Economics Book Club

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Loretta Napoleoni, Technocapitalism

One sentence summary:

This is what the blurb on the back of this book says:

"At the dawn of the digital revolution, the Internet promised to be the great equalizer, a global democratic force. Instead, Wall Street ended up funding a new breed of serial capitalists, the Techtitans, who jacked up their own profits by mining new frontiers and stripping their workers of rights. ... Napoleoni offers us the real story of how we got here and what it will take to redirect our collective will toward the common good."

That was more than enough to get me to pick up this book, and once I picked it up, I couldn't stop. Do you know how the 2008 financial crisis is tied to the rise of Silicon Valley and the privatization of space exploration? I didn't, but after this book, I did.

The story begins with the 2008 financial crisis. How exactly did the U.S. government bail out the financial sector? Through quantitative easing: the Treasury materialized trillions of dollars out of thin air by pressing a few keys on their keyboard. This money was used to buy bonds and securities from banks and financial institutions in order to stabilize them. The financial sector got trillions in cash.

So what did the financial sector do with this money? They invested in Silicon Valley. In the post-financial crisis era of near-zero interest rates, the tech industry was one of the few places that offered high returns on investment. As a result, it wasn't just private investors and venture capitalists that made their way to Silicon Valley, but also institutional investors: pension fund managers, insurance companies, hedge funds, and even banks.

So, that's the story of how Silicon Valley got rich. But there is also another important side to this story, which is the fact that the speed of innovations outpaces regulations: "The time gap between innovations the tech companies implement and the laws that would regulate them has also played a major role in the global growth of companies like Airbnb, Google, and Uber. It creates a gray area, unreachable by the law, where tech companies operate freely, redesigning labor protocols and privacy instruments and payment protocols to their own advantage."

The example she raises is how Uber pioneered the gig economy model. By presenting themselves as a digital platform / broker, they are able to categorize their drivers as freelance / self-employed workers, which means they do not have to provide them with benefits or other protections--despite the fact that drivers are functionally employees. All this, under the guise of the "sharing economy."

As a result? "Far from encouraging an equitable distribution of wealth, the tech industry compounded inequalities. And it did this intentionally, because to a certain degree, the greed that had characterized the financial sector leading into the financial crisis did not die; rather, it emerged, scarred, and produced a cross-pollination between Wall Street and Silicon Valley."

Meanwhile, Techtitans like Google grew rapidly by buying and absorbing new innovations and startups. As Napoleoni describes: "While serial entrepreneurs produce a constant stream of new ideas, the big Techtitans are permanently on the lookout to buy the best ones, secondarily to improve their own businesses, but primarily to prevent any competition." Google Maps was developed by buying up all the startups that provided digital map services. When Google learned that Facebook and Apple wanted to buy Waze, it stepped in and outbid them by nearly a billion dollars. It was clearly a monopolistic move.

[Napoleoni doesn't talk about this but, her book is literally called The Rise of the New Robber Barons. Remember the original robber barons? Vanderbilt, Carnegie, Rockefeller--these guys are the reason why the U.S. has antitrust laws today. No wonder SIlicon Valley spends so much time and money on antitrust cases.]

Now, the Techtitans have set their eyes on space. Why? Part of it, Napoleoni argues, has to do with the model of infinite economic growth. The human race is outgrowing the planet, so the next frontier is space. Jeff Bezos believes in a future with space settlements, Elon Musk wants to colonize Mars. But more practically, and immediately, the lower Earth orbit promises major business opportunities. The development of nano satellites has made it significantly more affordable to launch satellites. Right now, they're being used to provide satellite internet, e.g. Starlink, or Project Kuiper. Goldman Sachs thinks mining asteroids is a near future possibility. All while leaving behind a trail of space debris.

What makes all of this especially nebulous and hard to fight back against is that so much of this technological innovation is hard to understand. Napoleoni illustrates this point best with stories of fraudulent bitcoins and NFT schemes, but it goes beyond that. Most of us don't understand the wider societal significance of blockchain, let alone the technical mechanism. In the same way, many of us didn't understand the significance of the end of the gold standard or the rise of financial engineering. And now, as the Techtitans seek to transform themselves into Space Barons, we don't understand the significance of the corporatization of the lower Earth orbit or the development of relaunchable rockets.

And when we don't understand these technological innovations and its broader significance, not only do we struggle to foresee how these things will make inequality worse, we also fail to see the beneficial opportunities these technologies, if managed more wisely, could offer humanity. Blockchain could be used to improve food security, facilitate product recalls, to trace the origins of the products we buy. It could allow for secure management of personal data. Bitcoin was originally envisioned by its creator as a way to democratize money, and has already shown its usefulness in situations like wars where ordinary people can get money even when traditional banks are unreliable, without fear of surveillance. In space, satellites could be carrying solar panels (space-based solar power), providing clean and continuous energy for our use.

Napoleoni doesn't explicitly address how we get there, but it is implicit that the first step is education and understanding. And reading this book is a great way to get started.

[econ-book-club]

"Far from democratizing the world, the technological revolution gave birth to a new, extremely profitable sector of capitalism in the form of a global oligopoly."

Loretta Napoleoni, Technocapitalism

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"Technology, the product of the age of the Anthropocene, can help us reach higher ground, providing we learn how to control and use it correctly, for the common good. Technology left alone in the hands of the Techtitans will, on the contrary, harm us and the planet."

Loretta Napoleoni, Technocapitalism

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The 'corporatization of America' during the past century has been an attack on democracy--and on markets, part of the shift from something resembling 'capitalism' to the highly administered markets of the modern state/corporate era. A current variant is called 'minimizing the state,' that is, transferring decision-making power from the public arena to somewhere else: 'to the people,' in the rhetoric of power; to private tyrannies, in the real world.

Noam Chomsky, The Ultimate Weapon (Profit Over People)

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There are many factors driving global society towards a low-wage, low-growth, high-profit future, with increasing polarization and social disintegration. Another consequence is the fading of meaningful democratic processes as decision making is vested in private institutions and the quasi-governmental structures that are coalescing around them, what the Financial Times calls a 'de facto world government' that operates in secret and without accountability.

Noam Chomsky, The Zapatista Uprising (Profit Over People)

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The real meaning of the doctrine of "consent of the governed"

“The people must submit to their rulers, and it is enough if they give consent without consent. Within a tyrannical state or in foreign domains, force can be used. When the resources of violence are limited, the consent of the governed must be obtained by the devices called “manufacture of consent” by progressive and liberal opinion.”

- Noam Chomsky, Consent Without Consent (Profit Over People)

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It is precisely in its oppression of nonmarket forces that we see how neoliberalism operates not only as an economic system, but as a political and cultural system as well. Neoliberalism works best when there is formal electoral democracy, but when the population is diverted from the information, access, and public forum necessary for meaningful participation in decision making. The neoliberal system therefore has an important and necessary byproduct--a depoliticized citizenry marked by apathy and cynicism.

Robert W. McChesney

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Noam Chomsky, Profit Over People

One-sentence summary: Neoliberalism, or the free market economy, is really just a cover story for a system that allows the rich to plunder the poor.

This is it. This is THE book to read to understand how exactly the rich and elite have successfully conned the world into believing that free markets are the magical solution to all the world’s problems. That’s a lie. Free markets don’t work. Or, rather: they do, but not in the way you they want you to think.

Free markets don’t work as a tool for economic development. Free markets don’t raise standards of living. 

Countries that are prosperous today - such as the United States, Britain, and Japan - have all relied on (and still rely on) significant government intervention, in the form of subsidies and protectionist policies, for economic growth. In other words: Rich countries didn’t get rich by subscribing to neoliberalism. They got rich by breaking the rules of neoliberalism.

So why do these countries try to impose free markets on the rest of the world?

Because free markets work very, very well to protect Western business interests. Free markets allow the rich to plunder the poor, and keeps the current global economic order locked in place. On a level playing field, those who are already strong will always win, while the rest will always lose.

Under the current economic order, developing countries have one of two roles to play: 

Provide cheap labor to Western businesses for corporate profit

Provide a market for highly protected Western businesses to sell their goods

The first beneficiaries of these countries’ resources are to be Western investors, not the actual people of those countries.

To make sure that developing countries play their designated service roles, the West (and the United States in particular) has a wide arsenal of tools at their disposal:

Free Trade Agreements  Imposed through institutions such as the WTO and NAFTA, free trade agreements are the softer, more “diplomatic” (but still coercive) approach to getting a country to open its borders to foreign investment.

Economic warfare Sanctions and trade embargoes on countries that refuse to play their role. See: Cuba. 

The CIA Orchestration of military coups and other anti-democracy efforts to ensure that the “favorable” government (i.e. supports big businesses and foreign investment) takes / stays in power. See: almost any country in Latin America, Italy.

The Military-Industrial Complex Domestically, this is how the United States government funnels billions of dollars into corporate subsidies (while avoiding the democratizing effects of social spending) so that they can continue to stay ahead of the rest of the world.

The Propaganda Machine A Cold War relic. Why is anti-Communist fear still a thing today, when the USSR collapsed over 30 years ago? Because it’s a very useful way for the United States to justify all of the above.

With these tools, the neoliberal regime sets out to crush things that could actually help build wealth in the hands of the people, such as democracy, labor unions, populist movements, distributive policies, and social welfare. And unfortunately they’ve been pretty successful.

[econ-book-club]

Reimagining Capitalism — Patagonia

We're standing extractive capitalism on its head in an unprecedented way. Patagonia created a way to lock in its purpose as a company—we’re

Yvon Chounaird just announced that Patagonia is “going purpose.”

Here’s how it works: 100% of the company’s voting stock transfers to the Patagonia Purpose Trust, created to protect the company’s values; and 100% of the nonvoting stock had been given to the Holdfast Collective, a nonprofit dedicated to fighting the environmental crisis and defending nature. The funding will come from Patagonia: Each year, the money we make after reinvesting in the business will be distributed as a dividend to help fight the crisis.

It’s only one company, but this sounds like a pretty ingenious way to systematically funnel the profits of capitalism to a good cause. It’s visionary, at the very least.

In his words: “Hopefully this will influence a new form of capitalism that doesn’t end up with a few rich people and a bunch of poor people.” (Quoted in the NYT)

What do you think? Any spicy takes out there?

[econ-book-club]

More on the limits of capitalism: A fall 2022 reading list

Okay. It has been entirely too long since I began my winter 2020 reading list that I STILL haven’t finished two years later (I was much too ambitious), but in the meantime, here’s a few new additions to the list for your perusal. Enjoy!

Book summaries will come... eventually (I’m going to write out summaries for the books on the 2020 reading list first). Follow me for updates, I guess?

Kate Raworth, Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist

Danny Cane, How To Resist Amazon and Why

Mariana Mazzucato, Mission Economy: A Moonshot Guide to Changing Capitalism

Paul E. Knowlton, Better Capitalism: Jesus, Adam Smith, Ayn Rand, and MLK Jr. on Moving from Plantation to Partnership Economics

Noam Chomsky, On Anarchism

Christopher Marquis, Better Business: How the B Corp Movement Is Remaking Capitalism

Matthew Stewart, The 9.9 Percent: The New Aristocracy That Is Entrenching Inequality and Warping Our Culture

David Stebenne, Promised Land: How the Rise of the Middle Class Transformed America, 1929-1968

Of course, please absolutely feel free to send any additional book recommendations my way!

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So my mind keeps coming back to the question: what is wrong with us? What is really preventing us from putting out the fire that is threatening to burn down our collective house? I think the answer is far more simple than many have led us to believe: we have not done the things that are necessary to lower emissions because those things fundamentally conflict with deregulated capitalism, the reigning ideology for the entire period we have been struggling to find a way out of this crisis. We are stuck because the actions that would give us the best chance of averting catastrophe--and would benefit the vast majority--are extremely threatening to an elite minority that has a stranglehold over our economy, our political process, and most of our major media outlets.

Naomi Klein, This Changes Everything: Capitalism vs. The Climate

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Yanis Varoufakis, Talking to My Daughter About the Economy

One-sentence takeaway: Economics is basically the new religion -- a belief system that allows the ruling class to legitimize themselves.

This is the book that I wish I’d read before ever taking an Econ class. It provides a delightfully alternative analysis of today’s economic system, with the key takeaway being that the market forces that fuel inequality today are not as inevitable as traditional economists make it out to be. 

My favorite quote from the book:

Unlike physics, in which nature is the impartial judge of all predictions, economics can never be subjected to impartial tests. ... When economists insist that they too are scientists because they use mathematics, they are no different from astrologers protesting that they are just as scientific as astronomers because they also use computers and complicated charts. (p. 196)

His point here is that, economics is, at its core, an ideology. In fact, it is the dominant ideology that rules the world today, in much the same way religion was the dominant ideology a few eras ago: it provides the ruling class with a narrative that legitimizes the unequal distribution of wealth-- in this case, by perpetuating the belief that “market societies were the ultimate natural order, created by an invisible hand.” In other words: “leaving the economy to the experts is the equivalent of those who lived in the Middle Ages entrusting their welfare to the theologians, the cardinals, and the Spanish inquisitors. It is a terrible idea.” (pg. 193)

So, where are the experts wrong-- what are the myths? This is really what this book is about, and the author explains everything extremely intuitively (with some choice references to the Matrix, no less!). I’ve paraphrased a few of the key lessons below.

Myth 1: Poor countries are poor because their economies are weak. 

Whether a country is rich or poor is largely determined by geographic conditions, not smartness or culture or capability. In Eurasia, food (from the wild) was scarce, and this gave rise to agriculture, which in turn created a surplus of food. Surplus was what gave society the capacity to allow certain humans to specialize in professions such as the bureaucracy, army, and clergy, and later, the Industrial Revolution. In Australia, food was plentiful, and without a need for agriculture, this transformation of society did not arise in the same way. In Africa, there were agricultural economies, but due to much greater variations in climate (think about the Sahara!) crops did not carry well, and so those economies did not expand as they might have in Eurasia.

Myth 2: Poor people are poor because they have nothing to offer the market.

The accumulation of power and resources is self-perpetuating: “those privileged to have surplus are rewarded with economic, political, and even cultural power, which they can then use to acquire an even larger share of the surplus.” And unequal distribution of wealth can be traced back to the early days of the market society, when landowners began to use their land to produce commodities that would bring them profit on the market, rather than food and other goods for sustaining their communities. For example, in Britain, wool was valuable, so landowners effectively replaced serfs with sheep. When the serfs were left with nothing, they resorted to selling their labor on the market, but they were already at a severe disadvantage in terms of how much wealth they could hope to accumulate. 

Side note: backing this is the belief, especially prevalent among the privileged, that "it is right, proper, and necessary for them to have more while others have much less.” The implied flip side of this thinking is that being poor must be a result of some inherent trait, but no, it’s really not.

Myth 3: Government is a brake on development / a parasite on growth

This myth comes from the fear of “successful”people that the state will intervene to curb their wealth through taxation and regulation. But there are at least two things wrong with this argument. First, their businesses rely on government just as much as anyone else (if not more), whether it’s the rule of law, bailouts, or provision of debt-- things that are often sorely needed to get them through economics downturns. They just don’t like the feeling of losing their profit when the economy is doing well. Second, there’s an underlying assumption here that the wealth they have amassed is theirs, and so taxation takes away what’s “rightfully theirs.” But... no. Wealth is produced collectively, and the economy relies on everyone. 

Myth 4: Public debt is a bad thing for the economy

The faulty assumption underlying this one is that a government with high public debt is spending beyond its means and can’t balance its books. Kind of true, but too little public debt is also bad. Here’s the best description of public debt I’ve seen to date:

Given that the rich refuse to cough up the kind of taxes that would make government borrowing unnecessary, the state issues bonds and “sells” them to banks and rich people in order to pay for the things that keep the whole show on the road: streets, hospitals, schools, police, and so on. (p. 87)

Public debt also allows bankers to hold their assets in bonds instead of cash, which is kind of the only thing that keeps bank runs from happening on the regular. So public debt is not inherently bad for the economy, far from it. But it would be smaller if the rich paid their fair share!

Myth 5: Unemployment only means that workers refuse to sell their work at a low enough price

This is what Econ 101 taught me, and I never questioned it, but even setting aside the moral aspects of this debate-- it’s really not that simple. First, if workers do not have at least a living wage, they cannot really participate in the economy: they have no disposable income to re-inject into society. This means there is less $$$ in circulation to buy goods and services from producers. If producers can’t sell their stuff,  the economy won’t be doing so good. So the ability of workers to unionize and demand higher wages is actually good for companies. Second, the economy is largely a self-fulfilling prophecy: if workers suddenly started accepting lower wages, this would signal that the economy isn’t doing so well, and so business owners would stop hiring and the labor market would contract. 

Myth 6: Automation is good for the economy

Only if automation enhances, rather than replaces, the productivity of workers. Right now, “increasing automation reduces the portion of total income that goes to workers, diverting more and more money into the pockets of the rich who own the machines.” But this runs us into the same problem as Myth 5: there is not enough money in circulation to create demand for the goods being supplied. If these profits were distributed into the pockets of the workers instead (i.e. through fair wages or even, daresay, partial ownership of the automating machines!), then automation could be a good thing for the economy.

Myth 7: Control of the money supply should be depoliticized

First of all, money is deeply related to issues of debt management and taxation, so it can’t ever really be depoliticized. A depoliticized money system would mean that decisions such as how the government spends, how much taxes are collected and from whom, who is bailed out in crises and who isn’t, would be determined independently of actual societal needs. The problem is not that control of the money supply is political, but rather, that it is undemocratic. This means that having a central bank that isn’t supervised by Congress might actually be detrimental, because it is more susceptible to the influences of the powerful and rich.

Myth 8: Market failures can be solved by giving everything (such as natural resources) a price

This is a conversation I often hear in the climate change space-- to deal with negative externalities, put a price on the externality. Carbon taxes are a good example of the policies that result from this kind of thinking. But where does the commodification end? Anything that has a price can be owned privately. And the owners will likely be “people whose wealth means they will never be affected by rising sea levels but who will face a reduction in their profits.” If the oceans and atmosphere and every corner of the earth is privately owned, what incentive will the owners have to prioritize the well-being if not survival of people around the globe over their own profits? Not much. Commodification of everything isn’t the answer.

Tl;dr: Democratize everything and make the rich pay taxes!

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Anand Giridharadas, Winners Take All

One-sentence summary: Don’t fall for the “social impact” hype in the business world. It’s a sham!

The book is a series of anecdotes that aim to illustrate, from different angles, the problem with market-based solutions to the world’s problems today such as social impact consulting, ESG investing, and philanthropic foundations. Giridharadas dubs this sector “MarketWorld.” The central message of the book is that these market-based solutions, by nature of being market-based, cannot address the structural inequities of the current capitalist system. They are a way by which the rich and powerful can feel like they’re doing good, without taking apart a system that benefits them. 

Why is this? It’s both complicated and nuanced, as any topic of this scale would be, but the book offers at least three key takeaways:

1. MarketWorld believes that it knows best

The current capitalist system rests on an implicit assumption that inequality is a necessary element of economic growth. Further, it also assumes that the rich and powerful know best how to redistribute their wealth to society, whether it’s through philanthropic giving or public investing. 

This is the compromise, the truce, distilled: Leave us alone in the competitive marketplace, and we will tend to you after the winnings are won. The money will be spent more wisely on you than it would be by you. You will have your chance to enjoy our wealth, in the way we think you should enjoy it. (p. 164)

Both are flawed assumptions. And they leave no room for people that aren’t part of MarketWorld to speak up and be heard, even if they are the ones that are actually experiencing the problems.

2. MarketWorld doesn’t talk about complicity

We’ve seen that the rich and powerful favor market-based solutions that typically focus on enhancing social mobility. Their theory of change relies on increasing access to information and capital, so that people can lift themselves out of poverty. Underlying this thinking is the assumption that: 

...people are poor because of the absence of these linkages, not because of caste, race, land, hoarding, wages, labor conditions, and plunder; not because of anything anyone did--or is doing--to anyone else; not because of reversible decisions societies have taken. (p. 140)

In other words, MarketWorld tends to avoid discussing whose fault all these social problems really are (hint: themselves). Systemic solutions like stronger regulation and redistributive taxation that threaten the rich and powerful never even make it onto the table. Even when you talk about sexism, in MarketWorld, you talk about making women stronger, not making men less harmful.

3. MarketWorld has no connection to place

In an era of globalization, the private sector is increasingly agnostic about place. As companies expand their operations to multiple locations around the globe, they lose their sense of citizenship, and stop reinvesting into the communities they originally belonged to.

This detachment also takes place at the individual level, when business leaders -- who are accustomed to being Everywhere -- view the world at a macro level, without due consideration for the impact they might have at the micro level on the majority of people who are stuck Somewhere.

MarketWorld’s winners had... surrendered any loyalty to place. The trouble was that the world was still governed by place, and so elites whose loyalties and projects focused on the global level were essentially pulling away from democracy itself. (p. 212)

When politicians and other government leaders also prioritize the Everywhere and fail to consider the Somewhere, this creates an opening for the surge of populist anger we’ve seen in recent years. But, in the words of Lawrence Summers cited on the same page of the book, “the basic responsibility of government is to maximise the welfare of citizens, not to pursue some abstract concept of the global good.”

[econ-book-club]

Understanding the limits of capitalism: a 2020 winter reading list

Can ethical capitalism really exist?

In an attempt to better understand the limits of capitalism (and begin to imagine what a post-capitalist system might look like), here’s my preliminary reading list for this winter break.

Anand Giridharadas, Winners Take All: The Elite Charade of Changing the World

Yanis Varoufakis, Talking to My Daughter About the Economy or, How Capitalism Works - and How It Fails

Michael J. Sandel, What Money Can’t Buy: The Moral Limits of Markets

Noam Chomsky, Profit Over People

Naomi Klein, This Changes Everything: Capitalism vs. the Climate

Robert Shiller, Finance and the Good Society

Rebecca Henderson, Reimagining Capitalism in a World on Fire

Will be updating with links to my book review/summary posts as I finish each book!