The bit between, part 1
It wasn't supposed to go this way
One thing that always gets me about living in modern capitalism is the way some people become multi-millionaires by accidentally poking themselves in the eye while trying to pick their nose and, temporarily blinded, stumble over their own shoelaces into a pile of cow shit…
…And other people work themselves absolutely raw for decades, refining a set of unmatched skills and knowledge, only to get restructured out of their job aged 53, without redundancy, and be forced to drive Uber for the next 16 years, just to finish paying off their modest mortgage.
This all seems pretty unfair right?
We actually talk about how “unfair” this sort of thing is quite a lot.
We understand ‘monopoly’ and ‘corruption’ and ‘tax advantage’ and ‘inheritance’. These are things like that tell us where the unfairness seems to start.
And now we’re talking even more about the issues of ‘poverty’ and ‘equality’ and ‘equity’ and ‘reparations’. That is where unfairness seem to land us, here.
What we talk a lot less about is “how” unfairness happens—how wealth goes from start to here.
In this newsletter I want to start to address that bit between.
This is a multi-parter, nested within my wealth series, because it’s complex and requires us to suspend a number of distinct beliefs.
This first couple are really about how natural and organic the road to inequality is. Then we’ll cover what its opacity to us—at least until it becomes a real problem—looks like in practice.
Basically, if you want to understand how we get from ‘monopoly’ to ‘poverty’, you need to understand another of money’s magic tricks—its ability to invisibly tip the scales.
Now you might already be thinking:
“This is a waste of my time! Everyone already knows a monopoly simply gives the seller the power to charge whatever they like, and no-one can do anything about it… Obviously, that’s how they get rich, and make the rest of us suffer towards poverty!”
But what you’d be doing there is making an assumption that even the strongest advocates for monopolies (the “Greed is Good” crowd) actually don’t make; you’re assuming a monopoly is essentially just about greed and evil. And no-one actually supports that!
First, a little history lesson.
The reason we have these massive global organisations, that dominate just about every sector of the economy, is largely down to the theories of a collected group of economists, starting in the 1930s but becoming prominent in the 60s, now known as the Chicago School. The story of the Chicago School is long and winding, but essentially their aim was to overturn the way that developed economies had been running their private and public sectors through the utter devastation of the two World Wars.
When I was little, I was undoubtably tougher than the wrapped-in-cotton-wool wuss-bags that our generation of parents are raising! I mean, I’m joking, but parenting was definitely ‘active’ in some different ways back then! My brother and I would disappear from dawn to dusk, building tree houses and loitering at our mates’ places, and our parents would rarely know where we were for hours at a time. We certainly had no smartphones with ‘Find My’ apps! But, despite our independence, one thing we could always rely on was the fact that, if shit really went wrong—a broken arm, or a freak-out from accidentally wandering into the middle of a large, illegal cannabis operation—we could run home to mummy and daddy.
The global economy tends to operate quite a bit like my brother and I did. It’s really comfortable with its independence, right up until shit goes wrong! And starting in the early 20th century, shit did go a bit wrong; World Wars and Depression and illness had a lot of people desperately relying on the state to simply keep them alive. Out of this, came an important way of thinking, led by an economist called John Maynard Keynes.
What is now known as Keynesian economics was the, then novel, idea that free markets—you know, the whole ‘supply and demand tugging and pushing at each other until they find equilibrium’—just didn’t work without the right nudges; because free markets naturally tend towards boom and bust cycles.
Governments and reserve banks have spent the last three decades trying to prove this ‘nature’ wrong, using indirect tools like interest rates, quantitative easing and tightening, and sector bail-outs, to try and tame the entire-economy beast, but these things have largely just exacerbated both financial and democratic inequality.
The simple reason for this is an economy is too interconnected for the rational idea of a ‘free market’:
An oil-tanker breaks down, and the decreased oil supply causes the fuel prices to rise by a few cents, which flows into the cost of other transport, therefore food, therefore wages, therefore oil-tanker maintenance costs… and round-and-round—starting wherever you like.
Obviously, that’s all deliberately simplified, but the point is our real economies cannot be explained via small, imaginary, Econ-101 Textbook Nations, so any upset in our globally-interconnected puzzle spreads outwards, into much larger consequences—hence, booms and busts.
So, Keynes’s idea was that governments had a vital role—not just in the traditional provision of things like currency, law, defence and infrastructure—but in the provision of an occasional nudge: When demand drops, and an economy starts to stall, the state could quickly step in and prop things up to prevent undue suffering.
The decades before the Great Depression shared some similarities to the inequalities and dominant firms that we have now. So, as boom turned towards bust, maternal governments actually agreed with Keynes, raising both taxes and government spending and intervention, right through until the late 1970s.
While obviously not all social problems were addressed, it’s clear that advances to wealth and lifestyle had never before, in modern civilisation, been distributed as rapidly and equally across the population.
However, once things started looking pretty good, the Chicago School and, in particular an American economist called Milton Friedman, leveraged the fact that people were started to feel more ‘independent’ again, to get some traction with their idea, that ‘the free market was the most efficient actor in an economy’.
This wasn’t an especially new idea of course—it just remixed the principle that there’s an “invisible hand” of customer demand guiding the supply of goods and services, popularised by Adam Smith in the mid-1700s. What was new about the Chicago School’s interpretation was its insistence on prioritising efficiency above all else, and systematically shifting the power in an economy towards the ‘supply side’—that is, encouraging governments and legal entities to see every aspect of the economy as an efficiency challenge, thus best handled by the private sector.
It’s obvious to many of us now, but to hardly anyone back then, that efficiency—despite sounding like common sense—is a silly metric when you’re measuring outcomes that unfold over generations, like education, stable housing, public transport and healthcare. But, via politicians like Thatcher, Regan and, locally, Roger Douglas, the political tide shifted towards what we now think of as ‘neo-liberal’ governing.
And, alongside influential Libertarian figures outside the economic field, like philosopher Robert Nozick and author Ayn Rand, social attitudes also transitioned. During the 1980s, that allowed ambitious (“asshole” if you prefer) politicians to ease the economic power base away from the (majority) workers and democratically-elected governments, and into the hands of private capital-owners and (minority) wealthy individuals.
The details vary from country-to-country, by basically it was some subset of things like:
Privatising public services and infrastructure
Shrinking state services in favour of private contractors
Incentivising private ownership and wealth-building
Switching to consumer-centric thinking (about everything!); and
Encouraging large companies to achieve efficiencies from scale.
Which loops us back to monopolies.
So, the regulatory and legal justifications that have allowed these giant, monopolistic, companies to flourish around us is essentially the opposite of that earlier assumption: The key argument that was able to squash any fear that a monopoly will “charge whatever it wanted”, was the fact that big companies were more efficient. Essentially, if we allow companies to buy-up or crush their competition by weaking regulation, then those new, giant, companies would deliver lower-costs and more innovation. It would not hurt us, but actually improve consumer welfare.
In retrospect, this clearly is problematic.
However, my point is, advocates for monopolies were able to make an apparently convincing case that monopoly was a valid solution for inequity, rather than a path to it.
And we mostly agreed with them.
We mostly thought it sounded like common sense.
You may carry some, justifiable, antagonism about how this stuff has played out. But wait until you get hold of the next way that wealth invisibly tips the scales—because we don’t even have dead or retired historical goons to point the blame-finger at for that one! Next time…
-T