Commentary
The digital era demands a new compromise between the state and the market
Automation and digital capitalism will continue to develop. But the state must be based on a new compromise, on the support of a post-liberal social bloc, and will have to take upon itself the task of creating the jobs that are necessary for society.
Politics is a confused mess nowadays, with politicians stammering through speeches they don’t believe, touting leaps of faith in something that might happen in the future, while no one knows what it is and why it should happen at all. The Thatcherian mantra that “there is no other option” is holding minds captive, and giving currency to what is obvious nonsense.
For instance, the prospect of overcoming unemployment and job insecurity for whole generations with the help of start-ups or the like. The lack of acknowledgment of basic truth produces a diseased environment, in which lies have free rein.
However, there is a glimpse of something else nowadays: a molecular transformation, as Gramsci would say. The critique of inequalities, both morally unacceptable and economically harmful (according to the IMF), has dug deep into our current situation and showed that the lack of jobs is not due to some bottleneck in the system, but simply due to the fact that they are no longer necessary.
Even those who haven’t yet read the McKinsey Report, which estimated that 49 percent of existing jobs will be taken over by robots, can see everywhere the abandoned workshops, the closing bank branches, the vacant stores. Everyone can read in the newspapers that Deutsche Bank, after it already made 9,000 workers redundant in 2015, now wants to reduce the number of its 97,000 employees by half; that Siemens has announced 6,000 redundancies; that Intesa Sanpaolo is laying off 9,000 employees; that Unicredit is closing 883 branches (with 6,500 redundancies by 2019, in addition to the 3,900 already laid off); that Telecom Italia is laying off 6,500 employees, and will undertake a restructuring, offering various severance incentives, that will finally let go more than 10,000 workers; that supermarkets are in crisis because of online sales (in the US, the department store chain Macy’s has just announced a cut of 5,000 jobs); and that self-driving trucks will leave hundreds of thousands of people jobless.
Everyone knows this phenomenon has been happening for years: between 1990 and 2015, the Italian Postal Service has downsized itself from 237,000 to 144,000 employees, while the Ferrovie dello Stato (national railroads) has gone from 186,000 to 65,500 workers, Telecom Italia from 127,000 to 52,500, and Finmeccanica from 58,500 to 29,500. Yet, everyone has continued to place their trust in a mythical economic recovery that would set things right. But today, a study from the Institute for Public Policy Research is estimating that in the UK, 44 percent of existing jobs could end up being lost to automation, which corresponds to more than 13.7 million people, currently earning a total of around £290 billion.
The reasons for this situation are of an utterly self-evident simplicity, but they are being obscured by a well-funded web of misleading claims, unnecessary complications and abstruse language, fields in which those who write on the economy are undisputed masters. It can all be summarized as follows: digital capitalism (i.e. the machines that interact with other machines) allows for an unlimited production of goods. At the same time, it produces surplus labor. The resulting unemployment generates a reduction of the overall wages, due to the smaller number of the employed and the influence that the reserve army of labor has on the wages of employees.
This will lead to a reduction in the demand for goods—and not only that. Cutting jobs leads to a decrease in pension contributions and tax revenues. As a consequence, there will be fewer resources available for pensions and public services, and especially for public investment—which, again, will lead to an even lower demand.
Therefore, digital capitalism is sawing off the branch it is sitting on. It is doomed to bankruptcy by the very overproduction and under-employment that it is feeding. In this situation, there are only two paths available to take.
One path is to sit and wait, hopefully, for digital capitalism to create new jobs to replace the ones being lost. But what evidence is there to support this view? Today, this is nothing more than a leap of faith into a utopia. And one that has very concrete (and nothing short of criminal) consequences, as it dictates that—while we wait for the job miracle—the outcasts, those left behind, those now useless, should be kept closed off in something like an Indian reservation, in precarious conditions, underpaid, inactive, reduced to vagrancy. This implies that their desperation and their apathy would be actively encouraged, not only by being complicit with the alienating culture of evading public contributions, but by us remaining indifferent to their moral, intellectual and physical degradation. One of the most tragic aspects of the social crisis in the US is the collapse in the life expectancy of adult males, particularly white and less educated, because of opioid abuse. The future seems to look just like the societies depicted by John Carpenter in his film Escape from New York (and the later Escape from Los Angeles) for the year 1997: the capitals of the world surrounded by high walls, having become prisons where the “left behind” live in absolute anarchy.
The other path is to create a state that would be able to socialize the wealth produced by the machines and redistribute it in the form of jobs, valuable for society and dignified for those performing them, and which would support demand for the goods produced. It would have to be a strong state, able to make effective use of taxation and, at the same time, of the widest possible system of incentives in order to achieve this purpose.
Today, this appears simply unimaginable. But we should remember that in the US, at the start of the 1929 crisis, the maximum tax rate was 24 percent, while in 1932 it had become 63 percent. During Roosevelt’s administration it hit a maximum of 94 percent, and under President Eisenhower (1953-1961) it was still above 90 percent.
That is what socializing wealth means—exactly the opposite of what is being done today. But it is the only way to establish a balance between production and consumption and avoid social catastrophes.
This is something everyone desires: both the workers and the capitalists. Therefore, a rational compromise must be possible. It is no longer true that there is no other solution. Thatcherite “necessity” is over and done with.
The new social compromise has to revolve around a re-orientation of taxation, which would shift the burden from taxing income deriving from labor to taxing the added value as a whole (as proposed, for instance, by former Italian Finance Minister Vincenzo Visco), as well as socializing the wealth produced by the machines to create full employment, and, by this means, supporting demand. But this may not be enough, because the recent process of automation, which has produced the current unemployment and insecurity, should also be compensated. To this end, one must not be afraid to create new taxes on accumulated wealth (both financial and real estate, when higher than a reasonably set threshold), as well as on the use of non-renewable raw materials, and on enterprises in monopolistic, rent-seeking positions (e.g., the web-based “giants” of nowadays).
This has nothing to do with any Luddite attitude. Automation and digital capitalism will continue to develop on their own, supported by an innovative state. But that state must be based on a new compromise, on the support of a post-liberal social bloc, and will have to take upon itself the task—indispensable from a rational point of view—of “creating” the jobs that are necessary for society. These two paths, however different they are, have in the end no choice but to meet. Right now, the state and the market are a corrupt and inefficient tangle. The state must cut this Gordian knot, and proceed to do its part.
Many strategies will have to be combined to meet this dual—ethical-political and economic—objective, but they all boil down to the ability of the public administration (and of private actors who want to contribute, who could receive tax subsidies) to enact investment policies that would create the paid jobs that the market, left alone, can neither ask for nor support.
One might say that humanity currently finds itself in similar conditions to those in the time of the great “river empires” of antiquity. Back then, it was the Nile, the Tigris, or the Euphrates that gave life, but the artificial network of canals that distributed water to the desert was the political instrument that allowed people to enjoy that life. Today, the role of the Nile, the Tigris, or the Euphrates is played by the machines. We need to build the channels that will allow everyone to benefit from their existence.
Originally published at https://ilmanifesto.it/nellera-digitale-serve-un-nuovo-compromesso-tra-stato-e-mercato/ on 2018-01-26