The Knowledge Economy (part 2)

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Roberto Unger’s book lays out his vision of the emerging knowledge economy, with rapidly innovative, knowledge-based processes in the vanguard of production. So far, however, these advanced practices of production remain highly restricted—employing few workers, controlled by technological elites, and mainly benefiting a small number of global corporations. Unger observes what he calls “pseudo-vanguardism,” in which a company uses the products of advanced production—such as sophisticated software—to run large, highly regimented operations, often in parts of the world far from corporate headquarters. The creative knowledge workers of Silicon Valley are supported by low-paid assembly workers in Asia. “Genuine vanguardism remains restricted to a small inner circle of entrepreneurs, managers, and technicians—an elite of capital and of knowledge—disengaged from the social entanglements of mass production.”

This has two unfortunate consequences: the domination of the global economy by large oligarchies and the weaker position of labor in relation to capital. Most workers don’t yet receive the potential benefits of the knowledge economy, but experience instead greater job insecurity and a declining share of income relative to the owners of capital. Innovative firms want flexible work forces, so they replace secure employment with subcontracts to low-wage firms or part-time and temporary hires. These trends contribute to the “hollowing out” of the middle of the wage distribution and the increase in overall inequality. The potential of the knowledge economy to unleash creative impulses, boost productivity and raise incomes across the board is yet to be realized.

These trends are especially noticeable in the United States, as evidence I have been citing from many sources supports. Frey reported that in the last 40 years, the share of US income going to labor rather than capital has declined from 64% to 58%. Among the 36 countries in the OECD, only three rank higher than the US on the Gini index of income inequality, based on after-tax income.

Unger’s explanation for these restrictions on the knowledge economy starts with the observation that the standardized, formulaic practices of industrial mass production are simply easier to spread from one place to another. Innovative, imaginative forms of work are harder to emulate because they “cannot, as mass production can, be reduced to a stock of readily transportable machines and procedures and easily acquired abilities.” The knowledge economy makes heavier demands on society to provide cultural and institutional support for economic growth and transformation.

What would it take to make the knowledge economy more inclusive? Unger identifies requirements of several kinds:

  • Cognitive-educational requirements include technical training that is not too job-specific, more emphasis on the imaginative side of the mind, in-depth study as opposed to “encyclopedic superficiality,” cooperative rather than authoritative learning, and discussion of contrasting points of view.
  • Social-moral requirements include more emphasis on the kinds of social interdependence that we more often associate with families, communities and churches, as opposed to the unbridled self-interest of traditional business. Social supports that could help compensate for greater flexibility of employment could include portable benefits that workers could take from job to job, or a “social inheritance” granted at birth, available to help finance human capital development and career transitions.
  • Legal-institutional requirements include new forms of coordination between governments and firms. The aim would be to help more firms acquire and use the new means of production, similar to how government helped small farmers in the nineteenth century with land grants, agricultural education and economic support. Analogous support today would include intellectual property reform to keep large corporations from monopolizing the ownership of online, user-generated data.

Unger advocates for a more vigorous democracy, since he sees today’s relatively weak democracies as too easily captured by powerful interests. He wants something in between the minimal government of laissez-faire capitalism and the more intrusive government of state socialism. A stronger democracy would respect and empower group differences, but also develop more rapid and effective means of resolving disputes among them. Otherwise, government may stand by helpless and gridlocked while the economy is generating undemocratic outcomes.

In the long run, Unger expects the emerging knowledge economy to support a more egalitarian society, recent trends in the opposite direction notwithstanding. He also expects it to ameliorate the chronic imbalances of economic supply and demand that create periods of recession and stagnation. He agrees with the Keynesian economists that supply does not create its own demand, and that there is no automatic connection between advances in productive capacity and the capacity to consume. That is the main reason for economic instability. A particularly innovative firm can expand a market by producing a product at lower cost, but that may not solve the problem of economy-wide aggregate demand.

Keynesian demand-side stimulus by government can help, through easy credit or “redistributive social spending.” Government can tax or borrow under-invested savings from the wealthy in order to boost spending and consumption for all. But even that may not be enough, if the problems of stagnation and inequality are severe. This is where Unger sees an institutional solution in the transition to the knowledge economy:

[W]e eventually come to a class of solutions that do expand demand by the same means through which they increase supply: an institutionalized broadening of access to the resources, opportunities, and capabilities of production. At this point, and only at this point, that which increases demand also increases supply. What the prevalent way of thinking supposes to be the natural state of economic life—the reciprocal accommodation of supply and demand—is in fact a characteristic of exceptional varieties of economic organization: those that have the property of breaching the limits of both supply and demand by equipping more economic agents with the means and occasions for productive initiative.

To make this more concrete, consider service workers whose means of production consist mainly of personal computers, software and skills, both cognitive and social. They are both workers and owners of capital, and their capital is intellectual and social as well as material and financial. Assuming they are providing a desired social service, they simultaneously produce something of value and generate income for their own consumption. Anything that increases their access to capital—broadly defined—helps them do so. The sharp division of owners and workers so typical of industrial capitalism—and so central to its inequalities and instabilities—starts to break down.

Unger accuses mainstream economics of a “poverty of institutional imagination,” the kind of imagination he associates with Adam Smith and Karl Marx. The most “fundamentalist” of economists defend the institutional arrangements that developed in Europe and America as part of the fixed laws of capitalism. Others are “agnostic” about such arrangements, limiting the subject matter of economics to what they think would be true of any market economy. Unger doesn’t want to defend or ignore institutions like property law and labor law, but instead bring institutional change back to the center of economic analysis.

In his final chapter, Unger discusses the “higher purpose” of making the knowledge economy more inclusive. The present economy is not only vulnerable to stagnation and growing inequality, but it also wastes human potential.

By condemning the vast majority of the labor force in even the richest countries, with the most educated populations, to less productive jobs, it also belittles them. It forces them to live diminished lives, giving inadequate scope to the development of their powers and to the expression of their humanity. To overcome the evil of belittlement through the transformation of workday experience is the higher purpose of an inclusive knowledge economy.

Keynes looked forward to a time when industrial productivity would eliminate scarcity and free people from the demands of work. That made sense at a time when highly productive manufacturing workers were demanding both good wages and a shorter work week. While some material things have become more abundant, Unger doubts that we could ever have enough of every marketable commodity. He points instead to the human capacity to keep finding new things to desire, especially in an economy that can offer more customized goods and services. Even if we limit our consumption of material things—and I expect limitations on natural resources to make us do so—I agree with Unger that “there is no limit…to our desire for service and attention from one another.” Instead of “freedom from the economy,” he looks for more “freedom in the economy.” This is consistent with his willingness to let the robots do the formulaic work, while humans devote themselves to the more creative functions.

Here are Unger’s closing thoughts:

As it deepens and spreads, the knowledge economy makes the practice of production more closely resemble the workings of the imagination….

Imagination is freedom because it is transcendence in the working of the mind. A form of production giving more space to the imagination than any previous practice of production ever gave represents an advance in freedom. It justifies the hope that we might find freedom in the economy rather than only freedom from the economy.

A knowledge economy in which many can take part does more than increase productivity and diminish inequality. It has the potential to lift us up together, to offer us a shared bigness.

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