The inequality generated by decades of neoliberalism and the resentment it has caused across the world have in recent times led to uncertainties that only intensify the fear of recession.
- Growth is decelerating worldwide, including United States which is experiencing 50-year low unemployment rate. China lost momentum with industrial growth at a 17-year low. Prospects for the third quarter are gloomy as well.
- The performance of major economies affects the rest of the world economy. For example, depressed Chinese demand caused the fall in Thailand’s second quarter growth rate to the lowest since 2014.
- Scattered talk has given way to widely expressed fears of an impending recession affecting financial investment behavior, with investors dumping stocks and shifting to government bonds, resulting in a slump in stock markets.
- The deeper malaise is the depressed demand due to extreme inequality in assets and incomes that has resulted from decades of neoliberal growth across the developed world. Globalization moved productive activities to cheap labor locations had depressed wages across countries with large profits for a few and tax concessions for the rich have accentuated inequality.
- Incomes in the top percentile have exploded, those in the middle and lower ranges have stagnated sapping consumption demand. Growth came by finding ways of stimulating demand not depending on current income, but driven by credit. That, beyond a point, is not sustainable and the fear of another recession is likely.
- The USA-China trade war and other countries responding with similar measures, the world is faced with a proliferation of beggar-thy-neighbor policies that makes a bad situation worse. The unknown consequences of Brexit cannot be anything but adverse. These uncertainties intensifies the fear of recession.
- The challenge for capitalism was finding an alternative way of reviving demand depressed by underlying inequality. In the past the states used to step in to lift economies out of recession with their spending for a short a time. With neoliberalism that has shrunk the revenues of the state and public spending being is mostly debt-financed, this option was shunned. The only way to drive private demand is with credit in the form of near zero interest rates and getting central banks to hugely increase liquidity in the economy.
- Capitalism’s current predicament arises because this policy has not worked, though it has been experimented with very low interest rates and in some countries even have turned negative. While this policy has not delivered growth, it has encouraged speculation financed with cheap credit. This has led to accumulation of corporate debt as firms borrowed mainly to speculate in financial markets and pay off their rich shareholders with costly share buybacks resulting in asset price inflation and financial fragility. But with low growth central banks were compelled to continue this policy regime.
- But as the threat of recession looms, erstwhile advocates of fiscal prudence and austerity such as the IMF are calling for adding fiscal stimuli to the policy mix. Infrastructure upgrades, expanding public housing stocks and targeted tax cuts should all be considered. This is the recipe for a return to more robust growth and inflation.
The recession threat is immediate and policy is likely to respond too slowly. If the recession does set in, it can be devastating. In 2008 China, Germany and India were affected less and this time they are among the countries whose performance could drive the recession. Corporate debt often denominated in foreign currencies at high levels, a recession would find many debtors defaulting on payments and forced to sell assets. That could result in asset price deflation and will have reverberations in an over-committed financial sector. Only a set of freak occurrences can prevent another recession.
Locally owned businesses play a central role in healthy communities. Small business ownership has been a pathway to the middle class and continues to be a crucial tool for expanding prosperity and community self-determination. When a consumer supports his local business owners, he enjoys benefits he can’t possibly get from shopping at national chains. Here are some reasons to support your local entrepreneurs.
- Improves family health.
- Locally owned businesses contribute much to local causes.
- You will know the people behind the product.
- Preserves uniqueness of your community.
- Better customer service.
- More personalized service. Small business owners will bend over backwards for every customer, because every single customer matters when they are small.
- Locally owned retailers recycle a much larger share of their revenue (~52%) back into the local economy than the chain retailers (~14%), enriching the whole community. Similarly, the local restaurants re-circulate an average of 79% of their revenue locally, compared to 30% for the chain eateries.
- Locally owned businesses create more local jobs and provide better wages and benefits than chains do.
- Entrepreneurship fuels economic innovation and prosperity, and serves as a means for families to move out of low-wage jobs and into the middle class.
- Local stores require little infrastructure and make more efficient use of public services than the big stores and shopping malls.
- Local stores help to sustain vibrant, compact, walkable town centers and in turn reduce sprawl, automobile use, habitat loss, and air and water pollution.
- A marketplace with several small businesses is the best way to ensure innovation and low prices over the long-term.
- A multitude of small businesses, each selecting products based, not on a national sales plan, but on their own interests and the needs of their local customers, guarantees a much broader range of product choices.
- Shopping local is more important than people think. Even the value of your home goes up.
- Local small businesses outperformed their peers in income growth, employment growth, lower poverty rates and lower levels of income inequality.
- Communities with a larger share of local businesses have more social capital, stronger social ties, higher levels of civic engagement, and better success solving problems.
- More local businesses ensures lesser usage of automobiles by as much as 26%.
Enacting policies that strengthen small businesses and expand opportunities for local entrepreneurs is one of the most effective ways of reducing inequality and expanding the middle class. In India, government finds it difficult collect taxes from large number of small businesses, especially in informal sector, and tendency has shifted to promoting larger businesses for better tax realization and in their quest for taxes collection simply forgot their fundamental responsibility of reducing rich-poor gap. Modi and Jaitley are guilty of inflicting deadly blows to 'informal sector' which provides livelihood to >60% of the people with their 'hare brained demonetization' and 'haughtily designed & implemented GST' which almost pushed the entire Indian economy to the brink of collapse.
