Picketty, Rifkin and the future of prosperity

Thomas Picketty’s Capital in the 21st Century is drawing much deserved praise. I’ve also been reading Jeremy Rifkin’s The Zero Marginal Cost Society, an envisioning of a post-Capitalistic collaborative commons, which deals with a scenario Picketty describes but cannot project in his economic analysis, because it assumes unlikely progress in clean energy and technological gains that, even after all we’ve seen in our lives, may not be plausible. Rifkin’s vision, which proved extremely compelling in The Third Industrial Revolution and his popular writings on the impact of the Internet, may be an important element of the future economy. Picketty’s analysis suggests we need that vision if we are to sustain anything close to the prosperity we are used to in the West as economic opportunity spreads.

Picketty’s findings that inequality is a structural feature of capitalistic societies suggests that, if we do not put policies in place to modulate the level of inequality, the economy will eventually collapse in social unrest. Equality of opportunity — access to knowledge, education, and the basic requirements of life — is the soundest foundation for an unequal but fair outcome. I wholeheartedly agree with Picketty that the U.S. in particular has failed to continue to invest in providing that fair start to its citizens.

In Rifkin’s model, the cost of producing the next copy of virtually anything, except for the cost of materials, will be negligible in the future, because of the increased efficiency of production, logistics and support systems due to digitization, transportation and communications innovations. Meanwhile, the cost of inventing the next new thing will remain high, and it is in that innovation space that fortunes will be made, as investment and risk are part and parcel of any innovation. So, someone may discover a new drug at a very high cost, but the cost of reproducing that drug, once it is discovered, will be very low. Wealth will be made in volume, so to speak, selling lots of copies of that initially expensive design for the drug in the form of pills or injectables, a little each time the product is delivered. The paydays for those innovations happen before the wealth is actually earned, as the startup is sold to the public, which can harvest the projectable, but still uncertain, profits of distributing that innovation.  Sounds very much like what we have today, right?

But it is not, it represents a segmentation of economic activity into innovation and reproduction. Rifkin’s innovators will continue to have huge paydays, the copiers of innovation — even within the company doing the inventing — will be living on marginal improvements in their income and what they can reap in terms of improved standard of living and buying power due to the efficiencies. A new organizational model, the collaborative collective, in which costs and benefits are shared, sometimes literally in the sense that a purchase may be shared by many people, will fill in the “gap” between wealth and sustenance. Think car-sharing or serial re-use of products. I would call this “public hand-me-downs” as a kind of shorthand for the idea that someone buying a car may pass it along in a structured agreement to others; one may buy a new car every year for the enjoyment of it, but the car comes with a built-in sharing network that will distribute the residual value of the vehicle to others as the first buyer moves on to the next car.

Here’s where Picketty’s findings come back to present the real challenge. If inequality is a structural feature of markets — and it is, Picketty shows as incontrovertibly as an economist can — the innovators will increasingly separate themselves from the other citizens of their countries in order to increase the efficiency of their capital investments — they will seek out low-tax or special tax situations for physical plants and ethereal innovative thinking will no longer have a home in a nation. Vast differences in pay today will continue to translate into growing inequality in the future. Rifkin’s notion of a collaborative commons co-existing with an innovation economy describes what will happen to the ordinary person in any country: They’ll be left to fend for themselves as the wealthy pursue innovative opportunities anywhere on the planet. In those local lobes of the Marginal Cost Society, poorer citizens will have to share goods they could not afford alone. I think Rifkin’s projection of the collaborative commons is a picture of the post-national capitalism that will give the wealthiest people a perpetual and increasingly closed range of options that others do not share, even if that is not his intention — he’s simply projecting the economic model that is emerging in response to pervasive inequity. The new transnational aristocracy  will get these options without sharing their fair share of the cost of sustaining a nation, its legal system, its rights and the burdens of citizenship.

Wealth is going trans-national, beyond the control of any organizational model. Picketty’s inequality leads to the necessity of Rifkin’s  collaborative commons, because everyone in today’s upper middle-class down to the poorest of people will be competing only for a fraction of the marginal cost of production while innovation becomes the province of the super-wealthy. The gains from innovation will continue to accrue to the wealthy and economic mobility will be a very rare phenomenon.

Some of you will be screaming “Marxist” or “Leftist” by this point, but I want you to suspend that for a moment. I am not calling for any particular program to respond to this phenomenon, rather I am saying we need to recognize it and factor it into our thinking. If reasoning based on well documented historical data is not allowed because it suggests an ideology, we’re never going to make any progress. We’ll just argue over ideological ghosts. Communism was a spent notion before the Soviet Union, even if it seems to be threatening to rise again in the Age of Putin. Put that behind us and begin to reason about how to establish a fair foundation for competition from any economic level of society, which will increase economic and mobility, and you have a chance to stem the tide if inequity. Why?

Because inequity can eventually destroy our societies. The Economist argues effectively for aiming for a measure of overall material well-being, as it both acknowledges inequity and dismisses the inevitability of revolution due to inequity. I think the editors at The Economist are being a bit glib about the impact of inequality; our memories are conditioned by extraordinary progress in technology, organization, energy production and much, much more, and they minimize what it would be like to recognize stark inequity in one’s own life. But stark inequity is what all but the top .06 percent or so of the population experience as a growing reality in their lives. Yes, the quality of our lives may be improving overall, but the disparities are increasing, too. An accurate measure of material well-being, even one predicated on the buying power of a population relative to the value of their currency, as Picketty suggests, would be a far better basis for policy analysis.

In the long run, we’ll all be dead, Johnny Depp’s transcendence notwithstanding. But I worry for my children and children’s children that, if inequality continues to expand from today’s near-historically high levels, they will be relegated to something similar to slavery. They will have choices, but they will be property of the innovators’ influence, having to endure the kind of capricious and arbitrary exercises of power and wealth that we are familiar with today. Donald Sterling’s an example of it — because he has money, he feels entitled to denigrate blacks without remorse. Fortunately, the NBA did not grant him a pass, as he has been granted during thirty-plus years of documented racism. This time, inequality was not rubber-stamped. However, we see this kind of personal expression of indifference to the values of anyone with less money across society. Sterling, or the idiotic pro-slavery rantings of Cliven Bundy, a Nevada rancher who succeeded in avoiding payment for use of public property but thinks blacks would be better off if they were still slaves, down to the local bigotry of the Boy Scouts against gays, and calls for the wealthy to have a greater say in politics than others (one-dollar-one-vote and venture capitalist Tom Kleiner’s ridiculous arguments that the rich are persecuted) to the imposition of religious tenets on the employees of private companies, which is headed to the Supreme Court in the case of Hobby Lobby, where the owners insist everyone should live by their moral decisions; all these are not isolated examples of poor judgment or bad taste. They are evidence that inequity is rising and the most fortunate of today’s families are seeking to ensure they are always on top of the economic pile. Surely, that’s rational at one level, but when it becomes ideology it becomes poison to society.

The crisis will come when wealth divorces nation, building its own systems for enforcing contracts and seeking to avoid any cost not directly related to the product they want to invent or manufacture. At this point, national investment in opportunity, which is one of capitalism’s greatest features, will be undercut completely. High personal wealth will exist extra-nationally and we’ll hear howls about the unfairness of paying any taxes at all, but wealth will still want everything it can get for free from the nations where it chooses to do business. The only logical solution is policy that establishes a baseline of opportunity, with completely free access to education and information for anyone at any stage of life, because, as capitalism has proven, we never can predict where the next great idea will come from. This is not an argument for life-long welfare, just lifelong education, which is a tenet of post-industrial civilization. Policy can ensure opportunity is (more) equally distributed, that it not retreat to become the playground of a very few families. If we fail in this effort, we would complete our return to pre-Industrial life, but with television to entertain us.

Read together, Piketty and Rifkin paint a range of potential economic outcomes we may see in the future, but it is certain that the disappearance of inequity in opportunity will not come to pass without the political courage to stand up for an equal start, even as we accept unequal outcomes. Bully for the innovators, who should profit from their hard work. Yet  let’s remember that Teddy Roosevelt, a conservative, finally had to recognize and stand up to the inequality of his time in order to lay the foundation for a century of unprecedented growth with less inequality than at any time in history.

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