Econ_May_05

80 Books and arts

The Economist

May 5th 2018

Toward the end of his life he questioned

many of his central convictions. He wor-

ried that he might have been wrong about

the tendency of the rate of profit to fall. He

puzzled over the fact that, far from immis-

erating the poor, Victorian England was

providing themwith growing prosperity.

The chief reason for the continuing in-

terest inMarx, however, is that his ideas are

more relevant than they have been for de-

cades. The post-war consensus that shifted

power from capital to labour and pro-

duced a “great compression” in living stan-

dards is fading. Globalisation and the rise

of a virtual economy are producing a ver-

sion of capitalism that once more seems to

be out of control. The backwards flow of

power from labour to capital is finally be-

ginning to produce a popular—and often

populist—reaction. No wonder the most

successful economics bookof recent years,

Thomas Piketty’s “Capital in the Twenty-

First Century”, echoes the title of Marx’s

most important work and his preoccupa-

tionwith inequality.

The prophet ofDavos

Marx argued that capitalism is in essence a

system of rent-seeking: rather than creat-

ing wealth from nothing, as they like to

imagine, capitalists are in the business of

expropriating the wealth of others. Marx

was wrong about capitalism in the raw:

great entrepreneurs do amass fortunes by

dreamingup newproducts or newways of

organising production. But he had a point

about capitalismin its bureaucratic form. A

depressing number of today’s bosses are

corporate bureaucrats rather than wealth-

creators, who use convenient formulae to

make sure their salaries go ever upwards.

They work hand in glove with a growing

crowd of other rent-seekers, such as man-

agement consultants (who dream up new

excuses for rent-seeking), professional

board members (who get where they are

by not rocking the boat) and retired politi-

cians (who spend their twilight years

sponging offfirms they once regulated).

Capitalism, Marx maintained, is by its

nature a global system: “It must nestle

everywhere, settle everywhere, establish

connections everywhere.” That is as true

todayas itwas in theVictorian era. The two

most striking developments of the past 30

years are the progressive dismantling of

barriers to the free movement of the fac-

tors of production—goods, capital and to

some extent people—and the rise of the

emerging world. Global firms plant their

flags wherever it is most convenient. Bor-

derless

CEO

s shuttle from one country to

another in pursuit of efficiencies. The

World Economic Forum’s annual jambo-

ree inDavos, Switzerland, mightwell be re-

titled “Marxwas right”.

He thought capitalism had a tendency

towards monopoly, as successful capital-

ists drive their weaker rivals out of busi-

ness in a prelude to extracting monopoly

rents. Again this seems to be a reasonable

description of the commercial world that

is being shaped by globalisation and the

internet. The world’s biggest companies

are not only getting bigger in absolute

terms but are also turning huge numbers

of smaller companies into mere appen-

dages. New-economy behemoths are exer-

cising a market dominance not seen since

America’s robber barons. Facebook and

Google suck up two-thirds of America’s

online ad revenues. Amazon controls

more than 40% of the country’s booming

online-shopping market. In some coun-

tries Google processes over 90% of web

searches. Not only is the medium the mes-

sage but the platform is also themarket.

In Marx’s view capitalism yielded an

armyofcasual labourerswho existed from

one job to the other. During the long post-

war boom this seemed like a nonsense. Far

from having nothing to lose but their

chains, the workers of the world—at least

the rich world—had secure jobs, houses in

the suburbs and a cornucopia of posses-

sions. Marxists such as Herbert Marcuse

were forced to denounce capitalismon the

grounds that it produced too much wealth

for theworkers rather than too little.

Yet once againMarx’s argument is gain-

ing urgency. The gig economy is assem-

bling a reserve force of atomised labourers

who wait to be summoned, via electronic

foremen, to deliver people’s food, clean

their houses or act as their chauffeurs. In

Britain house prices are so high that people

under 45 have little hope of buying them.

Most Americanworkers say they have just

a few hundred dollars in the bank. Marx’s

proletariat is being reborn as the precariat.

Still, the rehabilitation ought not to go

too far. Marx’s errors far outnumbered his

insights. His insistence that capitalism

drives workers’ living standards to subsis-

tence level is absurd. The genius of capital-

ism is that it relentlessly reduces the price

of regular consumer items: today’s work-

ers have easy access to goods once consid-

ered the luxuries of monarchs. The World

Bank calculates that the number of people

in “extreme poverty” has declined from

1.85bn in 1990 to 767m in 2013, a figure that

puts the regrettable stagnation of living

standards for Western workers in perspec-

tive. Marx’s vision of a post-capitalist fu-

ture is both banal and dangerous: banal

because it presents a picture of people es-

sentially loafing about (hunting in the

morning, fishing in the afternoon, raising

cattle in the evening and criticising after

dinner); dangerous because it provides a li-

cence for the self-anointed vanguard to im-

pose its vision on themasses.

Marx’s greatest failure, however, was

that he underestimated the power of re-

form—the ability ofpeople to solve the evi-

dent problems of capitalism through ratio-

nal discussion and compromise. He

believed history was a chariot thundering

to a predetermined end and that the best

that the charioteers can do is hang on. Lib-

eral reformers, including his near contem-

porary William Gladstone, have repeat-

edly proved him wrong. They have not

only saved capitalism from itself by intro-

ducing far-reaching reforms but have done

so through the power of persuasion. The

“superstructure” has triumphed over the

“base”, “parliamentary cretinism” over the

“dictatorship of the proletariat”.

Nothing but their chains

The great theme ofhistory in the advanced

world since Marx’s death has been reform

rather than revolution. Enlightened politi-

cians extended the franchise so working-

class people had a stake in the political sys-

tem. They renewed the regulatory system

so that great economic concentrations

were broken up or regulated. They re-

formed economic management so eco-

nomic cycles could be smoothed and pan-

ics contained. The only countries where

Marx’s ideas took hold were backward au-

tocracies such as Russia andChina.

Today’s great question iswhether those

achievements can be repeated. The back-

lash against capitalism is mounting—if

more often in the form of populist anger

than of proletarian solidarity. So far liberal

reformers are proving sadly inferior to

their predecessors in terms of both their

grasp of the crisis and their ability to gener-

ate solutions. They should use the 200th

anniversary of Marx’s birth to reacquaint

themselves with the great man—not only

to understand the serious faults that he

brilliantly identified in the system, but to

remind themselves of the disaster that

awaits if they fail to confront them.

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