The Precariat`s Rubicon Moment

A Review of The Corruption of Capitalism by Guy Standing

I didn’t think that I would be writing this with less than two weeks since the trauma of the States and Markets exam, but I am deeply fortunate to have taken Professor Woodruff’s class. His instruction and obsession with Karl Polanyi has provided me with a window into how smart lefty economists view the current moment as well as insights on the way forward.

In that light, I would like to start with Guy Standing’s assessment of neoliberal capitalism and how it compares to the classical variant in The Corruption of Capitalism, “At the heart of neoliberalism is a contradiction. While its proponents profess a belief in free unregulated markets, they favor regulations to prevent collective bodies from operating in favor of social solidarity…When the interests of free markets and private property clash, they favor the latter. Neo-liberalism is a convenient rationale for rentier capitalism.” Likewise, Polanyi noted that financial interests and other proponents of economic liberalism were steadfast in the imposition of intervention that would neutralize land, labor, and money’s attempts at protection from the contrived scarcity of the self-regulating market:

But in practice such freedom conflicted with institutions of a self-regulating market, and in such a conflict, the self-regulating market was invariably accorded precedence…For as long as the system is not established, economic liberals will unhesitantly call for the intervention of the state in order to establish it, and once established, in order to maintain it.

Two recent examples of the perversity that surfaces when the economic liberals call for state intervention occur in the finance and in the labor market. During the post-crisis period, the economic liberals enmeshed in the financial sphere departed from key reasoning outlined by Milton Friedman on central bank independence so they could engage in unprecedented discretion of expanding central bank balance sheets, summed up best by Draghi’s “whatever it takes” mantra. Dedicated to dogmatic theories proposing the efficient allocation of capital, the Goldman Sachs alum and others in his orbit failed to notice that they had become so dependent on the QE-fueled asset price inflation that “they were not letting the market work, they were manipulating the market.” Likewise, economic liberals in other professions departed just as radically from Friedman’s criticisms of occupational licensing as a barrier to efficient labor markets. When they triumphed in the 1980’s, they merely sought to solidify the barriers they constructed with state sanction, “They launched an onslaught on occupational self-regulation [derided by Friedman in the 1940’s]. This was not deregulation, but state regulation.”

Thus, there appears to be an engulfing chasm between neoliberal capitalism’s theoretical foundations and real, existing capitalism that can only safely emerge from the cocoon of state protection. Just as protection is vital to nurturing the economic liberal’s ascent to political dominance, legislation is necessary to combat the tendency for these very same forces to contrive scarcity. Something that is lost on the economics profession when they too easily fall back on the Econ 101 definition as the study of scarcity is that not all kinds of scarcity are natural. Sometimes, scarcity is imposed by powerful groups seeking the collection of rents.

Keynes understood the perils of rentier capitalism and made it central to his vision of a full employment economy. In essence, only an economy when those convictions were held in proper esteem could “euthanize” the rentier and his capacity to exploit the scarcity value of capital. One of the symptoms that Keynes’ prediction for the euthanasia of the rentier did not ultimately come to pass is that the rentier is encroaching on more and more spheres of life that were properly view as activities that took place outside of the market.

Standing is at his most persuasive when he discusses the “plunder of the commons”. When the rent-seekers apply insights regarding the tragedy of the commons to self-motivated arguments for privatization, they instead accelerate the forces that culminate in the tragedy they sought to avert. They fail to appreciate the political scientist Elinor Ostrom’s famous insight that common pool resources are not fundamentally about the ownership structure, but which types of ownership structure engender proper management of said resources.

Privatization has also contributed to the impoverishment of state finances. Piketty’s books document that the relationship between national debt and private wealth is as close to an Iron law we get in economics. The disjunction between the pools of money large companies like Apple are sitting on and the disarray of state finances has a name—it is called Lauderdale’s Paradox. But the thing we must remember is the scarcity on the public side of the ledger is in fact contrived. We can afford the protective legislation required for the incipient but growing precariat, so long as we bring an end to the rent- seeking behavior that is the fundamental source of the imbalance between private wealth and public impoverishment. If democratic publics address this aspect of political economy, we could be killing two birds—the New Insecurity and the New Austerity—with one stone.

The condition of the precariat Standing so vividly illustrates in in desperate need of protection. The alternative is subjecting them to more and more draconian monitoring instruments, described well in the Vox piece on the food service industry, and warned by the French philosopher Foucault, “a state of conscious and permanent visibility that assures the automatic functioning of power.” The reason Foucault carries so much resonance is that productivity-enhancing technologies are not “natural” disruptions, they are deliberate efforts to alter the balance of power in favor of the machine owners. If we were to take the natural interpretation, we would expect the loss of jobs. But the latter “contrived” interpretation, jobs are retained alongside a dramatic rise in inequality associated with the dramatic loss of earning power to those who previously participated in the labor market on a more stable basis. Empirical evidence supports the latter over the former. Two economists, Lawrence Katz and Alan Krueger (RIP), find in “The Rise of Alternative Work Arrangements and the Gig Economy” that precarious work arrangements accounted for nearly all net employment growth since 2005.

Two options are possible, as outlined by of all people, Stephen Hawking, in a World Economic Forum AMA in 2015. On one path, we can let the machines do the work for us, realizing the vision offered by Star Trek where people have plenty of leisure time to explore and contemplate the universe, as well as our place in it. On the other path, the concentration of labor-saving machines within fewer and fewer hands will intensify contradictions within capitalism, eviscerating a greater proportion of the labor force. Rather than resulting in the toppling of capitalist mode of production as predicted by Marx, the rise of surveillance capitalism ensures these contradictions can persist even amidst seemingly irresistible pressures for reform or revolution.

The question remains: how do we push our body politics toward the first trajectory—the utopian vision of Star Trek. Standing concurs with the political scientist Joel Roger’s distain for the political movements of the early 2000’s that sought to cast aside the working class in their mistaken belief that it was diminishing in rank rather than fundamentally transforming into the precariat. The onus of progressive political reformers ought to be to revive the class character of democratic party systems and to imbue elections governing that system with a real choice, not an echo of propertied and financial interests.

I suspect that there is a point of no return with the transformation of the traditional working class into the precariat, where the first path will be impossible to attain. Unlike Marx’s proletariat, the precariat owns the means of production, is isolated, in constant competition with other members of their class, and is provided with fewer opportunities to coalesce. All of this is by design. They serve to create the illusion of agency and obstruct realization of class consciousness that could overcome the pernicious rent-seeking that plagues most contemporary societies in the industrialized West. These design elements solidifying the most dysfunctional—and imbalanced—features of late capitalism only increase the urgency of efforts to end the New Insecurity and New Austerity before we cross the technological Rubicon. For this reason, I am indebted to Guy Standing for clarifying this essential aspect of the current moment at a relatively early stage. I still harbor hopes for the day humanity can simultaneously board the Enterprise.