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January 21st, 2014

A much needed “New World Economic Order”

Submitted by Ikram.

Our message to the World Economic Forum at Davos and our answer to Oxfam

Just before the Davos World Economic Forum (link) annual summit meeting on January 22-24, 2014, Oxfam has come out with a report (see link) which concludes that “The 85 richest people own the same wealth as the 3.5 billion poorest people.” The report in its summary states:

In November 2013, the World Economic Forum released its ‘Outlook on the Global Agenda 2014’, in which it ranked widening income disparities as the second greatest worldwide risk in the coming 12 to 18 months. Based on those surveyed, inequality is ‘impacting social stability within countries and threatening security on a global scale.’ Oxfam shares its analysis, and wants to see the 2014 World Economic Forum make the commitments needed to counter the growing tide of inequality. Some economic inequality is essential to drive growth and progress, rewarding those with talent, hard earned skills, and the ambition to innovate and take entrepreneurial risks. However, the extreme levels of wealth concentration occurring today threaten to exclude hundreds of millions of people from realizing the benefits of their talents and hard work.

Extreme economic inequality is damaging and worrying for many reasons: it is morally questionable; it can have negative impacts on economic growth and poverty reduction; and it can multiply social problems. It compounds other inequalities, such as those between women and men. In many countries, extreme economic inequality is worrying because of the pernicious impact that wealth concentrations can have on equal political representation. When wealth captures government policymaking, the rules bend to favor the rich, often to the detriment of everyone else. The consequences include the erosion of democratic governance, the pulling apart of social cohesion, and the vanishing of equal opportunities for all. Unless bold political solutions are instituted to curb the influence of wealth on politics, governments will work for the interests of the rich, while economic and political inequalities continue to rise. As US Supreme Court Justice Louis Brandeis famously said, ‘We may have democracy, or we may have wealth concentrated in the hands of the few, but we cannot have both.’

Oxfam is concerned that, left unchecked, the effects are potentially immutable, and will lead to ‘opportunity capture’ – in which the lowest tax rates, the best education, and the best healthcare are claimed by the children of the rich. This creates dynamic and mutually reinforcing cycles of advantage that are transmitted across generations.

Given the scale of rising wealth concentrations, opportunity capture and unequal political representation are a serious and worrying trend. For instance:

* Almost half of the world’s wealth is now owned by just one percent of the population.

* The wealth of the one percent richest people in the world amounts to $110 trillion. That’s 65 times the total wealth of the bottom half of the world’s population.

* The bottom half of the world’s population owns the same as the richest 85 people in the world.

* Seven out of ten people live in countries where economic inequality has increased in the last 30 years.

* The richest one percent increased their share of income in 24 out of 26 countries for which we have data between 1980 and 2012.

* In the US, the wealthiest one percent captured 95 percent of post-financial crisis growth since 2009, while the bottom 90 percent became poorer.

This massive concentration of economic resources in the hands of fewer people presents a significant threat to inclusive political and economic systems. Instead of moving forward together, people are increasingly separated by economic and political power, inevitably heightening social tensions and increasing the risk of societal breakdown.

Oxfam’s polling from across the world captures the belief of many that laws and regulations are now designed to benefit the rich. A survey in six countries (Spain, Brazil, India, South Africa, the UK and the US) showed that a majority of people believe that laws are skewed in favor of the rich – in Spain eight out of 10 people agreed with this statement. Another recent Oxfam poll of low-wage earners in the US reveals that 65 percent believe that Congress passes laws that predominantly benefit the wealthy.

The impact of political capture is striking. Rich and poor countries alike are affected. Financial deregulation, skewed tax systems and rules facilitating evasion, austerity economics, policies that disproportionately harm women, and captured oil and mineral revenues are all examples given in this paper. The short cases included are each intended to offer a sense of how political capture produces ill-gotten wealth, which perpetuates economic inequality.

This dangerous trend can be reversed. The good news is that there are clear examples of success, both historical and current. The US and Europe in the three decades after World War II reduced inequality while growing prosperous. Latin America has significantly reduced inequality in the last decade – through more progressive taxation, public services, social protection and decent work. Central to this progress has been popular politics that represent the majority, instead of being captured by a tiny minority. This has benefited all, both rich and poor.

The report then makes the following recommendations which essentially are a pipedream in current economic mind set, i.e. Capitalism. The recommendations are no more than a wish list and without any ideological basis:

Those gathered at Davos for the World Economic Forum have the power to turn around the rapid increase in inequality. Oxfam is calling on them to pledge that they will:

* Not dodge taxes in their own countries or in countries where they invest and operate, by using tax havens;

* Not use their economic wealth to seek political favors that undermine the democratic will of their fellow citizens;

* Make public all the investments in companies and trusts for which they are the ultimate beneficial owners;

* Support progressive taxation on wealth and income;

* Challenge governments to use their tax revenue to provide universal healthcare, education and social protection for citizens;

* Demand a living wage in all the companies they own or control;

* Challenge other economic elites to join them in these pledges.

Oxfam has recommended policies in multiple contexts to strengthen the political representation of the poor and middle classes to achieve greater equity. These policies include:

* A global goal to end extreme economic inequality in every country. This should be a major element of the post-2015 framework, including consistent monitoring in every country of the share of wealth going to the richest one percent.

* Stronger regulation of markets to promote sustainable and equitable growth; and

* Curbing the power of the rich to influence political processes and policies that best suit their interests.

The particular combination of policies required to reverse rising economic inequalities should be tailored to each national context. But developing and developed countries that have successfully reduced economic inequality provide some suggested starting points, notably:

* Cracking down on financial secrecy and tax dodging;

* Redistributive transfers; and strengthening of social protection schemes;

* Investment in universal access to healthcare and education;

* Progressive taxation;

* Strengthening wage floors and worker rights;

* Removing the barriers to equal rights and opportunities for women.

If we do the math, on the average each of the richest has more in his pocket than almost 42 million poor combined (to be exact 41,176,470.59). Further, on its page 9, the report states:

According to Credit Suisse, 10 percent of the global population holds 86 percent of all the assets in the world, while the poorest 70 percent (more than 3 billion adults) hold just 3 percent. By some measure, the riches of billionaires are now unparalleled in history. The Mexican Carlos Slim, owner of large monopolies in Mexico and elsewhere, could pay the yearly wages of 440,000 Mexicans with income derived from his wealth.

The report brings to light the failure of Capitalism for humanity. Capitalism was sold in the name of a common man but was aimed for exploitation by a few because fundamentally moral compunctions are anti-Capitalistic. The recommendations of the report are for sure to fall on deaf ears for rich to voluntarily give up their possessions, or pay their fair share of taxes, as there is no incentive for them to do so. The system of government in Capitalism is fundamentally a rigged system. These riches are built upon the back bone of compound interest in banking systems and the speculations on the Wall Street, which the rich thrive on and ironically the poor are made to believe and depend upon. Obamas, Camerons and Merkels are in place only because of the same very 'special interests' to begin with that the said report is trying to mollify. On the other hand, Vatican by its core divine mandate has no economic policy to offer; rather it is too busy building its own coffers by selling God. Communism has already proved itself to be a failed experiment. China turned out to be more capitalistic than what Capitalism envisioned for itself. Gandhis and Martin Luther Kings may now try to circle the globe as many times they may want with their peaceful marches, but that will not make the 85 to give up that they believe to have acquired legally, and why should they? Even If these 85 are removed, there are many more waiting in the wings to replace them as the speculative engines of the world economic system are deeply rigged to keep the greed flowing.

What options does the world population have, including the richest 85, to get away from this moral precipice that societies are already falling over? How can the world stop digging the hole, which is only getting deeper with each passing second? Europe has been the breeding ground of isms, Catholicism, Colonialism, Fascism, Nazism, Racism, Communism to count a few. Each of them literally left millions dead in its wake. The latest and greatest surviving ism, the Capitalism in only surviving a little longer and this report is one of its early obituaries. In the words of Gordon Gecko (the character in the movie, Wall Street, link) – Greed is Good. To put it differently, Greed is the God of Capitalism. All this was highlighted in a weekly newspaper in earlier part of last century:

“The West may rightly be described as a continent of “isms”. Capitalism, Socialism, Bolshevism, Facism, Communism — these are the so many manifestations of a restless soul seeking after some true solution of a social system…Europe in quest of a social order has tried so many isms, each having landed it in deeper social bogs. Will it not give a trial to the one “ism” that sprang from the soil of Arabia and which combines all that is best and is free from all that is evil in all the “isms” it has so far tried, viz., Islamism?” [The Light, Lahore India, 8 April 1933 – link]

The above report was preemptively discussed and solutions provided for by Maulana Muhammad Ali in his book – “The New World Order” (Urdu: 1942, English: 1944 – link) that gives a fundamental correction to economic system that the world is only un-proud of now. This book is our message to the World Economic Forum and our answer to Oxfam.

P.S. The said report specifically mentions rigged economic systems of India (page 13) and Pakistan (page 14).

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