It turns out that Capital in the Twenty-First Century, Thomas Piketty’s magnum opus on the future of wealth accumulation and inequality, has a brilliant fictional counterpart, a 2011 novella by Cory Doctorow titled Chicken Little. Piketty argues that we’ve entered an era of stagnant growth during which we will see a relentless rise in the ratio of capital to income, and so we can expect the largest fortunes to grow and grow — and the political influence of the heirs to the largest fortunes to grow and grow as well, provided we allow this wealth accumulation to go unchecked. Doctorow, a non-fiction writer and policy analyst as well as a science fiction novelist, goes a step further: what if the ultrarich choose not to pass on their wealth to their heirs, but rather to use some small fraction of it to extend their lives indefinitely? That is, what if our societies become dominated by immortal quadrillionaires (that’s right), who “live” in high-tech vats nestled in the seclusion of vast private estates? Doctorow takes the notion of “plutonomy,” in which the outsized spending of the wealthy few drives consumption patterns across entire economies, to its logical extreme:
“It took decades of relationship-building for Ate to sell its first product to a vat-person.”
And we haven’t sold anything else since, Leon thought, but he didn’t say it. No one would say it at Ate. The agency pitched itself as a powerhouse, a success in a field full of successes. It was the go-to agency for servicing the “ultra-high-net-worth individual,” and yet…
One sale.
“And we haven’t sold anything since.” Brautigan said it without a hint of shame. “And yet, this entire building, this entire agency, the salaries and the designers and the consultants: all of it paid for by clipping the toenails of that fortune. Which means that one more sale –”
The novella is exceptionally witty and entertaining, and I recommend it. But it came to mind as I read a recent critique of Piketty’s latest by Dean Baker, who has convinced me that while immortal quadrillionaires might be in our future, it is more likely that we’re in the midst of Peak Inequality.
In the Huffington Post, Baker, an idiosyncratic left-liberal and co-director of the Center for Economic Policy Research, offers a vigorous challenge to the pessimism that pervades Capital in the Twenty-First Century, and the left-liberal intelligentsia more broadly. Specifically, Baker identifies a number of factors that have increased profits and enriched high-earners and he explains how they are changing:
(a) China’s economic opening appears to have reduced the bargaining power of workers in affluent market democracies as Chinese workers were integrated into global supply chains. Yet real wages in China tripled from 2002 to 2012 and they continue to rise rapidly. Other societies will be integrated into global supply chains. Though India and the Philippines have been at the forefront of business process outsourcing, serious infrastructure and human capital deficits have prevented them from taking on more labor-intensive manufacturing work, and that could change. But none of these countries will have anything like China’s impact on global labor markets. Baker believes that the erosion of China’s cost advantage, which also reflects the falling costs of mechanization, will enhance the bargaining power of U.S. and European workers.
(b) In Baker’s view, a large share, if not a majority, of corporate profits flow from rules and regulations that can and ought to be revised. Patent protections, for example, could be weakened, and the telecommunications and financial services sectors could be more stringently regulated. While I’m sympathetic to Baker on the subject of patent protections, my sense is that less regulation, or rather a new approach to regulation, could yield the benefits he attributes to more stringent regulation. Peer-to-peer lending is an excellent example of a financial services innovation that is less dangerous than conventional banking and more consumer-friendly. Equity crowdfunding could make it easier for disruptive new enterprises to challenge profitable incumbents, thus driving down profits. If you believe that America’s dysfunctional financial system is at the heart of what’s wrong with modern American capitalism, as I (and many others on the right) do, the rise of new business models is encouraging.
(c) And Baker is more optimistic about the prospects for improved corporate governance, particularly as the barriers to organizing shareholders to protect their interests continue to fall.
The key to forestalling a future dominated by the dead hand of vat-people is a more open, more decentralized, and more entrepreneurial economy, in which entrenched incumbents fear for their lives while workers benefit from a modernized and more cost-effective safety net. I disagree with Baker on many questions of detail, but his optimism strikes me as well placed. There is a danger in extrapolating present trends indefinitely into the future. (See Ryan Decker for more on Piketty’s “undisciplined speculation,” which is not to say I don’t enjoy engaging in undisciplined speculation myself.) It can make for entertaining fiction, as in Chicken Little. But it can also blind us to the potential of new technologies and business models (Bitcoin, P2P, crowdfunding) that are right in front of us.
(Portrait of Cory Doctorow by Jonathan Worth.)