Revelation 18:11-13New International Version (NIV):
11 “The merchants of the earth will weep and mourn over her because no one buys their cargoes anymore— 12 cargoes of gold, silver, precious stones and pearls; fine linen, purple, silk and scarlet cloth; every sort of citron wood, and articles of every kind made of ivory, costly wood, bronze, iron and marble; 13 cargoes of cinnamon and spice, of incense, myrrh and frankincense, of wine and olive oil, of fine flour and wheat; cattle and sheep; horses and carriages; and human beings sold as slaves.
A lot of people have been prompted to ask “what’s wrong with capitalism?”
This includes not just its traditional critics, but also its biggest boosters. Any number of prominent economists, ones whom one might think would never admit a flaw in the system, have been contemplating what went wrong. This ranges from prominent economists, to conservative think tanks, to institutions like the IMF and the Federal Reserve.
No one seems to be able to figure it out. For the financial insiders, the cause is always some sort of economic hiccup that can theoretically be cured by an interest rate hike here and there, or some sort of government program. In other words, just fiddling around the edges, or better technocratic management. Dare I suggest that this is a classical case of “cargo-cult thinking” by the high-priests of our capitalist age?
There are a few currently fashionable theories about what’s wrong:
Secular Stagnation. First postulated by Alvin Hansen, and newly championed by Larry Summers, This includes things like lowered population growth causing less demand for goods and services, with low interest rates unable to coax forth more investments.
Innovation Slowdown. Associated with Robert Gordon, this postulates that the “low hanging fruits” of innovation that have transformed the economy have been harvested, and that future innovations will provide lower marginal growth, and that the utility value of future innovations will be harder to monetize.
Resource Bottlenecks. This would include the Peak Oil ideas; that the resources underpinning our economy are simply not available or too costly. Shortages of water or other effects from climate change could be included here.
Debt Overhang. This means that high levels of debt need to written off before growth will resume.
All of the Above?
All of these are seen as just temporary hiccups in the 250 year trajectory of permanently higher growth and living standards by mainstream economists.
But what if the whole system is doomed? What if it’s simply not viable anymore? What if there are no marginal fixes at all? What if there is no cure besides a totally new approach to society, starting from the ground up?
And what if we’re incapable of making that transition?
I thought of this while reading the following passage about the origins of feudalism in the West:
Barbarization was but part of the rapid changes in Roman society, culture, and government that took place during the third and fourth centuries. Partially spurred by such internal problems as plague, a falling birthrate, constitutional instability, and the failure of the Roman world to develop from a labor-intensive system based largely on slavery to a more efficient mercantile or protoindustrial system, and partially by the increased creased external pressures on its overextended frontiers, the Empire had to seek a new equilibrium. (kl 205)
Origins of Feudalism in the West (Understanding Society)
These words struck me in particular: “the failure of the Roman world to develop from a labor-intensive system based largely on slavery to a more efficient mercantile or protoindustrial system.” What if we’re in a similar situation today? What if we face a choice between breaking through and falling back?
I’ve read a lot of discussion concerning our current predicament, from joblessness to automation to economic malaise. Such discussions usually end up in an acknowledgment, sometimes grudging, sometimes not, that capitalism as a system has outlived its usefulness. Or that capitalism is holding us back.
What do I mean by this? I mean the system where more and more people are rendered useless to the economic order. Where ownership is confined to a narrow circle of elites. One in which we pay out of own pocket to make ourselves viable for careers that may or may not exist by the time we’re done training, leaving us jobless AND in debt, unless we come from wealthy families. One where most of our salaries go to pay for the roof over our head, and we’re in debt from birth to death. One where much of new employment consists of providing low-wage on-demand services to a tiny clique of urban corporate technocrats. One where we are turned into economic migrants never able to put down roots. One where vast swaths of the country are dead zones devoid of opportunities besides low-wage service work, government jobs, nursing or drug sales.
I mean corporations peddling identical products designed to quickly wear out or become unfashionable, and flogging them incessantly with advertising. Centrally-planned oligopolies masquerading as “free” markets (cable monopolies etc.). People sitting in air-conditioned cubicles pushing paper all day in socially-useless “bullshit jobs” just so they can earn an income. The “nuisance economy,” where ads are shoved down our throat in order to fund our internet infrastructure. Part-time and temporary jobs with no benefits. Colleges as toll-booths to employment. Hospitals as a hostage racket. Draconian copyright laws. Artificial scarcity of software. And on and on.
We were told that the sequence of economic development is essentially the following:
Manufacturing has already been offshored and automated away. Consider:
Nike is to tackle rising labour costs at its Asian factories by “engineering the labour out” of its shoe and clothing production as it seeks to defend its profits. Don Blair, Nike’s chief financial officer, said its objective was to reduce the number of people making its products as he highlighted the impact of a sharp increase in wages in Indonesia.
The Future of Manufacturing Jobs in Developing Nations (Marginal Revolution)
More than 20 years after Adidas ceased production activities in Germany and moved them to Asia, chief executive Herbert Hainer unveiled to the press the group’s new prototype “Speedfactory” in Ansbach, southern Germany. The 4,600-square-metre plant is still being built but Adidas opened it to the press, pledging to automate shoe production – which is currently done mostly by hand in Asia – and enable the shoes to be made more quickly and closer to its sales outlets…Large-scale production will begin in 2017 and Adidas was planning a second “Speed Factory” in the United States in the same year, said Hainer.
A Chinese government official told the South China Morning Post that a Foxconn factory has “reduced employee strength from 110,000 to 50,000 thanks to the introduction of robots. It has tasted success in reduction of labour costs. More companies are likely to follow suit.”
The “replacement” for these jobs was supposed to be service sector jobs. We’ve been simultaneously told that these jobs would replace the lost manufacturing jobs, and then when the low salaries are questioned, we are told that these jobs are only for teenagers or people living with their parents, despite these businesses being open year-round and during school hours, not to mention being the plurality of the newly-created jobs. Any attempt to raise salaries in this sector, we are told, would spur automation and joblessness, yet we are simultaneously told that “automation does not kill jobs,” and the “the amount of work to do is unlimited.” Left unsaid is that, by this logic, only by paying salaries that are so ultra-low that they are competitive with machines can we have sufficient jobs for people.
When you point out that once upon a time, people were paid enough to support a family on one income back when America was a manufacturing power, you are dismissively told that “those days are gone forever.”
Consider that all the calls for “more schooling” and “worker retraining” have been for naught. People dutifully marched off to get more education, but it has not saved the economy, nor the people themselves. The people who would have gone off to higher education years ago still do today, but now a college diploma is a “work chit” for any job at all. Many secondary schools are now nothing more than pre-prison holding cells. As for a path to a viable job, you are on your own. Good luck. Meanwhile, politicians like Hillary Clinton promise to make paying the onerous costs for college easier. Does anyone think that will solve anything?
In the 50 years from 1960 to 2010, the global labor force’s average time in school essentially tripled, from 2.8 years to 8.3 years. This means that the average worker in a median country went from less than half a primary education to more than half a high school education.
How much richer should these countries have expected to become? In 1965, France had a labor force that averaged less than five years of schooling and a per capita income of $14,000 (at 2005 prices). In 2010, countries with a similar level of education had a per capita income of less than $1,000.
The Education Myth (Project Syndicate)
Since 1991, we have done precisely what the education-focused poverty people said to do. Between 1991 and 2014, we steadily reduced the share of adults in the “less than high school” and “high school” bins and increased the share of adults in every other bin…By 2014, the share of adults in the “less than high school” bin declined 9 points from 20.6% to 11.6%. The share of adults in the “high school” bin declined 6.5 points from 36% to 29.5%. Meanwhile, the share of adults with an Associate degree went up 3.9 points, the share with a Bachelor’s degree went up 8.3 points, and the share with a post-Bachelor’s degree went up 4.8 points.
If the poverty rates for each educational bin remained the same, then the upward redistribution of adults from the lower bins to the higher bins would have led to lower overall poverty. But that’s not what happened. Instead, the poverty rate for each educational bin went up over this time and overall poverty didn’t decline at all. In fact it went up.
Is it any wonder people are angry and getting angrier?
Consider that huge areas of the West are post-industrial “sacrifice zones” filled with people who have lost everything, and ready to embrace radical solutions. This includes everything from small towns to inner-cities.
Over the past 35 years the working class has been devalued, the result of an economic version of the Hunger Games. It has pitted everyone against each other, regardless of where they started…The consequences can be seen in nearly every town and rural county and aren’t confined to the industrial north or the hills of Kentucky either. My home town in Florida, a small town built around two orange juice factories, lost its first factory in 1985 and its last in 2005.
In the South Buffalo neighborhood of Lackawanna, homes have yet to recover from the closing of an old steel mill that looms over them. The plant, once one of many, provided the community with jobs and stability. The parts that haven’t been torn down are now used mainly for storage.
In Utica, New York, a boarded-up GE plant that’s been closed for more than 20 years sits behind Mr Nostalgia’s, a boarded-up bar where workers once spent nights. Jobs moved out of state and out of the country. The new jobs don’t pay as well and don’t offer the same benefits, so folks now go to the casino outside of town to try to supplement their income.
Meanwhile, it’s the same in Europe, where industrialism started, but has long since departed. Cities like Birmingham, Glasgow, Manchester, Belfast, Amsterdam, and many others that once had thriving manufacturing economies have been dealing with blight ever since the 1970s. It’s notable that the radical Jihadists targeting Europe are living in the blighted and abandoned neighborhoods cleared out by deindustrialization:
The sociologists tell us that the distribution of wealth in Brussels follows a pattern that is more commonly found in American cities — wealthy suburbs surrounding a hollowed-out center of poverty and blight. The European norm, exemplified by London and Paris, would have the most expensive and chic areas in the center. Molenbeek fits the American pattern in that it is an area blighted by derelict industrial buildings and is on “the wrong side of the tracks,” which in this case means the wrong side of the canal that splits Brussels into east and west.
Belgium is a failed state (Politico)
And it is a global problem. The capitalist economic model, the ongoing destruction of the agrarian way of life and sending the refugees fleeing to the overcrowded slums and chawls, is no longer viable. The deracinated rural people were assumed to get jobs in sweatshops where they would be producing cheap goods for rich western consumers (the twenty percent who aren’t just trying to get by, that is). We were told how much more fortunate these people were working their sixteen hour days in factories and sleeping in cinderblock dormitories than in their ancestral villages working outdoors and surrounded by their families. But now, the factories aren’t there anymore. Yet, agriculture is still no longer viable for them any more than is manufacturing, for a number of factors. What are these people supposed to do? How much is this contributing to collapse?
Global unemployment is expected to surpass 200 million people for the first time on record by the end of 2017, according a recent ILO study, and limitations of official statistics suggest that the problem is much larger . As conventional measures increasingly fail to produce tight labor markets and jobless recoveries become the norm, economists grapple with this new reality by calling it secular stagnation and by adjusting upwards the rates of unemployment deemed ‘natural’ — but the human, social and economic costs of this growing problem are rarely considered in economic modeling.
A Global Marshall Plan for Joblessness? (Naked Capitalism)
The thing is, we have no viable alternative for a deindustrialized (post-Fordist) economy. Dare I say that our current economic model is failing, and has been for over forty years? We have been in a concealed depression since approximately 1972. The responses to cover this up are running out of steam. And alternatives are being brutally suppressed by elites.
What if we are incapable of moving beyond the current economic model? Clearly, something else is desperately needed.
An alternative economic history
Even though technology is supposed to have no effect on employment, my own view is that we’ve lurched from overproduction crisis to overproduction crisis, with no real alternative. The two things that have saved us were 1.) World War Two, and 2.) Globalism. But now those have run their course.
I believe the Great Depression was caused by a massive labor shock, and this has covered up by economists ever since in the interests of preserving capitalism’s legitimacy. It was claimed that things like “financial panic” or “tariffs” or “not enough money” were the cause. But these were results of overproduction–of putting millions of people out of work and not having enough salaries to shore up the debt-driven economy. They were not the cause.
There was more production, but he salaries were not there to absorb it. The increase in output could not be absorbed at the time.
At the time, the economy was undergoing a great expansion, and new techniques were coming to the fore. The greatest of these were 1.) The electrification of the assembly line, and 2.) The mechanization of agriculture.
If you read the literature from the now long-forgotten Technocracy Movement, you will see statistics pointing out how much production had increased in various industries. I did this as part of a book project a while ago (sadly, abandoned) on the movement. I found some of their old books in the archive of the public library. Their arguments are remarkably familiar if you’ve read any of the current literature concerning automation and the workforce.
But what if they weren’t wrong? What if overproduction really was the cause?
Keep in mind, the Depression dragged on for an entire decade, despite the responses of politicians. This caused a tremendous amount of suffering and political chaos. Government programs ameliorated the worst of the suffering, but didn’t really put the economy on a firm footing, or put things back to the way they were.
For example, you always hear this mic-drop: “ninety percent of us used to work on farms (or whatever number they pull out of their ass), and now just two percent do, and yet we have plenty of jobs, hurr durr!” But that washes away a hell of a lot of history.
Of course, World War Two changed all that. But then again, World War Two was mostly a response to the economic conditions of the Great Depression. During the interwar years, governments took an active role in rebuilding their shattered economies in a way that is unimaginable today.
What really ended the Depression was, let’s not mince words here, government takeover of the economy from 1941-1950. There’s another word for that–socialism. Specifically, War Socialism. The economy under government management and control had eliminated unemployment virtually overnight. Everyone who wanted a job had one.
During this time, the government learned to control and manage large economies. This scared the shit out of the powerful industrialists, who feared they would not be needed anymore.
When the war ended, the industrialists cut a deal. “Give us back control of the economy,” they said, “and well make sure there are plenty of jobs to around, with good benefits.” For the next thirty years was what is called the “Long Boom” or “The Golden Age of Capitalism.” There was plenty of work to go around rebuilding the world, and the people who survived the war did not have to work very hard to ensure their survival. Unions were powerful, government took an active role, and the wealthy and the industrialists grudgingly accepted this state of affairs (while secretly working to undermine it)
The United States was the only industrial power whose industrial base survived the war intact. Work was plentiful. The U.S was the world’s factory floor. Even though manufacturing was never the majority of jobs in the economy, rising wages and unions had spillover effects in the wider economy. African-Americans were automated out of their farming jobs and headed north in the Great Migration. I told that story here.
After the war ended, we invented “The Gospel of Consumption.” People would be encouraged to form nuclear families and consume as much as possible to absorb all the new production. Their appetite for novelty and status would be stoked to keep them buying all of the economic output that was being produced. The television set injected advertising into peoples’ homes and manipulated their desires and insecurities. Big business would create the wants it sought to satisfy.
The government’s creation of the Interstate Highway System and the subsequent buildout of the suburbs, along with the expansion of the internal combustion engine and all its attendant satellite industries (truck drivers, mechanics, drive-in and fast-food restaurants, auto-parts stores, towing, insurance etc.) contributed to a boom in employment from 1950-1970. This would be repeated to some extent with the creation of the “information superhighway” in the 1990’s-2000, which again created a variety of jobs (despite the comical insistence of libertarians that government is always a hindrance to economic growth and development).
The wheels started coming off from ’68-’72. Much of the world’s industrial base had been rebuilt. The Germans and Japanese were able to rebuild using the latest methods and techniques, while American industry had become sclerotic. We were once again facing a crisis of overproduction.
The spike in the cost of oil led to the stagflation of the 1970’s, which allowed the alternative economic theories of the Chicago School to come the fore. These generally fall under the rubric of Neoliberalism. To deal with the “excess of democracy” workers would need to be “disciplined.” To shore up profits, production was offshored to the third world, which would also crush unions. An “new enclosure movement” would sell off the commons to rentier investors. Citizens were relabeled as consumers, pensions were swapped for stock plans, and the market would rule all.
To distract from falling living standards, two tactics were used. In Europe a generous welfare state was provided. In the United States, racial enmity, appeals to religion, and issues of social and cultural affiliation were used to distract the working classes from their falling living standards.
Beginning in the 1970’s Women entered the workforce as men exited. Two incomes were needed where one used to suffice. Later, millions of impoverished workers from the hollowed out third world failed states fled to the Western industrial economies, further depressing wages, wages needed to buy up the overproduction.
After the 1980’s, financialization was another tactic used to deal with the faltering economy. Manipulation of money replaced actual productive growth. Companies were strip-mined for profits. Corporations consolidated to cope with this phenomenon, eliminating tens of thousands of “redundant” employees in the process. restrictions on monopolies were abandoned. Pensions were raided. Shady financial products like “junk-bonds” and “derivatives” created wealth out of nothing. A series of bubbles were inflated and popped. Boom-and-bust cycles became more pronounced. This had the effect of hollowing out the real productive economy and turning financiers into modern-day aristocrats for doing unproductive, socially useless labor which actually subtracted value from the economy as a whole.
In the 1990’s and beyond, globalism rode to the rescue, i.e. the colonization of foreign markets. And the biggest star was Communist China. But after becoming the World’s Factory Floor 2.0, and hollowing out the West in the process, it seems to be faltering:
The main engine of global growth since 2000 has been the rapid industrialization of China. By channeling the vast savings of its population into capital investment, and by rapidly absorbing technology from advanced countries, China was able to carry out the most stupendous modernization in history, moving hundreds of millions of farmers from rural areas to cities. That in turn powered the growth of resource-exporting countries such as Brazil, Russia and many developing nations that sold their oil, metals and other resources to the new workshop of the world.
The problem is that China’s recent slowdown from 10 percent annual growth to about 7 percent is only the beginning. The recent drops in housing and stock prices are harbingers of a further economic moderation. That is inevitable, since no country can grow at a breakneck pace forever. And with the slowing of China, Brazil and Russia have been slowing as well — the heyday of the BRICs (Brazil, Russia, India and China) is over.
There is really only one time-tested way for a country to get rich. It moves farmers to factories and imports foreign manufacturing technology. When you move surplus farmers to cities, their productivity soars — this is the so-called dual-sector model of economic development pioneered by economist W. Arthur Lewis. So far, no country has reached high levels of income by moving farmers to service jobs en masse. Which leads us to conclude that there is something unique about manufacturing.
But here’s the problem: manufacturing is shrinking. Although the total amount of physical stuff that humans make keeps expanding, the percent of our economic activity that we put into making physical goods keeps going down. This is happening all across the globe, even in China. This may partly be because manufacturing has been a victim of its own success — the sector has grown so productive that it’s now pretty cheap to make all the stuff we need. That is exactly what happened in agriculture, after all.
Will the World Ever Boom Again? (Bloomberg)
We now have a consumer society where the consumers are too poor to pay for much of anything. As more retail is disappearing thanks to the internet, those service sector jobs in retail are disappearing too. We’ve seen malls dying all over the country. The age of mall shopping is coming to an end. Good riddance.The retail sector is crumbling thanks to online retailers. Globalism has made goods so abundant that they are virtually free. People are doing their own services online (travel, law) for hardly any cost.
Now both manufacturing and retail are gone.
On the face of it, the economic superpower that is the American consumer should be having a party. Low interest rates and unemployment rates, low oil prices, a high stock market, healthy property prices – nothing it would seem, to put off doing what comes most naturally to them – shopping.
Yet they’re stubbornly refusing to do it – or at least refusing to do it in predictable ways – leaving consumer experts to wonder, as fashion bible Women’s Wear Daily recently did, if the consumer psyche, “bombarded by digital messages, stressed financially and overwrought emotionally”, has “finally exploded”.
What’s killing us fixed costs. Education. Health care. Housing. The internet is not a solution to those, and the “free” market cannot fix the problems it caused in the first place. As those fixed costs head inexorably upward, it is squeezing out consumer spending. All of the wage gains are heading to the top due to superabundance of labor. The job market it broken – all incentives are to automate and create as few jobs as possible, and to poach workers from competitors rather than pay for necessary training. Employers hide behind online job search platforms and sit around refusing to hire anyone besides a “purple squirrel” candidate. Employers couldn’t care less about unemployment individually, but collectively, its reducing their margins. The comments to the above article get it:
So many companies thought they were super smart after keeping the wages so low… too bad that everybody had the same idea, and now they notice they have not enough clients.
A key economic principle is to supply the workforce with enough income to afford the products you want them to buy. Check these companies. I bet the work force is all part time minimum wage. You have to give money to the consumer in order for them to give it back.
Maybe it’s because much of what is being offered for sale in the shops is badly-designed, skimpily-made, short life-span, mainly Chinese-manufactured crap – stuff that 30 years ago would have been considered to be “counterfeit”. We have an entire system of production, distribution and exchange based on taking stuff out of the ground, turning it into junk in police-state China, and then, after a short, credit-financed interval, shoving it all into another hole in the ground. Who really benefits from this?
Its the internet. You can buy what you want, when you want, see reviews and most importantly you have breathing space between looking and buying. This space allows you think “do i actually need this?” Sometimes the answer is no. So many people are buying less stuff.
When people have high rents and mortgages to pay,or when they have to save up for years for a deposit then they don’t have much money for consumer spending. New properties have tiny rooms so there isn’t the space for all that consumer junk. Most of the stuff in shops is either junk or too expensive for most people.
If you live in a medium-sized town that’s not a tourist destination, you will see the same boring chain stores that you see in every other town. Shopping is boring if it’s just the same stores in every town and every mall, all selling the same stuff. Maybe in huge cities like New York there is some imagination to products and window displays but in most places shopping has gotten dull. Yes, I’d rather have an experience like seeing a National Park than seeing another chain store.
Informed consumers making rational choices – the marketing industry’s nightmare.
Yet our genius economists and politicians appear not to care. After all, they’re getting richer. They appear much like the clueless aristocrats of Ancien Régime France. Morris Berman:
The truth is that no system lasts forever; change is the only constant we find in the historical record. As one social critic argued a few years ago (Peter Frase), “humanity has never before managed to craft an eternal social system…and capitalism is a notably more precarious and volatile order than most of those that preceded it.” Wolfgang Streeck, in an article he published in 2014 in the New Left Review, wrote that “What we are seeing today…appears in retrospect to be a continuous process of gradual decay, protracted but apparently all the more inexorable.” Whatever stability capitalism had in the past, he goes on to say, was dependent on the presence of countervailing forces (e.g., labor unions). Today, no force is on hand to check capitalist expansion, balance it out; which suggests that it may undermine itself by being too successful. Everyone in these societies is mesmerized by consumerism, and thus dysfunctions in the system continue to accumulate, because there is not enough structural variety to cope with change. In a word, he concludes, “victorious capitalism has become its own worst enemy”; it is “dying…from an overdose of itself.”
As an example of this, Streeck points out that consumerist culture is absolutely vital for the reproduction of contemporary capitalism. The problem is that producers and consumers tend to be the same people. So when consumers hunt for the best bargain, they defeat themselves as producers, because they drive their own jobs abroad. In addition, corruption is now inherent in the system; it’s hardly a case of a few bad apples…
Dual Process: The Only Game in Town (Dark Ages America)
And automation has clearly presented a challenge to future expansion of the consumer:
The huge rise in automation in agriculture that drove so many people off the land created waves of discontent and dislocation, but eventually — during the Great Depression here in the US — that surplus agricultural labor was absorbed into the then burgeoning industrial sector. So not only did the economy benefit from rising productivity on its farms, but it produced higher paying jobs that enabled the newer working class to become upwardly mobile and aspire to something we have became to call the new middle class. The new jobs paid well enough to compensate for the dislocation of the prior automation. The economy took a step upwards.
Mind you the entire process of absorption took a full one hundred years if we go back and start the clock running at the start of industrialization. Not only this: along the way there were enormous political and social changes that made the end result — a generally higher level of prosperity — possible. This brighter future was not, contrary to the sunny arguments of the libertarian economists, a result of the magic of the marketplace, but was, rather, the result of generations of activism and social protest that eventually put in place truly democratic institutions to mitigate that more dire consequences of capitalism. It is no accident that modern democracy is a much newer arrival on the scene than is modern capitalism.
The advent of a new age of machines enabled the launching of what we know as modern capitalism. And its first notable consequence was to benefit a rise in returns on capital. It was this early history of industrialization that Kuznets so famously captured in his eponymous curve. But since Kuznets we have observed an enormous shift backwards. Not only has inequality risen to near historic levels, but there has been a decided bias towards returns to capital once more.
Here’s the issue: the service sector covers a very wide range of activities, from those remaining laundry washers to brain surgeons. Along the way it includes the hairdressers and bartenders that the Deloitte study highlights. It also includes the engineers, designers, and sundry bloggers…The problem is that many of theses jobs produce lower income than the manufacturing or industrial jobs being displaced by automation. So the new history is radically different from the older history.
Whereas the old displacement eventually created a more prosperous and plentiful middle class, this new displacement may not. Indeed if we take the studies of people like David Autor and his co-authors at MIT seriously, it certainly will not. At least any time soon. Worse as the pace of innovation accelerates automation seems to be working its way up the income scale. Not only are traditional blue collar jobs being automated, but many previously secure white collar jobs are going under also. The result is that we are experiencing a huge bifurcation in society unlike that of the last wave of automation. That last wave consolidated society around a fairly prosperous median. This wave is dividing society into two very different levels. The bulk of people are finding themselves compressed between stagnant wages and rising costs, with automation a major factor in the wage compression. Whilst, at the same time, a much smaller group benefit from the wages flowing to their skills.
Automation and History (Real World Economic Review)
Clearly our current economic model is failing. What will replace it?
Karl Marx apparently thought that there were only two options available after the breakdown of capitalism: forward to socialism or backwards to barbarism. After reviewing the above, I’m inclined to agree. I would label these two futures as:
1.) Post Capitalism
What would postcapitalism look like? Well, it might look a lot like what Paul Mason has written about in his book of the same name. Postcapitalism is not socialism, but it has certain socialistic aspects.
Mason looks at the inequality and unemployment situation. He also agrees that changes in technology call for a transformation of the economy, but he argues that the natural changes that should come about are being suppressed.
Mason argues that capitalism goes through Kondratieff waves of approximately fifty years, during which new inventions bring forth changes in the system. He argues that the needed changes right now are being suppressed and stagnated to maintain the status quo.
- 1790-1848: the factory system, steam and canals. Turning point the late 1820s depression. Collapse with the 1848-51 revolutions in Europe, Mexican War and Missouri compromise.
- 1848-mid-1890s: railways, the telegraph, steamers, stable currencies. Peaked in the mid-1870s with financial crises leading to the Long Depression of 1873-96.
- 1890s-1945: electrical engineering, the telephone, scientific management and mass production. Turning point at the end of the First World War, ending with the Great Depression.
- Late 1940s-2008: transistors, synthetics, factory automation, nuclear power and automatic calculation. Peaked with the 1973 oil shock, followed by extended instability but no major depression.
- In the late 1990s, overlapping the previous cycle, the initial elements of the fifth wave appear: the internet, mobile phones and information goods.
But it has stalled. And the reason it has stalled has something to do with Neoliberalism and something to do with the technology itself.
Mason argues that the fundamental shift to information technologies:
Postcapitalism is possible because of three major changes information technology has brought about in the past 25 years. First, it has reduced the need for work, blurred the edges between work and free time and loosened the relationship between work and wages. The coming wave of automation, currently stalled because our social infrastructure cannot bear the consequences, will hugely diminish the amount of work needed – not just to subsist but to provide a decent life for all.
Second, information is corroding the market’s ability to form prices correctly. That is because markets are based on scarcity while information is abundant. The system’s defence mechanism is to form monopolies – the giant tech companies – on a scale not seen in the past 200 years, yet they cannot last. By building business models and share valuations based on the capture and privatisation of all socially produced information, such firms are constructing a fragile corporate edifice at odds with the most basic need of humanity, which is to use ideas freely.
Third, we’re seeing the spontaneous rise of collaborative production: goods, services and organisations are appearing that no longer respond to the dictates of the market and the managerial hierarchy. The biggest information product in the world – Wikipedia – is made by volunteers for free, abolishing the encyclopedia business and depriving the advertising industry of an estimated $3bn a year in revenue.
Almost unnoticed, in the niches and hollows of the market system, whole swaths of economic life are beginning to move to a different rhythm. Parallel currencies, time banks, cooperatives and self-managed spaces have proliferated, barely noticed by the economics profession, and often as a direct result of the shattering of the old structures in the post-2008 crisis.
And he argues that Neoliberalism is way of holding back change:
Neoliberalism…has morphed into a system programmed to inflict recurrent catastrophic failures. Worse than that, it has broken the 200-year pattern of industrial capitalism wherein an economic crisis spurs new forms of technological innovation that benefit everybody.
That is because neoliberalism was the first economic model in 200 years the upswing of which was premised on the suppression of wages and smashing the social power and resilience of the working class. If we review the take-off periods studied by long-cycle theorists – the 1850s in Europe, the 1900s and 1950s across the globe – it was the strength of organised labour that forced entrepreneurs and corporations to stop trying to revive outdated business models through wage cuts, and to innovate their way to a new form of capitalism.
The result is that, in each upswing, we find a synthesis of automation, higher wages and higher-value consumption. Today there is no pressure from the workforce, and the technology at the centre of this innovation wave does not demand the creation of higher-consumer spending, or the re‑employment of the old workforce in new jobs. Information is a machine for grinding the price of things lower and slashing the work time needed to support life on the planet.
As a result, large parts of the business class have become neo-luddites. Faced with the possibility of creating gene-sequencing labs, they instead start coffee shops, nail bars and contract cleaning firms: the banking system, the planning system and late neoliberal culture reward above all the creator of low-value, long-hours jobs.
The end of capitalism has begun (Guardian)
This article makes a similar point, our addiction to capitalism, our insistence that private ownership is good, social ownership is bad, everyone must work to live, and let the market decide, are actually holding back progress. We’re creating work for it’s own sake, and hobbling true innovation to preserve the status quo:
Here lies the greatest obstacle to human progress — the longstanding connection between work and income. As long as everything is owned and the only way to obtain access to that which is owned is through money, and the only way to obtain money is to be born with it or through doing the bidding of someone who owns enough to do the ordering around — what humans call a “job” — then jobs can’t be eliminated. As a worker, any attempt to eliminate jobs must be fought and as a business owner, the elimination of jobs must involve walking a fine line between greater efficiency and public outcry. The elimination of vast swathes of jobs must be avoided unless seen as absolutely necessary so as to avoid angering too many people who may also be customers.
…Google wants to advance technology but at the same time, it doesn’t want to answer the questions those advancements will raise. This appears to be a clear example of a major obstacle for human progress. It’s the same likely reason companies like McDonald’s haven’t dived in with both feet to greatly automate their operations and vastly reduce their labor forces. The technology exists, but they aren’t doing it. Why?
Perhaps it’s because as long as people need jobs as their sole source of income, companies have the potential of stepping onto a public relations landmine by automating their jobs out of existence, or being seen as responsible for others doing so. Eliminating jobs also means not only cutting employees, but demand itself.
Putting humans out of work should be a public relations win, not a loss, and so mankind needs to make sure no one left without a job, for any amount of time, is ever unable to meet their most basic needs. Everyone needs a non-negotiable guarantee of income security, so that the elimination of jobs breeds not fear, but excitement. The loss of a job should be seen as an opportunity for new real choices. And so some amount of basic income should be guaranteed to everyone — universally — as a starting point upon which all can earn additional income.
Humanity Needs Universal Basic Income in Order to Stop Impeding Progress (Huffington Post)
What does barbarism look like? Well, pretty much like today.
Is there any doubt that we live under increasing barbarism? Inner-city ghettos. Shuttered factories. Abandoned small towns. Opiate addiction. Social dysfunction. Child poverty. Mass shootings. Lowered rural life expectancies. Medical debt. Permanent wars in the Middle East. Terrorist attacks. Suspension of civil liberties. Militarized police. Mass surveillance. Austerity in Europe. Bailouts. Mass unemployment. Overcrowded prisons. For-profit prisons. Tent cities. Police shakedowns. Criminalization of poverty. Debtors prisons. Offshore tax havens. Empty apartments as safe deposit boxes for absentee wealthy in major cities while ordinary workers are priced out.The race to the bottom. Four hundred Americans having as much wealth as half the workforce. Sixty-five people owning as much as the world’s poorest 3.5 billion people. And a complaint media that tells us to ignore all of it – things have never been better!
I’ve called this concept Neofeudalism. This is the alternative, where a tiny slice of people own everything, and the rest of us are rendered largely redundant in the economic order and left to fend for ourselves. The strategy boils down to this: transfer the rest of ownership of everything important to the aristocrats/oligarchs. This has been the historic norm for thousands of years, and it’s time tested and proven. Almost everyone is poor and has no important prospects or say in society. Recall Cullen Murphy’s definition of Feudalism: “a dispersal of political authority amongst a hierarchy of persons who exercise in their own interest powers normally attributed to the state.” He adds:
My worry now is that we’re moving away from this great sense of government as a public calling—if you’re thinking benignly, in the interest of efficiency, or if you’re thinking malignly, in the interest of greed—and toward something very different, something market driven. In the end it amounts to getting the government that you pay for. Not just that you’ve paid for as a people, but that you’ve paid for as individuals. It’s happening all around us, usually in the guise of some deal that’s just too good to walk away from, and it’s happening in virtually every sector of public endeavor. Even if one can make the case that privatization makes sense in this instance or that instance—or even in every instance—the effect over time is going to be that there’s no government left, that all power of one sort or another is in private hands. Ultimately the result is to bring back feudalism. And we’re well on the way to it.
In this interview with Michael Hudson, he makes a similar point:
Michael Hudson: “Well, try reading books about how England was in the thirteenth century. We’re moving, essentially, [to] Neofeudalism to make a long story short. People are going to find that instead of free government services as before, now they have to pay for them. And if they pay for these essential services–and most public services are essential, that’s why they’re in the public sector to begin with; to keep them out of the hands of monopolies—now all of the sudden the public services that were provided on a subsidized basis or freely are going to be privatized without any price regulation for it, and all of the sudden people are going to have to pay market prices that include interest charges, Wall Street underwriting charges, the cost of dividends, exorbitant management fees, bonuses for management, political contributions, buying off judges, buying off the courts, buying off the politicians to make sure that the people are not able to stop your gouging them. That’s how the system is developing.”
And Paul Craig Roberts says that We Have Entered The Looting Stage Of Capitalism (actually, we entered it back in the 1980’s in the West, and the 1970’s in Latin America):
The banks don’t want Greece to be able to service its debt, because the banks intend to use Greece’s inability to service the debt in order to loot Greece of its assets and resources and in order to roll back the social safety net put in place during the 20th century. Neoliberalism intends to reestablish feudalism—a few robber barons and many serfs: the One Percent and the 99 percent.
The way Germany sees it, the IMF is supposed to lend Greece the money with which to repay the private German banks. Then the IMF is to be repaid by forcing Greece to reduce or abolish old age pensions, reduce public services and employment, and use the revenues saved to repay the IMF.
As these amounts will be insufficient, additional austerity measures are imposed that require Greece to sell its national assets, such as public water companies and ports and protected Greek islands to foreign investors, principally the banks themselves or their major clients.
So far the so-called “creditors” have only pledged to some form of debt relief, not yet decided, beginning in 2 years. By then the younger part of the Greek population will have emigrated and will have been replaced by immigrants fleeing Washington’s Middle Eastern and African wars who will have loaded up Greece’s unfunded welfare system.
In other words, Greece is being destroyed by the EU that it so foolishly joined and trusted. The same thing is happening to Portugal and is also underway in Spain and Italy. The looting has already devoured Ireland and Latvia (and a number of Latin American countries) and is underway in Ukraine.
We’re already seeing the fallout: Dynastic wealth being essential for a decent life. No class mobility. Poverty. People consigned to a huge “precariat” and “unecessariat.” School-to-prison pipelines. Militarized police forces. Eliminationism. It’s what we’re seeing right now in inner-cities, the Rust Belt, and Appalachia. Even non-poisoned water is a luxury while the elite retreat to cities and gated communities, and much of the country is transformed into an open-air prison, where desperation drives people to addiction, murder and suicide.
A society that condemns huge swaths of its members to penury is a failed society. A society where all the benefits of labor accrue to a tiny elite while things get harsher for the majority is a failed society.
A comment to this Marginal Revolution article about people not moving around like economic flotsam to seek “opportunity” made this salient point:
If a permanent feature of your civilization is that a large fraction of the population must leave their communities, families, etc. in order to have a chance at the basics of life, a family, home, some measure of security, it is evidence that YOUR CIVILIZATION DOESN’T WORK!
A lot of people have looked at increasing rates of automation and unemployment/underemployment and seen that, barring a change, this is where we’re headed. The ones not affected, such as engineers and other assorted STEM graduates, will adopt a “first they came for…” mentality, as they currently have, until it is far enough along, and by then no one will be left to be able to speak out for them.
So I believe we’re at a turning point, similar to the fall of Rome and the end of feudalism. Like then, we face a collective choice: break through to the new and better system which provides technological sophistication, lowered work hours, more leisure time, self actualization, and more democracy; or the alternative leading to social unrest, lower living standards, reactionary politics, desperation, authoritarianism, and environmental collapse.
Marx believed that a socialist society could only be realized out of the superabundance created by capitalism. The superabundance would bring about contradictions that would bring about its own demise. That’s exactly what we’re seeing. It is the the abundance of capitalism that is causing its demise. Automation naturally leads to the logical conclusion that the means of production should be collectively owned, rather than owned by a small circle of elites while the rest of humanity is excluded from meaningful participating in the economy.
In any case, the last time a change of this magnitude, i.e. a civilizational shift, occurred in the West was during the fourteenth and fifteenth centuries, during which time the medieval world began to come apart and be replaced by the modern one. In his classic study of the period, The Waning of the Middle Ages, the Dutch historian Johan Huizinga depicted the time as one of depression and cultural exhaustion—like our own age, not much fun to live through. One reason for this is that the world was literally perched over an abyss, something that emerges very clearly at the end of The Tempest, by Shakespeare, written as late as 1610. What lay ahead was largely unknown, and to have to hover over an abyss for a long time is, to put it mildly, a bit of a drag. The same thing was true of the collapse of the Roman Empire, on the ruins of which the feudal system slowly arose. It is also true of our situation today, which is why the “solutions” proposed by political figures are little more than bad jokes. These people have no vision because they can’t grasp what is happening, and therefore what is required.
So it seems we will either break through to postcapitalsm the way capitalism emerged from feudalism – a resource based society, with a much more equitable distribution, worker ownership, peer-to-peer transactions, participatory economics, much less work/worksharing, non-carbonized fuel sources, and a steady state economy centered around wellness.
Or, we will fail to make a transition clinging desperately to the old system as the living standards for the majority of the world’s workers converge at a third-world poverty level while individual people control more wealth than nation-states and distribute it by whim. Where hollow states exist solely to protect wealthy interests, including a digital panopticon enforcing the status-quo, while the former middle-class is left to fend for itself in violence-wracked economic dead zones. Where the absentee owners live in seasteads and vacation in outer space while formerly-prosperous citizens live in tent cities, shantytowns, or overcrowded prisons.
The choice is ours. I’m not optimistic, although the rising tide of opposition to Neoliberalism around the world (whether voters recognize it as such or not) indicates that the future is still in flux. Marx famously said that history repeats itself, first as tragedy then as farce. Can there be any better confirmation of this than the Donald Trump candidacy?