New Approaches to Inequality

A set of recent studies reveals the shocking increase in inequality globally, both between and within countries. Anti-poverty economic policies since World War II have done little to counter this grotesque imbalance.

Worldwide, the share of the productivity increases of nations going to employees is shrinking – while the share to capital owners, financial firms, corporations and their top executives has mushroomed.

To combat rising inequality, old economic textbooks still call for more growth. Yet, economic growth is slowing in most mature economies.

The economic textbook view also claims that advancing industrial innovation, efficiency, productivity and progress as measured by GDP-growth always create new industries and replace lost jobs with new ones. However, these macroeconomic theories are failing in the face of the facts of automation and the advance of information technologies.

Challenging the old growth bromides

After decades of theory-induced blindness, courageous economists are challenging textbook growth bromides and joining with many public intellectuals in targeting growing inequality in new ways.

Former Microsoft scientist and computer guru Jaron Lanier in Who Owns the Future (2013) takes the closest look at the evidence.

Aghast at the speed of the digital information takeover of more sectors, particularly in music, entertainment, news, retailing, social media and finance, Lanier calls for new rules and laws remunerating every individual who contributes any information to online companies, banks, Facebook, Google, Twitter and all such platforms.

Lanier forecasts the social costs of automating vehicles and eliminating human driving: deskilling and a loss of millions of entry-level jobs that provide the unemployed, students and minorities a first step on the ladder in their lives. Deskilling is also evident in fly-by-wire aircraft where pilots have crashed planes when auto-pilot systems fail.

Debates from the 1960s have re-emerged: How can unemployed people obtain the purchasing power to consume the growing cornucopia of goods and services?

Even more fundamentally, why should access to money and purchasing power come mostly from jobs that are increasingly scarce – or by the luck of having wealthy parents, birth in an advanced society or some sinecure obtained through influence, politics or other power games?

Would social innovation match technological innovation?

At a seminar in Windsor Castle in the 1970s hosted by Britain’s famed author Charles Handy, there was a trade unionist who exclaimed in the discussion of the envisioned post-industrial world “You’re all mad! The people with the leisure won’t have any money!”

We were enthusiastic about information technology and believed that much boring repetitive work could be taken over by robots, as was happening in Detroit’s automating car factories. The United Auto Workers (UAW) leader Walter Reuther agreed and the UAW spearheaded 1960s’ debates at their Automation House in New York City.

All the new possibilities of creating “Leisure Societies” were examined: reducing work weeks, guaranteed incomes and evolving post-industrial societies toward education and human potentials by investing in people. Social innovation could match the technological innovation. Drudgery would be automated!

Later on, James Robertson explored the secretive politics of money-creation in Future Work (1985) and Future Money (2012). Basic minimum incomes could, like healthcare, become a right, guaranteed by sharing the productivity of the Information Age more widely – creating millions of new jobs, also in greater leisure and expanding recreation sectors.

Money-creation itself could be democratized with the budding local currencies, LETS system and community banks and credit unions!

Utopia partially realized but inequality still soars

Utopian as they may have seemed, parts of these scenarios have materialized. Societies’ total pies did grow bigger. Tourism and hospitality are now the largest sectors of the global economy, along with movies, entertainment, sporting events and all the new industries based on the internet. Local currencies, crowdfunding, credit unions and microfinance have taken off worldwide.

So why are we still stuck with jobless economic growth and rising inequalities? Why is there a lost generation of young people, many burdened with un-repayable student debt and unable to find jobs? Why do we have millions of homeless people, empty foreclosed homes and many employees losing pensions and mired in stagnant wages?

The dismal “economism” paradigm maintained control through creating scarcity (see “The Money Fix”) and through engendering fear, competition, hoarding – all reinforcing our reptilian brains. This psychological model still underlies banking, finance, asset accumulation, risk and corporate management.

Another answer is that social innovation never kept pace with all that technological innovation. Investments in new infrastructure and in people lagged behind. Capital investments went global and, as more and more jobs fell to automation, millions more moved offshore, looking for cheaper, unorganized labor and unprotected workplaces and environments.

Pushed by corporations and their economists, political allies claimed that trade agreements like NAFTA in the 1990s between the United States and Mexico would create up to half a million new jobs.

The economic textbooks’ dead hand still holds sway over the debate: claiming that the greater efficiency of manufacturing and the unemployment it brought can be eased by new jobs created elsewhere and that “retraining of workers” is the best remedy. Private sector innovation and investment promised to trickle down by creating new jobs.

By 2012, this “economism” view had prevailed and restored the financial sectors with taxpayer bailouts and imposed its austerity regimes in Europe and in the budget-cuts in the United States. Rearview central banks printed money to bail out incumbent industries of the past instead of investing in the future.

High-frequency, computerized trading has taken over on stock exchanges and the new electronic platforms developed by taxpayers. Betting on which countries’ bonds will default became today’s quadrillion dollar credit default swap and derivatives markets, and its perverse financial “innovations” are setting up the next bubble.

Challengers to the old dead hand of economism

Open challenges have been led by radical political parties of both the old left and right. Movements such as Occupy Wall Street, the World Social Forum or the Barcelona Consensus, have reclaimed the earlier debates of the 1960s, calling for social innovations based on the vast new productivity and opportunities of the Information Age.

The “old” agenda is also the new agenda – guaranteed minimum incomes, local currencies, public banking and public sector innovations in education, health and redesigning cities and infrastructure.

All this is obvious to those outside the economics profession. Unlike most economists, those people do not suffer from theory-induced blindness. Many now point to this growing global inequality as generated by faulty models of “economic” growth.

The models are rooted in unfair distribution due to powerful private interests, capture of governments, regulations, tax policies and even “cognitive capture” of their mindsets and worldviews.

The vision of abundant post-industrial societies reemerges

While in the United States and Europe, guaranteeing minimum incomes is still taboo, such incomes were initiated as “Opportunidades” in Mexico and “Bolsa Familia” in Brazil. These direct or conditional cash payments (CCTs) brought millions out of poverty.

Entrepreneurs Paul Polak and Mal Warwick recount many successes in addressing poverty worldwide in their The Business Solution to Poverty (2013), while Amy Cortese cites the rebirth of local business models in Locavesting (2011).

A longer historical view by Princeton economist Angus Deaton in “The Great Escape” (2013) finds the origins of inequality in the technological revolution as private innovation races ahead of social innovation and economic elites capture political power.

The new paradigms in human development are at last emerging into politics and those 1960s visions of abundant post-industrial societies are alive. The move beyond ideologically imposed scarcity regimes and fossil-fueled early industrialism cannot be suppressed much longer, even though establishment economists will certainly try.

The Solar Age (see video) is now visible in the advance of green, knowledge-rich economies based on harvesting the free daily photons from the sun, as we track in our Green Transition Scoreboard® and daily updates at our “Ethical Markets” website. Our research shows that current $1 trillion annual private investments between now and 2020 will have scaled. As a result, the world will have entered the Solar Age.