I hope you enjoyed the summary of the Great Transformation. We’re now seeing the Double Movement taking place around the world as globalization hollows out communities and even entire nations, bestowing its benefits to an ever-shrinking oligarchy who, as we learned last week, are buying up millions of acres of remote property and nuclear-hardened bunkers all over the world to retreat to when it all falls apart (if they’re not eyeing up offshore Seasteads or rockets to Mars, that is), while leaving the rest of us to our own devices. Much of the world has turned into the itinerant laborers, the “masterless men,” whom Polanyi wrote about as the human toll from the imposition of labor markets and the destruction of local economies. Except now those laborers migrate not within their own country seeking paid employment, but disperse en masse across the globe, inundating already stressed communities with millions of desperate refugees.
It is the inevitable consequence of a world run by markets.
Meanwhile, the world spirals into chaos. Syria and Yemen have already collapsed; much of the Middle East and North Africa are failed states, from Algeria to Pakistan; Europe struggles under the burden of austerity, and America and Russia have devolved into a banana-republic-style authoritarian kleptocracies. Many of the so-called “successful” Asian industrial nations have air that is literally unbreathable by humans, and small oceanic countries are on the verge of being swallowed up by the waves.
And yet we’re constantly told by journalists and the media that we’ve never had it better!
This article from the BBC highlights the ongoing rush of the problem, and suggests that it’s only going to get far, far worse as long as we let “The Economy” be the only guiding force for society, and let the chips fall where they may:
In the US, voter anger with globalisation may have led to Donald Trump’s election victory, but those who voted for him could be disappointed as his aim of bringing back jobs is unlikely to work, says Prof [Richard] Baldwin… Protectionist trade barriers won’t work in the 21st Century, he says. “Knowledge crossing borders in massive amounts [is the] big new disruptive thing.” It’s going to help people in Africa and Asia compete more effectively with people in the West, as communication advances mean workers in the developing world will be able to control robots to do jobs in Europe and the US at lower cost, he says.
Developing world labour costs can be a tenth of what they are in the West, says Prof Baldwin. “They can’t get here to take the jobs but technology will soon allow virtual migration, thanks to telerobotics and telepresence.” Ever-faster internet speeds becoming globally more widely available, coupled with the rapidly falling prices of robots will allow workers, for example in the Philippines or China, to remotely provide services to a country like the UK – where the sector accounts for about 80% of the economy…”All you need is more computing power, more transmitting power and cheaper robots – and all that is happening.”
In the 19th Century, the first wave of the industrial revolution triggered an upsurge in global trade. Steam power, the end of the Napoleonic wars and the subsequent era of peace cut the costs of moving goods internationally. Global wealth became increasingly concentrated among just a few nations; the G7 group – the US, Germany, Japan, France, the UK, Canada and Italy – saw their share of the world’s wealth rise significantly.
But from the 1990s a second wave of globalisation kicked in, with the rise of information and communications technology. There’s been a dramatic change of gear, and “a century’s worth of rich nations’ rise has been reversed in just two decades,” says Prof Baldwin. Old-style globalisation “worked on a calendar that ticked year by year” whereas the current wave of globalisation is being driven by IT which is changing and disrupting economies and societies with increasing rapidity…
The double movement is particularly strong in nations where the working classes have been thrown under the bus, and which have a harsh, bitter, “work or starve” culture, especially the Anglo-Saxon countries like the UK and the US. In addition, these countries had also instituted a de-facto “open borders” policy over the past few decades in order to drive down domestic wages in the unprotected service sector (while preserving protections for the credentialed professions). Other countries with less of a knee-jerk fear of “socialism” did not have quite the same results, as the benefits of globalization were more widely distributed instead of partitioning society into lords and serfs, for example, Germany and Japan.
In America, by contrast, it’s every man for himself, and anyone who is not immediately useful to the corporate bottom line is castigated as a “taker/scrounger/waster/useless eater/water drinker/parasite, etc.” and the best thing they can do for society, the thinking goes, is to die off as quickly as possible (which is implicitly encouraged through U.S. government policy, for example, tying health care to employment, and abundant, readily available opiates and firearms).
In other words, in the language of Peter Frase’s “Four Futures”, some cultures have slowly inched closer to egalitarianism and abundance, while the Anglo-Saxon nations have enthusiastically embraced Rentism and Eliminationism (with the latter unstated policy in the U.S.). Is it any wonder, then, why the politics in the Anglo-Saxon countries is so acrimonious so as to threaten democracy itself?
All of this has created a backlash, especially in developed economies, as many voters say they are losing out or seeing little of the benefits that globalisation supposedly brings. Prof Baldwin says protectionist policies, such as those of Donald Trump, are ultimately counterproductive. If firms become inefficient by being forced to move jobs back to the US, then ultimately they will lose their business to international competitors.”People are so angry they are doing things that are not in their own interest. Cures are being sold which are not related to the problem.”
He points out that the backlash is not the same in every single country. It often depends on how governments deal with workers who may be displaced by technology. “For instance, in Japan they take care of their workers, and there really isn’t an anti-globalisation feeling there,” he says – unlike in the UK and the US. As a consequence, even businesses that are benefiting from greater automation are increasingly sensitive about the potentially negative social and political consequences.
John Robb, too, points out that America uniquely decided that brunt of globalism would be exclusively borne by its poor and middle classes, with no protection whatsoever, and that this was always a policy choice by American elites:
Unfettered access to US markets (the most valuable in the world) led to twenty plus years of rapid economic globalization that lifted billions of people out of poverty and made many countries rich. However, neoliberalism ..destroyed the only engine of prosperity and political stability in the US, the US middle class. It did this through:
Asymmetric competition. The US was, and still is, the only major nation in the world to fully embrace neoliberalism. Every other country or economic bloc, from China to the EU, has barriers in place to rig the market to create or protect good jobs at home (think: Germany, China, South Korea, Japan…). These barriers work and incomes in these countries has zoomed while US incomes stagnated.
The Neoliberal Trade (jobs out, wealth in). For decades, the US traded millions of good jobs in manufacturing and services for tens of thousands of amazing jobs on Wall Street (NY) and Silicon Valley (CA). This inflow of wealth at the topline created a sense of prosperity even though the median income and the quality of life of the middle class collapsed.
Non-cooperative elites. It didn’t take long before the power and the wealth of the elites benefiting from unfettered globalization became immense. In fact, these US neoliberal elites became so powerful, they were able to completely opt out of the US system of taxation — none of the elites, from Apple to Google to Wall Street banks/funds to the wealthiest American citizens pay taxes. With most of the wealth generated by the US immune to taxation, the US government quickly became a bankruptcy in progress ($20 trillion in debt and growing fast). Worse, this perpetual fiscal crisis eliminated any chance that government services (like in health care, retirement, etc. proposed by Bernie Sanders) could be formulated to cushion the damage done by neoliberal economics.
Trump’s Rollback of the Neoliberal Market State (Global Guerrillas)
Robb points out that as the U.S. middle class was hollowed out as a matter of public policy, in it’s place came the empowerment of the lone individual through what he calls cultural neoliberalism—what most people associate with so-called “political correctness” and “identity politics.”
The effects of neoliberalism put US political elites in a bind. Neoliberalism made it impossible for the US, as it had for two centuries, to grow the middle class economically anymore. The US economy didn’t provide good jobs to the middle class anymore due to the neoliberal trade and it didn’t have the funds to cushion the loss of income with services due to the tax avoidance of non-cooperative US elites. So, it decided to double down on neoliberal ideology by applying it to US cultural identity. Cultural neoliberalism now became the primary political good of the state…By making this shift it became …a market state. A market state, in contrast to the nation-state’s focus on broad economic prosperity and cultural integration, focuses on providing opportunity to the individual.
This “Market State” is exactly what Polanyi feared, and Cultural Neoliberalism eroded cultural capital by giving rise to the strident “politically correct” culture and quasi-Maoist thought policing that the alt-right takes an almost fetishistic delight in reacting against (another sort of “double movement”).
…the rise of the neoliberal market-state didn’t actually solve the internal contradiction of the neoliberal economics…barrier free trade allows a few people to take everything at the expense of everyone else. Like its economic cousin, cultural neoliberalism only benefited a minority of Americans (particularly those already benefiting from economic neoliberalism in NY and CA) while offering nothing but increasingly acrimonious identity politics to the majority. All of this might have continued indefinitely, but for the financial crisis of 2008. That crisis set in motion a deep unrest..that powers Trump’s socially networked insurgency…that is now actively dismantling the neoliberal market state…
So, as Robb describes, Trump is indeed a “double movement” in reaction to Neoliberalism, exactly as Polanyi predicted would happen. Of course the economic priesthood–militant adherents to the “liberal creed”–are howling like stuck pigs at the pushback against their cherished doctrines.
Karl Polanyi had much to say about the Market’s deleterious effects on labor and society back in the 1940’s. The idea that labor is just another commodity like any other to be allocated via impersonal markets in which the state must never “interfere” (even while the state aggressively protects property rights through extensive spying and jailing) is perhaps the most destructive idea currently pushing the world to the brink of apocalypse.
To allow the market mechanism to be sole director of the fate of human beings and their natural environment indeed, even of the amount and use of purchasing power, would result in the demolition of society. For the alleged commodity “labor power” cannot be shoved about, used indiscriminately, or even left unused, without affecting also the human individual who happens to be the bearer of this peculiar commodity.
In disposing of a man’s labor power the system would, incidentally, dispose of the physical, psychological, and moral entity “man” attached to that tag. Robbed of the protective covering of cultural institutions, human beings would perish from the effects of social exposure; they would die as the victims of acute social dislocation through vice, perversion, crime, and starvation. Nature would be reduced to its elements, neighborhoods and landscapes defiled, rivers polluted, military safety jeopardized, the power to produce food and raw materials destroyed.
Finally, the market administration of purchasing power would periodically liquidate business enterprise, for shortages and surfeits of money would prove as disastrous to business as floods and droughts in primitive society. Undoubtedly, labor, land, and money markets are essential to a market economy. But no society could stand the effects of such a system of crude fictions even for the shortest stretch of time unless its human and natural substance as well as its business organization was protected against the ravages of this satanic mill.
…the market for the factor of production known as labor power…could serve its purpose only if wages fell together with prices. In human terms such a postulate implied for the worker extreme instability of earnings, utter absence of professional standards, abject readiness to be shoved and pushed about indiscriminately, complete dependence on the whims of the market. Mises justly argued that if workers “did not act as trade unionists, but reduced their demands and changed their locations and occupations according to the requirements of the labour market, they could eventually find work.” This sums up the position under a system based on the postulate of the commodity character of labor. It is not for the commodity to decide where it should be offered for sale, to what purpose it should be used, at what price it should be allowed to change hands, and in what manner it should be consumed or destroyed.
Here’s a good quote from a more recent thinker:
The 19th and 20th century experience of liberalism has shown us that we can’t conceive of society similarly to the market. We have to start thinking differently or we will fall for the first demagogue that comes along. The state has to be responsive to the weakest sections, which is not how the market works. We need a new social compact of social welfarist democracies. It is politically catastrophic to have huge concentrations of wealth with miserable conditions for large sections of society.
This excellent article by Charles High Smith makes a point very similar to the Great Transformation: What Would a Labor-Centered Economy Look Like? (Of Two Minds). He points out that capital only acquires value in a healthy society. It is not an intrinsic property of nature like mass or length. In order to acquire value in markets, capital must be sustained by all sorts of extra-market forces which comprise a healthy society, from social trust to shared institutions. But such things cannot exist in a “pure” market society envisioned by libertarians and Neoliberals; everything must be for sale in markets! It is self contradictory, and a recipe for collapse.
Smith describes many different types of capital. First there is the obvious – tangible items such as land, raw materials, manufactured goods, plants, factories, buildings, crops, and so forth. There is also the financial capital brought about through systems of money, credit and banking. Market liberals typically deal deal only with these. But there are other forms of “capital” that are even more important.
There is also human capital, that is, the know-how to utilize the raw materials effectively. After all, the market is not just goods, but services and inventions made possible through collective human knowledge and accumulated experience. The social connections and shared trust between people that allows any economic exchange to take place is social capital. The prior investments in infrastructure needed to mobilize resources—roads, bridges, canals, ports, dams, the electric grid, natural gas pipelines, broadband and cellular services, etc.—is infrastructure capital. This, too, is necessary; many countries without this form of capital cannot utilize their resources effectively which is one reason why third-world agriculture is so much much less productive than our own. This type of capital is not a product of “rugged individualists,” it is a collective project of a healthy, functioning society.
Conceptual underpinnings, such a standard money measurement (and even other forms of measurement such as the metric system, time zones, voltage, etc.), credit systems, legal and justice systems, corporate charters, and the like, are symbolic capital. The network of scientific journals and research institutions can be seen as a form of symbolic capital, for example, and one which has dramatically contributed to human well-being. Yet these things are intangible and not owned or controlled by any one person or corporation. No single person can “invent” a dollar or a kilometer, since it can only acquire value in a society, yet such things are essential for an advanced economy to function.
Finally, there is cultural capital. As Smith describes, “This is the network of trust and productive values that enable all the other kinds of capital to blossom and work together in a mutually beneficial system. A tool or factory or plot of land does not come with cultural capital. Tools without any cultural capital are left to rust.”
Smith’s crucial argument is that all of these forms of capital are required for the capital studied by economists to acquire value! Yet, many of these forms of capital exist “outside” the market – they cannot be owned or controlled by any single individual or corporation. And many such extra-market activities are not profitable by their very nature! No one has children for profit, for example. Yet a “pure” market society cannibalizes and undermines all these other forms of capital, meaning that it is self-liquidating, exactly as Polanyi described:
…the first thing we notice about cultural capital is that it resides in people, not credit or tools or even knowledge. Yes, this is a shocking development: people are required for capital to become productive…We call human effort labor…
The problem with that is most of human life and activity is unprofitable. How about beautifying your neighborhood? Have you noticed that impoverished neighborhoods tend to be ugly and run-down, and wealthy neighborhoods tend to be attractive and well-maintained? Where’s the profit in creating neighborhood beauty?
Is Google making billions of dollars from beautifying neighborhoods? How about McDonalds, or Amazon, or Apple or Netflix? If it was really profitable, wouldn’t these global corporations be all over it?
It turns out profits only flow from very specific kinds of things and services. The rest of human life has to be done by people who aren’t doing the work to maximize profit, because there is no profit in the work they’re performing…
Remember: new idea = symbolic capital that enables all the other forms of capital to work together more productively.
What Would a Labor-Centered Economy Look Like? (Of two Minds)
The point is clear: an environment in which profits can be made cannot be separated from a healthy society. When societies break down, when the governments libertarians despise with such vehemence are throttled back, profits do not soar, but wither and die. Social trust breaks down, people separate into warring camps, agreed upon standards such as a common currency disappear, cultural institutions such as legal systems break down, symbolic capital like credit and scientific inquiry fall apart, and crime becomes rampant. It becomes rule by the powerful—so-called gangster states (such as post-collapse Russia or Somalia). All these “unprofitable” activities and institutions make profits possible, and yet they are not owned or sustained by any one person! This is why all previous societies before the rise of our own American Ayn Rand-infused libertarianism have understood as self-evident the duty of the rich and powerful to maintain a healthy society through some level noblesse oblige. However, the new, modern conception of the Market is basically unalloyed Social Darwinism—quite literally Hobbes’ “war of all against all.”
Neoliberalism, in seeing housing, people, and even political offices, as simply commodities to be bought and sold in “free” markets, is causing society to fall apart. It is no surprise, then, that even growth and profits have been much lower under this system than under the more “embedded” economies of the immediate post-war period, which delivered more growth, equality, and political stability.
Smith goes on to describe the money-creation pyramid through which financial capital is injected into society. Money is typically described by economists as a neutral medium of exchange, a simple convenience to barter–of no consequence to the “natural” laws of economics. Smith demonstrates how false this is. Instead, it is a rigged system that redistributes society’s wealth to a small rentier oligarchy through supposedly impersonal market relations:
…if you give me $1 billion at .01% annual interest, I am instantly wealthy because I can buy assets yielding 3% and keep the 2.99% I earn for myself. In our credit-cartel-state form of capitalism, money is borrowed into existence at the top of the wealth-power pyramid, in central and private banks. Some modest amount of this new money trickles down the pyramid, but as you can see, not very much trickles down to all the people doing all the work that isn’t profitable, or to all the people without access to the nearly-free-money that’s available to those at the very top of the pyramid.
Now we know that instead of “trickling down” to the bombed-out Bantustans and rusting Magnetogorsks of the Heartland, that money goes to procure 400,000 acres of prime New Zealand real estate and escape helicopters complete with full-time, on-staff pilots. How long before even Republicans and libertarians get wise to the con? Indeed, as the Wall Street Journal reports, corporations are doing everything in their power to create as few new jobs as possible!
Never before have American companies tried so hard to employ so few people. The outsourcing wave that moved apparel-making jobs to China and call-center operations to India is now just as likely to happen inside companies across the U.S. and in almost every industry.
The men and women who unload shipping containers at Wal-Mart Stores Inc. warehouses are provided by trucking company Schneider National Inc.’s logistics operation, which in turn subcontracts with temporary-staffing agencies. Pfizer Inc. used contractors to perform the majority of its clinical drug trials last year….
The shift is radically altering what it means to be a company and a worker. More flexibility for companies to shrink the size of their employee base, pay and benefits means less job security for workers. Rising from the mailroom to a corner office is harder now that outsourced jobs are no longer part of the workforce from which star performers are promoted…
For workers, the changes often lead to lower pay and make it surprisingly hard to answer the simple question “Where do you work?” Some economists say the parallel workforce created by the rise of contracting is helping to fuel income inequality between people who do the same jobs.
“The End of Employees” (Naked Capitalism)
Combine this with the BBC article above, and we clearly see that society is coming apart.
Fearing some catastrophe – particularly since the election of Donald Trump – increasing numbers of the wealthy have been buying boltholes in places such as New Zealand, where they hope they might escape any disaster. But the evidence shows that greater equality makes societies more resilient and adaptable, better able to deal with shocks and uncertainty. That was why Britain’s leaders reduced inequalities in both world wars. They wanted to make people feel the burden of war was fairly shared and gain their participation in the war effort. As we face the threats of climate change and growing political and international uncertainty, reducing inequality becomes a necessity.
Studies have shown that people in more equal societies are more willing to help each other, trust each other, and to take part in community life. The evidence also suggests that they are less out for themselves and more responsive to the common good. But with rising inequality all that fades: trust and community life decline and violence increases. And in some of the most unequal countries, such as Mexico and South Africa, you find that people fear each other. Windows and doors are barred, and garden walls are topped with razor wire or electric fences. Studies of the rich democracies show that higher inequality leads to a higher proportion of the labour force working as security staff or in the police or prisons – occupations needed to protect ourselves from each other.
Smith proposes injecting wealth at the bottom of the pyramid instead of the top:
So here’s a new idea: why not create new money at the bottom of the pyramid when people perform useful work in their communities? How about paying people for being producers, rather than paying them to be consumers…what would a labor-centered economy look like?
1. New money would be created at the bottom of the pyramid, in the accounts of people doing useful work in their communities. (The usual global corporations would continue making billions of dollars in profits from doing whatever highly profitable work was available.)
2. Being productive in terms of creating and sustaining cultural and infrastructure capital would be compensated; consumption of corporate goods and services would take care of itself without subsidies like guaranteed basic income.
3. Labor would be paid for being productive, and capital would serve labor.
I’m not sure I understand the mechanism he proposes–he mentions something about cryptocurrencies? To me, it seems that what this calls for something like the Job Guarantee we talked about a few posts ago, but perhaps Smith’s libertarian distaste for government is stopping him from proposing this idea.
In any case, clearly something must be done. The status quo is unsustainable. Yet, to date, I don’t see any real solutions inside the Overton Window. The current administration’s plan seems to be the ad-hoc elimination of taxes for selected large corporations in a quid-pro-quo exchange for preserving or expanding domestic employment. I doubt such an approach will deliver much success, especially with increasing automation and telecommunications as described above. Then what?