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The neoliberal moment created a new prosperous middle class. I am not using this term to describe just one income group. It is a sociological category, a class of people who had a symbiotic relationship with the entrepreneurial class above them. They were professionals who earned their living in the form of salaries and fees. Managers, bankers, financial analysts, IT professionals, doctors, lawyers, journalists and even teachers.
Their earnings depended on how much their employers and customers earned. And it was a great time for corporate profits, as both the cost of capital and wage bills declined. As companies expanded, they needed professional managers at every level. Sales, marketing, and general administration jobs became attractive options for the middle class, and parents began sending their children to business schools to learn corporate tricks. babudomFinance, itself, became one of the largest white-collar employers. Then came IT – this sector became even bigger due to our success in outsourcing to India.
The middle class benefited from free-market economic policies, but had no role in the game. Whether their capitalist employers made profits or not, their wages were secure, at least in the short term. And as long as a large middle class had money to spend, self-employed professionals also flourished.
The honeymoon turned into a rave party in the early 2000s, when all restrictions and regulations on financial capital were removed. Money flowed like water in the global economy. New entrepreneurs who would otherwise find it difficult to challenge established companies could easily raise funds through debt and equity investments.
They spent a large part of it on acquiring talent from existing players, offering handsome salary hikes and bonuses along with ESOPs. Older companies had to follow this to retain their senior employees and attract new people. Higher wage bills were no longer being funded by earnings but by taking advantage of the fantastic valuations achieved by all companies.
As profits declined, new companies found it difficult to repay the loans they had taken. As news spread about their financial problems, their valuation dropped making it impossible for them to raise more equity. Banks were suddenly faced with borrowers who had become insolvent. They stopped making new loans or refinancing old loans.
The financial system was collapsing.
The final trigger was the collapse of the home loan business in the US, and this wreaked havoc in the housing-based financial derivatives market around the world. As large investment banks went bankrupt, thousands of financial sector workers lost their jobs. Remember, these were among the highest paid middle class professionals and some of the biggest consumers in the world.
Infection spread in industries. People from every sector were asked to leave from there. Others had to take pay cuts. Restaurants and hotels lost customers. Designers closed shops. The size of media houses reduced significantly. Lawyers were removed from retainership. Even doctors saw a decline in the number of patients coming for routine health checkups.
