July 16, 2007	Monday	Jamadi-us-Sani 30, 1428

So far globalisation, galloping technological advancements and the emergence of private equity and hedge funds which is called ‘new capitalism’ were viewed in the rich countries as the surest ticket to a non-cyclical economic growth for all times to come.

But the fast paced and hurtling gap between the rich and the working classes in the wealthy countries due to these very developments seem to have caused the economic imbalance and political circles are being confronted with the question: How to reconcile the progress which is throwing up billionaires by the scores almost on weekly basis with the plight of people at the lower end of job market who are losing even their livelihood by the thousands on monthly basis?

According a recent OECD report on employment, in 18 of the 20 OECD countries where data exist, the gap between top earners and those at the bottom has risen since the early 1990s. Indeed what is being called here as the triple-whammy of globalisation, technological advances and the "new capitalism" of private equity and hedge funds is said to be fuelling unease about income inequality in western societies. And the fear here is that the politicians apprehending losing support among the masses as a result may come up with curbs that might bring to a screeching stop the so-called process of multiplication of wealth at a pace never seen before in human history.

The chief of Confederation of British Industries (CBI), Richard Lambert speaking to business leaders, policymakers, and commentators at the Imagination Gallery in central London, Tuesday last argued that globalisation has "brought substantial benefits to the developing world, where hundreds of millions of people have been lifted out of poverty by rising wage levels."

The Western world had benefited enormously too, with major new markets opened up and access to cheaper imported goods enabling companies to improve productivity and output.

“But in the developed world, the impact of all this growth has been unevenly distributed. Not surprisingly, given the enormous rise in the overall pool of labour, the benefits have flown more to the owners and managers of capital than they have to labour.”

Technology is potentially having an even bigger impact than globalisation, reinforcing income disparities between the skilled and the unskilled: "Computers and other ICT equipment tend to act as a substitute for unskilled workers, but as a complement for skilled labour which can increase its productivity by using the power of the processor."

At the same time technology, coupled with lower trade barriers, "has made it possible for the production of goods and services to be unbundled, with the different components being shifted to those parts of the world where they can be produced most efficiently at the lowest cost", again impacting on low-skilled workers in the West.

The third factor unsettling Western societies is "the new capitalism".

Of course, there are strong arguments to be made in favour of the new capitalism. Pockets of inefficiency and waste are attacked and eliminated. Assets are put into the hands of businesses that are best able to handle them. Resources are shifted from activities that are declining in favour of those that are growing. Balance sheets are refinanced to make the business leaner and more focused.

But at the same time all this is loosening the bonds that used to exist in most kinds of long-term corporate relationships - whether it be between owners and managers, between companies and investment institutions, or between employers and employees. The resulting economic benefits come at the cost of a greater sense of job insecurity for almost everyone in the private sector.

Moreover, a striking characteristic of the new capitalism is that the winner takes all. In a globalised financial market characterised by a high level of company takeovers, small numbers of highly incentivised managers are able to earn large multiples of their employees' wages. An even smaller number of financiers can realise fortunes running into billions of dollars in a remarkably short period of time. In this way, the new capitalism is adding to the general sense of insecurity and unfairness that is already a consequence of global trade and technology. A big question is whether and how this concentration of wealth and income will play into democratic politics.

Mr Lambert said the three factors put pressure on politicians to respond, but warned against ill-advised reactions to the changes in the global economy:

“It’s pretty obvious what not to do. Attempts to push back on globalisation will damage the poorest countries in the world, and shrink the overall economic pie to the disbenefit of all. So: no to the introduction of labour standards, to attempts to curb offshoring and to hopeless efforts to preserve jobs in the face of technological change.

“No, too, to knee jerk changes in the tax system aimed at clobbering the winners in order to cheer up everyone else. In a world of mobile capital and talent, such efforts would be counterproductive - especially here in the UK, where the financial services sector is a major source of comparative advantage to the national economy.

Instead, he advised the UK government to build on UK’s flexible labour market — "a vital asset in this globalising world" — and invest more in education and training.

More affordable housing in the face of a soaring property market and a fair pension’s settlement, as people live longer, are vital too, he said.

Immigration also needs to be handled carefully, he said.

The very rapid increase in immigration, especially in the three years since the big EU enlargement has had "a strongly positive affect on our macroeconomic performance, helping to boost output and eliminate bottlenecks in the labour market", Mr. Lambert said.

“Policymakers should ensure the scale of immigration is "not putting undue strain on our social infrastructure, and that it is not acting to drag down incomes in an unacceptable manner. This means a rigorous approach to enforcing the minimum wage."

Mr Lambert said that companies too will need to respond rapidly to the economic and political developments, recognising that free and open markets could yet be "brought to a juddering halt" as had happened in the past.

And the OECD report on employment mentioned earlier makes a number of recommendations and suggests policies governments should put in place to create more and better jobs. In countries where social security contributions are high, the OECD suggests moving to broader sources of financing public social protection. And it says globalisation requires mobility to ensure that workers are not trapped in jobs with no future.