Who will ‘burn the house down’?

My friend and co-author Gulzar Natarajan has a lengthy and detailed post on few very important and thoughtful articles and reports that have been doing the rounds in the last week or so. His post is  very comprehensive.

I have the following comments on his blog post. It is a slightly expanded version of the comment I left on his post.

I am pleased to see that you had linked to the perceptive essay by Jonathan Rothwell in NYT on the elite interests that have gamed the system and the rules in their favour. Rothwell may be making one mistake, however.

In his long essay and in his tweets, he is dismissing the role of technology and globalisation in the extremely distorted income distribution. But, they were the pursuits and priorities of elites who gamed the regulations (as per his own analysis) to pursue technological upgradation and globalisation that delivered profits. So, they did contribute to the problem of inequality because they were ‘elite’ projects. Some of the domestic factors he lists could be more important but it would be hard to dismiss technological progress and globalisation as inconsequential for in-country rise in inequality in the developed world. In this regard, the review of the book, ‘Captured Economy’ is worth a read. It is well written.

As we discussed bilaterally, to a degree, the recommendation of the Mckinsey Global Institute (MGI) on more digitisation and more technology to restore the ‘glory’ of U.S. manufacturing (mind you, the ostensible problem they were dealing with was the declining labour share of income) vindicates Rothwell above!

MGI report notes that the labour share of income in the U.S. had dropped from 59.8% in 1970 to 55.6% in 2015 and that manufacturing contributed 68% to this decline. But, the solutions they propose, even if they restore the glory of U.S. manufacturing somewhat, might actually further erode labour income share if machines and robots replace workers while only requiring and paying some highly skilled workers and fewer of them. On paper, that might boost labour share of income but the median worker pay will not have improved. Even now, the decline in the U.S. labour share of income will be far pronounced if financial services workers are excluded.

One does not identify the decline of the manufacturing as a principal contributor to the decline of labour share of income and proceed to give solutions that might worsen the situation further. At the very least, there should be a debate/discussion in the report on the consequences of their proposals for the labour share of income. But, I had not read the full MGI report but only the Executive Summary. May be, the full report has such a discussion. The full report and the Executive Summary can be found here.

Further, although Tony Rothman in ‘Project Syndicate’ focuses more on customer convenience and the ‘ends’ of technological upgrades being lost (motion is not progress) in the welter of mindless ‘improvements’ and ‘enhancements’, that too is part of the problem.

As you conclude, the solution is to ‘burn the house down’ completely. But, that leads us to a cul-de-sac. In the Seventies, the pendulum swung (the house was brought down, as it existed then) due to a combination of factors:

  • Excessive abuse of labour power;
  • Economic misery – stagflation
  • The turning of the intellectual tide in favour of rules over discretion, Disgust with politics as usual (Nixon’s impeachment, Ford’s pardon and Carter’s perceived or real ineffectiveness)
  • Rise of alternative leaders who were not exactly perceived ‘extreme’ like in the case of Donald Trump

May be, I am missing out some.

But, if we try to develop a comparable checklist now, we do have

  • Excessive abuse of the power of capital by capitalists
  • Instead of stagflation, we have extreme inequality
  • There was disgust with politics as usual – it is demonstrated in the multiple political election and referendum results across Europe and the United States

But, what is missing are these two,

– There is intellectual resistance to changing the status quo – many would lose out on their personal perks and influence. Notice how many are writing as boldly as Dani Rodrik is writing. Very few. Those who do are not deemed ‘mainstream’. For example, the monetary policy establishment has managed to brand even the BIS and folks like William White and Claudio Borio, et al, as ‘extreme’ or ‘fringes’.

The ‘99%’ is unable to mobilise and have a sane leadership with clarity of purpose and goals as capitalists on either side of the Atlantic were able to achieve in the Seventies.

Usually, crises help overcome all these drawbacks and throw up policy and personnel (leadership) alternatives. One thought that the 2008 crisis would do that. To a degree, it has. It has cracked open the door. But, the door is still being manned and protected well, despite cracks in the door and in the castle.

Perhaps, it needs another crisis to ‘burn the house down’ as you put it. Or, may be, somewhat less dramatically, as Mark Klieman had written (tweeted by Jonathan Rothwell),

a political strategy capable of mobilizing forces proportionate to the massive task at hand. [Link]

3 thoughts on “Who will ‘burn the house down’?

  1. So, where would you put Steve Bannon, who himself has said that he wants to burn it all down? What I’m trying to understand is why are both of you looking for a solution outside the “populist” movement? Or, is that an incorrect interpretation?

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  2. Thanks Ananth. The two points you raise as missing are very important. A few thoughts

    1. Unlike the seventies, when there was a genuine ideological divide, today’s intelligentsia display a remarkable ideological consensus, with marginal variations towards either side of the spectrum. In fact, the post-Soviet consensus has been a hegemony of liberalism and the free-market. Isn’t it striking that the star economists of today (Chetty, Autor, Acemoglu etc) are spending their time using statistical software to tease out correlations from large data sets, stopping well short of drawing the obvious conclusions leave alone being inclined to debate the most pressing social issues of our times – inequality, automation, business concentration, executive compensation, excessive financialization. And when someone like Piketty shows the courage to call out on the widening inequality, the same intellectuals scatter the debate by indulging in arcane trivialities and hifalutin technical discussions.

    We know how the allures of large speaking fees and revolving door posts keep influential opinion leaders and intellectuals straying too far in critiquing the establishment and its consensus. Even when faced with absolutely clinching signatures of business concentration, monopoly profits, and attendant threats to social order and personal privacy, how many of these intellectuals have had the courage to hold the mirror on the consensus? As you say people like Borio, Helene Rey etc are dismissed as the “fringe”, just as people like Raghu Rajan were in the build-up to the GFC. Ask Annie Marie Slaughter, the poster child of liberalism and gender empowerment, who gets a cushy job and big public profile for playing along…

    2. As to the lack of political leadership, I think the lack of any ideological movement and sharp cleavage makes anything other than populist leadership difficult to emerge. It is for this reason that someone has to come from outside, itself in turn made difficult without the house burning down.

    In the US, I like Elizabeth Warren, because I see her as a very very rare member of the same elite, who has realised the corrosive effects of the prevailing economic order. If people like her can help burn down the economic order, then the conditions for building a new house become available. Instead, if Trump is replaced by someone else from the establishment like a Bloomberg, we will continue to grapple with the same set of problems…

    3. One thing I am puzzled is by the absence of any stirrings of a popular revolt against the excesses and failings of the current order, especially given the presence of platforms like social media which can easily help organise and consolidate such campaigns.

    It is now well documented that some of the actions of Wall Street leaders during the sub-prime bubble and its aftermath were clearly illegal and amounted to criminal misdemeanour. But not one top executive has been indicted or jailed for their actions. Where is the equivalent of the social resentment and pressures that led to the Pecora trials in the aftermath of the 1929 crash? Where is the indignation from the countless examples of egregious misdemeanours that the large investment banks, consulting firms, accounting agencies, and credit raters indulge in with alarming frequency?

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