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Brexit, Trump and the rise of Populism: How we still need to grasp the full nature of Capitalism

April 3, 2017

For many commentators, Brexit, Trump and the rise of populist parties overseas are the inevitable result of a “crisis in capitalism”: an economic system that has supposedly failed to serve the interests of the masses and has been rigged in favour of an urban educated elite, generating escalating inequality and economic instability. For failing to address these phenomena, elites are now paying the price.


However, for me, Brexit is about something else entirely. Piecing together our knowledge of history and a real life picture of the process of economic growth points us towards an alternative interpretation of the drama of modern day politics.


What we face is a great contradiction of a very different kind to that imagined by Karl Marx: a contradiction in the form of the pursuit of progress alongside the human desire for stability. The problem is that progress and stability are very difficult to reconcile. And it is certainly not something that will happen automatically.


We seek progress in the form of improvements in material wellbeing for our children and grandchildren, such as of the kind offered by new medicines that prolong life and new machines that make life and work less arduous. We want to be offered new types of goods and services, stimulating all of our senses and filling every moment of our waking lives. Alongside, we feel the never ending reverberations of change and long for solace. We look back at the past through rose-tinted spectacles, and express regret when changing tastes and improvements in technology bring decline for some industries to enable the expansion of others. In other words, we want to have our cake and eat it. We want progress but without the inevitable change that it brings.


It is a tension that reflects the fact that progress - whether technological, economic or social – inevitably involves a process of creative destruction. It creates winners but it also creates losers, which can be in the form of particular geographic regions, particular sectors or particular skills.


It is something we have seen from the time of the Industrial Revolution, when Luddites feared for their jobs, through to the deindustrialisation of the 1980s, when factories and coal mines shut their doors for the last time. It is also something that is set to continue well into the future, with the latest research by PwC suggesting that up to 30% of our jobs will be at risk by 2030 as a result of technological change, a figure that is even higher in the case of the US (38%) and Germany (35%).


With the continuing winds of change, it is not that surprising that throughout history, people have sought to resist change. Social conservatism is, to an extent, the natural state of human kind. We are averse to change and we fear for the future. The trick to maintaining continued progress - technological, social and economic – is, therefore, to overcome this social conservatism. We liked to think that this had been achieved in the course of the Enlightenment movement, from the late seventeenth century through to the Industrial Revolution. It was a time when we shifted away from seeing the world as driven by fate, magic and heavenly forces to instead embracing the laws of science, believing that by harnessing scientific law we could take control of the world around us. As Brexit and Trump however show, not everyone feels equally empowered.


It is our inability to resolve the tension between progress and stability that has, therefore, nurtured the natural forces of resistance to change that now threaten our economy.


It would help if policymakers (and academics) faced up to the fact that progress brings negative as well as positive consequences. In London and also in Cambridge, where I am an Economics Fellow, it is easy to ignore the fact that progress can have a dark side. We not only see the benefits of scientific and technological improvements, we are actively creating them every single day in our scientific laboratories and seminar rooms. Simultaneously, we are distant from those who suffer as the process of creative destruction performs its magic, such as those living in the deindustrialising parts of Manchester, where I was born, and which have suffered as the broader economy has expanded; as technological improvements and changing tastes have moved us away from industry and towards a service based world.


It is time for the creators of progress, and the policymakers who embrace the improvement it brings, to better acknowledge the fact that the bad comes with the good. It is time for policymakers to make sure that wider society is able to share in the positives that progress brings and has better means to cope with the negatives.


That requires rethinking a whole host of policies, from the welfare state and education to transport and housing. We need, for example, a welfare state that is more flexible and more suited to the “gig economy”; an educations system that provides increased emphasis on adult education and retraining; and a housing and transport policy that can overcome the stark house price divide in this country, thereby aiding geographic mobility and so allowing the benefits of progress to be more evenly distributed. People should never feel trapped, as many did where I was growing up in the North of England.


Facing up to the two-headed beast that is progress will also require a new kind of politics: one that goes beyond traditional Labour left and Conservative right distinctions. The reality is that markets offer opportunities – just as they have throughout history, to serfs in medieval Europe, to women in the twentieth century and to the poor in China today. However, markets can also leave people vulnerable to change. Markets are, in other words, both good and bad. The problem is that traditionally, the centre-right has highlighted only the positives of the market, whilst the left has focused only on the negatives – neither side has done a good job of embracing both aspects of capitalism. As a consequence, the two sides of creative destruction have not been considered in the round and we have, therefore, failed to do enough to resolve the tension between progress and stability.


What we currently face is something other than a crisis in capitalism. Capitalism has the same positive and negative powers that it has always possessed. The last thing we should want to do is to throw the baby out with the bathwater. What we should instead be doing is recognising the great contradiction between the quest for progress and the desire for stability, and then seeking to resolve it. Only by resolving it - by ensuring not only that the benefits of progress are more widely diffused but also that individuals have what they need to mitigate the costs - will we satisfy those who voted Brexit and Trump and those who did not, along with placing the economy on a stronger - rather than weaker - footing for the longer term.

Image:  John Kay, Inventor of the Fly Shuttle. AD 1753. Ford Madox Brown (1821-1893)




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