A three step manifesto for a smarter, fairer economy

Brexit and Donald Trump are not crises in themselves; but they are symptoms of a real crisis that we now are facing. Unless we – and our political leaders – accept that "free markets" aren't working for us, and that new regulations are necessary to cope with the societal impact of rapid technological change – we are putting ourselves, our future and our children's future at unimaginable risk.

Brexit and Donald Trump are not crises in themselves; but they are symptoms of a real crisis that we now are facing. Unless we – and our political leaders – accept that "free markets" aren't working for us, and that new regulations are necessary to cope with the societal impact of rapid technological change – we are putting ourselves, our future and our children's future at unimaginable risk.

The world has not just been thrown into crisis because the UK voted in June to leave the European Union, and because the USA has just elected a President whose campaign rhetoric promised to tear up the rulebook of international behaviour (that's putting it politely; many have accused him of much worse) - including pulling out of the global climate accord that many believe is the bare minimum to save us from a global catastrophe.

Those two choices (neither of which I support, as you might have guessed) were made by people who feel that a crisis has been building for years or even decades, and that the traditional leaders of our political, media and economic institutions have either been ignoring it or, worse, are refusing to address it due to vested interests in the status quo.

That crisis – which is one of worklessness, disenfranchisement and inequality for an increasingly significant proportion of the world’s population – is real; and is evident in figures everywhere:

• Whilst the globalised technological economy has lifted a billion people worldwide out of extreme poverty since 1990, it would have lifted 200 million more people out of extreme poverty if it hadn’t also created staggering levels of inequality in which the majority of the wealth created in the process has gone into the hands of a minority of people.
• As economies struggle to recover following the 2008 crash – caused by rampant irresponsible financial speculation by and on behalf of the world’s wealthy elite – unemployment among young people in many European countries is between 20% and 50%.  
• Since the arrival of the personal computer in the 1980s first ushered in the age of mass use of digital technology, whilst US GDP has nearly doubled, median household income hasn’t risen at all (see graph above, from "The Second Machine Age", by MIT economists Andy McAfee and Erik Brynjolfsson,
• There has been no increase in average earnings in the UK so far this decade; and young people in particular have become worse off. The situation is unlikely to improve for many years.
• 25% of employees in the US are paid a wage lower than necessary to live above the poverty line; and 20% of US children live in poverty.

… and so on.

The policies associated with Brexit and Donald Trump will not address this crisis. Both the UK and the USA need immigration - with no immigration, the UK's birth rate would be much lower than that needed to maintain our current level of population, for example. That means less young people working and paying taxes and more older people relying on state pensions and services. We wouldn't be able to afford the public services we rely on.

And whatever his claims to the contrary, Donald Trump's tax plan will benefit the richest the most. Like most Republican politicians, he promotes policies that are criticised as "trickle-down" economics, in which wealth for all comes from providing tax cuts to rich people and large corporations so they can invest to create jobs.

That approach does not stand up to scrutiny: history shows that – particularly in times of economic change - jobs and growth for all require leadership, action and investment from public institutions - in other words they depend on the sensible use of taxation to redistribute the benefits of growth.

The real challenge is that the jobs lost in many of the communities that voted for Donald Trump and for Brexit have gone forever. Whilst manufacturing jobs are already rising in the US as the need for agility in production in response to local market conditions outweighs the narrowing difference in manufacturing cost as the salaries of overseas workers have grown, the skills required to perform those jobs have changed: factory workers need increasingly technical skills to manage the robotic machinery that now performs most of the work.

This is just one of the many disruptive effects that the astonishingly rapid development of digital technology is having on the economy and employment; and the cumulative outcome is a sustained increase in inequality.

Our economy is being transformed by new “platform” business models that exploit online transaction networks that couldn't exist at all without the technologies we've become familiar with over the last decade. MIT Economist Marshall Van Alstyne's work shows that platform businesses are increasingly the most valuable and fastest growing in the world, across many sectors.

Many economists and social scientists believe that the impact of these new technology-enabled business models is contributing to increasing inequality and social disruption. As Andy McAfee and Erik Bryjolfsson explained in theory, and as a recent JP Morgan survey demonstrated in fact by analysing 260,000 current accounts, as traditional businesses that provide permanent employment are replaced by online marketplaces that enable the exchange of casual labour and self-employed work, the share of economic growth that is captured by the owners of capital platforms - the owners and shareholders in companies like Amazon, Facebook and Über - is rising, and the share of economic growth that is distributed to people who provide labour - people who are paid for the work they do; by far the majority of us - is falling.

That is why inequality is rising across the world; and that is the ultimate cause of the sense of unfairness that led to the choice of people in the UK to leave the EU, and people in the USA to elect Donald Trump as their President.

These trends will be exacerbated further as technologies such as Machine Learning make it possible to automate more and more jobs - some studies predict that nearly half of all jobs - including those in highly-skilled, highly-paid occupations such as medicine, the law and journalism- could be replaced over the next few decades.

One solution that's being proposed to these challenges is the "Universal Basic Income" - an unconditional payment made by government to every citizen, regardless of income and employment status. The idea is that such a payment ensures a good enough standard of living for everyone, even if many people lose employment or see their salaries fall; or chose to work in less financially rewarding occupations that have strong social value - caring for others, for example. Several countries, including Finland, Canada and the Netherlands have already begun pilots of this idea.

I think it's a terrible mistake for two reasons.

Firstly, the proposed level of income - about $1500 per month - isn't at all sufficient to address the vast levels of inequality that our economy has created. Whilst it might allow a majority of people to live a basically comfortable life, why should we accept that a small elite should exist at such a phenomenally different level of technology-enabled wealth as to be reminiscent of a science fiction dystopia?

Secondly, a Universal Basic Income doesn’t recognise that most people want to work because they want to be useful, they want their lives to make a difference and they want to feel fulfilled. Surely enabling everyone to achieve that should be our aspiration for society, not a subsidy that addresses only basic needs?

Our answer to these challenges should be an economy that properly rewards the application of effort, talent and courage to achieving the objectives that matter to us most; not one that rewards the amoral maximisation of profits for the owners of capital assets accompanied by a gesture of redistribution that's just enough to prevent civil unrest.

I think the answers are at our fingertips. In one sense, they’re no more than “nudges” that influence what’s happening already; and they’re supported by robust research in technology, economics, social science, biology and urban design. They lay out a three step manifesto for successful community economies, enabled by technology and rooted in place.

But in another sense, this is a call for fundamental change. These “nudges” will only work if they are enacted as policies, regulations and laws by national and local governments. “Regulation” is a dirty word to the proponents of free markets; but free markets are failing us, and it’s time we admitted that, and shaped them to our needs.

I’ve described that manifesto – which combines some obvious ideas such as the inclusion of open data and social value in public procurement policy, with less obvious work from economics and evolutionary social biology on the nature of organisations that successfully manage common interest, along with the unglamourous but important subjects of taxation and corporate governance – in a longer article on my blog:

https://theurbantechnologist.com/2016/11/27/a-three-step-manifesto-for-a-smarter-fairer-economy/

Brexit and Donald Trump are not crises in themselves; but they are symptoms of a real crisis that we face now. They have already resulted in social unrest in the form of riots and increased incidents of racism - as has the rise in the price of staple food caused by severe climate events as a vast number of people around the world struggle to feed themselves when hurricanes and droughts affect the production of basic crops. It's no surprise that the World Economic Forum's 2016 Global Risks Report identifies "unemployment and underemployment" and "profound social instability" as amongst the top 10 most likely and impactful global risks facing the world.

Until we – and our political leaders – face up to that and start dealing with it properly – by accepting that "free markets" aren't working for us, and that new regulations are necessary to cope with the societal impact of rapid technological change – we are putting ourselves, our future and our childrens’ future at unimaginable risk.

 This article was first published in Rick Robinson's blog read more here

 

Connected Local Government Live 2017

^{a festival of connected thinking and events}

Central Birmingham 28 & 29 June 2017

https://connectedlocalgovernment.co.uk/

 

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