In the aftermath of the great financial crash, Alan Greenspan, chairman of the US Federal Reserve, admitted to a Congress committee: ‘I made a mistake in presuming that the self-interests of organisations, specifically banks and others, were such that they were best capable of protecting their own shareholders and their equity in the firms... I discovered a flaw in the model that I perceived as the critical functioning structure that defines how the world works.’
This was a bit like a clergyman confessing that God had failed. Rational self-interest is at the heart of the neo-liberal programme that has dominated economics in the Anglosphere since the 1980s. If you can reliably count on individuals to use objective reason in protecting their own self-interest, queried the fundamentalists, why would you need regulation, social legislation, even government apart from defence and a few other essentials, or anything else very much except a functioning market? In a world of rational self-interest, strivers will get their deserts and so will skivers, to the benefit of an ever more rational, meritocratic society.
As it turns out, it’s a big ‘if’. Given Greenspan’s public recognition of the collapse of the central tenet of his laissez faire manifesto, you might imagine that the lesson had been learned: claims of the self-policing powers of self-interest should be taken with fast-food-industry doses of salt. As Michael Lewis put it so colourfully in his brilliant The Big Short, Howie Huber, the Morgan Stanley bond trader who ran up a loss of $9bn, the largest in Wall Street history, ‘was smart enough to be cynical about his market, but not smart enough to realise how cynical he needed to be’.
But you’d be wrong. If the crash was the explosion of a bubble massively inflated by the non-self-policing self-interest of bankers and real estate vendors, today’s ugly rumblings of xenophobia and populism are the sound-track of the slower-mo disaster that is capitalists in their own self-interest grinding capitalism to bits.
History doesn’t appear to have taught them anything. In previous great technological growth spurts, jobs and wages were at the heart of what worked (most of the time) as a virtuous circle. Investment in new technologies led to higher productivity and wages, feeding demand which fuelled further investment and new employment. Jobs were central to the cycle – effectively a vehicle not only for redistribution, but also social mobility and inclusion.
Yes, it was a system, and like any other system it was easily destabilised (to paraphrase Lewis) by people smart enough to spot the flaws but not smart enough to know that you can’t improve a system by optimising the parts – it’s the interaction of the components that counts, not their sum.
The ideological shifts of the 1970s and 1980s destroyed the previous balance. Full employment was abandoned as the object of economic policy, and ‘flexibility’ (aka deregulation and weakening worker organisations) was installed as the mantra for labour markets. Economists decreed that concentrating on the supply side and leaving the rest to the market would maximise the general welfare. Meanwhile, managers responding to the new emphasis on shareholder value reined in job-creating investment in favour of cost-cutting and distributing the proceeds to shareholders; and these combined with technological advance to launch a wave of global outsourcing and offshoring that activated a very different circle that quickly went vicious.
Its consequence is what we are in the grip of now: jobless growth that is not cyclical but structural. In theory, every element is in place to generate a new ‘Golden Age’ of progress, in the words of development economist Carlota Perez, based on job-creating green growth. The world is awash with capital. Self-evidently there is no shortage of human needs to be filled, and technology is advancing by leaps and bounds. And more than anything in the world – more than family, security and peace, according to Gallup polls – people want to work; they want jobs with regular hours and a pay packet. The world needs 1.9bn more of them, again according to Gallup.
Yet we’re stuck. Business as usual won’t clear the blockage – it’s business as usual that caused it. And as the hype fades the truth is dawning that far from presaging a new and different economy, the internet and Silicon Valley combo is actually just the old one on steroids.
So far from creating a sharing economy, the tech giants are ‘modern monopolists’, in the FT’s words, that leave few crumbs behind for anyone else: just 10 per cent of companies account for 80 per cent of all profits, according to McKinsey. The game of the superstars is value appropriation, not creation – like Hollywood they prefer to recycle old narratives jazzed up with CGI for the times. Viewing people solely as cost, they grudgingly create real jobs only when they can’t use technology to break them up and spit out the bits as gigs. Facebook’s Mark Zuckerberg famously said, ‘we move fast and break things’; he has since distanced himself from the line, but the motto’s mixture of brashness and complacency perfectly sums up the Valley’s careless arrogance.
This isn’t creative destruction à la Joseph Schumpeter, more straight rapaciousness à la Ayn Rand (unsurprisingly, a major titan hero). But as even Greenspan came to realise, extreme self-interest and technology used for its own self are self-defeating. In a job-poor world there is no ‘invisible hand’ that will conjure up demand for products or services when (as must be very close) consumers’ ability to take on new debt finally runs out. When the cost of shareholder (and executive) enrichment is the jobs of the less well off who can no longer afford to buy the products they create, capitalism is a zero-sum game as counterproductive as a shark consuming its own tail. It’s already happening: student-loan-laden millennials, unable to afford either housing or pensions, the assets crucial to upward mobility, are already a drag on the economy on both sides of the Atlantic. Quae non possunt non manent: things that can’t last don’t. When millennials or their children start to break real, rather than virtual, things in earnest, Donald Trump may look like a minor worry.