by
Diane Coyle
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It is widely known now, as it was not before 2008, that the financial markets were characterized not just by irrational exuberance but also by widespread fraud, deception (including self-deception), and market manipulation. Not to mention in the financial and corporate worlds alike a loss of ethical moorings, resulting in distasteful manifestations of greed. Even now, most members of the financial and business elite do not seem to have appreciated the extent to which they entered a separate moral universe; many seem to feel aggrieved, perceiving themselves to be unfairly scapegoated when it comes to assigning blame for the financial and economic crisis. This, too, is part of the arrogance, this belief that there were a few bad apples but nothing systemic had gone wrong in the way the financial industry and big businesses were being run.
So, in a classic tragedy, arrogance leads to folly. The follies have been many. The payment of multimillion-dollar and -pound remuneration packages by the elite to itself (all remuneration committees being filled with the same kind of people). The creation of toxic financial instruments that multiplied and focused risks. The self-delusions and inadequacies of regulatory bodies that grew too close to those people nd businesses they were supposed to be regulating. Above all the loss of perspective about the purpose of business, which is not at all the maximization of short-term profit or even shareholder value, but rather delivering goods and services, to customers (in ways they might not even know they want), in a mutually beneficial transaction. Profit and share price increases are a side effect, not a goal.
a pretty decent characterization of the financial crisis (probably the best moment in the entire book)
[...] This translates directly into higher labor productivity and--eventually, and if workers acquire the necessary skills, and society develops the necessary tools for managing income distribution--higher wages. Mechanization or robotization is not new and unusual, no matter how clever and impressive the robots are. They are just the latest generation of capital investment, and it benefits workers to have more capital enhancing what they can do. Eventually, productive investment drives long-run economic growth and the higher incomes that come with that; how the incomes are shared is a social and political challenge. It is, in the long run, a good thing that machines or robots take over activities they can do, freeing humans for the things only they can do. This makes work much more intrinsically rewarding for very many people.
I don't think, however, that we understand how to think about what increasing productivity means, or how its benefits will be shared, when there is no "product." Increased income inequality has accompanied the productivity increases linked to digital technologies, indicating that the gains have not been all that widely shared so far. This accounts for the confusing debate under way among economists about the implications for jobs and incomes, including income distribution, of the current wave of capital investment in digital equipment and machines.
[...] It is not possible to redistribute incomes unless the economic pie is growing. Democracy itself is more fragile when growth halts. [...]
FLAG - check out footnote 21
also, I don't agree with the first sentence, and need to be convinced that the second sentence is "natural" and not just the result of an unnaturally growth-oriented craze
Although educational credential inflation expands on false premises—the ideology that more education will produce more equality of opportunity, more high-tech economic performance, and more good jobs—it does provide some degree of solution to technological displacement of the middle class. Educational credential inflation helps absorb surplus labor by keeping more people out of the labor force; and if students receive a financial subsidy, either directly or in the form of low-cost (and ultimately unrepaid) loans, it acts as hidden transfer payments. In places where the welfare state is ideologically unpopular, the mythology of education supports a hidden welfare state. Add the millions of teachers in elementary, secondary, and higher education, and their administrative staffs, and the hidden Keynesianism of educational inflation may be said to virtually keep the capitalist economy afloat.
As long as the educational system can be somehow financed, it operates as hidden Keynesianism: a hidden form of transfer payments and pump-priming, the equivalent of New Deal make-work setting the unemployed to painting murals in post offices or planting trees in conservation camps, Educational expansion is virtually the only legitimately accepted form of Keynesian economic policy, because it is not overtly recognized as such. It expands under the banner of high technology and meritocracy—it is the technology that requires a more educated labor force. In a roundabout sense this is true: it is the technological displacement of labor that makes school a place of refuge from the shrinking job pool, although no one wants to recognize the fact. No matter—as long as the number of those displaced is shunted into an equal number of those expanding the population of students, the system will survive.
whoa
link this to "learn to code"-style policies & skills-biased technological change
Another estimate of the timing of future capitalist crisis is provided by world-system (W-S) theory. In earlier writing on the capitalist world-system, Wallerstein and colleagues presented a theoretical model of systemic long cycles. The core regions of the W-S in their expansive phase generate their advantage by resources extracted under favorable conditions from the periphery. Hegemony is periodically threatened by conflicts within the core, and especially by semiperipheral zones rising to threaten the hegemon. Eventually the core gets caught up with, just as increasing competition in a new area of entrepreneurial profit brings down the profits once gained by the early innovator; in this respect, the W-S operates like Schumpeter's cycle of entrepreneurship, but on a global scale. With each new cycle, new opportunities for expansion and profit arise, under the leadership of a new hegemon. The crucial condition in the background, however, is that there must be an external area, outside the W-S, which can be incorporated and turned into the periphery of the system. Thus there is a final ending point to the W-S: when all the external areas have been penetrated. At this point the struggle for profit in the core and semiperiphery cannot be resolved by finding new economic regions to conquer. The W-S undergoes not just cyclical crisis but terminal transformation.
can the new economic region be virtual?
Moreover, new markets need not be restricted by geography. They can also be created by cultivating new needs. Capitalism has grown adept at persuading families that they need two cars, bigger and bigger houses, more and more electronic devices. Whoever dreamt of this fifty years ago? What will our grandchildren consume fifty years from now? We cannot begin to envisage their consumer fads, but we can be sure there will be some. Markets are not fixed by territory. Planet Earth can be filled and yet new markets can be created. That, of course, depends on what some have called the "technological fix" and it is more or less what Joseph Schumpeter called "creative destruction," which he identified as being the core of capitalist dynamism—entrepreneurs pour money into technological innovation which results in the creation of new industries and the destruction of old ones. The Great Depression in the United States was partially caused by the stagnation of the major traditional industries, while the new emerging industries, though vibrant, were not yet big enough to absorb the surplus capital and labor of the period. That was achieved in World War II and the aftermath, which then suddenly released enormous consumer demand held back by wartime sacrifices.
So the vital question now is whether another technological fix is occurring, or is likely to soon occur. There are new dynamic industries like microelectronics and biotechnology. But the problem is that so far they have not been big enough to provide a satisfactory fix, especially for the labor market in the West, where the new industries tend to be more capital- than labor-intensive. The decline of manufacturing industry in much of the West has generated unemployment there which the newer industries have not been able to much reduce. Recent innovations like computers, the Internet and mobile communication devices do not compare with railroads, electrification and automobiles in their ability to generate profit and employment growth. The "Green Revolution" has been the recent exception, providing a great boon to agricultural production, mainly in the poorer countries Also important has been the expansion of the health and educational sectors, which are more labor intensive and in which the labor is more intellectual and more middle class. Their expansion is likely to continue, as the length of life, and especially of old age, and educational credentialism continue to increase.
There is a further obstacle to revolutionary change. The communist and fascist revolutionary alternatives to capitalism were disasters, and they are the only ones to have emerged so far. There are no other alternatives around and almost no one wants to repeat either of those. Socialism, whether revolutionary or reformist, has never been weaker. Fundamentalist Christianity, Judaism, Hinduism, and Islam are the surging ideologies of the world and they tend to contemplate otherworldly as much as material salvation. This-worldly alternative ideologies of the 20th century failed. In poorer countries brought into the global economy we might expect the rise of socialist or similar movements, but they are likely to become reformist. Modern social revolutions have almost never occurred without major wars destabilizing and delegitirnizing ruling regimes. In the two biggest revolutions of the 20th century, in Russia and China, world wars (with different causes than capitalist crises) were necessary causes of revolution. Wars are thankfully in decline around the world—in fact only the United States continues to make inter-state wars—and there are no anticapitalist revolutionary movements of any size in the world. Revolution seems an unlikely scenario. The end really is nigh for revolutionary socialism.
The future of the left is likely to be at most reformist social democracy or liberalism. Employers and workers will continue to struggle over the mundane injustices of capitalist employment (factory safety, wages, benefits, job security, etc.), and their likely outcome will be compromise and reform. Developing countries will likely struggle for a reformed and more egalitarian capitalism just as Westerners did in the first half of the 20th century. Some will be more successful than others, as was the case in the West. China faces the severest problems now. The benefits of its phenomenal growth are very unequally distributed, generating major protest movements. Revolutionary turbulence is certainly possible there, but if successful it would likely bring in more capitalism and perhaps an imperfect democracy, as happened in Russia. America also faces severe challenges since its economy is overloaded with military and health spending, its polity is corrupted and dysfunctional, and the ideology of its conservatives has turned against science and social science. All this amid the inevitability of relative decline and the growing realization that American claims to a moral superiority over the rest of the world are hollow. This seems a recipe for further American decline.
shiet
Nobody in 1917 considered the revolution in Russia unexpected. The Russian nobility had long been haunted by the specter of serf peasants revolting to avenge their near-slave condition. A modern proletarian revolution had been awaited ever since the European upheavals of 1848. This fear/hope was fed by strikes of industrial workers met with Cossack cavalry charges. No less significant was the growth of the famous modernist intelligentsia, the middle strata of educated specialists who felt stymied by the old aristocratic bureaucracy and the generalized backwardness of their country. The intelligentsia saw itself as the guiding force of epochal renovation. This sense of lofty mission translated into a spate of subversive strategies, from creating a world-class literature to volunteer charitable activism and throwing bombs at the oppressors.
Nevertheless, the empire kept on muddling through and even registered impressive industrial growth mainly because for almost half a century it had luckily avoided losing wars, a typical trigger of revolutions. The tipping points—as observed in many other revolutions—arrived with the costly and morally embarrassing military defeats in 1905 and again in 1917. The soldiers rebelled against their commanders while the police disintegrated. The collapse of state coercion released all the long-repressed specters of rebellion: furious peasant revolts in the countryside; the now armed worker militancy in big cities; the intelligentsia enthusiastically organizing a panoply of political parties and nationalist movements that soon became independent governments in the ethnically non-Russian provinces.
Immanuel Wallerstein had been long (and very controversially) comparing communist states to factories seized by a labor union during a strike.' If the workers try to operate the factory themselves, they inevitably have to follow the rules of capitalist markets. The workers might get a better distribution of material rewards, but not equality or democracy. The more "realist" among labor organizers would reimpose production discipline, compellingly citing external market pressures. The "Iron Law of Oligarchy" in complex organizations predicted that the narrow circle of those making managerial decisions would cut themselves of from the larger group and evolve into a new ruling elite. It might take time before ideological vapor entirely escaped from the cauldrons. Nevertheless the moment would come when the erstwhile organizers turned managers would no longer feel compelled to disguise the reality. The factory would then revert to being a normal capitalist enterprise, and the managers would cash in on their positions. If you wish, it is a sociological version of George Orwell's Animal Farm, but Wallerstein's analysis specified in a clear and logical fashion the structural conditions and causal sequences. He also added an important political caveat: socialism in one country or one factory may not last unless the whole capitalist world.system is replaced by a different historical system where capital accumulation is no longer the paramount priority.
this book is so good
(this theory was based on the real behaviour of Soviet leaders in as early as 1953)
[...] But we should recognize that the Soviet Union was not equivalent to socialism and thereby somehow directly analogous to capitalism. It was something more particular and of a different order.
This is so whether we treat capitalism as a set of practices that can be undertaken by capitalists anywhere, or as an economic system that knits together enterprises, markets, investments, and labor throughout the world. Capitalism is a historical formation, grounded, as Michael Mann would say, in a set of power networks. It has existed for the last 400 years primarily in the form of the modern world-system that Immanuel Wallerstein has analyzed. This is a hierarchical and unequally integrated organization in which the primary units are nation-states and economic actors are crucially dependent on relations with and conditions provided by political power.
To be sure, the idea of a nation-state is in a sense aspirational; the suturing of sociocultural identity to governmental institutions is never perfect; economic integration can itself advance national integration and certainly economic actors also influence government. Yet even if partially a fiction, the nation-state is a crucial formal unit for participation in global affairs, reproduced in political isomorphism. Most international organizations are literally that—structured by nationally organized participation. And states organized in this way provide crucial underpinnings to capitalism. They provide the legal and monetary bases for both firms and markets. They manage, or provide settings for the management of interdependence among different firms, industries, and sectors. By organizing structures of cultural and social belonging, however imperfectly, and sometimes by regulating markets, they organize workforces, consumer markets, and trust. The term "nation-state* may be only shorthand for "efforts to organize politics and sociocultural belonging in terms of nation-states", but the era of capitalism and the era of nation-states have been one and the same. There is no "rea" capitalism, no matter how global, that isn't conditioned by this political-economic and sociocultural organization. The import of this is that existing capitalist prosperity and sustainability depend on nation-states and institutional affordances they have provided. These must be renewed or replaced. Yet for forty years the OECD countries have turned away from this task. Instead they have hollowed out the "welfare state" institutions of the past, reducing costs and pursuing immediate competitiveneas but neglecting the long-term well-being and security of their population and the collective investment that enables future economic participation.
just really well written