For the first time, Davos man seems to be genuinely freaked.
Although it surfaced only indirectly in the World Economic Forum’s final communiqué – in measures such as the setting up of a Global Centre for Cybersecurity to counter cyber threats – the scare quotient in the annual survey of WEF members’ concerns was at an all-time high. The main worries are no longer to do with finance and the economy, but above all politics – social turbulence, populism (as reflected in giant hedge fund Bridgewater’s famous memo last year), even war. Ninety-three per cent of of those polled thought that political and economic conflict would rise this year: two-thirds believed the world was becoming a riskier place.
They are right to be concerned. We should be too. We have after all been here before – many times, according to Stanford economic historian Walter Scheidel, author of The Great Leveler, a study of inequality from ancient times to the present, which was shortlisted for the FT’s Business Book of 2017. Inspired by Thomas Piketty’s work to extend the latter’s research to the long term, Scheidel discovered a grim and unmistakable pattern.
In good times, a rising tide initially floats all boats. But some rise higher than others, and at a certain point a self-reinforcing cycle kicks in. Wealth begets power and power begets wealth, and not surprisingly,, equipped with such advantages the wealthy and powerful from the earliest times have done a pretty good job of entrenching and extending their (and their offspring’s) interests. Until, at a certain point, the social strains become so intolerable that one of Scheidel’s four ‘great levellers’ – war, pestilence, revolution or famine – intervenes.
All these catastrophes have a side-effect of compressing inequality. War massively raises taxes and creates full employment. It also has to offer recompense for suffering, which is why it is so often followed by social reform: think of ‘homes fit for heroes’ after WW1 and the welfare state in the 1940s, together with extensions of the franchise, the growth of trade unions and more liberal attitudes. Redistribution, including direct confiscation of the assets of the wealthiest, is usually one of the first items on the agenda of revolution. Epidemics and famine decimate the workforce, but also raise wages for the survivors and depress rents and other returns on capital.
At which point the cycle begins again. So is there a way of heading off the apocalyptic ending? In theory, yes. That the tendency towards growing inequality can be offset by political choices is shown by the relative stability of the more egalitarian economies of Northern Europe – the Nordic countries and to some extent Germany (although the latter is also experiencing some of the populist strains affecting other advanced economies).
But in the UK and US especially, but also in many other advanced economies there is little sign of countervailing measures – rather the reverse.
As we saw in the Great Financial Crash of 2008, the fiercest capitalists are like sharks devouring their own tails – the last people on earth to trust with the future of capitalism. Sure enough, since the crash instead of recognising that their period of grace is over and only serious institutional reform can save it, and them, the powerful and wealthy, together with their political allies, have strained every muscle to restore business as usual, doubling down on the fundamentalist free-market measures that brought us to this perilous pass in the first place – austerity, hatred of state action, and determination to throw people back on their own resources rather than collective solutions. President Trump’s ‘pluto-populist’ tax policies, and to a lesser extent dogged UK insistence on ‘business friendliness’ are classic examples of this willful blindness.
Which is where the insights of another perceptive observer suddenly take on a new relevance.
The work of social democrat thinker Karl Polanyi, part of the extraordinary flowering of Austrian intellect that also produced Sigmund Freud, Joseph Schumpeter and Peter Drucker, has unsurprisingly been eclipsed in a period when the thought of his neoliberal opponents Friedrich Hayek, Ludwig von Mises (also Austrian) and followers such as Milton Friedman has been hegemonic.
But Polanyi’s insights now look prophetic. He would have seen Brexit, Trump, the not-so-stealthy rise of populism, nativism and retreat from democratic principles as more evidence for his proposition that the unfettered free market delivers not proletarian revolution, as the other Karl proposed, but mounting instability and inequality leading quickly to protectionism, nationalism, and demands for strong leadership to make the US (UK, France, Hungary, Poland, the Netherlands…) great again. In other words, something resembling fascism.
Polanyi used the example of 19th century Britain to show that there was nothing natural, or inherently democratic, about free markets: they were the construction of the rich and powerful, for the rich and powerful. ‘Laissez-faire,’ he famously declared, ‘was planned’. But its champions neglected the historical evidence that markets only work sustainably when embedded in society and tempered by politics, not the other way round. Ultraliberalism eventually endangers democracy itself, as it did before WW1, before WW2 and, is doing again today.
As it happens, one of Polyanyi’s friends in Vienna was Peter Drucker, who helped him find a job in the US in 1940. Like Polyani, Drucker was a humanist who insisted on management’s importance as a social as much as an economic institution. ‘The very survival of society is dependent on the performance, the competence, the earnestness and the values of their managers’, he wrote in 1993; and he would certainly maintain the same today.
The difference now is that management, at least in the UK and US, has unmistakably become a constituent part of the wealthy and powerful in whose interests society has been reshaped. Does it have the foresight to look beyond its own self-interest to mitigate the dangers swirling through fractured, unequal, austerity-gripped societies? Two contrasting post-Davos developments spring to mind. On one hand the announcement by Amazon’s Jeff Bezos, Berkshire Hathaway’s Warren Buffett and JP Morgan’s Jamie Dimon that they were setting up a non-profit company to disrupt the dysfunctional US healthcare system directly answers the Viennese call for productive innovation around a social need to temper capitalism’s excesses. On the other hand, Amazon’s patented wristband for tracking worker movements in its warehouses, the use of algorithms rather than humans for performance management and growing threats of ‘data dictatorship’ points management in a different and much darker direction. It now has to choose between the two. If Scheidel and Polanyi are right, the effects of the decision will ramify much wider than the organisations that they work for.