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The best of capitalism is over for rich countries


One of the upsides of having a global elite is that at least they know what’s going on. We, the deluded masses, may have to wait for decades to find out who the paedophiles in high places are; and which banks are criminal, or bust. But the elite are supposed to know in real time – and on that basis to make accurate predictions.

Just how difficult this has become was shown last week when the OECD released its predictions for the world economy until 2060. These are that growth will slow to around two-thirds its current rate; that inequality will increase massively; and that there is a big risk that climate change will make things worse. Despite all this, says the OECD, the world will be four times richer, more productive, more globalised and more highly educated. If you are struggling to rationalise the two halves of that prediction then don’t worry – so are some of the best-qualified economists on earth.

World growth will slow to 2.7%, says the Paris-based thinktank, because the catch-up effects boosting growth in the developing world – population growth, education, urbanisation – will peter out. Even before that happens, near-stagnation in advanced economies means a long-term global average over the next 50 years of just 3% growth, which is low. The growth of high-skilled jobs and the automation of medium-skilled jobs means, on the central projection, that inequality will rise by 30%. By 2060 countries such as Sweden will have levels of inequality currently seen in the USA: think Gary, Indiana, in the suburbs of Stockholm.

The whole projection is overlaid by the risk that the economic effects of climate change begin to destroy capital, coastal land and agriculture in the first half of the century, shaving up to 2.5% off world GDP and 6% in south-east Asia.

The bleakest part of the OECD report lies not in what it projects but what it assumes. It assumes, first, a rapid rise in productivity, due to information technology. Three-quarters of all the growth expected comes from this. However, that assumption is, as the report states euphemistically, “high compared with recent history”.

There is no certainty at all that the information revolution of the past 20 years will cascade down into ever more highly productive and value-creating industries. The OECD said last year that, while the internet had probably boosted the US economy by up to 13%, the wider economic effects were probably bigger, unmeasurable and not captured by the market. The veteran US economist Robert Gordon has suggested the productivity boost from info-tech is real but already spent. Either way, there is a fairly big risk that the meagre 3% growth projected comes closer to 1%.

And then there’s the migration problem. To make the central scenario work, Europe and the USA each have to absorb 50 million migrants between now and 2060, with the rest of the developed world absorbing another 30 million. Without that, the workforce and the tax base shrinks so badly that states go bust.

The main risk the OECD models is that developing countries improve so fast that people stop migrating. The more obvious risk – as signalled by a 27% vote for the Front National in France and the riotous crowds haranguing migrants on the California border – is that developed-world populations will not accept it. That, however, is not considered.

Now imagine the world of the central scenario: Los Angeles and Detroit look like Manila – abject slums alongside guarded skyscrapers; the UK workforce is a mixture of old white people and newly arrived young migrants; the middle-income job has all but disappeared. If born in 2014, then by 2060 you are either a 45-year-old barrister or a 45-year-old barista. There will be not much in-between. Capitalism will be in its fourth decade of stagnation and then – if we’ve done nothing about carbon emissions – the really serious impacts of climate change are starting to kick in.

The OECD has a clear messagefor the world: for the rich countries, the best of capitalism is over. For the poor ones – now experiencing the glitter and haze of industrialisation – it will be over by 2060. If you want higher growth, says the OECD, you must accept higher inequality. And vice versa. Even to achieve a meagre average global growth rate of 3% we have to make labour “more flexible”, the economy more globalised. Those migrants scrambling over the fences at the Spanish city of Melilla, next to Morocco, we have to welcome, en masse, to the tune of maybe two or three million a year into the developed world, for the next 50 years. And we have to achieve this without the global order fragmenting.

Oh and there’s the tax problem. The report points out that, with the polarisation between high and low incomes, we will have to move – as Thomas Piketty suggests – to taxes on wealth. The problem here, the OECD points out, is that assets – whether they be a star racehorse, a secret bank account or the copyright on a brand’s logo – tend to be intangible and therefore held in jurisdictions dedicated to avoiding wealth taxes.

The OECD’s prescription – more globalisation, more privatisation, more austerity, more migration and a wealth tax if you can pull it off – will carry weight. But not with everybody. The ultimate lesson from the report is that, sooner or later, an alternative programme to “more of the same” will emerge. Because populations armed with smartphones, and an increased sense of their human rights, will not accept a future of high inequality and low growth.

Paul Mason is economics editor at Channel 4 News

1 comment

  1. John Goodr July 9, 2014 2:16 pm 

    Not taken into account by the author is the effect the ongoing exponential growth of manufacturing technologies will have on human employment .

    Futurists are predicting a near complete unemployment situation for humans as machine intelligence approaches and then far surpasses human levels .
    The levels of AI and computing power increases is ,in fact, increasing even faster as more resources are applied to developing smarter-than-human machines .

    Within 15 years there will be no job now done by humans that smarter machines will not be able to do better.
    The losing argument by those who choose to ignore this factor is usually ” Oh sure , a smart machine ( or as it is now, a non-thinking essentially dumb computer program ) can do PART of my job but not all of it.
    Soon after that , the machine CAN and will do all of that job and the person moves on to another job where humans are still required or into the rolls of the unemployed.
    Eventually there will be no more jobs that humans can do better than a smarter-than-human AI/robot .

    Moore’s Law will hold up utilizing silicon based technology until well after super-human AI is developed .
    After that the machines will come up with the solutions to problems that humans are simply not intelligent enough to solve.

    Human levels of computation are estimated at 100 petaflops ( quadrillions of floating operations per second. )
    Last year the Chinese announced the development of a 34.8 petaflop array .
    Under Moore’s law , that means human level computation will be reached within 7 years or less with the rate doubling every 18 months AT MINIMUM.- The Chinese went from a 12 petaflop array in 2012 to that 34.8 in about a year which shows that Moore’s Law is not only valid but that the 18 month figure has been cut dramatically by the enormous resources being poured into developing these technologies.
    The first group to develop smarter-than-human AI and robotics will hold enormous economic and strategic power and the Chinese seem to be way out in front at this time .

    The near total unemployment that will be effected by these technological jumps -a totally new phenomenon because of computers- will be worldwide and will cause the end of capitalism.
    No jobs= no paychecks
    no paychecks = no consumption
    no paychecks, no consumption, immense disparity of wealth , near total unemployment amid incredible production = end of capitalism .

    To talk about things going on like they are until 2060 is ignoring where technologies will take the human race.
    The problem with this ignorance is that Moore’s Law is operative and it’s right in your face.

    Dumb, program-run, non-thinking machines are taking your money at check-out counters, stocking shelves, welding on assembly lines etc . and these are dumb sub-human level machines.

    Smarter-than-human machines will be here in less than ten years and then the fun really begins.

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