Current U.S. Economic Woes Result of Major Structural Shifts in Economy

Our government is broken. Our economy is broken. Our infrastructure is crumbling. Our major institutions — education, religion, culture — are inadequate to the tasks at hand. These are all signs of an old world passing away and clearing the way for a new one to arise in its place. The sooner we let go of our assumption that going back is desirable, or even possible, the sooner we’ll be able to fully embrace the new things that lie ahead. [Let me explain.] Words: 1891

So says Sara Robinson (www.alternet.org) in edited excerpts from his original article* which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has further edited below for length and clarity – see Editor’s Note below. (This paragraph must be included in any article re-posting to avoid copyright infringement.)

Robinson goes on to say, in part:

There are many serious theorists out there describing the deep structural changes we’re undergoing…There are so many now, in fact, that their very numbers might be taken as evidence that we’re going through something uniquely new and deep. [Below are the views/theories of four such individuals.]

Joseph Stiglitz – Shift from Manufacturing to Knowledge Work

The current economic crisis is doomed to last exactly as long as we put off building what is necessary to the new information economy. The current phase shift is taking us away from industry-as-we’ve-known-it, and on into an economy that will have us relying more and more on many different kinds of knowledge work. When we come out the other side, there will still be farmers and manufacturers but even they will be leveraging the power of the Internet to create new wealth. Everybody will. Unfortunately, people are misunderstanding the moment and, as such, investing in the wrong things.

So says Joseph Stiglitz in a recent article in Vanity Fair in which he argues that our current economic woes are the result of a deep structural shift in the economy — a once-in-a-lifetime phase change that happens whenever the foundations of an old economic order are disrupted, and a new basis of wealth creation comes forward to take its place.

The last time this happened was in the 1920s and 1930s, when a US economy that was built on farm output became the victim of its own success. Advances in farming led to a food glut. As food prices plummeted, farmers had less money to spend. This, in turn, depressed manufacturing and led to job losses in the cities, too. Land values in both places declined, impoverishing families and trapping them in place.

We remember this as the Great Depression. It lingered until the government stepped in — largely through the war effort — with unprecedented education, housing, transportation, and research investments that created new pathways for all those surplus farmers to come in off the farm, for the factory hands to get back to work, and for both groups to move into the modern industrial middle-class. Stiglitz thinks that we’re going through much the same kind of process again now, as the postwar manufacturing-based economy that saved us 80 years ago moves offshore, leaving our manufacturing workforce just as surplus and idle as those 1920s farmers were…

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Austerity and debt reduction will get us nowhere, in this view. In particular: it won’t change the fact that we have too many manufacturing workers and too few information workers. Stiglitz argues forcefully that this gap is likely to remain open until our governments make a long-term commitment to do what they did in the 1940s — that is, fund the kind of aggressive education, research, and infrastructure investments that will finally get us fully transitioned to the new phase.

Thomas Homer-Dixon: Shift in Reliance on Oil

Stiglitz is far from the only theorist who’s trying to look beyond the phase change, and figure out what new form wealth might take when we get to the far side of it. Another one is Thomas Homer-Dixon, a Canadian economist who wrote The Upside of Down.

Homer-Dixon marshals evidence that all great empires rise and fall by controlling the dominant energy supply of their age.

• The Romans used roads and aqueducts to harness solar energy (in the form of food) from around the Mediterranean basin, and used that surplus to fund the most complex society of its time.
• The Dutch empire rose on its superior ability to master wind technologies — the windmill and the ship — to extend its land holdings, run early manufacturing industries, and extend its trading reach around the globe.
• The British empire rose on coal-powered steam engines, which gave it more productive industries, railroads, electrical generators, and faster ships.
• The US eclipsed the Brits due to its vast wealth in oil — a far more concentrated and fungible fuel — and inventions from cars and planes to plastics and fertilizers that allowed it to make the most of its advantages and
• The Chinese are now making huge investments in renewable energy and safer, more efficient second-generation nuclear power, which they can use to fuel their ascent to global primacy.

The bottom line in Homer-Dixon’s theory is that everything that Americans understand as “wealth” under the current paradigm comes from oil. It’s the foundation of our entire economy, and the ground our superpower status stands on:

• our cities are built on the assumption of cheap, plentiful oil,
• our consuming patterns are made possible by a fleet of oil-burning trucks, ships, and planes that bring us goods made in oil-driven factories
• our war-making machine, which is largely tasked with protecting our oil interests around the world, is the single largest consumer of energy on the planet,
• even our food is created with vast oil-based inputs of fertilizer and pesticides; and we enjoy a year-round variety of foods (bananas! chocolate! coffee!) that is unprecedented in human history because oil makes cheap transport and refrigeration possible.

The pain and fear caused when we are forced to face this fundamental fact explains quite a bit about why ideas like climate change and peak oil are so viscerally terrifying to so many Americans. (In many right-wing circles, denial about the American oil addiction is now a core piece of their political identity. It’s considered anti-American to even suggest that getting off oil is necessary or possible.) We are so deeply invested in oil, in so many ways, that it’s almost impossible for us to envision a world beyond it. We stand to lose so much that it’s hard to fathom it all and this, says Homer-Dixon, is why no empire has ever survived an energy-related phase shift with its full power intact. The reigning hegemons are always too deeply invested in the current system to recognize the change, let alone respond to it in time, and so they are always superceded by some upstart that’s motivated to put more resources and risk into aggressively developing the next source. The decline of oil as the energy reality of the world has deep implications for every aspect of American life in the coming century. It’s a phase shift at the deepest level.

Gar Alpervitz and Umair Haque: Shift in Structure of Capitalism

Other theorists, including Gar Alperovitz, Jeffery Sachs and Umair Haque, agree that there’s a phase shift happening under our feet — but they believe the real shift lies in the changing structure of capitalism itself. Forming markets is a core human activity that we’re not any more likely to abandon than eating or breathing but our understanding of the purpose and value of markets — and the role of capital within them — is overdue for a profound change.

Haque argues that twentieth-century capitalism’s cornerstones shift costs to, and borrow benefits from people, communities, society, the natural world, or future generations and that “both cost shifting and benefit borrowing are forms of economic harm that are unfair, non-consensual, and often irreversible.” The result is a great imbalance that we are finally being forced to fully reckon with, one that will call us to radically change our focus, creating a totally new kind of capitalism.

Haque makes a distinction between “thin” and “thick” value.

• Things with “thin” value tend to be artificial, unsustainable, and meaningless to anyone but the people who produce and consume them. Hummers, McMansions and Big Macs are all examples of thin value items. They’re produced without any recognition of our larger values context or the externalized costs to the community, and consuming them tends to add to the overall imbalance in our economy. Thin value, he writes, is “profit that is in many ways a financial fiction, because it fails to exceed a fuller, truer economic cost of capital” and the phase shift is evident in the fact that the companies that are falling hardest right now are the ones whose past profits have relied most heavily on monetizing our common wealth for private profit.
• “Thick” value — produced by companies that practice “constructive capitalism” — is value that is sustainable, that has a moral component that matters, and that multiplies itself. Companies that practice it tend to win because they produce things that have a deeper meaning to people. Their real wealth isn’t what they’re able to extract from the rest of us, but in their long, deep, trusting relationships with their customers. The world is shifting from the economics of a game reserve to those of an ark, says Haque. The companies that are thriving now are the ones that increasing their focus on “constructive advantage” — “how free a company is of deep debt to people, communities, society, the natural world, or future generations.” While this focus-shift is far from complete, the current economy abounds with firms that are showing us a new way forward. (Apple is a prime example of a company that creates “thick value,” but we’ve seen recently that its commitment to this ideal has some rather glaring “thin” spots.)

Alperovitz’ vision extends this by revamping how wealth flows in society. He points to a quiet revolution that’s already much further along than anybody realizes — the move toward worker- or consumer-owned cooperative businesses, in which distant shareholders are replaced by local stakeholders who have a deep personal interest in how every aspect of the business is run.

Already, four in 10 Americans belong to some type of co-op business (if you have a Costco or a credit union card in your wallet, you’re already on board here); and America’s 30,000 cooperatives provide over 2 million jobs. The UN has declared 2012 to be the Year of the Co-Op, in recognition of the fact that nearly half the world’s population now belongs to cooperatives. Co-ops are already forming a formidable challenge to Wall Street-driven 20th-century capitalism, and their expansion through the coming century would represent a massive redistribution of labor and wealth — a phase shift that favors the direction Haque suggests.

Conclusion

Our government is broken. Our economy is broken. Our infrastructure is crumbling. Our major institutions — education, religion, culture — are inadequate to the tasks at hand. These are all signs of an old world passing away and clearing the way for a new one to arise in its place. The sooner we let go of our assumption that going back is desirable, or even possible, the sooner we’ll be able to fully embrace the new things that lie ahead.