Postcapitalism [in Amsterdam]

Lecture delivered at De Balie, 25 October 2016

We’re living through the most exciting period of technological innovation for at least 200 years — and the worst ten years of economic history since the 1930s. The Bank of England governor, Mark Carney, put it starkly in March at the G20:

“The global economy risks becoming trapped in a low growth, low inflation, low interest rate equilibrium.”

The only thing to disagree with there is the word equilibrium. Economic crisis spilled over into social crisis; now we have a crisis of multilateral institutions — and now Brexit.

I started work on the postcapitalism hypothesis out of frustration with short-term explanations for the global downturn after 2008.

We were told it was just a blip. That was wrong. We were told there could be a ten year hangover while we paid down all the debt. Instead, we did the economic equivalent of drinking whisky for breakfast. In the last ten years we added $57 trillion dollars to the global debt pile.

Now people are starting to say: maybe the economy never recovers. Former US Treasury Secretary Larry Summers warns loudly of the threat of secular stagnation. Meanwhile, another eminent mainstream economist, Paul Romer, says economics itself is like a science that has gone backwards for three decades.

So I want to start by giving a very brief overview at the macro level of what is wrong.

The neoliberal economic mode is broken. We can sum up the problem in three graphs.

First — stagnating real wages. Here’s the graph for the USA — you see workers plus new technology go on creating productivity gains. But almost none of the upside flows to the human beings in the form of wages. And in this gap, which opens up in the mid-1970s, you see the difference between a successful economic model and one that’s going to hit trouble. What kind of trouble? This kind.

The graph shows global debt to GDP. It’s the middle line and the right hand scale we’re focused on — showing debt rising from 200 per cent to 300 percent of GDP. We replaced wages as a driver of growth with debt — and that’s triggered repeated cycles of boom and bust. But cycle is actually the wrong word. It’s not like an oscillator: it’s like a machine shutting down. Look at this, third piece of evidence:

It’s the graph of base interest rates since 1980. Everytime there’s a boom/bust, central banks flood the system with money; that depresses long term interest rates — and many people look at this graph and say: this is the slow death of return on investment. There is now $12 trillion dollars of confected money in the global system and the outcome is not hyper-inflation — it’s very low inflation and negative interest rates.

In mainstream economics, theories of technological change and macro-economic stagnation inhabit different disciplines. When they can bear to think holisitically, mainstream economists ask: how can stagnation be happening alongside such a huge technological advance?

Postcapitalism theorists say I all these things — low measurable growth, rising debt, stagnant wages and suppressed returns on investment — could actually be in part caused by the new technology.

Capitalism is failing to adapt

So how could one of the greatest technical leaps forward ever be causing something bad in economics?

The answer is — there’s something unique about information technology, which suppresses capitalism’s capacity to adapt.

When the system is in big trouble, over the past 240 years it usually adapts. It morphs radically, so that the old generation look at it and say — “this can’t be capitalism”. Usually when it adapts, it creates a new synthesis between technology and society — so you get the factory system in the 1800s, you get railways plus heavy engineering in the 1850s, you get the scientific management revolution before the first world war; you get the science-led postwar boom of 1948–73.

I think the problem is: the new technology is suppressing the economy’s ability to adapt.

Let’s think about what normally happens. Old jobs are automated, but new jobs replace them, with higher wages. New commodities command higher prices. Carlota Perez calls this the techno-economic paradigm and each time it’s happened so far it produces an economy based on higher value: higher wages, higher prices, higher living standards.

But information disrupts this process in three ways: in its effect on work, and its effect on ownership, with the emergence of new models of sharing and collaboration.

Romer pointed out in 1990 that information goods — if they can be copied and pasted infinitely, and used simultaneously without wear and tear — must fall in price under market conditions to a value close to zero.

Of course — and Romer anticipated this — capitalism responds by inventing mechanisms that put a price on this zero-cost product. Monopolies, patents, WTO actions against countries that allow copyright theft, predatory practices common among big technology vendors, intellectual property laws that state — long after the world has blown to smithereens and is floating through the universe as a cloud of dust — that Sony will own the James Bond movie Casino Royale. Thats what it says on the contracts Hollywood makes you sign: “for all time and everywhere in the universe”.

But this new reliance on monopoly to maintain price means the essential market relationships are no longer organic. They have to be imposed each morning by lawyers and legislators.

This information effect on price is affecting the physical world not just the world of information goods. Just as the price of bandwidth and processing power has e fallen exponentially over the past 30 years, so has the price of DNA sequencing. The rate of progress in computer processing power, Moores Law, is the straight line at the top of this graph. To process a whole genome now costs $1000. Fifteen years ago it cost $300,000.

The second impact of information is to automate work faster than new work can be invented.

Around 47% of all jobs are susceptible to automation, say Frey and Osborne (2013). And information does more to transform work: it makes it modular, loosening the link between hours worked and wages; and it makes work possible to do outside the worplace — blurring the division between work and life.

So falling prices and the automation of work have a very disruptive impact on the normal process of adaptation. The normal process of adaptation creates high priced things, high skilled jobs and high wages. Typically it restores profitability in a big way.

This is just not happening fast enough. High value jobs are created — but not fast enough to replace the low value jobs. In fact, we’re creating a lot more low value jobs, just to keep people in work.

Now lets look at the third big change information brings — the breakdown of organisational barriers and ownership structures, which we could sum up as “sharing” were it not for the fact that the word “sharing” has become colonised by a few companies that are really rent-seekers .

It has begun to create organisational and business models where collaboration is more important than price or value.

I hope everyone here understands the concept of externalities — because it is crucial. Networked business models create massive positive spillovers — network effects –where the data, or the wellbeing, or the utility created by network interactions is capturable and exploitable.

If you want an example look at this. It looks like a very accurate map of Amsterdam but it is not. It is a track of the movement of people who have the app “Human” on their cellphones inside Amsterdam. It’s just one layer of the track — there are tracks for cycling, running, walking, boating. It’s all owned by the App company, which just got taken over by another app company.

You produced it. Who should own it?

Facebook, Amazon, Google are the best known companies exploting the network externalities — but it’s happening in the physical economy too. Just think about the difference in value-capture between a turbofan engine maker 20 years ago and now. The engines feed back their data in real time; if you’re Pratt & Whitney, you’re getting realtime data from thousands of installed engines; you can predict failure; lengthen maintainance cycles, understand patterns of fuel usage.

But there is no reason for all the externalities to be captured in the form of privatised commodities.

As soon as technology allowed it, we started to create organisations where the positive effects of networked collaboration were not captured by the market.

The technology itself is in revolt against the monopolised ownership of intellectual property, and the private capture of externalities.

Postcapitalism is possible; fragmentation is also possible

These three impacts of infotech — on price, on work on sharing — are what lead me to believe post capitalism is possible. That is, a form of economy where there is relative abundance of information, abundance of many things, and high capaicity utilisation and recycling.

But it’s worth saying that geopolitifcal fragmentation is also possible. Its possible that we get a load of competitive currency moves that destroy globalisation. The globalisation process is already stalled and slowed down. Look at the failure of the Canadian/EU trade deal; look at Brexit; look at the stonewalling of TTIP.

Because the elite is throwing up almost no alternative thinking, we are getting a return to nationalism, demagogery, racism, xenophobia. Resisting this means reaching for short term and real world solutions.

However, if I am right, we have to fight today’s battles with an eye to the more systemic change that is under way.

It’s a 500 year event

When I try to explain this to economists I always say: it’s not a 50 year event, like a depression or and industrial revolution; it’s a 500 year event that’s going to take a long time and be fairly chaotic, but better by the end of it. A good mentor to follow here is Sir Francis Bacon, who invented the scientific method. In 1620 he wrote this:

“Printing, gunpowder and the compass: these three have changed the whole face and state of things throughout the world”

It led to the discovery and plunder of the new world, new supplies of gold, the expansion of banking, trade, the emergence of a weird institution called the company. If you were stuck within it, there was no label to stick on it. You simply understood — as Shakespeare does in his plays — money is doing something new to societies; changing culture, relationships, the way we speak and act really profoundly.

What should the left do?

So what does this mean for the left? For the wider trade unions, progressive movements, and the left and social-democratic parties?

The first thing is to actually state — we’re going to break with neoliberalism and try and design a replacement.

This will be a form of capitalism with key elements of neoliberalism suppressed — financial exploitation, inequality, the use of central bank policy to enrich banks instead of people…

That part of the programme is not hard to design. In the Eurozone it would involve suspending Lisbon, tasking the central bank to finance a New Deal in southern Europe; asking national governments in northern Europe to revive demand through tax and spend policies; national investment banks.

This is what the economists of the IMF and G20 are demanding “if possible”, so actually for the left to say instead “it must happen” is vital now. If we dont do this — kickstart growth in southern and eastern Europe — with a co-ordinated stimulus package — the xenophobic right will win.

But as we act now, we also have to think about the transition we want to engineer.

Here’s my mental model of the transition that might be ahead of us. Instead of an economy consisting of the market and the state, you have an extra sector, which I call the non-market. It already exists: Linux, Wikipedia, Apache, all the open source tools and standards we use, all the existing knowledge downloadable for free; in the analog world — all the co-ops, the peer-to-peer lenders, the ethical banks and credit unions.

Our long-term aim should be to push more and more economic activity gets done outside the market and the state. But how do you calibrate success? How do you measure Wikipedia against Boeing?

Actually it’s a problem economics faced before. In the 1920s, when they struggled with what was going on in the USSR and some other short-lived communist republics in Hungary and Bavaria, they’ve faced the problem — how do you measure markets versus non-markets.

The answer — the measuring stick — has to be work.

The left’s aim in the transition should be twofold: to push as much work as possible into the non-market sector. So that not only encyclopedias but some healthcare, education, wellness, cleaning up the beach — gets done in the free time created by mass automation.

That means actively promoting automation; but at the same time we need to end of reliance on wages for work.

We need quickly to pursue the experiments with the universal basic income — and we need to scale them up using modelling — and aim within 10 years for states to be in a position to roll out the policy itself.

But at the same time, the role of the state in the transiton changes. If we recognise people are not going to be able to live through work-related wages, then the basic income is only part of the solution.

The state has to provide cheap basic goods with the aim of lowering the input costs to labour. Today we speak of the sporadically employed as the precariat — because it is precarious to have no guarantee of work or wages. But if the state provided housing, health, education and transport very cheap or free it would become very livable to be sporadically employed.

At the same time the state — including city governments — needs to promote open source and non-profit business models.

That means it has to attack rent-seeking business models like Airbnb and Uber whose whole aim is to override local regulation in the race to the bottom.

What choices can we make?

What should individuals do? I think the important thing is — once you get the overall picture of a neoliberal crisis, and a long transition to abundance, you have to decide what part you want to play.

I have a hunch that one of the most effective institutions for promoting the transition is going to be the city. A city has dense networks; they make change survivable; they also have enough power to resist the neoliberal elite when it tries to impose new, ever more bizarre, iterations of neoliberalism.

Barcelona’s mayor has declared it a rebel city, and called for a network of rebel cities. In Manchester, where there will be an elected mayor but no elected assembly to hold him to account, the left has begun drawing up a People’s Plan for the city’s infrastructure decisions. Barcelona is currently engaged in a push for technological sovereignty — which means owning public data, ensuring privacy and ending lock-in to predatory technology contracts.

There’s other things to do; start a co-op; write an open-source App; work for free sometimes; create free stuff. That’s one part of the revolution. The important thing is: to demand the state ceases to support neoliberal solutions and actively supports collaborative business models.

If we can imagine a zero carbon future and implement it by design, we can do the same for a zero-poverty future and a zero work future too.

Watch the video of the Postcapitalism lecture at De Balie here.