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Who is to blame for America's financial mess?

Last updated on: October 31, 2011 16:24 IST

Who is to blame for America's financial mess?

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A D Amar

The 99 Percent protesters who are occupying the Wall Street and many other strategic locations all around New York City and many others in America blame the big business for the recession and unemployment in the United States.

They believe that it is the fault of the big business that they do not have a job.

On the contrary, some business people believe that it is the fault of the people that they do not have a job.

A successful businessman, currently the Republican frontrunner for presidency, Herman Caine, addressing on the 99 Percent protesters' demonstrations and occupations said, 'If you do not have a job or are not rich don't blame the Wall Street, blame yourself.'

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Photographs: Reuters
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In other words, the blame for unemployment and poverty should go to the people -- the 99 Percent of American population -- including those who are themselves unemployed and poor.

The obvious question is: Is the recession and high unemployment in America really the fault of the 99 Percent Americans?

America used to be a haven of opportunities and the richest nation on earth. People came to America from all over the globe looking for jobs and the riches. And they got them here. Then how did the US get in its current situation?

We have almost 25 million Americans unemployed or underemployed. Our real wages have declined in the last 10 years.

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For the blue-collar workers, it has been even worse; for the same period, they have seen their nominal wages decline. The average American's net worth has fallen below the levels of 10 years ago.

America has about 40 per cent population living below poverty line which has been steadily growing over the years.

Our younger generations do not have the hopes about their future as their parents did when they were of their age.

What has gone wrong? Why as a nation don't we have the income necessary to maintain our lifestyle when many countries around the world are becoming richer?

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Why are we not able to get out of the pressure to further cut expenditures left and right? Why is there not enough money when we still have an over $14 trillion economy, which is more than double the size of our next rival?

The 99 Percent protesters, the general population that is, have two big powers: The power of purchasing, and the power of franchise.

While most Americans use their franchise power somewhat wisely, they do not understand and use their purchasing with any sense of power over the sellers.

In a highly competitive, globalized free market such as the United States, by their selection of an item to purchase in the marketplace full of variety, consumers don't just acquire a product, they distribute their wealth, empower their sellers to use their wealth the way these sellers deem fit.

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The purchasers fail to make their purchase a strategic outcome. If Americans made their purchases strategically, keeping in mind their long-term impact on their lives, the way Mahatma Gandhi used consumer purchasing power to fight the British Raj, almost all the problems America is facing today will vanish.

The question is how many Americans make their purchase decision strategically? The consumer behaviour of 99 Percent of them is guided by the short-term criterion -- primarily the price.

And, because of the mostly unilaterally-implemented free-trade policy that America practices, many foreign firms that enter American market engage in aggressively executed predatory pricing policy.

They compete by underselling the local firms to gain huge market share. The innocent American consumers patronise them, decimating American firms in the process.

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To a point that, now, almost everything available in America is either foreign made or made in the US by foreign transplants -- the long-term negative effect of the transplants on American economy is even greater than that from the sale of products made abroad, because foreign transplants have been instrumental in depressing wages.

They generate enough cash to not just export the riches back to their homelands but have enough left over to enhance their products, improve quality from the shoddy to the superior, build image through advertising and promotion, and lobby governments to win favours with a strategy to permanently keep the local competitors out of the market.

The money from America that ends up abroad brings prosperity and generates more jobs at the cost of jobs in the US. The new capital in these countries brings new developments, technology and innovation, and better infrastructure, enabling them to better compete with America in the rest of the world, further making jobs in America scarce.

This is what many countries, in particular Japan, Germany, and Korea, did, and the Chinese are doing. Our politicians may know this reality but they do not have the will to take the necessary revolutionary actions needed to solve our woeful problem.

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First, this is labelled 'protectionism' which goes against the free trade mantra that America has been preaching since the 1960s (coincidently, the start of the decline of American industrial might).

Second, it is not easy for our bickering politicians to agree and then have the courage to carry out tough decisions.

However, we, the American consumers, have that power. What should we do to help? What is our role as Americans in bringing America back from the brink? Other countries, in particular Japan and Germany -- the country that is currently in the strongest shape of all the free economies in the world -- have nationals who are so strategic in their consumer behaviour. They will do what they think is in the best long-term interest of their countries.

Other nationalities, such as the South Koreans and the Chinese that may not have the strategic behaviour of the Germans or the Japanese, have such a behaviour imposed on them by the policies of their governments.

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Until Americans impinge their consumer consumption decision on making sure that the money they spend re-circulates in America, the blame for not having a job or not being rich will go on them.

Indian Americans and people of Indian ancestry have a particular responsibility in this regard because they are so loyal to foreign value goods.

With their population of over 3 million in America, they can make a substantial difference in cutting unemployment and poverty by strategising their consumption behaviour.

If not, the blame will fall on all, the Indians included, for the unemployment and poverty in America.    

Dr A D Amar is a professor at the Stillman School of Business, Seton Hall University, New Jersey.


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