Once established, inequality becomes a critical component of the concentrating dynamic, which by reducing the effective demand contributes to generating recurrent episodes of systemic instability.
A critical factor that enervates the economic functioning is the growing inequality that exists between countries and, inside each country, among social sectors. Inequality generated by an accumulation process that, if there are no opposing political decisions, tends to concentrate wealth.
Struggles and tensions at the global level
In central countries, when serious bottlenecks take place by a productive supply that keeps growing and to sustain such growth depends on a demand that does not keep up with it, then the systemic functioning paddles in search for solutions that might preserve its structure intact. This type of solutions that facilitate access to consumption but not to incomes (would have implied a distributive structure) requires a financial system that pushes as much as it can the viability limits of the concentrating process; it acts as an ephemeral dam that postpones as further as it can the outbreak of frightening speculative bubbles.
At the same time, central countries try to compensate their shrinking internal demand with aggressive policies for accessing global markets; markets that find it very hard to resist such aggression, even worse when neoliberal governments impose an openness of imports that sweeps away their incipient industries and services.
Within non-central economies, inequalities from the concentrating process are reproduced, aggravated by suffering extended poverty and having a weak productive apparatus, fragile internal market, and frequent bottlenecks in the external sector. These factors and harsh international circumstances destabilize their economic functioning paving the way for a recurrent instability that compromises their development.
Impacts of concentration
* Concentration of wealth leads to the segmentation of the effective demand. Concentrated sectors, with fully satisfied basic needs, develop a conspicuous demand that sends signals to the productive apparatus to produce this type of goods and services. Therefore, a lousy allocation of national savings prevails, which in turn generates corporate interests associated with the sustainability of this pattern of consumption and the concentration process that sustains it.
Besides the concentrated sectors, low-income sectors that cannot satisfy their basic needs coexist with middle sectors that cover their basic needs and who above this level tend to reproduce a large part of the superfluous consumption pattern.
* At the same time, sectors benefitted by the concentrating process accumulate huge financial surpluses that need to be recycled. The shrinking effective demand reduces opportunities in the real economy while the financial system creates sophisticated products to absorb the surpluses that need to be recycled and obtains high rates of return in the process. In this way, a dangerous speculative cycle is established with financial products that compete in terms of rates of return and inherent risks of each transaction. The higher yields are obtained with audacious financial engineering and certain concealment of the implicit risks, as it happened with the “subprime” mortgages and other loans related with consumption (credit cards). Unable to expand the basis for support, this process becomes inherently unsustainable.
* Faced with the imbalances produced by the concentrating process, how would the economic system react? An organic solution to ensure the maintenance of the productive growth without bottlenecks is to reduce or reverse the concentration of incomes. With that, consumption is expanded based on genuine incomes and can simultaneously generate new opportunities for the real economy to absorb available resources through productive investment.
Unfortunately, this is not the route that prevails in the contemporary world. In contrast, in the absence of an exogenous correcting intervention the economic system reproduces its way of functioning without transforming its tendency towards concentration. Instead of expanding genuine incomes of middle and lower sectors, it provides them with financing, which, after several credit cycles, generates an extended situation of over indebtedness impossible to maintain. Credit solutions can ease off the impacts of concentration but if we do not transform the dynamic of this process, sooner or later the economic system is destabilized and crises emerge.
To be effective, solutions—always singular to each country and situation—should include a common denominator: transforming the economic process that leads to the tremendous concentration of wealth, including improvements in genuine incomes of large majorities.
Corrective strategies cover multiple dimensions, among which we can underline the following:
- Adoption of macro policies orientated towards abating inequality in terms of taxes, public spending, monetary stability, channelization of savings towards real investments.
- Transformation of the national productive matrix to ensure a full and effective mobilization of available resources, reduction of vulnerabilities, and establishment of a balanced sectorial and territorial distribution of economic activities.
- Adoption of measures to transform and strengthen value chains, ensuring a fair distribution of results among those who are part of it while optimizing the secondary effects on other sectors.
- In this context, firmly supporting small ventures promoting a solid capital formation, their structuring as medium-size productive organizations, access to markets, and incorporation of management and knowledge of excellence, assuming full fiscal, labor, and environmental responsibility.
The socio-political basis of the concentrating course
The recurrent crises that countries suffer express serious systemic failures. It is the core of the global system that is failing and procures protection from being overwhelmed by the same forces it helped to unleash. It must be clear that their problems do not come from some sort of natural evolution of things but rather from the peculiar way in which national economies and the entire global system have been organized and function. Today, the challenge is to set a new systemic course and adopt fairer and more sustainable ways of functioning.
In this perspective, inequality is not a factor that by itself explains the course of events rather it is the result, and then turned into a constituent element, of an economic and geopolitical fabric that leads towards the growing concentration of wealth and power. Therefore, once installed, inequality becomes a critical component of the concentrating dynamic that, by contracting the effective demand, contributes to generating recurrent episodes of systemic instability.
The concentrating process is promoted and guided by powerful economic groups that operate at the global level with the complicity of local elites, large media complexes, sectors of politics and the judiciary, think tanks and university centers of alleged excellence.
Faced with these forces, societies bewildered or intimidated by the ferociousness with which they are attacked feel puzzled. Their access to information of what is really happening is seriously limited. The interpretation of facts and subjacent processes is conditioned by a hegemonic thinking that imposes its own perspectives, criteria, and values. In these conditions, it is not easy to address substantive transformations; however, each society needs to assume the challenges and tackle the thorny trajectory of getting informed, understand, align the diversity of interests of the majorities, organizes itself to act and access decisional power.