Stephen Foley: Income inequality is the unifying theme for all these global protest movements
The link between income disparities and financial crises is more than just a coincidence
Stephen Foley is a former Associate Business Editor of The Independent, based in New York. He left in August 2012. In a decade at the paper, he covered personal finance, the UK stock market and the pharmaceuticals industry, and had also been the Business section's share tipster. Between arriving with three suitcases in Manhattan in January 2006 and his departure, he witnessed and reported on a great economic boom turning spectacularly to bust. In March 2009, he was named Business and Finance Journalist of the Year at the British Press Awards.
Tuesday 18 October 2011
So the Occupy movement has come to London, and the good folk of Goldman Sachs are now obliged to walk past anti-bank demonstrators in the heart of the City on their way to work. The protest laboratory at Occupy Wall Street in New York has spawned copycats and inspired activists the world over and, though their claim to be "the 99 per cent" rather overstates the numbers, it is impossible to deny that something significant is happening.
But, will the demonstrations achieve anything lasting, or will they fizzle out as a fiery autumn turns to cold and drizzly winter?
As any of the traders and deal-makers walking past St Paul's yesterday could have told the protesters, winning support for your demands means finding and exploiting points of leverage. Yet the Occupy movement is self-defeatingly determined not only to avoid using such tactics, but also to avoid making any particular demands. One New York protester was quoted yesterday saying "the second we start making demands, we start splintering and we are no longer the 99 per cent".
The statement of principles tweeted by #OccupyLSX over the weekend is utopian stuff. The current system is unsustainable, undemocratic and unjust, it says. "We need alternatives; this is where we work towards them."
Except demonstrating in Paternoster Square is not how you get "structural change towards authentic global equality". It is by identifying the points at which politicians can be persuaded to change their support for a particular status quo and support a new policy that might curb bank profits, or undermine austerity, or redistribute wealth and opportunity. The protesters should take precisely no heart from the fact that major international figures are now nodding in their direction. Ban Ki-moon, the United Nations general-secretary, said in Switzerland yesterday that he understood the economic frustrations that had led to the Occupy movement, which is "trying to send a very clear and unambiguous message around the world". Even the Chinese foreign ministry is a supporter, it seems. "There are issues here that are worth pondering," its spokesman said. Major figures have decided that there is nothing dangerous in embracing a movement that aims to be all things to all.
There is a thin thread that runs through these protest movements, that ties together the disparate grievances and unites the many themes found on placards from Athens to Zuccotti Park in New York. It has found voice in the idea of the 99 per cent, and it has opened a window at last to talk about inequality, not just as a result of the recession but also as an under-appreciated cause of the financial crisis.
Income inequality in the West soared until the credit crisis. In the US, thanks to the work of economists Emmanuel Saez and Thomas Piketty, we know that two-thirds of the nation's income gains between 2002 and 2007 flowed to the top 1 per cent of households, and that top 1 per cent held a larger share of income in 2007 than at any time since 1928 – the year before the Great Crash. In the UK, the Gini coefficient, an international measure of income disparity, crept up relentlessly.
The link between huge income disparities and financial crises is more than just a coincidence. J K Galbraith, in his definitive work, The Great Crash, 1929, identified "the bad distribution of income" as one of five factors that contributed to the stock-market plunge and subsequent Great Depression. With more money than they know what to do with, the super-rich spend on luxuries and speculative investments only to pull them back sharply when exuberance is exhausted and fear threatens to take over. This sort of economy is more volatile than one that is more broadly based, one in which the 99 per cent holds more of the economic power.
Income inequality is only one of the many themes on display in the Occupy movement, but it is the most important. It also has the most scope to be translated into real policy demands and a point of political leverage at election time. It would be a shame if the Occupy movement lost the opportunity to generate real change because of its breadth and lack of depth.
BP's judicious decision to settle with Anadarko
To think there was a moment, as oil spewed from the Macondo well in the Gulf of Mexico, that speculators were actually betting that the disaster could be the end of BP.
The oil giant accompanied the settlement of its legal dispute with Macondo co-owner Anadarko yesterday by calling for its other partners, Halliburton and Transocean, to settle their own disputes and agree to pay their fair share of the clean-up costs.
No wonder BP has regained its confidence. The US federal investigation into the explosion at the Deepwater Horizon rig and the Macondo spill, which published its findings in the summer, spread blame among all of those working on the rig. It was hard to remember as President Obama promised to keep his boot on BP's throat and as Tony Hayward stuttered his way through a hostile Congressional hearing, but disasters such as this often turn out to be the result of an unholy coincidence of mistakes rather than a single act of gross negligence.
And so it has turned out, as the federal report concluded and as Anadarko has conceded by settling and dropping its legal action against BP alleging gross negligence yesterday.
The $4bn settlement is less than BP might eventually have achieved, given Anadarko's sizeable stake in Macondo. However, it is a judicious decision, given that BP must free up legal resources to fight on other fronts. Halliburton and Transocean will probably soon come round, too, but those in the fishing and tourism industries on the Gulf Coast may not.
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