Avishkar Govender
Avishkar Govender

Nationalise the financial sector at your own peril

From the time of the fall of the Berlin Wall and the end of the Cold War we have, as a global economy, seen a sustained period of hyperinflation. I have no idea why there has been such an upward shift in pricing levels but I doubt that it has anything to do with people suddenly being released from the clutches of socio-communism into free markets.

Indeed the people who had previously lived in the Third World had in fact operated with their own Third-World money through a system of international exchange and even though there was extreme state control and planning over most of the world’s economies, the market (twisted as it may have been by dogma) was in fact still in existence.

This was true even to the extent that the flourishing informal economy in the Third World provided everything that the closed, state-controlled market would not or could not and it facilitated trade across embargoes, sanctions and the absence of diplomatic relations.

When communism fell and the Third World became the developing world we were led to believe that the increase in demand for money supply from these hitherto control-marketed people, coupled with the slow pace of industrial and trade expansion in the First World, led to too much money chasing too few goods and services all over the world thus creating hyperinflation.

Of course the fact that the transition to democracy and a market economy has been a carefully stage-managed and wholly corrupt experience in most Third-World countries indicates that this theory of the origins of our hyperinflation are without any real basis because there was no great horde of Third-World citizens now suddenly chasing the almighty US dollar on the same footing as their First-World counterparts.

What has happened since 1988 is that the cost of First-World labour has increased in price so much so that First-World companies have established sweatshops in Third-World countries at a fraction of their own domestic labour costs in order to make all of the things we require in the First World, thus allowing us a fabulous First-World profit.

But I assure you that the buying power of this Third-World sweat labour is insufficient to create a sustained period of hyperinflation, given that it’s only grains and basics which can be purchased with less than $2 a day and these things were being consumed previously, in the same quantities.

Perhaps it is the population explosion which has caused the increased demand which has caused the upwardly spiralling price levels? Perhaps it’s the three billion extra people we have picked up over the last 60 years who are causing the increased demand with stagnant supply, which yields inflation?

But surely if there are more people (and thus more mouths to feed) in the Third World, there must be more sweat labour to be harvested and therefore there must be a greater level of production. Surely if demand and supply both increase on par, then there won’t be any inflation? What has happened? Has the First World stopped producing things? No, in fact even though First World countries have diversified their economies, they are still producing things. So where’s the problem?

How is it that suburban cluster development homes have become so expensive? Is there a global shortage of iron, lime, ash, sand and clay? No, that’s not it. Has the means to convert iron, lime, ash, sand and clay into the components to build suburban houses become more expensive? No, most of its made in the Third World, where the labour is cheaper than in the First World, so that’s not the reason. So why have Freddie Mac and Fannie Mae been jacking up the retail prices of American suburbia? And why are people happy to pay these inflated prices?

Crime, pollution, grime, personal space, privacy, parking access to schools and hospitals and yes most importantly socio-economic hierarchy have all come together to convince middle-class people to buy small homes in utopian suburban developments where there are no poor and dirty people and no urban pavement junkies to navigate around. And for this fiction of security, middle-class people have been prepared to pay premium prices by funding these purchases with mortgage bonds.

Now wealthy people have always lived in mansions and the wealthier they are the more likely it is that the properties are freehold. Poor people have always rented their accommodation and generally live a payday-to-broke-in-7-days existence.

But the middle class have aspirations to live in houses that look like the outhouses of wealthier mansions and to live further away from the poor people, drive their SUVs and generally living in state of insulated fear with outsourced reassurance. And so they do.

The only problem is that a hefty mortgage payment leads to increased wage and profit expectations for the middle class and this leads to an increase in the retail price levels of the businesses that they work for or own. This in turn leads to an increase in the general retail price level for everyone in the market.

In order to meet this mortgaged lifestyle middle-class people have to become dual-income families, they have to outsource menial, tedious and repetitive production and services to the Third World and they have to cut their operating costs in general.

And here we see the real reason for the hyperinflation, it’s not the thronging mass of the Third World chasing 3 extra slices of bread each day, it’s not the nouveau riche Third World worker-managers splurging on luxury goods, it’s not the urban First World poor living on dole money, it’s not even the corrupt politicians privatising everything into their pockets.

It’s the First World’s middle class who don’t have enough capital to create globally competitive industries (they just work for them) which can make lower rather than take higher prices, they don’t have all the skills required so as to be able to do everything for their families by themselves. So much so that they have to employ people, at meagre salaries, to fill the gaps and hold their middle-class worlds together.

These middle-class people don’t shop around as much as they could, they don’t make determined efforts to obviate the middlemen in their purchases, they instead encourage the growth of service businesses and vocations which reduce their own self reliance. And all of this within the paradigm of the middle class’s spending and tremendous borrowing power creates maelstroms of dependent employment.

That is that, you cannot be a domestic worker or a gardener for yourself, you need someone who has no time or inclination to clean their own house or garden in order to have a job. Even self-employment in these fields is dependent upon this state of being. By contrast you cannot do your own open-heart surgery and thus there will always be independent employment for heart surgeons.

This standard of living which middle-class people aspire to and maintain can best be described as an attempt to vicariously assume the mantle of wealth from among the cudgels of poverty. This means that though middle class people are able to secure tremendous amounts of debt, something that poor people cannot do, they as middle-class people are unable to ensure that they become and remain debt free or for that matter self-reliant.

Perhaps the economy in general requires this interdependency to create employment for menial and tedious work, however, in the case of an economic meltdown, with job losses all around, the first people to get fired are likely to be domestic workers, gardeners and other non-specialised itinerant workers. In addition to which middle-class expenditures on household services decline as DIY and other forms of self-reliance re-emerge.

This means that some of those people who had hitherto made a living from selling services and things to the middle class are now faced with their own economic instability because the poor have no money to buy their services and things, while the rich are too few in number to take up the slack left by the decline of retrenched and newly unemployed middle-class people.

Thus we come to find large numbers of unemployed skilled and semi-skilled workers who could otherwise have found their own slice of middle-class happiness had they not in the first instance entered into the indentured service of the middle class, which had not the skills, inclination or time to do whatever they needed for themselves.

Nuclear families generally have fewer units of adult labour at the household’s disposal and this means that even if one of the parents are unemployed there is insufficient time to keep house, care for children and still maintain a thriving fruit and vegetable garden, which would decrease the cost of living for the family.

This means that though the middle class is supposedly creating jobs for the poor and generating wealth for the rich, they still continue to require services which could be provided internally by a three or four-generation extended family household without incurring unnecessary costs.

This laziness is the cause and source of inflation and will continue unabated until such time as the middle class goes back to its poorer roots and regains the ability to be self-reliant, self-sufficiency is then but a step away for these people.

Though some will say I am painting an image of an economy where the majority of household services are unneeded and where the unemployed people in these fields have no means of employment. To which I will say that poor people would do well to note that the middle-class people for whom they previously worked do in their own lives work for wealthy people whom in turn are beholden to their banks and financiers for the fiction of industry that subsists as the modern economy.

And that while middle-class people are where they are today because they rejected the notion of being workers and instead sought to become managers, in the same way the wealthy realised that you cannot prosper by working for other people such that they became entrepreneurs, it would behove the poor to realise that in the grand scheme of things they, the poor, have all of the skills required to make the economy work and to produce and provide everything that we as a world require.

This means that if one was to establish a skills register for unemployed people and to create a public company owned equally by all of these unemployed people, that this company could in a very short time become one of the largest diversified industrial holdings company in South Africa, provided that it was able to raise the capital it required to be able to establish the farms, industrial plants and factories it needs to be able to do this.

But in the current environment, where large numbers of banks and finance institutions are being bought out and bankrolled by states around the world, it is unlikely that poor people will have any greater opportunity to borrow capital for investment because in the same way that the non-commercial debt held by the middle class has become worthless so too has the commercial debt held by the wealthy, thus leaving the banks with little risk-appetite for start-up enterprises at all.

In the current state of things, the credit supply will continue unabated for those with higher standards of living and be contracted for those lower down on the credit ladder. This means that there will still be this inflationary tendency in middle class mini-economies and there will still be this state of unemployment in poorer mini-economies.

The global economy has collapsed because the value of things, which corresponded to the debt incurred to purchase them, has declined. It has declined because it was over-priced to begin with and it was over-priced because the competitive demands of credit-worthy middle-class people drove those prices up in the first place.

Nationalising the financial sector, anywhere in the world, will do nothing to create jobs or ensure that people are able to find independent vocations. It will do nothing to encourage the growth of start-up enterprises and it will do nothing to ensure that the needless credit expenditure on convenience purchases decreases.

Put simply the nationalisation of the financial sector will only serve to prop up industries and corporations which should actually be allowed to collapse because their organisational fundamentals are wrong and it will not serve to protect the poor who are the hardest hit by the current economic recession. So I say to the global cognoscenti, nationalise and mollycoddle the financial sector at your own peril — we poor people always were and always will be on our own.