Increasingly we want a personally customised life, but an economy orientated to give you what we want is not the best for deliveringwhat we need. The prioritising of 'I' over 'we' makes it harder for each of us to be satisfied.
Mass production meant that fixed costs fell with efficiencies of scale. This was followed by cheap consumer financing. Manufacturers design a range of options for a product - and keep changing them; people gravitate to novelty and status (symbols).
Post WW2 there was a massive economic boom. Natural resources were cheap and workers were increasingly entitled to pensions, medical benefits, a share in a company's productivity gains and higher wages. High top tax levels discouraged CEOs from high executive salaries. There was investment in employee training to keep up with technology. People also engaged in wider society: church, service groups and charities, parent-teacher associations.
Around the turn of the century (2000) inflation was rising and productivity slowing. For the US there was new competition from Asia and Europe; for Europe there was competition from Asia and Eastern Europe. Middle Eastern oil prices started rising. Governments interfered less in economic policy,so companies now stripped away operations or assets that did not turn a profit.
Corporate raider: look for struggling companies, quietly buy up a controlling stake (usually financed by high interest loans known as 'junk bonds') and then 'restructure' by shutting down under-performing divisions and laying off workers, and then selling the company on at a substantial profit. Pension funds were typically drained in this process.
Companies began giving CEOs company stock; CEO priority became high share prices. Automation and 'off-shoring' led to further job shedding. Business became focused on shareholders and there was less investment, with cutbacks in research and development.
Credit cards. The brain perceives cards and cash differently. Pay with cash, cheque or debit card: you recall the price of items accurately. Pay with credit card: recall is less precise or even 'I don't know' on an item bought ten minutes ago. This is due to the way we make intertemporal decisions - do something now or later. The limbic system in the brain (the early reptilian part) works on emotion, while the prefrontal cortex is not as fast and must develop a strong reverse argument to counter the emotional pull. Credit = immediate gratification; the pain of debt comes later.
Big stores - we used to be customers (with a defined social role) but now are just consumers. The rise of supermarkets has seen a decline in smaller businesses.
Hedge funds buy up large stakes in companies, then seek to influence the share price. The term 'churn' describes buying high performing shares and dumping shares that are not. From 2002, bad loan practices set up a housing bubble, with serial refinancing. Another issue is 'risk aversion' - why people continue gambling even when on a losing streak.
There has been a massive flow of talent and resources into the financial sector. US: manufacturing 12% and general economy and finance 8.4%. We should be growing our manufacturing and shrinking the financial sector.
Society. People now more often move (relocate) for lifestyle reasons: politics, cultural amenities, proximity to shopping areas or sports stadiums. They look for neighbourhoods that fit their likes. The result is segregation (not just by race), whereas before we found ways to cope with the differences.
Western workers are not gaining new skills in part because our education system has not kept up with the current job market.
Markets eventually correct themselves. Spend too little on real innovation > run out of things to sell. Demoralise workforce > performance lag. Rely too heavily on cheap foreign labour > problems over quality. Globally automation is reducing jobs. The collapse in manufacturing has left a large pool of unskilled workers, largely male, who are much more likely to remain unemployed or underemployed. This in turn leads to unstable family relationships.
Health. Patients now demand specific treatments, having 'researched' them on the Internet. Actual advantages may be non-existent. [Proton beam therapy is good for difficult to reach cancers (brain, eye and spine) but is no more effective than standard treatments for e.g. prostate cancer. It is also 2 to 5 times more expensive in use, in addition to the capital cost of initial purchase.] New drugs often give minimal extra life at a very high cost. Some signs of reform: US Medicare's reimbursement policy now pays producers by outcomes acheived instead of the separate services provided.
Political war. Short-term interests and narrow self-interest now dominates political life. Newspapers and broadcasters now more politicised. US political campaigns use Big Data to identify people's interest and customise emails with messages they are most likely to respond to. US campaigns are ever more expensive to run. Left wing groups are less credible; the right wing gets more support from the conservative element of the population.
The We Society. There is some revolt. Poeple stop shopping online, don't use credit cards, decide on technology-free time at home, not being on call 24/7 (but many fear risk to job security). Our culture is now characterised by separate individuals, corporations and political parties all seeking their own self-interest.
More and more of growth goes to a smaller group of beneficiaries, via financialisation and crony capitalism. The current economic model no longer distinguishes between genuinely productive activity and 'capitally efficient' activity. We need to caremoreabout quality than quantity and consider durability and human satisfaction in production.
Roberts ends with some proposals for change.
- Eliminate incentives that make short-termism attractive to investors and shareholders and corporations. Use a transaction tax on investors each time they buy or sell a security, derivative or other financial asset.
- Target perverse incentives of executive compensation; pay them with 'restricted' stock that cannot be old for 5 years or several specified years after leaving a company.
- Severely restrict the practice of share buybacks; recognise and designate this as an illegal manipulation of the market.
- Break up the 'too big to fail' banks into smaller,more regulatable entities.
END
