In the second of a two-part series on modern capitalism, Gwen Jones proposes some major changes to help fix our broken economy.
Part one of this article described the ways in which capitalism tends to adapt and mutate in response to crisis. It then went on to argue that the current situation represents an end to the long-term pattern; in part, due to a failure of understanding, and in part, due to a failure within the system itself.
The solution lies, perhaps ironically, with the most disruptive force we’ve experienced as a species to date : information technology. With capitalism stalling, we should be looking forwards towards an entirely different model, built around this new and invaluable tool. Let’s call it the information economy.
1. Saving the planet
First, it’s worth outlining the things we actually want this new economy to do. Unlike the neoliberal model, any alternative must prioritise environmental sustainability; the rapid reduction of carbon emissions and the mitigation of the impacts of climate change after that. The key will be investment in technologies that respond to these challenges through sustainable growth - it is not the case that we have to go backwards in growth-time to protect the climate.
The state has a role to play here; one of the most common misconceptions with regards to neoliberalism is that the state is passive. In fact, the state is essential to the survival of neoliberalism via active intervention to support markets, privatisation and the interests of finance. Hence, shifting the actions of the state towards the creation of new markets that produce sustainable, collaborative and socially desirable outcomes - or away from market forces entirely - could put an end to growth at the expense of the planet.
For example, by subsidising solar panels, the state encourages people to install them in their homes. But without proper regulation, these panels will be produced in factories overseas where wages and low and working conditions are poor. So we can go further - by incentivising localised energy production schemes, communities are allowed to self-regulate their own energy supply and use, as well as to sell excess to local businesses, generating positive multiplier effects.
2. Reducing inequalities
The second goal must be to reduce catastrophic inequality by delivering high levels of prosperity to the majority of people. We should first put an end to the state-led deregulation of finance and support for growing privatisation. Shrunken state power and resources force governments to outsource vital services, and a race-to-the-bottom style competition between contractors leads to poor quality provision in areas like housing and health.
In many cases, the state is better placed than private agents to fill these roles - it is larger, better resourced, more able to take risks and less vulnerable to the short term interests of share-holders. Thus, the state has a unique ability to create and shape markets towards a socially productive end. By reframing our idea of the state as an investor and provider, we are able to socialise reward, as well as risk.
3. Harnessing the power of the network
The most important tool in the arsenal when beginning the transition towards an information economy is, of course, the information itself. We live in a world where many of the actions we take, online and in ‘real-life’, are recorded and fed back to a corporate owner. These huge pools of aggregate data are used to better understand consumer behaviour and improve the quality of service provision on this basis.
The real potential lies in what happens when this information is transferred from the private to the public sphere. Info-capitalism relies on knowledge asymmetry; corporations get rich because of what they know and what their customers and competitors do not. A guiding principle going forward should therefore be that the pursuit of knowledge asymmetry is wrong.
Harnessing the power of aggregate information has enormous power to eradicate social challenges, be they poor health, welfare dependency or air pollution. As an example, utilising aggregate patient data sets could have a huge impact on improving the quality and efficiency of NHS service provision.
The capacity of information-rich technologies for solving these sorts of problems will only grow as other structures, like food supply chains and transport and road networks, become ‘intelligent’.
4. A work-free world
Innovation is often kept from vital industries by the availability of cheap and unorganised labour. The need to invest in streamlining or automating production isn’t always viable under these circumstances. In reality, we are quickly moving towards a situation in which this will no longer be the case - this transition can either be managed or unmanaged.
A government serious about moving away from capitalism will gear the development and uptake of technology towards the reduction of necessary work. In an automated world, work is voluntary, many commodities are free and economic management becomes a question of energy and resources, rather than labour and capital.
To secure a smooth transition, we should begin by starting to reshape the tax system in favour of collaborative and not-for-profit industry. These kinds of actions allow market forces to disappear gradually, as a growing proportion of the economy is occupied by non-market actors.
Finally, issuing a universal basic income would make concrete the separation between wages and work. The benefits, in terms of productivity, of automation will be enormous, but it is vital that this growth is shared, and that the old patterns inequality - of widening disparity between wages and productive assets - are not repeated.
Trusting the truth
The sheer scale of these proposals can make them difficult to accept. It’s hard to believe that markets, businesses and government policy will ever be able to keep pace with the information-technology boom.
Yet in truth, huge developments like this have revolutionised our society for years; the mobile phone, the contraceptive pill, the internet, modern democracy. The economy should not be off-limits. We live at a point in history where traditions dating back 10,000s of years are being demolished at a rate of knots; it is ridiculous that some still see the end of a 200-year-old economic paradigm as utopian.
Real change is possible, if not essential. In order to secure a future that works, we must not be afraid to challenge our preconceptions and initiate change.
In the first of a two-part series, Gwen Jones looks at the history of capitalism - and wonders how it might evolve in the future.
The year is 1938. Alone in a Soviet prison cell, one man is awaiting the end to his eight-year-long ordeal.
Nikolai Kondratieff had spent almost a decade as a political prisoner in Suzdal, just northeast of Moscow. On September 17th 1938 - the day his original sentence was completed - Kondratieff was tried again, this time found guilty of anti-Soviet activity and sentenced to death. He was executed in his cell, by firing squad.
At the time, Kondratieff ranked among the great giants of 20th Century economic thought. His crimes were non-existent. All Kondratieff was really guilty of, in the eyes of his Stalin and his secret police, was to think the unimaginable about capitalism: that instead of crumbling under crisis, capitalism generally adapts, morphs and mutates.
In two major feats of analysis, Kondratieff was able to notice a distinct pattern within modern, industrial capitalism. Beyond short-term business cycles, Kondratieff found evidence of longer, fifty-year cycles of growth and decline consistent throughout the 19th and 20th centuries. The major turning points of each cycle coincided with key structural changes within capitalism itself – thus, moments of crisis were indicative not of turmoil, but of order.
According to Kondratieff’s work, which later became popularised as ‘wave theory’, each long cycle begins with an upswing, fuelled by the roll out of new technologies and high levels of capital investment. As the rate of investment slows and saving by banks, corporations and individuals increases, the rate of growth slows up. The trajectory is still upward, though – recessions are short and shallow, and overall growth is strong.
Next, a downswing starts. The supply of accumulated capital is too great to be invested in productive industry, so more of it gets trapped within the finance system. Interest rates fall, as the abundance of cheap capital suppresses the price of borrowing. Wages and commodities prices follow, ending eventually in a depression.
The past two centuries exemplify Kondratieff’s waves almost perfectly – the first cycle began around 1790, prompted by the emergence of factories, and ended in around 1848. The second, this time fuelled by the roll out of railways, factory-produced machinery and stable global currencies, came to an end with financial crises in the UK and USA, which triggered the long depression of the 1870s-90s. Heavy industry and mass production drove the wave of the 1890s to 1945, eventually brought to its knees by the Second World War.
In the fourth (and final) wave, automated factory work, mass consumer goods and nuclear technology combined to produce the longest period of sustained economic growth in history. Decades of rising wages, the expansion of welfare, and access to integrated global markets led to a middle class explosion across Europe, the US and emerging economies. This was the era of ‘never had it so good’ - an expression which rings hollow now.
The punctuation point for this cycle is obvious. In 2008, global capitalism imploded. A poorly regulated and overinflated finance system eventually succumbed to a crisis of liquidity that almost brought the world to a standstill.
Rampant financialization had effectively, by this point, allowed many in the West to live for years off bad debt, their entire lifestyles funded by the availability of cheap credit. Wages weren’t growing, but we were still borrowing – hence the emergence of the subprime mortgage, non-existent until investment banking made it so. In the run up to the crash, banks across Europe had outstanding loans tens or hundreds of times larger than their respective national GDPs. In Iceland, the ratio of private bank assets to GDP was 1000:1.
The seeds of the next wave had been planted with the rise of information technology and the dot-com revolution of the 1990s. But while both have grown exponentially, the cycle has stalled. The West is still reeling from 2008, now over a decade ago, and recovery has been painfully slow.
Government balance sheets are overstretched, deficits still running high after billions were issued in bank bailouts. The public sector has been squeezed to crisis point by austerity, and wages in real terms have remained stagnant for years. Interest rates across most of the developed world are near zero, or below zero in some cases.
In short, the rapid take-off of a new capitalist growth cycle seems very far away indeed.
If Kondratieff was right, we should be expecting a new upswing any day now. In fact, it’s already long overdue. As mentioned, the seeds for this new paradigm have been planted; information and communications technologies have revolutionised the way in which we operate – at the individual and global levels.
So why no boom? Why no sunny uplands?
The problem lies with the way the world dealt with 2008, as well as with neoliberalism itself. The neoliberal model, which we have now come to recognise as ‘capitalism’, crumbled under the weight of its own contradictions. And yet, 10 years later, few have been resolved. The risk pooled within this instability has also been magnified - many of the techniques governments used to deal with the crash have already been expended. Interest rates have almost nowhere to go, and national deficits are already too large to take on another major bailout. There are no more bullets left in the gun.
In order to protect the world against crisis, and to secure a more prosperous future, the life support that has been used to sustain the existing system for years must finally be switched off.
Instead, we must pursue a revolutionary new approach to capitalism; one that prioritises wages over assets, equality over monopoly, and innovation over financialisation. The old ways of both the right, and the left, must be shrugged off - the 21st century will surely offer more than can ever be lived up to by business as usual.
Capitalism is “very much part of the solution” to the climate crisis, Bank of England governor Mark Carney said in an interview yesterday. Perhaps he's right, says Gwen Jones in this Renew Long Read.
For a long time, those leading the charge against climate change have branded capitalism – responsible for the oil economy and prioritisation of instant growth over sustainability – as the planet’s greatest adversary. The Green Party, and their contemporaries Extinction Rebellion, have rallied against free markets as working in opposition to their cause.
And many experts agree. The line? Capitalism and environmentalism are mutually exclusive, and the effective mitigation of climate change will necessitate the end of capitalism in favour of a more sustainable economic system.
In response to Carney’s Channel 4 appearance, an Extinction Rebellion spokesperson told the Guardian, “We are destroying our planet, and business as usual is not going to save us. We must question any system that has led us to this path of mass extinction and look to more sustainable economic models that are not based on resource depletion and increasing emissions.”
But Carney is confident in his convictions. According to the economist, who has previously worked for Goldman Sachs, the opportunities associated with tackling climate change are growing rapidly - and so are the costs of failing to do so. In a system predicated on the exploitation of opportunity and an aversion to risk, capital will move naturally in the direction of sustainability. In his strident defence of capitalism as a solution to the climate crisis, Carney argues that companies who continue to ignore the issue “will go bankrupt without question.”
Is he right? Like many things in life, the answer is not cut and dry. Capitalism won’t solve the planet’s problems, at least if it’s acting alone.
Being a climate capitalist
Taking this leap from traditional to sustainable business practices requires sizeable investment, and, for the meantime anyway, the majority of green energy sources are still more expensive than their conventional counterparts. This hurts a company’s bottom line and means that prices may have to rise in order to maintain profits.
In a competitive market, this has some important implications; businesses are forced to make a choice, between refining practices at their own expense or sticking to their traditional process (even if this means running the risk of worsening climate change). In an ideal world, all polluting corporations decide to cut their emissions simultaneously in the name of the climate. This comes at a cost to each business, but gives no business a comparative advantage over any other, meaning all maintain their share of the market.
However, no business can be sure of what the others will do. It’s a dog-eat-dog world after all, and they have no reason to trust each other. If Business A decides to cut its emissions but Business B does not, Business B can take advantage of lower operating costs and price A out of the market. The same is also true the other way around.
Carney is right – the economic costs of ignoring climate change are rising, and the costs relative to opportunities to mitigate it opportunities of mitigation are shrinking, fast. But money talks, and until we reach a point where the costs outweigh the benefits in the short to medium term, no business will be willing to blink first.
The solution most likely lies with a radical rethink of the role the state plays in creating markets and driving innovation. In the liberal economic tradition, the state is portrayed as a clumsy, bureaucratic obstruction to the actions of the dynamic free market. This is as damaging as it is misguided. The state, with its plentiful resources and capacity to take risks (that private actors often cannot and will not take), is able to defy common barriers to innovation.
Historically, governments have played a critical role in funding some of the most influential developments in tech to date. The internet, GPS, voice recognition, biotech and countless pharmaceutical breakthroughs have come out of US government agencies DARPA and NIH respectively. The Green Revolution is next – ARPA-E, the US government body responsible for energy production and innovation – is already having an impact.
Market forces are notoriously unreliable when it comes to advancing the good of society. Markets don’t have morals, but states are unique in their ability to create new markets and shape existing ones towards a socially productive end. Financial viability is key to private action – the state can incentivise innovation in desirable areas through grants and subsidies, the likes of which benefitted Apple in the early stages of its development. Governments should also be prepared to take a lead in certain areas, investing in high risk, high return strategies to secure this new role within the economy.
This is not to undermine the value of private actors in driving innovation and wealth creation. But markets are not infallible and failure is commonplace. Up until now, the advancing climate crisis driven by the quest for growth has been an excruciating example of this. The right conditions must be set before the private sphere can drive us forward in a direction we actually want to be travelling in.