Why America is a bank-owned state

Al Jazeera - 12 Jun, 2009

Samah El-Shahat, Al Jazeera's resident economist, will be writing a regular column analysing key elements that have contributed to the global financial downturn and its impact across the world.

In my last column I introduced the idea that America's handling of the financial crisis, and in particular the way it has refused to deal with the banks, is more in keeping with how an "emerging" economy might behave and act.

So this week, I will say that America has become a bank-owned state, allowing its banking oligarchs to suffocate the economy so they can survive at any price.

As a development economist, what always made developing and poorer countries stand out was the level of inequality between individuals.

That is, the difference between how a small percentage, usually the country's capitalists, oligarchs and those close to people in power, were overdosing on wealth as the rest struggled to make ends meet, or even survive.

Everyone in the country knew it, from the poorest farmer on the street to the richest oligarch. It was in your face, unashamed, unabated and highly discomforting.

Discomforting because it made all of us who witnessed it feel crippled at the power of the status quo, ruing the unfairness of life when merit always comes last, relative to who you know and who you are.

We took some relief from believing that this only happens because these countries were authoritarian, and not so accountable to their electorate.

Yet, if we look closer at the leading capitalist economies such as those of America and the UK, we will find that inequity raises its ugly head equally, and as starkly, when you look at the numbers.

Kept in the dark

Here too, a small percentage have the lion's share of national income in their hands, while the rest of the population experience stagnant incomes, all within a democratic, rather than an authoritarian, political regime.

Yet the real difference here is that, away from the numbers, the wider population and the electorate were mostly kept in the dark about this.

In 2006, the top one per cent of American households' share of all disposable income amounted to almost a quarter of all households' disposable income, according to Robert Hunter Wade, professor of political economy at the London School of Economics.

In crude terms, one per cent of the population have a quarter of all the wealth.

Moreover, Wade found the average income of the bottom 90 per cent of the population remained almost stagnant after 1980, although consumption kept rising thanks to the build-up of private debt.

This means that 90 per cent of the American economy were financing their American dream on debt.

In the UK, Wade found the pay gap between the highest and average earners had widened alarmingly.

Back in 1989, chief executives pocketed 17 times more than average earners.

By 2007, those same "captains of industry" were earning 75 times more than the average worker.

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