By now I imagine most Captains and Midshipmen of Industry and Finance have heard of the French economics professor Thomas Piketty. Some may have requested an explanatory memo from an aide, others may have read the published précis of his work and a few may even have tackled his best-selling blockbuster. Certainly he set off a lively debate in academic circles peopled by economists and among those who fill column inches in the weekend supplements for a living. Naturally there is a great deal of argument for and against his thesis and much quibbling about his data and its interpretation. I plead guilty to having read only the brief précis but this is sufficiently clear about the main point of the book which is to draw attention to perceived faults which seem to be fundamental in the way the Western world (mostly) organises its economic affairs. His work adds considerable weight to all the other evidence that all is not well.
Essentially Picketty is criticising, indeed castigating, western capitalism in its present form. Notably he claims to show the inevitability, under present arrangements, of the rich getting ever richer and social inequalities ever more glaring. Unlike Marx he does not explicitly call for red revolution but he does believe change is desirable.
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Without which, What?
It is however unlikely that many among that famous 1% have given serious attention to his reasoning, beyond perhaps a dilettantish few words at a dinner party after reading some of those column inches. The high life is hardly affected and there are indeed many more fashionable problems claiming their interest. I recall reading in a book about the Russian revolution a description of a scene in a smart Moscow restaurant where, as the news spreads of the success of Lenin and the Bolsheviks, the elegant and wealthy diners are startled to see emerging from behind the scenes all the previously submerged members of the staff. Emerging gaunt and ragged from nooks and crannies but with a glint of triumph in their eyes as they calmly take the place over and summarily eject the distraught clients who suddenly realise they have nowhere to go and no carriages to get there.
Inter alia think Castro, think Mao, think Pol Pot – and latterly “Our Chavez“. Their mistaken glorious revolutions may have run into the sand but only after the misery and mayhem of many lost decades.
But think also why they succeeded in the first place.
History, life, the weather, everything tends to move in cycles. Or, very often, as in reality things are quite complex, it might be more accurate to say epicycles. Whether affected directly by mankind’s activity or not, tree rings and ice cores clearly show that the Earth’s climate has gone through many cycles of warming and cooling. Business is (in)famous for it’s cycles of boom and bust – which no economic theory can predict with sufficient influence to persuade anyone to do much about it. Human society has its own social cycles of politics, fashion, morality, etc. For example we are currently still in a phase of reaction against the excessively moralistic (and very hypocritical) attitudes of the Victorian period but there was overt libertinism and nudity on the beach before uptight rectitude caught on around the middle of the nineteenth century. Earlier still was the intense and dismal religiosity which led to the English civil war. And so on.
Wheels within forgotten wheels: we are living in a time which in some ways is reminiscent of the Thirties of the last century and in others suggestive, economically speaking, of the late Victorian/Edwardian period. Great wealth alongside great poverty; extraordinary advances in science, technology and industry but often poor public provision of certain civilising services – everything from inadequate infrastructure maintenance, to lousy state education, to absence of modern levels of health care. Overbearing monopolists and piratical industrialists striving, not always ethically, to develop huge concerns, their strength able to co-opt or coerce governments – and, paradoxically, in some cases their consciences or just their private interest leading them to devote the huge wealth they’d amassed to private charitable foundations.
The world is out of kilter. Extremes of poverty, evident territorially and exacerbated by pressures of demography, morbid politics, war, disease, drought and climate change are having an osmotic effect propelling an irresistible movement of people across frontiers. (Many from Asia and the Middle East die cooped up in badly ventilated long-distance trucks. Thousands have perished struggling across the Mediterranean in unsafe, overloaded boats provided by vicious traffickers. Or, watch on Spanish TV the luckless Africans who, except for an occasional few, unsuccessfully assault in droves and in broad daylight the 6 metre high, double razor-wire fences enclosing Ceuta and Melilla). In addition large nations and groups are in various serious economic and social difficulties and many leaders are petty politicians barely able to lift their vision above local concerns. Lacking the respect of the public and often incompetent or corrupt or both. It is notable that nowhere to be seen is a single individual with the stature of a real statesman, someone of ability and experience and able to attract admiration across borders.
In the last few years we’ve had a long running and very severe financial crisis, provoked, with regional variations by reckless or even criminal behaviour by banks and other institutions. Bad conduct by pharmaceutical, oil, energy and construction companies also comes to mind. (The misery is compounded in Europe by the associated Euro crisis which appears not to have been solved yet by the politicians and technicians practicing only their feeble art of the possible). Losses are truly mind-boggling and in many cases, unbelievably, no-one is being held to account. Indeed, increasing the public’s disgust, many fat cats are still gaily pocketing obscene bonuses.
Quite some years ago, well before the present misery began, the Economist published my letter commenting on the effect of company executives having the untrammelled power to award themselves telephone number remuneration; after only a few years they would accumulate enough personal capital to make themselves financially independent and in the process might not be caring enough of the company’s and shareholders’ interests. They could leave and the company go down the drain but they’d be sitting pretty. And all nominally legal. (What happened to the late lamented Rover car company comes to mind).
Now the telephone numbers have become intergalactic and the sums involved are beyond all common sense. No manager is worth a hundred million a year; any more than a footballer is worth the silly sums some of them get paid. Far too much money is swilling around in undeserving pockets and the sad thing is that ultimately it all comes from the account of Joe Public who feels aggrieved but essentially powerless.
Of course, international agreement would be needed to establish a better and better regulated financial system. However the USA by itself would have enough power and influence to start a real movement in this direction. I don’t know the best way to go; there are several ideas that have already been tested in the real world: Islamic banking, micro-finance and the Spanish cajas. Several cajas – banks whose objectives are social rather than investor profit – were unfortunately suborned and ruined by local politicians but their basic idea is laudable.
A related problem is the culture of egos. Uncontrolled Big Men gorging their self-esteem with ultimately unproductive policies, mergers or take-overs. Their activity is encouraged by the environment they swim in. Even the committee of Washington politicians investigating the failure of General Motors was astounded at the insouciant arrogance shown by the executives arrival there in the bankrupt company’s private jet. It is no longer sufficiently sexy to run an honest old-style company making needed products for real people. No longer acceptable to have steady performance, going up and down with some general cycle. No, today it must be a realised ambition to go onwards and upwards.… for ever. Expand to infinity or lose face: Still more sales, more job losses, more productivity, more ulcers, more mental breakdowns and more broken marriages.
For ever? If nobody has a TV set or some other new invention it is obviously possible to have sales growing until the market becomes saturated and things tail off. But paranoid CEOs flog the firm to be ever more efficient to somehow squeeze profits growth out of a declining, probably increasingly competitive, market. Of course this also is subject to diminishing returns – unless they happen to have a unique niche product which can become a cash cow; this naturally to the customers’ detriment.
Pursuing efficiency of course leads to increasing automation and off-shoring. On the face of it harnessing technology is a good thing; the effect of developments since the industrial revolution began has had enormous positive results in the long term. Fortunate people today can live in a manner hardly available to kings in former times. However there was misery along the way: disgusting conditions in mines, factories and slums; displacement and dislocation of huge numbers of people. (Not to mention the horrendous scaling up of warfare and terrorism due to scientific development of military technology). Whole sub-cultures eliminated: Just one example: the transport infrastructure and the human organisation associated with the horse was dismantled and replaced by the power of steam and internal combustion. At least that change happened fairly gradually and many had time to hang on or to adapt. Today major industries can be wrecked within a few years either by some innovation or by geography.
One cannot un-invent. Mankind suffers from or is blessed with having insatiable curiosity – accompanied by ravenous greed. Creative destruction has a long history and in the past people adapted, eventually. However there does seem to be a problem in the current situation: One important effect of modern trends is the hollowing out of the working population. The traditional purpose of business activity is to produce products or services for sale to the public (or via other organisations) and in doing so to make a profit for the owners. BUT if automation and information technology replace both office and factory workers, not many people will be left with a decent income except for a few managers and specialists dealing with software and machine supervision. Not everyone is able to retrain as a programmer or web designer and anyway very large numbers of such jobs are not needed. The luckier ones losing administrative and machine-minding positions may find jobs, perhaps part-time only, in the much touted service sector but these are not renowned for decent wages.
So where will there be enough people actually able to afford the products produced? Already this is a problem in the USA and elsewhere and it can be expected to spread throughout the developed world. The underclass is liable to increase while the 1%, the Big Men and their lucky adherents increasingly isolate themselves in stretch limousines and gated communities.
For well over a century now the USA has been a beacon in a frantic world. As a child, after somehow spraining a wrist jumping joyfully at the sight of the Statue of Liberty, I went through Ellis Island with my parents who emigrated to Boston from war-ruined Britain. My father established a successful business but in the end we stayed for less than two years. A city where Mayor Curley was re-elected while still in prison. Where, when the Party knocked on the door seeking contributions my father declined – on grounds of being a recently arrived stranger, and one not even able to vote. Friends afterwards were aghast and said this was very unwise. Perhaps he was prescient but this and other factors decided my parents to return to the UK – still very dependent on Marshall Aid and maintaining wartime rationing until the mid-fifties. My parents explained that they considered the USA was not a good place to bring up children.
Consider how things have developed since then. Responding to ineluctable pressures on the world’s wealthiest and most successful state the USA became the self-appointed arbiter and de facto ruler of much of the planet’s affairs. The country never was all Motherhood and Apple Pie as its self-myth would have it but on the whole an essential goodness existed despite such negatives as Al Capone, Uncle Tom, rampant commercialism, megalomaniac industrialists and suspect politicians. Or at least the bad was mostly on a human scale; machines could still be mostly understood with a modicum of application, and the good was reasonably evident. It was for most people a no brainer to have to choose between democratic Uncle Sam and the numerous dictatorships and dismal states from which the poor and huddled streamed endlessly across the Atlantic.
This is still largely true but the country has changed in ways which most of the inhabitants either do not notice or feel impotent to change. When did doctors begin to worry more about their insurance cover than about giving attention and care to their patients? Machines are no longer understandable: I read once that perhaps fifty people on the planet truly comprehended the workings of a microprocessor and things have got a lot more complicated since then; my car has an instruction manual of over four hundred pages! The TV is similarly complex. Democracy is no longer a simple matter: Power, dubious ideology and, especially, money have distorted politics enormously. More than ever “PR” and mendacity are prominent in campaigns and money is indispensable in truly obscene amounts. Many electoral constituencies have been endlessly and artfully redrawn, “gerrymandered“, to ensure the return of incumbents. Secure in their seats these representatives of the people loll, self-satisfied, in deep leather swivel chairs, oblivious to the need for change and a return to basic values. Other electoral problems include the unnecessarily long time that elapses between the election of a president and his assumption of office; also the frequent and substantial delays before important government and other officials are confirmed in their posts. This, the mid-term interruption, and the awkward period towards the end of a term can mean that a president’s effective time in charge is barely half the four short years to the next election.
Concomitantly at present there is the ideological divide, absurd seen from overseas, which has long paralysed the government. Likewise a legislature full of lawyers has produced much awkward legislation and business and citizens – at home and abroad – despair of all the administrative rules and regulations loaded upon them. My cousin in Seattle has to pay $1000 to a specialist to do her tax return and claims that he doesn’t really understand the thing either. Here, only to save myself the bother I pay a friendly accountant just €50 to deal with my (admittedly a bit less complicated) return. An over-lawyered society finds partial relief in humour but I don’t recall seeing any jokes about being over-gunned.
The end result is that in many ways the USA seems to be slipping down the slope towards decadence. The uneven approach to Obamacare means that many are still without the level of medical provision appropriate to a rich and civilised country. Despite the plethora of lawyers the administration of justice has many flaws. (Ask BP and those individuals wrongly convicted). In many states the quality of public education is low. As is the attention paid to the provision and maintenance of essential infrastructure such as roads and bridges. There is the well-known scandal of out-of-control security services and the USA attempts to an overbearing degree to apply its laws extra-territorially.
An ever rising public debt is financed with government bonds, vast numbers of which are held by the Chinese. Individual Chinese worry about their financial security and single-mindedly pursue wealth; many of them believe firmly in the dollar and invest heavily in T-bonds. The Beijing government is in the odd position of being an enormous US creditor but it is one like the uncomfortable bank which is owed ten million dollars by a dodgy customer.
In history all empires and civilisations have arisen, prospered and then gone into oblivion. All except one: China is the only state still in being which was around at the time of the Persian, Greek and Roman empires. In the interim many other societies have disappeared as well. One has the feeling that without a degree of intelligent reform coupled with inspired leadership, the USA, which is essential to the wellbeing generally of the West may decline even further. I believe it was Churchill who said that when faced with a problem the USA always tries out all the wrong solutions before eventually coming to the correct one. One hopes he was right.
Of course similar problems can be cited for many other countries. The sclerotic EU is a mess and also, in Mao’s famous term, a paper tiger. The difficulties of the group using the Euro are particularly intractable and the fundamental problem of how to control the common currency has not been solved. The EU has twice the American population but only a fraction of the reach and influence of the USA. Each country has its own problems and shares the difficulties arising from an organisation which is slow to act and hard to co-ordinate other than in a way which represents the maximum agreeable to the most awkward states. Growth has languished for years already, Unemployment is at record levels, especially among the young (25% and over 50% in Spain!). A Japanese-style long-term depression may be unavoidable.
The ghosts of the Thirties are stalking about. Beggars are everywhere; food banks ever more numerous; families on the street after being ousted from their homes; businesses bankrupted in ever increasing numbers; empty shops and factories. Fascist ideas and social intolerance rising – Nazi-like and strongly right-wing parties have become prominent; not only in Greece and Hungary but also in such hotbeds of reason as The Netherlands. New left-wing parties are also having a strong attraction: vide Podemus which currently has very high poll results (20%) in Spain. Anti-ethnic, anti-immigrant, anti-muslim, anti-semitic tendencies are already strong, on the rise and are not always dealt with promptly and effectively by nervous authorities.
History unheeded is liable to recur. If the basic economic situation does not improve, if levels of poverty, exclusion and social deprivation and inequality continue to deteriorate, then opposite movements can be expected to grow again, corresponding to those of the early twentieth century: Fascism with its attractive slogans and ugly methods and communism with its specious promise of revolution and another, better, way to go might arise to plague us once more.
And who knows, perhaps the 1%, dining out at the chic PoshSmart restaurant may suddenly discover that their Penthouses and Duplexes are closed to them and that their stretch limos are no longer available to get them there.
What indeed? The usual way had been going unchanged, unmodernised, for forty years or more. I managed to resolve things in the customer’s favour but the stateside grumble factor was not appeased.