PostCapitalism-_Paul-Mason_-_z-library.sk_-1lib.sk_-z-lib.sk_

The growing age imbalance is irreversible. It’s not just caused by people living longer due to better healthcare and higher incomes; the main driver of the imbalance is falling birth rates, as women gain control of their bodies through contraception, and as education, advances in human rights and urbanization give them greater independence.

The UBS economist George Magnus says rapidly ageing societies ‘present us with an existential threat to the social and economic models we built after World War Two’.¹⁵ In the developed world, demographic change will create stress in three critical areas of economic life: financial markets, public spending and migration.

During the post-war boom, private, corporate and state-mandated pension schemes grew massively. Though they sometimes included only a minority of the workforce, these schemes – in which savings deducted from wages were matched by company contributions and invested in the stock market – became the mainstay of the financial system. Before globalization, such schemes typically invested in their own country’s debt and in the shares of major companies on their national stock exchange, with a small portion allocated tactically to meet projected needs. With tax breaks on the profits, and mandatory membership in some countries, it was the ultimate form of what Marx had called ‘capitalist communism’.

But in the age of fiat money things changed. The repeated use of interest rate cuts when growth slowed made investing in shares a one-way bet, continually hiking the value of the stock market. The result was that, even as the demographic problem loomed, fund managers calculated that the financial system would still meet its commitments. Some even declared the projections were so positive that it was safe for the employer to take a ‘contribution holiday’ – leaving only the workforce to put money in.

The first country into the boom-bust vortex was Japan. The Nikkei 250 index of major companies trebled in value between 1985 and 1990. Then a crash began, and over the next ten years its value halved.

In the West, with above-average GDP growth in the late 1990s, stock markets surged again. The FTSE rose from 3000 in 1995 to peak at 6930 in December 1999. America’s S&P 500 trebled in the same period; Germany’s

DAX index quadrupled. If you call up these indices’ long-term charts since 2000, you will see a picture of three spiky mountains with steep sides. In the space of fifteen years, share prices have twice gone through boom and bust, with the current recovery – even though fuelled by trillions of confected dollars – pushing them barely above where they peaked in 2000.

The dotcom crash was the wakeup call. Where they could, companies scrambled to reduce their pension liabilities: transferring future pensioners to lower benefits, closing schemes to new workers – and sometimes going bust under the strain. In the search for higher returns on their investments, pension funds now diversified, pushing money into hedge funds, property, private equity and commodities. The aim in all cases was to make up the shortfall. We know the outcome. From the spectacular hedge fund implosions that started the credit freeze of August 2007 to the commodity price rises that triggered the Arab Spring, these big institutional investors collectively became – sometimes unwittingly – crucial drivers of instability.

In the aftermath of the crash, the typical big pension fund invests 15 per cent of its money in alternatives to shares (i.e. property or commodities) and lends more than 55 per cent of its money to governments in the form of bonds, which under quantitative easing pay zero or negative interest.

Overall, about \$50 trillion is held in pension funds, insurance funds and public pension reserves across the OECD countries, well above their combined annual GDP. For all the reasons surveyed in chapter 1 – namely, a busted economic model on life support – the most recent survey describes the risk to that money as ‘high’ and pension liabilities as ‘increased’.¹⁶

The problem is not the current position of this \$50 trillion. The problem is that an ageing population means a smaller potential workforce, lower growth and lower output per head. Though the picture varies from one country to the next – with some smaller developed countries such as Norway extremely well provided for – the global situation is bleak: either the retired elderly must live on much less, or the financial system must deliver spectacular returns. But to deliver spectacular returns it must become more global and take more risks. If more pension provision could be moved into the public sphere, paid for with taxation, the impact of this dilemma would be softened. Instead, the opposite is happening.

The second area in which we are certain to face the stress of ageing populations is government debt. An ageing population boosts demand for spending on health, public pensions and long-term care. In 2010, Standard & Poor’s calculated that unless governments across the world reined in public pension provision, their debts, by 2050, would sink the world.

Since then, governments have indeed slashed their pension liabilities: eligibility has been tightened, retirement ages raised and the link to inflation eroded in many countries. When, after this carnage of obligations, S&P recalculated the potential damage, it found the median net debt of developed countries was projected to be 220 per cent of GDP by 2050, with the big developing countries running average debts of 130 per cent. Japan still tops the league in 2050, at 500 per cent (compared to 250 per cent now) and America will be looking at a debt pile three times the current \$17 trillion.

In this projection, demographic ageing is set to make state finances unsustainable all across the developed world. S&P’s analysts predict that by 2050, even with pension cuts, 60 per cent of all countries in the world will have credit ratings below investment grade: it will be suicidal for anybody who does not want to risk losing their money to lend to them.

Are you panicking rationally yet? The scariest bit is coming up.

More than 50 per cent of all private pension money is currently invested in government debt. Furthermore, typically two-fifths of it is in foreign debt. No matter how safe a company pension fund looks now, if 60 per cent of all countries’ bonds become junk – so that to lend to them becomes a crazy proposition – the private pension system will not survive.

Meanwhile, the social impact of the measures taken to date, says S&P, ‘has already put the relationship between the state and the electorate under strain and severely tested social cohesion’.¹⁷ All over the world, states have ripped up the last part of the implicit deal they made with their citizens during the post-war boom: that either the market or the state would provide a decent living for those in their old age. The impact of this broken promise will be felt over decades, not years. When governments claim they’ve stabilized their finances by raising the retirement age, or de-linking pensions to inflation, it is like congratulating yourself on buying a diet plan. The pain comes in the implementation.

The end result, as IMF economists put it, is ‘unlikely to be socially and politically sustainable’.¹⁸

We have not yet considered the impact of migration. In 2013 I travelled to Morocco and Greece to hear the stories of migrants trying to move, illegally, to Europe. From Morocco, they were attempting to scale a threemetre-high razor wire fence into the Spanish enclave of Melilla; in Greece, they were enduring months of homelessness as they stalked the ferry ports in search of a ride to northern Europe. The insecurity of their daily lives made them prey to extortion, assault, sexual violence and extreme poverty. At the moment of attempted crossing they often risked death.

I asked them why, in the face of these hostile transit routes and the racism they would find in Europe, they were prepared to persist in trying to cross for months or years on end. They were incredulous: it was a stupid question. Compared to the lives they had left behind in the countries they came from, living on a concrete floor in a Tangier slum, or sleeping five to a room in a clandestine bunk-house in Marseilles was unequivocally better.

What I saw that summer, though, was nothing compared to what is coming. By 2050, there will be 1.2 billion more people of working age in the world than today – most of them living in the kind of circumstances those migrants were fleeing.

In Oujda, Morocco, I met two bricklayers from Niger in their early twenties, squatting on open ground, living on handouts from a mosque. Niger is a country so underdeveloped that you do not often meet its inhabitants on the roadsides of the world. When I talked to them, and looked at the UN’s projections for their country, the scale of what’s coming became clear.

By 2050, the population of Niger will have grown from its current 18 million to 69 million. Chad, the country they’d come through, will see its population treble, to 33 million. Afghanistan, whose troubles have sent its citizens into the people-trafficking systems that criss-cross Greece, Turkey and Libya, will rise from 30 to 56 million.

A stunning half of all the projected population growth between now and 2050 will take place in just eight countries,\* six of which are in sub-Saharan Africa.¹⁹ To find jobs, people from the population-boom countries will migrate to the cities; the land, as we’ve seen, is already under stress from climate change. In the cities, many will join the world’s slum-dwelling population, which already stands at a billion – and increasing numbers will attempt illegal migration to the rich world.²⁰

The World Bank economist Branko Milanovic, surveying the huge and growing inequality in developing countries, calls this a ‘non-Marxian world’ in which location, not class, is responsible for two-thirds of all inequality.’²¹ His conclusion: ‘either poor countries will become richer or poor people will migrate to rich countries’.

But for poor countries to become richer, they must break out of the socalled ‘middle-income trap’ – where countries typically develop to a certain point and then stall; both because they have to compete with the old imperial powers and because their corrupt elites strangle the emergence of functional modern institutions. Only thirteen countries out of 100 labelled ‘middle-income’ in 1960 had become high-income by 2012. These were mainly the Asian Tigers, led by South Korea, which ignored the development regime imposed by the global system and relentlessly built up their own industry and infrastructure with nationalist economic policies.

As George Magnus of UBS writes, the obstacles are more than economic: ‘It gets progressively more difficult to raise income per head once you are a middle income country, and … doing so is not about drawing lines from spreadsheets, but about the economic benefits generated by continuously evolving, inclusive institutions.’²² But the countries where population growth is biggest are the countries with the most corrupt and inefficient institutions.

If climate change, demographic ageing and a jobs-drought in the developing world were not interacting with a stagnant, fragile economic model, the problems might be solved separately. But they are. And the result is likely to place the whole global system under strain, and puts democracy itself in danger.

A GLOBAL ELITE IN DENIAL

‘Ours is essentially a tragic age so we refuse to view it tragically. The cataclysm has happened, we are among the ruins … We’ve got to live, no matter how many skies have fallen.’²³ D. H. Lawrence was describing the English aristocracy after 1918, its ideology shattered, retreating into a world of stately homes and archaic manners. But the description could apply equally well to the modern elite after the catastrophe of 2008: a financial aristocracy determined to go on living as if the threats outlined above are not real.

In the late twentieth century, a generation of entrepreneurs, politicians, energy barons and bankers grew up in what felt like a friction-free world. Over the previous century or so, their predecessors had to watch a finely crafted order disintegrate, together with its illusions. From Imperial France in 1871 right through to the fall of Vietnam and the collapse of communism, the first lesson of statecraft for those born before 1980 was: bad stuff happens; events can overwhelm you.

By the year 2000 it felt different. It might not have been the ‘end of history’, but to the generation that built the neoliberal order it seemed as though history had at the very least become controllable. Every financial crisis could be met with monetary expansion, every terror threat obliterated with a drone strike. The labour movement as an independent variable in politics had been suppressed.

The psychological byproduct in the minds of the policy elite was the idea that there are no impossible situations; there are always choices, even if some of them turn out to be tough ones. There is always a solution, and it is usually the market.

But these external shocks should be the alarm call. Climate change does not present us with a choice of market or non-market routes to meeting carbon targets. It mandates either the orderly replacement of market economics or its disorderly collapse in abrupt phases. Ageing populations run the risk of tanking the world’s financial markets, and some countries will have to wage a social war on their own citizens just to stay solvent. If that happens it will make what happened in Greece after 2010 look like just a few bad summers.

In the poorest countries, the combined impact of population growth, institutional corruption, skewed development and climate effects will create, for certain, tens of millions of landless poor people whose most logical choice will be to migrate.

You can see the defensive reflexes already in the developed West: the razor wire and the push-backs at the Spanish African enclave of Melilla; the violation of law by the Australian navy as it deals with migrant boats from Indonesia; America’s breakneck charge into fracking in order to become energy self-sufficient; Russia and Canada’s rival preparations to deploy military forces in the Arctic; China’s determination to monopolize the Rare Earth metals vital to modern electronics. The common themes of these responses are withdrawal from multilateral collaboration and attempted self-sufficiency.

We have come to see the danger to globalization as economic nationalism, where the population of one or more advanced economy cannot take austerity and forces its political class – as in the 1930s – to pursue a ‘beggar thy neighbour’ solution to the crisis. But the external shocks create a dimension of instability beyond pure economic rivalry. The pursuit of energy self-sufficiency is creating regionalized global energy markets. Russia’s diplomatic standoff with the West over Ukraine and its continued threat to deprive Europe of gas will, even if it does not blow up, lead Europe to seek its own self-sufficiency.

Meanwhile, the balkanization of the global energy market is mirrored by a similar process on the internet.

Already nearly one in five human beings has to put up with having their information filtered through the farcical controls erected by the Chinese communists. A politician is arrested for corruption? Naturally his name disappears from search engines. If that name happens to rhyme with the word for instant noodles (as was the case with Zhou Yongkang in 2014), the word for noodles disappears too, and so does the most popular noodle brand.²⁴

Now the internet stands in danger of further fragmentation, as states react to the revelations of mass cyber-surveillance by the American National Security Agency. In addition, 2014 saw several governments, including Turkey and Russia, try to suppress dissent by forcing internet companies to register as entities under their domestic legal systems, opening them up to formal and informal political censorship.

So the first phase of the breakup of the global system is manifest through the breakup of information and the breakup of energy. But state-level fragmentation is on the agenda too.

I covered first-hand the Scottish independence referendum of 2014. Contrary to media myths, this was not a nationalist surge but a left-inclined plebeian movement. Handed the opportunity to break away from a neoliberal state committed to austerity for the next decade, the Scottish people came very close to doing so and breaking up the world’s oldest capitalist economy in the proces. As the Spanish political system enters crisis, the momentum for Catalan independence may gather (it is stemmed currently by the sudden rise of Podemos). And we are just one political accident away from the collapse of the EU project itself. When a far-left party won the election in Greece, all the EU’s institutions attacked it as white blood cells attack a virus. At the time of writing, the Greek crisis is in full swing – but it will look like small fry if, as is entirely possible, the far right comes to power in France.

In Beijing, Washington and Brussels, the next five years are likely to see the old rulers try one last time to make the old system work. But the longer we go on without calling an end to neoliberalism, the more its contingent crises will begin to collide and merge with the strategic ones I’ve outlined here.

On its own, the rise of info-capitalism would have offered a range of outcomes. You could – just – imagine a stagnant Western economy kept alive with high debt, bailed-out banks and printed money, were it not for the demographic crisis. You could – without climate change – imagine a

postcapitalist transition path led by the gradual, spontaneous rise of nonmarket exchange and peer-production alongside a system faltering under its internal contradictions. More Wikipedias, more Linux, more generic drugs and public science, the gradual adoption of Open Source forms of work – and maybe a legislative curb on the info-monopolies. This is the airport book scenario for postcapitalism: a good idea, implemented in a crisis-free environment, at a pace determined by ourselves.

But the external shocks call for action that is centralized, strategic and fast. Only the state, and states acting together, can organize such action. The starkness of the climate target and the clarity of the technical ways of responding to it mean it will require more planning and more state ownership than anybody expects or even wants. The possibility of a world in which 60 per cent of states are bankrupted by the cost of their ageing populations means we need structural solutions, not financial ones.

But the illusions bred during the past twenty-five years feed our paralysis. Confronted by emissions targets, we offset them, paying for trees to be planted in someone else’s desert rather than changing our own behaviour. Confronted with evidence that the world is ageing, we spend \$36 billion a year on cosmetic surgery.²⁵ If you placed the levels of risk evidenced in this chapter before any CEO, any software genius, any stress team in an engineering workshop, any quantitative analyst in a bank, they would say: act now! Mitigate the risk urgently.

If you used the method engineers use – root cause analysis – to ask why three systemic disruptions are happening at once (financial, climatic and demographic), you would quickly trace them to their cause: an economic system in disequilibrium with its environment and insufficient to satisfy the needs of a rapidly changing humanity.

Yet to say ‘act now’ on climate, the warped finance system or the impossible arithmetic of public debt is deemed revolutionary. It punctures the reverie of the Davos elite, poisons the atmosphere in Mediterranean yachting ports and disturbs the silence in the political mausoleum that is the Chinese communist HQ. Worse still, it destroys the illusion held by millions of people that ‘everything is going to be OK’. And for activists it means

something they are rightly scared of: engagement with the mainstream, involvement with political strategy, an enduring structural project more concrete than ‘another world is possible’.

Faced with this situation, we need ‘revolutionary reformism’. Even to say the words out loud is to realize how deeply they challenge both sides of political reality. Say it to a social democrat in a suit and watch them wince; say it in an Occupy camp and watch the activists wince – for exactly opposite reasons.

Panic would be rational faced with these challenges but the social, technological and economic changes underway mean we can meet them, if we can understand postcapitalism as both a long-term process and an urgent project.

So we need to inject into the environment and social justice movements things that have for twenty-five years seemed the sole property of the right: willpower, confidence and design.