It’s my contention that 21st century capitalism is undergoing a triple crisis — one of inclusion, one of dynamism, and one of politics. As to the first of these, I’ve already written a couple of essays looking at the socioeconomic and political marginalization of ordinary people since the advent of mass affluence. Now I’ll turn to the crisis of dynamism. Piecing together what’s happened and why will occupy me for the next few essays.
Solutions: 1). The entrepreneurial creation of new governance models in small jurisdictions - for early examples see Prospera in Honduras and Catawba Digital Economic Zone on Catawba tribal lands. Existing governance around the world is static and controlled by vested interests. Special Economic Zones in many places around the world have been a factor in accelerating economic growth, most obviously in China. Next generation zones feature distinctive law and governance. Dubai International Financial Center (DIFC) was a pioneer here, becoming on some rankings a top ten financial center in twenty years within the UAE sea of sharia law. Had it not been for this island of common law, administered by respected judges, it could not have happened. Now Abu Dhabi has copied it, Rwanda also has a financial center based on common law, and Colombia is working on one. Prospera is even more exciting (despite the hostility of the Marxist current government) insofar as it allows for more radical regulatory freedom. Catawba is new, but innovative jurisdictions on Native American lands is a hope for some freedom from demosclerosis in the US. Bright young people from around the world have become involved in these movements. They are the greatest hope for rapid prosperity in Africa. Over time these will become zones for innovation, allowing new health care options, new transportation options, new research options, etc. 2). Educational freedom, most importantly represented by the universal ESA legislation in AZ. Educational sclerosis is an immense problem - our bureaucratic and obsolete K12 system is a huge obstacle to the development of higher quality human capital. The microschool movement along with innovative online programs (Synthesis, Sora, Prisma, Prenda, The Socratic Experience - mine, along with others represent a very dynamic field that will grow much more rapidly as we get universal ESAs state by state. I see conventional K12 as actively reducing opportunity and social mobility, so the sooner we can escape that system the better. Educational freedom will also re-invigorate culture, allowing us to bring up younger generations with more optimism, dynamism, better mental health, and overall well-being. Innovations at the university level will also help - much of academia outside of STEM is stuck in resentment and useless verbal games, with no tangible path for improving lives. 3). Crypto, releasing us from rent-seeking Big Finance and potentially allowing decentralized solutions across a wide range of domains. Dynamism will re-appear in those spaces liberated from rent-seeking and regulatory stasis.
Both this piece and Avent's make me wonder whether we might attempt a cultural reboot on the model of the Renaissance humanists who self-consciously looked back to the Romans for lessons to learn, models to imitate, and inspirations to build on. What times and civilizations might we look back to in the quest to kick progress back into gear?
I can think of at least two possibilities:
1. the Dutch Golden Age of the 17th C
2. the period 1890-1910 in central Europe
Both eras of course have major flaws, as all eras did, but both might offer some pretty good inspirational foundations for a better future.
Nice post. I'm struck by how many commentators of different persuasions are pointing to the same dynamic. You and Avent call it "conservative," Brad DeLong calls it Polanyian - but it's all a backlash to the size, speed, and pervasiveness of social change and structural economic change.
Historically seen, technological changes lead to social changes and political changes, as well as cultural. And vice-versa, when social, political, economic, cultural changes lead to tech changes. And every change period, or transformation or transition, has "winners and losers", those are in favour, middle and opposing. Post-industrial development is among other things resulting in more people with post-material values and number of "creatives" growing while number of workers diminishing, even if this development is more prominent in the Global North than in the Global South
1) The slowdown in productivity started around the same time productivity and wages were decoupled. There is a demand side to productivity as well as a supply side. With consumer demand suppressed, there was less pressure to raise productivity in those sectors of the economy. The drive for higher profits on the supply side was more than sufficient to push for higher productivity in supply side sectors, so they were less affected.
2) I think it is easy to underestimate the rate of technical progress. A lot of it is nearly invisible unless you look closely. For example, if you are male, you may or may not have noticed that your urine doesn't stick to the back of a modern urinal the way it did in an older urinal. Modern urinals have a coating that is harder to wet. This means urinals need to be cleaned less often and it can be done with less labor. This kind of coating has also changed the way materials flow in pipelines, how rain runs off a raincoat and in improved reaction efficiencies.
The general rule of thumb for a new technologies is that it takes 30 years to go from theory to prototype and another 30 to go from prototype to industry practice. There's another 30 years before one can really assess the impact of the change. For example, the internal combustion engine was developed in the 1860s, put into the first automobile in the 1890s and the basis of the automotive industry by the 1920s, but we didn't build our automobile based suburbs until the 1950s.
Maybe it is because I am old that I notice how many things have been changing. My parents had a VW Beetle that got a revolutionary 20 miles to the gallon in an era of gas guzzlers. There are massive SUVs that get mileage better than that, and a low end Kia would have dominated the 1950s quarter mile races. I remember what a pain in the ass it was getting to the spark plugs on that VW engine. Spark plugs last 100,000 miles or more on modern cars and you don't have to regap them.
If you follow metallurgy, for example, you'd realize just how much more efficient modern steel mills are. The 1990s was an era of major improvements, but the whole field is undergoing revolutionary changes now. I was just reading an article on using electrical currents to make it easier and less polluting to extract rare metals from their ores. Unless you are looking closely, you wouldn't notice the electron revolution. They can drive reactions directly. They can be used as coolants. They can impose biological gradients.
No one outside of the scientific and trade press reports on developments in metallurgy. There are all sorts of new alloys with greater strength when heated or cooled, with minimal expansion factors and other amazing properties. There's a whole research frontier involving alloys without a majority metal, and that has opened up a whole new space of material properties. I really get no sense of things slowing down. We are in a golden age of materials science with nanomaterials, metamaterials, biomimetics, exotic semiconductors (e.g. WSe/MoS can be used in multispectral sensors).
3) If you want to think about stasis, consider what happened in the 1970s when rather than meeting the challenges of the decade, we made a political decision to undo the advances of the previous decades. Improved productivity can make everyone wealthier, but this can upset existing power structures. There's no surprise that the ruling classes often find themselves fighting, not supporting improved productivity.
Thanks for the comment -- and for catching the misspelling. I had Vollrath's book sitting right in front of me when I was writing; you'd think I could get his name right. I'm sure I'll mention him again, next time correctly.
The problem you describe is also the solution: We can decide on a functional economic order rather than this one, or, we can do nothing and await our new masters. There is nothing to do - but to think. To stop reacting as if we are each of us all alone in a competition and think about how everything we are is already here - from language to economic systems - and that we are in it together. Ideologically things that were impossible are now possible ( torture, nuclear war, stock market unhinged from real economy, ) and yet things that are totally possible (taxing corporations globally, transnational ownership of communication, universal health care, universal free education) are dismissed before they can be posed because of the structure of our order. How come we cannot imagine any new economy? Why is there two choices? Why are we in a constant state of emergency? Why do we ask the same questions over and over that have no solutions ?
The US has been conservative since its founding. We've never really prioritized facts and stats over beliefs and feelings. After getting airborne on the power of British science and technology, we've mostly borrowed or imported scientists to create it.
Our brief national enthusiasm for science came after we saw Sputnik in our night sky, but that enthusiasm peaked decades ago and our investment in R&D, as a percentage of GDP, is now one-third China's.
We're just not that into progress. In fact, we've done more to inhibit social progress world wide than we've done to advance it.
Which is why China now leads the world and we have more prisoners, hungry children, drug addicts, poor people, suicides, executions, illiterate, homeless Americans than the Chinese.
Yes, our age's problems originate "in capitalism’s transition to mass affluence and a postindustrial economy." Tho also in a post-liberal society (see that substack).
Good link to Ryan Avent, who seems quite insightful on the "conservativeness" of a US & EU world with a very economically comfortable middle class. And, with gov't support for the bottom quintiles, their disposable income is not far from the middle quintile.
Avent and you are both too alarmist about climate change - increases in CO2 are not a major catastrophe. Notice how few discuss the change in CO2 %? (What do you think the change is?)
The stability of male labor force participation, or slow decline, is being matched by a more stable amount of female LFP. Similarly the diminishing economic returns to more tuition paid schooling is becoming clear.
The post WW II Baby Boomers created many trends which will NOT be replicated in economics, including the demographic evolutions.
Yet Avent's conservatism is because so many middle class folks have, successfully solved the Perm Prob - They live "wisely(?) and agreeably and well". And want their kids to do so, too. Interesting to think that agreeable and well can be self-judged with usually wide agreement, there is far more disagreement on what a "wisely" lived life is.
The unmarried and childless female PhDs who are 40 and older are likely to become more bitter about their own lifestyle choices which they thought were smart when young, but with age and life's disappointments they think are less wise.
College girls should be most interested in getting married young - a mother's good advice to her college going daughter.
Avent's piece was terrible because he ignores why there was a backlash against revolutionary change since 1980 (not 1970 like he says) That's because all those utopias killed at least 100 million people and ruined the lives of many more with the only result besides misery being to create red aristocracies in the place of the old ones. We defend old buildings because they are beautiful while prestige modern architecture, like all modern art, is a soulless, pretentious gimmick.
A major source of stagnation is that no new major energy sources and prime movers (engines) have been developed since WW2 when fission reactors, jet engines and space capable rockets were first used in numbers. Solar power is not yet deserving to be called a success.
Thus we see 1973 as a turning point from cheap energy and economic growth to expensive energy and stagnation.
The thing is also that capitalism is not some final step in human history. I think that the future is about well-being replacing profit as the main factor, and decentralised solutions as via crypto.
Solutions: 1). The entrepreneurial creation of new governance models in small jurisdictions - for early examples see Prospera in Honduras and Catawba Digital Economic Zone on Catawba tribal lands. Existing governance around the world is static and controlled by vested interests. Special Economic Zones in many places around the world have been a factor in accelerating economic growth, most obviously in China. Next generation zones feature distinctive law and governance. Dubai International Financial Center (DIFC) was a pioneer here, becoming on some rankings a top ten financial center in twenty years within the UAE sea of sharia law. Had it not been for this island of common law, administered by respected judges, it could not have happened. Now Abu Dhabi has copied it, Rwanda also has a financial center based on common law, and Colombia is working on one. Prospera is even more exciting (despite the hostility of the Marxist current government) insofar as it allows for more radical regulatory freedom. Catawba is new, but innovative jurisdictions on Native American lands is a hope for some freedom from demosclerosis in the US. Bright young people from around the world have become involved in these movements. They are the greatest hope for rapid prosperity in Africa. Over time these will become zones for innovation, allowing new health care options, new transportation options, new research options, etc. 2). Educational freedom, most importantly represented by the universal ESA legislation in AZ. Educational sclerosis is an immense problem - our bureaucratic and obsolete K12 system is a huge obstacle to the development of higher quality human capital. The microschool movement along with innovative online programs (Synthesis, Sora, Prisma, Prenda, The Socratic Experience - mine, along with others represent a very dynamic field that will grow much more rapidly as we get universal ESAs state by state. I see conventional K12 as actively reducing opportunity and social mobility, so the sooner we can escape that system the better. Educational freedom will also re-invigorate culture, allowing us to bring up younger generations with more optimism, dynamism, better mental health, and overall well-being. Innovations at the university level will also help - much of academia outside of STEM is stuck in resentment and useless verbal games, with no tangible path for improving lives. 3). Crypto, releasing us from rent-seeking Big Finance and potentially allowing decentralized solutions across a wide range of domains. Dynamism will re-appear in those spaces liberated from rent-seeking and regulatory stasis.
Both this piece and Avent's make me wonder whether we might attempt a cultural reboot on the model of the Renaissance humanists who self-consciously looked back to the Romans for lessons to learn, models to imitate, and inspirations to build on. What times and civilizations might we look back to in the quest to kick progress back into gear?
I can think of at least two possibilities:
1. the Dutch Golden Age of the 17th C
2. the period 1890-1910 in central Europe
Both eras of course have major flaws, as all eras did, but both might offer some pretty good inspirational foundations for a better future.
Nice post. I'm struck by how many commentators of different persuasions are pointing to the same dynamic. You and Avent call it "conservative," Brad DeLong calls it Polanyian - but it's all a backlash to the size, speed, and pervasiveness of social change and structural economic change.
BTW, it's "Dietrich" Vollrath
Historically seen, technological changes lead to social changes and political changes, as well as cultural. And vice-versa, when social, political, economic, cultural changes lead to tech changes. And every change period, or transformation or transition, has "winners and losers", those are in favour, middle and opposing. Post-industrial development is among other things resulting in more people with post-material values and number of "creatives" growing while number of workers diminishing, even if this development is more prominent in the Global North than in the Global South
1) The slowdown in productivity started around the same time productivity and wages were decoupled. There is a demand side to productivity as well as a supply side. With consumer demand suppressed, there was less pressure to raise productivity in those sectors of the economy. The drive for higher profits on the supply side was more than sufficient to push for higher productivity in supply side sectors, so they were less affected.
2) I think it is easy to underestimate the rate of technical progress. A lot of it is nearly invisible unless you look closely. For example, if you are male, you may or may not have noticed that your urine doesn't stick to the back of a modern urinal the way it did in an older urinal. Modern urinals have a coating that is harder to wet. This means urinals need to be cleaned less often and it can be done with less labor. This kind of coating has also changed the way materials flow in pipelines, how rain runs off a raincoat and in improved reaction efficiencies.
The general rule of thumb for a new technologies is that it takes 30 years to go from theory to prototype and another 30 to go from prototype to industry practice. There's another 30 years before one can really assess the impact of the change. For example, the internal combustion engine was developed in the 1860s, put into the first automobile in the 1890s and the basis of the automotive industry by the 1920s, but we didn't build our automobile based suburbs until the 1950s.
Maybe it is because I am old that I notice how many things have been changing. My parents had a VW Beetle that got a revolutionary 20 miles to the gallon in an era of gas guzzlers. There are massive SUVs that get mileage better than that, and a low end Kia would have dominated the 1950s quarter mile races. I remember what a pain in the ass it was getting to the spark plugs on that VW engine. Spark plugs last 100,000 miles or more on modern cars and you don't have to regap them.
If you follow metallurgy, for example, you'd realize just how much more efficient modern steel mills are. The 1990s was an era of major improvements, but the whole field is undergoing revolutionary changes now. I was just reading an article on using electrical currents to make it easier and less polluting to extract rare metals from their ores. Unless you are looking closely, you wouldn't notice the electron revolution. They can drive reactions directly. They can be used as coolants. They can impose biological gradients.
No one outside of the scientific and trade press reports on developments in metallurgy. There are all sorts of new alloys with greater strength when heated or cooled, with minimal expansion factors and other amazing properties. There's a whole research frontier involving alloys without a majority metal, and that has opened up a whole new space of material properties. I really get no sense of things slowing down. We are in a golden age of materials science with nanomaterials, metamaterials, biomimetics, exotic semiconductors (e.g. WSe/MoS can be used in multispectral sensors).
3) If you want to think about stasis, consider what happened in the 1970s when rather than meeting the challenges of the decade, we made a political decision to undo the advances of the previous decades. Improved productivity can make everyone wealthier, but this can upset existing power structures. There's no surprise that the ruling classes often find themselves fighting, not supporting improved productivity.
There must come a point where the returns on additional years of education are outweighed by the corresponding years of lost labor capacity.
Thanks for the comment -- and for catching the misspelling. I had Vollrath's book sitting right in front of me when I was writing; you'd think I could get his name right. I'm sure I'll mention him again, next time correctly.
The problem you describe is also the solution: We can decide on a functional economic order rather than this one, or, we can do nothing and await our new masters. There is nothing to do - but to think. To stop reacting as if we are each of us all alone in a competition and think about how everything we are is already here - from language to economic systems - and that we are in it together. Ideologically things that were impossible are now possible ( torture, nuclear war, stock market unhinged from real economy, ) and yet things that are totally possible (taxing corporations globally, transnational ownership of communication, universal health care, universal free education) are dismissed before they can be posed because of the structure of our order. How come we cannot imagine any new economy? Why is there two choices? Why are we in a constant state of emergency? Why do we ask the same questions over and over that have no solutions ?
The US has been conservative since its founding. We've never really prioritized facts and stats over beliefs and feelings. After getting airborne on the power of British science and technology, we've mostly borrowed or imported scientists to create it.
Our brief national enthusiasm for science came after we saw Sputnik in our night sky, but that enthusiasm peaked decades ago and our investment in R&D, as a percentage of GDP, is now one-third China's.
We're just not that into progress. In fact, we've done more to inhibit social progress world wide than we've done to advance it.
Which is why China now leads the world and we have more prisoners, hungry children, drug addicts, poor people, suicides, executions, illiterate, homeless Americans than the Chinese.
Yes, our age's problems originate "in capitalism’s transition to mass affluence and a postindustrial economy." Tho also in a post-liberal society (see that substack).
Good link to Ryan Avent, who seems quite insightful on the "conservativeness" of a US & EU world with a very economically comfortable middle class. And, with gov't support for the bottom quintiles, their disposable income is not far from the middle quintile.
Avent and you are both too alarmist about climate change - increases in CO2 are not a major catastrophe. Notice how few discuss the change in CO2 %? (What do you think the change is?)
The stability of male labor force participation, or slow decline, is being matched by a more stable amount of female LFP. Similarly the diminishing economic returns to more tuition paid schooling is becoming clear.
The post WW II Baby Boomers created many trends which will NOT be replicated in economics, including the demographic evolutions.
Yet Avent's conservatism is because so many middle class folks have, successfully solved the Perm Prob - They live "wisely(?) and agreeably and well". And want their kids to do so, too. Interesting to think that agreeable and well can be self-judged with usually wide agreement, there is far more disagreement on what a "wisely" lived life is.
The unmarried and childless female PhDs who are 40 and older are likely to become more bitter about their own lifestyle choices which they thought were smart when young, but with age and life's disappointments they think are less wise.
College girls should be most interested in getting married young - a mother's good advice to her college going daughter.
Avent's piece was terrible because he ignores why there was a backlash against revolutionary change since 1980 (not 1970 like he says) That's because all those utopias killed at least 100 million people and ruined the lives of many more with the only result besides misery being to create red aristocracies in the place of the old ones. We defend old buildings because they are beautiful while prestige modern architecture, like all modern art, is a soulless, pretentious gimmick.
A major source of stagnation is that no new major energy sources and prime movers (engines) have been developed since WW2 when fission reactors, jet engines and space capable rockets were first used in numbers. Solar power is not yet deserving to be called a success.
Thus we see 1973 as a turning point from cheap energy and economic growth to expensive energy and stagnation.
The thing is also that capitalism is not some final step in human history. I think that the future is about well-being replacing profit as the main factor, and decentralised solutions as via crypto.
https://tealfeed.com/why-cooperation-becoming-important-democracy-aq1pw