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Forum 2011

Author

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  • Michael Lim Mah-Hui
  • Khor Hoe Ee

Abstract

type="main" xml:lang="en"> Despite robust growth, rising inequality is widespread in many countries. At the same time, financial instability and crises are occurring with greater frequency and severity. These two phenomena are related to the contest between labour and capital for a greater share of economic output, with capital gaining a greater share over the past few decades. As a result, there is a tendency towards a decline in consumption by the average household and a rise in savings by a rich minority which could cause stagnation in the economy. This tension between declining consumption and rising savings is ‘resolved’ by the financial system through the recycling of funds from the rich minority to the average household in the form of credit. Financial engineering in the USA exacerbated this process which led to excessive lending and borrowing, and the creation of an unsustainable debt and asset bubble that eventually imploded. There is a similar tendency towards greater inequality, a falling share of consumption and a rising share of savings and investment in China. In the context of a globalized economy, the tension is ‘resolved’ through recycling ‘excess savings’ from China to the US, adding to the debt and asset bubble in the US.

Suggested Citation

  • Michael Lim Mah-Hui & Khor Hoe Ee, 2011. "Forum 2011," Development and Change, International Institute of Social Studies, vol. 42(1), pages 209-227, January.
    • Handle: RePEc:bla:devchg:v:42:y:2011:i:1:p:209-227
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    File URL: http://hdl.handle.net/10.1111/j.1467-7660.2011.01693.x
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    References listed on IDEAS

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