The New Serfdom

by Angela Eagle

  THE NETWORKED WORLD

  We are living through an era of exponential change and it is driven by the increasing power of computing and data analytics. In 1965, Gordon Moore, who co-founded Intel, predicted that the power of computers would double every eighteen months while the cost would fall. This became known as Moore’s Law, and it has been an accurate extrapolation of the exponential rate of progress to date because the computer industry took it up as a challenge and made it a self-fulfilling prophecy. While future progress will inevitably be harder to achieve without significant new innovation, Moore’s Law has moved computing from the basement into everyone’s pocket. Thus, the computing power of your iPhone is far greater than that which was available to astronaut Neil Armstrong as he piloted the Eagle to the first moon landing in July 1969. The cost of computing has fallen by 33 per cent a year since 1992; data storage costs by 38 per cent. This has enabled an explosion of new ways of communicating, purchasing and problem-solving that has completely transformed the way we live and relate to each other. In this increasingly networked world, people sat next to each other on the bus no longer communicate because they are too busy talking to someone else on their personal networks in cyberspace.

  HUGE NEW MONOPOLIES NOW DOMINATE NEW TECHNOLOGIES

  The World Wide Web was invented in 1989, yet iPhones did not exist until 2007. Their emergence had to await the creation of powerful Wi-Fi-enabled mobile telecoms, which became available from 2001. The astonishingly rapid rise of the company behemoths of this second machine age gives a clue to the accelerating pace of development. Facebook was created in 2004 and, as of February 2018, has a value of $511 billion. Google, created in 1998 and floated in 2004, is worth $766 billion. Twitter, which went online in 2006, has seen its initial market capitalisation fall from $31 billion to $24 billion because it wasn’t growing its user base fast enough. YouTube was created in 2005 and sold to Google a year later for $1.65 billion. The market capitalisation of Apple, Google, Microsoft, Amazon and Facebook combined is now $3.57 trillion16 of the $280 trillion of global value. Wealth is concentrating rapidly in fewer hands. Recent figures from the Credit Suisse Global Wealth Report show that the richest 1 per cent of the world’s population now own 50.1 per cent of its wealth. The poorest 3.5 billion people own just 2.7 per cent of it. These companies have established globally monopolistic positions in a remarkably short space of time. They have more money and more information about citizens’ lives that most states.

  The sheer volume of users and interactions these companies handle is astonishing. Close to 9 billion videos are now watched daily on YouTube. In the first quarter of 2017, Facebook passed the two-billion monthly user mark, Google’s Gmail has 1 billion monthly users and Twitter has 328 million. It is estimated that over half the world’s population, nearly 4 billion people, now have access to the World Wide Web and that number will only go on growing. The information that is generated by their individual interactions with this technology is valuable in itself. Those who have access to it are only just beginning to understand how it might be analysed and monetised. Aside from the data which quite properly belongs to any business, more generalised collecting of ‘raw’ data is now proceeding apace. Companies are therefore intent on collecting this data and storing it in what are known as ‘data lakes’. They are certain it will be useful in the near future, even if they don’t quite know what to do with it now.

  It is becoming clear, using our current business models, that those who have the data are collecting what they believe could be a very valuable resource in the near future. Whether they are correct depends on the accuracy and success of the analytics which underpin developments in so-called big data. So far this has been especially useful in analysing existing medical research papers and discovering hitherto unknown connections. The Brexit vote in the UK and the election of Trump to the US presidency demonstrated that it is a powerful force in politics too.

  Because the dominant business model in use today gives away content for free, it relies on advertising for its revenues. The increasing sophistication of the collection of highly individualised information appears to be turbo-charging the effectiveness of advertising and, by extension, political propaganda. It achieves this by tailoring highly effective individual messages to millions of unsuspecting voters. Such personalised advertising fails to distinguish between truth and fiction, or, indeed, facts and so-called alternative facts. If unchallenged, this technique undermines the basis on which all democracies are designed to work – the ability to distinguish between truth and fiction by unbiased access to the facts.

  EFFECT OF THE FOURTH INDUSTRIAL REVOLUTION ON OUR ECONOMY, SOCIETY AND POLITICS

  Rapid industrial change threatens to hit the poorest hardest, exacerbating already high levels of inequality in our society. In terms of job losses to automation, it threatens to hit developing nations harder than those which have already developed. The World Economic Forum has calculated that it will destroy the jobs of the poorest most, that those jobs done by women will be lost in greater numbers to automation and that more reward will go to the owners of capital than those who work. Rapid technological change is already creating enormous concentrations of power in fewer and fewer global monopolist corporations whose dominance and market power will be huge if left unchecked. These challenges can only be faced by concerted government action at both national and international level to ensure that these huge corporations do not become a law unto themselves.

  THE ECONOMIC EFFECTS OF INDUSTRIAL REVOLUTIONS

  The past may not be an entirely accurate guide to the future, but it can certainly signpost the likely problems that will confront us. So, what can we deduce from previous experience?

  Industrial revolutions are a good thing. They increase economic growth and living standards in the medium to long term. They are highly desirable at a macroeconomic level, though it is becoming clearer as the world continues to industrialise that this has to be done in an environmentally sustainable way if we are to safeguard the future of our planet. Industrial revolutions increase growth and change the way that we live our lives. They transform the way our society is organised almost always for the better in the end. Industrial revolutions change the sectoral balance of the economy, too. For example, in 1700, the agricultural sector comprised over 50 per cent of the UK economy; this has now fallen to 1 per cent. During the same period, manufacturing increased from a very low base to 45 per cent and then fell back to 10 per cent. Now it is services that dominate the UK economy, with 80 per cent of current economic activity falling into this category.17 Services as a percentage of the whole UK economy have doubled roughly every 100 years.

  The new goods and services which have been created by this process of innovation and its application have enhanced our enjoyment of life and dramatically reduced the average weekly hours worked from fifty a century ago to thirty today. Life expectancy and levels of education have both risen dramatically in the last 300 years as scientific and technological progress has enhanced economic performance, transforming our lives out of all recognition.

  While desirable, industrial revolutions are also extremely disruptive. Initially, they cause massive job displacement and huge, unanticipated increases in personal hardship for those people who see their livelihoods destroyed by more efficient production processes or new technology. In economic parlance, this is called the substitution effect. As cheaper technology replaces more expensive labour, many are left without any means of making their living. New, more efficient production methods cause the cost of goods and services to fall and this means that real incomes (what can be purchased for a set amount of money minus inflation) rise. This increases the demand for now-cheaper goods and services, thereby creating new jobs to provide for that newly released demand. This is called the compensation effect. Economic theory, and, indeed, observation of previous industrial revolutions in the UK, has demonstrated that these predictions are accurate empirically as well as theoretically. However, the compensation
effect rarely happens at the same time as the substitution effect. Nor does it necessarily completely compensate those who find themselves ‘substituted’. The time lags separating the bad effects from the beneficial effects can be significant. There is likely to be a great deal of human suffering in the absence of state action to alleviate the problems caused by this transition through a period of great change.

  We would argue that the Labour Party’s creation was a symptom of the hardship and social disruption caused by the First Industrial Revolution which had begun 100 years earlier. As the prevailing laissez-faire economic philosophy of both the Conservatives and the Liberals ruled out a priori state action to mitigate such suffering, the Labour Party was created to deliver it. The ‘free market’ cannot and never has provided the solution to the enormous price paid by those who lose out to ‘progress’ in times of rapid economic change. Social action and politics have to provide these solutions and society collectively has to wish these answers into being through the political choices it makes. If it can do so successfully, then the benefits of great economic change can indeed be spread more equitably, ensuring the creation of more socially and environmentally sustainable societies.

  IDEOLOGY AND ECONOMIC OUTCOMES

  Different industrial revolutions do demonstrate differences in outcome, too. Technological change increases the productivity of the economy and as a result both economic theory and empirical experience suggest that wages should rise. This positive relationship between productivity and wage levels has been empirically observed in the UK, but often with a time lag. However, in the case of the Third Industrial Revolution, which developed in the second half of the twentieth century, the increases in productivity were not fully reflected in rising wages either in the US or the UK.18 Why might this be? And will it be repeated in the future?

  The Third Industrial Revolution took place in the era of market fundamentalism, ushered in by the 1980s Thatcher–Reagan consensus. This destroyed the balance between capital and labour which had been established in the post-war period. The weakness of organised labour following the introduction of anti-union laws allowed the owners of capital to reap much higher rewards from innovations than economic theory suggests they should. As we have seen, the theoretical assumption is that productivity increases should be reflected finally in increasing real wage levels. But, in the UK, real wages have fallen short of productivity gains by 0.3 per cent. Had real wages tracked productivity since 1990, the median worker would be 20 per cent better off.19 In the USA, that figure is a massive 40 per cent. So, the prevailing ideological assumptions and political choices which are made during times of rapid change have a significant material effect on the outcome for society. There are political and economic choices that can and do change the outcome to make it more or less fair.

  The predicted interplay between the substitution effect and the compensation effect in economic theory looks very neat on paper. The reality is much messier.

  In the First Industrial Revolution, it wasn’t much ‘compensation’ if you were an artisan spinner working from home when the advent of the spinning jenny rendered you destitute, with no chance of feeding yourself or your children and nothing but the workhouse to fall back on. If you were lucky, you could go and work in one of the new mills – forced to accept the loss of all dignity and independence, and for a far lower wage. If you were unlucky, you starved. A similar choice is facing those displaced today, though they are more likely to face food poverty rather than starvation. Being forced to move from a unionised job in manufacturing to a minimum-wage job in non-unionised Starbucks is unlikely to foster happiness and contentment. (Or, in the case of Angela’s dad – a highly skilled print-worker, seven years apprenticed at the top of the labour hierarchy – watching his skills made redundant, going on to work in a supermarket earning the minimum wage.) Many who suffer this loss of status and have their place in society wrenched away from them often blame globalisation, trade or immigrants. They feel neglected and left behind and they are right to, but this breach of the unwritten contract of status and place in society has been exploited by right-wing populists in America (Trump election) and the UK (Brexit). And, in the absence of any realistic help to retrain and a punitive social security system amplifying nasty ministerial rhetoric about scroungers, this should not be a surprise. That is why it is so important to ensure that this loss of prosperity and status for communities most disadvantaged by change is actively mitigated by the state. We would advocate a Marshall Plan for working-class communities who have been victims of this wanton neglect by market fundamentalists and the Conservative governments that have adhered to this doctrine.

  THE CHALLENGES AHEAD

  As democratic socialists, we believe that the state has a vital role to play in ensuring that progress in society is harnessed for the benefit of all. This is especially important in these times of rapid and profound change. It is only by involving the state that ‘inclusive growth’, which ensures that the benefits are spread widely and felt by all, can be achieved. As we have seen, wealth is already concentrating in fewer and fewer hands. When the richest 1 per cent of people in the world own half the world’s wealth and just three Americans own as much as the bottom 50 per cent of American citizens, inclusive growth seems a very distant dream. It will not arise spontaneously, and can only be achieved by deliberate government policy and international co-operation. Not even all of those lucky enough to be counted among the richest 1 per cent who benefit would argue that the current distribution of wealth is desirable or sustainable. As we stand on the cusp of the Fourth Industrial Revolution, achieving inclusive growth is a more crucial requirement than ever.

  As always, change is complex, and the devil is in the detail. So, how does the transition from the old system to the new happen? How long does it take? Who does it affect the most and who benefits from it more? Economic historians can answer these questions for us as they survey the nature of the first three industrial revolutions. But are the first three industrial revolutions likely to be good predictors of the path of the fourth, or are we really in uncharted waters? The Bank of England seems to think the latter:

  There is growing concern in the global tech community that developed economies are poorly prepared for the next industrial revolution. That might herald the displacement of millions of predominantly lesser-skilled jobs, the failure of many longstanding businesses which are slow to adapt, a large increase in income inequality in society, and growing industrial concentration associated with the rapid growth of a relatively small number of multi-national technology corporations. Economists looking at previous industrial revolutions observe that none of these risks have transpired.

  However, this possibly underestimates the very different nature of the technological advances currently in progress, in terms of their much broader industrial and occupational applications and their speed of diffusion. It would be a mistake, therefore, to dismiss the risks associated with these new technologies too lightly.20

  FOUR CHALLENGES OF THE FOURTH INDUSTRIAL REVOLUTION

  AUTOMATION

  The Fourth Industrial Revolution is likely to be felt first and foremost in the labour market. It will change the type and nature of work. Without mitigation, it is likely also to skew the rewards to capital still further at the expense of labour. This means that those who own capital will continue to get richer while many of those who work for a wage will get poorer. As levels of global disparity between the richest 1 per cent and the rest have already reached grotesque levels of inequality, there must be agreed global action to address this imbalance.

  Estimates of job losses to automation in the Fourth Industrial Revolution vary, but they are all dramatic. The Oxford University Citi study predicted that 35 per cent of workers in the UK could find their jobs at risk from automation in the next twenty years. This figure rises to 47 per cent in the USA and 57 per cent in the OECD as a whole. They predict that these percentages will be even higher for developing countries; thus, for
India, the figure is 69 per cent and for China, 77 per cent. The Bank of England has used the methodology developed to produce this report by Frey and Osborne to estimate that, in the UK, that amounts to 15 million jobs at risk in the next twenty years. Those who do routine processing of information, administrative or production jobs are most at risk, but rapid technological advance may put even more occupations in the frame for automation.

  Those who used to work in bookshops, travel agents, journalism or the music industry have already experienced what many more will soon discover. The wholesale change in the way that these services are accessed has destroyed existing jobs, replacing them with poorer-remunerated alternatives. But there are limits to this process, in the short term at least. The Citi report identifies what it calls three bottlenecks to automation: perception and manipulation; creative intelligence; and social intelligence. Jobs that rely on the use of these skills are more protected from automation than the rest, at least for now.

  A HOLLOWED-OUT AND INCREASINGLY UNFAIR LABOUR MARKET

  The disruption to economic life caused by accelerating automation will not affect all equally. The World Economic Forum calculated at its meeting in 2017 that those most impacted will be at the lower end of the earnings scale because their jobs are more at risk from automation. There is also expected to be a differential gender effect too. The WEF estimated that, for women, five jobs will be lost for every one created. For men, three jobs will be lost for every new job created. There will be a polarisation of the labour market, with a premium on the high-skilled, adaptable worker at the expense of those whose skills are low or have – through no fault of their own – become redundant.