February 18, 2012


The Future of History: Can Liberal Democracy Survive the Decline of the Middle Class? (Francis Fukuyama, January/February 2012, Foreign Affairs)

Trade and tax policies may have accelerated this trend, but the real villain here is technology. In earlier phases of industrialization -- the ages of textiles, coal, steel, and the internal combustion engine -- the benefits of technological changes almost always flowed down in significant ways to the rest of society in terms of employment. But this is not a law of nature. We are today living in what the scholar Shoshana Zuboff has labeled "the age of the smart machine," in which technology is increasingly able to substitute for more and higher human functions. Every great advance for Silicon Valley likely means a loss of low-skill jobs elsewhere in the economy, a trend that is unlikely to end anytime soon.

Inequality has always existed, as a result of natural differences in talent and character. But today's technological world vastly magnifies those differences. In a nineteenth-century agrarian society, people with strong math skills did not have that many opportunities to capitalize on their talent. Today, they can become financial wizards or software engineers and take home ever-larger proportions of the national wealth.

The other factor undermining middle-class incomes in developed countries is globalization. With the lowering of transportation and communications costs and the entry into the global work force of hundreds of millions of new workers in developing countries, the kind of work done by the old middle class in the developed world can now be performed much more cheaply elsewhere. Under an economic model that prioritizes the maximization of aggregate income, it is inevitable that jobs will be outsourced.

Smarter ideas and policies could have contained the damage. Germany has succeeded in protecting a significant part of its manufacturing base and industrial labor force even as its companies have remained globally competitive. The United States and the United Kingdom, on the other hand, happily embraced the transition to the postindustrial service economy. Free trade became less a theory than an ideology: when members of the U.S. Congress tried to retaliate with trade sanctions against China for keeping its currency undervalued, they were indignantly charged with protectionism, as if the playing field were already level. There was a lot of happy talk about the wonders of the knowledge economy, and how dirty, dangerous manufacturing jobs would inevitably be replaced by highly educated workers doing creative and interesting things. This was a gauzy veil placed over the hard facts of deindustrial­ization. It overlooked the fact that the benefits of the new order accrued disproportionately to a very small number of people in finance and high technology, interests that dominated the media and the general political conversation.

One of the most puzzling features of the world in the aftermath of the financial crisis is that so far, populism has taken primarily a right-wing form, not a left-wing one.

In the United States, for example, although the Tea Party is anti-elitist in its rhetoric, its members vote for conservative politicians who serve the interests of precisely those financiers and corporate elites they claim to despise. There are many explanations for this phenomenon. They include a deeply embedded belief in equality of opportunity rather than equality of outcome and the fact that cultural issues, such as abortion and gun rights, crosscut economic ones.

In a country where--even before the Baby Boomers have retired--half the population pays no income taxes and 70% of the federal budget goes to dependency programs, how could populism be anything but conservative in nature?

Americans are not anti-redistributionist, we're just a tad too dishonest about ourselves to discuss its popularity openly and to make the decisions about how to redistribute efficiently yet. The future of liberal democracy is just a matter of reforming that redistribution so that more of it occurs up front and market forces are allowed to build it over a citizen's lifetime.  It's the movement from defined benefit to defined contribution.  

Posted by at February 18, 2012 8:10 AM

blog comments powered by Disqus