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Europe; the countries in surplus were China, the rest of Asia, Germany and Japan, and the oil producers.³¹

Why do we care? Because the imbalances produced the flammable material for the 2008 crisis by loading the finance systems of America, Britain and Europe with unsustainable debts. It forced countries like Greece, which had no power to export their way out of crisis, into a death spiral of austerity. And it left most neoliberalized countries with unpayable mountains of government debt.

In the wake of the 2008 crisis, the current account imbalance has fallen back – from 3 per cent of global GDP to 1.5 per cent. The IMF’s most recent projection sees no danger of a second spike but the conditions for this are stark: that China does not return to its old rate of growth, nor America to its old rate of borrowing and spending. As economists Florence Pisani and Anton Brender put it: ‘The only force that could finally rein in the continuous deepening of the global imbalances was the collapse of globalised finance.’³²

Post-2008, the shrinking current account deficit has persuaded some economists that the risk posed by the imbalances is over.³³ But in the meantime another key measure of imbalance in the world has grown: the stock of money held by the surplus countries in other currencies – known as foreign exchange reserves.

While China has seen growth fall back to 7 per cent and its trade surplus with the West reduced, its foreign exchange reserve pile has actually doubled since 2008 – and by mid-2014 stood at \$4 trillion.³⁴ Global foreign exchange reserves had likewise grown from under \$8 trillion to approaching \$12 trillion by late 2014.³⁵

The imbalances always posed two distinct dangers. First, that they would flood Western economies with so much credit that the finance system collapsed. This happened. Second, more strategically, that all the pent-up risk and instability in the world gets pooled into an arrangement between states, over debt and exchange rates, which then collapses. This danger still exists.

If the USA cannot go on financing its debts, then at some point the dollar will collapse – indeed the mere perception that this might happen would be enough to collapse it. Nevertheless, the mutual dependence of China and the USA and, at a smaller scale, of Germany with the rest of the Eurozone ensures the trigger is never pulled.

All that’s happened since 2008, via the build-up of foreign exchange reserves, has to be seen as the surplus countries taking out ever larger insurance policies against an American collapse.

If the world were made up only of economic forces, this outcome would be OK: low or stagnant growth in the deficit countries, a gradual rise in the value of the Chinese RMB against the dollar, a gradual erosion of the US debt by inflation – and a smaller trade deficit for the USA because fracking reduces its dependency on foreign oil.

But the world is made up of classes, religions and nations. The 2014 Euro elections saw parties pledged to rip up the global system win 25 per cent or more – in Denmark, France, Greece and Britain. In 2015, as I write, the far left victory in Greece has thrown the cohesion of the Eurozone into doubt. Plus, the diplomatic crisis over Ukraine has seen the first serious trade and financial sanctions imposed on Russia by the West since globalization began. The Middle East is on fire, from Islamabad to Istanbul, while military rivalries between China and Japan are more intense than at any time since 1945 and underpinned by an intense currency war.

All that would be needed to blow the whole thing apart is for one or more country to ‘head for the exit’, using protectionism, currency manipulation or debt default. Since the most important nation, the USA, now has a Republican Party rhetorically committed to all three of these things, the chances of this are high.

The imbalances were fundamental to the very nature of globalization and were thrown into reverse only by financial collapse.

Let’s spell out what this means: the current form of globalization has a design fault. When it produces high growth it can do so only by fuelling unsustainable distortions, which are corrected by financial crisis. To reduce the distortions – the imbalances – you have to suppress the normal form of neoliberal growth.

THE INFO-TECH REVOLUTION

The one positive factor to set against all the negatives outlined so far is the tech revolution, which was produced by neoliberalism and has stormed ahead in defiance of the economic crisis. ‘The information society,’ writes the philosopher Luciano Floridi, ‘has been brought about by the fastest growing technology in history. No previous generation has ever been exposed to such an extraordinary acceleration of technical power over reality, with corresponding social changes and ethical responsibilities.’³⁶

It was the increase in computing power that enabled a complex global finance system. It underpinned the growth of the money supply as digital systems replaced the need for cash. It enabled the physical redistribution of production and supply to the emerging markets, where labour was cheap. It de-skilled the engineering worker, made the labour of semi-skilled workers redundant and accelerated the growth of low-skilled service work.

But though info-tech has become, as Floridi writes, ‘the characteristic technology of our time’, its emergence takes the form of a disappearing act. Mainframes are born then disappear to be replaced by servers, which also disappear from corporate HQs and now sit in vast air-conditioned sheds elsewhere. The silicon chip gets smaller; the add-on devices that once cluttered our workspaces – modems, hard drives, floppy disks – become smaller, scarcer, and then disappear. Proprietary software gets built by corporate IT departments and is then replaced by off-the-peg versions at one-tenth of the price. And soon, too, the IT departments disappear, to be replaced by call centres in Mumbai. The PC becomes the laptop. The laptop shrinks and gets more powerful but is superseded by the smartphone and the tablet.

At first, this new technology was mapped on to the old structures of capitalism. In the 1990s, the folklore in IT was that the most expensive software – the enterprise resource package – ‘moulds like putty, sets like concrete’. By the time you had computerized your production line, innovation elsewhere meant you had to rip it out and start again.

But after around 2004, with the rise of the internet and mobile data, technology began to enable new business models: we called it Web 2.0. It also started to produce tangible new behaviours among large numbers of people. It became normal to pay with plastic; normal to put your whole private life online for ever; normal to go online to get a payday loan at 1,000 per cent interest.

At first, the exhilarating rush of new technology was taken as justifying all the pain we’d gone through to get free markets. The British miners had to be smashed so that we could have Facebook; telecoms had to be privatized so that we could all have 3G mobile phones. That was the implicit rationale.

Above all, however, it was the change in human terms that was critical. The most vital component of neoliberalism – the individualized worker and consumer, creating themselves anew as ‘human capital’ every morning and competing ferociously with each other – would have been impossible without network technology. Sociologist Michel Foucault’s prediction of what it would make us – ‘entrepreneurs of the self’ – looks all the more visionary because it was made when the only thing resembling the internet was a green-screen network, owned by the French state, called Minitel.³⁷

The promise was that new technology would produce an information economy and a knowledge society. These have emerged but not in the form envisaged. In the old dystopias – as with the rogue computer Hal, in 2001: A Space Odyssey – it is the technology that rebels. In reality, the network has allowed humans to rebel.

It enabled them first of all to produce and consume knowledge independently of the channels formed in the era of industrial capitalism. That’s why we noticed the disruptions first in the news industry, in music and the sudden loss of the state’s monopoly over political propaganda and ideology.

Next, it began to undermine traditional concepts of property and privacy. Wikileaks and the controversy over the mass surveillance data collected by the NSA are just the latest phase of a war over who can own and store information. But the biggest impact of all is only now being understood.

The ‘network effect’ was first theorized by Bell Telephone boss Theodore Vail 100 years ago. Vail realized that networks create something extra, for free. In addition to utility for the user of a telephone and revenue for the owner, he noticed a third thing: the more people join the network, the more useful it becomes to everybody.

The problem comes when you try to measure and capture that third thing. Robert Metcalfe, the inventor of the Ethernet switch, claimed in 1980 that a network’s value is ‘the number of users squared’. So while the cost of building a network rises in a straight line, its value rises in an exponential curve.³⁸ By implication the art of doing business in a knowledge economy is to capture everything between the straight line and the rising curve.

But how do we measure value? In terms of money saved, revenue earned or profits accrued? In 2013, the OECD’s economists agreed that it could not be captured by traditional market metrics. ‘While the Internet’s impact on market transactions and value added has been undoubtedly far-reaching,’ they wrote, ‘its effect on non-market interactions … is even more profound.’³⁹

Economists have tended to ignore non-market interactions: they are, by definition, non-economic – as insignificant as a smile passed between two customers in the Starbucks queue. As to the network effect, they assumed its benefits would be quantified into lower prices and distributed between producers and consumers. But in the space of less than thirty years, network technologies have opened whole areas of economic life to the possibility of collaboration and production beyond the market.

On 15 September 2008, the Nokias and Motorolas pointed at Lehman Brothers HQ, and the free wifi signal in the Starbucks opposite, were in their own way just as significant as the bank that had collapsed. They were conveying the ultimate market signal from the future to the present: that an information economy may not be compatible with a market economy – or at least not one dominated and regulated by market forces primarily.

That, I will argue, is the root cause of the collapse, fibrillation and zombie state of neoliberalism. All the money created, all the velocity and momentum of finance built up during the last twenty-five years have to be set against the possibility that capitalism – a system based on markets, property ownership and exchange – cannot capture the ‘value’ generated by the new technology. In other words, it is increasingly evident that information goods conflict fundamentally with market mechanisms.

THE ZOMBIE SYSTEM

Let’s imagine an escape route for capitalism. During the next decade, central banks withdraw from QE in an orderly way. They refrain from using the printed money to write off their own government debts; the private market for government bonds, suppressed for a decade, revives. Plus, governments agree to suppress financial mania for all time: they pledge to raise interest rates in response to all future bubbles; they remove for ever the implicit guarantee of bank bailouts. All other markets – for credit, for shares, for derivatives – would then correct, to reflect the increased risk of financial capitalism. Capital would be reallocated to productive investment and away from speculative finance.

Ultimately, the world would have to return to exchange rates pegged against a new global currency managed by the IMF, with the Chinese RMB becoming a fully tradable reserve currency like the dollar. That would address the systemic threat posed by fiat money – the lack of credibility arising from the danger that globalization will break up. But the price would be a permanent end to the global imbalances: the currencies of surplus countries would rise, and China, India and the rest would have to give up their cheap labour advantage.

At the same time, financialization would have to be reversed. You would need a shift of political power away from banks and the politicians who support them, towards a policy favouring the onshoring of industry and services back to the West in order to create high-wage employment across the developed world. As a result, financial complexity would shrink, wages would grow, and the financial sector’s share of GDP would be reduced, as would our reliance on credit.

The most far-sighted among the global elite know this is the only answer: stabilization of fiat money, a retreat from financialization, and an end to the imbalances. But there are enormous social and political obstacles.

In the first place, the rich are opposed to increased wages and regulated finance; they want the opposite. Secondly, there would be winners and losers at a national level: the German ruling elite benefit from the debtcolonization of Greece and Spain; the Chinese ruling elite benefit from being the gatekeeper to a cheap labour economy of 1.4 billion people. They have a vested interest in blocking the escape route.

But here’s the biggest problem: for this scenario to work, huge, unpayable sovereign debts would have to be written down, together with a large proportion of the world’s household and corporate debts.

There is, however, no global system to achieve this. Write America’s debts down and Chinese savers lose; the result would be to break the essential deal between Asia and the West: you borrow, we lend. Write off the Greek debt to the EU and it is German taxpayers who lose tens of billions, again, breaching an essential deal.

The outcome of this best-case scenario, even if the transition could be managed peacefully, would be a complete breakdown of globalization.

And, of course, it cannot be managed peacefully.

Russia has, since 2014, become a power dedicated to disrupting the Western economies, not cooperating with them. China – for all the soft power it has begun to project – cannot do what America did at the end of the Second World War: absorb the world’s debts, set explicit rules and create a new global currency system.

Meanwhile, in the West, there is no sign of any strategy resembling the one outlined above. There is talk of it – from the lionizing of the French economist Thomas Piketty to the Bundesbank’s calls in 2014 for higher wages in Europe. But in practice, the mainstream parties remain wedded to neoliberalism.

And without the escape route, the prospect looks more and more like long-term stagnation.

In 2014, the OECD released its projections for the world economy in the years between now and 2060.⁴⁰ World growth will slow to 2.7 per cent, said the Paris-based think tank, because the catch-up effects boosting growth in the developing world – growing population, education, urbanization – will peter out. Even before that, near-stagnation in advanced economies indicates average global growth of just 3 per cent over the next fifty years, significantly below the pre-crisis average.

Meanwhile, because semi-skilled jobs will become automated, leaving only high- and low-paid ones, global inequality will rise by 40 per cent. By 2060, countries such as Sweden will have the levels of inequality currently seen in the USA: think Gary, Indiana in the suburbs of Stockholm. There is also the very real risk that climate change will begin to destroy capital, coastal land and agriculture, shaving up to 2.5 per cent off world GDP, and 6 per cent in south-east Asia.

But the bleakest part of the OECD report lies not in what it projects but what it assumes: a rapid rise in productivity due to information technology. Three-quarters of all the growth to 2060 is expected to come from increased productivity. However, that assumption is, as the report states euphemistically, ‘high compared with recent history’.

In fact, as I will explore in chapter 5, there is no certainty at all that the information revolution of the past twenty years will turn into the kind of growth and productivity that can be measured in market terms. In that case there is substantial risk that the meagre 3 per cent annual growth projected by the OECD over the next fifty years will be closer to 0.75.

Then there’s the migration problem. To make the OECD’s central growth scenario work, Europe and the USA have to absorb 50 million migrants each between now and 2060, with the rest of the developed world assimilating another 30 million. Without them, the workforce and the tax base of the West shrinks so badly that states go bust. The risk – as signalled by a 25 per cent vote for the Front National in France and armed right-

wingers haranguing migrant kids on California’s border with Mexico – is that the populations of the developed world will not accept it.

Allow yourself to imagine the world of 2060 as the OECD predicts it: Los Angeles and Detroit look like Manila today – abject slums alongside guarded skyscrapers; Stockholm and Copenhagen look like the destroyed cities of the American rust belt; the middle-income job has disappeared. Capitalism will be in its fourth decade of stagnation.

Even to achieve this glittering future, says the OECD, we have to make labour ‘more flexible’ and the economy more globalized. We will have to privatize higher education – for the cost of expanding it to meet the demand for graduates would bankrupt many states – and assimilate tens of millions of migrants into the developed world.

And as we struggle with all this, it is likely that the current means of financing the state will evaporate. The OECD points out that the polarization of populations into high-and-low-income groups will render income taxes ineffective. We will need – as Thomas Piketty suggests – to tax wealth instead. The problem here is that assets – whether they be a star racehorse, a secret bank account or the copyright on the Nike swoosh – tend to be held in jurisdictions dedicated to avoiding wealth taxes, even if anybody had the will to raise them, which they currently don’t.

If things do not change, says the OECD, it is realistic to expect stagnation in the West, a slowing pace of growth in emerging markets and the likely bankruptcy of many states.

So what’s more likely is that at some point one or more countries will quit globalization, via protectionism, debt write-offs and currency manipulation. Or that a de-globalization crisis originating in diplomatic and military conflict spills over into the world economy and produces the same results.

The lesson from the OECD’s report is that we need a complete system redesign. The most highly educated generation in the history of the human race, and the best connected, will not accept a future of high inequality and stagnant growth.

Instead of a chaotic race to de-globalize the world, and decades of stagnation combined with rising inequality, we need a new economic model. To design it will involve more than an effort of utopian thinking. Keynes’s genius in the mid-1930s was to understand what the crisis had revealed about the existing system: that a workable new model would have to be built around the permanent inefficiencies of the old one, which mainstream economics could not see.

This time the problem is even bigger.

The central premise of this book is that, alongside the long-term stagnation problem arising from the financial crisis and demographics, information technology has robbed market forces of their ability to create dynamism. Instead, it is creating the conditions for a postcapitalist economy. It may not be possible to ‘rescue’ capitalism, as Keynes did with radical policy solutions, because its technological foundations have changed.

So before we demand a ‘Green New Deal’, or state-owned banks, or free college education, or long-term zero interest rates, we have to understand how they might fit into the kind of economy that is emerging. And we are very badly equipped to do this. An order has been disrupted but conventional economics has no idea of the magnitude of the disruption.

To go forward we need a mental image smaller than ‘the financial autumn of a failing empire’, but bigger than a theory of boom-bust cycles. We need a theory that explains why, in the evolution of capitalism over the past two centuries, big moments of metamorphosis have occurred, and how exactly technological change recharges the batteries of capitalist growth.

We need, in short, a theory that fits the current crisis into a picture of capitalism’s overall destiny. The search for it will take us beyond conventional economics, and way beyond conventional Marxism. It begins in a Russian prison cell in 1938.