As all of Germany seems to engage either in market or Marx bashing these days, I thought it is time to add my two cents to the debate – and I’ll do it with the help of the US Europhile Jeremy Rifkin, who gave the “Stuttgarter Nachrichten” an interview about an old book of his, “the end of work.” The current German debate – the “Kapitalismuskritik” (“capitalism critique”) – is the result of a surprising lack of political imagination, a lot of disappointed social democrats, an important regional election in May, and the lack of a referendum about the European Constitution that would serve to channel the electorate’s fears, as it just happens in France.
Despite the fact that almost everyone, including business professors, in Germany – just as everywhere else – agrees at least theoretically, that there are issues to be debated with respect to the way our economy works, including obvious CEOcratic excesses, the political participants don’t seem to be able to update their class-struggle vocabulary to the needs of the 21st century. While I always thought “the left” had won a conceptional edge over so-called free-market fetishists by accepting that markets are “one coordinational mechanism among others”, I’m not sure about that anymore after having to endure the conflicting and confusing use of so many economic terms by leading German Social Democrats.
Thus, I suppose it was a good idea of the German government to invite Jeremy Rifkin to talk about his ideas concerning the future, or rather the end of work as we know it.
Mr Rifkin is clearly correct to point out that all industrialised economies are currently experiencing a period of more pronounced changes to their transactional structure than at any time in the last 60 years. And he’s also correct to point out the fundamental dilemma of the day – is the classic economic axiom of limited resources and unlimited human needs craving to be satisfied still (always) correct – or, put differently, will the mostly human resources that are freed by technological advances these days, irrespective of their collar’s colour, eventually – or, ideally, in a time span that those freed human resources can actually grasp – find a new use? Are there really as many jobs in non-tradable personal services to uphold largely non-conflictual social structures like the ones we have come used to live in over the last decades? May the construction of the kind of proto-plutocratic hierarchical societies – as, say, Paul Krugman would likely describe the US these days, and the income spreads are growing in Europe, too – even be a necessary pre-condition for such a future. These are important questions without a clear answer. Even the liberal guardian-angel Adam Smith was a radical in this respect stating in “The Wealth Of Nations” that “civil government, so far as it is insituted for the security of prperty, is in reality instituted for the rich against the poor, or of those who have some property against those who have none at all.”
I think Smith was wrong in that respect, but apart from those who believe that property is an absolute natural right, most will find it is easy to agree that property is a social institution needed in order to help overcome the limitations of human bounded rationality, or, more generally, the human nature.
It’s transaction costs economics: If there were no bounded rationality, and if people did not at least have a tendency to seek their interest with “guile”, as Oliver Williamson famously phrased it, there would be no need for any institutionalised organisation of human conduct at all. It is not surprising that Ronald Coase – who partly received a Nobel Price for asking ‘why is there any firm ?’ – stated a couple of years ago that without transaction costs, the efficiency of Communism and any other form of economic governance mechanism would be equivalent. Some economists even believe that in a situation without transaction costs, there would be no need for any kind of property rights regime at all…
But, of course, we live in the real world where institutions matter. And so does, of course, the incentivising nature of property. It’s not actually a secret that command-style economies are only able to grow extensively – that is up to the point where everybody capable of digging has been given a shovel and was told to start using it. But the lack of property-related incentives usually leads to a relative absence of capitalisation of human ingenuity, just as central planning – for simple reasons of bounded human rationality – cannot coordinate the economy as well as the decentralised use of the price-mechanism can.
But now imagine Rifkin and other “end of work” prophets are indeed right in their assertion that the capital intensity of production will rise to previously unseen degrees and far less humans than before will be involved in the economic sphere: then transaction costs “per-output-unit” would necessarily be lower as machine transactions (for the moment at least) do not incur transaction costs.
If that were indeed the case, the social institution “property” would have to somehow take these shifts into account. And that, just looking at the ability of the entertainment industry to use institutionalised concepts of property to their advantage in the political process, could indeed lead to some important distributional conflicts.
Of course, while an author like Mr Rifkin has to present his ideas with an aura of authority, all this is largely speculation. But maybe those who predicted in 1989 that Socialism would make a comeback in some form weren’t entirely wrong. So there’s at least one thing certain about the future – it’s going to be exciting.