Socio-economic Watch

A new order on the march – revolution or evolution?

The face of change 400 years ago
Feudalsm.jpg

A new economic order across the globe in the not too distant future, looks inevitable. Factors driving it is immensely complex and intertwined and about much more than just a geopolitical construct.

When commentators react to events like the Brexit vote in the United Kingdom, the election of Donald Trump in the United States or the rise of populism in Europe and wider, it is often forgotten that most of these developments are driven by a very fundamental truth in most modern societies: For most people across the world the existing socio-economic construct is just not working anymore.

World-wide social discontent is rising, driven by widening inequality of income and wealth, by rising unemployment in many societies (amongst them South Africa), the growth of the proportion of people in need of welfare assistance (driven by a number of factors) and education and training systems not keeping up with the effects of the “internet of things” and the so-called Fourth Industrial Revolution (FIR). 

We take a look at of some the fundamental factors putting the existing socio-economic systems under pressure world-wide.

Longer life expectancy and retirement

From Australia, last week there was an academic article arguing that there is “no silver bullet solution to Australia’s ageing workforce.”

In South Africa, Ingé Lamprecht, also last week, wrote in MoneyWeb how the “retirement crisis” in South Africa could get worse with only a small percentage of people in a position to maintain their standard of living in retirement.

In another academic article, Lee-Ann Steenkamp of the business school of Stellenbosch University warns that “South Africa needs to be creative to avoid falling off the retirement cliff.”

She explains how the average life expectancy of around 45 years in 1881, when Otto von Bismarck first conceived the concept of “retirement,” has risen dramatically.

This is a world-wide tendency. In South Africa the present just over 3.1 million people receiving old-age grants are expected to rise to 7 million by 2030.

At the same time, because of factors like FIR and very slow economic growth, the number of individual taxpayers has been in decline for a number of years now.

How this situation impacts in countries with aging populations, is illustrated by the European Commission’s estimation that an increase of one year in the effective retirement age would reduce the expected increase in expenditure on public pensions by between 0.6 and 1% of GDP.

In countries like South Africa, with rising unemployment and people receiving unemployment grants, the impact on the welfare bill is even more dramatic.  

Growing workforce

Then, over the last couple of decades the workforce in most countries have not only grown from population growth – where it does exist – but also from the increase in the percentage of woman entering the job market.

As another academic article by  Ben Spies-Butcher of Australia’s Macquarie University argues, while this was an initial boon for the female of the species and the economy and society by, amongst other, creating more higher income families, there was also down sides.

“On the flip side, the rise in the number of double income families has sent house prices up, effectively forcing most families to have two earners, Spies-Butcher writes.

Changing production processes

The FIR, which is in full swing and picking up momentum, while the workforce via education and training programmes has thus far failed to sufficiently reskill the workforce for the emerging new production processes.

This leaves many low-skilled labourers without job prospects – increasing the numbers dependent on welfare to survive.

Growing inequality

Probably the main driver of discontent in broad society is the ever-growing income gap between an economic elite at the very top of the wealth pile and workers in the engine room of the economy were the cogwheels of production grinds.

One of the main reasons for this happening, is that the normal mechanisms of the market economy have disappeared at executive level in the core structure of the modern economy, the corporate world.

Consider the following statement in an article last week by Barry Ritholtz of Bloomberg: “The compensation packages of the chief executive officers of America have been rising faster than just about any rational metric upon which they are supposedly based. ‘CEO pay grew an astounding 943% over the past 37 years,’ according to a recent Economic Policy Institute analysis. The EPI further observes, this was a far faster growth rate than the cost of living, the productivity of the economy, and the stock market.”

It further states that “CEO compensation isn't the pay for performance it’s advocates claim. Instead, it is unmoored from any rational basis. This makes it an inappropriate wealth transfer from shareholders to management.”

Even in the relatively rich and developed Australia, a recent article on what was described a ”salary scandal,” it came to light that the top 1% of that country’s earners have as much wealth as the bottom 70%. Only two of them own more that the bottom 20%.

 This situation makes a mockery of the argument of free market ideologues, also in South Arica, that there should not be something like a minimum wage, but that salary should be left to a “free” negotiating process between worker and employer based on supply-and-demand – that while, in a time of manpower over-supply, management holds all the cards and unchecked power.

Conclusion

A wide-ranging number of factors have, and still are, dramatically reshaping socio-economic constructs around the world and, in the wake of globalisation since World War II, no country will be left untouched by it.

Somewhere, something’s got to give. And if we are not careful it might, like it did 400 years ago, at the end of feudalism, come in the form of a full-blooded revolution.

Also read: South Africa beware – Big Brother is coming!

                   Shattering before realignment of SA politics

                  South Africa’s state governance imploding

by Piet Coetzer

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