Blame It on Cronyism, Not the Free Market
EghtesadOnline: The current condition of global economic inequality should be of concern to all. An Oxfam report published this year titled, “An economy for the 1%”, revealed that “the richest 1% now have more wealth than the rest of the world combined.”
It also said that “62 of the richest people now own more wealth than the bottom half of the world’s population. In 2015 it was the 80 richest, in 2014 it was 85 and in 2010, only six years back, it was 388 richest that owned similar wealth”, showing that inequality is actually growing at an increasing rate, IPS reported.
This is also made evident by the fact that “the wealth of the poorest half of the world’s population has fallen by a trillion dollars since 2010, a drop of 38%” while “the wealth of the richest 62 has increased [during the same period] by more than half a trillion dollars to $1.76 trillion”.
Whereas many people around the world rightly blame the existing global economic system for the growing inequality, they also wrongly blame the free market. “Wrongly because the system we have is anything but a free market, something that most fail to recognize.”
As Oxfam reported, “The 80 richest people have doubled their wealth between 2009 and 2014” during the period of austerity and quantitative easing. And as any economist that is not bought and paid for by the top 1% will tell you, neither of these have anything to do with the free market—they are a part of the cronyism that exists in our society.
Risk and Reward
The idea of a free market is based on the relationship between risk and reward, which determines the interest rate. When borrowers take out loans, they often put up their owned assets as collateral against the loan. They then try to invest what they borrowed prudently, hoping to earn a ‘reward’, pay back the loan and not lose the asset they had ‘risked’ as collateral against the borrowed amount, according to Financial Tribune.
This is perhaps well understood. But as there are always two parties to any such transaction, lenders too are exposed to ‘risks’ because of which they acquire an ‘interest’—reward—on the loan. As both parties face certain risks in going ahead with such transactions, both parties are also ‘liable’ to do their own ‘risk analysis’—whether taking or giving the loan is beneficial.
This means that when there is a non-payment, the borrower and the lender are both liable, as both were supposed to do their own risk analysis which, in case of a default, they failed to do properly (except for in cases of force majeure). Yet, “we have seen borrowers losing their homes through foreclosures or going bankrupt because of their failure to repay loans” throughout the world, whereas big banks were bailed out using public funds for their ‘failed risk assessments’ or lack of ‘diligence’, Oxfam said.
“And it is because we do not have a free market and instead, have such ‘selective interventions’ by states that are largely serving the interest of the top 1%—bailing them out for committing robberies—that inequality throughout the world has increased and continues to do so.
Meanwhile, those who are poor and have no involvement in these robberies have to endure extreme austerity measures that are literally inhumane, enhancing economic inequality in the process.