For many years now, societies have been limping on with broken institutions and splintered social contracts — right into the heart of this perfect storm. And I’d bet most of us have assumed that we’ll continue to “get by” — that we can wait for the economy to repair itself, for the next economic boom to provide shelter from the approaching cyclone, for the invisible hand to pick us up and put us back on our feet. Yet, I’d suggest: the upheavals we’re seeing now are stark evidence that the status quo’s faith-based modus operandi hasn’t worked — and isn’t working. We’re not magically going to “find” shelter from the gathering clouds of this economic whirlwind. We’re going to have to build shelter: more resilient, less dysfunctional institutions that can deliver on the promise of real human prosperity that matters, lasts, and multiplies. Because if you didn’t know what a lost decade looked and felt like before — well, you sure do now.
Very interesting linkage in this excerpt by Umair Haque:
“There are many kinds of looting. There’s looting your local superstore — and then there’s, as Nobel Laureates Akerlof and Romer discussed in a paper now famous among geeks, there’s looting a bank, a financial system, a corporation…or an entire economy. (Their paper might be crudely summed up in the pithy line: “The best way to rob a bank is to own one.”) The bedrock of an enlightened social contract is, crudely, that rent-seeking is punished, and creating enduring, lasting, shared wealth is rewarded and that those who seek to profit by extraction are chastened rather than lauded. Today’s world of bailouts, golden parachutes, sky-high financial-sector salaries — while middle incomes stagnate — seems to be exactly the reverse. Perhaps, then, our societies have reached a natural turning point of built-in self-limitation; and this self-limitation is causing a perfect storm to converge.
An enlightened social contract is not built on subsidies or “handouts” — whether to the impoverished, or to the pitiable welfare junkies formerly known as “the markets.” It’s built on a calculus of harm and benefit not just accepted by a plurality of its citizens (versus a tiny Chalet-owning, caviar-gobbling minority at the top) — and also a calculus that can be said to meaningful in the sense that it results in real human prosperity. Without such a bargain to set incentives and coordinate economic activity, even the mightiest, proudest societies will find themselves as bent old men on an endless plateau, searching for a lick of shelter as the typhoon bears down.
For much of the previous economic boom, the bargain on offer in modern Britain could have been abbreviated something like: “Want not merely to get rich — but to get richest, fastest? Then loot, plunder, and enjoy the rewards of conquest.” (Consider the eye-popping bonuses for bankers just after the economy went into meltdown.) It was a recipe not for prosperity, but for fragmentation and decline; less a social contract than a sociopathic compact. And though the rioters are guilty of much — and that deserves nothing less than the iron fist of the law — I wonder if, perhaps, the crime inside their crime wasn’t perversely, insidiously following the hideous logic of this sociopathic compact through to the fatal end.
Call it the logic of opulence: a paradigm of plenitude centred on more, bigger, faster, cheaper, nastier, now. Its glittering, unattainable fever dream seems to have driven the rioters mad. As one told the Guardian, “Why are you going to miss the opportunity to get free stuff that’s worth loads of money?” Indeed: why, given a poisonous compact tattooed into the deeper calculus of everyday culture, not? Hence, as many have pointed out, the mob hasn’t exactly been looting bookshops, but the stuff of faux-luxe, mass-designer plenitude: plasma TVs, fast fashion, video games. The vision they seemed to be pursuing, as if their long-denied birthright, is less one of sign-waving activism, fighting against deep-seated social injustice, and more one of raiding a consumerist Disneyland to which they’ve long been glumly denied a ticket.
If that’s the thunder and lightning, then here’s what’s going on behind the clouds. The eye of this perfect storm is extreme income inequality that makes the Glided Age look Leninist: London’s the most unequal city in the developed world. It’s a place where seeing dozens of supercars in a row makes tourists gawp, but rarely causes residents to raise an eyebrow; where oligarchs, tycoons, and oil sheiks are whisked around by Rolls-Royces the sizes of small yachts from shadowy members’ club to rarefied boardroom — a haven, not by accident, but by careful design, for the very richest of the world’s rich. But it’s also a city where threadbare ends are more and more difficult to make meet. It’s a poster child for the perverse dynamics of a Great Stagnation: a few super-rich get super-richer while incomes stagnate and decline for the vast majority of the “rest.” And when the rule of law is visibly, easily flouted by the rich, it usually ends up being seen as laughable by the poor.
London’s become a city where many young people feel they’re finished before they start. Global economic imbalances (think, crudely, a country with a perpetual trade deficit) ultimately mean that there aren’t enough jobs to go around — and entrepreneurship is about as British as fish and chips are American. Being lucky enough to land a job that propels you into the ranks of the upwardly mobile — or at least, that keeps you from the ranks of downwardly mobile — depends, in my experience, not just on having gone to a handful of top schools (Oxford, Cambridge, LSE), but on having the right accent, postcode, and background. And while Americans might say that’s unique to Britain, I wonder if in most advanced economies, similar dynamics aren’t at work. Top employers, for example, don’t exactly recruit heavily from The University of Nowhere. Internships are heavily tilted towards the already-privileged. In fact, the problems of youth unemployment, underemployment, marginalization, and inequality are so pervasive globally, more and more economists are beginning to point to a lost generation.
Another storm cloud looming over the dreary isle is, of course, the grim specter of austerity. Of all advanced economies, the UK proudly passed perhaps the world’s most severe shock and awe austerity package — dramatic cuts across the board — to the shock and disbelief of many economists, who predicted that it would throw thousands out of work and cripple demand in the middle of an already precarious economic situation at precisely the time the economy needed it least. The result has been predictable: even for a world beset by reluctant recoveries, the UK’s “recovery” has been notably the poorest. Hence, an economy where too many are out of breath, struggling even to tread water. The evidence suggests austerity leads to social instability and violence: uh-oh.
But the superstorm’s a global one, not just a cloudburst over Camden Lock. From Tahrir Square to Syntagma Square to Puerta del Sol Square, social upheaval’s spreading — sometimes in droplets, sometimes in floods, sometimes placidly, sometimes…not so placidly. Each example is very different from the others. Yet, the underlying ruptures might be said to be similar: What happens when a nation willfully ignores perhaps the most fundamental lesson of economics, and hopes rent-seeking will equal real prosperity? This does. What happens when a nation either loses, or prevents, a stabilizing middle class? This does. What happens when a government — any government — gets so out of touch with the governed? This does.
Our institutions are failing — they’re failing us; failing the challenge of igniting real, lasting human prosperity. If institutions are just instruments to fulfill social contracts, then ours are shattering because the social contracts at their hearts have fractured.
I call it a Great Splintering — not purely an economic phenomenon, as in “Great Contraction,” but a social one: an era when social contracts are being torn up, abrogated, betrayed, abandoned, by accident, by design, by “regulatory capture,” or simply by polities too gridlocked to progress. Broken social contracts aren’t just tidy abstractions, empty of visibly real consequences, disconnected from the noise and clamor of our messy human lives. As they break, yesterday’s ways of living, working, and playing rupture; yesterday’s organizations, from corporations to banks to nations, creak and crack.”