Economics after scarcity

The economic problem is all but solved. The problems that now face us require a different approach altogether. Let’s call it democracy, for want of a better word.

Let’s start with some numbers.

In 1955 General Motors became the first company in history to make $1bn of profit in a single year. At the time the company employed 625,000 people worldwide and it built just over five million cars and trucks. In 2011, General Motors was once again the world’s largest automobile manufacturer, making just over nine million cars and light commercial vehicles with a global workforce of 207,000. GM was making almost twice as many vehicles with only a third of the workforce – eight cars per worker in 1955 had become 43 per worker by 2011.

In other sectors companies are now making bigger profits on better margins with even fewer workers. Last year Apple made a net profit of $14bn on sales of $108bn. That’s quite impressive. But it’s nothing compared to its performance so far this year. In the first three months of 2012 it made $13bn profits on $46bn in sales. And it employs only 60,000 people worldwide. It’s true that Apple outsources manufacturing production to vast factory complexes in China and other low-wage economies. But talk of the rise of Asia shouldn’t distract us from the key point. Apple generates far more revenue with far fewer workers (including those employed by sub-contractors) than GM managed in the golden age of capitalism.

This is true of much of the economy. New technologies have radically increased the amount that a single worker can produce in a working week. Manufacturing productivity in the United States has quadrupled since the early seventies, for example. American factory workers are astonishingly industrious, but throughout the world the story is the same. Fewer people can create more value. Yet this triumph of productivity has perverse consequences. New technology makes more and more people economically unnecessary. As Richard Sennett puts it, the global workforce is “haunted by the spectre of uselessness”.

Much of the world is still poor. Hundreds of millions of people barely survive. But even if we bring everyone, without exception, into the circuits of global production and consumption, the number of workers needed to feed, clothe, house and transport the global population will remain a small percentage of that population.

The question then is this: what do we do now that we have almost solved the problem of scarcity? Who should benefit from these vast increases in productive power? At the moment, a relatively small number of highly skilled workers, some financiers, and the managers and owners of capital together capture the lion’s share of the wealth created. They spend some of this vast windfall on private jets and vulgar houses and servants. But they simply don’t know what to do with the rest. They could invest the money, of course. But they can see that most potential customers are indebted and nervous. Their own steroidal consumption can’t possibly replace the well-rewarded employment that new technologies have destroyed. After all, how many major-domos does one plutocrat really need?

At the moment, politicians who can see no alternative to the current arrangements tell us that the economic situation will only improve if we redouble our efforts, and become even more productive. Last week the British Foreign Secretary William Hague told his compatriots that “government can’t create growth, it can create the conditions for growth but we’re only going to be able to do this if we all work harder. The world has changed and our competition has changed and I think the only way we can pull out of this is by us all working harder”.

This might be prudent advice for an individual. But as an economic policy it is fatuous at best, at worst it is downright sadistic. We can work even harder, for sure. But the systems of production still won’t need most of us. Those whom Apple doesn’t employ to make its gadgets incrementally more desirable can try to make themselves indispensable to the rich, in one way or another. Failing that, there is underemployment at low wages.

But there is nothing inevitable about this. The problems in the European and American economies are political in nature. They are caused by political decisions about who benefits from this miraculously increased productivity. Technology has had the effect of enriching a handful while leaving the majority struggling with stagnant or falling incomes because politicians let it happen. Tax policy, deregulation, and the liberalisation of trade favoured the very rich. Limited liability, justified by appeals to the common interest, was used to further entrench inequality, as was the banking system. For a while credit expansion disguised all this. But it is all too clear that we can’t afford the current income distribution.

It is time to consider another approach. That noted left-wing firebrand Adam Smith once argued that one of the duties of a commonwealth was to establish “those public institutions and those public works, which, though they may be in the highest degree advantageous to a great society, are, however, of such a nature that the profit could never repay the expense to any individual or small number of individuals, and which it therefore cannot be expected that any individual or small number of individuals should erect or maintain”.

Smith considered that these public goods consisted of defence, the administration of justice, the promotion of commerce and the education of the population. He also noted that the provision of public goods required “very different degrees of expense in the different periods of society”. Even his most devoted admirers would concede that current conditions require an increase in the amounts we spend on “works advantageous to a great society” and a broader interpretation of what we mean by public goods.

Vigorous taxation of the global rich is needed now, if we are to defend ourselves against the prospect of human and natural disaster. We are approaching the limits of what the planet itself can produce. We must therefore start spending money according to the logic of publicly discovered needs, rather than of privately incubated desires. Only in this way can we reduce the real costs of energy production to acceptable levels, educate our children, make our cities both elegant and habitable, and put an end to the obscenity of absolute poverty.

This programme of collectively determined investment can extend to an inquiry into the private economy. The corporate form and the banking sector can no longer be left unexamined by a governing public. They are not facts of nature. They are historical artefacts and can be refashioned for new purposes. We can reward talent and encourage innovation without having to accept the lazy larceny of our current masters.

In conditions of incipient environmental collapse and persistent economic crisis, a great society must fund a programme of civic investment that will address these pressing problems while driving away the spectre of uselessness. For who is to engage in the great labour of discernment and direction, if not us, drawn up as a sovereign public?

The machinery of material production no longer needs more than a handful of us. But if that machinery is to be made consistent with human flourishing in its fullest sense, then we are all equally essential. The few will always be careful and diligent in serving their own interests. Over time they will favour those with the power to favour them. The many acting together will always be clumsy and often wrong-headed. But for all the mistakes we make, together we are the only sure guarantors of the common good.

In the midst of unemployment, we have urgent work to do, the work of democratic citizenship.

Dan Hind is the author of two books, The Threat to Reason and The Return of the Public. His pamphlet Common Sense: Occupation, Assembly, and the Future of Liberty, was published as an e-book in March. He is a member of the Tax Justice Network.

Follow him on Twitter: @DanHind