We are currently living through the most dramatic technological and economic transformation in the history of mankind. We are also witnessing declining support for capitalism around the world. Are these two trends connected, and if so, how?
It is tempting to say that capitalism’s growing unpopularity is simply a symptom of Luddism – the impulse that led artisan workers in the early Industrial Revolution to break the machinery that threatened their jobs. But that explanation doesn’t capture the complexity of today’s movement against capitalism, which is being led not so much by distressed workers as by intellectuals and politicians.
The current anti-capitalist wave comes at a time when free-market neoliberalism and globalization are nearly universally excoriated. Opposition to neoliberalism came originally from the left, but has been taken up – perhaps even more vigorously and rancorously – by the populist right.
Reaction to financial destabilization
After all, there was more than a touch of old-style interwar-era anti-capitalist sentiment in former British Prime Minister Theresa May’s 2016 speech denouncing cosmopolitan “citizens of the world” as “citizens of nowhere.” Or as her successor, current British Prime Minister Boris Johnson, put it even more succinctly: “Fuck business.” Likewise, in the United States, Fox News anchor Tucker Carlson has channeled the pathos of the Trumpian right through lengthy rants against capitalism, complaining about “mercenaries who feel no long-term obligation to the people they rule” and “don’t even bother to understand our problems.”
A partial explanation for the new zeitgeist is that it is a predictable reaction to financial destabilization. Just as monetary conditions following World War I seemed unfair and generated a ferocious reaction, the 2008 financial crisis fueled a widespread belief that the system is rigged. While governments and central banks rescued large financial institutions in order to prevent a collapse of the entire global financial system and a repeat of the Great Depression, the millions of people who lost their homes and jobs were left to fend for themselves.
The financial crisis alone was enough to sow the seeds of anti-capitalist sentiment. But it also coincided with a much broader technological and social transformation. Innovations like smartphones – the iPhone was unveiled in 2007 – and new Internet platforms have fundamentally changed the way that people connect and conduct business. In many ways, the new mode of business is antithetical to capitalism, because it is based on opaque payments and asymmetric or two-sided markets. We now obtain services by “selling” our personal information. But we’re not actually aware that we are engaged in a market transaction, because there is no sticker price that we can see: the price paid is our privacy and personal autonomy.
IT and AI are changing everything
At the same time, zero-sum thinking has become the predominant form of economic analysis. This, too, clearly has roots in the financial crisis. But it has also been fostered by the new information technologies (IT), owing to the power of network effects within winner-take-all markets – particularly with respect to the platform economy and the development of artificial intelligence (AI). The more people there are on a network, the more valuable it becomes to each user, and the less room there is for any second player in the market. According to a famous Avis advertisement from 1962, “When you’re only No. 2, you try harder.” But now if you’re No. 2, there’s no point. You’ve already lost.
Moreover, the new IT and AI capitalism has a specific geography. It is rooted in the US and China, but the Chinese aim to achieve dominance by 2030. Capitalism has always driven geopolitical change, but now that it is becoming increasingly associated with China – after having been synonymous with America from the interwar period onward – it invites objections from different sources than in the past.
Looking ahead, the radical changes of the post-financial-crisis world will continue to unfold, with the IT/AI revolution altering the nature of most economic activity. Banks will fade away, not because they are evil or systemically dangerous, but because they are less efficient than the new alternatives. For all of the improvements in electronic communication, bank costs and charges have scarcely fallen; indeed, for many consumers in areas with zero or negative interest rates, fees have actually increased. At some point in the not-too-distant future, most banking services will likely be unbundled and offered individually – and in new and improved ways – through online platforms.
Capitalism produces answers
The genius of capitalism lies in its ability to produce organic answers to most problems of scarcity and resource allocation. Markets tend naturally to reward the ideas that prove most useful, and to penalize dysfunctional behavior. They can bring about broad-based outcomes that states cannot, by driving vast numbers of individuals to adjust their behavior in response to price signals.
In today’s warming world, there is obviously a need for effective ways to limit greenhouse-gas emissions. But even a problem as complicated as climate change should not be left to technocrats. We all need to be involved, as citizens and as market participants. For their part, the defenders of capitalism need to figure out how to make the system more inclusive, so that it can claim the public’s support once again.
Copyright: Project Syndicate.