Lord Patten Lecture
Newcastle University
2015
Postcapitalism: A guide to our future
[Audio of lecture here] Pro-Vice Chancellor, Ladies and Gentlemen. Thanks for inviting me to give this lecture, and thank you to Lord Patten for initiating the series. There can be no greater social renewal than the one I am about to propose and Newcastle — one of the oldest industrial centres in the world — is a good place to be proposing it.
Because you would only have to stop on any of the bridges across the Tyne, and look down to understand that capitalism has a lifecycle. It had a beginning, a middle and it’s probably going to have an end.
Travel to Durham and you will see what came before capitalism — a system based on landholding, military and religious obligation. To Wallsend and you can see the remnants of the system before that: this was the northern limit of a social system based on slavery and conquest.
Capitalism is only the latest in a series of complex systems human beings have used to organise society. Logic tells us it must be replaced by something better.
That is a great affront to neoliberal ideology, which believes the freemarket capitalism achieved over the last 25 years is both perfect and permanent.
But what I am about to say might also dismay the generations of workers who embedded socialism, communism and syndicalism into the traditions of the North East.
Because the route beyond capitalism is not the one they imagined.
I believe a new route beyond capitalism has opened up, because information technology is different.
Specificaly digital information has begun to do THREE things:
- It is corroding the price mechanism
- It is loosening the relationship between wages and work
- And it is corroding ownership — creating new, collaborative, networked forms of organisation in which things and the work to create them are provided for free.
Information technology, in short, opens up a route to the abundance of some things; to a massive reduction in necessary work; and to a long transition where a capitalist sector will co-exist and interact with a post-capitalist sector.
In turn it is creating a new kind of human being, and new forms of social organisation, which constitute a new agent of change.
And the change is necessary because — on the negative side — information is a technology that has begun to suppress capitalism’s ability to adapt.
[I am not the first person to say neoliberalism is a zombie system; nor that peer-to-peer technology creates the possibility of collaborative non-market production.
But I am the first person to show plausibly how the crisis of stagnation gripping the neoliberal present is a symptom of the post-capitalist future.]
What do I mean by capitalism? Capitalism is more than just an economic structure or a set of laws and institutions. It is the whole system — social, economic, demographic, cultural, ideological — needed to make a developed society function through markets and private ownership.
It is a complex system, operating beyond the control of individuals, governments and even economists.
It is an adaptive system: it morphs constantly, and not just in small increments. At major turning points, it mutates in response to danger, creating patterns and structures barely recognizable to the generation that came before.
And its most basic survival instinct is to drive technological change. If we consider not just info-tech but food production, birth control or global health, the past twenty-five years have probably seen the greatest upsurge in human capability ever.
But the technologies we’ve created are not compatible with capitalism in its present form and maybe not in any form.
Marxists — including Marx — consistently under-estimated capitalism’s ability to adapt. I have argued in the book that the serial disorientation of Marxism after 1900 was due to this. It operated with a good understanding of the basic dynamics — the so called contradictions of capitalism. But it regarded adaptability as a second order quality when, I will argue it has up to now been its main feature.
So this is the problem:
Information technology erodes capitalism’s ability to adapt. And at a very bad moment, because it is also facing two existential, crises: climate change and demographic ageing.
The good news is, the technology that has caused the crisis also holds the solution, but only if we radically change the social arrangements on this planet to cope with a world where there is more free stuff, less work, less hierarchy and where you can build machines that are free, and last forever, and which may over time become intelligent.
[2] ZERO COST GOODS
It was Paul Romer in 1990 who pointed out the essential fact. Information goods are different.
In his paper — Endogenous Technological Change — Romer adopted a deliberately facile definition of information goods: “instructions for mixing together raw materials” — ie for making things. It’s a good description because it forces us to understand that the information in — say — an MP3 file, a track on iTunes or Spotify — is just the instructions for making the speakers vibrate and emanate a physical sound.
Information goods are different because — with digital technology — the cost of reproducing them is zero. Instead of a vinyl press to produce a second copy of an LP you now need just two gestures: command-c, command-v — copy and paste.
Information goods can be copied or shared infinitely because if one person’s using it, another person can still use it. If I’m in a parking space you can’t be in it. If I am smoking a roll up you can have a smoke at it, but then I can’t.
Economists call this property “rivalry” — and information goods are therefore non-rival. But a more prosaic word is “shareable”. You can use a music track, an e-book, the digital mockup of an airbus A380, the entire personal data of a population without degrading it, or preventing someone else using it.
In that sense, digital information is by its nature abundant.
Of course you can do something about this. You can create artificial scarcity. You can put a code into the information on a DVD that prevents it being copied. Or you can protect it by law, or patent.
But an artificially created scarcity is not really capitalism as we know it. Capitalism is about granular self-replicating economic relationships — ultra-complex markets that satisfy demand by creating supply, mediated through changing prices.
The founder of marginal utility theory, Leon Walras, wrote in 1874:
“There are no products that can be multiplied without limit. All things which form part of social wealth… exist only in limited quantities.”
Well now they can.
What it means is that, whatever the production cost of an information good the reproduction cost should fall to zero. This is true, incidentally, whether you use mainstream economics to determine price — ie production costs plus average profit — or the Marxist labour theory of value.
You can argue about how to motivate the producer — how to motivate Beyonce to release a surprise album straight to the internet. But you can’t argue over the reproduction costs. The correct market price for the MP3 track by Beyonce is zero. The price on iTunes — 99p — has nothing to do with supply, demand or quality.
With information goods prices can only be maintained through patents, copyright, encryption and monopolies — overt social arrangements that have to be reimposed every day, not self-creating spontaneous market relationships.
So the space of 25 years, corporate giants have been created by hoarding piles of information — which wants to be free — and creating a walled garden around that information, guarded by IP lawyers, patents, artificial technical bottlenecks, constant attempts to tie the use one technology to the use of another proprietory technology.
The result is monopoly on an unprecedented scale. There used to be a big four in most markets. Big four banks, big four accountancy firms, three or four overlapping engineering firms that make turbofan engines for jets, five or six global car giants.
In tech there is only the big one. Google, Facebook, Amazon, Apple etc do not really compete with each the except at the margins. They dominate a specific space.
Its not Marxism but basic market economics that says: such monopolies cannot last. Monopolies perish.
When I started writing the book iTunes had 95% market share of online music. Unleash market forces on iTunes and something big happens. It takes a signed band 1500 plays on iTunes to make the minimum wage. On Spotify it takes a million. Now iTunes has maybe 70% of the market and the market is changed: what performers want is a social media presence: friends, fans, Youtube views. These are not possible on a closed network like iTunes, so it begins to fray at the edges.
Ken Arrow, the doyen of mainstream economics in the wrote in 1961 that in a freemarket society, with intellectual property, the outcome would be the systematic under-utilisation of information. That’s what iTunes is — properly stated its mission statement is to prevent the abundance of music.
If we restate Arrow’s logic, then a society in which there is full use of information cannot have a fully functioning market nor ownerships system.
But collapsing reproduction costs do not only apply to ebooks, movies and music tracks. Once we define information properly the dynamic begins to unfold across the physical world.
The information debate is surrounded by elusive words: virtual, cognitive, immaterial. One of the founders of information science, Norbert Wiener, in 1948 insisted:
“Information is information, not matter or energy. No materialism which does not admit that can survive in the present day”.
He was wrong. There cannot be information without representation: even the smallest unit of information, the byte, as in kilobyte, needs matter and energy to be represented. Information has its own laws and dynamics for certain — that exist independent of its representation — but it is part of the physical world.
A silicon chip is a machine with a billion switches. Broadband bandwidth is copper wire with sophisticated machines called switches at either end. Storage is a piece of magnetised metal — in fact if you open up a small hard drive it just looks like a miniature vinyl record player, a rotating disc and an arm to read what’s on it.
The point is the effective price of these physical machines is falling so fast that the marginal cost of processing, storing or transmitting something really basic like, say, the complete works of Shakespeare, is close to zero.
So the “close to zero” effect is not just a function of copy and paste; it is also a function of exponential fall in the cost of the machines needed to process information.
As a result one of the disorientations in modern society is in our ability to understand the economic value of information, and to calibrate the great disappearing act information has inflicted on the physical world.
The OECD, in its first major attempt to calibrate the information economy in 2013, said:
‘While the Internet’s impact on market transactions and value added has been undoubtedly far-reaching. Its effect on non-market interactions . . . is even more profound.’
But economics does not measure non-market interactions. Accountancy is in a complete mess over how to value information. A study by SAS institute in 2013 found that, when companies try to put a value on their data, neither the cost of gathering it, nor its market value, nor the future income it might generate could be adequately calculated. Only through a form of accounting that included non-economic benefits and risks could companies actually explain to their shareholders what their data was really worth.
It is guesswork — and that’s unfortunate.
Because the great technological miracle of the past 15 years has not been the invention of new things, but old things coming alive with information. The airliner: it fires information back from its engine and its cockpit to the manufacturers; they can predict failure, see stress occuring. The atomic structure of the fan blades in the engine is an information good — it can only exist because someone worked out how to grow an entire blade from a single crystal of the alloy.
Once the zero price effect is understood, we can understand why so many physical things are suddenly cheaper, and that with effort — and focus — we could make them as free as water was in the mid-20th century. Or tenancies were in the age council housing.
[3] WORK/WAGES
The rise of digital systems has also done something important to work. Its begun to de-link work time from wages received. Our fathers worked in sequential processes, where time spent on the job was rewarded. They clocked in and out.
As the 150 year process of mechanisation took place they moved, increasingly, to the “side” of the machine. They didn’t operate it — they minded it; corrected it; fed it. By the early 1960s you had electrified prodution processes, with hydraulic power replacing the arm, and basic logic programmes replacing the brain of the worker — but there were no feedback sensors. The workers were the feedback mechanism.
The Italian factory workers interviewed by the New Left began to reject their fathers understanding of work: to the postwar generation work was noble, the factory the arena of struggle. The utopia — whether communist or social democratic — was based on work.
But this new generation of workers understood work was, as they put it, “absurd”. It would only be a matter of time until a machine did the feedback and made the decisions. In this sense the Italian autonomist workers of the 60s and 70s were the first post-capitalists.
Today large parts of production, service and distibution is modular. One team can work on the physics of carbon fibre in an aircraft wing, fly it virtually 186 million times. Another team can work on the logistics of manufacturing that wing — stress testing the process thousands of times before commiting it to reality.
As a result, the most valuable thing we can do at work has become to imagine something and find the means to test whether it is possible to do, or make.
The effect at the top end is to replace time with targets. All those people working voluntarily on a plane are trying to hit targets.
Modular non-sequential work requires you reward outcomes, not attendance. And so the link between work and wages is being eroded.
At the bottom end of the market there is a different effect. Here work is precisely timed, as if each second were gold dust. That is because much of the work is of such low skill that only by measuring inputs can you tell it is being done at all. There are cleaners who clock on in London offices by text, never see their boss, and clock off again without seeing anybody. They work to quality control targets. The boss will be judged against outcomes: how many badly cleaned rooms will the hotel bosses find per week?
At the root of both these phenomena — the targetisation and modularisation of high skilled work, and the pointless and random microcontrols over low skilled work — is a bigger truth.
We suddenly need much less work.
The cheapening of things and the cheapening of information are already operating a feedback loop to reduce the hours needed to support economic life on the planet.
And for many of us therefore the edges of work and non-work are blurred. Many of us routinely ordered Amazon stuff at work and taken calls and emails from our bosses while cradling babies or small dogs at midnight. There is an implicit quid-pro-quo for the salariat: the work/life day is 24 hours and as long as either side does not take advantage, there is give and take to achieve the modular goals.
You’d think the heavily managed, coercieve low-skill workplaces are impervious to this blurring — but you’d be wrong. Ten years ago the Chinese factory workforce were incommunicado in militarised factories. Last year they organised a strike wave using the Chinese equivalent of What’sApp.
But we’re living through a hugely problematic moment.
The Oxford Martin School estimates 47% of jobs could be automated out of existence in the next 30 years. Every business sector is alive with the same obsession: artificial intelligence and machine learning.
But instead of embracing automation the spontaneous reflex of the neoliberal economic model is to create millions of unnecesary low-skilled jobs. What David Graeber, the anthropologist, calls “bullshit jobs”. Barista, fast food server, personal care giver driving their own car and breaking off intimate tasks because their allocated 15 minutes is up. We’ve taken the automatic car wash of the 1960s and replaced it with eight men with rags, working for cash in hand.
So this is the second big impact of information technology. To corrode the wage relationship and blur the edges between work and non-work. It creates an open door to a future of low necessary work and high amount of time in which to create free or shared things, and do so voluntarily.
But only if we kick away the obstacles to it.
[4] NETWORKS
The third big impact is to create a network economy, which removes the need for hierarchies.
We are beginning to see now in the corporate sector companies with massive valuations designed on the network principle — where the producers and consumers are the same kind of people, and the company is simply the “platform” enabling point-to-point transactions. There are few employees and no social obligations. Uber, AirBnB, TaskRabbit are the big three.
But I see these as transitory. Like the model factories reacrtionary monarchies set up in the early 19th century, to try and emulate British capitalism, which all failed because they didn’t realise you had to have a free labour market as well.
Long before Uber existed we had the rise of true, vast networked co-operatives: Wikipedia, Linux and Apache. When I list these three giants of open source knowledge, people say — yeah well but give us something spectacular?
Wikipedia is the biggest information product in the world. Linux runs all 500 of the top supercomputers in the world. Apache runs half of all web servers.
As soon as we were technologically able to, we created organisations that produced stuff voluntarily, collaboratively, in an unmanaged way, where the wisdom of crowds is used to update and improve a product that can never be owned, nor commerically exploited — except at the margins — and which exists as a free tool for people who run businesses to make money.
The barriers to people forming ad-hoc groups to solve problems, achieve solutions and then move on are massively reduced. That’s the first impact of the network.
But the second important impact is the so-called network effect. If two people inter-act on a network they create a third thing — a record of their interaction and some new knowledge, which neither of them owns. If 1.2bn people interact on a network, then that third thing becomes very big — but the question is: should it be valuable or useful. And who should own it?
Economists have always struggled with concepts like this. Arthur Pigou, the Cambridge economist, invented the concept “externality” to capture the idea of an unintended consequence. A bad externality — like a factory polluting a river — is dealt with via taxation. A good externality, it was always assumed, simply reduces cost. So if all the software developers cluster at the bottom of Potrero Hill San Francisco, making it easier to find skilled workers and sparking conversations and skill swapping, thats the classic cluster effect: free good side-effect. Everybody shares it.
The problem is, large parts of the big corporate model today are based not on sharing it but of capturing it.
Facebook, Google, Amazon, Apple are all business based on capturing the network externalities we create when we interact. Supermarkets live and breathe this aggregated behavioural data. So do airlines. And of course so do governments and security agencies.
As a result we have in the past decade created vast corporate siloes of information. Scientists calculate that between 2009 and now we’ve doubled the amount of information humanity has ever created.
Even if most of it is garbage, this is a powerful new store of knowledge. Except humanity does not get to see it. The great big information capture machines get to see it. As a result you have — again as Ken Arrow suggested — underutilisation of information on a vast scale.
I once interviewed Larry Page, the co-founder of Google and asked him what his ultimate goal was. He said: to build a machine that knows everything. Well instead he’s built a machine that knows half of everythign. If I generate data for Google, and I can’t even interrogate my own data, let alone the data generated by everyone, the machine cannot know everything because it cannot utilise my brain as an active participant, only as a brain-slave of a machine that harvests network effects.
A third impact of networks is to socialise knowledge. In my job we use a programme called FinalCutProX, to edit video. It used to be several thousand pounds a copy; now its 200. Five years ago our video editors used to struggle to make complicated effects — like instead of a white flash between two scenes, maybe a flash that looks like your whole world went Polaroid coloured for a second. Almost every innovation or effect used in TV post-production becomes, in the next version of the software, a free automated widget. And if somebody discovers a bug, and Apple fixes it, every FinalCutProX user in the world reaps the benefit in the next automatic upgrade, which happens without you noticing it.
The 19th century engineer brought into a Tyneside shipyard his tools, training and a common set of measurements — tolerances — which all engineers had to learn.
The 21st century engineer brings to a software house tools that are socially created; knowledge that is largely social — and she works on material that is at the same time a tool, a common standard and a finished product.
[3a] MARX
Now we rightly celebrate today Charles Babbage, the man who imagined the computer. And his colleague, Ada Lovelace who managed to programme his computer, even thought it did not exist.
If there was a 19th century economist who’d imagined machines being produced for free, that could last forever, reducing production costs to zero, we’d be very interested in his work.
If he’d described the emergence of a “general intellect”, where social knowledge is the norm — straining against the limitations created by intellectual property. We’d say: build a statue.
In fact there is such an economist. It’s Karl Marx. But not the Marx of Das Kapital. In 1858 Marx wrote an unpublished notebook called the Fragment on Machines where he imagined the end point of high-productivity information machines like the telegraph. The contradiction between the social nature of knowledge — he said — and the private nature of ownership would blow capitalism sky high.
Personally, there’s too much being blown sky high right now. I would settle for corrode, dissolve and replace.
[5] WHAT TO DO?
To recap: the information effect operates at three distinct levels.
It corrodes the price mechanism — not just for info goods but for all goods with an information content.
It dissolves the relationship between work and wages and reduces the necessary labour time of humanity.
And it creates network effects that allow us to replace hierarchies, create free stuff, collaorative stuff, non-managed enterprise again reducing production costs and creating lower costs across the public and private sectors.
Capitalism is already evolving to meet these corrosive challenges, with price-setting monopolies, rent-seeking platforms and the creation of a permanently under-employed, low wage workforce.
But my argument is that we should do something different. We should go with the flow of the technology and accelerate its corrosive impacts as follows.
1. We should re-regulate intellectual property to reward creation well and sharply, while letting information goods fall quickly to their natural price of zero. Creators will move — as all musicians know — into non-digital spheres where there can still be scarcity: the rock concert, the book festival, the theatre.
2. We should create a space for, and support, non-profit collaborative organisations in every sphere. Uber is going round attacking the business model of minicab and taxi firms. Protect the workers fine. Level the playing field, fine. Still better create smart public transport network which all operators are obliged to integrate with, mandating fixed mileage costs, high social responsibility and make it illegal to offer a private alternative to the public sector app that runs it all. Goodbye Uber.
3. We should aggressively automate work. To do this you have to subsidise the transition to a low work society by providing an income not linked to work. That’s what the universal basic income would do.
[6] CRISIS OF NEOLIBERALISM
But the information dynamic is only one aspect of the crisis and transition we’re living through.
The most important external threats are climate change and demographic ageing. In the book — as here — I delay talking about them because everybody else is already talking about them.
Everybody with a brain and an internet connection knows we have to slash carbon emissions by a certain amount to limit global warming to 2 degrees; and that will bankrupt some oil, gas and energy companies because it mean a rapid and dramatic transition to renewables.
Likewise it is a no brainer that the health and social care costs of ageing, combined with having half of all adults retired instead of a quarter, will very likely bankrupt states. 60% of sovereign debt will be junk by 2050, says S&P, even if we accept austerity and late retirement.
These two threats would be serious even for a vibrant and growing capitalism. Instead we have a capitalism that has not recovered globally from 2008; it has been kept alive by massive wasteful extensive growth in the developing economies plus $12 trillion of confected money which made bankers and rich people richer, inflated assets, and will lead to another slump.
Its one thing to trace the proximate causes of the post-2008 crisis: massive leverage, free money, mis-regulation, crime and delusions. The replacement of high wages by high debts in the western world.
But the more strategic problem is this: if the factors I’ve described above are real, they mean that the market sector — the value producing sector — cannot produce the future value that all credit is premised on.
In all previous inflexion points of capitalism, the threat to the system produces an adaptation. New technologies are deployed to automate some jobs, but new needs are created that demand higher value work, more intricate tasks, better knowledge.
The problem is, information technology makes this very hard to do. Information cheapens itself first, the machinery that stores it second and everything else after that.
Neoliberalism’s survival mechanism is to print money forever, inflate asset prices and hope the dispossessed react like a fake tan version of Downton Abbey, touching their caps and arranging the flowers.
The corporate survival mechanism is to mutate companies into rent-seeking monopolies.
The financial survival mechanism is to take the money and speculate: you can make money out of any instability, so the more of it the better.
It might work — but it won’t be a more dynamic or progressive or efficient form of capitalism: it will represent a kind of neo-feudalism, where control and ownership of information is grabbed by an elite, stifling the true social power of information.
The elite that stands above all this, desparately trying to avoid thinking about it, is immured to historical logic. Putin marches into Ukraine — shoulder shrug; a war in Syria that kills more people than died in teh Spanish Civil War, what can we do. Half the banking system on life support? Uber marches into our city, destroys the ecosystem of public transport, we don’t have money for the legal bills.
And the left becomes expert at getting angry.
The strength of Marxism in the 19th and 20th centuries is that it offered a plausible economic narrative as to the way out of capitalism; there were revolutionary and gradual versions, and you could hang your angry hat on either. But the point was — a clearly mapped escape route from capitalism.
I think the inability of the left to achieve things since the global protest movements began in 1999 at Seattle is down to its subconscious belief that there is no alternative to capitalism. There are ways to survive, to live despite capitalism. But when it comes to the big stuff, in the movement, there is this haunting phrase: refusal to win.
Its logical to refuse to win if you think victory means a step back to a state run economy and a hierarchical society and a male dominated, discipline obsessed workforce.
The postcapitalism thesis says there is a different route.
The main contradiction today is between the possibility of free, abundant goods and information and a system of monopolies, banks and governments trying to keep things private, scarce and commercial. Everything comes down to the struggle between the network and the hierarchy, between old forms of society moulded around capitalism and new forms of society that prefigure what comes next.
I believe those who will prosecute that struggle are not just the anticaptialists and the global justice movements. Everybody who values the planet, their individuality, their privacy, their freedom to communicate, their sexuality — has the interest in the rise of a society based on sharing, co-operation, low work hours and common ownership of information.
What we need are not slogans, demands, more anger — but a project plan we can test 186 million times over to move the economy from a market system that is failing, via a long transition where market and non-market economies co-exist, towards one based on abundance: free information, cheap things, short working time, renewable energy and where the finance system provides social accountancy not repeated episodes of chaos.
