked with another group of entrepreneurs working in finance. What the bright youngsters in Silicon Valley made possible has led to a revolution in financial markets. This resulted in a huge change in the way that markets operated. New electronics speeded the whole process up. This, in turn, led to innovation on a massive scale. The people who were in on the act in Silicon Valley or in Wall Street have taken over as the leading money making engine of the new phase.
The old middle class has somehow been left out, still doing a sound job but, relatively speaking, falling behind the new entrepreneurs. Anyhow, sound jobs have been on the decline. They have either been replaced by unsound ones or nothing at all. Young people who have got in on the new act have quickly risen to the top. Those, meanwhile, who have not managed to be in on it have been left behind.
We see this at work round the world. The rich are getting richer while the rest are being left behind. It is very obviously happening in this country. London and its surrounds are as busy as ever. The North is suffering by comparison.
In a sense we can see the phenomenon at work in China. The countryside, with its teeming millions, acts like a reservoir of available labour ready to be sucked into the new economy. They earn wages which compare well with their former poverty. But, if they did but know it, are a tenth of what the same job would earn them in the West. A rich new class of entrepreneurs is emerging. They drive millions of new cars. They gamble on the domestic stock exchange. Meanwhile, the Government encourages state capitalism and endeavours to hold the situation in check. The salaries the workers should be earning are turning up in the form of Dollar balances belonging to the Government.
It’s the same in India. The phenomenal growth is coming from the class who have got into the new technologies. At the same time, there is another huge reservoir of desperately poor people in the country waiting to get the skills needed to be part of the new industry. Meanwhile, those who have got into the new industries are becoming rich on the back of their development in places like Bangalore.
South Africa is another example. A black middle class is fast developing and are doing very well. They are distancing themselves fast from those still in the townships.
We can see that there is a massive adjustment occurring in the global economy. It could be called the brain power adjustment. The more brain power you put into the daily grind, the more likely the individual is to get to the top. This has been the case for some while. What is different is that this fact is being discovered by Asia. The countries in that continent have a huge potential advantage. Their vast reservoirs of labour are keen to get on the new bandwagon. They will work all hours to absorb the new technologies. They are learning fast. If we don’t watch out, we’ll be left behind.
Tony Rudd
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