“Pessimism of the intellect, optimism of the will.” Antonio Gramsci’s famous line written in a 1920s Italian prison describes equally well the state of political economy in Britain 100 years later.
The pillars of the old order—laissez-faire, “fiscal prudence,” strict separation between Treasuries and the monetary authorities—began to shake during the financial crisis, tottered with political shocks such as Brexit and then finally crumbled to dust in the wake of the coronavirus pandemic. Given that the last 40 years of that old order have been disastrous for equality, the public realm, conditions at work and the environment, you might have thought that these would be creative days for intellectuals, especially those on the left.
And yet, the most audible burst of hope comes not from any reforming theorist, but—bizarrely—from the chancer-in-chief in No 10. Boris Johnson never resisted the long years of cuts. He once urged George Osborne to go further in trimming the top rate of tax and, in his own words, defended the bankers “day in, day out” after they had crashed the economy. But now he is the wilful optimist who dances on the grave of the neoliberal age, telling the recent Tory conference: “We are not going back to the same old broken model, with low wages, low growth, low skills and low productivity.”
Most thoughtful economists, and I dare say many Prospect readers, will sneer at the empty bonhomie of the PM (“build back beaver” and so on). But I have to admit that when I heard a Conservative leader, who parades far more interest in the classics than social science, josh with his conference hall about “Pareto improvements”—economics-speak for changes that make some people better off and none worse off—I wondered if the last laugh would instead be on the economics profession.
Unmoored from all dogma, candid about current problems and brimming with half-informed fizz about how technology might put them right: whatever his flaws, the PM is roughly in tune with the times. In the October Budget, the chancellor Rishi Sunak sounded like he had caught the hope bug from his Downing Street neighbour: inflation would pass, public spending would rise and so would the minimum wage. As cheques for popular causes were thrown around the Commons like confetti, it was tempting to think that if there was scope for such giveaways after a pandemic, chancellors would surely want one every year. It hardly matters that public debt is many hundreds of billions higher than it was in 2010, when David Cameron and George Osborne suggested government borrowing was about to turn Britain into Greece: the new dispensation is not to fret too much. Perhaps this is dangerous. Perhaps, with many forecasts for a continuing austerity of living standards, it will backfire. But investment and growth are about confidence. In the converse of Roosevelt’s marvellous line about fear, maybe the great thing to hope for is hope itself.
Compare Johnson’s sunny-side-up governance to the pessimistic prognosis of more serious minds. As I draw stumps after five-and-a-half-years of editing this magazine—a period defined by austerity, inequality and populism—I realise I’ve interviewed six Nobel-winning economists and that, while I’ve often been awed, I’ve not once walked away with much hope. Talking to Amartya Sen, for example, creates an uneasy sense that the most precious preconditions for prosperity—such as peaceful community relations—hang by a thread; Angus Deaton is electrifying in exposing the ruinous effect of America’s modern way of doing business on the American way of life and American bodies; both Paul Krugman and Joseph Stiglitz stir deep nostalgia for a time when you could build a decent life around a blue-collar job, but neither holds much conviction that those jobs are coming back.
“AI promises an ‘electricity of intelligence,’ transforming all it touches as electricity itself did after the Edison lightbulb of 1879”
The gloom doesn’t stop with the Nobel winners. Just before I started, Prospect ran a world-weary cover essay by the influential American economist Robert Gordon about “the end of growth.” In 2017, Adam Tooze elucidated in our pages how the world had only been saved from the financial crisis by secretive “swap lines” between central banks—and how frail these could prove next time round. A month before Covid hit, I had a good hour with Thomas Piketty and learned a lot about how our “inequality regime” locks in the wealth gap, but rather less about how we might escape its clutches.
Look closely, as Piketty does, at how the top few are grabbing a bigger slice of the pie than at any time since the Gilded Age, and gloom is understandable. But the world has come through greater evils before, not least in the hungry 1930s and the war-torn 1940s. Yes, we risk running into an environmental disaster, but the re-allocation of resources required for a planet-saving green transition is dwarfed by the relative size of the mobilisation that was needed to win the war.
Nobody was more clear-headed about the scale of the terrifying challenges of his day than Keynes. Yet as the grip of the Great Depression tightened in 1930, he managed to look over the dark horizon and mull the ways in which ingenuity and abundance would eventually allow future generations to “cultivate into a fuller perfection, the art of life itself.”
That is, or should be, worth thinking about today as well. As the author and Silicon Valley futurologist Martin Ford explained to me recently, AI is rapidly evolving into an omnipresent utility—a sort of “electricity of intelligence.” In time it will, just like electricity itself after Edison perfected his incandescent bulb in 1879, transform everything it touches, displacing not only toil in warehouses and factories, but also most “routine knowledge work.” As well as allowing us to do more things faster and cheaper, this could, potentially, free us all up for more rewarding activities. Whatever the bumps along the way, it should be good news in the end.
So who should we turn to today for a real economics of hope?
The woman and the idea
Enter Carlota Perez, an irrepressible 82-year-old Venezuelan and (in her own words) “all-purpose social scientist.” Despite her great age, suddenly the world cannot get enough of her. The European parliament’s exhausted social democrats call her in for seminars; the “Centre for Global Challenge” at Utrecht University has summoned her to give its first ever annual lecture; she is an inspiration for the most prominent voice on industrial policy, Mariana Mazzucato; and indeed, we named Perez as one of Prospect’s Top 50 World Thinkers for the Covid age.
Although I had unwittingly dragged her out of her sick bed for our 90-minute Zoom meeting, she spoke animatedly in her Latin American tones. She could sound spiky, too, especially about former Treasury secretary and fixture of the Washington economic establishment, Larry Summers: “Hopeless, hopeless. I mean, what has that guy got?” When I shared my vague understanding that he had fallen out with Joe Biden, whom she had feared would fall under the Summers spell, she forgot about whatever ailment she’d been nursing and cackled with glee: “If he has fallen out with Biden then, ha! ha! I’m so happy!”
“During ‘turning point’ moments like our own, parties always melt down and reorder, as the old boundaries between left and right get redrawn”
There is, however, no malice about her—she is cheerfully motivated by a “Big Idea” that can be easily stated. Namely, that since the dawn of modern economic progress, the world has spluttered forward in repeated cycles that time and again unfold in the same messy—but ultimately positive—way. Every time it feels dizzying, then painful; soon it runs into a backlash. But eventually, after a “turning point” (the stage we are currently at), it settles into a “golden age,” when the world makes its peace with new technology and progress is finally evident. Until, that is, a fresh wave of convulsions arrives.
The first “installation” phase gets going when entrepreneurial types get excited about new technology and invest in its deployment. Taking a 250-year view of industrial history, Perez believes we have now been through five bursts of this sort: roughly beginning in 1771, when Richard Arkwright’s water-powered factory ushered in the “first industrial revolution” with its machines, mills and canals; 1829, when Stephenson’s “Rocket” heralded the arrival of the age of steam, rail and coal; 1875, when Andrew Carnegie’s plant dedicated to the Bessemer process opened, halving the price of steel and facilitating an “engineering age” of bridges, ships and electrification; 1908, when Henry Ford’s Model T woke the world up to the power of assembly lines; and then finally, the burst we’re still living through: the internet age, that we might illustratively date to 1971, when US tech pioneer Ray Tomlinson sent the world’s first email.
Set out in this way, like a series of chapters on a contents page, economic history appears implausibly tidy. But Perez’s point about the installation phase—the subject of her last major book—is precisely that things get messy. Money might lag behind the science and then flood in, resetting old practices and ways of thinking. But it can create bubbles that are liable to burst, and also inequality, as old industries and their workforces are laid to waste, and yesterday’s innovative upstarts emerge as all-conquering robber barons.
The next “turning point” phase is—as we’re finding—even bumpier, characterised by recession, populism and unrest. Think of 1840s Britain (with Chartism in the country and, in parliament, the many convulsions involved in repealing the Corn Laws) and the great populist wave of turn-of-the-century America: tales of adjustment to, respectively, the steam and the heavy-engineering ages. We had the extreme politics of the 1930s a few decades after those Fordist assembly lines began whirring. More recent upheavals, like Brexit and the rise of Donald Trump, arrived as the disruptive effect of the internet on old ways of working intensified. In each case, one part of society which resents the great changes shuddering through the economy kicks against another, which has embraced them.
And in these moments, Perez suggests, political parties are always prone to melt down and take on previously unimaginable new shapes, with boundaries between left and right getting blurred: in the 1840s, Peel and Gladstone emerged from the Tories, but created a British liberalism that would out-flank the old Whigs on the left; in the 1900s, the Republican president Theodore Roosevelt turned first on America’s giant industrial trusts and then on his own party and anointed successor, whom he ran against and duly brought down. It is “incredibly clear,” says Perez, that such frenzy is to be expected at turning points. If so, that gives reason to keep calm, and also—perhaps—to keep an open mind about the possibilities of unexpected vehicles for progress.
In such times could Johnson’s talk of levelling up conceivably be the sign of a real realignment of interests? “It could be,” this staunch left-winger says, chuckling as she adds: “He wants love so much, he’ll do anything.” She has no faith in him personally, but is convinced that we are at a stage of the story where hope will find a way. Enlightened business leaders already understand, she says, that the now “truly boiling” issue of inequality will soon have to be tackled by a new settlement, in which the fruits of technology that we all use every day will finally be shared.
It will take leadership. Thoughtful entrepreneurs who understand the social foundations of their riches can play a role—think of the model villages Titus Salt and the Cadbury family built for workers, or the philanthropy of Joseph Rowntree and Andrew Carnegie—but ultimately, the direction needs to be set by the state, just as it was during the founding of the New Deal in America and the postwar settlement in Europe. Back then, the state redistributed for sure, with social security, increasingly progressive taxation—and in the US a minimum wage. But it didn’t merely redistribute. It also brokered between the competing claims of unions and industry and undertook to maintain employment. And it planned development around the suburbs that would in turn support an age of mass consumption, in which all sorts of services (drugstore counters, live music and cinemas) were turned into products (SodaStreams, records and later video players) that could be enjoyed in the suburban home.
In terms of consumer habits, we’re now deep into reversing this tide (pop-up cafés, Spotify and film streaming). But the political economy lags a mile behind. Whether or not it falls to a vote-courting rogue to write it, a comprehensive new social contract is required. It cannot just be about tweaking particular taxes or regulations but must, Perez says, subvert the whole logic on which everything—industry, markets and, in a twist alien to most economists, consumer taste—is based. This stage of the game, and the state’s crucial role in it, is the subject of her current project—an even bigger, more ambitious and, for the author, “exhausting” book.
“Mainstream economics is all about equilibrium. Perez focuses instead of forces being out of kilter”
“What I’ve been trying to prove in all my work,” she reflects, is that “markets cannot function without a common sense [which frames] all ideas of work… [and] of how you know which technologies are available, and in which direction to go.” As our own economy moves from internet disruption to internet reconciliation, many conceptual flips are required: “simple things like, for instance, ‘platforms’ and ‘networks,’ rather than ‘pyramids,’” she says, referring to corporate and management structures. “It used to be that you organised everything like a pyramid. Now you organise everything like a flat network somehow—it doesn’t matter what you’re doing, but that’s [suddenly] how you must think.”
Forget the invisible hand; for Perez such “paradigms” are what keep the market together, and from time to time they need proactive resetting. Otherwise you have chaos, with everybody “marketing everybody else different ideas about which way to go.” For a true golden age, “a very clear direction” has to be set “so that everybody starts knowing that ‘to make money, you go this way.’” What the state can and must do now right now, she insists, is send unambiguous signals about the growth it wants to see, the kind that she says boils down to four words: smart, fair, green and global.
Debts and doubts
What sort of theory is this? And does it stand up sufficiently well to inspire real hope? While squarely focused on the economy, Perez isn’t practising anything resembling economics as it has been understood in British and American universities since the Second World War. The focus of that mainstream economics is on equilibrium—prices, or in some contexts income, adjusting to bring supply and demand into balance. Perez, by contrast, makes sense of history as a story of forces being out of kilter—the structures of particular markets being overturned as their founding assumptions are outpaced by technology; ossified political structures becoming unable to contain new social forces; and so on.
When I ask her about the thinkers whom she feels most indebted to, very few economists crop up—not even Keynes, who shared her breadth of vision but in most moods lacked her patience, famously quipping that “in the long run, we’re all dead.” First on her list is instead philosopher of science Thomas Kuhn, who popularised the idea of “paradigm shifts” in scientific practice, in a way akin to what she sees happening to economic presumptions at the turning points. Another is the eclectic social scientist Kenneth Boulding, particularly his ideas about reciprocity between the subjective and objective in social science—“this business,” as Perez puts it, “about people having an image, and then acting on it.”
Other names she acknowledges include the Russian Nikolai Kondratiev, the first theorist of long 50- to 60-year cycles of boom and bust in capitalism, and the austere Austrian Joseph Schumpeter, who refined Kondratiev cycles into a recurrent story of “creative destruction,” whereby the innovation and development of the new world has to be built on the demolition of the old. Surely important, too, is the Hungarian historical sociologist Karl Polanyi, who unearthed all the history and politics that go into forging “a market society,” and demonstrated how every market must be “embedded” in prior social arrangements.
“Green energy technology could soon be transformative—for both growth and human welfare”
Somewhere deeper in the background, though half-disavowed by Perez, is Karl Marx. “You know, being a Latin American, in my youth I was a Marxist,” she says, before adding how she was soon “completely disappointed” by Moscow: the Soviet crushing of the Prague Spring happened before she turned 30. She was also intellectually disenchanted by the determinism of “all this thing about the means of production, and the mode of organisation,” when she could look across countries and see the same technological “base” supporting very different settlements, from the democratic to the despotic. Relaxed about profit and the rich, “as long as they create jobs and big businesses” (as opposed to the “crooked dealings” and “casino-type thing” with which she charges high finance), she is no Marxist today. But she retains a certain Marxian method, with her focus on history as a tale of interests and classes brokering and rebrokering where they stand as technology marches on.
With her Zen-like air, it can sometimes feel like she dismisses most of what other economists spend their time on—inflation blips, exchange rate wobbles, passing recessions—as mere froth on a deeper tide. As we were chatting, I briefly found myself wondering whether she might be a kind of inverse, dirigiste equivalent to the marketopian theorists who bagged a lot of Nobels before the crash. Those were the likes of Myron Scholes and Robert Merton, who were honoured for theories rationalising the derivative market shortly before they played starring roles in its implosion; or “rational expectations” guru Robert Lucas, who stated—four years before the credit crunch—that the “central problem of depression-prevention has been solved,” and also that it was intellectually “poisonous” to worry about “questions of distribution” when growth would enrich everyone.
But I think she’s more grounded than that. Venezuela, a country she remembers as “the most glorious democracy” in her youth but that today, under the lure of the avowedly progressive programmes of Hugo Chávez and his successor Nicolás Maduro, has been reduced to what she calls an authoritarian “basket case,” provides a powerful inoculation against naive optimism. (She at one point gave unpaid time to work on some of their pro-development and anti-poverty schemes, but today her loathing for the “corrupt” Chavismos is unalloyed.) And while she cheerfully describes her younger self as a “bit of a hippy,” she is no otherworldly, hairshirted Green. She rejects “de-growthing”—that is, the fashionable call to cease or reverse economic growth—and keeps faith in the ingenuity of human beings to liberate themselves and save the planet.
Like many thinkers who paint with a broad brush, though, she is not unduly detained by every last detail. In her Utrecht lecture, for example, she chucked in “the rise in crime” alongside populism and the migration crisis as a failing of the current order. But in America and Britain at least, crime is considerably lower than it was a generation ago. Nonetheless, she wins qualified admiration from even instinctively sceptical minds.
Diane Coyle, a forensic professor of public policy at Cambridge, is careful to register that “I don’t read history as pointing to a future golden age in any deterministic way,” but still hails the way that “Carlota’s work has really enhanced our understanding of the interactions between technology and finance over time.” And she adds that, just as Perez says, the “green energy technologies—when they happen—could certainly be as important as the major innovations of the early 20th century, such as clean water systems and electricity, in their impact on both growth and human welfare.”
Still, it can feel like the Perez big picture is still a long way from a practical, manifesto-ready Perez programme. She advocates vast changes, such as a total refocusing of western economies on supplying the whole world with specialist services and capital goods; and the introduction of a universal basic income, something that think tank after think tank has concluded would be frighteningly—and quite possibly prohibitively—expensive. Even if we admit that the sort of tax credit tweaks that pass for reform among Whitehall civil servants are indeed hopelessly “micro” and bound in by established “common sense,” you sympathise with the bafflement that officials would feel if they were suddenly ordered to make these vast changes happen.
“Fringe ideas for reform can sometimes gain momentum fast—and the unthinkable becomes unarguable”
If it came to it, though, Whitehall could turn to James Plunkett to translate. One of Britain’s most thoughtful policy analysts, he made his mark at the Resolution Foundation and did a spell in Gordon Brown’s No 10. He is the type who could devise a 20-year UBI phase-in, designed to adjust for economic performance, and complete with meticulous calculations of exactly what savings could be made from each existing benefit at every point, without anyone suffering hardship in the transition.
He has recently written a well-received book, End State: 9 Ways Society is Broken & How We Fix It, of big ideas with plans attached on how to make them practical. It was substantially inspired by Perez, whom he sought out and met at the start of the project. That, he says, is “where the whole shape of my book” emerged.
Plunkett explains: “What’s fascinating—thrilling, even—about Carlota’s work is how many people are now taking up her invitation to describe how we govern a new stage of capitalism.” Different wonks will latch on to different elements of her vision—greener energy, say, or globally-shared globalisation. (Having been raised in the global south, Perez is—unlike many western progressives—keenly aware of the postwar era’s failings on that last front.) “For me,” says Plunkett, “the big question she throws open is: ‘How do we govern a digital economy?’”
“We have all been living it for the last two decades,” he says, adding that, as expected in a technological revolution, it has often felt like “things are spinning out of control.” But what Perez emboldens us to see is the “exciting bit that comes next. Once new ideas emerge for how we govern the new era, things that were previously seen as utopian could become possible, perhaps even quickly.”
In End State Plunkett highlights fringe ideas gaining momentum, and how the unthinkable can become the unarguable. The four-day week is a good example. It might sound wild, the stuff of student politics, but Plunkett snaps us out of such dismissive reactions by revisiting how outlandish demands for a five-day week once were: like Perez, he looks forward by looking back.
“Carlota’s work is what gives my book its glow of optimism, including a very grounded sense that things can and do change,” Plunkett says. Too many supposed progressives fixate on what can go wrong with this “strange new world of Uberisation,” he adds, but “those of us who have been infected by her optimism are careful to start by observing one very positive reality: whatever we think of this new economy, it’s simply more powerful than the industrial economy it’s replacing.”
“A real danger for the British left is being unduly boxed in by the old conventional wisdom—at a time when its hold over the debate is loosening”
The trick, says Plunkett, and especially in turning point moments, is to go with the grain of economic advance: “We cannot and should not seek to dis-invent platforms like Uber, any more than we should break up companies like Facebook. What we can do—in fact must do—is rethink how we regulate this new economy and its algorithms, starting from first principles. The problem isn’t Uber, it’s Uber ungoverned.” The way past societies eventually found ways to make earlier technologies work for everyone offers a lodestar for how it can be done.
The same goes for grappling with monopolies like Google: with such a brilliant free-to-use product, old models of monopoly regulation won’t detect any harm whatsoever. So a new model is needed, and—happily, says Plunkett—“a real renaissance in less-orthodox economic thinking is now underway which can achieve precisely that.” Get it right, and we should all be able to share the gains. Yet another Perezian plank in the Plunkett manifesto is a deep “investment in digital skills, through a new version of America’s GI Bill,” a reference to the postwar legislation in the US which equipped its victorious soldiers with the college educations that got them collectively fit for the emerging golden-age economy.
Don’t look back
What does this way of thinking mean for progressive politics? Guarding against the assumption that just because Johnson is saying or doing something it is necessarily wrong would be a start: the chaos of the moment provided him with a novel coalition of voters, some of whom were sorely in need of an economic reboot. Purely as a shrewd steward of his own interests, Johnson grasps the political logic of embracing such a change.
For Johnson’s opponents, the real danger could be the opposite of the one they are used to: being too committed to conventional wisdom just when its hold over the debate is loosening. After the traumatic division of the Corbyn years, the main message the Labour leadership was desperate to get across at its recent conference was that the “grown-ups” were back in charge: people who would never make a promise without a detailed and fully-costed plan of how they would pay for it. Utility nationalisation—something the public gives little thought to, but is vaguely in favour of—was jettisoned for the sake of “value for money,” which voters reliably rate as important. In brute electoral terms, that might often have seemed like a rational trade. But in circumstances where, according to Perez, common sense is ripe for remaking, there is value in policies that signal a determination to create an economy run on different lines.
Amid the interminable faction fighting on the British left, there is a special danger of driving younger and more radical voices out of the conversation in the name of respectability. More damaging than the jettisoning of 1940s, Herbert Morrison-style utility boards is the danger of a knee-jerk dismissal of potentially transformative new ideas that have crept in from the fringes—such as the idea of creating a “right to buy” for private tenants from their landlords. The politics would be fraught, and the detail all-important but, done right, here is a concrete example of the kind of idea that would change the “paradigm” of property ownership, and along the way give the politicians who are bold enough to embrace it something meaningful to say to Generation Rent.
It’s been interesting to see how a career centrist like Biden has taken care to keep radicals who dream of a very different economy firmly in his camp. Germany’s likely next chancellor, Olaf Scholz, is another profoundly moderate figure—his mentor, chancellor Helmut Schmidt, once said that “those who have visions should go to the optician”—and yet, on the early signs, he too is keeping young dreamers on side. For the moment, the Labour leadership in Britain seems less able—or less willing—to do the same.
If—and admittedly it is a big if—the Perez analysis is right and this truly is a turning point, then a failure of nerve will ultimately be to Labour’s cost. For, as Plunkett puts it, “we didn’t survive the shift to industrialism by tweaking old laws and institutions—by expanding the guilds, freezing the charges for turnpikes, or creating new roles for knights of the garter. We replaced the old state with a new one.” To shift now from an old and failing economics of fear to a new economics of hope, we are going to have to do the same again.