The Economics of Enough_ How to Run the Economy as if the Future Matters - Diane Coyle [3]
THE CURRENT CRISIS OF CAPITALISM
These immense challenges are all linked.
Once a generation there is a crisis of capitalism, an array of problems that are driven by profound changes in technology and society. The institutions, the rules for governing how we organize the large and complicated societies of the modern world, lag behind people’s behavior as they go about their day-to-day activities—working, spending, investing, saving. The sense of crisis will come to a head due to some trigger—in the mid-1970s it was the OPEC oil price rise, in 2008 the near-collapse of the global financial system.
The current structural fragility revealed by the banking crisis has deeper causes. These lie in a dramatic series of technological innovations since the late 1970s, the information and communication technology (ICT) revolution. The financial sector is the most dramatic example of the way ICTs have revolutionized ways of organizing business and relationships in the economy. Technical change has been redrawing long-standing relationships throughout the economy, destroying and creating jobs and businesses. Much of this turmoil has been intermediated through the financial system. What’s more, modern communications and computer technology have transformed finance itself, making it a lightning-fast amplifier of shocks around the entire global economy.2 There is no previous example of a new technology whose price has fallen so rapidly, or which has diffused through the economy as quickly, as innovations such as computers and mobile phones. It is impossible to predict what their ultimate impact on the world will be, just as it would have been impossible in the early days of Gutenberg’s printing press to foresee the Renaissance and the Enlightenment. However, the declines in the prices of the new technologies—a marker of the pace of innovation—and estimates of their impact on economic growth show them to be much more significant than any previous disruptive technologies such as steam or railways.3
What’s more, ICTs are special because they fundamentally affect the way the economy is organized, as well as what it produces and the goods and services people can buy. For example, much cheaper access to information makes a centralized hierarchy an inefficient way to run a business, or a public service. It becomes more efficient instead to decentralize decisions so people can tailor outcomes more closely to their needs, taking advantage of their greater access to the information needed to decide well. This is why in so much of the corporate sector the hierarchies of the 1960s and 1970s have given way to matrix and network organizations. Other institutions, however, lag far behind, especially in the public sector.4 The new technologies also drive globalization. Although there was also a political impetus behind deregulation and more open borders, especially in finance, the moving of production and people around the world in the past twenty-five years could not have taken place without ICTs. The impacts of globalization and ICTs have become powerful and entwined, while national policy responses to them are inadequate, and there are as yet few international political or institutional bodies that can address these problems either. Just think of the hurdles to getting international climate change agreements or coordination between countries on how to regulate the banks.
More fundamentally, the new technologies mean more weight than ever is placed on trust for the economy to function well. Any transaction that’s more than just a face-to-face barter of goods depends on trust, as the goods and services being exchanged will be separated in time and place. But those distances and chains of connections have been stretched ever further. Trust is both more essential and more fragile in the modern economy. Political and economic institutions haven’t adapted to the new technological basis of the economy, and building appropriate institutions