IN my book Pakistan: The Economy of an Elitist State, I presented the thesis that one per cent of Pakistan’s population — the elitist class — had contrived to rig the market and hijacked the state for their own benefit. This small minority was able to enjoy its unjust accumulation of wealth in the midst of widespread poverty. Little did I realise that this phenomenon would spread from Tunis to Sanaa and from Sydney to Seattle.

The Arab Spring and Occupy Wall Street movement may have originated for ostensibly different reasons but their root cause is the same — growing disenchantment of the majority of the population that is suffering from weak economic growth, high unemployment, tough austerity measures and anxiety about the future. Meanwhile, the number of billionaires is expanding at an unprecedented rate across the world.

Whether the elite classes are led by dictators, monarchs and rulers as in the Arab world, or dominated by bankers, high-paid executives and businesses as in the western world, social networking media and instantaneous communication have coalesced the disorganised majority. The rage and fury of those disenchanted with the present system is spilling across national boundaries. ‘Contagion’ is no longer a word confined to the international financial system; it is equally applicable to social movements.

The inability of Arab countries to create jobs for their youth has been a major source of discontent behind the uprisings. In the West, youth unemployment has reached 17 per cent in the US and 21 per cent in the European Union. As the Economist has pointed out: “Young people — and not just those on the streets — are likely to face higher taxes, less generous benefits and longer working lives than their parents. More immediately, houses are expensive, credit hard to get and jobs scarce.”

Besides growing unemployment, income inequalities have widened in most countries pinching the low-income and lower-middle classes. The richest one per cent of the people in the world get nearly 14 per cent of global income while the poorest 20 per cent receive just over one per cent. In the US, the top one per cent have captured 58 per cent of the real economic growth of the past 30 years. Fear and economic insecurity about the future is another factor. A commentator has aptly observed: “Is it fair that those who suffer the most from global downturns have their safety nets cut, while those who generate the volatility are bailed out by the government?”

The problem has arisen because of the changes in the nature of relationship between the state and the market. The market allocates scarce resources efficiently but rewards only those already well endowed, i.e. those who possess land, capital, natural resources or skills. The uneducated, poor, handicapped or unskilled are left out.

The state taxes a fraction of the incomes earned by the wealthy and transfers that income to the poor through public expenditures on basic services and social safety nets, etc.

State institutions set the legal and regulatory framework and the rules of the game under which private businesses operate, and ensure macroeconomic stability, adequate competition and acts against collusion. The state adjudicates and arbitrates in disputes and contracts between private parties.

But trouble arises if the state ceases to perform any of these functions effectively or if state institutions are captured by the powerful elite. In the absence of a neutral umpire, the markets are rigged producing inefficient outcomes. As the state is also controlled by the elite, inequities become commonplace. The rich evade taxes or their taxes are cut, public expenditures do not reach the poor, excessive corporate profits accrue to big private owners but their losses are borne by the state. No wonder, eight out of 10 Americans mistrust their government. The situation in most other countries is no different.

In such a society where wealth is concentrated in a few hands and the state is indifferent to the plight of the poor, there is hardly any alternative but to take to the streets. Those worst affected resort to peaceful demonstrations or in some cases to violence. The unrest in the Arab world is a revolt against traditional power structures that favour a select few. Protests such as Occupy Wall Street are a manifestation of the inequities that have become too entrenched. In the Arab world, dictators or rulers perpetuated themselves with the help of the rich and powerful inflicting huge pain and misery upon the population. In the western world, the regulators permitted the bankers to take excessive risks with other’s money resulting in the scrapping of millions of jobs, indebtedness and a decline in the living standards of vast numbers.

The executives, meanwhile, earned hundreds of millions dollars in bonuses, and severance packages. The unemployment rate climbed up from 5.2 per cent in 2007 to 9.2 per cent in the US but the share of the top one per cent went up. In Europe, austerity measures have resulted in cuts in public expenditures, layoffs and retrenchments, salary freeze, etc. At the same time, the bailouts of banks by the public sector would cost billions of euros.

What needs to be done to avert the spread of the present wave of discontent?

The imbalance in favour of the unregulated market and weakened state has to be adjusted. The state and its institutions have to effectively regulate the markets by enforcing competition, penalising excessive risk-taking, protecting consumers, reforming the compensation structure in the corporate sector and strengthening the banks’ capital and governance.

Oligarchic or crony capitalism has to be replaced by a fiercely competitive system. The system should tax the rich and subsidise public services for the poor. Economic opportunities for the youth have to be expanded by investing in education. These opportunities must grow as fast as the profits of big businesses.

Finally, public policies should boost growth that distributes the benefits in a broad-based manner. Wage stagnation must come to an end, and the earnings of lower-income groups have to keep pace at least with the overall growth in the economy. Jobs for low-skilled labour and reduction in income and regional inequalities have to be ensured through public policies, public investment and incentives for the private sector. In case this imbalance is not corrected the world will become a more tumultuous place to live in and social upheavals will be more difficult to control.

The writer is director of the Institute of Business Administration, Karachi.