The Wicked Truth About the New Economy


Despite massive advances in technology, the real average family income has been essentially stagnant since 1973. Why? Is it because the marketplace substituted cheap technology for humans? Technology has been used by Big Money to increase productivity or to eliminate jobs -- and not necessarily to create wealth for citizens. People can now produce slick reports on their personal computers -- but most cannot find good stable jobs! Many have discovered that loyalty is no longer reciprocated: what many bosses want is flexible servitude, not loyalty. Obey, or lose your job! Even governments are threatened -- obey, or we'll move the factory to a lower-tax jurisdiction! The marketplace economy has become a command economy. Economic policies amount to dirigisme by monopolists acting as para-governments.1 That's the ugly reality of the so-called new economy.

Robots. Today, a large corporation can record the motions of its best factory worker on computers, then replay them through Robots to produce the goods it sells. Would such a corporation keep the worker on its payroll, as a full-time employee? Probably not. Hayek told us that prices (the worker's salary) reflect the "value" of the worker's work -- not his "merit"!2 And herein lies the dilemma of the marketplace. The dehired worker, whose perfected Art and Science has been captured by the Capitalist's Machine for all time, can go to hell. After all, the worker was informed that his motions would be recorded on the computer! And, nobody coerced him into helping the company increase its efficiency or productivity! So long as there are enough consumers for their products and services, should the lords of the marketplace care?

In America By Design, David F. Noble explained how corporations monopolize technological intelligence.3 He argued as follows. Monopolists first take control of "the products of scientific technology," then extend their control to include "the process of scientific production itself."4 The monopolist ends up controlling both product and process. Noble noted that it was Charles Babbage, a British engineer and "capitalist theoretician," who first understood the necessity for the capitalist to "dissociate labor from the productive process and reintegrate the two . . . to maximize the surplus value produced by the labor force in the productive process"5 -- for the benefit of the Capitalist. In other words, the key to the Capitalist's prosperity is first to divorce the workers "form ownership of the means of productive work," then to "divorce [them] from their own skill, their own traditional store of knowledge . . ."6

Noble's insight can be generalized. There is no reason to believe that the monopolist would not extend his control to include all -- product, process of production, and science and technology!

Babbage's Principle of Capitalist Monopolization and Control. Today, bank public relations and propaganda tell us that banks care about innovation and entrepreneurs. Consider this gedanken scenario. A scientist or engineer discovers how to produce inexpensively a portable, ecologically sound, nuclear power supply with a lifetime exceeding 100 years! Not having sufficient capital, he negotiates a deal with the venture capital arm of his bank. He gets capital, the bank gets equity stock -- equity control -- in the innovator's company. With good planning, sufficient capital, and luck, the company starts growing exponentially. Now here's the dilemma. The banker used essentially other people's money -- investors' and depositors' money -- to finance the venture. If he is a true Capitalist, his first instinct would be to take control and monopolize the very science that is used in the production process for the power supply. How can the banker achieve his goal? Simple. He waits for the first opportunity to "divorce" the scientist from his science and technology . . .


1 For a discussion of "coalitions of organized interests" and "para-governments," see Friedrich A. Hayek, Law, Legislation and Liberty, Vol. 2, 1976, at 13-17 and 143-145.

2 Ibid., Vol. 2, at 131 (discrepancy between merit from effort and corresponding benefit).

3 See David F. Noble, America by Design, 1977, at 259-260 ("capitalist monopolization of the intelligence of, and control over, production . . . ").

4 Ibid., at 6 (monopolist control over the products and the process of scientific production).

5 Ibid., at 259 (Charles Babbage).

6 David F. Noble, America by Design, 1977, at 267.





Plate 7-1

Plate 7-1   Why Did the Economic Fortunes of Canadians and Americans Stagnate After 1973? The Link Between Personal Disposable Income Per Capita and World Oil Production.

The Chart provides powerful evidence corroborating the fact that Capitalism has failed to deliver real and absolute increases in family income after 1973. Why? There are several possible reasons for this:

  1. The Arab oil embargo -- the first significant blow to colonial exploitation of resources. The embargo was followed by increases in the price of oil and inflation.
  2. The defeat of overt colonial exploitation -- marked by the fall of Saigon in 1975.
  3. Misdirected investments. Substantial evidence corroborates overinvestments in commercial real estate at the expense of industrialization and technology.
  4. The increase in the civilian labor force participation of women. Ironically, this led to the economic exploitation of women in the marketplace.
  5. The increased resistance, mostly in the West, against the despoiling of nature by industry. Considerable evidence corroborates a substantial increase in the vulnerability of the planet to the hazards of global industrial pollution, etc.

Of the five reasons, none appears to be more potent than the Arab oil embargo. Why? Because the growth of industrial economies is predicated upon the availability of cheap energy. A linear regression indicates that world oil production explains 83.95% of the variation in personal disposable income per capita (indexes used). Without cheap energy, industrial economies falter. Without cheap oil, supergrowth in family income stops.

But what about misdirected investments? The Economic Report of the President (1997) claimed as follows: "From an accounting perspective, almost the entire slowdown [which began around 1973] is attributable to a decrease in multifactor productivity growth, that is, the efficiency with which capital and labor are used."5 This is only partially true. As will be shown in Book II, the real issue is not only efficiency, but, much more importantly, motives regarding the allotment of benefits.

And what about technology and innovation? IBM introduced the much touted PC in 1981. Did PCs increase real family income? The Chart shows clearly that the real average family income after tax did not increase after the introduction of the PC (it oscillated). Why? Because high-tech firms focus on what consumers could or would be made to buy -- and not necessarily on what is needed to secure and grow employment and income for others. Capitalists are driven by money: the primal goal is to increase profits and market share (dominion) -- not to create jobs for, or to increase the wealth of workers. Current Capitalist arrangements make it almost impossible for people to benefit from science and technology as increase in net wealth (the Myth of Progress is discussed in Book III).

A careful examination of family income, in both the U.S. and Canada, reveals that income has been oscillating since 1973 -- as if the economy were a PREDATOR-PREY process. The oscillations are not as evident prior to 1973 because the predation was masked by supergrowth fueled by colonial exploitation. When colonial exploitation became more costly and less secure, Capitalists shifted gears. Instead of limiting exploitation to "colonial outposts," transnationals would exploit the whole world,-- the GLOBAL MARKETPLACE.

The indexes are derived from data from the following publications:
1 R. Famighetti (ed.), The World Almanac and Book of Facts 1996, Funk & Wagnalls Corporation, 1995, at 505-510 (U.S. History), and 573-576 (World History); and J.R. Colombo (ed.), The 1996 Canadian Global Almanac, Macmillan Canada, 1996, at 295-306 (World History).
2 C. Flavin, Oil Production Up, by C. Flavin, in Vital Signs 1995, at 46-47, L.R. Brown et al., Worldwatch Institute, 1995 (World Oil Production, 1960-1994; cited sources: API, Basic Petroleum Data Book (Washington DC, 1993), and Worldwatch estimates, based on BP and Oil & Gas Journal).
3 Statistics Canada, Canadian Economic Observer, Historical Statistical Supplement 1994/1995, No. 11-210 (personal disposable income, population, and CPI deflator).
4 Statistics Canada, Income After Tax, Distributions by Size in Canada 1993, June 1995, No. 13-210 (average family income after tax, in constant 1993 dollars).
5 See Economic Report of the President, transmitted to the Congress February 1997, at 28-37 (Growth), especially 30 (Box 1-1 -- Explaining the Productivity Slowdown).

[Copyright 1998 by MACROKNOW INC. All rights reserved.]



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