Why are people turning their back on the ‘Western’ model? How could it happen and even more so in such a short time span? While most of us associate the recent string of events to failed regimes or fictional story plots, it now haunts the U.S. – playing out like a reality show except the consequences are real and cannot be tuned out by a press on the remote control – however tempting that might be[1].
The elite has cut the link to the people, who retaliate by turning against the elite. A revolt!
Conceptually industrialization was anchored in enlightenment, science, rationality, and logic. Ethically a higher degree of decency followed. The nexus was check and balances, which not only framed economic prosperity, rising equality and fairness, but also opened the door for the majority of people to influence political decision making.
Now, negative side-effects start to overrule the positive side of the model. Polls show that a majority of people in industrialized countries feel that their children will NOT live in a better world. Consensus and coalition building – the mainstay of the check and balances system – is no longer the plinth of our world order – world view, weltanschaung. Political correctness emphasizing tolerance and respect and crafted to block a repetition of 1914 to 1945 is now rejected yes ridiculed and cast aside. It is legitimate, in some places even laudable to vilify other people and advocate discrimination on the basis of ethnicity and religion.
Subjectivity has replaced objectivity blurring the difference between truth and non-truth. Between facts and made up figures. Today any viewpoint is legitimate. ‘My point of view is as good as yours!’ No insistence on evidence.
Industrialization.
Adam Smith’s ‘The Wealth of Nations’ gave birth to economic theory explaining capital formation conducive to growth. The market – economic thinking and behavior – precipitated change and dynamics after centuries of near stagnation. Concomitantly economic policy started to guide the political system (liberal representative democracy) in its endeavors to control the economy and distribute wealth between capitalists and non-capitalists.
It was not a global model, but build around the notion of rich (insiders) and poor (outsiders). Countries could be ‘relegated’ (as was the case for Argentina one hundred years ago), but not promoted. Sometimes around 1975 the outsiders challenged the insiders. Promotion, incompatible with the model, started. The result quickly became competition for jobs, welfare, and resources on a global scale. The industrial age edifice began to crack.
Capitalism is a marvelous growth machine especially combined with globalization, but aberrations, distortions and negative side-effects must be kept under control. The challenge from the socialist/communist model did precisely that. When that challenge disappeared in 1991, the self-imposed barriers for egoistic behavior melted away. The dominating perspective became short term profit defined by pure market economy disregarding potential or real negative societal side-effects – what an economist would label external diseconomies on a societal level/scale.
Globalization introduced economies of scale which:
- Generated enormous profits for multinational companies,
- Opened the door for minimizing tax by shuffling revenue and profits around among countries,
- Suppressed the wage share of Gross Domestic Product (GDP) in rich countries destabilizing and impoverishing their middle class,
- Dislocated manufacturing in rich countries; small scale plants in local communities disappeared and people felt abandoned, desperate, and without hope.
The upside – enormously important – was that hundreds of millions of people in poor countries were lifted out of poverty.
The political problem gradually suffusing the agenda was that the negative side-effects were mainly, almost exclusively felt in rich and industrialized countries with the upside blessing Emerging Markets and Developing Economies (EMDE). Suddenly the dichotomy between ‘haves’ and ‘have nots’ changed dramatically – a complete reversal of roles.
Technology introduced the skills factor to determine distribution of income. Three groups of “workers” emerged. Those having the skills in demand asked for and got a premium. A thin layer. Those doing repetitive functions, the middle class, were squeezed. Those in lower paid service jobs were forced to accept lower wages under pressure from the middle class above them in the social strata now competing for their jobs and immigrants in social strata below them. In the U.S. wage differentials and inequality was falling 1920 to 1940, stable until the 1970s where after inequality started to explode – almost exactly at the time when Information and Communication Technology (ICT) plus globalization began to put its mark on the economy.
Social losers tried to be heard by voting for the opposition, but the opposition fared no better than the government because there was no answer. In reality government and opposition was the same side of two coins!
And who are the losers? They are broadly speaking people unable or unwilling to cope with change – not necessarily unemployed or poor. In Europe and the U.S. many of them are found among the middle class being eradicated, disappearing as the stabilizing factor. Year 2000 US, Europe, and Japan accounted for 2/3 of global middle class. Prognoses tell that year 2020 it will be about half and year 2050 about 15%. The privileged status built up over the industrial as skilled workers – the hero of industrialization and its main beneficiary – was suddenly taken away from them; other social groups or ethnicities fare better. Since 2007 close to ten million new jobs have been created in the U.S., but whites have lost one million jobs. This discloses the losers as white Anglo-Saxon protestant males powerful during the industrial age fighting almost literally to maintain their privileges.
They constitute a large segment of the population, but they are not the ‘people’. Did the British people vote for Brexit? No. Figuring in the turn out 38% of the electorate did. We read that the American people elected Donald Trump. Wrong. Hillary Clinton got almost 3 million more votes. Figuring in the turn out approx. 26% of the Americans voted for Trump. The depressing interpretation is that a large and growing share of the population does not find it worthwhile to operate inside the system. The system is not theirs! They vote against the system or stay away. The silver lining is that if the system – the establishment – can get the act together and deliver, those people may return. The game is not lost.
The future.
It is fascinating to reflect on how things will turn out, but foolhardy to put forward a picture of the world order to come. Mankind might cut the link to nature and live in a totally artificial environment – mankind may choose the opposite and opt for a return to stronger human relations while respecting the cycle of nature, as our ancestors actually did – or be so confused and bemused under the onslaught of globalization and technology that we end up with some kind of superstition like in the middle ages.
What we can do is to search for some fundamental trends controlling the future development; intercept them to build a system/model strong enough to keep the ship steady until the fog has cleared and a better view of where we are going beckons.
If civilization is a work in progress, we should mobilize discipline and self-discipline to rally people to a common purpose aiming at:
- Societies as a whole instead of egoistic behavior,
- Long term thinking/behavior instead of short term effects,
- Sustainability instead of throw away consumption,
- A new kind of self-esteem among human beings with people feeling they are a spoke in the wheel contributing to society and receiving something in return,
- Mutual respects leaders – people instead of mutual disrespect and distrust.
The future main thread is common and shared values gradually crowding out economics as the main motivating force. The objective is a new social contract. The vehicle is communication via social networks. The playing field for communication becomes level instead of top/down or down/top or passive only (radio/TV). The social networks should belong to the people and used by the people. Neither commercialized nor allow concentration of knowledge opening for abuse of power.
Political system.
Power distance separates politicians’ values from voters’ values. In many countries, barely 2/3 of the electorate turns up signaling indifference. Membership of political parties tells the same story.
A lower power distance can be sought through roll back of centralization and concentration to lower power distance. Turn local communities into yes LOCAL and small communities; reject increasing returns borrowed from economics for public services. Look for solutions to combine social networks with human contacts. The service provider – welfare, education, and health – must be close to people to cater for their basic needs and not perceived as business.
There are innumerable challenges and opportunities embedded in social networks. In principle, they ‘should rally people to a common purpose’. In reality the opposite happens: Segmentation of public opinion through vociferous and importunate persons/groups hijacking the agenda. Social networks become divisive, disruptive, and increase power distance. Human contacts so vital a glue for unity and coherence fade away.
Segmentation/fragmentation comes into play as people communicate more, but with like-minded people. Those who contact us have analogous opinions. We search, maybe unconsciously, for opinions & views similar to our own ones. A closed-circuit network appears with people reinforcing one another in already held opinions eschewing contradictory information. It is no wonder that extremists’ views have established themselves and got a grip on the political agenda simultaneously with the explosion of social networks.
Using social networks anybody can try to set the agenda. If the message resonates with the public the cascade effect guarantees success irrespective of facts, objectivity, and merit. The ‘newcomers’ are proactive, offensive, snippy, aggressive, using rude/disparaging vocabulary, and dispense with objectivity, facts, and the truth. The establishment appears as reactive, defensive, even boring with politically correct vocabulary which does not strike a chord with the public – and do care about objectivity, facts, and the truth. Studies show that many, maybe most people decide in the split of a second based on instinct, intuition, own experiences and background. We live in a world dominated by a pressure of impression: Catch attention every day and use simple language. The attention span is short so select your audience and appear to be like them. Our ‘self’ is the template for judging others. This opens the door for tailor made interference in people’s decision making. Recently Alexander Nix, CEO of Cambridge Analytica was quoted saying ‘we have a massive database of 4-5,000 data points on every adult in America’. Allegedly the company helped Trump to win.
The establishment can also use this model! And doesn’t because it has severed the links to the people.
Economic model.
Economics has always loved the idea of general equilibrium, but for the economic system only. Now a kind of societal equilibrium could be the objective.
Short term profits from a purely economic point of view distort the social fabric. Many people look – in vain – for stability and security – human security, economic security, and social security. After disruptive and explosive change over the preceding half century – a burst of activity rarely seen in history – there is a growing preference for calm down, digest, and find out how to use technology and globalization – instead of letting these two big forces, disruptive at that, steer where we go.
Relative prices reflect market perspectives rewarding short term profit regardless of potentially negative societal effects (inequality, unfairness, and low social mobility), pollution, and depletion of resources. Incorporating societal effects other than economics the scoreboard in its entirety may not be profitable for economic operators – business. So it is not done.
Therefore, they should be changed to reflect these societal aspects. Making it expensive to use resources, punish pollution, and put a price on activities beneficial for society for example care for the elderly and couching children. The immediate objection is that such policies interfere in the market mechanism – the reply is: Yes, that is also the purpose. The market mechanism may have served us well, but can it continue to do so under different conditions? Can the market handle ‘less’ in a socially acceptable way? Doubtful.
Relative factor prices favor technology and robotics. Economically that makes sense. But not for those people losing their jobs. We cannot and should not stop technology and robotics, but provide jobs in labor intensive areas – among other things societal purposes – by remunerating such work.
The theory of the firm dating back to the 1930s explains why it is profitable – short term market economy profitability – to organize production within the firm (concentration and uniformization) rather than relying on a multitude of contracts (de-concentration and diversification). Transaction costs become lower. Main advantage is to have the workforce inside the company – figuratively under one roof.
Information and Communication Technology (ICT) has shot that theory down. Now transaction costs outside the firm is cheaper than inside the firm mainly because of savings in overhead costs. Part time work and one person companies are going up – in some cases selling the product to firms instead of doing it inside the firm. It’s odd to read every month about employment and unemployment not taking into account how many people have left companies to do the same work outside companies.
The paradox is that the number of people employed by firms in rich countries goes down while at the same time concentration of finance and knowledge goes up not only shaking the established relationship between workforce and the company, but cutting the bond between firm and workforce, which was the core of the industrial age social contract. They are no longer indispensable for each other.
Conclusion.
The golden days of economic growth and distribution of wealth will not return. The creeping dehumanization and denaturalization is being questioned – is this really what we want? The shift to non-economic values cannot be integrated in the existing political system and economic model.
The challenge now is to keep societies together under burden sharing and adapt to stability and human security. Groups as an alternative framework for organization of societies enter the picture. The risk is that values and social networking break societies into a small number of groups with limited inter-group mobility – are you with us or against us? A kind of social immobility. The group serves as service provider – you cannot live outside the group. ISIL is an illustration of this as was the communist party. You belong to us forever.
The key is a social contract embodying
- The shift in preferences from economics as the dominant element to reflect societal values.
- A reinstatement of confidence and trust between politicians and voters.
- Building a bridge over the rising gap between interests of firms (owners and management) and interests of the workforce.
- Make the service provider visible in daily life, close to the people and increasingly delivering stability, security and peace at mind.
Joergen Oerstroem Moeller
Visiting Senior Fellow, ISEAS Yusof Ishak Institute, Singapore.
Adjunct Professor Singapore Management University & Copenhagen Business School. Honorary Alumni, University of Copenhagen.
[1] My recent book ’THE VEIL OF CIRCUMSTANCE’ offers a deeper analysis of the transformation our societies is undergoing.
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