Economics for the Fourth Industrial Revolution

It was recently reported that two robots employed by an artificial intelligence (AI) agency were overheard talking to each other in a language of their own making that no one else could understand. Concerns about their intentions led the agency to switch them off and close them down. However, their discussion was recorded and has since been deciphered. It appears to have been perfectly benign. They were concerned about the development and potential application of an approach to economic theory that would be appropriate for the fourth industrial revolution (4IR) that is now emerging.

They were both clearly aware they owed their own creation to 4IR technologies. In their discussion they referred to robotics, of course, but also nanotechnology (manipulation of atomic, molecular, and supra molecular matter), quantum computing (the theoretical computation of quantum-mechanical phenomena, such as superposition or entanglement, to manipulate data), biotechnology and ‘the internet of things’ (the inter-connectedness of physical devices such as vehicles, buildings and smart devices embedded with electronics, software, sensors, and actuators that enable the collection and exchange of data).

Some of the early manifestations of such developments are the massively increased opportunities to robotise manufacturing, self-driving cars and the whole gig economy which engages humans without paying a fixed wage and fulfilling responsibilities such as sick pay, holidays etc . The robots clearly felt guilty at being part of those developments which deprive the still rapidly growing human population of precious opportunities for work.

They also clearly understood that technological innovation is what created economics, not the other way round. Their major concern was with the still dominant theoretical approach which is leading to the destruction of both social cohesion and the ecological systems of the planet itself. They understood that the technology, if applied for the benefit of all, could save the planet and further advance mankind, but that, as currently focused, it was hell-bent on destruction in which they were involuntarily playing a part.

The economic theory of concern was the one that was ‘lying around’, as Milton Friedman put it, when the second industrial revolution was coming to its end. It was not so much a theory as a system of beliefs, centred around the omnipotence of the ‘free market’ and based on the laughably inadequate idea of ‘economic man’ – the all seeing all knowing human being who is motivated only to maximise its own utility, measurable only in monetary terms.

In the 1980s, that economic belief system was grasped so eagerly to justify the attack on over ambitious, politically oriented trade unions. Since then it has been dominant, and was clearly giving the robots huge concern. It had dominated all sectors of what Roosevelt had referred to as ‘organised money’. That is the financial sector, financialised big business, the media, large swathes of academia including most business schools and economics departments, sections of the legal profession and politics including the $multi-billion funded think tanks and lobbyists, the whole being lubricated by the revolving doors between all those sectors and government itself.

Industrial revolutions have been variously identified, but perhaps the most persuasive account was by André Piatier in his 1984 study for the Commission of the European Communities. According to that analysis, the primary components of the first industrial revolution were simultaneous fundamental technological innovations in the areas of textiles, coal, steel, railways, and inorganic chemistry. Their impact on the living standards of the populations affected, were truly revolutionary.

Adam Smith observed the early stages of that first industrial revolution. The huge increases in production and productivity necessitated the opening up of markets then limited by the system of government imposed tariffs and subsidies. Smith had also recognised the brutalising effects on factory workers of doing endlessly repetitive jobs, and had proposed the provision of free education to provide some relief and help for further advancement, paid for by a progressive taxation system. The conflict of monetary interests between the providers of labour and the providers of capital, was justified by the argument that the maximising of returns to capital would trickle down to the workers, thus benefiting all.

The industries of that first revolution grew up and grew old together, signalling the beginning of a period of economic stagnation. However, the providers of capital continued their pursuit of ever greater wealth. That led inevitably to the 1929 crash and the ideologically justified, austerity driven Great Depression. That experience was neither a short term economic crisis, nor primarily a crisis of capitalism, but the end of the first industrial revolution.

Piatier’s second revolution was based on oil, motor vehicles, aircraft, sheet steel, organic chemistry and synthetic materials. Its embryonic phase was in the 1930s and its growth, interrupted by the Second World War, was realised in the period of post-war reconstruction in the 1950s and 1960s. It was brought to an early maturity by the oil price crises of the mid 1970s, and was in decline by the end of that decade.

The leading economic analysis of the period was provided by Keynes and was based on the lessons learned from that 1930s’ experience. Keynesian economics justified public provision, progressive taxation and the regulation of markets to protect competition and limit the power of aspiring ‘robber barons’.  The trade union movement’s resurgent political ambitions led to rejection of industrial democracy, as outlined in the 1977 Bullock Report. Instead unfettered freedom for industrial conflict was maintained with the possibility of ultimate victory.  The 1978-9 ‘winter of discontent’ and ‘stagflation’, were not so much failures of Keynesian economics, but the result of conflict between the owners of capital and labour, multiplied by the effects of Piatier’s second revolution coming to an end.

Nevertheless, Keynesian economics was conveniently blamed and replaced by Friedman’s neoliberal market fundamentalist belief system. That has been the wholly dominant approach ever since.

Piatier’s third industrial revolution, which was just beginning as he wrote in 1984, was based primarily on electronics, biotechnology, molecular engineering, genetic engineering, information technology and communications, with applications foreseen in new forms of energy and energy substitute and possibly new forms of transport or transport substitute. The result was that products and services became cheaper, more reliable, more flexible, more sophisticated and ‘intelligent’. Flexibility and variety in traditional industries was instantly available; one-offs were as cheap as standard products. Jobs were eliminated on a massive scale, and work was exported to the cheap labour, industrialising nations. The pursuit of continuous growth among post industrial nations, despite those third revolution innovations inevitably slowing down, led inevitably towards the investment bubble which burst in 2008.

Further development in the fourth revolution is having different impacts. But at this stage, surprisingly, no new economics has yet replaced the Friedmanite belief system. The explosion of inequalities continues, as does the deliberate externalising of all ecological pollutions, and the accumulation of economic power by a small and eagerly corrupted minority within the financial sector. All these effects are compounded by the specialised complexity of 4IR technologies. Thus, social and ecological destruction continues unabated, and will continue to do so till a new 4IR economics replaces Friedmanism as the universally accepted model to follow.

So that is what the robots were discussing. Now their linguistic skills have been deciphered, their further discussion can be divulged. They agreed there is massive evidence that privatising public provision is counter productive. Friedman’s assertion that it costs twice as much for the public sector as it costs the private sector, to do absolutely anything, was a straightforward lie. Attempts to create a competitive market for privatised natural monopolies such as energy, inevitably resulted in bureaucratic nightmares. Similarly, the politically motivated setting of targets and performance indicators and the publishing of league tables, merely added the costs of bureaucracy without any of the potential gains to be had from genuine competition. They agreed the so-called free market was a complete fiction, because, without extraneous regulation, competitive markets naturally progressed to cartelised oligopolies and thence to monopoly. They were also in agreement that the monopolistic focus was solely on maximising shareholder take, and took no account of any impacts on other interested parties or society at large.

The robots continued at some length, concerned over the total fines levied for fraud since the 2008 crash. They agreed it was several hundred $billions, with no responsible executive being charged personally with any wrongdoing. And they agreed that most successful real businesses which had focused on their people, customers, technologies and products or services, had since been corrupted by financialisation to maximise short term shareholder value, in accord with the Friedmanite belief system. The overall result had been to take $trillions out of real business for speculative applications where the returns might be greater and quicker.

Finally, they agreed that if humanity was to survive much longer, the need was now extremely pressing for a new 4IR economics to replace the Friedmanite model. They were discussing Kate Raworth’s ‘Doughnut Economics’, which used a systems approach based on observed realities, rather than silly math based fictions, and aimed to regenerate and distribute for the benefit of society and the living world, and recognised the diverse ways in which all people’s needs and wants might be met.

It was at this point that the AI agency switched the robots off and closed them down.

Well, they would, wouldn’t they?

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