Riots in London, labor unrest in China and public protests in Tel Aviv are some of the surprises that marked the summer of 2011. This was on the back of political gridlock in the U.S., surprise electoral outcomes in Latin America and the reverberations of the Arab Spring. Social tensions are on the rise, and the roots of the discontent are in the economic forces that are roiling below the surface. The growth spurt driven by globalization expanded the economic pie, as billions of new consumers were incorporated into the marketplace. Rising commodity prices and expanding trade flows delivered huge windfalls to the developed and developing world. However, as the rapid rise of global integration began to plateau, and the effects of the downturn in the U.S. and Europe took hold, the vast aspirations of disparate societies dimmed. Not only is the American dream looking like an empty promise and the European socialist model a distant memory, the hopes for a better way of life by billions of people across the developing world is also in doubt. The mad scramble for productive and physical assets throughout the former communist states, such as Russia, China and Vietnam, created a cadre of super-rich individuals. However, the re-allocation process is over and most of the boundless opportunities are gone. Now, these populations are stratifying into the traditional class segmentations associated with modern capitalist societies, fostering disappointment and frustration for some. The proliferation of media formats, particularly social media, engendered the sensation of hope, but they are now becoming vehicles to facilitate the spread of discontent.
Karl Marx is reviled for his Theory of Communism. Unfortunately, his most ardent detractors know little of his work. Marx was one of the great classical economists, and made enormous contributions to the development of the social sciences. By building on Adam Smith’s principal of division of labor and David Ricardo’s tenet of comparative advantage, Marx established a theory of labor that allowed him to explain the determination of wages, as well as the segmentation of society into three classes. Labor, or the proletariat, was at the bottom of the structure. At the opposite end was the capitalist, or bourgeoisie, class. They owned the means of production. In between the two poles of the social structure was a small transitional group, which he called the petite bourgeoisie. We know them as the middle class. The value-added labor component of the middle class was higher than that of the proletariat, thus allowing them to own some of the factors of production-such as their own shops and practices. The middle class included small merchants, lawyers and doctors. They were mainly service providers, and they had more control over the value of their labor than the unskilled factory worker or farm hand. Through the years, many variations were added to Marxist theory-including the separation of agricultural peasants into a separate category. Nevertheless, by focusing on the value-added component of labor, productivity and the ownership of the factors of production, Marx made enormous contributions to the understanding of capitalism.
This is why a Marxian framework helps us understand the summer of discontent. Through the use of financial credit, media bombardment and mass retailing, there was an illusion of growing prosperity for all. However, the factors of production are now in the hands of a firmly entrenched capitalist class. The middle class, which was always a transitional group with an equal probability of moving up or down, is now being squeezed by the downturn in global economic activity, evaporating liquidity conditions and deleveraging. Moreover, unless the members of the middle class have the education and skills to add value to their services in order to be more productive, they will soon be forced to accept the low remuneration of the proletariat. This creates enormous frustration for the billions of young workers who are bounding into the workforce with a burning sense of entitlement. Unwilling to accept the inevitable, they are taking to the streets–overturning cars, throwing Molotov cocktails and indiscriminately looting. The blurry images of the violence in London, Hama and Hangzhou are the precursors of similar events that will take place in other parts of the world, such as Istanbul, Jakarta and Bogota, when they realize that the dream of greater prosperity was dashed by the basic principles of market economics.