Posts Tagged ‘growth’

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Special mention

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Block chain network concept on technology background

Forget Bitcoin. It’s the underlying technology, blockchain, that is generating the most excitement. Even utopia!

Bitcoin is a digital currency that was invented in 2009 by a person (or group) who called himself Satoshi Nakamoto. His stated goal was to create “a new electronic cash system” that was “completely decentralized with no server or central authority.” After cultivating the concept and technology, in 2011, Nakamoto turned over the source code and domains to others in the bitcoin community, and subsequently vanished.

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While Bitcoin (and other so-called cryptocurrencies, such as Ethereum, Ripple, and the other 1500 or so other such currencies) have generated a great deal of media attention (for their novelty, their ability to permit transactions beyond government surveillance and control, and their wild gyrations in price), it’s blockchain, the technology behind Bitcoin, that carries the utopian promise of remaking the economy and society.

At its most basic, blockchain provides a decentralized database, or “distributed digital ledger,” of transactions that everyone on the network can see. This network is essentially a chain of computers that must all approve an exchange before it can be verified and recorded.* The technology can work for almost every type of transaction involving exchange-value, including money, goods, and property. It can also serve as the basis for a variety of other functions, from distributed cloud storage and the recording of property titles to authenticated voting and decentralized social media platforms.

For some (such as Brendan Markey-Towler), blockchain technology makes it possible not only to envision, but to establish a viable pathway toward, a utopian alternative to contemporary society.

On the face of it a mundane and boring technology for bookkeeping, blockchain is actually revolutionary because it makes the anarchist utopia a more realisable dream than has ever before been possible. At the very least it provides the strongest challenge ever posed to the monopoly of the state over the promulgation, formation, keeping and verification of institutions and the public record. The purpose of this essay is to investigate the conditions under which this might occur, and the dynamics of a society organised using blockchain technologies.

According to Markey-Towler, blockchain can serve as the basis for organizing an anarchist utopia—”a society which is composed of groups formed entirely by mutual association and absent violence and coercion.” The idea is that the keeping of verifiable records via blockchain technology allows for the creation of a public record that is kept by everyone and updated by collective consent, which means there is no nexus of power (such as the state or monopoly corporations) that can be exercised to corrupt or use the public record as a tool of extortion.** Even more, the existence of blockchain technology makes it possible to exit from existing economic and social relations and to practice, if only in a selected domain, a different way of organizing economic and social transactions. Thus, it permits a “sort of competition” for adherents between the two systems—one organized in and by the state, the other via decentralized distributed ledgers—and creates the possibility for individuals to choose the set of institutions associated with the alternative, blockchain technology.

I have no interest here in exploring either the feasibility or desirability of such a blockchain utopia (although I have elsewhere, e.g., here and here). My focus for the moment is otherwise—on the fact that the claims about blockchain from the latest example of a long series of “technological utopianisms.”

Many will remember this 2012 iPhone commercial claiming the device is the most used camera in the world. Light piano music twinkles and images of people living their best lives flit past. It is utopic desire, crystallized: the ad says that the gadget will make us happy, and that, through its lens, we’ll all evolve into a better version of ourselves. Facebook (like other social media) promised to give “people the power to share and make the world more open and connected.” And there’s Uber, which pledges “to make transportation safer and more accessible, helping people order food quickly and affordably, reducing congestion in cities by getting more people into fewer cars, and creating opportunities for people to work on their own terms.”

Many will recognize these as pledges that technology will usher in the new utopian society. But, as Howard P. Segal reminds us,

few if any of the high-tech zealots of our own day have even considered the possibility that, far from being original, their crusades fit squarely within a rich Western tradition of technological utopianism. It is not likely that very many of them realize how old-fashioned they really are when celebrating technology’s prospects for transforming the nation and, in due course, the world.***

They are merely the latest in a long line—starting with the late-sixteenth- and early-seventeenth-century Pansophists (such as Tomasso Campanella, Johann Valentin Andreae, and Francis Bacon) through the utopian socialists of the early nineteenth century (especially Henri de Saint-Simon) through the numerous technological utopians of the late-nineteenth- and early-twentieth centuries (including Edward Bellamy, Henry Olerich, Edgar Chambliss)—of prophets of progress and the possibility of achieving utopia through the introduction and expansion of new technologies.

Technological utopianism, as I am using it here, refers to one or more of the following three claims:

  1. Technology is the means for creating a perfect society.
  2. The perfect society itself is modeled on technology.
  3. The perfect society is one that promotes the development of new, better technologies.

Clearly, Markey-Towler’s enthusiastic claims for blockchain technology meets the definition. So, as it turns out, does contemporary mainstream economics.

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Mainstream economists treat technological innovation as the sine qua non of economic and social progress—the key to economic growth and the achievement of global prosperity. It is introduced in the production function as y, the “recipe,” whereby capital (K) and labor (L) can be combined to produce output (Y). Thus, even without changes in the amount of capital and labor, output will be increased as new technologies are introduced. Thus, when they move from an individual firm’s production function to economy-wide economic growth, mainstream economists claim that the key is the increase in productivity due to technological change, which is generally referred to as the “Solow residual” (named after Nobel laureate Robert Solow).****

The mainstream argument is that the level of production and the rate of economic growth can be increased by the introduction of new technologies, which lead to higher levels of productivity. More goods and services are thus made available to satisfy human wants, thus solving the problem of scarcity.*****

Moreover, mainstream economists claim, an economic system based on free markets is the best way of encouraging the development and application of new technologies. At a microeconomic level, profit-maximizing firms have an incentive choose the best, more efficient technologies, for themselves and for the economy as a whole. And free international trade is the best way of increasing the pool of research and development experiments, from which the best technology is chosen. Thus, technology trade increases national income in each country and raises the total gains from trade.

Contemporary mainstream economics thus combines market utopianism with technological utopianism.

As I see it, the biggest problem with technological utopianism is that it takes politics out of the equation—whether in imagining solutions to economic and social problems or envisioning the role of technology in a radically different kind of economy and society. Technology thus becomes a substitute for politics. As Aleszu Bajak has recently explained with respect to finding a solution to climate change,

Relying on a technological fix that’s just over the horizon avoids the mountain moving required to wean ourselves off fossil fuels, bring hundreds of countries into agreement on how to limit and clean up emissions, and alter the consumption habits of an entire civilization. Those are systemic complexities ingrained in our economies and cultures. Propping up glaciers to limit sea level rise, sprinkling iron dust into the oceans to encourage plankton growth to absorb carbon, or spraying the skies to reflect the sun’s heat just seems simpler.

Much the same can be said of obscene inequalities in the distribution of income and wealth, the “diseases of despair” that now afflict a large portion of the U.S. population, or the prospect that new forms of automation will eliminate jobs and make workers redundant. In each case, a technological fix is promised—tax-rate changes for inequality, the expansion of healthcare insurance for increasing levels of addiction, a universal basic income for labor-substituting robots—when the problem itself is political, not technical.

And that means the solution has to be political—organizing people to criticize the existing set of institutions, in order to imagine and create new ways of organizing the economy and society. New technologies may even have a role to play in enabling people to see such a “virtual reality.”

Tackling problems as deeply ingrained as the ones humanity faces right now will require facing a question that technology alone cannot address: are we willing to band together to criticize and change the existing set of economic and social institutions?

 

*To carry out a transaction a party needs two things: a wallet (public key) and a private key. A wallet is a string of digits and letters, also called a public key. It is an address that appears each time a transaction is done. The private key is a string of random digits that should be kept in secret. When someone enables a transaction it is signed with a private key, which is only visible to a sender. Then a network of nodes carries that transaction making sure that it is valid. Once it confirms its validity the transaction is put into a block where, because it has been “hashed,” it is virtually impossible to change without being detected.

**Technically, blockchain fulfills three requirements: (a) it guarantees a certain degree of reciprocity and security with respect to exchange and property; (b) it is sufficiently easy to interact with and to keep records; and (c) it permits a certain degree of freedom to use one’s property, that is, it is secure from theft, corruption, and manipulation.

***Howard P. Segal, Technology and Utopia (American Historical Association, 2006), p. 66.

****Solow (1957) started with a neoclassical production function where Yt = At•F(Kt, Lt), where Yt is aggregate output in time period t, Kt is the stock of physical capital, Lt is the labor force and At represents productivity growth due to technology. Solow then estimated the variables for the U.S. economy for the period 1909-49, where output per labor hour approximately doubled. According to his estimates, about one-eighth of the increment in labor productivity could be attributed to increased capital per person hour, and the remaining seven-eighths to the residual.

*****This is one of the reasons why Robert Gordon’s work on the slowing-down of U.S. productivity growth has been met with such concern.

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Special mention

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From the very beginning, the area of mainstream economics devoted to Third World development has been imbued with a utopian impulse. The basic idea has been that traditional societies need to be transformed in order to pass through the various stages of growth and, if successful, they will eventually climb the ladder of progress and achieve modern economic and social development.

Perhaps the most famous theory of the stages of growth was elaborated by Walt Whitman Rostow in 1960, as an answer to the following questions:

Under what impulses did traditional, agricultural societies begin the process of their modernization? When and how did regular growth become a built-in feature of each society? What forces drove the process of sustained growth along and determined its contours? What common social and political features of the growth process may be discerned at each stage? What forces have determined relations between the more developed and less developed areas?

Rostow’s model postulated that economic growth occurs in a linear path through five basic stages, of varying length—from traditional society through take-off and finally into a mature stage of high mass consumption.

While Rostow’s model and much of mainstream development theory can trace its origins back to Adam Smith—through the emphasis on increasing productivity, the expansion of markets, and the definition of development as the growth in national income—the development models that were prevalent in the immediate postwar period presumed that the pre-conditions growth were not automatic, but would have to be engineered through government intervention and foreign aid.

Mainstream modernization theory was created in the 1950s—and thus after the first Great Depression and World War II, when world trade had been severely disrupted, and in the midst of decolonization and the rise of the Cold War, when socialism and communism were attractive alternatives to many of the national liberation movements in the Global South. It was a determined effort, on the part of academics and policymakers in the United States and Western Europe, to showcase capitalist development and make the economic and social changes necessary in the West’s former colonies to initiate the transition to modern economic growth.*

The presumption was that government intervention was required to disrupt the economic and social institutions of so-called traditional society, in order to chart a path through the necessary steps to shift the balance from agriculture to industry, create national markets, build the appropriate physical and social infrastructure, generate a domestic entrepreneurial class, and eventually raise the level of investment and employ modern technologies to increase productivity in both rural and urban areas.

That was the time of the Big Push, Unbalanced Growth, and Import-Substitution Industrialization. Only later, during the 1980s, was development economics transformed by the successful pushback from the neoclassical wing of mainstream economics and free-market policymakers. The new orthodoxy, often referred to as the Washington Consensus, focused on privatizing public enterprises, eliminating government regulations, and the freeing-up of trade and capital flows.

Throughout the postwar period, mirroring the debates in mainstream microeconomic and macroeconomic theory, mainstream development theory has oscillated back and forth—within and across countries—between more public, government-oriented and more private, free-market forms of mainstream development theory and policy. And, of course, the ever-shifting middle ground. In fact, the latest fads within mainstream development theory combine an interest in government programs with micro-level decision-making. One of them focuses on local experiments—using either the randomized-control-trials approach elaborated by Abhijit Banerjee and Esther Duflo or the Millenium Villages Project pioneered by Jeffrey Sachs, which they use to test and implement strategies so that impoverished people in the Third World can find their own way out of poverty. The other is the discovery of the importance of “good” institutions—for example, by Daron Acemoglu—especially the delineation and defense of private-property rights, so that Rostow’s modern entrepreneurs can, with public guarantees but minimal interference otherwise, be allowed to keep and utilize the proceeds of their private investments.

The debates among and between the various views within mainstream development economics have, of course, been intense. But underlying their sharp theoretical and policy-related differences has been a shared utopianism based on the idea that modern economic development is equivalent to and can be achieved as a result of the expansion of markets, the creation of a well-defined system of private property rights, and the growth of national income. In the end, it is the same utopianism that is both the premise and promise of a long line of contributions, from Smith’s Wealth of Nations through Rostow’s stages of growth to the experiments and institutions of today’s mainstream development economists.

The alternatives to mainstream development also have a utopian horizon, which is grounded in a ruthless criticism of the theory and practice of the “development industry.”

One part of that critique, pioneered by among others Arturo Escobar (e.g., in his Encountering Development), has taken on the whole edifice of western ideas that supported development, which he and other post-development thinkers and practitioners regard as a contradiction in terms.** For them, development has amounted to little more than the West’s convenient “discovery” of poverty in the third world for the purposes of reasserting its moral and cultural superiority in supposedly post-colonial times. Their view is that development has been, unavoidably, both an ideological export (something Rostow would willingly have admitted) and a simultaneous act of economic and cultural imperialism (a claim Rostow rejected). With its highly technocratic language and forthright deployment of particular norms and value judgements, it has also been a form of cultural imperialism that poor countries have had little means of declining politely. That has been true even as the development industry claimed to be improving on past practice—as it has moved from anti-poverty and pro-growth to pro-poor and basic human needs approaches. It continued to fall into the serious trap of imposing a linear, western modernizing agenda on others. For post-development thinkers the alternative to mainstream development emerges from creating space for “local agency” to assert itself. In practice, this has meant encouraging local communities and traditions rooted in local identities to address their own problems and criticizing any existing distortions—both economic and political, national as well as international—that limit peoples’ ability to imagine and create diverse paths of development.

The second moment of that critique challenges the notion—held by mainstream economists and often shared by post-development thinkers—that capitalism is the centered and centering essence of Third World development. Moreover, such a “capitalocentric” vision of the economy has served to weaken or limit a radical rethinking of and beyond development.*** One way out of this dilemma is to recognize class diversity and the specificity of economic practices that coexist in the Third World and to show how modernization interventions have, themselves, created a variety of noncapitalist (as well as capitalist) class structures, thereby adding to the diversity of the economic landscape rather than reducing it to homogeneity. This is a discursive strategy aimed at rereading the economy outside the hold of capitalocentrism. The second strategy opens up the economy to new possibilities by theorizing a range of different and potential connections among and between diverse class processes. This forms part of a political project that can perhaps articulate with both old and new social movements in order to create new subjectivities and forge new economic and social futures in the Third World.

The combination of post-development and class-based anti-capitalocentric thinking refuses the utopianism of Third World development, as it constitutes a different utopian horizon—a critique of the naturalizing and normalizing strategies that are central to mainstream development theory and practice in the world today. It therefore leads in a radically different direction: to make noncapitalist class processes and projects more visible, less “unrealistic,” as one step toward dethroning the “development industry” and invigorating an economic politics beyond development.

 

*At the same time, the Western Powers attempted to reconstruct the global institutions of capitalism, through the triumvirate of the World Bank, the International Monetary Fund, and the General Agreement on Tariffs and Trade (predecessor to the World Trade Organization) that was initially hammered out in 1944 in the Bretton-Woods Agreement.

**A short reading list for the post-development critique of mainstream development includes the following: Wolfgang Sachs, ed., The Development Dictionary: A Guide to Knowledge As Power (Zed, 1992); Arturo Escobar, Encountering Development: The Making and Unmaking of the Third World (Princeton, 1995); Gustavo Esteva et al., The Future of Development: A Radical Manifesto (Policy, 2013); and the recent special issue of Third World Quarterly (2017), “The Development Dictionary @25: Post-Development and Its Consequences.”

***Building on a feminist definition of phallocentrism, I along with J.K. Gibson-Graham (in “‘After’ Development: Reimagining Economy and Class,” an essay published in my Development and Globalization: A Marxian Class Analysis) identify capitalocentrism whenever noncapitalism is reduced to and seen merely as the same as, the opposite of, the complement to, or located inside capitalism itself.

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John Hatgioannides, Marika Karanassou, and Hector Sala are absolutely right: mainstream macroeconomists and policymakers never venture beyond the “holy trinity” of economic growth, inflation, and unemployment.* Everything else, including the distribution of income and wealth, is relegated to the fringes.

This problem, while always serious, has been magnified in recent decades as inequality has grown to obscene levels, particularly in the United States. The labor share (the blue line in the chart above) has been falling since 1960 and, in the past decade and a half, it dropped an astounding 10.2 percent. Meanwhile, the share of income captured by the top 1 percent (the red line in the chart) has soared, rising from 10.5 percent in 1976 to 19.6 percent in 2014.

In order to rectify the problem, Hatgioannides, Karanassou, and Sala propose to bring inequality in from the margins as the “missing fourth statistic.”

They focus particular attention on inequality in relation to tax contributions. But they do so in the manner that departs from the usual discussion, which leaves the discussion at absolute income tax contributions (such as the share of income taxes paid by each economic group). Those are the numbers we often hear or read, which seek to show how progressive the U.S. tax system is. For example, according to the Tax Foundation, the top 1 percent paid a greater share of individual income taxes (39.5 percent) than the bottom 90 percent combined (29.1 percent).

Instead, Hatgioannides, Karanassou, and Sala concentrate on the ratio of the average income tax per given income group divided by the percentage of national income captured by the same income group (what they call the Effective Income Tax contribution), whence they calculate an inequality index (the Fiscal Inequality Coefficient).

What the Fiscal Inequality Coefficient shows is the relative contribution of filling the fiscal coffers for different pairs of income groups.

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In the figure above, they plot the Fiscal Inequality Coefficient based on income shares (they also report a related index based on wealth), of the bottom 90 percent versus the top 10 percent, the bottom 99 percent versus the top 1 percent, and the bottom 99.9 percent versus the top 0.1 percent for 1962, 1980, 1995, 2010, and 2014.

Thus, for example, the Fiscal Inequality Coefficient based on income shares remains relatively constant for all pairs for years 1962 and 1980 but increases significantly by 2010—with the bottom 90 percent effectively contributing 6.5 times more than the top 10 percent, the bottom 99 percent 21.4 times more than the top 1 percent, and the bottom 99.9 percent effectively contributing 89.7 times more than the top 0.1 percent.**

Clearly, the relative income tax burden for those at the top has fallen over time, demonstrating that the U.S. tax system has become less, not more, progressive.

And the authors’ conclusion?

In the current era of fiscal consolidation should the rich be taxed more? Our evidence suggests unequivocally yes.

 

*Their paper is discussed in the Guardian by Larry Elliott. The submitted version of their article is available here.

**The results are even more dramatic if one calculates the Fiscal Inequality Coefficient based on household wealth shares: in 2010, the Bottom 99.9 percent contributed 208.9 times more than the Top 0.1 percent, nearly four times more than what it was in 1980!

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Back in April, Raumplan and Cascina Cuccagna organized an exhibit for Milan Design Week titled “Capitalism is Over.” The basic argument was that, while capitalism may have worked in the first few decades of the postwar period, during the “Golden Age” of capitalism—when “the demand for products and everyday objects rose to never before attained summits”—since the late 1970s, growth has slowed down and “following the neoliberal theories, governments promoted policies that fostered the expansion of financial profits and lower wages.” Their example was Olivetti:

The historical Olivetti attitude to resilience and innovation suffered a fairly marked setback during the crises of the Seventies, which reduced investments in the production sector and initiated the financialized economy that today is reaching its full development. The growth of profits corresponded to a loss of identity and of the centrality of production’s contents, that became increasingly interchangeable. Although since the Eighties Olivetti’s revenues and number of employees has steadily increased, it is also clear that the progressive dematerialisation of its core business doomed the company. Olivetti gradually lost its productive and innovative bent and became essentially a financial investment vehicle.

Martin Kirk makes much the same argument in a recent Guardian column, supplemented by the idea that people—especially young people—have lost faith in capitalism.

Why do people feel this way? Probably not because they want to travel back in time and live in the USSR. For millennials especially, the binaries of capitalism v socialism, or capitalism v communism, are hollow and old-fashioned. Far more likely is that people are realizing – either consciously or at some gut level – that there’s something fundamentally flawed about a system that has as its single goal turning natural and human resources into capital, and do so more and more each year, regardless of the costs to human well-being and to the environment.

Because that is what capitalism is all about; that’s the sum total of the plan. We can see it embodied in the imperative to increase GDP, everywhere, at an exponential rate, even though we know that GDP, on its own, does not reduce poverty or make people happier and healthier. Global GDP has grown 630% since 1980, and in that same time inequality, poverty and hunger have also risen.

As I have argued before (e.g., herehere, and here) capitalism has a real growth problem. The premise and promise of capitalism are that it “delivers the goods.” It did, for a while, and now it seems it can’t—which has many people looking beyond capitalism.

To be clear, there’s a reasonable argument to be made that we would all be better off with less or no growth. That’s certainly true for our natural environment, in terms of issues such as global warming, pollution, and so on. Fewer resources would be extracted; less energy would be needed, thus lowering the level of greenhouse gasses; and, in general, less environmental damage might be caused by our economic activities.

My argument, however, is about the predominant economic system in the world today. It is capitalism that has a slow-growth problem. And that’s because growth is both a premise and promise of a particularly capitalist way of organizing our economic activities.

It is a premise in the sense that capitalists—the capitalist class as a whole, not necessarily individual capitalists in one enterprise or another—can collect and utilize for their own purposes more surplus-value when capitalism is growing—when productivity is high, when more commodities are being produced, when the economy as a whole is growing. There’s more surplus available, even if workers’ wages are rising, and each member of the capitalist class can get their aliquot share of that growing surplus.

So, growth is a problem both for capitalism—since, in its absence, it makes it difficult to extract more surplus—and for us—since, in the drive to create more growth, we are forced to suffer through more inequality, poverty, and destruction of the social and natural environment.

It’s time then, yes, to accept the idea that capitalism deserves to be placed in the dustbin of history—and, at the same time, to begin the process of imagining and creating an alternative set of economic and social institutions.

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This semester, we’re teaching A Tale of Two Depressions, a course designed as a comparison of the first and second Great Depressions in the United States. And one of the themes of the course is that, in considering the conditions and consequences of the two depressions, we’re talking about a tale of two countries.

As it turns out, the tale of two countries may be even more true in the case of the most recent crises of capitalism. That’s because the two countries were growing apart in the decades leading up to the crash—and the gap has continued growing afterward.

It seems we learned even less than we thought about the first Great Depression. Or maybe those at the top learned even more.

As Thomas Piketty, Emmanuel Saez, and Gabriel Zucman remind us,

Because the pre-tax incomes of the bottom 50% stagnated while average national income per adult grew, the share of national income earned by the bottom 50% collapsed from 20% in 1980 to 12.5% in 2014. Over the same period, the share of incomes going to the top 1% surged from 10.7% in 1980 to 20.2% in 2014.

What is clear from the data illustrated in the chart at the top of the post, these two income groups basically switched their income shares, with about 8 points of national income transferred from the bottom 50 percent to the top 1 percent.

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The consequence is that the bottom half of the income distribution in the United States has been completely shut off from economic growth since the 1970s. From 1980 to 2014, average national income per adult grew by 61 percent in the United States, yet the average pre-tax income of the bottom 50 percent of individual income earners stagnated at about $16,000 per adult after adjusting for inflation, which barely registers on the chart above. In contrast, income skyrocketed at the top of the income distribution, rising 205 percent for the top 1%, 321 percent for the top 0.01%, and 636 percent for the top 0.001%.

Clearly, “an economy that fails to deliver growth for half of its people for an entire generation”—and, I would add, distributes the growth that has occurred to a tiny group at the top—”is bound to generate discontent with the status quo and a rejection of establishment politics.”