Economist writer Ryan Avent begins by noting that in the mid-nineteenth to early twentieth centuries, industrial progress was breathtaking. Machine-power – primarily steam but later oil, petrol and electrical – displaced human and animal labour within the economy, dramatically increasing productivity. By contrast, the late twentieth century seemed a period of placid advance leading to the stagnation many diagnose in our own troubled times. Yet we stand in the path of the forthcoming AI-powered digital revolution, one which will substitute for workers’ brainpower as mechanisation previously did for their muscles.
Massive increases in productivity promise that old Marxist dream, abundance, where the mass of people (not just a pampered elite) are free to follow their dreams. But can capitalism deliver? If workers are being displaced from employment in their millions, they won’t be able to afford all those wonderful new goods, while collapse in demand prevents firms from investing in that exciting new technology.
With affordable, competent robotics plus business software systems of ever-increasing sophistication and scope, there is a hollowing out of the labour force. At the low-skilled, menial end there is still a place for hands-on care staff, warehouse sweepers and drivers; at the high end engineers and designers with advanced degrees develop, configure and maintain advanced automation systems. But that hollow in the middle just keeps getting bigger.
The resulting abundance of labour tends to decrease pay, increase unemployment and most notably undermine the organising and political power of ‘the labour movement’. It is of little surprise that it is the 1% who appropriated the productivity gains of recent years - an elite defined by superior cognitive abilities and/or networked access to inherited wealth.
In response, some workers have been driven into the arms of the ‘gig economy’ – setting up artisanal outlets, becoming freelance journalists, Uber driving – but this sector is not called the ‘precariat’ for nothing. Other labour-intensive occupations (medical staff, hairdressers, funeral directors) have lobbied for increasing regulation and licensing, trying to create ‘guild walls’ which constrain supply and increase market power. But even these feeble efforts are contested by the real powers in the land.
The success stories of modern capitalism, high-tech companies and the great finance houses which dominate the new global economy are often surprisingly localised. They base themselves in San Francisco, New York, Boston, London and a few other world cities. The elites work together, often live in the same small districts, and hang-out one with another. The modern firm is defined by its social capital, leveraging the high human capital of its members to form a culture highly-contextual to that company. If you’re not part of this in-crowd, life in the slower lanes can be bleak.
Meanwhile the other 85% of the world’s population is either playing catch-up (China, and to a lesser extent India) or remains mired in poverty, corruption and war (sub-Saharan Africa being a case in point). The author finds this hard to understand – “Sadly, social scientists lack a satisfying explanation for how it occurs”. In fact some social scientists, such as Garett Jones at George Mason University and Gregory Cochran at Utah find it all too easy to understand, but the well-substantiated insights of “Hive Mind” and West Hunter’s “Our Dumb World” don’t find an echo here.
And that’s a shame, because the author’s proposal for ‘fixing’ the third world is disastrous: open borders with the first. Mass immigration from low social-capital countries will, he argues, both improve the life chances of immigrants (certainly!) and allow them to absorb the culture and institutional norms of the advanced capitalist countries (sadly, not a chance).
The thought, no doubt is that they would in their masses then return bearing their newly-acquired social capital - and liberal democracy plus advanced technologies would finally bloom south of the Sahara! The author seemingly fails to notice that versions of this experiment have already been tried. It’s startling to read such fantasies. Modern macroeconomics with its wilful clone-human assumption of ubiquitous cognitive uniformity has much to answer for.
The author next turns his attention to secular stagnation. The concentration of massive wealth in the 1% (where it cannot be consumed, only saved) combined with income stagnation amongst the over-abundant, overleveraged labour force (which has drastically reduced demand), has led to a massive glut of savings with nowhere to go. There are other drivers of global over-saving: China; an ageing population which needs to hoard its money in retirement; nimbyism by the already-privileged which endlessly frustrates infrastructure investment for new housing and transport links; and the new ‘dematerialised’ corporations with their highly-skilled, relatively small workforces not requiring much capital equipment by historic standards.
Somehow global demand has to be increased. The author walks us around the usual suggestions.
- Government spending on public works: (but governments are already overleveraged).
- A really effective increase in the minimum wage: but this would exacerbate unemployment, restrict economic growth (many fast-food restaurants would be forced to close, for example) and increase the rate of automation displacing more workers. Benefits would fall unevenly.
- A basic income: but paying people to loaf around has proved politically problematic, raising moral hackles amongst those who still have work to go to and whose taxes subsidise the idle. In addition, the level of basic income which would genuinely support a modest but acceptable lifestyle seems beyond present day economic development. Probably something like this will have to be the answer in the end, but the politics and economics are difficult.
In conclusion, this is an interesting book covering a wide range of issues. It’s well-researched and brings standard and robust macroeconomic ideas to the task of understanding where the world is, and where it could be going. Its arguments are perhaps not as original or creative as the author imagines. I can even imagine it being rebadged as a Marxist treatise with some small changes in terminology – this has often been the fate of Economist articles.
For those hoping to get some general insights into what the future holds, the last part of the book will prove the most disappointing. In a nutshell, he hopes for the best, fears the worst and expects humanity will muddle through.
Trigger warning: the book is written in the same superior, self-satisfied and patronising style as The Economist itself. This may offend some readers.