Posts Tagged ‘capitalism’
“There’s class warfare all right, but it’s my class, the rich class, that’s making war, and we’re winning”*…
Trevor Jackson on Martin Wolf‘s new book, The Crisis in Democratic Capitalism, and a fundamental question it raises: if globalization has allowed elites to remove themselves from democratic accountability and regulation, is there any path toward a just economy?…
Something has gone terribly wrong. In his 2004 book Why Globalization Works, the economics journalist Martin Wolf wrote that “liberal democracy is the only political and economic system capable of generating sustained prosperity and political stability.” He was articulating the elite consensus of the time, a belief that liberal democratic capitalism was not only a coherent form of social organization but in fact the best one, as demonstrated by the West’s victory in the cold war. He went on to argue that critics who “complain that markets encourage immorality and have socially immoral consequences, not least gross inequality,” were “largely mistaken,” and he concluded that a market economy was the only means for “giving individual human beings the opportunity to seek what they desire in life.”
Wolf wrote those words midway through a four-decade global expansion of markets. Throughout the 1980s in Britain, the United States, and France, governments led by Margaret Thatcher, Ronald Reagan, and François Mitterrand set about privatizing public assets and services, cutting welfare state provisions, and deregulating markets. At the same time, a set of ten policies known as the “Washington Consensus” (because they were shared by the International Monetary Fund, the World Bank, and the US Treasury) brought privatization, liberalization, and globalization to Latin America following a series of sovereign debt crises. In the 1990s a similar set of policies, then known as “shock therapy,” suddenly converted the formerly Communist economies of Eastern Europe and the Soviet Union to free markets. Around the Global South, and especially in the rapidly industrializing countries of East Asia after the 1997 financial crisis, “structural adjustment” policies that were conditions for IMF bailouts again brought liberalization, privatization, and fiscal discipline. The same policies were enforced on the European periphery after 2009, in Portugal, Ireland, Italy, Greece, and Spain, again, either as conditions for bailouts or through EU fiscal restrictions and restrictive European Central Bank policy. Today there are far more markets in far more aspects of human life than ever before.
But the sustained prosperity and political stability that these policies were meant to create have proved elusive. The global economy since the 1980s has been riven by repeated financial crises. Latin America endured a “lost decade” of economic growth. The 1990s in Russia were worse than the Great Depression had been in Germany and the United States. The austerity and high-interest-rate policies after the 1997 East Asia crisis restored financial stability but at the cost of domestic recessions, and contributed to political instability and the repudiation of incumbent parties in Indonesia, the Philippines, and South Korea, as they did again across Europe after 2009–2010. Global economic growth rates in the era of globalization have been about half what they were in the less globalized postwar decades. Around the world, violent racist demagogues keep winning elections, and although they all seem very happy with the idea of private property, they are openly hostile to the rule of law, political liberalism, individual freedom, and other ostensible preconditions and cultural accompaniments to market economies. Both democracy and globalization seem to be in retreat in practice as well as in ideological popularity. Or, as Wolf writes in his new book, The Crisis of Democratic Capitalism:
Our economy has destabilized our politics and vice versa. We are no longer able to combine the operations of the market economy with stable liberal democracy. A big part of the reason for this is that the economy is not delivering the security and widely shared prosperity expected by large parts of our societies. One symptom of this disappointment is a widespread loss of confidence in elites.
What happened?
Martin Wolf is probably the most influential economics commentator in the English-speaking world. He has been chief editorial writer for the Financial Times since 1987 and their lead economics analyst since 1996. Before that he trained in economics at Oxford and worked at the World Bank starting in 1971, including three years as senior economist and a year spent working on the first World Development Report in 1978. This is his fifth book since moving to the Financial Times. The blurbs and acknowledgments are stuffed with central bankers, financiers, Nobel laureates, and celebrity academics. The bibliography contains ninety-six references to the author himself.
Wolf’s diagnosis is impossible to dispute: “Neither politics nor the economy will function without a substantial degree of honesty, trustworthiness, self-restraint, truthfulness, and loyalty to shared political, legal, and other institutions.” But, he observes, those values have run into crisis all over the world, and, especially since about 2008,
…people feel even more than before that the country is not being governed for them, but for a narrow segment of well-connected insiders who reap most of the gains and, when things go wrong, are not just shielded from loss but impose massive costs on everybody else…
He describes in detail the mistaken policies of austerity in the US and Europe, the rise of a wasteful and extractive financial sector, the atomization and immiseration of formerly unionized workers, the pervasiveness of tax avoidance and evasion, and the general accumulation of decades of elite failure…
Read on for Wolf’s proposed remedies and Jacksons critiques: “Never Too Much,” from @nybooks.com.
And for an interview with Jackson that elaborates on his thoughts and their historical context, see here.
* Warren Buffett
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As we assess systems, we might send provocative birthday grretings to Founding Father Thomas Paine; he was born on this date in 1736 (O.S.; on February 9, 1737 per N.S., which accrued in Britain and its colonies in 1752). He is best known for Common Sense and The American Crisis, two influential pamphlets that helped to inspire colonial era American patriots in 1776 to declare independence from Great Britain.
But relevantly to the article above, in 1797 (after witnessing the birth and early years of the U.S. and spending time in France) he wrote Agrarian Justice, in which he proposed remedies for several of the (then nascent) ills discussed by Wolf and Jackson…
In response to the private sale of royal (or common) lands, Paine proposed a detailed plan to tax land owners [the “capitalists” of their day] once per generation to pay for the needs of those who have no land. Some consider this a precursor to the modern idea of citizen’s dividend or basic income. The money would be raised by taxing all direct inheritances at 10%, and “indirect” inheritances, those not going to close relations, at a somewhat higher rate. He estimated that to raise around £5,700,000 per year.
Around two-thirds of the fund would be spent on pension payments of £10 per year to every person over the age of 50, which Paine had taken as his average adult life expectancy.
Most of the remainder would be used to make fixed payments of £15 to every man and woman on reaching the age of 21, then the age of legal majority.
The small remainder of the money raised that was still unused would be used for paying pensions to “the lame and blind.”
For context, the average weekly wage of an agricultural labourer was around 9 shillings, which would mean an annual income of about £23 for an able-bodied man working throughout the year.
Paine’s proposal presaged the social safety net of later eras and governments, proposing seven entitlements to protect the poorest citizens from the ravages of market capitalism:
- Grants to subsidize schooling of 4 pounds per annum
- One-time payments to adults on reaching maturity
- One-time payments to newly married couples and new parents
- Eliminate taxes on working poor
- Back-to-work schemes
- Pensions for seniors
- Burial benefits to surviving spouses
and also provided a scheme of how to pay for them.
– source
“It’s easier to imagine the end of the world than the end of capitalism”*…
… so it’s useful to contemplate its beginning. David Rooney, in an excerpt from his book About Time…
Ömer Aga stood in the middle of Amsterdam’s Dam Square surrounded by his nineteen-strong party of advisers, interpreters and hosts, and gazed toward the huge new trading exchange that straddled the mighty Rokin canal, just to the south of the square. The year was 1614, and Aga was on a fact-finding mission to the Dutch Republic as the Ottoman Empire’s newest diplomatic emissary. Top of his list of must-see sights was this bold new building, completed just three years earlier. It was hard to miss, as it was the size of a soccer field and could accommodate thousands of traders in its 200-by-115-foot enclosed inner courtyard, but what Aga really noticed was the four-sided clock tower that loomed over the vast structure and the streets and canals all around, as well as the booming sound of its bell when they rang out the hours and then, at noon, tolled repeatedly for a few minutes before falling silent. Little did they realize it, but Omar Aga and his retinue were listening to one of the most significant clocks ever made. It was fitted to the world’s first stock exchange and sounded the birth of modern capitalism.
From the moment the Amsterdam exchange building first opened its doors in August 1611, traders were forbidden from trading anywhere else in the city. But the exchange did not just put spatial boundaries on trade. It concentrated traders in time, too. A few days before the new facility opened, the city council had issued a bylaw proclaiming that trading could only take place between the hours of 11 a.m. and noon, Monday to Saturday. At noon, the clock installed in the tower high above the exchange building would toll a bell for seven and a half minutes. If any traders were still in the exchange, or in the streets nearby, they would be fined. Additionally, trading was allowed between 6:30 p.m. and 7:30 p.m. during the summer months between May and August, and in winter evening trading took place for a thirty-minute period marked by a tolling bell at the city’s gates. At the end of evening trading, the exchange clock would again sound for seven and a half minutes and fines were issued for anyone caught trading after the bells fell silent.
Why were such strict limits placed on trading at the Amsterdam exchange? There were several reasons. One was a practical problem familiar to anybody involved with trade in a busy city center: time limits reduced congestion and disruption in the streets nearby. Another was that clocks made trading more efficient. Short, fixed trading hours concentrated buyers and sellers together, making it easier for each to find enough of the other. This increased the volume of trade, which was good for traders and for the city council collecting taxes on transactions. But clocks also helped prices to remain fair, as they could be used to regulate the people who occupied intermediate roles in the functioning of a market.
Some of the earliest references to mechanical clocks being used in towns and cities, in the Middle Ages and soon after, related to market restrictions. The first urban markets brought producers of food, cloth and so on into direct contact with the consumers of their wares. But as towns and cities grew, this model started to break down. It stopped making sense for every producer in the countryside to make the journey all the way to the center of towns. So, ‘intermediate trading’ emerged, whereby third parties might buy up the goods from several small producers somewhere on the edge of town, before bringing them in and selling them themselves at the market. Soon, a whole range of intermediate roles sprang up. Wholesalers, merchants, shopkeepers and peddlers were some, but intermediates also included financiers who advanced funds, and those speculating on the future in the hope of offsetting risk (whether because of bad harvests or other unpredictable events) and making more money. Some people occupied more than one role.
As populations grew and moved in increasing numbers to towns and cities, and markets began to sell more and more products, the rise of intermediate roles in market-based trade was inexorable, creating a new stratum of people who neither produced goods nor consumed them, but traded, speculated, brokered, hoarded, flipped and financed. Some market authorities feared intermediates would drive up prices or limit supplies and turned to clocks to control their involvement. Clocks meant that different groups could be treated differently at the market. In a sixteenth-century grain market, for instance, the first hours of trade could be restricted to residents, before bakers of bread could get in, and then the pastry bakers could enter. Only after several hours were wholesalers and other intermediate traders allowed in. But as societies and their market trading became ever more complex, the role of intermediates like brokers and financiers became increasingly important in keeping the flow of trading running smoothly. And, before long, finance became something that could be traded in its own right, and clocks took on a new regulatory role.
Amsterdam’s was not the first trading exchange. Antwerp and London had had exchanges since the sixteenth century where goods and money were traded, but Amsterdam was the first of a new kind of exchange: what became the modern securities exchange. As well as being a place to trade in commodities like salt or hides, people could also buy and sell financial assets. It started out as a place to buy and sell shares in the Dutch East India Company, an early joint-stock company and the first with freely tradable shares, but soon was used to trade other company shares, futures contracts and insurance policies as well as becoming the place to go for information about the state of the markets. The financial market had arrived, but its products, and the prices paid for them, which were time-dependent. The time at which each securities transaction was made, or would be enacted in the future, was central to this new type of trading to work fairly, everybody had to agree what time this was. In other words, trading needed time stamps, which is where the exchange clock came into its own. Clocks were no longer about excluding intermediates from the market. In the new exchanges, intermediates were the market — with the clock watching carefully over the whole thing…
The birth of modern capitalism and the role that timekeeping played in its nascence: The Amsterdam Stock Exchange, from @rooneyvision, via the invaluable @delanceyplace.
* Fredric Jameson (also sometimes attributed to Slavoj Žižek)
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As we examine enterprise, we might recall that it was on this date in 1937 that Sylvan Goldman introduced the first shopping cart in his Humpty Dumpty grocery store in Oklahoma City.
“Never call an accountant a credit to his profession; a good accountant is a debit to his profession.”*…
The estimable Henry Farrell on accountancy as a lens on the hidden systems of the world…
When reading Cory Doctorow’s latest novel, The Bezzle [which your correspondent highly recommends], I kept on thinking about another recent book, Bruce Schneier’s A Hacker’s Mind: How the Powerful Bend Society’s Rules and How to Bend Them Back [ditto]. Cory’s book is fiction, and Bruce’s non-fiction, but they are clearly examples of the same broad genre (the ‘pre-apocalyptic systems thriller’?). Both are about hackers, but tell us to pay attention to other things than computers and traditional information systems. We need to go beneath the glossy surfaces of cyberpunk and look closely at the messy, complex systems of power beneath them. And these systems – like those described in the very early cyberpunk of William Gibson and others – are all about money and power.
What Bruce says:
In my story, hacking isn’t just something bored teenagers or rival governments do to computer systems … It isn’t countercultural misbehavior by the less powerful. A hacker is more likely to be working for a hedge fund, finding a loophole in financial regulations that lets her siphon extra profits out of the system. He’s more likely in a corporate office. Or an elected official. Hacking is integral to the job of every government lobbyist. It’s how social media systems keep us on our platform.
Bruce’s prime example of hacking is Peter Thiel using a Roth IRA to stash his Paypal shares and turn them into $5 billion, tax free.
This underscores his four key points. First, hacking isn’t just about computers. It’s about finding the loopholes; figuring out how to make complex system of rules do things that they aren’t supposed to. Second, it isn’t countercultural. Most of the hacking you might care about is done by boring seeming people in boring seeming clothes (I’m reminded of Sam Anthony’s anecdote about how the costume designer of the film Hackers visited with people at a 2600 conference for background research, but decided that they “were a bunch of boring nerds and went and took pictures of club kids on St. Marks instead”). Third, hacking tends to reinforce power symmetries rather than undermine them. The rich have far more resources to figure out how to gimmick the rules. Fourth, we should mostly identify ourselves not with the hackers but the hacked. Because that is who, in fact, we mostly are….
…
… Still, there are things you can do to fight back. One of the major themes of The Bezzle is that prison is now a profit model. Tyler Cowen, the economist, used to talk a lot about “markets in everything.” I occasionally responded by pointing to “captive markets in everything.” And there isn’t any market that is more literally captive than prisoners. As for-profit corporations (and venal authorities) came to realize this, they started to systematically remake the rules and hack the gaps in the regulatory system to squeeze prisoners and their relatives for as much money as possible, charging extortionate amounts for mail, for phone calls, for books that could only be accessed through proprietary electronic tablets.
That’s changing, in part thanks to ingenious counter hacking. The Appeal published a piece last week on how Securus, “the nation’s largest prison and jail telecom corporation,” had to effectively default on nearly a billion dollars of debt. Part of the reason for the company’s travails is that activists have figured out how to use the system against it…
…
… In other sectors, where companies doing sketchy things have publicly traded shares, activists have started getting motions passed at shareholder meetings, to challenge their policies. However, the companies have begun in turn to sue, using the legal system in unconventional ways to try to prevent these unconventional tactics. Again, as both Bruce and Cory suggest, the preponderance of hacking muscle is owned by the powerful, not those challenging them.
Even so, the more that ordinary people understand the complexities of the system, the more that they will be able to push back. Perhaps the most magnificent example of this is Max Schrems, an Austrian law student who successfully bollocksed-up the entire system of EU-US data transfers by spotting loopholes and incoherencies and weaponizing them in EU courts. Cory’s Martin Hench books seem to me to purpose-designed to inspire a thousand Max Schrems – people who are probably past their teenage years, have some grounding in the relevant professions, and really want to see things change.
And in this, the books return to some of the original ambitions of ‘cyberpunk,’ a somewhat ungainly and contested term that has come to emphasize the literary movement’s countercultural cool over its actual intentions…
One word that never appears in Neuromancer, and for good reason: “Internet.” When it was written, the Internet was just one among many information networks, and there was no reason to suspect that it would defeat and devour its rivals, subordinating them to its own logic. Before cyberspace and the Internet became entangled, Gibson’s term was a synecdoche for a much broader set of phenomena. What cyberspace actually referred to back then was more ‘capitalism’ than ‘computerized information.’
So, in a very important sense, The Bezzle returns to the original mission statement – understanding how the hacker mythos is entwined with capitalism. To actually understand hacking, we need to understand the complex systems of finance and how they work. If you really want to penetrate the system, you need to really grasp what money is and what it does. That, I think, is what Cory is trying to tell us. And so too Bruce. The nexus between accountancy and hacking is not a literary trick or artifice. It is an important fact about the world, which both fiction and non-fiction writers need to pay attention to…
Eminently worth reading in full: “Today’s hackers wear green eyeshades, not mirrorshades,” from @henryfarrell in his invaluable newsletter Programmable Mutter.
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As we ponder power, we might recall that on this date in 1927, a “counter-hacker” in a different domain, Mae West, was sentenced to jail for obscenity.
Her first starring role on Broadway was in a 1926 play entitled Sex, which she wrote, produced, and directed. Although conservative critics panned the show, ticket sales were strong. The production did not go over well with city officials, who had received complaints from some religious groups, and the theater was raided and West arrested along with the cast. She was taken to the Jefferson Market Court House (now Jefferson Market Library), where she was prosecuted on morals charges, and on April 19, 1927, was sentenced to 10 days for “corrupting the morals of youth.” Though West could have paid a fine and been let off, she chose the jail sentence for the publicity it would garner. While incarcerated on Welfare Island (now known as Roosevelt Island), she dined with the warden and his wife; she told reporters that she had worn her silk panties while serving time, in lieu of the “burlap” the other girls had to wear. West got great mileage from this jail stint. She served eight days with two days off for “good behavior”.
Wikipedia
“Follow the money”*…
Professor and author Dave Karpf is re-reading the entire WIRED back catalog chronologically (for the second time) for a book project on the “history of the digital future.” A consideration of a 2000 issue devoted to the future has led him to a fascinating insight…
The January 2000 issue is themed around predictions. The magazine did the same thing in January 1999. They ask a ton of experts and celebrities to talk about what the future is going to be like. Some take it seriously, others make jokes. Some are prescient, others notsomuch. It’s a window into what the future looked like back then.
[Karpf reviews a number of the predictions, concluding with…]
…And then there’s this perfect Nathan Myrvhold quote “There won’t be TV per se in three decades. There will be video service over the Internet, but it will be as different from TV today as, say, MTV from the Milton Berle show of the 1950s or from radio plays of the 1940s.”
This is art. I want to frame Myrvhold’s quote and put it in a museum of lopsided tech futurist predictions.
The part that he gets right is the technological development curve. There he is, at the turn of the millennium, five years before the inception of YouTube, telling us that the future of television is going to be video service over the Internet. Yes, absolutely right!
But the part he gets wrong is the industrial, social, and economic impacts of this technological development. We’re seeing this right now, in 2023, as the various streaming services add advertising and strike content-sharing partnership deals with each other. We have these revolutionary new technological developments, and, for about a decade, they were supported by a stock market bonanza. But now that the stocks are no longer ridiculously overvalued, the companies driving these technological developments have settled on a vision of replacing old cable tv with new cable tv. (I wrote about this in July 2022, btw, back when this Substack had a much smaller readership. I think the piece holds up well.)
Technologically, it didn’t have to be this way. But, given all the existing incentive structures established by 21st century capitalism, it was all-but-certain that we would end up here.
I see this time and time again when reading predictions of social transformation from 90s- and 00s-era technologists [cough NicholasNegropontewasconstantlywrong cough]. And I see the same thing today, every time an artificial general intelligence true believer starts opining on the glorious future of education/entertainment/science/manufacturing/art.
I wrote about this phenomenon last year in The Atlantic, where I argued that we won’t be able to tell what the future of AI looks like until we have a sense of where the revenue streams come from. The trajectory of any emerging technology bends towards money.
…
I’m writing a whole book about the lopsided ways in which tech futurists always get their predictions wrong. And one major reason why is that they focus on what the technology could do, given time and mass adoption, rather than considering what capitalism will surely do to those technologies, unless we alter the incentives through regulations.
The trajectory of every emerging technology bends toward revenue streams. If you want to build a better future, you cannot ignore the shaping force of money…
A peek back at some tech predictions from January 2000: “From the WIRED archives: The trajectory of any emerging technology bends toward money,” by @davekarpf (referral account)
See also “The frantic battle over OpenAI shows that money triumphs in the end” (in which Robert Reich argues that, though the revenue streams aren’t yet obvious, protecting their emergence was at the core of the recent battle for control of what was, ostensibly, a not-for-profit) and the oddly apposite “Nerd culture is murdering intellectuals.”
And for more on Karpf’s march through WIRED’s history and what it can tell us about the ways that tech and our culture have changed, see “Notes from #WIRED30.”
* Deep Throat (as portrayed the film adaptation of All the President’s Men)
###
As we pay attention to the profit motive, we might recall that this is an important date in broadcast history. On this date in 1896, Guglielmo Marconi introduced “radio”: he amazed a group at Toynbee Hall in East London with a demonstration of wireless communication across a room. Every time Marconi hit a key beside him at the podium, a bell would ring from a box being carried around the room by William Henry Preece.
Then exactly five years later, on this date in 1901, Marconi confounded those who believed that the curvature of the earth would limit the effective range of radio waves when he broadcast a signal from Cornwall, England to Newfoundland, Canada– over 2,100 miles– and in so doing, demonstrated the viability of worldwide wireless communication.
In the earliest days of radio, when it was essentially a wireless telegraph, there were myriad predictions of what the technology might become– from an internet-like decentralized community of communicators to a provider of education, telemedicine, and other special services… in the event, of course, it followed the money.
“What people these days call ‘Vibes’ is a smell, a taste of the soul”*…
Up? Down? Better? Worse? What’s actually going on in our economy? Noah Smith on the asymmetric warfare going on around that question…
As we gear up for election season, a big debate is whether the U.S. economy is doing well or not. Biden supporters point to extremely low unemployment, falling inflation, and real wages that have started rising again. Biden opponents — including both conservatives and socialists — contend that the inflation of 2021-22 left such a severe scar on Americans’ pocketbooks that low consumer confidence is perfectly justified. Biden supporters counter that since inflation has come down — and was never as severe as in the 1970s — the anger over the economy is just “vibes”.
Basically, the Biden supporters are right; the U.S. economy is truly excellent right now. Inflation looks beat, everyone has a job, incomes and wealth are rising, and so on. But on the other hand, I can’t command people to simply stop being mad about the inflation that reduced their purchasing power back in 2021-22. People care about what they care about.
At the same time, though, I think it’s possible for negative narratives about the economy to take hold among the general populace and distort people’s understanding of what’s actually going on. For example, John Burn-Murdoch of the Financial Times recently found [gift article] that consumer sentiment closely tracks real economic indicators in other countries, but has diverged in America since 2020:
Now this could be because Americans simply care about different things than Europeans; we might simply have started to really really hate interest rates since 2021, while Europeans didn’t. But a simpler explanation is that Americans’ negative sentiment is due to something other than economic indicators. And it’s possible that that “something” is a negative narrative — i.e., vibes…
“Vibes vs. data”
Indeed, as Burn-Murdoch observes in his analysis…
… It seems US consumer sentiment is becoming the latest victim of expressive responding, where people give incorrect answers to questions to signal wider tribal political or social affiliations. My advice: if you want to know what Americans really think of economic conditions, look at their spending patterns. Unlike cautious Europeans, US consumers are back on the pre-pandemic trendline and buying more stuff than ever…
“Should we believe Americans when they say the economy is bad?” (gift article)
But why? Jonathan Kirshner‘s review of Martin Wolf‘s important book The Crisis of Democratic Capitalism, suggest an unsettling answer…
The Crisis of Democratic Capitalism is an essential read for its articulation of the perilous crossroads at which the future of enlightened liberal civilization now stands. Wolf argues persuasively that, for all their visible flaws and imperfections, competitive market capitalism and liberal democracy are the best bad systems available for organizing human societies. And each requires the other to thrive—“[b]ut this marriage between those complementary opposites […] is always fragile.” Capitalism has been allowed to run amok, and it has elicited a backlash that threatens democracy…
Wolf’s central argument is that capitalism and democracy are inherently interdependent, yet also often in tension with one another—and managing the balance of that indispensable relationship is akin to walking a tightrope. In traditional autocracies, the economy has been captured by those that control the state, and that control is the basis of their power (which is why they are so reluctant to let go of the reins of authority). Liberal democracies today face the inverse problem: the capture of the state by those that control the economy. This is plutocracy, and aside from the injustice it visits on societies, it is also profoundly dangerous, because in democratic plutocracies (like the United States today), the simmering frustrations of mass polities will at some point lead to the voluntary election of an autocrat: “[I]nsecurity and fear are gateways to tyranny.” Decades of stagnant incomes, rising inequality, and the erosion of high-quality jobs for the middle class and the less-educated have allowed the relationship between capitalism and democracy to become dangerously unbalanced. The Crisis of Democratic Capitalism argues that the fault lies with the failure of public policy to tame the excesses of capitalism; it warns that those excesses will unleash the forces that destroy democracy.
Economic inequality, on the rise for 50 years, has soared to ever greater extremes in recent decades. As Wolf reports, from 1993 to 2015, the real income of the top 1 percent of the population in the United States nearly doubled; for everybody else, over those same years, aggregate real income grew by 14 percent. More pointedly, as the very rich got much, much richer from 2005 to 2014, 81 percent of US households had flat or falling real income—a weighty reminder that we continue to live in a world defined by the Global Financial Crisis and its aftermath…
… the financialization of the economy, especially after the 1990s, and the fortunes amassed from that process, were part and parcel of a larger shift towards “rigged capitalism”—the emergence of which The Crisis of Democratic Capitalism places at the heart of the matter. In a remarkable (and laudable) intellectual evolution, Wolf, who welcomed and celebrated the Thatcher revolution in Britain, and not so long ago penned the book Why Globalization Works (2004), now attributes the crisis of our time to “what Adam Smith warned us against—the tendency of the powerful to rig the economic and political systems against the rest of society.” Superseding a well-ordered market society, rigged capitalism—a toxic brew of developments and practices including financialization, winner-take-all markets, reduced competition, increased rent-seeking behavior (the use of concentrated economic power to extract monopoly profits), tax avoidance and evasion, and the erosion of ethical standards—has led to a widespread loss of confidence in the legitimacy of democracy…
These pathologies run deep, and well below the headlines. The use of political power to undermine competition—which must thrive at the heart of any capitalist society—is an endemic attribute of rigged capitalism. (And it is why we pay higher prices for most things than a “free market” would levy.) Many if not most giant corporations are now monopolies or near-monopolies, a situation that, as any card-carrying professional economist of even the most conservative stripe would agree, generates inefficiencies, rent-seeking behavior, and outright exploitation. Many markets have become shielded, protections reinforced by access to the corridors of power, with wealth extracted from consumers (and workers) in consequence: consider the atrocity of unskilled workers in fast food restaurants being forced to sign “non-compete” clauses, an act of collusive wage suppression.
Rigged capitalism—which yields massive concentrations of wealth for a sliver of largely-above-the-law plutocrats, combined with stagnation and declining opportunities for the majority—leads to a basic political problem: “How, after all, does a political party dedicated to the material interests of the top 0.1 percent of the income distribution win and hold power in a universal suffrage democracy? The answer is pluto-populism.” This is where race, identity politics, and the culture wars come into play. The century-long political hammerlock held by the Democratic Party on the Old South was based on voter suppression and other devices that guaranteed, for working-class whites, greater economic opportunity, access to the legal system, and higher social status than Blacks, in exchange for their political support. Bob Dylan, at 22 years old, saw through this in his song “Only a Pawn in Their Game” (1964)—and nearly 60 years later, that game hasn’t changed much…
rigged capitalism will nevertheless unleash forces not easily contained—and render liberal democracy unsustainable. As political scientist Rawi Abdelal has argued, “the social fact of unfairness is more important than the material fact of income and wealth distribution.” Endemic corruption, arbitrariness of justice, and fear for future prospects are poisonous to the body politic, undermining shared perceptions of the legitimacy of democratic society. In such settings, past and present, fear, despair, and frustration create the space for charismatic personalist authoritarians peddling promises of deliverance but who, once in power, consolidate their hold on the state by undermining the institutional constraints on their authority. And so, democracy dies from within.
What is bewildering about the American case is not that it has witnessed the rise of a leader who, as Wolf describes, “not only had no idea what a liberal democracy was but despised the idea,” and who was “instinctively authoritarian”—this, after all, is what pluto-populism conjures. What remains bizarre, however, is that, of all the possible choices, a hedonistic, ethically suspect, narcissistic grifter—who for decades was a signature beneficiary of rigged capitalism—would emerge as the people’s choice. Yet Donald Trump, like the gargantuan Stay-Puft Marshmallow Man from Ghostbusters, has been summoned by a collective subconscious rage to act as a malevolent score-settling agent of destruction…
“Rigged Capitalism and the Rise of Pluto-populism: On Martin Wolf’s ‘The Crisis of Democratic Capitalism’”
All three articles– and Wolf’s book– are eminently worth reading in full.
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As we ponder populism, we might recall that it was on this date in 1865 that the 27th state (Georgia) ratified the 13th Amendment to the U.S. Constitution, abolishing slavery and involuntary servitude (except as punishment for a crime). Proclaimed on December 18, it was the first of the three Reconstruction Amendments adopted following the American Civil War.
The Emancipation Proclamation (made in September 1862; effective January 1, 1863) had freed all current slaves in the U.S. (though as a practical matter freedom took years longer). The Thirteenth Amendment assured that it would never be reinstated.
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