Kirk's Book Reviews
Kirk's Book Reviews
|Posted on September 13, 2015 at 8:00 PM|
My rating: 4 of 5 stars
Left-wing politics has lost all credibility in economic science since the victory of Free-Market Capitalism post-1989. Turning their attention to environmentalism, human rights, social justice and anti-austerity, socialists of today do not question the basic premise that private property and a market system for the distribution of goods are indispensable to economic growth; the only question is to what extent the state should temper its excesses. But in the last year distinguished economists have started to question the future of Neo-Liberalism, and, in Thomas Piketty and Paul Mason, the left have found strident voices armed with an impressive understanding of economic theory. It seems the first anti-orthodox economists have finally emerged after the shock of the 2008/09 global recession.
Mason is perhaps the most articulate prophet of doom since the credit crunch exposed the hideous excesses of the finance sector and destroyed the idea of the efficient market hypotheses. In his view Neo-Liberalism (aka Free-Market Capitalism) as we know it is in decline and cannot survive in its current guise. No matter what your views this book is superbly written, unimaginable in its scope, and unwilling to contemplate anything but the complete breakdown of a socio-economic system that is now synonymous with democracy and has come to symbolise meritocracy, consumer power and competition (which is, of course, disputed by Capitalism’s critics).
So what has changed in the last 10 years? The first point is that IT has reduced the need for work. Furthermore, Information goods are harming the market’s ability to price goods, and monopolies are clinging to profit by deliberately under-utilising information via intellectual property rights and patents. Even more important, spontaneous collaborative production is rising up unlike anything before. As Mason points out: ‘The biggest information product in the world – Wikipedia – is made by 27,000 volunteers, for free, abolishing the encyclopaedia business and depriving the advertising industry of an estimated $3 billion a year in revenue.’ To put it more bluntly, ‘The main contradiction today is between the possibility of free, abundant goods and information and a system of monopolies, banks and governments trying to keep things private, scarce and commercial.’
Yet, according to Mason, there is way out for Neo-Liberalism. Developed nations need to end ‘Financialization’ of the economy by an orderly exit from QE and avoid eroding the real value of government debt with inflation. They must also suppress the dominance of high finance, and use interest rate rises to mitigate early signs of a bubble (a clear criticism of Alan Greenspan). This will be no easy task in the democratic age, but is nothing compared to the level of international co-operation required to save capitalism. At the heart of this is the necessity of stabilising fiat currencies and smoothing out global imbalances, preferably with a new global currency managed by the IMF and with the Chinese Yuan as a fully tradable reserve currency. Yet this could prove impossible because, as Mason forecasts, ‘The currencies of surplus countries would rise, and China, India and the rest would have to give up their cheap labour advantage.’ The most likely outcome is a complete breakdown of globalisation and a race to the bottom as nations try to de-globalise quicker than their rivals.
But what will post-Capitalism look like and how will the transition be managed? The author is on more dubious ground here and is less clear about the future. If anything, his conclusions are extreme left-wing. Having re-read the book to summarise the arguments, I am still not convinced the iPod generation from Silicon Valley and Shoreditch, with their ultra-liberal views on sexuality and refusal to pay for information goods, are the gravediggers of capitalism. You can feel yourself cringing when Mason advises us that ‘we need to be unashamed utopians.’ Take his idea for ending the low-wage workforce in the service sector that Neo-Liberalism has managed to create: Can anybody conceive of a time when the British government gives 51 million adults a basic income of £6,000 for simply being of working age? Of course it will be paid for out of general taxation, in addition to a guaranteed minimum wage of £18,000 per annum. The author’s belief that such an extreme re-distribution will force innovation and spur entrepreneurship by challenging the most intellectually-adept to collaborate for the end goal of a fully-automated production economy is a bit like a developing African country wishing it shared porous borders with aggressive adversaries in the hope it will force them to carve out a world class military.
Aside from the lunacy of such proposals, Mason is right to identify the three biggest threats facing Neo-Liberalism today: global warming, an ageing population and migration. It’s clear allowing industrial companies to trade carbon permits will not solve the need to lower carbon emissions. The author’s solution is heavier taxation followed by the nationalisation of the entire carbon-polluting sector if no progress is made by 2050. This is not a new idea, and to most people will look like a retrograde policy, although given the severity of the global warming threat, nationalisation might be the best (or least worse) option to force corrective behaviour on polluters. But anybody can see that China and India will defend their position as developing nations to moderate their climate change policies. Has the author considered this possibility? One look at the sclerotic European Union shows how hard it is for countries to co-ordinate policy amongst advanced democracies and new nation states, and it provides no hope that global co-operation will converge on an agreed plan to cut carbon emissions other than through the usual treaties that produce a lot of goodwill and a lack of meaningful progress.
What is noticeable throughout this book is Mason’s reluctance to acknowledge the possibility of internecine strife (possibly even civil war) in his vision for the end of capitalism. Consider his argument for writing off debt in the developed world. The author proposes nationalising all central banks and keeping interest rates below the level of inflation to erode the real value of government debt. Apart from being an irresponsible policy it will also corrode trust in the international markets between investors and governments. Would anybody want to buy British gilt-edged securities (aka bonds) if the government of the day announced its intention to cheat in paying back the debt? A further scrutiny shows how Mason is also keen to go back to the mixed-economy of the 1948-1967 era when the Bretton-Woods system of international currency exchange provided fixed rates and strong controls on cross-border capital. In other words, he would prefer the de-globalisation that comes with forcing citizens to invest only in their nation’s debt. The balance of payments would become the most important focus of macro-economics and holidaymakers would be limited in the amount of foreign currency they could take out of the country. These might be benign examples, but the encroachment of the state would put individual liberty under threat once again. Mason clearly believes that the state should provide freedom from poverty and want in addition to guaranteeing our negative freedoms – a classic socialist argument that downplays the importance of individual autonomy in the face of the all-knowing, benevolent state. However impressive his progressive views, the sovereignty of the individual does not come high on the author’s agenda.
Yet some of Mason’s extreme suggestions are understandable when you consider the ageing population in the developed world. By 2050 sixty percent of developed nations could be on the verge of bankruptcy, with pension funds being most at risk in their search for an acceptable yield. Faced with minimal returns on government debt, there’s no reason to doubt they’ll be victims of the next bubble. Likewise, the flood of migration from the third world will continue at pace, putting more pressure on scarce resources. The reality is that two-thirds of the world’s population are living in ‘Non-Marxian’ poverty e.g. location is responsible for their plight rather than lack of amenities. Whatever the future, is certainly looks more violent and less rosy for democracy. Introducing a basic income of £6,000 for all working-age people will encourage even more impoverished Muslims to queue at Calais in the hope of entering a country that pays them for simply existing. Imagine the tension this will create: Modern European history shows quite clearly that the electorate in countries under severe social strain tend to vote for extreme right or extreme left parties (mainly the former instead of the latter). Perhaps capitalism, for all its flaws and unwillingness to promote itself as a utopian or even morally superior system might just be the best option to keep the peace, even if that means slow growth and stagnation for decades to come.
Whether we ever move to the Wiki State or ‘ban intellectual property’ becomes a new slogan for the iPod generation is hard to say, but Mason sees the future through the prism of the past, with the state taking back the power it lost during the Conservative revolutions of the 1980s. His gleeful prediction of the demise of the 1% in the last few pages might be a bit premature, but you can guarantee there will be individuals sharpening their knives for the fall of capitalism. Yet, unlike the author, I cannot see this happening in a peaceful way, nor can I imagine the leaders of his revolution resisting the temptation to govern in the name of an enlightened dictatorship for the ‘common good.’
Nevertheless, this is the probably the most important book written this year and will stimulate your cognitive thinking for days on end. Whether you’re an avowed capitalist or nostalgic communist, the debate has shifted. And despite his extreme left suggestions, Mason has fired a warning shot to neo-Liberals everywhere. This is certainly not the end of history, but the beginning of a new battle between competing ideologies, even if it’s yet to be identified by the masses and those who govern in our name.