Capitalism’s triple whammy for the working class


The crisis of 2008 is supposed to have heralded an end to the dominance of capital over labour. It has not turned out that way. In fact, things have become worse for the working class. It is a triple whammy for them now. Last week, in his recent Monetary Authority of Singapore lecture in Singapore, Raghuram Rajan mentioned that the physical distance between a bank branch and its clients has been rising over time. It peaked before the crisis of 2008 and crashed, and then has been creeping higher again. The study pertains to the US.

Banks give loans to all comers as competition forces them to take on unfamiliar risk, and it is then offloaded to other counterparties who are even further removed from the client. No monitoring or handholding. No surprises that banks get into trouble with their assets; they lose value; and the bank creditors are then bailed out by taxpayers. That is how “bullshit” jobs are created.

Modern capitalism creates plenty of “bullshit” jobs (the allusion is to the book by that name by David Graeber) as greed sends investors, firms and corporations off to faraway lands and makes them deal with unfamiliar counterparties domestically as well. The absence of trust—obviously difficult to establish easily or quickly when dealing with strangers—results in multiple checks, counter-checks, verifications, referrals, know your customer certifications, etc. So, that is the first whammy for workers. They are in jobs that they do not find meaningful, nor do such jobs make a difference to the world.

The second whammy is that not only are they in “bullshit” jobs, but these jobs are now “contracted” out with substantial reductions in pay and benefits. Even as India is trying to formalize its workforce, we hear that America is furiously paddling in the opposite direction. A well-researched article in Politico (“The Real Future Of Work”, January/February 2018) points to the fact that in a couple of sectors, the extent of “informalisation” of the workforce is more than 50%. They are euphemistically referred to as “alternative work arrangements”. For the economy overall, it is still not a pervasive thing but the trend is in the wrong direction.

Arms-length capitalism and greed are not done with immiserating workers. There is another whammy.

The third whammy that is still coming is the introduction of technology that renders workers redundant or expects them to constantly upgrade themselves with no guarantee of rewards in the end. Workers are in a perpetual race with technology and fellow workers (not to mention job seekers) to remain relevant to the employer. It is taking a toll.

Populism and/or social unrest have been the consequences. This is already evident. But there is no sign yet that workers are better off. Either it is early days or the populists are not really in it to help restore balance between labour and capital.

There is a danger in proposing “arms-around” capitalism as an alternative to arms-length capitalism. For some, the other name for “arms-around” capitalism is cronyism. That is not what I am advocating. Cronyism is different from relationship or “arms-around” capitalism. Cronyism plays favourites. Relationship or “arms-around” capitalism is about familiarity and proximity. It is not about enriching cronies. It is actually about moderating greed and sticking to familiar and less risky avenues to grow. If “arms-length” capitalism gives way to “arms-around” capitalism, economic growth will slow down but systemic stability will improve considerably. How to bring about this switch?

There is a route that holds promise. For that to happen, intellectuals and academics have to wake up from their slumber. While there is much talk of secular stagnation, decline in trend economic growth and the consequent decline in real rates of interest, returns to capital have not declined. If anything, profit growth is beating records. Secular stagnation is a reality for the masses and dinner and bar-table conversation for the haves.

Central bankers and their monetary policies are the culprits. They have kept rates too low for too long and enabled corporate leverage (and share buybacks) that have lit a fire under returns to capital. That is why there has been no secular stagnation in the returns to capital. Stock market multiples, the amount of speculative grade bonds issuance, the volume of mergers and acquisitions transactions, the multiples at which private equity firms invest and seek to exit them, are testimonies to this phenomenon. Monetary policy can arrest and even reverse the diffusion of the socially harmful effects of “arms-length” capitalism and its unbridled greed.

Central bankers have to stop their practice of supporting and boosting asset values in the guise of implementing their mandate of full employment and price stability. Simply put, returns to capital cannot be risk-free. If cost of capital were to reflect risk, interest rates must be brought to normal levels faster and not more slowly. If that requires policy opaqueness, uncertainty and surprises, central bankers must embrace them rather than chant the mantras of transparency and predictability that have only facilitated a secular and risk-free boom in returns to capital and stagnation for workers.

Otherwise, victims of “arms-length” capitalism will rise in revolt and throw out the rascals. The “working-class discontent clock” is the real doomsday clock and it is much closer to midnight than the original one.livemint