Tuesday 28 October 2014

The world will change around 2020

Something is happening out there.  A fascinating article in Der Spiegel (thanks, Joe) puts the issue pretty succinctly: the global economy is no longer working as it should - the banks are not lending, and the huge sums to be distributed by them simply shore up their balance sheets, the middle classes struggle increasingly to make ends meet - and the poor just struggle.  While the handful of those at the top - less than one per cent actually - extract more and more.

It is the Piketty thesis and it is accepted increasingly in every area of modern life, except among national policy-makers.  The idea that the institutions of modern capitalism have become extractive - as institutions have done occasionally in history, with disastrous results - is becoming increasingly accepted.  The problem is that there are few agreed solutions, even tentative ones.  Certainly not from Piketty.

This is how Michael Sauga puts it in the article, describing the economist Daron Acemoglu:

He became famous two years ago when he and colleague James Robinson published a deeply researched study on the rise of Western industrial societies. Their central thesis was that the key to their success was not climate or religion, but the development of social institutions that included as many citizens as possible: a market economy that encourages progress and entrepreneurship, and a parliamentary democracy that serves to balance interests....

Extremely well read, Acemoglu can cite dozens of such cases. One is 14th century Venice, where a small patrician caste monopolized maritime trade. Another is Egypt under former President Hosni Mubarak, whose officer friends divided up key economic posts among themselves but were complete failures as businessmen. These are what Acemoglu calls 'extractive processes', which lead to economic and social decline.  The question today is: Are Western industrial societies currently undergoing a similar process of extraction?

The parallel I draw in my book Broke: How to Survive the Middle Class Crisis is with Spain at the height of its imperial power, where the gold poured in, the ability to manufacture withered away and inflation finally overtook the empire.

It may be that deflation is the demon that will do for us.  It does look increasingly as though the struggling big banks will go through another period of instability, as the big economies begin to struggle again  A new settlement is required - and one that can include people again - and, history has a habit of providing these things once the situation is really desperate.

What is more, those moments of reboot seem to happen pretty regularly every 40 years or so.  The last one was in 1979/80.  The one before was the rapid political and economic shift in the UK and USA in 1940/41.  Before that, it was the new settlement ushered in by the People's Budget of 1909 and Teddy Roosevelt's busting of Standard Oil, which ended finally in 1911.  The big political shift before that came in the mid-1860s.

We are not quite overdue for a major reboot, but it is coming and - by my 40-year pattern - it should emerge around 2020.  We don't know how it will happen, or what constipated failure to tackle the underlying forces at work will provoke it, but we can be pretty clear already the kind of shape it will be.

And here the Der Spiegel article reaches a parallel conclusion, quoting Acemoglu again:

What is needed, he argues, is a new political alliance that takes a stand against the power of the financial industry and its lobby. He sees the anti-trust movement from the beginning of the last century in the United States as a model. It was a broad coalition from the center of society and finally achieved its great victory after decades of struggle: the breakup of major corporations like Standard Oil.

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1 comment:

Iain King said...

Excellent piece. I'm sure you're spot on. But there could be a difference this time. Whereas previously, monopolists had massive political and economic power, modern politics and media may make it easier for them to influence the debate and public opinion. Power brokers may be more able to stall radical change, or bend it to their will, than previously.