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European Straits #76
🎉Today’s the day 🎉My book Hedge: A Greater Safety Net for the Entrepreneurial Age is now available for purchase on Amazon. 👉 Get your copy here! 👈
What will you find in it? It’s a book about the economic, social, political and global dimensions of our current crisis—and what urgently needs to be done about it.
Granted: The feeling of being in a crisis is nothing new. But something changed lately: technology is seen as part of the problem rather than the solution. If you read the headlines, tech companies don’t pay their taxes. They destroy jobs. They contribute to rising real estate prices and inequalities. They’re even corrupting democracy.
The real turning point was the 2008 financial crisis. And the period that we’re going through bears a striking resemblance with what the Western world experienced with the Great Depression: the trade wars, the decoupling of productivity and wages, and an adverse political reaction to the demands of the new working class of the day.
Yet those problems were solved last time. How? By putting in place what I call the ‘Great Safety Net 1.0’: government-sponsored social insurance to cover households against illness, old age, and unemployment; a financial system in line with the paradigm of the automobile and mass production; and strong, powerful trade unions.
One reason why we’re currently having such a hard time solving problems such as decreasing wages and unaffordable housing is that we’re undergoing what Carlota Perez calls a “technological revolution”. We’ve left the old paradigm of standardized products being mass-produced in giant factories or office buildings. Now we’re living in the new “Entrepreneurial Age”, a world in which the goal for successful business is to leverage technology to deliver the best experience at the highest scale possible.
And in this new world, everything has been turned on its head! If you want to understand the Entrepreneurial Age, just remember this: In the digital economy, there’s more power outside than inside organizations (whether they are corporations or government agencies).
This is a radical departure from what used to be the rule in the 20th century. And the most successful companies of the day are very different from the large corporations of the past. They have been entirely designed around harnessing that outside power, which lies with the multitude—the billions of individuals who are more connected than ever thanks to ever-increasing computing power, now largely carried around in their pockets thanks to smartphones. Look at every single large tech company: you’ll see that key features in the business model of the likes of Amazon, Tencent, Google, and Alibaba are all about harnessing the power of the mighty multitude.
Problems come with the rise of the multitude. One is what I call the ‘Greater Wal-Mart Effect’, or how the multitude exerts an ever-growing pressure on wages as consumers demand ever-better products and services for ever-lower prices. Another problem is the widespread instability in an economy driven by increasing returns to scale, where a company such as Airbnb can upend an entire industry in less than a decade, while another such as Yahoo can go down in flames in the blink of an eye. If we want to build a ‘Great Safety Net 2.0’, it has to be designed to hedge individuals against those new risks that are inherent to the Entrepreneurial Age.
In order to build a ‘Great Safety Net 2.0’, we also must deal with some persistent myths:
First is the notion that weakening the Safety Net is necessary to be competitive in the global digital economy. Nothing is further from the truth. In the past, the most competitive and advanced economies in the world were those with stronger safety nets. And the same is true today: the more borders are open for free trade, which is good for the economy, the more you have to hedge households and businesses against the risks that come with open borders.
The second myth is that the working class is still about working in factories. Yet today there’s a new working class that’s rising and that we all tend to disregard: what I have long referred to as those working in ‘proximity services’. These are the restaurant wait staffs, child carers, delivery drivers, nurses, cleaning staffs; they are working in sectors as diverse as hospitality, urban logistics, healthcare, education. And this new working class is critically important, because it’s the very part of the workforce that is most immune to automation and offshoring. In other words, it represents the vast majority of jobs in the future. What it lacks is an adequate Safety Net that makes those jobs more secure and more attractive.
The third myth is that we should expect everything from the state. The state has never been good at pioneering new ideas for the Safety Net. What it used to be good at was scaling up innovative mechanisms when they were proven at a small scale. That means the state needs a vanguard of radical innovators before it can take charge. Alas it doesn’t help that today’s state is big and bureaucratic, and therefore resistant to change. What’s more, in the West it is frequently captured by vested interests that entrap it within legacy mechanisms and thinking.
Hedge offers a clear diagnosis on which we can build practical solutions—with, for example, new forms of consumer finance and insurance, or by revisiting collective bargaining and occupational licensing. I explore these in the final part of the book. But I believe these are simply starting points, and I hope that every reader will use them to take things into their own hands. That’s the energy we need, because if we don’t rise to the challenge, China will be the one imagining the Great Safety Net 2.0. And we in the West will have no choice but to embrace it as our own—or lag behind in economic irrelevance.
Warm regards (from Normandy, France),