How Illiberal Politics is Impacting Business and Economies

For the past several centuries the world has made much of its progress on the back of the relationship between citizens, governments and businesses. From the time of the Magna Carta, when aristocratic barons seized privileges and rights from the monarchy, businesses have had the upper hand in the relationship. As agents of innovation and industry that keep the wheels of the economy moving, they were given a free hand by the state, in most Western economies, notably those of Britain, France, Germany and the USA. Indeed, in the case of the world’s first multinational, the East India Company, it represented the state, as William Dalrymple points out in his latest tome, The Anarchy.

In recent times, this relationship has been tested and has come under severe pressure. Thanks to many of these innovations – both in technology and modern finance – as well as globalization, the effects of the strain are also being felt across the world. Today, as the backlash against globalization gathers steam in many Western economies, it has also manifested itself in anti-immigration sentiments and in identity politics of the most toxic kind. Global connections are not just through merchandise trade or financial markets, but through the internet, social media and the movement of people as well as ideas across the world.

How did this come to be, and what impact is illiberal politics of our times having on business and economies in general?

To start with, we need to look at the ways in which technological inventions and innovations have fueled economic growth and exerted a growing influence on the economy and on our lives, right from the days of the Industrial Revolution. The invention of the cotton ginny or the steam engine didn’t just change the textile or the transportation industries. Coupled with the objectives of Empire, they were huge catalysts for the growth of colonial empires. As Daniel Thorner wrote long ago, the development of the railways was the single most important factor in the expansion and growth of the British empire. We can already see the alignment of business and state interests in furthering their growth.

In the early years of industry, citizens were reduced to mere workers, tiny cogs in the giant wheels of industry, automatons as depicted so poignantly in Chaplin’s Modern Times. Man lost the strength of his art or craft that had defined his occupation and trade for several generations to the sameness of dull, repetitive work that factories required. And the old artisans’ guilds were replaced by giant factories. There were several reactions against this relentless numbing of man’s sensibilities by the industrial juggernaut, most notably in Britain under the Arts and Crafts movement that people like John Ruskin and William Morris spearheaded and that Raymond Williams captures brilliantly in his classic, Culture and Society. In fact, he emphasizes that the very word, culture, was a product of the industrial revolution.

The juggernaut was not to be stopped, however, and the worst exemplification of man as automaton, came with mass production. The assembly-line production that companies such as Ford pioneered was a double-edged sword. On the one hand, it promised workers better wages as well as huge economies of scale to make products like Ford’s model T so affordable that workers too could buy them at some point in their lives and enjoy a higher standard of living. On the other hand, it made the worker fit for only dull, repetitive work, and often with no prospects of improving his station in life.

There was the emergence and growth of a new class of worker much later, one that Peter Drucker anticipated: the knowledge worker. A class of people whose work depended on what they knew and how they added to knowledge within a firm and in society. People who we today call the managerial class and professionals. This, together with the dawn of computers, signaled a new era in the post-modern world. Now, it was possible for man to acquire and learn a new skill that didn’t require him or her to do dull and repetitive tasks, but allowed him and her to apply their minds to solving problems. It was a quantum leap of sorts, you’d have to say, and one that propelled the careers and salaries of professionals into a different league altogether.

The world having become more complex in order to simplify it, quite paradoxically, required governments to now play a different role. Specialisation was the order of the day and governments had to be up to speed on technological developments; indeed, they should have been setting up new regulatory frameworks for entire industries to operate within. In the meanwhile, seeing the future potential of new technologies, governments began funding large research projects especially in the US, and often in association with academia and industry. It was only a matter of time, before industry and government’s interests would one again align to produce the military-industrial complex that we know has powered most of the modern Western economy for the past five decades or more.

Fast forward to today. The knowledge that generations of workers relied upon is suddenly no longer sufficient to ensure a promising career. It appears that machines can be taught how to think and respond to situations better than us in many cases, and thanks to machine learning and AI, the knowledge worker is once again having to learn new skills, adapt to new work environments and build a new life.

The factory worker, on the other hand, in many Western economies is either being replaced by automation or is having to learn new skills to adapt to the new internet economy. The biggest defining feature of this new economy is that it’s in large part a gig economy: it doesn’t offer job security or employment benefits; worse it comes with no prospects of furthering one’s career. As always, business is calling the shots, and this time the government is nowhere to be found.

Indeed, right now one of the biggest debates on in the US is whether people who work in such gig jobs should be considered employees or service providers. Companies such as Uber, Airbnb and several others argue that people who work for them are service providers who contract their services to them and so are not entitled to be treated as employees. It brings into question several employment and wage related questions, including many legal ones. California is the first state in the US to pass a law requiring employers to treat “contractors” as employees. In fact, many of them, Facebook included, argue that they are tech companies, or “platform” companies as they prefer to call themselves. I am of the view that with the kind of massive and disruptive changes that we are seeing in the very nature of the economy and with almost everything now based on a technological platform, these companies should not be allowed to get away with such sleight of hand; Facebook as well as Netflix are media companies as is Uber a transportation and logistics company.

At the same time, companies and economies are growing on the strength of intangible assets, as I had written in a previous post. Intellectual property has been contributing an increasing share of the US GDP, and investment in intellectual property as a share of US GDP as well has been growing, particularly between 1995 and 2001, when it saw the sharpest rise as this graph below shows. In terms of US GDP that is attributable to intellectual property, it has grown from 34.8% in 2010 to 38.2% in 2014, according to the US Commerce Department. Other countries, including UK and several from Europe, Japan, and Singapore also continue to lead the Global Intellectual Property Index; India too has leapt eight places to 38 in 2019 from 44 in 2018.

Coming back to the subject of globalization, those who are trying to reverse it are fighting a losing battle. With government and business interests so closely aligned, and with business still having the upper hand, it will continue to be a labour cost arbitrage story. We can already see that as a result of the 2008 Financial Crisis and the US-China trade war, companies are still shifting their global production and supply chains around to manage their top and bottom lines. And, they continue to lay off workers.

For the greater part, globalization has been a force for good for most of the emerging and developing world, bringing new jobs, technologies and skills to the vast majority in these poorer countries. It has meant cheaper goods for consumers in developed countries, and fatter profits for multinational companies. Joseph Stiglitz, in his book, Globalisation and its Discontents, points out the mistakes made by globalizing companies when they fail to look at the long term, and by political leaders when they try to reverse globalization:

“History matters: twenty or thirty years later, after production has shifted to China, we can’t just say, let’s bring manufacturing back to the United States or Europe. While overall, America has a high level of technology and very skilled workers, in many specific areas we have neither the technology nor the skilled workers required…  More likely, if production were to return, it would be based on new and different technology – in particular, the use of robots… But – and this is key – bringing production back with these new technologies will not resuscitate the old manufacturing jobs; indeed, it is unlikely to create many jobs at all, and the jobs created will be mostly highly skilled jobs and in different places from where the jobs were lost.”

Which is why I believe that the illiberal politics that is taking hold in many Western economies is managing to stoke the fires of anger and discontent, but is no good at providing any solutions. Here, I would argue that governments are on their own, and sadly so are the citizens, who are being brainwashed into believing that protectionism or anti-immigration rules are going to land them better jobs or better futures.

With recent tax breaks for businesses and further relaxation of labour laws in many countries, we can expect further cost cutting and retrenchment of workers. That is one of the reasons why Universal Basic Income is such an important subject in Western economies today; it is another matter that a few experiments such as those in Finland haven’t yielded positive results to justify that kind of government spending. Citizens are and will continue to be trapped in between being low-cost labour and consumption engines. At some point, this dynamic will have to give way; low wages will crimp consumption and it will start telling on company’s balance sheets.

In many ways, what Karl Marx foresaw about a capitalist economy is being borne out now; not in textile factories in the industrial age, but in the services sector-led internet age. Where wages will be reduced to such ridiculous levels that the working class will be decimated. Think about it: aren’t workers in the gig economy as badly off as the factory worker in Chaplin’s Modern Times? Can we with any sense of proportion or certainty call this progress?

Illiberal politics in many countries is also having an impact on economies in the name of economic reforms that aim at cutting what is deemed “unnecessary spending”. And usually these hit the poorest folks the most. Take for example what is going on in Brazil under Bolsanaro’s government. According to this article in The Economist, the country is cutting back on the biggest and most successful poverty reduction programme, Bolsa Familia, a conditional cash transfer made to poor families on the condition that they send their children to school and get regular health check-ups. The cuts are being justified on the grounds that bigger cuts are being made to spending that benefits prosperous Brazilians and on the spurious logic that smaller deficits and less debt will encourage economic growth by holding down interest rates. This will create jobs, believes the economy minister, Paulo Guedes, which is better than handouts. The article doesn’t mention if these Bolsa Familia cuts are targeted at indigenous tribes in the Amazon who have been resisting Bolsanaro’s policies in the region, but I wouldn’t be surprised if it is tinged with political and racist ideology. Something similar and equally sinister is being planned in the US where the latest US $ 4.8 trillion budget of the Trump administration aims to cut back on social spending to the tune of US $1.5 trillion and most specifically, on Medicaid, the health programme for the poorest in America. This, while larger amounts will be earmarked for defence and we can expect some of those funds to be diverted to building Trump’s “beautiful wall” as has happened before.

lliberal politics will also take a toll in countries not being able to attract skilled workers from outside and it will have an adverse effect on countries’ economies. We know from facts that immigrants are a great source of strength and vitality to an economy, as has been demonstrated through centuries in the US and other Western economies.

It is time that businesses start seeing employees and citizens as more than mere workers or a cost-head and a consumption-machine to keep shareholders happy. They will have to recognize the importance of training and reskilling their employees on a regular basis as that is one of the key requirements of the internet and AI age. Which means they will have to rethink the “gig contractual service provider arrangement” as well. And it is time that governments stepped up to their plates and played their role, instead of being patronized by business. They too have a huge responsibility in ensuring that citizens’ education, training, livelihoods and earning capacities continue to grow and prosper. Else, we are looking at Armageddon and all hell will break loose.