Protests in Iran

Podcast here https://soundcloud.com/user-280580802/56-protests-in-iran

In November 15, the Iranian government led by President Hassan Rouhani and the Supreme Leader Ali Khamenei announced a 50% hike in gasoline prices by cutting subsidies to relatively cheap gasoline in the oil-exporting country. Immediately up to 200,000 protesters took to the streets to demand the government to take back these cuts in oil subsidies. This reflects the broader social discontent regarding high general inflation, stagnant wages, high unemployment and discontent with a regime that retains the economic privileges to the ruling caste and that is facing US economic sanctions.

Iran has faced periods of economic and political instability for at least a century. This post summarizes the past century of Iranian political developments to allow for an interpretation of the causes of instability, including foreign pressure, dependence on oil wealth, a restive middle class and despotic and corrupt rulers.

In 1925, the Qajar dynasty was toppled by Reza Khan who became Reza Shah Pahlavi. He served as prime minister prior to his coronation and ouster of Ahmad Shah, the last Qajar ruler. He was a military general, who consolidated power with a coup d’etat in 1921. The Soviets and British divided Iran based on their sphere of influence. In 1909, the discovery of oil attracted British oil corporations. The oil revenues ensured a stable source of revenue for the rulers, but it also prevented the build-up of a strong civil society and permitted despotic rulers both secular and religious. It also resulted in continued foreign interest to influence Iranian politics, first the British and then the Americans.

The 1917 October Revolution encouraged the British to use Iran as a base to undermine the Soviets. The Soviets in turn occupied the northern edge of Iran to thwart the British strategy. Reza Shah was the only person, who could unite substantial factions inside the army to repel foreign occupation. His first inclination was to proclaim a republic, but the British and the Islamic clerics were opposed to that, so he was crowned as Shah. Reza Shah was a secularist, having a similar motivation to Turkey’s Kemal Ataturk. He implemented modernization reforms, including the construction of railways and highways, the building of factories, a modern judiciary, a western education system, and western attire.

Reza Shah was no democrat, and ensured that the parliament was neutered agreeing to all his decrees, and the press was suppressed. The lack of bourgeois freedoms had a negative impact on the many state-run industries, which jump-started during his rule. These industries were unproductive and inefficient. Loyalty and sycophancy were rewarded as opposed to constructive criticism to improve production methods. Authoritarian rule also favored corruption, which means that the Shah and his loyalists, primarily the military, which helped him to power, got very wealthy at the country’s expense. As a result, the clergy, the bourgeoisie and the intellectuals opposed the Shah, which weakened his legitimacy.

Another problem was the Anglo-Persian Oil Company, where the Iranian government provided the British company with a substantial concession in exchange for very low royalties to the Iranian state. Reza Shah’s promise to increase the pay of oil workers and build schools, hospitals, roads and telephone system with the oil revenues were never realized, further causing public discontent.

Reza Shah’s rule ended in 1941. The former enemies, Britain and Soviet Union, teamed up to invade Iran to ensure that it would not fall to the Axis during World War II. It was an uneven war, as Reza Shah’s army was easily routed. Prime Minister Mohammad Ali Foroughi negotiated a peace deal with the Allies, which includes the imprisonment of all German nationals on Iranian soil. Reza Shah undermined this demand, and organized all German nationals to be evacuated via the Turkish border. The incensed Soviets moved their troops to Tehran. Reza Shah announced his abdication. The British wanted to restore the Qajar Dynasty, having the inclination that the old rulers would be reliable partners to allow the British to continue exploiting Iranian oil resources. Foroughi favored Crown Prince Mohammad Reza Pahlavi, Reza Shah’s son, to take over as Shah, which received British approval. Perhaps, they had hoped that Mohammad Shah’s inexperience and youth would make him easily controlled, and, indeed, in the early years of his rule he lacked self-confidence.

In 1951, Mohammad Shah appointed Mohammad Mossadegh as prime minister, as he received overwhelming popular and parliamentary support. His main policy was to abandon the British oil concessions by nationalizing the Anglo-Iranian Oil Company, which was met with wide popular approval. The British pressured the Shah to get rid of Mossadegh in 1952, but riots against the Shah made him back off from that move. Mossadegh became even more popular among the Iranian people. The British realized that they could not legally subvert Mossadegh, so they convinced the US CIA to organize a coup d’etat against Mossadegh. The US was concerned that the nationalization of oil resources could result in the victory of communism and a rapprochement with the Soviet Union to the north. The first coup failed, forcing the Shah to flee to Rome. In the second successful coup, the Americans bribed crowds to protest against Mossadegh. Reza Shah was instructed to dismiss Mossadegh, and the military imprisoned Mossadegh, who was put under house arrest for the rest of his life.

The British retook the oil company renaming it British Petroleum, but now the Americans pressured the British to open up the oil company to American oil corporations, which promptly happened in 1954, thus ensuring a second supply of cheap oil for the US aside from Saudi Arabia. After the CIA coup against Mossadegh, Iran became an important informal US ally in the fight against the Soviet Union. Mohammad Shah made sure to cultivate close relations with the US, warning president Eisenhower that Iraq is already under Communist influence and that if anyone dared to overthrow the Shah it would result in a Communist takeover of Iran. Iranian leverage over the US increased substantially by the early-1970s. The OPEC oil embargo in 1973 rocketed oil prices and hurled the western world into recession. US president Nixon pleaded with Mohammad Shah to lower oil prices, which he refused (decisions on the oil embargo were controlled in Saudi Arabia anyway). Because Iran did not participate in the Arab oil embargo, increased production meant rising oil revenues and wealth for the Shah.

Mohammad Shah increased his standing and power after the coup by decrying poverty and announcing a White Revolution in 1963 which gave women the right to vote, lifted the requirement for local officials to swear on the Koran, introduced land reform (government purchases land cheaply from landlords and sold it to peasants), the building of infrastructure (dam and irrigation, roads, rail, airports), the eradication of diseases, nationalization of forests and pastures, literacy and health campaigns in the rural countryside, and profit-sharing schemes with workers in industry. Notably, the reform package included no loosening of the authoritarian grip on power, which was guaranteed by the Shah’s secret police, the SAVAK.

Mohammad Shah wanted to broaden his power base by receiving support from peasants and workers, while accepting the wrath from landlords, the urban bourgeoisie (including students) and the Islamic clerics. Unfortunately for the Shah, these reforms incensed the latter three groups, while the land reform transformed peasants into independent farmers and landless laborers who lacked loyalty with the Shah. More than half of the peasants did not receive any land, and they became landless laborers in the city, who could be easily mobilized for anti-government protests. The mass education campaign backfired, as increasing levels of education were not correlated with more high-paying jobs, so the educated unemployed became an important anti-Shah constituency.

One linchpin of the White Revolution was the fight against corruption and “trickle-down” economics, where the elites would use the oil revenues to create jobs and factories. If that had actually happened, perhaps the laborers and peasants could be kept docile even as the bourgeoisie, the intellectuals and the clerics opposed the Shah. But the Shah’s regime was extremely corrupt, and inequality became a growing concern even after his reforms.

The strongest and most charismatic opponent to the Shah was Ayatollah Ruhollah Khomeini, who was imprisoned and exiled to Iraq by the Shah in 1964. Khomeini was incensed about the appointment of Christians and Jews into the Iranian civil service, which would surrender the power of Muslims to non-Muslims. Over the long years of rule, Mohammad Shah became more autocratic. His secret police SAVAK murdered hundreds of political prisoners, usually critics of the regime. It arrested and tortured tens of thousands. In 1975, he forced the two large parties to merge into a single Rastakhiz (Resurrection) Party. Mohammad Shah became blinded by the oil wealth pouring in the 1970s, promising the Iranian people a high standard of living on par with the west, when in reality, ordinary Iranian complained about inflation, poverty, air pollution and corruption among authorities (such as the need to bribe police to legally sell fruit on the streets). People also disliked his lavish state celebrations, like in 1971 where he threw a big party for the 2500th anniversary of the Iranian monarchy, while many people remained poor.

The popular discontent was in search of a leader, which was provided by the religious clerics around Khomeini. In October 1977, SAVAK killed Mostafa Khomeini, Ruhollah’s son, which sparked mass unrest. A January 1978 article penned by the regime to attack the character of Khomeini led to the beginning of mass protests that would last over a year and culminate in the Islamic Revolution in 1979. Mohammad Shah might have more effectively reacted against the protests, but by 1978 he was weakened by lymphatic cancer. The many drugs that he received made him delirious and passive. His wife Fara Dibah asked the Shah to appoint her as regent, so he can go abroad for cancer treatment, which the Shah refused. In his sane moments, Mohammad Shah accused the west and the Soviet Union for paying protesters to instigate his overthrow. These allegations were made without evidence and made him refuse any concessions to protesters. The incapacity of the shah paralyzed the state system, which was highly centralized and required the shah’s approval for any change in policy. In October 1978, oil workers went on strike, thus cutting off the main revenue source of the Iranian regime and bringing the country close to economic collapse, which further fueled discontent.

It should be clear that the discontent, while being led by the cleric Khomeini, was a broad coalition including the secular, left-wing nationalists as well as right-wing Islamists, who each abhorred the Shah’s maintenance of power. By December 1978, Mohammad Shah finally realized his untenable position as the western leaders gathered to “discuss the crisis in Iran”. He sensed that he no longer had any support, neither abroad nor at home. On January 4, 1979, he appointed Shapour Bakhtiar, an anti-Shah politician, as prime minister. Bakhtiar accepted the role fearing that a revolution would empower communists and mullahs. Bakhtiar freed all political prisoners, allowed Khomeini to return from exile, dissolved SAVAK and implemented a constitutional reform that should bring new elections in a few months. He also pressured Mohammad Shah to be exiled, which he promptly did on January 16. He died a year later in Egyptian exile, succumbing to his cancer. When president Carter admitted the Shah for cancer treatment in the US, the new Iranian government stormed the US embassy in Tehran, holding US diplomatic staff as hostage, which may have cost Carter his reelection in 1980. Bakhtiar was in no stronger position. His concessions emboldened the Islamists.

Khomeini denounced Bakhtiar, having compromised with the Shah. Bakhtiar asked Khomeini to create a Vatican-like state in Qom, but Khomeini refused, sensing his opportunity to take over Iran. Pro-Khomeini guerrilla and rebel soldiers took over the streets of Tehran, while the military remained neutral. By February 11, Khomeini succeeded in taking power, removing Bakhtiar, who fled to exile in France, where he was assassinated 12 years later. Khomeini ended the monarchy and declared the Islamic Republic of Iran after a successful referendum. In the Islamic Republic the country would get an Islamic constitution, placing Khomeini as supreme leader or leading jurist at the top of the political hierarchy. The secular capitalist orientation was replaced by Islamic economic and cultural policies.

Under Khomeini, sharia law was introduced, which includes the requirement for women to cover their hair and for men not to wear shorts. Alcohol, western movies/ music and practices like men and women swimming or sunbathing together were banned. Feminists, ethnic/ religious minorities, liberals and leftists were repressed in the name of Islam. Laws to encourage polygamy, decriminalize child sexual molestation, lower the marriage age to 13, introduce death penalty on homosexuals, drug addicts, prostitutes, rapists and adulterers, implement forced sex change surgery for transsexuals, and prohibit women-initiated divorce were passed.

The new regime killed hundreds of political prisoners, which were Shah loyalists, and 30,000 who were part of the People’s Mujahedin of Iran, a Marxist-Islamist guerrilla force opposed to the Islamic Republic. Christians and Jews were tolerated, although all major government positions were reserved for Muslims and any converts to Islam would be favored by law (e.g. they could be entitled to all of their parents inheritance). The Bahai faith, a separate monotheist religion native to Iran, was brutally suppressed.

Economically, Islamization was catastrophic to the economy. 4 million entrepreneurs, professionals and technicians, the main providers of a strong economy, left the country. Poverty increased and the economy languished. Saddam Hussein, president of Iraq, believed that he could take advantage of the chaos of the Iranian revolution by invading Iran and seizing Khuzestan, the oil-rich region, close to the Iran-Iraq border. The war became protracted and took 8 years to resolve, and also retarded any economic progress made during the Shah era. Most major powers backed Iraq, but Iran fought back and called for a Shia led uprising inside Iraq to topple Saddam Hussein. Khomeini sacrificed a substantial number of Iranians via human wave attacks: civilians running toward enemy formations so they could be mowed to death. They also fell victim to the chemical weapon attacks of Iraq.

In 1985, Khomeini designated Grand Ayatollah Hussein-Ali Montazeri as his deputy and successor, but by 1989, Montazeri began to push for liberalization, freedom for political parties and the release of political prisoners. He also criticized the poor treatment of prisoners. This outraged Khomeini so much that he demanded Montazeri to be replaced by Ali Khamenei, president from 1981-1989, as Supreme Leader in March 1989. Perhaps Khomeini might have switched his mind again on choosing his successor but he died in June 1989 of a heart attack.

Khamenei had extensive executive experience, taking much interest in military, budget and administrative details. He also lacked the experience of an Islamic Jurist (marja), which originally was deemed an essential qualification to become Supreme Leader. The Assembly of Experts waived this requirement to allow Khamenei to become supreme leader. In the Iranian constitution, the Supreme Leader is the head of state and commander-in-chief of the armed forces. He also approves any cabinet appointments and important personnel changes. The president is the head of government, but is fully answerable to the Supreme Leader, carrying out his decrees. His administrative decisions and appointments can be repealed by the Supreme Leader. The president is elected by direct popular vote for four years and can serve no longer than two terms. The Supreme Leader, in contrast, is a lifetime appointment.

Khamenei has also articulated his ideology, which is internally to maintain an “Islamic democracy”, where Iranians have a choice of their elected leader but that the Islamic cleric (himself and the ayatollahs) can supervise the government to ensure it follows Islamic principles. This is already an advancement to the Shah, who preferred a straight-up dictatorship loyal only to himself. Externally, the Islamic Republic of Iran is held together via its opposition to Zionist Israel, whose existence the cleric regards as abomination, and to the United States, an infidel imperialist power that plays the world police to the detriment of all Muslim people (Hovsepian-Bearce 2017). To focus on the US as external enemy is extraordinarily effective given the hated shah’s close attachment to the US. The regular invocation of Zionist and American enemies ensures loyalty among the masses.

Khamenei’s rule has not been without controversy. Through Setad, a parastatal firm controlled by the Supreme Leader, Khamenei controls a vast financial empire, consisting of $95 billion, which he can use to spend on religious education, building mosques and schools, but also to maintain his personal compound with a staff of 500 employees. The original fund came about by seizing the property of oppressed religious minorities, and it has grown via diverse investments in industries like real estate, finance, oil and telecommunications. Setad allows Khamenei to be independent from political infighting in parliament, which does not control Setad.

The Islamic conservatism and disregard for economic development produces opposition from the urban bourgeoisie and students, as evidenced in the anti-government protests in 1999, 2009 and now most recently again. The first president under Khamenei was Akbar Hashemi Rafsanjani (1989-1997), who favored authoritarian rule, privatization of state industries, the free market and avoiding conflict with the west.

The liberal reformist factions temporarily gained influence under President Mohammad Khatami (1997-2005), who favored freedom of expression, tolerance, strong civil society, strong diplomatic relations with the west, and free market policies. Khatami’s efforts to liberalize were continuously thwarted by the conservatives in parliament. And without the conservative Khamenei’s approval many policy decisions could not be implemented, showing the farce of Islamic democracy in Iran.

In 2005, the conservative faction’s Mahmoud Ahmadinejad became president (with the strong backing of Khamenei), and he took a more populist political stance, increasing subsidies for food, housing and petrol for the masses and cutting the interest rate to stimulate borrowing. The human rights situation worsened with the opening of new detention centers for political opponents, thus reversing any liberalization moves by Khatami. Ahmadinejad also took a more confrontational stance with the west by reaffirming the country’s commitment to enrich uranium for “peaceful” nuclear energy, which the regime regards as important energy alternative to oil. The US and Israel suspected that Iran wanted to develop nuclear weapons, which could threaten Israel. In 2006, under their prodding UN economic sanctions against Iran began to be applied, which put pressure on the Iranian economy. Given the economic sanctions from the west, Iran worked to strengthen relations with left-learning states in Latin America like Venezuela, Bolivia and Ecuador.

Discontent over the economic sanctions strengthened the position of the centrist Hassan Rouhani, who was neither a reformist nor a conservative, but he received the support of clerics and the Green Movement, that was founded in 2009 to remove Ahmadinejad from power. The protesters, including human rights activists, lawyers, professors, students, artists didn’t believe that Ahmadinejad legitimately won, but the election result was upheld by Khamenei. The Green movement was led by Mir-Hossein Mousavi, former prime minister (1981-1989) and a reformist politician, who contested and lost the 2009 presidential elections.

President Rouhani’s key objective was to end the western sanctions on Iran by negotiating a a nuclear agreement, which was made easier by the more accommodationist US president Obama, which saw a diplomatic deal as a way to cement his foreign policy legacy and weaken the military-industrial complex and the neoconservative wing (such as Hillary Clinton and most Republican Party officials). The ending of sanctions announced in 2015 would bring in much needed capital to Iran, which contributes to economic growth, which could benefit ordinary Iranians, and thus restore the legitimacy of the government. The problem was that the US neoconservative establishment beat back as all Republican candidates, including Donald Trump, wanted to restore economic sanctions against Iran. With the opposition of all the other parties, including the EU, Russia and China, the US withdrew from the Iran nuclear agreement in May 2018, which motivated the Iranian regime to restore the enrichment of uranium.

The US neoconservatives hope that economic sanctions against Iran will destabilize the regime. Rouhani’s successful effort to bring down the high inflation under Ahmadinejad (upward of 40% by the end of his term in 2013) were reversed in 2018, pushing inflation to 50% before declining to 28% in October 2019. The US leverage appears to be substantial because of their threat to sanction any companies that trade directly with Iran. However, the European countries or China circumvent these sanctions by trading via INSTEX, an international payment system to bypass SWIFT. Without the US being able to pressure other countries to prohibit trade with Iran, it has limited leverage, because only 0.1% of Iranian trade is with the US. Nonetheless, US sanctions reduced Iranian oil output.

Image result for oil revenues iran

Source: GulfNews

To return to the current protests, we have seen that the Iranian people are restive, and whoever was in power has to reckon with popular resistance. Authoritarian rule means that the only way for the people to show their discontent is by public protests. This time the increase of fuel prices by 50% has been the immediate trigger for the protests, which is additional pain to the high general inflation rate. The regime saw no choice but to raise the fuel prices given the declining export of oil following the sanctions and the rising budget deficit of the national government.

The street protests were countered by a brutal police crackdown which resulted in over 150 deaths and a complete shutdown of the internet, including social media, which are used to coordinate protests. Within two weeks, the streets quieted down again, but it is unclear whether the tensions are resolved. Without a compromise with the public, resentment against the Iranian regime will intensify.

The regime is also concerned about the broader stability in the Middle East. The consolidation of the Bashar al-Assad regime in Syria is certainly welcomed by Iran, but Lebanon and Iraq are two further centers of unrest. Each of these governments are supported by Iran both financially and militarily. As economic discontent and opposition to the government is becoming more pervasive in these two countries, an anti-Iranian sentiment is fomenting, as protesters blame Iranian influence for corruption, inflation and unemployment. If the pro-Iranian regimes in these countries fall, then Iran’s political stability is also undermined.

In order to alleviate discontent the US would have to lift sanctions and restore full economic relationships with Iran, but if Trump wins his reelection campaign these chances are not good. The US neoconservatives may be celebrating political instability in Iran, but it comes at a heavy human cost. The review of Iranian history reveals the sad reality that Iran has been the playball of international forces, first the British in the first half of the twentieth century, and by the Americans since the second half.

On the other hand, despite foreign incursion Iran maintained its own government, whether via the Shah’s rule or Islamic rule. Oil dependence which has lasted for more than a century now allowed rulers to be despotic because they make money by selling black gold abroad. As such, inadequate and corrupt rule justify public anger against the regime, which then responds with harsh crackdowns, incarceration and denouncement of supposedly foreign instigators (which was certainly the case in the 1950s under Mossadegh). Even with dictatorial controls in place, what is remarkable is the resilience of Iranian civil society, which have forced the ruling regimes to at least pretend that they are working on behalf of the people. Literacy rate and life expectancy have continued to improve, while the middle class has been increasing and three-fourth of the population live in cities, which bring legitimacy challenges to authoritarian rule.

In 1979, the Islamic clerics have promised that they are the true representatives of the Iranian people, but the multiple protests suggest that even the Islamic rulers have to earn legitimacy and public trust the hard way. Mohammad Shah’s son, Reza Pahlavi, living in US exile, has been calling continuously for the overthrow of the Islamic Republic of Iran, and wants to see a “transitional” government with liberal democracy and rule of law as its end, though he is not specific on whether he should be part of it or whether the monarchy should return (Radio Farda 2019). I doubt that there is a lot of appetite in Iran for the shah to return, but a secular democracy sounds like a good alternative to the status quo.

Further readings:

https://www.dw.com/en/opinion-irans-bloody-protests-are-just-the-beginning/a-51450365

https://www.washingtonpost.com/politics/2019/12/05/why-did-irans-government-shut-down-protests-so-quickly-violently/

https://www.forbes.com/sites/francescoppola/2019/06/30/europe-circumvents-u-s-sanctions-on-iran/#4ef91a152c8d00

https://en.wikipedia.org/wiki/Anglo-Persian_Oil_Company

https://en.wikipedia.org/wiki/Mohammad_Reza_Pahlavi

https://en.wikipedia.org/wiki/Reza_Shah

https://en.wikipedia.org/wiki/History_of_Iran

https://oec.world/en/profile/country/irn/

https://en.wikipedia.org/wiki/White_Revolution

https://en.wikipedia.org/wiki/Shapour_Bakhtiar

https://en.wikipedia.org/wiki/Ruhollah_Khomeini

https://en.wikipedia.org/wiki/Ali_Khamenei

https://en.wikipedia.org/wiki/Akbar_Hashemi_Rafsanjani

https://en.wikipedia.org/wiki/Mohammad_Khatami

https://en.wikipedia.org/wiki/Mahmoud_Ahmadinejad

https://en.wikipedia.org/wiki/Hassan_Rouhani

https://en.wikipedia.org/wiki/Iranian_Green_Movement

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Smartphones as Soma: Amusing Ourselves to Death, Again

Podcast here https://soundcloud.com/user-280580802/55-smartphones-as-soma-amusing-ourselves-to-death-again

The media educator Neil Postman (1985) argued in his seminal book “Amusing Ourselves to Death” that in depicting the technological dystopia that we are living in there is George Orwell’s vision of state oppression and totalitarian rule and Aldous Huxley’s vision of “voluntary” addiction to amusement, and that Huxley’s vision is more accurate. Television distracts and entertains rather than oppresses.

But there surely is an argument for the Orwellian oppressive vision with more recent technology. This is depicted in Shoshanna Zuboff’s (2019) recent study on “surveillance capitalism”, where the massive data collection and analysis from Google/ Facebook users is used to generate income by selling the data to third-party advertisers. In China’s vision of developing artificial intelligence (AI) and social media, there is a direct element of totalitarian control, censorship and punishment for political postings. Even in so-called democratic countries AI can be used to exclude the poor from collecting social benefits that they otherwise would be entitled to by e.g. punishing them for form submission mistakes (see Eubanks 2018).

But there is also Huxley’s amusement vision, as tech algorithms predict and shape user preferences. Consumer desires are manipulated which ensures more time is spent on the platform, and more time/ attention means more income for the tech companies. The potential totalitarian vision of AI is a serious problem, but have been thoroughly analyzed already (e.g. watch any interview with Edward Snowden or read his book). I argue that we need to revive Postman’s critical vision, which is about the “voluntary” addiction of smartphone users and simply living in modernity.

Let’s go back to Aldous Huxley’s novel and recount the key facts: the protagonist Bernard Marx is a non-conformist inhabitant of the World State of London. This World State emerged from a global war, which led to massive destruction and death. Out of the ashes arose policymakers’ desire to create permanent political stability by creating human-like creatures out of tubes and giving these new people a happiness-inducing drug called “soma”. It has no negative side effects, and it gives a rush of happiness while remaining lucid. Furthermore, there is a strict caste system with people being born into high and low castes. There are no sexual restraints, and people can make free love. There is no work, so seduction and pleasure-seeking are the only activities left for existence.

Bernard temporarily escapes the World State by taking a vacation in the Americas, where local ancient (i.e. human) tribes still exist, and he is mesmerized by the violence and conflict these tribes had. He encountered Linda and her son John. Linda came from the World State and became pregnant with John, while going for a vacation in the Americas. Because in the World State it was illegal to have children on one’s own (they are produced in the test tubes), she could no longer return back home to her beloved World State and soma. John, however, grows up without any experience of soma. Bernard takes Linda and John back home with him, and John quickly became a national curiosity in the World State.

When Linda was on her deathbed, John rushed to the hospital and sees people receiving their soma doses. He tries to interrupt the dispensation of soma, alerting Bernard and another contrarian friend Helmholtz, who rushed to the hospital to stop John. The police also comes and imprisons John, Bernard and Helmholtz. They are put on trial led by the World Controller Mustapha Mond. Mond condemns Bernard and Helmholtz to exile, while John is not allowed to leave. Mond is very forthright in why the punishment was necessary: stopping the dispensation of soma is disruptive to the social stability of the World State. If people are allowed to live out their passions for greed, avarice and violence, there would soon be chaos again. These are not the only human drives, for surely the human passions also create art, literature and science. These achievements have to be sacrificed for the utilitarian goal of maximizing societal happiness and social stability. John insists on the virtues of human art and accomplishment, which he honed memorizing Shakespeare verses that his mother Linda taught him in his youth. Mond replies that John is demanding “the right to be unhappy”. [Huxley surely read his Kierkegaard, Nietzsche and Dostoevsky.]

Huxley was responding to the mass manufacturing phenomenon which began with Henry Ford’s assembly line: mass production, homogeneity, predictability and consumption of disposable consumer goods, which even 100 years later we are taking for granted. The Frankfurt School around Max Horkheimer and Theodor Adorno (1947) argued that people are controlled by consumer hedonism. Art becomes ever more uniform. Popular literature is cheap romance novels with the same plot. Architecture becomes boring (tall, unicolor structures in contrast to the elaborate churches of the Middle Ages). Music composition sounds the same (hence the label “pop” music). The advertising business sells hardly distinguishable products. A few corporations own all of the consumer products that we ingest or use. Globalization of trade and migration flows means that we all speak English (and you, the reader, can understand my blog, thanks a lot!). The population is growing by leaps and bounds, and we all speak the common language of consumerism, e.g. bragging about our most recent purchases or travel experiences. The limit to the “enlightenment project” is the conformity and predictability of the human spirit.

Robert Nozick (1974) came up with the “experience machine” to refute ethical hedonism, which is at the core of present consumerism. What if you are given the choice to be attached to a machine, where you can receive unlimited pleasure? A hedonist claims that any fun activity is worthwhile going through, so yes, attach yourself to the machine. Nozick claims that most people are skeptical to plug in, because (1) we want to do things rather than just experience doing them in virtual reality. (2) We want to be a certain sort of person rather than someone floating in a tank. (3) Plugging into the machine limits man-made reality and limits the full human experience. The alternative to the experience machine is the status quo where a fleeting sense of pleasure is replaced by more depressing, melancholic or mundane experiences. Nozick assumes an inherent human preference for experience, which is also the basis of human freedom, an intrinsic good which is in line with his market libertarian views. While I have no sympathy for his market libertarian views (which in a left-wing perspective is enslaving rather than liberating), he has a strong case for freedom, which comes from being present in the lived reality.

If we accept this premise, then it doesn’t look to good for humanity. Max Weber (1994) predicted over 100 years ago that the future is dominated by the growth of bureaucracy, rationality and capitalism (making human experience calculable and pursuing these numbers as goals). Francis Fukuyama (1992) pointed out that the fall of the Iron Curtain and the collapse of socialism in Eastern Europe would complete the turn toward liberal bourgeois democracy as the only possible form of society.

For Mark Fisher (2009), this liberal bourgeois democracy, which is capitalism and the expansion of the market to all spheres of life (like education and health services), is a disaster for society. Despite the technological benefits and wealth creation under capitalism, the negative side effects of poor mental health (growth of pointless jobs; higher managerial performance pressure; proliferation of low-wage work), the growth of intrusive bureaucracy (part of the pointless jobs) and worsening climate change suggests that the negative parts of capitalism become ever more prevalent. But the sad reality is that we do not have the organizational or the ideological resources to dismantle capitalism. Ideology is clearly more important than even organization, because once we articulated an interesting idea (like socialism?), we can work towards it, but if we lack the idea (i.e. not even the ivory tower intellectuals have a clue where to go, this blog writer included), how can we build the organization to pursue it?

Even the presumably anti-consumerist pretension of the organizing consultant Marie Kondo is pro-consumerist. Her claim to fame is the Netflix series Tidying Up with Marie Kondo, where she instructs hoarding-obsessed Americans to de-clutter their wardrobe, neatly organize their homes and throw out items that “don’t spark joy” (like clothing you don’t wear). But whoever had hoped that Kondo is quietly fostering anti-consumerist thinking has to be disappointed, as she earns income from selling items that “spark her joy” (because of the use-value of the items or because of the extra money in her wallet?) (Green 2019). Your now-empty wardrobe has plenty of space to be refilled again until you get the next flash of Kondo de-cluttering. Kondo is an affirmation of consumer capitalism, which is in line with planned obsolescence of corporations (i.e. create shoddy-quality commodities that need frequent replacement).

Erik Olin Wright (2015) talks about “real utopias”, which is about gradually building community-owned businesses and the state introducing a universal basic income, although it is unclear whether that would fundamentally undermine the logic of capitalism. Paul Mason (2015) argues that the transition to “post-capitalism” is realized by information goods approaching zero-marginal cost (e.g. page views of Wikipedia or Youtube don’t cost anything), although platform monopolies can prevent the free circulation of goods. Furthermore, practical scarcity like real estate in big cities drive up rents, so overall cost of living is not being eliminated.

Wolfgang Streeck (2017) has fully abandoned specific post-capitalist imaginary, but still thinks that we will transition to it, because of the internal contradictions of capitalism. He thinks that the political management strategies of countering lower economic growth like rising inflation (1970s), rising public debt (1980s), rising private debt (until 2008) and central bank asset purchases (since 2008) are becoming less effective in restoring economic growth. We need no social movement or socialist ideology. We only have to let the clueless industrial titans and politicians do their job as is and the structure will collapse all by itself. The interregnum can be quite painful, he admits, and we don’t know how long it will last. My own take is that if there is such a thing as abolishing capitalism, then the state is directly responsible for it, so we are back to state leaders and intellectuals standing ready to proclaim an anti-capitalist ideology. And it has to happen without the totalitarian and oppressive fantasies described in Orwell’s Animal Farm.

So let’s go back from the macro-society down to the micro-level. What is our everyday soma? It is clearly the smartphone. To return to the 1980s Neil Postman depiction of television, the modern television is the smartphone. Growing up in the late-1990s and early-2000s, I still recall the release of the Nokia 3310. I was so excited to have that as my first cellphone. It was simple technology. You could send text messages and make phone calls, and you could kill time playing snake. A few years later my parents bought me a Sony Ericsson K700. It was quite an advancement because there were more pixels and there was color on the screen. You could take photos on what turns out be a shitty camera. You could now also listen to music. In 2007, the first smartphone was introduced, and I resisted it for many years (my first phone in the US was a flip-phone) until I got my first Samsung smartphone in 2013. I could now surf online and browse articles, watch Youtube videos, and text message with friends and colleagues.

The smartphone is qualitatively different from the cellphone, because it is no longer just a calling or messaging device but more like a mini-computer. Advances in computing power (doubling of processing power every 18 months) means that more capable tools can be crammed into less space. Consider that the very first computer ENIAC in the 1940s had minimal computing power and took up almost an entire building.

The most important tool in the smartphone are social media apps, which allow people to be constantly connected. Human connection with others is an important activity, but with social media that connection is not immediate. Online bullying and invidious comparisons (e.g. my FB friend posts pictures of his/her vacation and I get envious; or comparisons of clothing among girls) are quite common. Young girls, whose brain is still developing, are more depressed than in previous generations because of social media comparisons and phone addiction (Haidt and Paresky 2019). Social media amplified the power of those holding extreme opinions, generating shitstorms online that can ruin people’s career, simply because they said things that some people regard as “offensive”. The offended crowd claims that shitstorms can civilize society (i.e. reduce racism, sexism etc.), but the wrong people can be punished (e.g. taking quotes out of context).

Social media and smartphones generate norms of permanent connectivity, which means more surveillance and managerial control at work. The old notion of a reliable 9 to 5 is displaced by the work norm that you have to reply to work emails even on weekends, otherwise you are not considered a “team player” which can negatively affect your promotion chances. It is no surprise that white-collar workers experience more stress (Wajcman 2015).

Social media has provided the basis for online activism growing into gatherings and protests. The modal use of social media is in line with consumer capitalism, which is individualizing and self-absorbing. On the other hand, if there are serious grievances and political activists can galvanize around a common narrative, public squares can fill within a few days. This is the reason that authoritarian rulers tend to ban social media if they can. If they can’t ban it, then they work on counter-propaganda like paying off an army of civil servants who post pro-government messages or outright censorship (see Tufekci 2017; Roberts 2018).

As the young spend less time meeting their real-life friends or playing sports and more time on their smartphone, social competence decreases and loneliness increases, which is expressed in lowered mental health.

We have many conveniences with smartphones. We can instantly get information, which is great for researchers like me (thanks Google Scholar), although there is a caveat for that as well. When I travel overseas I lack mobile data, so I have to find my destination the traditional way: ask pedestrians. In the old days, you are almost certain to find a local who will go out of their way to explain you where and how to find your destination. Now, pedestrians tend to be bewildered and in some cases even angry if you approach them for directions. “Why don’t you look it up on your phone?”

I have plenty of experience with being glued on a smartphone, although mostly on the kitchen table watching videos while munching my meals. Most of the rest of the day, my multimedia needs can be fulfilled on a computer, so I rarely take out the phone. I do find it necessary to escape the computer screen occasionally by doing sports like jogging or riding the bicycle.

While riding the bicycle, I look around and count the number of people glued to their smartphones while walking on the streets of Princeton. Most people that walk alone are extremely smartphone-dependent, and even if they are not swiping, they might have AirPods or earbuds on, thus signaling to the wider world that they are not available and stuck in their own world. As Ranga Yogeshwar (2017) pointed out, location is completely irrelevant with permanent smartphone use. You can be in Seoul or in New York. One group may use Samsung and Naver rather than Apple and Google, but they can be anywhere physically and still do the same thing on their device. The heartening case is to find those individuals who are just walking without having a device in their hand, or groups of people who have conversations with each other. Only in these latter two cases, people are doing natural human activities with the least amount of alienation. But they are at most one-fifth of the people I encounter on the street.

The smartphone addiction of modern society forms another Weberian iron cage. In other words, we can’t escape it. If an almighty creature comes, snatches our smartphones away, destroys it and prohibits our acquisition of new smartphones, society would panic. What? You mean we can’t use chat apps and we have to have actual conversations with people, with strangers? We can’t have app-based hook-up sex, but we have to talk to people in the bar? We can’t just quickly google information, but flip through a physical book? We can’t just look up GPS but we have to ask pedestrians for directions?

The Google engineer, Ray Kurzweil, has long predicted a singularity, which is when humans and machines merge. That would be somewhere in the future (Grossman 2011). We are still somewhat removed from mass test tube babies described in Aldous Huxley’s novel, but we already implant artificial devices like pacemakers into the human heart of patients. To the extent that most people are now glued on their smartphones and living without it is no longer realistic, we have already reached a version of singularity.

The severe drawbacks of smartphone dependence (poor mental health, less social real-life connections, less physical activity linked to obesity, diabetes and other physical health issues) means that a proper reassertion of the human identity is to find alternative engagement to smartphones. In a very rushed neoliberal world, it might sound difficult for people to shut off their brain, but that is why meditation practices can be very beneficial. I do not meditate, but as I get older, I have increasing interest in meditation. The goal is to get rid of distractions and shut off the over-thinking which is ingrained in our species. While the smartphone means permanent stimulation and sensory overload, meditative practices mean minimizing stimulation, which then allow for better engagement with the world. We can also go into conversations without having to look at the smartphone and better enjoy these interactions.

I find that competitive sports, including playing soccer, is another great outlet for pure experience and shut off the thinking part, which is endless as an academic. In every waking hour, we think about our research projects or analyze social problems, but on the soccer pitch all that matters is whether I run in the right direction, score or pass the ball. I also enjoy cooking, not only because it is more healthy than eating out as you control the ingredients, but because it allows me to produce some concrete use-value and it is great to touch and smell your ingredients, see the meat sizzling in the pan or clean the dishes with your own hands. The previously cited Francis Fukuyama provides an interesting description for his woodwork, which contrasts with his primarily academic work:

Because what I do for a living is so abstract, it’s really satisfying to create something tangible. Hand planing a surface to a mirrorlike finish requires putting an edge sharper than a razor on a blade. It is a skill that I have yet to master and leaves me with a big objective still to accomplish in life.

Source: AARP (2016)

Christof Koch, head of the Allen Institute for Brain Science that develops AI, said that he enjoys pursuing “pure experience” by going rock-climbing, crew-rowing and mountain-biking which generate a “strangely addictive state”, because he gets into a “zone” and thereby suppress all the negative thoughts he has during the day, like doing his taxes, thinking about a deadline or taking out conflicts with family members (Fridman 2018, video: 36min43sec). These activities that do not require much technology are far superior to the excessive use of the smartphone. I suspect that in spite of our greater pool of knowledge and use of technology, we retain the genetics of our hunter/ gatherer ancestors.

In the struggle between the Orwellian and Huxley’s dystopia, I argue we need to take both seriously and they might as well co-exist. Totalitarian social structures (targeted advertisements to predict and shape consumer behavior; social media steering elections and public discourse; totalitarian state oppression/ surveillance etc.) and self-diverting addiction are made possible by universal dependence on electronic communication. Just as with climate change and capitalism, I suspect that reducing smartphone dependence is a losing battle for the moment, but let us go down fighting. If we are already amusing ourselves to death, what else do we have to lose?

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What AI Experts Think about Automation of Jobs

Podcast here https://soundcloud.com/user-280580802/54-what-ai-experts-think-about-automation-of-jobs

What do AI researcher think about the prospects of job automation? Grace et al. (2018) report that AI researchers “predict AI will outperform humans in many activities in the next ten years, such as translating languages (by 2024), writing high-school essays (by 2026), driving a truck (by 2027), working in retail (by 2031), writing a bestselling book (by 2049), and working as a surgeon (by 2053). Researchers believe there is a 50% chance of AI outperforming humans in all tasks in 45 years and of automating all human jobs in 120 years, with Asian respondents expecting these dates much sooner than North Americans”. A less formal take is offered in Martin Ford’s (2018) interview with 23 AI experts published in a book.

In my reading of the interview transcripts in Ford, I think that 8 out of 22 experts think that the AI job threat is not serious enough given that many new jobs can be created and laid off workers can be retrained to take up these new jobs. 14 out of 22 think that automation is a serious challenge, even as there are differing views on how to address it. (1 of the 23 experts did not talk about automation and is left out of the analysis.) 9 of the 22 experts point to job training and education as a solution to automation. 7 are supporters of UBI, 6 are anti-UBI, 2 are not sure when asked while the remaining experts were not asked about it. 2 experts emphasized how important it is to compensate people with the remaining jobs more, including social care workers and teachers.

I also looked at the locations of these AI experts’ alma mater (highest degree earned, mostly PhD) and their employer. San Francisco is the leader in both alma mater (5, 3 in Stanford, 2 in Berkeley) and employment (15). Boston is second in both alma mater (4; all MIT) and employment (8). All the other locations have many fewer mentions. In the English-speaking world, these two locations are the go-to places for AI development.

The big question is whether the views of those AI experts matter in the grand scheme of things. They certainly have a much better understanding of what their technology is going to do than the average public, but in introducing their AI tools they have to face other social actors like managers, investors, employees and the government, which also impact how well and how fast automation will work. LA truck drivers, who are not unionized, consist of low-wage immigrant workers, are quite gung-ho about dockwork automation, which comes to the harm of the heavily unionized longshoremen, who are fighting to protect as many jobs as possible. The blue-collar truck drivers are thereby forming an informal alliance with Maersk, the major shipping company, wanting to automate dockwork, citing competitive pressure from other cheaper ports.

What emerges from these conversations with AI experts is also that there is always a possibility of AI winters, i.e. periods where the progress of AI stalls. The age of science, which began about 200 years ago, changed social norms by normalizing innovation, when in reality innovation is the weird phenomenon that occurs out of serendipity. A self-driving car in a low-traffic rural region is easier to realize than in the busy streets of Manhattan.

Among the interviewed AI experts there is also substantial variation in how much economics they understood. Some of them are familiar with the labor economics literature, which insist on the lump of labor fallacy that denies that the total number of jobs is limited and that labor-saving technology produces more aggregate demand in other sectors of the labor market. Others take seriously the narrative that this time is different, and that UBI (universal basic income) is a necessary path forward. Overall the AI experts’ guess is as good as ours, but it should be clear to all readers that advancing automation is no longer science fiction. For those who still doubt the power of technology, I recall my favorite quote from Josh Tenenbaum, who noted that the fact that the economy already supports so many creative people who don’t do physical labor points to the power of automating technology.

I think it would be fair to say that most of us who work for a living in the socio-economic bracket that you and I live in, where we’re writers, scientists, or technologists, would find that if we went back thousands of year in human history, they would say [to us] “That’s not work, that’s just playing! If you’re not laboring in the fields from dawn till tusk, you’re not actually working.” So, we don’t know what the future of work is going to be like.

p.486

Automation is not the only social threat of AI, and different experts talked about their concern of AI weapons and algorithmic bias that harm racial minorities or women. A much more contested claim is whether Artificial General Intelligence will emerge, where the robots begin to be autonomous from human action, and thus potentially turn against human objectives.

Firstly, there are many obstacles to AGI and it is thus many years away, so a worry about AGI is a distraction from more pressing AI concerns. Current AI is still reactive, taking the mass of data to calculate a desirable output, which is no different from present computers. The words you read on this page emerge entirely from my brain ordering my fingers on the keyboard to hit a certain combination of letters, not from what the computer wants to write. Secondly, if AGI is programmed by humans, then humans should have the ability to control AGI and disable it if necessary. This second counterargument to AGI threat is admittedly much weaker. We have technically “programmed” capitalism, but if you ask people on the street whether they can reverse and deconstruct capitalism it is, of course, not true that this is at all possible.

The fact that AGI does not threaten humanity entirely depends on researchers consciously deciding to not want to program AGI (and the powerful corporations and state managers complying with that desire). Let’s stick to AI to make human lives more comfortable, but let us not go overboard with our creativity. AI research is like Icarus flying toward the sun with wings of feathers and wax that melts as he approaches the sun, thus leading to his fall. Sure, by pursuing AI we might die at the end, but the wind touching our skin feels great in the mean time.

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The Coup against Evo Morales

Podcast here https://soundcloud.com/user-280580802/53-the-coup-against-evo-morales

On November 10, the President of Bolivia, Evo Morales, resigned his post and fled to exile in Mexico. Governments in Mexico, Cuba, Venezuela, Argentina, Uruguay and Nicaragua promptly denounced the military coup, while the US, the EU, Russia and Brazil recognized the new government led by Senate Vice President Jeanine Anez. Anez promptly banned Morales from returning to the country and running again as president.

Morales had just won a fourth term in office, showing his broad popularity among the indigenous population. His support comes from the success of a mixed public-private economy and the promotion of an export and growth-oriented approach. Despite the relative economic success in Latin America’s poorest country per capita, Morales had violated his earlier promise to serve no more than two terms. He then won his third term in 2014. In 2016, a popular referendum rejected his plea to lift the two-term limit. In 2019, he decided to run another term after the pro-Morales Supreme Court gave him that right. (A 2009 constitutional change allowed Morales to run two more terms, thereby limiting a president to be re-elect once, according to which Morales last term expired in 2019.) The opposition candidate, Carlos Mesa, had received 36% of the vote in the last elections, trailing the 47% of Evo Morales. The opposition immediately cried foul, and organized street protests to demand new elections.

Morales, sensing the anger on the streets, called in OAS (Organization of American States) to carry out a vote recount and publish an assessment on the quality of the elections. The OAS cited “irregularities” in the elections, so Morales blinked and called for new elections. The opposition rightly assumed that they were not going to win new elections, so they intensified the street protests. The police joined the picket line, and the chief of the armed forces, General Williams Kaliman, pressured Morales to resign his post, which he promptly did on November 10 fearing for his life. Although no bullets were fired, the fact that the military, which ruled the country from 1964 to 1982, intervened made his resignation a coup d’etat. These military coups reversing popular sentiment have precedent in countries like Egypt or Thailand.

Why did the opposition want to get rid of Morales? A political sociology take on it is that class and race relations are important factors for Morales’ resignation. Let’s begin the analysis with Morales rise to power. Morales was born into a poor farming household, being an ethnic Aymara, whose home is in the highlands of Bolivia in the west of the country. Demographically, 68% of the Bolivian population is Mestizo, 20% is indigenous (of which the two largest groups are Quechua and Aymara), 5% are white. The other ethnic groups are much smaller. Politically, whites had been the dominant group, controlling the presidency until Evo Morales became the first indigenous leader of the country in 2006. Ethnic resentment may be one factor that sparks opposition against Morales, who proudly displays his ethnic heritage by wearing somewhat traditional clothing and redirecting government spending on behalf of the indigenous people.

More important than ethnic resentment is class resentment. The political power structure consisted of the mining and oil corporate leaders and the soybean farm owners in the east of the country (Santa Cruz province). The next door neighbor, Brazil, was led by a military dictatorship in the 1960s to 1980s and the US generally favored right-wing governments in Latin America to fight Cuban and communist influence. During this time period, the US was aggressively fighting coca producers, which is the elementary ingredient in cocaine, a highly addictive drug, which is illegal in the US. Coca is an important crop in Bolivia, which is used as a source of nutrition, as medicine and for indigenous rituals. The US ramped up the war on drugs in the 1980s and advised the Bolivian government to burn coca fields. The US also supplied foreign aid to pay off coca producers. Evo Morales became the leader of the coca farmers’ union, who fundamentally opposed what they perceived of as US imperialist intervention to undermine the livelihood of Bolivian coca farmers. Government attempts to burn coca fields were opposed by the coca farmers.

In 1989, Morales (who had become the leader of the coca farmers by that time) was beaten up by the police and was nearly killed. He briefly contemplated inciting an armed struggle against the state similar to FARC in Colombia, but decided against it. He could do that because he had discovered the electoral route to power. In 1997, Morales was elected as MP in the national parliament. In 2002, he narrowly lost the presidential elections before winning it outright in 2005. Once in power, Morales rather than prohibiting coca production regulated the industry by setting maximum output rates to ensure that most of the coca would be used for domestic consumption rather than export for cocaine.

Morales also came to power opposing unrestrained neoliberalism, which is essentially about signing off mining and oil drilling rights to foreign (i.e. US and Brazilian) corporations and levying a minimal tax on them. Morales did not push for full nationalization despite the fiery, leftist rhetoric, but he essentially increased the tax rate of these natural resource producers, which increased Bolivian state capacity, which was used to invest in schools, health care, infrastructure and various social services. This spending increase (doubling from 2006 to 2019) was afforded without going into deep debt or devaluing the currency, as the macro-economic indicators have been quite stable during the Morales administration. Under Morales, Bolivia achieved full literacy in the entire population. The poverty rate was reduced from 62% in 2000 to 24% in 2017 (which is defined as persons earning less than $5.50 a day, Macrotrends). Life expectancy continued its rising trend, increasing from age 65 in 2006 to 70 in 2017 (World Bank). Average monthly earnings doubled from $293 in 2006 to $625 in 2016 (CEICData).

The US had warned that it would substantially cut foreign aid to Bolivia if Morales won the presidential elections in 2005. Clearly, the US was much less concerned about preserving democracy or sharing profits with the people than protecting the interests of foreign (including US) corporations unwilling to share the oil and mining profits.

What is remarkable is that Morales granted hefty concessions to the Santa Cruz power structure by renouncing his early pledge to expropriate the soybean farm owners, and instead signed over cheap state credit to them to expand their production. Morales perceived this concession was necessary to stay in power and not be threatened by overthrow (see Intercept 2019). Santa Cruz is the largest Bolivian city to the east of the country harboring the urban middle class and in the countryside province the big farmers. Residents in Santa Cruz consistently opposed Morales, who tends to receive his support in the indigenous-dominated Andean highlands in the west and south of the country.

Morales has also become the victim of his own success. His pro-growth policies have created a new middle class, which did not exist before. This new middle class is increasingly educated and has attended college. At colleges, youngsters tend to get radicalized and begin to doubt the grand pronouncements of government officials. All of a sudden, the perceived lack of investments in higher education become problematic and generate anti-government sentiment. Morales’ pro-growth orientation has also been made possible by intensifying oil, gold and mineral mining, which is opposed by indigenous tribes, who want to preserve the natural environment and their traditional way of life. Environmentalists are another anti-Morales faction (see France24 2019).

Subsequently, the military intervention on behalf of the opposition allowed the Christian-democratic opposition led by Jeanine Anez to seize the presidency. Her first act in power was to replace Morales’ allies with her own. One may accuse her of restoring the old white power structure, although to be fair even Morales cabinet was mostly filled by white and some mestizo professionals, who had been running government departments for centuries. The new ministers include businesspeople from Santa Cruz and no indigenous people. When swearing in her new ministers, they had to do it on the Bible, which is unconventional in a country with a secular constitution. (Morales is also Catholic, but more as a cultural convention than with conviction. His 2009 constitution also removed Catholicism as state religion.) Anez promised to be only a caretaker president and set a new election date, although that step had not been formally announced yet.

Anez party only holds one seat in the Senate (herself, out of 36) and 4 seats in the chamber of deputies (out of 130). If she wants to maintain power, she can only do so by surrendering democracy, as Morales remains widely popular in the highland. Some indigenous and Mestizo people might be unhappy about Morales authoritarian streak, but they were quite content with his developmental and poverty-reducing agenda. If Anez wants to restore oligarchic and neoliberal rule, i.e. sharing as little as possible of the country’s wealth with the masses, renewed street protests, this time from the other side of the political spectrum, will engulf the nation.

Despite his popularity, I think Morales has surrendered his constitutional mandate to rule given that his own constitution set the two-term limit, but if Anez and other parts of the establishment intend to prevent Morales MAS party to run the elections (who hold huge majorities in both chambers of parliament), then Morales’ supporters have a right to protest the government, thus undermining confidence in the government. The subsequent chaos can reverse any economic and social gains that have been made in the past decade. Prudent rule means for the military to avoid future political interventions and allow the democratic process to play out.

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Book Review: Branko Milanovic, “Capitalism Alone” (2019, Cambridge: Harvard University Press)

Podcast here https://soundcloud.com/user-280580802/52-book-review-branko-milanovic-capitalism-alone

The leading scholar of global inequality, who became famous with the elephant graph on inequality (the loser of globalization is the working class of the rich world, while most of the rest of the world directly benefited from it), published a book reflecting on the current trajectory of capitalism. He is no Marxist, and quite on the contrary, his state socialist upbringing in Yugoslavia has made him quite explicitly resistant to any preference for socialism. Rather, capitalism is supposed to be here to stay and continue to evolve. The uncontested ideological view is “that money-making not only is respectable but is the most important objective in people’s lives” (p.3). To be fair, this is a positivist statement, and he is normatively quite critical of the moral challenges of capitalism.

The issue is that capitalism creates inequality, so he promotes “egalitarian capitalism”, which requires equalizing skill and capital. This would require more universal spread of education as well as more widely spread ownership of capital. I don’t think that handing more college degrees has any long-term impact on handing middle class jobs to these graduates. He is onto something when wanting to spread the ownership of capital, although he does not think that universal basic income is a great way to get there. His objections are that there is no wide-scale experience of UBI; it has a high cost; it would undermine social insurance, which is based on risk-protection and means-tested benefits for the neediest; and it would accept the undesirable normative premise that a growing portion of the population is no longer in the labor market. He acknowledges that each of these objections can be addressed somehow, but unless these are all resolved, why should we bother trying a UBI?

His critique of UBI can easily be dismissed. The wide-scale adoption of UBI can be seen in particular case studies like the petroleum dividend in Alaska, the casino revenues of Eastern Cherokees in North Carolina, and various trials in Canada in the 1970s, in Namibia in the 2000s, in India in the early-2010s, in Finland in 2016-2018, and there are some more I haven’t listed. They had positive social outcomes (better nutrition, better health, better school completion, indeterminate effect on work participation), which can’t all be reviewed here, and make them worthwhile to introduce on a broader scale. The high cost argument is dismantled by applying between 10 to 25% of GDP on it, which should be more easy to afford as time goes on and the economy grows.

The undermining of the social insurance scheme is not applicable. Fulfilling risk protection happens only with an unconditional basic income, because the current risk of being exposed to an abusive employer or spouse or landlord cannot be circumvented with conventional labor-based social insurance. Putting cash into everyone’s hands is a powerful tool against social risks. His defense of means-tested social assistance is horrendous, because of the highly paternalist assumptions of surveilling and controlling the stigmatized welfare recipients, who have to work as little as possible to ensure that they qualify for these benefits, while no work incentives or disincentives (either way!) are embedded in the UBI.

Lastly, would more and more people drop out of work without UBI? There is a positivist and normative response to it. Positivistically, it could be that UBI increases employment because cash infusion in many communities will regenerate local consumption which creates demand for labor, which would encourage employment. Normatively, let’s assume that more people are dropping out of work, primarily due to automation and the unwillingness of people to work meaningless jobs not because of UBI (contrary to popular assumptions which blame laziness on UBI). Would that be bad for society? It is not so clear, because humans will always find things to do to kill time. Many people have artistic and creative passions that they currently can’t pursue because they can’t survive without paid work. How many potential novelists have been prevented because they were stuck in a meaningless 9 to 5, which does not even create value to society like corporate lawyers or telemarketers?

He also acknowledges that capitalism erodes social trust. Much of human history prior to capitalism has been about stable personal relations within families, communities and feudal lords. It turns out that social trust emerges from repeated encounters with friends, family, neighbors, co-workers and the shops we visit. My connection to Princeton village is my regular visit of the local 7-11 to satisfy my craving for ice cream, and I have developed good relations with three of the sellers there, because they work there regularly and I go there regularly. Social trust diminishes if repeat encounters are hindered. I have many professional colleagues like the master’s students in Oxford, with whom I went for meals and for drinks, and we had a great time. But then after the program ends, we go each our own way, living in different parts of the world, and we are unlikely to cross path again. Communal fracturing is highly alienating, and for Milanovic it does not allow for a smooth functioning of the market economy. Evidently, legally enforced contracts can compensate for a lack of trust, but an overt emphasis on legalism can also reduce economic transactions.

Hypercommercialization and the normative focus on optimizing choices and increasing income options is the basic program of capitalism, which, according to Milanovic, cannot be defeated. He suggested the reader to imagine a self-content socialist society, deciding to become autarkic and lazy. What would happen is that the competitive capitalist countries will purchase houses and build shopping malls, and thus regenerate the capitalist economy in the supposedly autarkic society. Surely, if the central command economy is strong, such foreign influence can be legally prevented, but even then, there will be entrepreneurial people who hear about the rich lifestyle elsewhere and they move out or they push their political elites to allow for economic liberalization. The lure of cash is huge as long as there are capitalist countries, while the demand for feudal stasis is limited. It is a genie that has left the bottle, and I think Milanovic has a good point there.

He notes correctly that globalization comes at the cost of the working class in the rich countries, as the international supply chains benefits the owners of capital in the rich countries and the working class in the poor countries, who get the factories and mass employment. This turns the working class in rich countries against globalization of which migration is one part of it. In a world where capital moves across borders freely, but labor is tied to citizenship and migration laws are designed restrictively, the rapid equalization of income is prevented. Labor also lacks mobility because people have heavy investment in a locality, having their friends, family and work colleagues in their hometown and being unwilling to move out even if they could earn more income elsewhere.

Equalization of income across countries is happening via the global supply chains and the competitive labor cost advantage in poor countries. Evidently, labor cost is not the only factor for investment, but a pro-investor regulatory regime and functioning infrastructure (which includes good human capital, i.e. trained workers, roads, airports, ports etc.). The key example here is China, where economic development created substantial wealth there. It is the wealth-sharing via global supply chains that reduces the pressure for migration. Even though some Chinese prefer to live in a western country where they enjoy better air quality, freedom of speech or protected assets (for wealthy people), most middle class Chinese take temporary university positions in the US and the west before returning home given the buoyant labor market at home.

The most insightful contribution in Milanovic study is his distinction between liberal capitalism and political capitalism. The former is characterized by the private ownership of the means of production, with the state having some limited regulatory features like taxes and social spending. The main issue in liberal capitalism is that private ownership creates more inequality, but it allows for a lot of individual freedom, which tends to be good for intellectual gadflies like myself, who don’t land in jail for writing critiques of capitalism or the political system. Leaders are democratically elected, which has certain legitimacy problems as the rich dominate democratic politics, resulting in the rise of extreme left and right parties. But overall, performance legitimacy does not matter much for democratic leaders, because they will lose power in the elections if they can’t deliver on their grand promises.

In contrast, China is the main (and at present only) example for political capitalism, where the ownership of capital is not entirely obvious, but state intervention and ownership remains substantial. Even as fewer and fewer workers are employed in SOE (state-owned enterprise), the so-called private companies have to admit communist party cadres into the management and board. Politically, there is very little individual freedom, and strict censorship of political speech and media. There are no democratic elections. The government is dominated by the CCP (Communist Party), and the CCP is led by a party leader, currently Xi Jinping, the most powerful leader since Deng Xiaoping. The positive element in such autocracy is the effectiveness of political institutions, as the high-speed rail project was introduced and implemented in a period of a little more than a decade. The lack of rule of law means that some people were shafted as they lost their houses to the railroad tracks with minimal compensation, but projects are completed quickly without the normal struggles in democratic systems.

Because there are no elections, performance legitimacy is enormously important for the CCP. Performance is enforced via the tournament system of party promotion: successful local leaders, who deliver high economic growth (and most lately environmental targets), get promoted to a higher level and can enforce these policies at the central level. The CCP promises people an improving economy and improving living standards in exchange for acquiescence. If performance lags, then legitimacy is faltering and the leaders have to be very perceptive of popular sentiment or they risk mass upheaval, which is not uncommon in Chinese history given the many peasant rebellions.

Another problem in political capitalism is the lack of rule of law. The legal Chinese term 法治  (fǎzhì) is translated as “rule of law”, although a common Chinese interpretation is “rule by law”, which means that the rulers interpret whatever is the law to retain social control and social stability, fitting in line with the Legalist tradition. In other words, the rulers define what is rule of law and enforce it against the population. This is quite contrary to western norms of rule of law, where all people, including the rulers, have to submit to rules. Given that it is the political elite, which retains most of the power and control over resources (i.e. the treasury), it is the elite which is most likely to break the law, so the rule of law is primarily to control the political elite.

But we should not get too bogged down with Chinese legal interpretations, because what matters for the CCP is whether people believe that the Chinese legal system is “fair” and “just”. The answer is clearly in the negative. Prior to Xi Jinping’s takeover corruption has been rampant, which in Milanovic view, is inherent to political capitalism, which does not restrict the power of the CCP. If the CCP is the highest institution, who watches over the powerful corrupt individuals inside the CCP?

There are two strategies to curb corruption. Firstly, the CCP could implement rule of law reforms in the spirit of the western countries, i.e. create an independent judiciary that can systematically prosecute and punish corrupt officials. There have been some efforts in that direction during Hu Jintao’s rule. In Xi Jinping’s rule, no such pretensions are made. Instead, Xi cracks down on corruption directly, which allows him to (1) retain the status quo rules of party supremacy, which would have been challenged by an independent judiciary, (2) restore popular legitimacy, as the anti-corruption drive under Xi is widely popular, and (3) eliminate high-level opponents to Xi inside the CCP. The Politburo is currently staffed with many Xi loyalists, which is possible as many of his opponents are put to jail. It is questionable whether Xi can fully eliminate corruption, and for Milanovic such elimination contravenes the inherent logic of political capitalism, in which party supremacy stands above the rule of law in a western sense.

What is relevant for the world system is whether liberal or political capitalism prevail. The present Chinese investments throughout Eurasia and Africa titled Belt-Road initiative suggests that the Chinese model is more likely to spread far and wide. As Milanovic shows, the west talks a lot about building stable democratic institutions and rule of law before deepening investments, while China cares only about building infrastructure, the bare minimum for setting up trade and investment relations with countries sorely needing capital. The lower threshold for Chinese investment means that the poor countries sorely needing it are welcoming Chinese capital. This invites the conclusion that political capitalism is the more likely version of capitalism to dominate the world system.

However, Milanovic notes that the export potential of political capitalism is limited because politics cannot easily be separated from economics and corrupt rule undermines popular legitimacy for this regime. Furthermore, the great central state power which is embedded in Chinese history is quite unique to China and cannot easily be replicated in other less developed countries. In Africa, the notion of the nation state originated from the anti-colonial struggles of local political elites in the post World War II era. The young nation states lacked legitimacy from the population, because majority tribes tend to monopolize high-level government offices to the exclusion of minority tribes, who have every reason to boycott the elections or take up arms in a civil war struggle.

The uneasy Sudanese union operated for the benefit of the northern Arab tribes and to the exclusion of the southern Bantu tribes, whose rebellion culminated in the 2011 independence of South Sudan. In Syria, central state power emanates from the Baathist (secular Arab nationalist) Party, which is dominated by Bashar al-Assad and the Alawite (about 12% of population), who come from the Mediterranean-facing region of Syria. Social tensions emerge from the exclusion of other Muslim groups like the Kurds, Turkmen or Sunnis. The Syrian Civil War began in 2011 and is still ongoing.

The origin of political capitalism must also be clarified in this context. Alexander Gerschenkron pointed out that late-industrializing countries tend to have more centralized state institutions. The UK is the first-industrializer and the first proponent of free trade. The first US treasury secretary Alexander Hamilton advocated infant-industry protection in the form of high tariff barriers against the British competition. Another 100 years on, the huge size and availability of natural resources offered the US the ability to advocate free trade on its own account. In Germany and Japan, the central state became essential in protecting domestic industries and advance industrialization post-1870.

China is the last big country, which successfully industrialized after 1978. If the strong state is the premise for successful development, then Latin America, Africa, the Middle East and Southeast Asia are not in such a fortunate position, as state power is historically less developed. In China, the growth of state power precedes the rise of capitalism. Thus within the last half century, China is the last major example of rapid growth. India is population-wise the only real competitor, but the weak state means crawling infrastructure development, and India is still quite far away from creating its own version of the Belt-Road initiative.

Overall, I think Milanovic conceptual distinction between political and liberal capitalism is a useful analytical heuristic, fitting in line with the varieties of capitalism literature which distinguishes political economies by the strength of coordinating market institutions within liberal democratic capitalist societies (which is quite a confusing formulation given that Hall and Soskice distinguish between “coordinated” and “liberal” market economies, but in the Milanovic framework these would both be “liberal”). Authoritarian or political capitalism is a valid and working model of capitalism, although its replicability beyond China can at the moment be doubted. The countries intending to copy the China model, will have to build an effective centralized bureaucracy first, which is the conditio sine qua non for economic development in the modern period. As for whether capitalism is sustainable at all given environmental degradation and the scarcity of needed resource inputs, Milanovic chose not to address this issue, instead focusing the question of sustainability of capitalism purely based on socio-economic considerations, i.e. the extent and legitimacy of inequality.

Regardless, for the scholars of capitalism, this is an important study that needs to be read.

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A Return to Peronism?

Podcast here https://soundcloud.com/user-280580802/51-a-return-to-peronism

The Argentine presidential elections led to the victory of the Peronist Alberto Fernandez, who had on his ticket for vice president the former president Cristina Fernandez-Kirchner (2007-2015), who had followed her husband Nestor Kirchner (2003-2007) to power after his death.

What is a Peronist? A populist leader, who insists on capital controls, import substitution, economic autarky, high wages and high welfare services, which often comes at the cost of high inflation, low export competitiveness and low productivity of domestic producers. Juan Peron dominated Argentinian politics from 1946 to 1955 and again from 1973 to 1974. In the more modern iteration economic autarky is no longer viable, so increased foreign trade is associated with rising welfare spending.

This time the left-wing Peronists came to power with the promise to overcome the hurtful austerity policies of the predecessor right-wing Mauricio Macri. Why did Macri fail after ruling for only one term? He came to power with the promise to fight Peronism, open the Argentinian economy to the international markets, cut subsidies for transport and utilities, eliminate capital controls and reduce tariffs on commodity exports. He expected that more open financial policies would attract foreign investors, who would bring much needed investments and jobs. Give the investors the regulatory environment that they crave and investments will come. In contrast, the Peronists will increase the national debt, make expensive giveaways to voters, leave the heavily subsidized public utilities in tatters (resulting in expensive energy imports and insufficient maintenance), raise inflation, scare foreign capital, languish the economy and produce a default. As the first non-Peronist, non-radical president since 1916, he has a strong case to make.

But there is a problem with the right-wing narrative, because Macri’s economic strategy fully relied on foreign investors pouring in their capital, which has not happened in the four years (2015-2019) that he has been in power. The graph below shows the FDI with a trendline over the past ten years, which ticked up most recently, but over the long haul is on a slightly declining trajectory. In other words, Macri’s economic strategy did not bring the much needed foreign capital.

Argentina Foreign Direct Investment

Foreign Direct Investment, Source: Trading Economics (Retrieved on Nov 2, 2019)

Capacity utilization, which is one measure of economic performance has been consistently declining over the past ten years, which suggests no economic improvement in Macri’s government.

Argentina Capacity Utilization

Capacity utilization, Source: Trading Economics (Retrieved Nov 2, 2019)

Macri’s economic policies have pushed up the inflation rate, recalling the bad memories of the 1980s, when rampant inflation convinced the government in 1991 to apply fixed exchange rates with the US dollar, an ultimate signal to foreign investors that easy money policies won’t be pursued. The dollar peg worked for only 10 years, as it overvalued the peso and made export difficult. A country, which relies on agricultural exports to earn foreign exchange, cannot sustain a strong currency. If export competitiveness is accomplished by cuts to wages and rising unemployment, it undermines the legitimacy of a government, which is not sustainable in a democratic regime. Macri’s free-market policies (like cutting consumer subsidies) in the absence of a viable development strategy is pushing up inflation.

Argentina Inflation Rate

Inflation rate, Source: Trading Economics (Retrieved Nov 2, 2019)

The high inflation in turn is scaring off foreign investors who have a lot of suspicion about Argentinian fiscal and monetary policy, which has resulted in eight previous defaults. To regain investor confidence, Macri’s government had to hike the leading interest rate, which stands at 68% now. High interest rates are a bad sign for a consumer economy, which struggles with paying back loans (although consumer debt is only 6% of GDP). Consumer spending began to stagnate after 2010. Continued inflation spurs capital flight and raises the demand for the US dollar, which in turn forces the government to re-impose capital controls in 2019 by limiting the amount of redeemable dollars per person per day. Capital controls tend to further lower the confidence of investors, fearing an imminent default on government debt.

Argentina 7-Day Leliq Rate

Interest rate, Source: Trading Economics (Retrieved Nov 2, 2019)

Government debt stands at 86% of GDP. This is still lower than in many European countries, but suspicion against Argentina means that the sustainable threshold for government debt is generally lower in Argentina than in the developed countries.

Argentina Government Debt to GDP

Government Debt to GDP, Source: Trading Economics (Retrieved Nov 2, 2019)

To stave off the default, Macri’s government turned to the IMF for a big loan of 57.1 billion in 2018 (Goni 2018), which gives the central bank some reserves to defend against a weakening peso which is continuing to slide down. When Macri took over 1 peso bought 10 US cents, now it buys 1.7 cents. What about the overall economy? Macri’s economic performance is no better than his predecessor Kirchner’s and the downturn since 2018 has been the most severe since the 2009 crisis.

Argentina GDP Annual Growth Rate

GDP Annual Growth Rate, Source: Trading Economic (Retrieved Nov 2, 2019)

The unemployment rate under Macri has been much higher than under his predecessor, and the overall weak economic performance pushes the unemployment rate to 10.6% in the third quarter this year.

Argentina Unemployment Rate

Unemployment Rate, Source: Trading Economics (Retrieved Nov 2, 2019)

The awful economic performance, high unemployment and inflation rate, and government austerity policies justify the political discontent which returned the Peronists to power.

Alberto Fernandez faces very unfavorable conditions of taking power. His first act as president-elect (he assumes office on December 10) is to assure investors that he will keep the interest rate high and pay all debts to not deter investors, but it will be difficult to calm foreign investor sentiment with the Peronist promise of not implementing investor-friendly labor reforms or funding a 20% increase in pensions. The threat alone of a free-spending Peronist ruler can accelerate capital flight both from wealthy domestic and foreign investors, thus bringing the Argentinian government ever closer to default. Fear and the animal spirit is producing economic outcomes that become unacceptable for the Argentinian political elite to accept.

The new Fernandez administration is also going to be embroiled in a clash with the IMF. 40% of all outstanding IMF loans ($44 billion already disbursed to Argentina) have gone to Argentina- more than any other country (IMF 2019), and the IMF wants Argentina to continue with austerity policies of raising taxes and cutting spending, cutting pensions, and deregulate the labor market, which is anathema to the Peronists. But given that Fernandez knows that the country is in bitter financial straits, he will seek to negotiate a lengthening of the borrowing period, which allows for lower interest payments now.

Another option for the new government is to default on the foreign debt, including IMF loans. Fernandez has experience with the IMF as former chief of Nestor Kirchner’s (2003-2007) cabinet. Kirchner had defaulted on IMF loans twice, once in 2003 and in 2004, citing irreconcilable differences on how to treat the debt, similar to the current situation. Kirchner had blamed the IMF for supporting the hard currency regime of the 1990s, which precipitated the 2001 debt crisis.

Argentina continues to find itself in financial straits, which requires IMF assistance to pay off old debts, but adds on new debts, which the IMF insists on being repaid via harsh austerity measures and labor deregulation, which increases government legitimacy problems as the most vulnerable people have their standard of living lowered. The IMF gets a poor reputation in the Argentinian public, because they are rightfully perceived of as a mob, making pre-existing financial problems even worse.

Emerging countries in Asia with experience of the Asian financial crisis and IMF loan assistance have decided to build up foreign currency reserves to never again have to deal with the IMF anymore. But that is where Latin America is different from East and Southeast Asia. The financially sound countries follow an export-promotion policy, which generate a sufficient financial cushion against any economic downturn, while Latin American states like Argentina have been used to autarkic economic policies and minimum in world trade (thus no cushion of foreign exchange reserves), although economic opening occurred since the mid-1970s, and was further reinforced by IMF structural adjustment after 1982.

Today, almost half of Argentina’s export is foodstuffs, especially soybeans, corn and wheat. Agricultural exports have less value added than manufacturing products, which makes up half of the imports of Argentina. Argentina’s prosperous phase post-2001 was based on the growing Chinese economy, but also heightened trade with Brazil, US and European countries. The expanding Chinese middle class increased consumption of Argentinian foodstuffs, but that is made more complicated as the Chinese economic slowdown reinforced by Trump’s trade war pushes down export to China (a problem for all Latin American countries). Since 2011, total exports have been on a downward trajectory (OEC). Argentina also has been battered by lessened soy and corn production, because of unusually dry weather conditions (Reuters 2018), which contributed to a recent trade deficit and worsening economy.

There is no easy way out for Argentina. Austerity is an unacceptable proposition as it makes the debt worse and undermines social cohesion, but Peronist increase in welfare, social and government spending is not feasible given the lack of capital and investor trust. Argentina will have to default again, and hope for the global macroeconomic environment to improve. In the capitalist world system, there is no royal road to economic dominance, as most countries can’t have their own Silicon Valley or mass production sweatshops.

Further readings

Ernesto Seman, “In Chile and Argentina, anti-populist poltiics is failing”, Financial Times, Oct. 30 2019.

Craig Mellow, “Argentina Has a New Peronist Government. What Does That Mean for Its Bonds?”, Barrons, Nov 1, 2019.

Luc Cohen, “Argentina’s economic crisis explained in five charts”, Reuters, August 1, 2018.

Wikipedia, “Economic History of Argentina.” https://en.wikipedia.org/wiki/Economic_history_of_Argentina

Santiago Perez, “IMF to test Argeintina’s new leader.” WSJ, October 28, 2019.

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Book Review, “Crisis and Choice in European Social Democracy” by Fritz Scharpf (1987, Ithaca: Cornell University Press)

Podcast available here: https://soundcloud.com/user-280580802/50-book-review-crisis-and-choice-in-european-social-democracy-by-fritz-scharpf

I am thoroughly impressed by Frits Scharpf macro political economy framework and he fits in line with other German scholars like Wolfgang Streeck (both emeriti professors at the Cologne social research institute) or Claus Offe.

Scharpf makes a systematic comparison across four social democratic (SD) governments from the early 1970s to the mid-1980s, Austria, Germany, Sweden and UK (Germany only until 1982, when SPD was replaced by CDU in the federal government; UK until 1979 with Thatcher). The economic crisis that is induced by the oil crisis and lower economic growth brings the standard SD framework under challenge, because SD-Keynesianism is built on simultaneously satisfying full employment and rising wages for the workers and high profits to investors and capitalists. The definition of crisis is that SD have to make an unwanted tradeoff between these objectives. 

Ultimately, in a capitalist economy the faith of the capitalists is an absolute conditio sine qua non, which means that workers and unions have to sacrifice either full employment or rising wages or the government has to sacrifice price stability. Austria has retained full employment and low inflation (in relative terms) because of the central bank tie to the German Bundesbank, and the employer-employee cooperation and strong centralized labor union allows for wage restraint, which allows employers to retain elevated profits during the tumultuous era of lowered economic growth. 

Germany had a powerful Bundesbank, which kept monetary policy tight, counteracted countercyclical fiscal policy of the federal government, so lowered macro-growth conditions imply a rise in the unemployment rate, which has been higher than the other countries. 

In Sweden, the government was committed to full employment via active labor market policy (job training) and high deficit-funded expansion of the civil service (which expanded female employment in education and health care, which is why Sweden has highest labor participation rate in Europe), but the unions exploited favorable fiscal/ monetary expansion by breaking from wage restraint, which creates the wage-price inflation spiral, so Sweden had the highest inflation rate with full employment. 

[Scharpf did a great job laying out the Rehn-Meidner model where central wage bargaining allows for large productivity differentials with low wage differentials across jobs and employers, which is the social ideal, because why should a car manufacturing worker, who pushes buttons on fancy machines (at high productivity) be paid a whole lot more than the housekeeper who is scrubbing toilets at huge toil to the body (at low productivity)? R-M has a strong bias for the high productivity firms, who collect huge profits as they can underpay their workers relative to what they produce, while the low productivity employers are driven out of business as they have to pay wages too high to be sustainable. Equity can only be accomplished by high level of wage bargaining centralization, but that gets undermined over time, as the high productivity workers insist on higher wages and separate bargaining agreements, which became palpable in the 1980s.]

Britain suffered from stagflation, i.e. rising unemployment and higher prices. Unions and SD government don’t coordinate their actions. Rising budget deficits in the early-1970s, fragmented union push for higher wages, and speculative attacks on the pound led to the IMF bailout in 1977, which foisted on a monetarist or neoliberal policy framework, which was further reinforced by Callaghan/ Labour loss to Thatcher in 1979, after which the unions were systematically destroyed by turn away from SD framework.

Scharpf’s two-by-two table has the dimensions of restrictive vs expansive fiscal/monetary policy and wage restraint vs. aggressive wage policy. The push to a restrictive fiscal/ monetary policy forced unions on a defensive struggle between maintaining full employment vs. cutting wages.

I leave you with 7 reflections on the book:

(1) Unions are on a structurally declining trajectory, because ever since Scharpf’s book we have moved to neoliberalism, which is low unemployment, low inflation but at the cost of high inequality, low productivity growth, low economic growth and populist backlash (Brexit, Trump etc.). The employers have all the power they want, but if there isn’t much growth the system turns parasitic with asset price bubbles, low interest rates, high debt, secular stagnation (lots of savings, lots of speculation, few attractive investment options).

(2) Can a restoration of SD halt the turn to neoliberalism? Yes, answer Corbyn and Sanders. I doubt it, because SD is about managing capitalism and private property. Property owners want profit, lenders want interest, so that means we need economic growth. The pro-union coalition of the SD government will also demand rising wages, and the rise of economic growth depends on factors which are out of the control of many leaders like population growth, new technology, new aggregate demand (which is more difficult in a saving oriented culture). SD is a Pareto-improvement to neoliberalism, but it is an unstable socio-economic framework.

(3) I recall Streeck’s discussion of shifting forms of social resistance to an unlikeable system: in the 1970s, workers could strike for higher wages. Then unions were crushed, so in the 1980s voters could vote for left-wing parties to restore SD policy. Then Third Way center-left surrendered to neoliberalism in late-1990s. So now we can only borrow money to go to uni or pay for living expenses, but borrowers are politically fragmented. We can vote for Brexit to say “fuck you” to the leaders, but given the quagmire, things are getting worse and not better. Streeck is calling for “uncivilized protest”, and perhaps Greta Thunberg and her classmate climate protesters might be a way out. Probably not but we have to hope. Scharpf wants SD parties to spread the existing work to the unemployed: get full employment by hurting the privileges of existing workers, shorten everyone’s work hours. It requires strong central labor coordination again, and I am also skeptical about the possibility to divide all work in a labor market setting. We can’t expect janitors and cashiers to work fewer hours when hourly wages are too low to afford rent, although under neoliberalism this is already happening and it creates a desperate and angry populace. We need universal basic income!

(4) Scharpf neglects the role of business associations, as his focus was on unions and governments. Perhaps they were weak under SD rule in the 1970s and early-1980s, but they are the third pillar in any tripartite arrangement. There is a brief discussion of the tripartite system in Austria, but not much.

(5) He depicted the tradeoff between accepting wage cuts vs. unemployment for unions. This can only be true at the micro-level. At the macro level this can’t be true because wage cuts push down aggregate demand and raise unemployment. Higher unemployment following union wage rises pushes down union bargaining power via the swelling reserve army of labor. The only way the tradeoff can be true at the macro-level is if the national economy has a mercantilist trade surplus focus. Germany comes to the top of my head. 50% of GDP reliance on export, 7% of GDP annual trade surplus, so Germany can squeeze domestic wages and aggregate demand but retain full employment via booming export markets. The fragility of this arrangement comes from the unhappiness of trading partners like the US, which is lashing out with tariffs on German cars, and European Monetary Union induced debt bubble of the peripheral eurozone countries (followed by brutal and crashing austerity programs and declining confidence in the EU project at-large). Now, the Germans are on target to turn the eurozone into a mercantilist juggernaut, as the southern Europeans are close to even trade balance, while Germany and Netherlands are still swelling trade surpluses. The Europeans have to pray that the Americans and Chinese shut up and keep buying, but there is no guarantee for it.

(6) Scharpf makes an important point about the internationalization of capital blocking SD Keynesianism. SD policy assumes full control of the national monetary and fiscal policy, but the former is given up to supranational authorities as in the euro or some peg to the dollar. Any excessive monetary stimulus can be punished by capital flight, which has to be counteracted by rising interest rate and lower economic growth. Only the US has the privilege to print money and export inflation overseas. Fiscal policy becomes limited via voluntary self-restraint on government budget deficits or rising deficits scare foreign investors, which leads to rising interest rate on government bonds. Scharpf has no real solution to it, but evidently we need a world government. We can’t have a mismatch between political regulatory authority and economic agents, or else we are going to have excessive inequality while the nation states have their hands tied to the back. The UN is facing a cash crisis, because US and other countries are not paying enough into it. A total irony. Only world war III will create the impetus for a real world government.

(7) A reprise to (2) is morally and philosophically whether it is desirable to restore SD policy. I was socialized in social democracy but I come to the conclusion that the answer is NO! The reason is climate change. SD requires economic growth, and economic growth means more land, more people, more deforestation, more mineral mining, more gas, more oil, more energy, more carbon emissions. If we have hundreds of planet earth, then we can have SD capitalism into perpetuity. Maybe Elon Musk and Jeff Bezos build us a new planet and we get to live there. We don’t have it now. We are facing more and more water shortages. Desertification and lack of water contribute to the rise of Boko Haram, as herders fleeing the desert encroach on farmers land, and the social conflict gets mobilized by extremist ideology and violence. The drought in the Syrian countryside is linked to the swelling urban population of unemployed countryside migrants, who are receptive to ISIS and other foreign-directed militias resulting in civil war. Bolsonaro is burning down the Amazon in record speed so that Brazil can make some money, but eliminating the world’s green lung will reduce carbon absorption and thus accelerate rising temperature. Villages in coastal areas get flooded ever more regularly and it becomes too expensive to keep on rebuilding flooded houses. Heatstroke deaths are increasing and climate refugees become more frequent, creating more distributional struggles and factional warfare. The African population is supposed to double this century, and they hear that Europe has an aging population and high standard of living. Right-wing parties want to erect barriers and turn around the refugee boats. 

But, yes, we can continue to grow the economy!!! “The end of the world is more conceivable than the end of capitalism”. Capitalism is a decentralized economic system, which can only be crushed when re-centralization is feasible, but there are no positive precedents (Soviet and Communist China centralization occurred on the backs of peasant-feudal societies, not bourgeois societies, which are the most common today), see Liu (2019).

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