Pankaj Ghemawat, the author, is the Anselmo Rubiralta Professor of Global Strategy at IESE Business School in Spain. Earlier, he taught at the Harvard Business School.
Before making any prognostication on what will happen to Occupy Wall Street, we have to remember that it's not an isolated movement. In Spain, you have Indignados, or the angry ones, protesting in public squares since May. In Israel, there are major demonstrations against the Netanyahu government. India, of course, had an anti-corruption movement. Even if we look at a country like Uganda, there have been major protests against rising food prices. We are living at a time when there is a backlash against the notion of unfettered and unregulated markets in many countries. Given the way things are going, it is likely to continue.
The underlying problem and the most obvious problem has to do with income distribution. It is interesting in this regard that there is a huge disjunction between what many of the self-appointed advocates of free markets say — inequality is a natural result of the market processes, and what the economists themselves tend to say — even if you assume markets are efficient, the distribution of income need not be efficient. We can't simply throw up our hands and genuflect in the direction of markets. Inequality is mostly a matter of domestic policies.
The US has not witnessed such levels of inequality since the late 1920s. Inequality is probably more tolerable against the backdrop of rising income for everybody. But in a situation where there is basically stagnation or erosion of middle-class income, the notion that incomes have gone up by several hundred percentage points for the top 1 per cent since the late 1970s is a bit hard to stomach. It's a combination of inequality being at historically high levels and diminished growth prospects.
I would think that, in principle, changes to the tax system will have a direct impact very quickly. However, what's devastating about a lot of policy proposals is that they would make things worse. For instance, if you look at the Republicans', particularly Paul Ryan's, policy on medicare reform, it basically involves every senior citizen getting $8,000 and growing that at less than the rate of inflation. What that means is that poor people would end up without health coverage. What's alarming is how regressive some of these proposals are — Herman Cain's 9-9-9 flat tax proposal, cutting taxes on capital gains. Many of these proposals will make inequality worse in the name of free market and market incentives.
The Democrats are finally starting to sense that particularly with the Republican opposition to the Jobs Bill etc., that the Republicans have painted themselves into a bit of a corner. That at least is the hope. Right now, Democrats are clearly powerless to do anything. As Stanley Hoffman and others have argued, it's easier for parliamentary democracies to pursue policies because of the alignment of executive and legislative branches than it is under a presidential system. The US seems essentially deadlocked or stalemated right now.
When I was in India recently, I saw Kiran Bedi comparing Occupy Wall Street unfavourably with her own movement. What they (Occupy Wall Street protestors) haven't figured out is that while they might equally dislike all politicians, all politicians are not equally opposed to their cause. To deny Charles Rangel, the representative from New York, on the ground that he is a professional politician is to forget the fact that these changes do have to be passed by the political system. No matter what you think of the political arrangement that the US has, decisions like this are not going to be made outside nor can they bypass the political process.
Ultimately, this attitude will have to change and realism set in. The trouble is, it usually sets in with a substantial lag. It's hard to predict how long that lag will be in this case. But as it gets colder in the US — may be not in California, but certainly in New York — it is a little bit harder to sustain street protests and the kind of continuity that kept the movement going so far. At some point, if they have to be effective, they have to figure out a way to align themselves with the political process. How long this will take I don't know.
From my perspective, the logical conclusion of this movement should be something that, over time, reduces the degree of inequality through changes in the tax code, changes in job programmes like training, unemployment benefits, food stamps, etc.
But right now what we have is more anger without a clear aim. There are people who are fed up with the system. In Spain, I did go to talk to Indignados when they were camped out. While one can understand why young people, facing 40-45 per cent unemployment rate, are angry with the system, we do have to try and change the system. We can't be content with expressions of anger. That's basically, how to make this work for larger number of people, rather than to say everything must be torn down before things can be rebuilt. I don't think that any of the major Western democracies face problems that are structurally intractable. I think the major problems are want of political will.
It's amazing how the right wing managed to have significant influence on the Republican party within a matter of two or three years. The Tea Party is not a monolithic group either. It has a clear sense that you have to build a grassroots political base, that you have to try and influence the electoral process if you are actually going to get the politicians' attention. The Occupy Wall Street movement to me — and I may be being unfair to them — still seems stuck in a pre-political phase.
The big thing in 2012 is the US presidential elections. If protestors are smart, if they are going to be effective and don't want to get lost in the din of campaign, they will figure out a way to align with elements of the Democratic Party. I must say I am disappointed in that regard. They have failed to act so far.
(As told to N.S. Ramnath)
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