There are a lot of folks suggesting that the Econolypse might lead to something more than a recession and a rebound. Jeff Jarvis suggests that we are headed to a ‘great restructuring’ of our economy, with great parts of it (print media) perhaps completely wiped out, or crushed to a fraction of their former size. Umair Haque has suggested we are in a ‘compression’ rather than a recession, where value is being brought down to ‘real’ values from perceived values.
I think something much larger is at work.
Things are falling apart. The world order of the post-cold war era is falling to bits. Some of that we have been discussing for years as edge economics: people’s loss of self-identification though affiliation with large organizations, like the federal government, corporations, world religions, and so on.
We have thought about this as a media phenomenon, and then a social one. What about now, when we are in the maelstrom of an unprecedented economic downturn? Will this edgewards movement of people continue, or will we snap back into something else? What are the forces operating?
The past fifty years of growth-oriented, unsustainable business practices have created such complex and interconnected economic systems — and largely unregulated ones — that we simply don’t know how they work. Even the folks dreaming them up — like the people who structured the sub-prime mortgage mess — really didn’t understand the implications of connecting things together, to this degree and extent across the entire globe.
One thing we do know from other economic downturns is that the effects of market hiccups are amplified at the end of supply chains. So, in the past, when there is a small drop in car sales, distributors take a little hit, manufacturers a slight larger hit, the outsourced parts manufacturers a larger hit, and a bunch of machine tool companies go bankrupt. The so-called whipsaw effect snaps hardest on the player at the end of the supply chain, away from the buyer.
We have made our supply chains much, much more complex and distributed all over the world. So a downturn in retail clothing is devastating for various retail chains, but leads to hundreds of thousands of people out of work in the sweat shops of Asia, and the collapse of the market for cotton. A downturn in the tech sector leads to thousands of PR people learning how to teach high school math.
And we have elaborated these chains — in services, clothing, food, metals, energy. and electronics — on a worldwide basis.
The growth of globalization has led to the end of any real social bond between most companies and their employees. Companies retain no real margins against downturns, especially not downturns of this magnitude: so they immediately cut staff.
The reason that we can contemplate the rise of soft socialism in the US as the outcome of the Econolypse — socialized medicine of some sort or other, nationalizing the banks, possibly nationalizing GM, and so on — is because there is no social contract between workers and their place of work. Millions of workers have been fired or laid off, and there are no safety nets.
We have backed into a system where effects are being magnified at the end of the supply chains, and the result is that the pretense of security and safety inherent in living the 20th century working lifestyle has completely fallen away. People aren’t working half time in the office, and growing crops in the afternoons. We have committed ourselves to an industrial lifestyle, so we have no margin but our savings.
We are going to go through a dramatic reworking of our social polity, and the results may be nothing like we anticipate at this time.
I gave a series of lectures last year that were very downbeat, predicting some really frightening possibilities, based on my conviction that globalization would lead to both a widespread economic downturn of unprecedented proportions, and that this would be followed by food and ecological challenges so severe that they threaten civilization.
What may emerge — by plan or by reflex — is a world that is drastically slowed, with increased protectionism and regionalization of production and investment. Germany this week drew back from helping Hungary with its own banking crisis, and we will see the idea and reality of of the EU change very quickly under the populist pressures in each country for government to take steps to alleviate the crisis in their own countries, and only then to consider what is happening over the mountains. We will see increased strikes from truckers, farmers, and others who are the first to feel the impacts of wildly oscillating prices based on currency fluctuations.
(Farmers worldwide are having trouble getting the capital to buy seeds and fertilizer, which is going to lead to price spikes in food. Worldwide drought will also contribute to food costs: Schwarzenegger announced that the California drought would lead to some areas of prime agricultural land not getting any water this year at all. This is another manifestation of the whipsaw effect, although in this case the crisis causing the problem is drought, not credit.)
The United States’ actions to bail out our banks, auto companies, the steel industry, airlines, whatever, is inherently protectionist. We will see the rise of regulatory barriers that will slow and increase the costs of investments oversees, international production and transport of goods, and so on. These may not take the form of direct tariffs, but the results will be the same.
And the core premises that may change, at the heart of our society, are these:
- Unbridled, ‘liberal’ trade and banking policies of the past, that have led to our economic systems (including food and energy) being so tightly interconnected, will be questioned instead of being blindly accepted as good for all. On reflection, these policies may turn out to have only been good for industrialists, or for developed nations in a time when others could provide services and goods cheaply.
(We may think is is good, for example, to have low cost food, but not if the food is unsafe, or if the practices that make it cheap are unsustainable and contribute to global warming, based on low cost oil. And especially not if it makes us insecure in the face of growing droughts in many of the world’s richest agricultural zones. It may be better to pay more for food, where the true costs are all tallied, and food safety and security are factored in. Note that the most obvious paths to food safety and security are inherently protectionist: buy your food locally, from those you know.)
- The notion that markets are inherently self-correcting will fall from its primacy in the discussions of policy and economics. It may be true in some theoretical sense, but the carnage may be unacceptable, especially if you are one of the people being smacked by the whipsaw.
- The State has as its first duty the safety, health, and security of its citizens, and that may no longer be a laissez-faire sort of arrangement, where the government maintains an army, the schools, the courts, and the interstate highway system. It may be much more socialist than that: a new social contract where the government promises to provide a college education, lifetime health care, and much greater social services — job retraining, apprenticeships, federal work programs, housing — than now contemplated.
I can’t summon the optimism that many others seem to have, that we will have a quick landing in this crash, and sometime in 2010 things will be back to where they were status quo ante.
I do believe that good can come of the dark lessons we are learning, but it may require a lot longer for the full whipsaw to snap, and a lot longer for any stimulus to moderate the oscillations that are damping down production and consumption.
We may well come out as a very different world: where people do with less, that work is harder and money scarcer, and where our affiliation to the government is much more localized, more regionalized.
This is why the push of Obama’s administration to create a new and deeper bond between the state and the individual seems inevitable: since there seems to be no one else to turn to. Religious institutions and philanthropic organizations are in financial troubles of their own, and people are increasingly divorced from social capital-rich involvement in community-oriented organizations in general.
However, moving from federal stimulus to actual local action may take years to get into place.
Robert Putnam pointed out that the only light at the end of the tunnel in our growing dissolution from social involvement is the rise of the Internet. The web is an alternative that has led to the growth of social involvement at a time when we seem to need it more than ever. It remains to be seen how well the government uses the web, or how long it will take to have the web become an effective aspect of government.
But if the government fails to move quickly enough, and if its actions have too little effect — for example, if we have millions more homeless living in tent cities, or the total collapse of social services — other sorts of affiliations could emerge to fill the power vacuum. Who knows what those could be: old style criminal organizations, that loan people the wherewithal to stay alive, but demand unflinching loyalty and enormous pay back? Or will Obama be hiring millions into a modern Civilian Conservation Corps, to reboot the economy and rebuilt mass transit?
The econolypse is hastening the die off of those businesses and industries that were already weakened, but also the restructuring of our social contract. That will take a lot longer to play out than a few quarters, and we won’t see it in the barrage of ticker symbols going by. It will have to be built up one neighborhood at a time, one job at a time, one new urban farm plot at a time.