Inequality and instability

In my 2004 book, Globalisation and Inequality, I argued that political systems could be seen as self-regulating organisms, in which the health of all parts had to be maintained

if the system, as a whole, was to function. The various elements of the system, which in a modern human society means its citizens, had to perceive themselves to be obtaining their fair share of the system's output.

When this sense of fairness broke down, citizens would turn against the regime. If legal means of expression were available, they used them. If not, they withdrew from, or turned against the system. Repression could buy stability in the short term. But in the absence of genuine reform, the problems were likely to return, particularly if the international environment supported change.

Therefore, regime stability depended on the functioning of two elements: accumulation and distribution. Another way of putting it would be to say that growth and development are both necessary features of regime stability. Populist governments which stress development above all are as prone to crisis as neoliberal regimes which stress growth above all.

(As an aside, I confess to having since grown a bit uncomfortable with the term 'neoliberalism'. I tried, at some length, to operationalise the term, but since then, I have noticed that all manner of people use it as an epithet for anything they happen to dislike, without providing an objective basis to their claim. Indeed, I can't help but smile when critics who apparently have never read my book, nor apparently any of the supposedly neoliberal theorists they decry, call me a neoliberal).

nigerians then, arabs now

As an early instance of this kind of auto-adjustment, I pointed to rebellions in the oil-producing region of Nigeria, which I attributed, in part, to the fact that the residents of those areas were receiving few of the benefits of Nigeria's oil revenues. More recently, an even more dramatic illustration of this effect has been seen in the Gulf states of the Middle East, where the Arab spring has threatened autocratic regimes.

So I was struck last week when The New York Times reported that, eager to head off potential unrest, Saudi Arabia is spending some $130 billion on social spending and salary increases. This largesse is something to which we will all have to make a contribution. As the world's largest oil exporter, Saudi Arabia has, in the past, been able to increase output to keep world oil prices down. Its need to generate more money for its people will now force it to maintain higher prices.

This will mean permanently higher share of energy prices going to distribution. There are two ways of implementing this. One is to reduce the share of profits. The other is to simply raise prices. But this creates a new tension. Higher prices means higher inflation; but since inflation falls most heavily on the poor, the measure will rob Peter to pay Paul. While Saudi Arabia might shift the problem to other countries, the aggregate level of instability is unlikely to decline.

designed to sustain profits

We see the same tension being played out in the resolution of the global financial crisis. Bailouts and stimulus packages were designed to sustain profits while saving jobs. The result, everywhere, has been a surge in government debt. Now that debt-cutting time has come, governments have to decide who bears the brunt.

I would argue that Jamaica's approach, of distributing the cost across both bondholders and the broader public, has bought stability. Elsewhere, the attempt to defend bank interests at all costs, and to pass the bill back to the public, has led to rising tensions. All you need to do is to read the news from Greece to wonder how long stability can last.

So I'm with those who, for various reasons, say we have only got through the first phase of the global financial crisis. The rise in profits that characterised the global economy these last two decades can only be sustained further if ordinary people are taxed. As the citizens of the Middle East and elsewhere have shown, there may come a point where they cry, "Enough!"

John Rapley is the Bradlow fellow at the South African Institute of International Affairs. Email feedback to columns@gleanerjm.com and rapley.john@gmail.com.