Abating Inequality to Find a Sustainable Way out of the Crisis

Building ways out of the crisis leading to a sustainable development adjusted to the circumstances of each country and each community is feasible and necessary. These ways out are defined by a complex, imperfect and changing decision-making structure culminating at the political level. The new course and way of functioning should be expressed in a consistent set of macroeconomic measures and mesoeconomic practices, as well as in the creation of a support system targeted towards the bottom of the social and economic pyramid. As new ideas germinate in the individual and collective conscience, there is a gradual transformation of the set of values prevailing in each society, which is what will ultimately ensure the sustenance and perdurability of the new course.In other articles1 we analyzed how the economic concentration process, with its impact on inequality and poverty, prevented organic growth, thus contributing to generating the circumstances that led to the present global crisis. In these lines we mention some of the key measures that may be taken to abate inequality and poverty and, hence, come out of the crisis towards sustainable development.

The effects of concentration

In organic growth, the level and structure of effective demand accompany and absorb what a vibrant productive apparatus is capable of producing. When this balance becomes affected by concentration-oriented growth, causing the income of middle and low income sectors to lag strongly behind, one possible way of addressing this imbalance is through credit: consumers do not get better income but, instead, become indebted. It is clear that if the relative income lag is not eliminated, sooner or later growing over-indebtedness is incurred, which is precisely what happened in this crisis. Dangerous financial bubbles were born and inflated, until one day they burst and swept along the financial system that made them possible (and profited from them) and then, in a domino effect, the rest of the economic system, the different sectors of the real economy.

Concentrating growth prevailed almost all over the world and expressed itself not only in that gap between genuine income of middle and lower sectors and the productive apparatus’ supply. There were many other effects, such as the concentration of savings and its channeling into financial products of high though concealed risk; the greed and loss of boundaries of some financial operators; the deliberate or negligent complicity of a great deal of national and international public regulators; investment concentration on certain nodes of the economic system that increased the divorce between high technology and efficiency segments, on the one hand, and a huge and more and more marginalized universe of small and micro producers on the other.

At the same time, the concentration of income altered the profile of the demand and with it, the signs given to the productive apparatus regarding the type of production it should offer. Superfluous consumption grew amid the affluent sectors, a consumption matrix the media and advertising helped to extend to the increasingly indebted middle sectors. Rather than responsible consumption, exacerbated consumerism prevailed and this augmented the already accelerated environmental destruction. The consumerist zeal ignored the debacle of many families, ruptured protective networks, favored the addiction epidemic and the alienated search for substitute happiness.

The effects of economic concentration did not stop there, as a greater concentration of political and communicational power was generated, with a strong propensity to the homogenization of strategic thinking. Concentrated financial resources as well as access to the also concentrated information and idea dissemination channels were allocated with greater generosity to strategic think tanks akin to concentration interests.

These statements are not related to any ideological or partisan radicalism whatsoever. The fact of the matter is that the systemic effects of a certain way of functioning expand and spread, affecting almost all levels and corners of society, the economy, politics, education, the environment, values, interpersonal relationships, and our own individual psychology. None of those categories are truly isolated spheres but dimensions –influencing one another- of a sole and complex reality.

Transforming to ensure sustainable development

We need to distinguish the factors that can be changed in the short run from those that are either not possible to change or require more time in order to be fully transformed. We can thus acknowledge the limits and restrictions in which we are operating, yet at the same time notice the possibility of acting, of implementing our free will and determination with realism. We must now move forward, exposed to the risk of falling, on the one hand, in irresponsible voluntarism and, on the other one, in paralyzing determinism.

How can we then deploy, in a context of crisis, transforming actions that are capable of abating concentration, inequity and poverty, and give way to a new systemic course?

In the first place, it should be acknowledged that efforts aimed to abate concentration, inequality and poverty are not marginal actions, actions that merely “supplement” central decisions. There is no point in deploying macroeconomic measures and mesoeconomic initiatives that overlook the key purpose of transforming the concentration process and then, as an ineffective yet attention-getting salute to the flag, putting forward a “special program” aimed to eradicate inequality and poverty. Nothing could be farther from what is needed to implement a course change.

In order to come out of the crisis aiming at sustainable development it is necessary to simultaneously work on macroeconomic policies, mesoeconomic actions and measures of direct support to the base of the social pyramid. All of this coupled with the critical effort of modifying attitudes and values, indispensable social and political pillars to ensure a sustainable trajectory.

(i) Macroeconomic action to find a sustainable way out

To ensure a sustainable way out of the crisis, the set of macroeconomic policies must converge on the goal of energizing the economy by transforming the concentration-oriented growth pattern, eradicating inequality and exclusion, mobilizing the base of the production apparatus. To attain this, it will be necessary to make full use of fiscal policy, public spending policy, monetary and credit policy, investment policy, and science and technology policy, among several others.

As far as fiscal policy is concerned, it is critical that the regressive biases that are typical of almost all of our tax systems be corrected. Regardless of the fact that some taxes are easier to collect than others, the guiding criterion to eradicate inequality is that those who have least pay proportionally less and not more than the most affluent ones, as it happens today. Evasion and corruption aggravate the unfairness of an unequal tax burden. These are not unconnected phenomena; it must be made clear that if evasion and corruption are not tackled, in addition to perverting the social system of rewards and punishments, inequality and poverty eradication efforts become diluted.

Public spending is another key variable to transform the concentration process and eradicate inequality. It is usually the main funding source of social and production infrastructure and, as such, it must be allocated with systemic efficacy and social justice, prioritizing those sectors that are lagging behind. To meet the legitimate needs of middle-high and high income sectors, private funding may be mostly resorted to, without using public funds, as it happens many times today.

In addition, it is essential to adopt a monetary policy that ensures price stability: it is well known that instability hits more severely those who are most defenseless, the low and middle-income sectors. Within a context of monetary stability, credit may be oriented so that it may flow abundantly and properly to the bottom of the production pyramid, strengthening financial intermediaries capable of managing their small loan portfolios with the rigor and responsibility that the case requires.

A serious situation is that in our countries there does not exist an investment policy favoring the critical formation of capital in micro and small production ventures. It is necessary to establish incentives and regulatory frameworks favoring the creation of instruments that may channel capital, knowledge, contacts and information to the bottom of the productive apparatus, similar to the ones proposed in (iii).

In economies that are increasingly knowledge dependent, scientific and technological production becomes one of the most important strategic variables. It is necessary to gear that production so that it serves sustainable development and takes very special care of the base of the productive apparatus.

(ii) Mesoeconomic action

Coordinately with macroeconomic policies, mesoeconomic action is required from production chain leading firms, who are co-responsible for materializing a sustainable course and enhancing systemic functioning. This critical role of leading firms is not usually duly valued and, yet, a good portion of the potential for transforming organic growth lies in the ill-defined mesoeconomic spaces of production networks.

Large corporations must take into account the impact that their decisions have on the other players within the production network they lead. This implies ensuring sustainability to suppliers, distributors, and those who buy their products, be these supplies, capital goods or consumer goods. This is about fostering, in the companies, a systemic vision of their own development, so as to minimize negative externalities and use the positive ones for the benefit of their whole productive network and the communities they operate in.

(iii) Direct support to the base of the social pyramid

A third strategic axis consists in establishing an effective micro, small and medium-sized entrepreneur support system. In this set of economic players lies a little-recognized reservoir of talent and determination to mobilize in full the production potential of a community. The support system is aimed to generate the conditions required for entrepreneurs to be able to operate within contexts of excellence and efficacy, favoring access to top-level (not residual or scrap) knowledge, contacts, modern business engineering, intelligent capital, the values of solidarity and responsibility towards others and the environment.

It was already pointed out that to come out of the crisis towards sustainable development it is critical that a vigorous formation of capital at the bottom of the production apparatus be generated, which does not involve reproducing at that level socially and environmentally irresponsible behaviors. It is not a question of extending social injustice or environmental destruction to the farthest productive limit or border. We would be doing no favor to sustainable development by launching into the market millions of irresponsible new production units. The paradigm of the selfish producer, indifferent to the social and environmental milieu is not the only possible one. It was imposed by a particular way of functioning where the individual quest was excessively privileged over the quest of society as a whole. Today it is necessary to preserve individual initiative and rights, in addition to imposing duties of responsibility towards others and the planet. To that end, it will be necessary to establish policies, regulations, attitudes and relations among players that may promote the formation of “responsible capital” at the bottom of the productive apparatus. It is possible to attain this, and we know how to do it by using a new generation of small and micro producer support institutions.

By reinforcing the profile of responsible entrepreneur there is an enhanced social recognition of the role of the production organizer that mobilizes our productive factors. An effective support system will help small entrepreneurs embark on more promising production opportunities using the best and most modern business engineering; at the same time, it will orient them so that their actions may impact positively on the local economy. This implies sharing economic and technological results both with the small units workers and, when creating modern mid size organizations on the basis of integrating small production that is now scattered, with those who decide to get together in order to access better opportunities. It also entails sharing results with the local governments that will access additional fiscal resources generated by the expansion of the tax base.

The support system encompasses a battery of new promotion instruments including inclusive business developers, socially and environmentally responsible investor angel networks, local funds to support productive investment, assistance agreements made with technological institutes, business schools and entrepreneurial management consulting firms.

An effective support system acknowledges the central role of entrepreneurs to whom backing is provided, and focuses on developing businesses that are inclusive. Few are the entrepreneurs who surface from the swamp of poverty and even worse, indigence, without any help. The pain of families that are now marginalized from growth is huge and the executive capacity that is being wasted, gigantic.

It is worth cautioning against the risk of establishing ghettos made up only of small entrepreneurs instead of integrating people with disparate background, education, access to information and contacts. Segregating the poor or the small ones production wise does not contribute to a transformation of their reality; rather, it tends to reproduce the conditions in which they usually operate. A more effective way of overcoming shortages and gaining access to new, better opportunities is to partner up small and micro producers with other players that may supplement and empower them, and do that on the basis of fair relations with shared responsibility. This is a vast field to explore, one in which the support system plays a crucial role because with its resources and assistance it sets courses and proposes ways of functioning. Certainly, this promising field is not tension-free because there are many and diverse interests converging on inclusive ventures.

(iv) Adjusting attitudes and values

Coming out of the crisis towards sustainable development is not a technocratic fact but an essentially social, political… and individual process. In point of fact, there are different ways out of a crisis, and each one of them involves establishing different relations among the members of a community, a country, the global village. The decision-making structure prevailing in each situation tries to take up individual wills and, considering parameters and limitations, sets courses and rules of procedure.

It is a fact that the decision-making power is not equally distributed; instead, some have more capacity than others to impact on strategic decision-making. These asymmetries are founded on economic and political participation differences, on media control, and on extended processes of conscience alienation. Hence, to deepen our imperfect democracies it will be indispensable that we eradicate inequality and poverty, promote political participation, democratize communication, and tackle the alienation that deviates our will from the goals of meaningfulness and development. Social directionality is ultimately established at the political level, but it is sustained with attitudes and values germinating in the individual and collective conscience.

It is always necessary to convince ourselves of the fact that it is possible to try something different from the existent, that no society is immutable; all of them evolve according to the circumstances of their times; that strategic thinking is critical, and that even more critical is our everyday behavior, which give expression to what we are and aspire.

It is of no use rewarding selfishness as if it were the only possible driver of peoples’ development. For centuries, the criterion of caring only for one’s own self prevailed, but in a globalized world that may be fatal. Today, the individual effort that pursues one’s own well-being is still legitimate and plausible, as long as it does not affect but rather contributes to the well-being of others and the safety of the planet.

In brief, building ways out of the crisis leading to a sustainable development adjusted to the circumstances of each country and each community is feasible and necessary. These ways out are defined by a complex, imperfect and changing decision-making structure culminating at the political level. The new course and way of functioning should be expressed in a consistent set of macroeconomic measures and mesoeconomic practices, as well as in the creation of a support system targeted towards the bottom of the social and economic pyramid. As new ideas germinate in the individual and collective conscience, there is a gradual transformation of the set of values prevailing in each society, which is what ultimately will ensure the sustenance and perdurability of the new course.

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Notes: [See e-books->http://opinionsur.org.ar/-Ebooks-] “The Storm of the Century: the Economic Crisis and its Consequences” , by Juan Eugenio Corradi, and “International Crisis: Adjusting the Course and Improving the Systemic Functioning” by Roberto Sansón Mizrahi, and the forthcoming “Coming Out of the Crisis towards Sustainable Development”.

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