Street politics and street economics

The frustrations caused to the unemployed, the poor and the marginalised by the international and national economic crisis has spilled out onto the streets in the capital cities of the world’s leading and emerging economies. It has spread at the last count to over 900 cities in over 80 countries.

The issue is one of exclusion. Neither one of the Western economic models have much credibility now. European social democracy model has provided an economically unaffordable system.

The Anglo Saxon model which claimed that free markets would create prosperity has only created a debt mountain. Communism (the Soviet and Mao models) went down the drain a long time ago.

Sustainability is doubted in China’s current controlled capitalism model. In the central Chinese city of Luoyang in Zhouwangchen Square some retired Mao lovers have set up a public display of dissent saying: ‘This is our Wall Street’ – ‘We resolutely support the American people’s great Wall Street revolution’.

India’s increasing inequalities, corruption, high interest rates and rampant inflation is affecting the credibility of its growth curve. It is the economics and politics of street protestors that are holding the attention of the world.

Wall Street in New York has been occupied; in London, the Occupy the London Stock Exchange movement has pitched their tents in the financial district in the shadow of St. Paul’s Cathedral.

In Frankfurt, Germany there is a tent city in the shadow of the European Central Bank building. In the US 17% of those under 25 are out of work. In the EU, youth unemployment averages 20.9%. In Spain it is 46.2%.

The middle aged and pensioners are seeing a fall in real wage and diminished pension rights. The inertia caused by the fear of an international financial contagion seems to have put the economic managers of the world and the political leaders into some sort of policy limbo, in which they strategise repeatedly at economic summit after summit but seem unable to come up with any substantial solution to the crisis which is slowly but surely taking a vice like grip on the international economic environment and national economies.

How the problem arose

The problem arose, according to David Frum, a former speech writer for President Clinton, when “the shapers of the American mortgage finance system hoped to achieve the security of government ownership, the integrity of local banking and the ingenuity of Wall Street. Instead, they ended up with the ingenuity of government, the security of local banking and the integrity of Wall Street” – as the Raj Rajaratnam and Galleon Investments saga sadly proves.

It happened due to three strategies undertaken by the Congress, interest groups, government sponsored enterprises (GSES) and Wall Street. First, the politicians were compromised through lobbying, campaign contributions and perks. Secondly the regulators were eviscerated, their budgets were cut, their officials cowed, whistle blowers drowned out.

Third was to court the mortgage lenders. For example, the head of the housing bank Fannie Mae, James Johnson, was described as being so slick that “he’d cut off your balls and you’d still be wearing your pants!”

Profits were linked to executive pay. Johnson was paid nearly $ 100 million for his nine years at Fannie Mae. A series of asset bubbles were created in a an economy that was rigged in favour of the financial elite, who enjoyed the good times and then decamped leaving the rest no alternative but to bail them out with taxpayers’ money.

One per cent of the population gained at the expense of 99%. Surely it is time for ordinary people, civil society, the business community, the professionals, the youth, who will inherit this mess, to stand up and be counted? The protesters face two dangers – capture of their movement by others and being consumed by their own energy; can they sustain the effort?

Distaste for professional politicians

Witness the Arab Spring. Tunisia (which has just conducted an exemplary to poll to elect a Constitutional Assembly), Libya (post Gadaffi et al), Egypt, Yemen, Syria, Bahrain. Witness the protestors taking over Wall Street in New York and business areas of Washington DC and other American cities, Seattle to San Francisco. They are even near the White House on McPherson Square, in Washington DC.

One of the protestors very clearly articulated their distaste for professional politicians: “Politicians are only interested in keeping themselves employed, so they don’t make decisions for people.”

President Obama and Vice President Biden, while not endorsing the protests, have expressed understanding of the movement that has spread with alarming rapidity across the US. Obama has said the people were angry because Wall Street had not been “following the rules”.

Biden said: “The core of the protest is: the bargain has been breached. The American people do not think the system is fair, or on the level.” Even the second highest ranking Republican in the House of Representatives in the US, Eric Cantor has backtracked from his earlier description of the protestors as “angry mobs” and said that his party recognised the problem of income inequality.

Editor of the conservative RedState Blog, Erick Erickson, called on the Republican party to find ‘common ground’ with the protestors: “The time is right for a Republican candidate (for the presidency) to take up the cause of populism against Wall Street”.

Indian example

Witness the leadership given to the Jan Lok Pal bill movement in India by Anna Hazare and Indians who have been totally turned off by the venality of the Indian political class.

They campaigned against the ruling Congress Party in a by-election as they do not trust the undertakings given that the Jan Lok Pal bill will be enacted in the winter session of the Indian Parliament this year. The idea is to show the Congress Party what the voters think by asking them to vote for any other candidate than the Congress contestant! The Congressman lost his deposit!

Of course much is made of the fact that the winning candidate has a dubious past and some entanglement with the law, but this is ‘common or garden’ for India’s politicians. Hazare only said vote for anybody else but the Congressman.

Global phenomenon

It is happening everywhere, virtually; Korea, Spain, Italy, Israel, Brazil, Australia, China and Britain. Even in hitherto military-dominated Burma (Myanmar), the rulers have shown the proverbial finger to the Government of the People’s Republic of China, their dominant and powerful neighbour, and said that they are not going ahead with a project to dam a river, which would have generated hydro power to be purchased by China, because public opinion was against it.

The Chinese Government has stated publicly that they were surprised by the decision and that they are not amused! The people are rising and expressing their disgust with the machinations of the ruling coterie, the political and business class, the military and the administrators of their countries, who are not responsive to the needs and aspirations of ordinary people and marginalised youth.

The political violence which mars routine events such as our recent local government elections may also be a reflection of this frustration against those who take power and abuse it.

Anatomy of the protest

The situation in the financial district of London is a useful case study to comprehend the anatomy of the protest. The 200-plus strong tent village outside St. Paul’s Cathedral has attracted an eclectic group of supporters for its mission to reform the global financial system, end tax injustice and bring about world peace.

The squeezed middle class suffering in the midst of Europe’s financial crisis, including unemployed bankers, engineers, vets, IT analysts, etc. have joined up with the Occupy the London Stock Exchange movement.

One chartered accountant working in a neighbourhood office came out for a lunchtime sandwich and ended up giving the crowd a rousing speech on the inequities of CEO pay!

The group has no leader; its anti-establishment profile is reflected by there being only ‘facilitators’. They have a vague yet inchoate anger on the inequalities of the existing system.

A nine point manifesto on the group’s web site calls the current financial system ‘unsustainable… undemocratic and unjust’ and demands better regulation as well and an end to government expenditure cuts. Many who have lost money in the stock markets, even recently in Colombo, will agree.

Corporate sentiments

Corporate leaders, whom, among other targets, the protesters are targeting, are lining up to chorus how much they understand the public anger over economic inequality.

CEO of Wells Fargo Bank John Stumpf: “I understand some of the angst and the anger. This downturn has been too long, unemployment is too high, and people are hurting.”

CEO of General Electric Jeff Immelt: “Unemployment is 9.1%. Underemployment is much higher than that, particularly among young people that don’t have a college degree.” Immelt said he understood the anger that drove the Occupy Wall Street movement and urged US businessman and politicians to “try harder” in their efforts to boost exports and create jobs.

Immelt insisted at an interview with Reuters that “the only way to solve this specific problem is growth, which would in turn create jobs and allow some of the 250 million around the world seeking work to find employment”.

Other business leaders are doing what is needed themselves. Witness Howard Schultz of Starbucks, USA, lining up hundreds of American CEOs who have declared they will not make any political donations until the politicians in Washington DC start behaving with a national sense of getting the deficit under control and vote in policies which create jobs, instead of getting involved a partisan suicidal political war with each other.

Schultz says: “I want to send a message to Washington and, unfortunately, the only message they understand is money.”

Without honesty from political leaders and the promise of both shared prosperity and shared sacrifice in the future, Schultz says we are going to see riots on the streets, citing the Occupy Wall Street protests.

“We need an analogue to the Marshall Plan” (which financed the recovery of Europe after World War II), but the Marshall Plan was based on leadership and we have none of it” today.

Schultz steps up

Not stopping at that, Schultz has gone one step further. He is asking American business leaders to hire more people. The political paralysis has made business so risk averse that they are missing lucrative opportunities to grow. “Business leaders need to step up and not let Washington dictate a downward cycle in America.”

Schultz is putting Starbucks money right where his mouth is. Starbucks plans to open hundreds of new stores in the US and elsewhere. The company achieved record results in 2010 and is enjoying “another very strong year, firing on all cylinders everywhere except Europe,” says Schultz.

On 3 October Schultz launched a fundraising campaign called Create Jobs for USA and seeded it with US$ 5 million from Starbucks. The funds are for the Opportunity Finance Network, which provides loans to small businesses. Starbucks coffee shops are selling red, white and blue wristbands with the word ‘indivisible’ on them for a donation over $ 5 to raise funds for the project.

The next day Schultz was in Harlem New York to launch a profit sharing partnership with community groups in poor neighbourhoods, including the Abyssinian Development Corporation in Harlem.

Speaking at a luncheon event hosted by Bloomberg View, Schultz said: “The number one issue with regards to unemployment is access to credit for small business. Banks were sitting on cash largely because of heightened regulatory scrutiny.”

The funds were not getting out to the people who needed them most, people who were struggling at the entry level of the economy, who needed small amounts of funds, assistance with a business plan and some mentoring.

Mark Pinsky, Chief Executive of Opportunity Finance Network, said the funds raised would be distributed to Community Development Finance Institutions (CDFIs), which he described as “profit making but not profit maximising” organisations that use their local roots to work closely with borrowers at the periphery who are otherwise marginalised from access to finance at a reasonable price.

The CDFIs will make credit decisions about micro loans, housing project financing, community centre loans and small business loans, etc. The loans typically range from under $ 10,000 to as much as $ 200,000. Starbucks is also negotiating with the Angeles Urban League in Crenshaw, California for a similar tie-up.

Alleviating economic exclusion

This business initiative in the USA can and must be replicated by private business worldwide, if the problem of economic exclusion faced by the young and the marginalised poor in our communities is to be alleviated.

The responsibility of the state is to create the policy framework. Where the politicians and the bureaucrats are too busy or otherwise engaged to create a positive environment for private business to get involved, it is no use withdrawing into a shell and making profits and keeping only share holders and investors happy.

Business has to get out and fill the lacuna. If they do not do so, the people will be out on the streets demonstrating, as they are in country after country, where governments are unresponsive to pressing needs of communities, if not shooting each other up on the streets in broad daylight. The very fabric and values of society are under siege.

Sri Lanka’s case

In Sri Lanka’s case, business should reach out to the thousands of microfinance institutions, community-based organisations which are already operating at the grassroots at community level and get into effective partnerships.

This is the ‘Bottom of the Pyramid’ which Professor Prahalad wrote about in his groundbreaking book, on the purchasing power of the poor and marginalised, for goods and services which are packaged and priced at a level which they can afford.

These are the linkages which retailers and exporters of fruits and vegetables can build up with small scale farmers, helping them with forward contracts for purchase of their output and assisting them with technical knowhow and inputs to make their crops more marketable and customer friendly.

Issues such as post harvest wastage, organic farming, improved packaging and new varieties of products, improved seed and planting material are all areas where the business community can communicate cutting edge technology and skill to the primary producers.

With today’s communication facilities, mobile phone penetration and connectivity, the power of information can be used to empower primary producers in whatever remote part of Sri Lanka they reside.

Sick of promises

People are sick of listening to the political leadership promising, promising, ad nauseam. If they are willing to accept such promises, would they throng to the banner of Anna Hazare in Delhi? Occupy Wall Street in New York? Loot and burn the up market shopping districts of London?

Occupy the main square in Tel Aviv Israel? Be so desperate for some partisan advantage or gain that they would shoot each other on the streets of Colombo with Chinese Type 56 automatic rifles? Force the authorities to close down a chemical plant which was polluting the environment in China?

The state may have a role but non state actors have a bigger role and responsibility. Responding to the felt needs of the poor and marginalised is too important to be left to politicians and bureaucrats. They are perceived to be self-serving, inward-looking establishment figures, an establishment from which the poor and marginalised are excluded.

The business community lives by marketing goods and services to the whole community, not only to the affluent and powerful. This is the mandate for business in their own interest to reach out in the manner Howard Schultz of Starbucks and his colleagues have done.

There are local models of businesses which have made successful forays into working with the poor and marginalised and including and integrating them into their business plans for the mutual benefit of all. But there must be more. A greater effort must be made by the business community to build partnerships with primary producers at the periphery.

The result of a failure to do so is reflected in the outcry of the young, poor and marginalised the world over, and in our case in the tragic events which occurred in the capital city in the course of an event which is the very fundamental exercise in a participatory democracy, an election of a local authority. The issue is compounded by an alleged highly-selective determination of culprits.

(The writer is a lawyer, who has over 30 years experience as a CEO in both government and private sectors. He retired from the office of Secretary, Ministry of Finance and currently is the Managing Director of the Sri Lanka Business Development Centre.)