World Politics News   Articles for World Politics Course

That aspect of the modern crisis which is bemoaned as a “wave of materialism” is related to what is called the “crisis of authority”. If the ruling class has lost its consensus, i.e. is no longer “leading” but only “dominant”, exercising coercive force alone, this means precisely that the great masses have become detached from their traditional ideologies, and no longer believe what they used to believe previously, etc. The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum a great variety of morbid symptoms appear.  –Antonio Gramsci, Selections from the Prison Notebooks

The deterioration of the market value of labor in richer parts of the world has been steady over the last forty years. Some poorer states, such as India and China, have enjoyed dramatic increases in the market value of labor during that same period.  However, even those countries are beginning to experience a weakening of labor markets.  Globalization has been the driving force of this trend, but the logic of globalization, and its more recent ancillary, robotization, will ultimately create a world, not of rich and poor nations, but of a unified rich elite and an undifferentiated mass of disenfranchised citizens.  For self-protection, that elite will divert the anger and despair of those citizens away from policies designed to enhance the market value of labor into the destructive forces of nationalism, xenophobia, and authoritarianism.

That outcome was hardly predicted in 1991 when the last ideological competitor to the liberal world order, socialism, collapsed (an earlier competitor, fascism, had been vanquished by war in 1945).  Economic activity conducted along classical liberal lines—market values determined by supply and demand, limited government intervention in that market, and reasonably stable currencies—was supposed to usher in an increasingly more comfortable and efficient world.  Indeed, the idea of progress is central to the political attractiveness of market capitalism.  There was, in the years following the collapse of the Berlin Wall in 1989, a sense that liberalism had “triumphed”.  Indeed, Francis Fukuyama wrote that “liberal democracy may constitute the ‘end point of man’s ideological evolution’ and the ‘final form of human government,’ and as such constituted ‘the end of history.’” (Fukuyama 1992)

That outcome had also been predicted earlier.  The world had witnessed a similar wave of globalization in the late 19^th century.  In both periods, globalization had been marked by dramatic changes in transportation and communications technologies which had the effect of creating global, and not local, supply chains.  In both periods, a new economic power had arisen—the US in the 19^th century and China in the 20^th century—which upset previously well-established supply chains.  And both periods experienced dramatic surges in income inequalities within certain socio-economic groups.  The 19^th century wave of globalization ended with World War I.

The 19^th century collapse of globalization has been well documented and articulated by Kevin H. O’Rourke and Jeffrey G. Williamson in their book, Globalization and History: The Evolution of a Nineteenth Century Atlantic Economy.  They argue:

The Impact of the railroad and the steamship was reinforced by political developments after 1860 as European economies moved rapidly toward free trade.  The world was becoming a much smaller place, and to an observer in 1875, it must have seemed as if it was going to get a lot smaller.  Yet nothing is inevitable.  History shows that globalization can plant the seeds of its own destruction.  Those seeds were planted in the 1870s, sprouted in the 1880s, grew vigorously around the turn of the century, and came to full flower in the dark years between the two world wars. (O’Rourke and Williamson 1993, 93)

This essay argues that in many respects, the current global economy mimics the O’Rourke and Williamson pattern.

The pattern, however, is just a heuristic device.  As compelling as some of the similarities between the two periods may seem, there are some very important differences as well.  The 19^th century contended with 2 billion people; the 21^st century, 9 billion.  No one in the 19^th century regarded human activity as a decisive element in the global climate; the 21^st century must address the urgent perils of climate change.  The blood and soil nationalism of the late 19^th century ushered in a devastating world war, a calamity thus far avoided in the 21^st century.  Finally, in the earlier time, the human intellect was regarded as singular.  Humans in the future must wrestle with artificial intelligences of considerable powers.

Moreover, the pattern places too much emphasis on the process or globalization as the motor force of the backlash implied by O’Rourke and Williamson.  The backlash against the liberal system of market capitalism has existed since it emerged: the desire to resist the commodification of social life so brilliantly explained by Karl Polanyi in The Great Transformation and described by him as the “countermovement” to market capitalism. (Polanyi 1944) That resistance is a parallel structure to globalization and it exists not only as a response to global economic intrusions on social life, but also in response to purely domestic consequences of market forces.  Market capitalism has always had winners and losers—that outcome is not unique to globalization.  The critical difference between the earlier period and now is that globalization has accelerated the process of losing and deepened it to include the former winners.

Finally, the pattern reflects a fundamental contradiction in the modern world system.  The liberal systems of market capitalism and representative democracy operate in completely different realms.  Market capitalism is truly universal and for it to operate most efficiently, the factors of land, labor, and capital should have no national identities.  Representative democracy requires an emotional identity which has evolved in a profoundly parochial manner in the agency of the nation-state.  The contradiction between global and local interests exists for all systems which purport to be universal.  Marx might have believed that the proletariat had no homeland, but World War I and Stalin belied that claim.   The nation-state has a hold on the minds of people that in times of distress can easily override the clinical self-interest assumed by the market.  Dani Rodrik accurately described these tensions in his analysis of what he called the “trilemma”: that democracy, sovereignty and globalization cannot interact simultaneously. (Rodrik 2011)

The Rise in Income and Wealth Inequality in the World

There are wide variations in liberal practices in the world. The social democracies of Europe are at one end of the spectrum.  At the other end are societies that adhere to stricter market rules. The United States is an example of the latter.  The differences are important, but they also are narrowing.  This essay focuses on the practices of the United States since its policies better illuminate how a state can be managed to serve the self-interest of a small group of people.  Since 1971 the market has worked to benefit an increasingly shrinking share of the population.  According to the Pew Research Center:

….”middle-income” Americans are defined as adults whose annual household income is two-thirds to double the national median, about $42,000 to $126,000 annually in 2014 dollars for a household of three. Under this definition, the middle class made up 50% of the U.S. adult population in 2015, down from 61% in 1971.  (Pew Research Center, December 2015)

Middle-class income has “trickled-up.”  After the Great Recession of 2008-09, the shift of income to higher-income groups was astonishing: “For the United States overall, the top 1 percent captured 85.1 percent of total income growth between 2009 and 2013. In 2013 the top 1 percent of families nationally made 25.3 times as much as the bottom 99 percent.”  (Sommeiller et al. 2016)

Inequality was not a contentious political issue in post-1945 America until the Great Recession exposed the political foundations of inequality. The bail-outs of institutions that had induced the crisis by their exorbitantly risky behavior highlighted inequality by linking it directly to a political process.  Gradually, greater attention has been paid to the question of income inequality, and the scholarly commitment to addressing that question was significantly boosted by the publication of Thomas Piketty’s book, Capital in the Twenty-First Century.

The earlier economic debates on inequality had centered on whether the traditional description of inequality—the Kuznets curve—was accurate.  Named after the economist Simon Kuznets, the curve represented the rise of inequality as farmers moved into cities in the early period of industrialization, and its steady decline as industrialization matured and the forces of democratization created an economic safety net.  Questions have arisen because the safety net has recently proven to be inadequate.  (Acemoglu and Robinson 2002)

Why has the safety net failed to address inequality?  Democracy has been derailed by rich elites who have used their economic power in the political process to further concentrate their wealth. The political response assumed by Kuznets is not self-executing.  Over time, the accumulation of wealth creates the means to prevent the state from taxing it.  The public good of a robust economy becomes the private good of a small number of people. Elites rarely, if ever, interact with the less fortunate in substantive ways.  Rather, they develop rationalizations to explain the failures of the poor.  Similarly, the poor have only a rough idea of how “rich” the rich have become over the last forty years.  The scale of the discrepancy between the very rich and the not rich today defies imagination.

The ability of elites to redefine the public good in terms of their private interest is not historically unusual. It is very difficult to measure how this redefinition occurs but there are many studies that suggest that the influence of elites on legislative outcomes is decisive.  Two Princeton scholars, Martin Gilens and Benjamin I. Page argue that:

When the preferences of economic elites and the stands of organized interest groups are controlled for, the preferences of the average American appear to have only a minuscule, near-zero, statistically non-significant impact upon public policy. (Gilens and Page 2014, 575)

The historical record suggests that when wealth becomes highly concentrated, public policy is determined more by the interests of the elites than by the interests of the majority.

Even those who do not believe that income inequality is in and of itself a problem were flummoxed by the consequences of liberalizing the American economy since the 1970s.  In October 2008, Alan Greenspan, the former chairman of the U.S. Federal Reserve, testified to the House Committee on Oversight and Government Reform.  When asked to explain how the behavior of several financial institutions led to the financial collapse of 2008, Mr. Greenspan told the Committee: “Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief”.  Self-interest is the bedrock of liberalism, but liberal theorists used the term in a social, not a personal, context.  Self-interest is not selfishness.  Self-interest includes a concern for the long-run, a regard for those with whom one will interact over time, and actions that will create a well-functioning economy that will be shared by all.  In other words, the public good is the ultimate objective of liberalism; individual freedom is simply a means to that end.

Mr. Greenspan should not have been surprised that lending institutions involved in the subprime mortgage crisis did not care about the public good—they did not even care about the interests of their shareholders.  The chief executives of those institutions had carefully insulated themselves from the consequences of their actions.  Mr. Greenspan was remembering a time when investment banks were privately owned, and profits and losses were borne almost exclusively by the partners in the firm.  That circumstance assured that the self-interest of the partners was closely identified with the viability of the firm over the long term.  That world ended when the investment banks went public.  Once the link between private and public loss was severed, the executives of those firms could assure themselves of generous compensation, even if the firm itself suffered a loss or went into bankruptcy.  The loss was shifted to the shareholders, or, in the most extreme case, to a central bank or sovereign government.  Selfishness no longer required self-interest, if compensation committees and shareholders were passive or co-opted. The executives had eliminated all personal risk to their behavior.

This circumstance was never envisioned by the classical liberal theorists:  the public good was never something that should be privatized.  For them, it was inextricably tied to the social universe in which capitalists and democrats were born, had children, lived out their lives, and died.  Current day pseudo-liberals are fond of quoting Adam Smith’s Wealth of Nations.  They would be better advised to read Smith’s Theory of Moral Sentiments which warns of the dangers of accumulating wealth without due regard for the society that collectively creates the condition for that wealth:

“This disposition to admire, and almost to worship, the rich and the powerful, and to despise, or, at least, to neglect persons of poor and mean condition….is…. the great and most universal cause of the corruption of our moral sentiments.” (Smith 1790. I.III.28)

The present age is one that has deliberately chosen to disregard his advice, and in so doing has compromised the economic progress once promised by the original liberal theorists.

The ideology of neoliberalism is not self-executing.  The Kuznets Curve suggests an inherent internal dynamic in the political economy of the market which can correct the tendency toward greater inequality.  That suggestion is misleading.  Democratization can lead to greater measures to protect the poor, but it can also lead to measures that heighten inequality. The US passed through a similar period in the late 19^th and early 20^th centuries in which incomes and wealth were concentrated among a very few.  The Great Depression was a consequence of that concentration and the US took several steps in the New Deal to avoid a repeat of the Great Depression. Those steps were not automatic nor were they part of an endogenous economic dynamic:  they required concerted political effort.  But the New Deal validated the link between inequality and political action predicted by Kuznets.

The path to the Great Recession of 2008-09 was also laid down by a series of political decisions, such as the repeal of the Glass-Steagall Act, to undo the protections of the Great Deal. In this process of de-regulation, democracy was not used to benefit the greater good.  The impact of these decisions was significantly amplified by the accelerating process of globalization which opened even greater opportunities for capital while weakening the power of labor by essentially doubling the available workforce from about 1.5 billion to 3 billion.

This freeing up of capital was not restricted to the US.  Relaxing government regulation, reducing taxation, fostering the free movement of capital, and emphasizing economic growth instead of economic development were the mainstays of the liberal economic order designed by the US in 1944 in the Bretton Woods institutions:  the World Bank, the International Monetary Fund, and what we now call the World Trade Organization.  The collapse of the Soviet Union and the decisions in the 1990s by both China and India to adhere to the rules of these organizations created, for the first time in human history, a truly universal market for capital.

These institutions have fostered the liberal ideology and have been marketed under different rubrics:  structural adjustment programs, the Washington Consensus, austerity, and neoliberalism.  This ideology is externally imposed at a moment of weakness in the economy of a nation-state, whether that weakness is a debt crisis, a sustained payments imbalance, or a sharp uptick in poverty.  In most cases, those policies have been imposed on poor states.  But neoliberalism can also be self-imposed.  The deep unwillingness of the US to consider tax increases to support the less well off in the United States is a political choice.  The objective of those choices is to disarm the power of the state to restrict the freedom of those who own capital.

The American experience was mirrored globally.  Poorer countries had had austerity programs enforced on them by the International Monetary Fund and the World Bank for many years and their effects have been, at best, mixed. (Easterly 2005) More recently, richer countries have had austerity programs imposed on them as well as conditions for sovereign debt relief.  For example, since 2008 Greece has received three rounds of assistance from international organizations.  In return for this assistance, Greece cut its government budget, raised taxes, reduced pensions, and reduced services.  The quality of life in Greece has deteriorated. Austerity programs in Greece were imposed so that wealth could be transferred from the ordinary Greek citizen to the banks that hold Greek debt.  The programs are designed to protect the interests of the rich at the expense of the poor.

Overall, the global economy has grown prodigiously over the last 40 years.  In many countries, such as China, economic growth has lifted millions out of poverty.  Dieter Ernst has a more detailed analysis of China and the process of technological change in Chapter 9 of this volume. However, globalization has also punished labor by facilitating the use of the lowest-cost labor linked into a global supply chain which knows no boundaries of time and space.  Those who rely on the market value of labor to survive are being economically disenfranchised, and robotization is likely to aggravate that trend.

From 1990 to 2009 the share of labor compensation in national income in 26 of the 30 OECD countries declined from 66.1 percent to 61.7 percent. (International Labour Organization 2013)   This decline occurred despite rising productivity in most of these economies, a shift from traditional patterns where labor’s share increased as productivity increased.  This shift has been noted by MIT professors Erik Brynjolfsson and Andrew McAfee in their book, Race Against the Machine, and they attribute this shift to increasing automation in the work place. (Brynjolfsson and McAfee 2012) Oxford researchers, Carl Benedikt Frey & Michael A. Osborne, estimate that 45 percent of US employment is susceptible to computerization. (Frey and Osborne 2013) More recent research suggests that the impact of robotization might be more even significant than expected. (Acemoglu and Restrepo 2017) The chapters by Martin Ford and Irmgard Nübler in this volume give more detail on the issue of how robotization will affect employment.

The current wave of technology is different from previous waves.  Technology has often had the effect of reducing the need for human labor and, by and large, these reductions have allowed humans to pursue more productive and less dangerous activities.   Usually there is a period of transition as the new technology displaces workers, but, over time, the increase in economic activity has created new opportunities for more creative work.  Historically, more jobs have been created by technological innovation.

This time, however, the changes will be different. 

First, the changes will affect more people.  When the Luddites protested the introduction of technology, their numbers were quite small and the textile factories were not very large in contrast to today.  For example, in 1980 the Parkdale Mills in South Carolina produced 2.5 million pounds of yarn every week with 2,000 workers; it now employs 140 workers. (Clifford 2013) Similar job displacements will occur in countries like China. Because robotization expands productivity as much as 20 times per worker, the phenomenon will have a dramatic effect on Chinese industry. (Middlehurst 2015) Even low wages cannot compete with no wages. 

Second, the jobs created by this technological revolution will likely be for highly skilled workers.  It is hard to imagine what kind of jobs for unskilled workers will be created by the robotization revolution, although that possibility cannot be discounted.  It is harder to imagine societies comprised only of individuals with the aptitude or the inclination to develop higher skills.  It is also difficult to imagine the sustained societal commitment necessary to raise skill levels for all.  There are very few reasons to believe that the declining share of labor in national income will do anything but continue.

Finally, earlier periods of technological change occurred when there were existing social and economic alternatives for the technologically dispossessed.  Think of the differences in the United States between the technological wave of the late 19^th century and the current technological wave.  Families were more tightly integrated and social groups were deeper and more willing to cushion the blow of unemployment.  There were also more ways to keep oneself alive without an industrial job.  Farming and other means of subsistence were still viable for many and housing was less expensive.  At other times of technological change, unions were strong enough to cushion the impact of dislocation.  Today, only the state and private charity offer shelter from hard times. 

There is no need to answer the question of whether robotization will bring about the end of jobs.  That question is impossible to answer and the wrong question to ask (The Economist 25 June 2016).  As Mignon Duffy and Robert Pollin persuasively argue in this book, there are very large number of potential jobs serving infrastructure, the environment, and social needs.  The correct question to ask is “how do we pay for these services?”  The neoliberal response has always been that only jobs associated with private profit should command an income.  That response has assured us all that we can have an unlimited supply of Pet Rocks, but does nothing to assure that we can all drink clean water. David Rueda and Stefan Thewissen address the issue of compensation in Chapter 7 of this volume.

It also matters little to the unemployed that the future might be brighter for employment. Robotization may in fact create more jobs in the long run, but future economic payoffs do nothing to diminish the political effects of lost jobs.  Workers must pay a mortgage this month, or a tuition bill this semester, or a doctor’s bill this week.  Only relatively few individuals can afford the luxury of a long-run perspective.