The world’s post-WWII economic surge was founded on the idea that macroeconomic advances benefit everyone equally — i.e., that “a rising tide lifts all boats” (a phrase widely attributed to JFK, which his speechwriter apparently borrowed from a local New England chamber of commerce). This idea is a hallmark of the neoliberal economic model.
Whether the aphorism still holds today is predictably a subject of highly polarized economic debate — see e.g. this June 9, 2014 LA Times article. My own research leads me to conclude that the idea worked powerfully for decades, began to break down in the 70’s and 80’s (as we’ve seen in prior posts in this series), and since then has begun to fail as remarkably as it once succeeded.
This week and next, I’m going to quote extensively from The Wealth of Humans: Work, Power, and Status in the Twenty-First Century (2016), by Ryan Avent, a senior editor and economic columnist for The Economist, whose analysis runs like this:
- Neoliberal economic policy did in fact lift all boats from the early post-war years through its heyday in the 70’s and 80’s.
“The last generation, during which the digital revolution’s first powerful effects made themselves felt, was an era of remarkable political moderation and consensus. The period began, in the 1970s and 1980s, with a liberalizing impulse across a broad range of countries… As global markets integrated, politics in most rich democracies coalesced around support for market-oriented economies, global openness and progressive social goals. It was a pleasant sort of era for the cosmopolitan, technocratic elite: the believers in the notion that the market, lightly tended, offered the best route to global prosperity and peace.”
- It especially raised national economies and benefited the wealth and income of individual wage-earners — especially in countries where government-centric models such as social democracy and communism had previously been in charge.
“[T]he nature of economic growth shapes political priorities… Political momentum for economic liberalization in the 1970s and 1980s emerged as typical voters lost confidence in the ability of the more statist economic policies to raise long-term living standards.
“The outcome of that liberalization differed substantially across countries. In China and India, liberalization delivered on its promise. In China, especially, a generation of rapid growth succeeded in elevating a large middle class out of poverty. China’s economic pie grew massively.”
- But in the past few decades, continued allegiance to neoliberal policy has had the reverse effect, resulting in disproportionate benefits and rapidly growing economic inequality — especially in the USA and other nations where it was most entrenched.
“In the rich world, things worked differently. In 2014, the inflation-adjusted income of the typical American household was just 7 per cent higher than it was in 1979. By contrast, the income of a household in the 95th percentile of the income distribution grew 45 per cent over that period.”
- Since the 80’s, the “lifts all boats” paradigm has not kept pace with the altered economic dynamics brought on the technological revolution, resulting in a shift in wealth creation and sustainable income away from wage-earners.
“[T]he world economy operates on a framework very much rooted in an industrial, scarcity-bound world. The interaction of that world with the technological advances of the digital era have landed labour in a trap. The digital revolution generates fantastic labour abundance; that abundance contributes directly to downward pressure on the wages of the typical worker. It also reduces the bargaining power of labour relative to other, scarcer factors, allowing those factors to capture outsize share of the gains from growth.”
- Continued allegiance to the paradigm is currently undermining the concept of working for a living.
“We now have new economic challenges, and the former labor/wage model is no longer producing equitable results. Job-based economic security and prosperity is being left behind.
“Low pay for the great mass of workers is distributionally unfair. It undermines support for the market-based economic system that enables sustained economic growth.
“We might not care so much about these inequities if the digital revolution were reducing the costs of all the many things the typical household wants to buy, from steak dinners to adequate housing to a top-flight university education. But cost reductions have so far been highly uneven: massive for some things, such as digital entertainment, completely absent for others, such as homes in nice neighborhoods.”
This analysis essentially restates that of economist Guy Standing, which we looked at over the past two weeks.
Arent concludes by saying, “This process will not end without a dramatic and unexpected shift in the nature of technology, or in the nature of economic institutions.” Change on that level means shifting long-standing, deeply entrenched societal paradigms. More on that next time.