Brexit: Doom, or Europe’s Polanyi Moment?
TheFamily Papers #022
By Nicolas Colin (Co-Founder & Partner) | TheFamily
In 1944, Karl Polanyi published The Great Transformation, the one work that made him famous and that explains why his name lives on to this day. Although it’s not autobiographical in any way, the book is deeply rooted in Polanyi’s life. Like many who grew up in k.u.k. Vienna and Budapest, he witnessed first-hand the downfall of an entire civilization. As a soldier in the Austro-Hungarian imperial army, he fought on the Russian front during World War I. As a socialist Jew, he had to flee the persecutions that later contributed to bringing down Europe. And as an intellectual, he felt the urge to write about it. This gave us The Great Transformation, one of the greatest political and economic tales of the troubled 20th century.
A World That Came to an End
Polanyi’s work is often described, notably on the left, as a harsh critique of laissez-faire liberalism. A more interesting view is to realize that The Great Transformation, much in the spirit of the more recent Why Nations Fail by Daron Acemoglu and James A. Robinson, is really about the social and economic institutions that are necessary to support the market system and to make economic development more sustainable and inclusive. The ‘Great Transformation’ in and of itself is the painful process a society must go through to imagine and set up these indispensable institutions—a process that includes softer ways, like elections and collective bargaining, but also more destructive paths, like fascism and war.
What Polanyi describes in his book is in fact the long economic transition between two very different worlds. One is the 19th century gold standard economy, whose prosperity culminated in the US during the Gilded Age. The other is the 20th century Fordist economy that only found its balance—and entered its Golden Age—after most developed countries had imagined and implemented the proper social and economic institutions in the wake of World War II—that is, after Polanyi finished writing his book.
The key institutions that rendered the market system sustainable in the gold standard economy were free trade, the occasional military conflict that took place within the Concert of Europe, and obviously the gold standard itself—which made Western exporting firms confident that the currencies they earned would be as “good as gold”. Another important agent of the world’s economic order at the time was what Polanyi calls haute finance, the trade of bankers such as the Rothschilds and later J.P. Morgan, which in a world deprived of international organizations “functioned as a permanent agency of the most elastic kind”:
The Rothschilds were subject to no one government; as a family they embodied the abstract principle of internationalism; their loyalty was to a firm, the credit of which had become the only supranational link between political government and industrial effort in a swiftly growing world economy… Haute finance was not designed as an instrument of peace; this function fell to it by accident, as historians would say, while the sociologist might prefer to call it the law of availability… Only the iron grip of finance on the prostrate governments of backward regions could avert catastrophe.
Sometime at the end of the 19th century the gold standard economic order began to unravel. At work was the rise of various forms of protectionism, from tariff barriers to colonial empires, which in turn triggered the breakdown of the gold standard. When several pillars of that weakening system began to falter, the resulting tensions mounted up until World War I, which completed the destruction of the 19th century world order and proved to be the final crisis of the gold standard economy. As written by Polanyi, “the breakdown of the international gold standard was the invisible link between the disintegration of the world economy which started at the turn of the century and the transformation of a whole civilization in the thirties.”
At the same time, another world was beginning to emerge, in which production and consumption proved radically different from what they used to be. Many works of art, among them Upton Sinclair’s The Jungle (1906) or Charlie Chaplin’s Modern Times (1936), dealt with the fear that the new productive system inspired in astounded intellectuals and artists of the time. Today, the Fordist system — mass production of standardized products in giant facilities ruled by scientific management—may inspire a nostalgia for those lost, secure jobs. But at the time, much like the digital economy today, it was seen as a frightening world of insecurity and alienation. Absent were the institutions that would later provide economic security to all stakeholders and finally make the Fordist economy sustainable and inclusive.
The Rise of Fascism
As Joseph Stiglitz wrote in the introduction to a recent edition of Polanyi’s book, “rapid transformation destroys old coping mechanisms, old safety nets, while it creates a new set of demands, before new coping mechanisms are developed.” Indeed the first half of the 20th century was marked by the long and violent crisis that saw a confrontation between two very powerful movements.
On one side were the established tenants of the laissez-faire economy: backward-looking business leaders and elected officials who were in favor of restoring market liberalism. This system had supposedly worked so well in the 19th century gold standard economy: yet in fact, this was only due to the particular institutions that were in place at the time. Herbert Hoover is remembered as one of these notables, as well as his predecessor Woodrow Wilson, who saw the ill-fated League of Nations as the means of reestablishing the world economic order that had prevailed before World War I.
On the other side was the emerging labor movement. From right after World War I, which had marked the failure of the ruling elite, empowered union leaders and socialist politicians demanded that the business community and the government put in place institutions that would provide economic security to the new working class. The rise of the big Fordist factories had brought about new risks for which new safety nets had yet to be deployed.
The impossibility of settling that dispute in the context of the transition led to the unraveling of modern Europe during the 1930s. Again according to Stiglitz, “when neither movement was able to impose its solution to the crisis, tensions increased until fascism gained the strength to seize power and break with both laissez-faire and democracy.” Even though Europe paid the highest price, fascism appeared in different places in the world, suggesting that it was not linked to a particular cultural or political context as much as it resulted from the tensions brought about by the global transition itself. In Polanyi’s suggestive words (written in 1944),
A country approaching the fascist phase showed [common] symptoms, among [them] the spread of irrationalistic philosophies, racialist aesthetics, anticapitalistic demagogy, heterodox currency views, criticism of the party system, widespread disparagement of the “regime,” or whatever was the name given to the existing democratic setup… These are the bare outlines of a complex picture in which room would have to be made for figures as diverse as the Catholic freelance demagogue in industrial Detroit [antisemitic Catholic priest Charles Coughlin], the “Kingfish” in backward Louisiana, Japanese Army conspirators, and Ukrainian anti-Soviet saboteurs. Fascism was an ever-given political possibility, an almost instantaneous emotional reaction in every industrial community since the 1930s.
The Current Polanyi Moment
As described by Carlota Perez’s Technological Revolutions and Financial Capital, a book widely read in the US venture capital community (and at TheFamily, too), we are currently going through another ‘Great Transformation’, this time from the Fordist economy to the digital economy.
As software is “eating the world”, new risks are emerging. Innovative firms are more prone to failure, imposing unprecedented economic insecurity on their employees. Work itself is undergoing radical change through what many deem “platform capitalism”. The new economic geography makes it impossible for most people to find affordable housing in the large and dense metropolises that are home to the new jobs. This all suggests the advent of a new Polanyi moment, with its many revealing signs.
The first sign is the nature of the economic crisis and the unprecedented difficulty to create new, well-paying jobs. The situation is so bad that many people are convinced that there will soon be no jobs left for us workers. In fact the scarcity of jobs is mostly an institutional problem: when the market system changes, it’s difficult to create jobs as long as the proper institutions are not in place. Yet in the meantime, we’re stuck in a jobless economy. As written in 2011 by John B. Judis,
The recession [triggered by the 2008 financial crisis] does not merely resemble the Great Depression; it is, to a real extent, a recurrence of it. It has the same unique causes and the same initial trajectory. Both downturns were triggered by a financial crisis coming on top of, and then deepening, a slowdown in industrial production and employment that had begun earlier and that was caused in part by rapid technological innovation. The 1920s saw the spread of electrification in industry; the 1990s saw the triumph of computerization in manufacturing and services. The recessions in 1926 and 2001 were both followed by “jobless recoveries.”
Another sign is the burst of armed conflicts unprecedented in their magnitude, their impact on the world order, and their rules of engagement. One could say that 9/11 and the Iraq war were like World War I, having planted the seeds for the global political turmoil that’s led us to the faltering of the Syrian regime… and the migrant crisis that triggered Brexit. The equivalent of World War II may be looming in the form of ISIS and widespread terrorism: not battles waged by massive, professional armies powered by high technology, but destruction brought about by isolated groups of amateur individuals interconnected throughout a global cultural, financial and technological network. ISIS-sponsored terrorism may very well be to our digital world what the Nazi regime came to be in the troubled and unbalanced Fordist world from 1933 onwards.
Yet another sign of a Polanyi moment is the dispute around what would be the best remedy to the multi-dimensional crisis we are currently going through. Like what happened in the 1930s between the elite who advocated restoring laissez-faire and the labor movement, we are currently seeing two movements at odds with each other.
On one side are those who would like to restore the old Fordist economic order, advocating harmful fiscal austerity at the macroeconomic level as well as regressive corporatism at the microeconomic one. Since they currently have the upper hand, their outdated solutions inflict terrible pains on the receeding middle class in every developed country: higher economic insecurity because of austerity measures, and a wider inequality gap because of reinforced corporatism. France, where you can find both austerity and all-out corporatism, is a good example of a country completely seized by backward-looking elites.
On the other side are those who reckon that we are undergoing another ‘Great Transformation’. For them, it’s high time we begin to tackle many difficult institutional challenges so as to support the growth of the digital economy instead of fighting it: imagining a new welfare state, a new financial system, a new tax system, new regulations, and upgraded infrastructures. On this side are enthusiastic tech Entrepreneurs, thought leaders from the VC community, innovative organizations such as the Freelancers Union (in the US) or Switch Collective (in France), the heirs of the labor movement who denounce the rise of digital labor, and rare politicians such as Barack Obama—whose forward-looking vision probably contributes to making him unusually popular in both the US and the rest of the world.
As a result of this tension, fascism is on the rise again, and last week’s referendum in the United Kingdom is far from being the most worrisome event in that category. As already written in a previous issue,
People don’t support Donald Trump or equally odd political candidates in other countries because of fantasies, but because of tangible trends that inspire in them fear, anger, and disgust. In this context, nothing seems like it is taken for granted anymore: economic growth, the social safety net, the sense of community, national security, peace, civil liberties, freedom of speech, even democracy may be under threat. This is the reason why scholars and journalists have begun writing articles about an unprecedented resurgence of fascism.
Finally, the clearest sign is that many institutions that were critical in balancing the Fordist economy and making it more sustainable and inclusive are unraveling at an accelerated pace. Among those institutions are salaried jobs, which are becoming scarcer; a banking system that doesn’t lend money anymore; and social policies that fail to provide economic security for students, workers and pensioners alike. International institutions are unraveling too, among them trade agreements and… the European Union. Like the gold standard in its time, the EU was designed precisely to provide stability and security at the macroeconomic level. In that regard, much like the UK getting off the gold standard in 1931, Brexit is only one more episode of the old economic order unraveling before our eyes—and yet one more proof that Europe is undergoing a Polanyi moment.
Failure of the Elite
As in the 1930s, the elite bear a great responsibility in the current situation. Their failure has several explanations.
First, the elite are not permanent. Instead they change over time, throughout wars, revolutions and elections. At any given moment, they’re the byproduct of the current order and they’re protected by its institutions. As a result, the elite have everything to lose if those institutions fail and are replaced by new ones. This is why members of the elite are always the last to join the conversation on paradigm shifts. They instinctively know that whatever the outcome, they’ll probably lose everything in the end.
Another reason for our elite’s failure is that they’re lagging behind in both their consciousness and understanding of the new order. As a result, they have great difficulties connecting with their fellow citizens. Whereas business executives and elected officials resist using digital applications or supporting innovative tech Entrepreneurs, ordinary citizens typically race ahead in their understanding of the new paradigm, simply because of their daily immersion in it: they search on Google, order from Amazon, watch streamed movies on Netflix, share pictures on their Facebook account, use ride-hailing applications, travel on Airbnb—and for the younger ones, they even understand Snapchat!
A third reason for this failure of the elite is related to how blurred the political lines become during a transition. As suggested by cognitive linguist George Lakoff, left and right may have eternal fundamentals anchored in two different familial paradigms. Everything political, from core values to policy issues to leadership style to campaign strategy, can be traced back to how people conceive the family as a model for society. On the right are those who are influenced by the “strict father model”—both Donald “You’re Fired” Trump and Ted “They Get a Spanking” Cruz are relevant examples. On the left are the voters who prefer the “nurturant parents model” and therefore support the Obamas, the ultimate nurturant parenting family.
At any given moment, those fundamental lines that divide the political spectrum crystalize around particularly symbolic measures like ‘providing affordable healthcare to all Americans’ (nurturant parents), ‘enforcing the right to bear arms’ (strict father), ‘supporting a woman’s right to choose’ (nurturant parents) or ‘rejecting affirmative action’ (strict father). But when the world undergoes a ‘Great Transformation’, it leads to tracing another dividing line, this time between the rare elite representatives that are looking forward (Bill Clinton and Al Gore in their time, Barack Obama) and the dominant majority among them that don’t realize the transition at work and keep on looking backward (Donald Trump, Bernie Sanders).
In such a context, members of the elite are spread out along two dimensions instead of one. And as they try to regroup and defend their corporatist interests as the elite, it weakens the difference between left and right. Because the elite from both sides are under threat of being transitioned out of their privileges, their common view of the shape of things becomes more important than the political differences that divide them. Hence the left and the right forge an alliance in favor of the status quo, depriving the voters of the choice they used to have between two radically opposed political sides.
As we’re currently passing through such a transition, it’s no wonder that so many people think that there is no meaningful difference between left and right anymore. For instance, young tech entrepreneurs may be left or right as regards the Lakoff framework. But when they consider the current left and right, as people who are mostly looking forward, they see nothing but outdated politicians and business executives that are losing touch with the way people live and how businesses create value. As a result, they become disinterested in politics and cease to participate in the political process. Other voters, such as those who voted in favor of Brexit, also see outdated, out-of-touch politicians, except they keep on participating and they vote for… Brexit.
The rise of fascism is consistent with the blurring of political lines. If the difference between left and right becomes less obvious, then the political mood creates an opportunity for fascist politicians to try and have it both ways: being both a strict father (‘National’) and nurturant parents (‘Socialist’) at the same time. Hence fascists are hard to identify with either the left or the right: the opportunity they seize is that of the transition and the despair of all those, left and right, who are looking backward in the hope that everything will go back to the way it used to be. On a backward/forward axis, things are clearer, as fascism clearly stands for the restoration of the past, mythified power and prosperity: think Mussolini and the Roman Empire, Hitler and the pre-Versailles Treaty Germany. Indeed the “Make America Great Again” tagline is one hint, among many, that leads some to wonder if Donald Trump is in fact a fascist.
This is the reason why we need inspiring forward-looking leaders, such as Barack Obama or FDR in his time, to counter the temptation of fascism: they’re the ones who can attract voters at the other extremity of the backward/forward spectrum, restore a left/right polarization that is more in line with the new techno-economic paradigm and lead voters away from potential fascist influences. Conversely, more traditional backward-looking politicians such as Ted Cruz (on the right) or Bernie Sanders (on the left) are dangerous because they comfort the voters with the false idea that it’s possible to roll things back to how they were.
The New Deal Precedent
Imagining and imposing new institutions for the digital age is incredibly hard. As for what led to setting up the institutions of the Fordist Golden Age (what we call in France the “Trente Glorieuses”, from 1945 to 1975), most developed countries had to go through total destruction before they could rebuild new institutions to be more in line with the new techno-economic paradigm. As proved by many failed nation precedents, the outcome was by no means guaranteed.
The United States proved to be the only country with the leadership and the political system that could help it overcome the crisis without enduring its own destruction. What is well known is that it had a formidable leader, Franklin D. Roosevelt, surrounded by advisors of superior intellectual stature and gifted with extraordinary strategic and tactical aptitudes.
Less known is the fact that the transformative effort of the New Deal also enjoyed the support of corporations that found an interest in supporting FDR’s agenda. For many business leaders, the New Deal meant free trade, as opposed to the Republican Party’s protectionism. Thus it created opportunities to profit from their capital-intensive productive assets as well as social stability at home. Business opportunities brought about by free trade helped many corporate leaders find common ground with workers and the empowered unions that represented them, all while negotiating with the government so that it takes charge of certain expenses such as workers’ pensions and unemployment benefits. As written in 1984 by Thomas Ferguson and Joel Rogers in their landmark book Right Turn,
A new power bloc of capital-intensive industries, investment banks, and internationally oriented commercial banks constituted the basis of the New Deal’s great and virtually unique achievement—its ability to accommodate millions of mobilized workers amidst world depression. Because they were capital-intensive, firms in the bloc were less threatened by labor turbulence and organization. They could thus “afford” a coalition with labor, at a time when the costs of that coalition were, at least by American standards, high. Because most large capital-intensive firms were world, as well as U.S., pace-setters, they stood to gain from global free trade. They therefore allied themselves with leading institutional financiers, whose own minuscule work force presented few sources of tension, and who had supported a more broadly internationalist foreign policy and lower tariffs since the end of World War I. Together, members of this bloc provided the needed support for the two broad policy commitments—liberalism at home, internationalism abroad—centrally identified with the New Deal.
Finally, the United States never had to fear threats on their doorstep or to wage war on their own soil. It was a critical aspect that fundamentally changed the mentality of the country in both the 1930s (“Hitler’s doing what he’s doing over there—not our problem”) and the 1940s — and that allowed those politicians, talented as they were, to take actions that wouldn’t have been possible closer to the front. Americans paid a formidable price in World War II, losing hundreds of thousands of soldiers on the beaches of Normandy and in the Pacific. But mostly they grabbed the upside of the war effort: not only peace at home, with the opportunity to set up social institutions earlier than other Western countries, but also superpower status, economic growth, a radical upheaval of their productive system, and an unprecedented drive in the field of high-technology research—which, by the way, gave birth to Silicon Valley.
We can certainly detect yet another recurrence if we compare the New Deal with the current situation. With his legacy, notably Obamacare, Barack Obama could be the new FDR—albeit in a very different context. Silicon Valley-based tech companies resemble quite well the corporate bloc of industries and financial firms whose support made the New Deal possible. And, just as in the 20th century, the US is today less exposed to belligerence on its own soil than we Europeans. Maybe the US will, once again, avoid destruction at home. And maybe, should she beat Donald Trump in November, Hillary Clinton will cement Obama’s legacy as well as the Democratic Party’s strong alliance with Silicon Valley—just as Harry Truman helped perpetuate the New Deal right after World War II.
Brexit as an Opportunity
We already discussed the consequences of Brexit on European startups, whether they are in Britain or on the continent—you can read TheFamily’s February note on the issue.
Another, more Polanyi-esque question relates to whether Brexit will help in imagining the new institutions that we desperately need in the digital age, or rather contribute to further delaying them. Already there are acute thinkers hinting at a more nuanced vision than the apocalyptic discourse dominating the press since the Brexit referendum.
On the one hand, the continent could further sink into its current problems, made even worse by the difficulty of arriving at decisions in a 27-member organization (structural problem), the Brexit-triggered crisis (contingent problem), and the permanent temptation of European elites to ignore the transition and to defend the status quo (fundamental problems). What’s certain is that the negotiations necessary to implement Brexit will be a huge distraction for European public officials, meaning that most of the discussions around the new institutions that we need, as well as the lobbying effort around startups / regulatory frameworks / new social policy will probably be delayed until after the Brexit negotiations have ended.
On the other hand, once it has claimed its institutional freedom from the European Union and restored the possibility of designing policy measures without the need to coordinate with the other member states, it’s conceivable that the United Kingdom could decide not to wait for the others in implementing its own ‘Great Transformation’. With the right leadership, Britain could design its own New Deal, race ahead of Europe in converting its economy to the digital paradigm and build its own, advanced ecosystem supported by the proper institutions. By choosing ‘exit’ instead of ‘voice’ or ‘loyalty’ (as in the Albert O. Hirschman framework), the UK could effectively regain influence—not by participating in negotiations on the inside but by setting a convincing example from the outside.
On paper, the UK has the advantage. Leading companies in the digital economy don’t emerge from entire countries, even less from continents, but rather from small and dense metropolitan ecosystems. It’s actually in London that new laws, regulations, and common practices could help turn the new Great Britain into the leading entrepreneurial ecosystem in Europe.
Another advantage derives from the strength (and the distinguishing feature) of the British: their sincere liberalism. Liberal values were always affirmed throughout British history as they went hand-in-hand with the country’s strategy of power: maritime power yesterday, financial power today. Liberalism always served Britain’s best interests in terms of the country’s security and economic development.
From this ideological point of view, Brexit is incomprehensible. The European Union has never sought to restrict the UK in terms of liberalism, quite the contrary. By exiting the European Union, the danger is now that the UK begins to systematically reject all that the Union represents, beginning precisely with that liberalism that the country has embodied to this point.
Breaking with this liberalism is not illogical if one considers it from an individual voter’s point of view: liberalism’s excesses have, after all, considerably aggravated the economic insecurity of individual households as well as inequalities among various territories within Britain. But breaking with liberalism would also be acting entirely against the national interest, as Britain would be weakening itself by becoming less liberal. The country’s challenge is now to not renounce liberalism but instead to develop new institutions that allow for the digital economy to become more inclusive.
Unfortunately, as of today that doesn’t seem to be the early direction that they’re taking. After Brexit, the risk lies in a tacit alliance forming between the corporatists on the right (Farage) and on the left (Corbyn). By turning their backs on liberalism and uniting under common corporatist values, Great Britain would re-live the 1970s, becoming ever more and more like… France. Exposing the country to this strategic menace is a serious failure of leadership, and David Cameron has already suffered the consequences.
There is, however, another option. Faced with this situation, the UK could do two things: first, recommit to a determined liberalism; and second, learn from the anger that was expressed through the vote and finally tackle the challenge of creating the economic and social institutions that are necessary in a more digital economy. By putting in place more inclusive institutions, such as those that Lord Beveridge envisioned 60 years ago for the Fordist economy, the UK could come out of this crisis for the better. It would continue to create more and more wealth, while also being able to redistribute it to the many instead of the few.
We find this same reasoning in Philippe Aghion’s works on competition and innovation. As Aghion has shown, energizing enterprises through enhanced competition gives rise to a polarization: some redouble their efforts at innovation and come out on top, more innovative and more competitive; others cease to innovate, using the excuse of difficult times, fully losing themselves to the crisis before disappearing. Will the British be capable of radical innovation during this crisis that they must now face and show the way forward for other developed countries? Or will their radical imagination (or Hayekian knowledge aggregation) fail them, leaving them only the option of dead-end corporatism?
Leadership plays a critical role in these cases, and it’s still hard to spot a leader, either for the Tories or Labour, who seems to be capable of that radical imagination needed to emerge as a stronger nation. Boris Johnson, in particular, seems to possess the traits of the great opportunists: he is prone to corporatism (as seen in his past positions regarding innovative companies such as Uber) and, despite his immense culture, erudition and kindness towards immigrants, may lack imagination. As for Jeremy Corbyn, whose obsession is to restore the golden age of Fordism, he is clearly oriented toward the past; just like his twin brother Bernie Sanders in the US, he dreams of going back to the 1950s and seems to have no idea of the transition that is currently taking place.
Entrepreneurs at the Forefront
The solution won’t come from the government alone. Clearly it rests on the government, not the tech companies, to create the social and economic institutions that can align the various interests in an economy where both production and consumption are going through radical change. But we all understand how hard it is to exert the radical imagination necessary to devise what those new institutions should be. By way of expediency, many elected officials prefer to reason within the framework inherited from the Fordist economy. Instead of doing their homework and discovering new categories, they choose the easy path of trying to fit new business models into existing categories. Alas it doesn’t work, as Union Square Ventures’ Nick Grossman wrote in an inspiring white paper about regulation in the digital age:
Today, we are facing a conflict between these two regulatory approaches. Since 2007, driven by the explosive growth of mobile apps, 1.0 rules and regulations are being tested by internet-based applications that use their own internal 2.0 regulatory schemes. The most prominent examples have been in transportation (e.g., Uber, Lyft, Sidecar), travel (Airbnb) and health (23andMe), but the problem is quickly spreading to every government jurisdiction and economic sector, and will only get worse as more aspects of our lives are mediated by web and mobile platforms.
Because we can’t expect solutions from the government alone, leadership is best provided by Entrepreneurs and those who work with them, notably venture capitalists. This holds in any deployment phase when the new techno-economic paradigm is not yet well understood. It is all the more true in the digital economy, in which increasing returns within tech business models enable innovative companies to grow at a very fast pace, often without waiting for regulations to adapt.
We at TheFamily are willing to do our part and, like haute finance in the gold standard economy, to “function as a permanent agency of the most elastic kind”. Following Brexit, there are obviously bridges to build between the various European countries. As an investment firm with continental ambitions, we’ll have a role to play in unifying the different places that are (slowly and painfully) emerging as the leading entrepreneurial ecosystems in Europe. The first step was to provide a learning program with twelve chapters to build ambitious startups in Europe. The next step is… well, we’ll let you know soon enough! Meanwhile, on the policy front, we’ve been busy pushing hard in three directions—and we will redouble our efforts in the coming months.
First, we strongly believe in the superiority of entrepreneurship when it comes to discovering new models and understanding what needs should be addressed by new social and economic institutions. As we undergo this new Polanyi moment, Entrepreneurs form a vanguard that should be seen as an inspiration rather than a threat. With their sense of urgency, unrivaled customer insight, and radical model for execution, they’re the best positioned to help us understand what’s going on, skip the war and the destruction, and go directly to the New Deal and Golden Age stage. There are many examples of what Entrepreneurs can bring about in terms of policy objectives—from Elon Musk’s incredible contribution to providing zero emission electric power generation to what dozens of US and European startups are currently doing to serve workers in the gig economy.
Second, we advocate ceaselessly in favor of regulatory frameworks that are more in line with the trial-and-error nature of the digital economy. What we need least is regressive corporatism that would force innovative companies to fit into the obsolete categories brought about by the dying Fordist economy. The urge today is to leave behind the norms of mass production, based on the rarity of administrative resources and the need to erect barriers to entry. We must imagine and embrace the norms of the digital economy, focusing on the abundance of data and favoring open markets that are in the interest of consumers as well as national economic development. The UK, thanks to its liberal legacy, is already ahead on that track. We can hope that, after Brexit, it will only accelerate and show the whole continent the way forward.
Finally, we’re convinced that the government must do its part of the job by putting in place the more inclusive and sustainable institutions necessary to redistribute wealth to the many—instead of enabling the few to reap all the rewards from the digital economy. This requires accepting that the transition is occurring, understanding where it is leading us and what new risks workers are exposed to, and taking bold action with the support of the tech business community. Ultimately, as happened with the New Deal, the effort will be huge enough that it will initiate a virtuous macro-economic circle: more people will enter the digital workforce and create more demand for new digital products, which in turn will help create even more jobs and lead us into another Golden Age. To accomplish that goal, we need to hasten the advent of a new elite at the top of government. So far, with a few exceptions such as France’s Emmanuel Macron, we haven’t seen any tech-friendly political elites emerging in Europe. The road may be long, but we’re following it anyway.
Essential Readings
Apart from Polanyi’s The Great Transformation itself, here are a few articles that will help you put those matters in perspective:
- Venkatesh Rao, “A Brief History of the Corporation: 1600–2100”, Ribbon Farm, June 2011.
- John B. Judis, “Doom! Our Economic Nightmare Is Just Beginning”, The New Republic, September 2011.
- Clayton Christensen, “A Capitalist’s Dilemma, Whoever Wins on Tuesday”, The New York Times, November 2012.
- Edmund S. Phelps, “Less Innovation, More Inequality”, The New York Times, February 2013.
- Mark Blyth, “The Austerity Delusion”, Foreign Affairs, April 2013.
- Sara Horowitz, “America, Say Goodbye to the Era of Big Work”, Los Angeles Times, August 2014.
- Adam Davidson, “Welcome to the Failure Age”, The New York Times Magazine, November 2014.
- Nicolas Colin & Bruno Palier, “The Next Safety Net”, Foreign Affairs, July 2015.
- Justin Fox, “Maybe This Global Slowdown Effect Is Different”, Bloomberg, August 2015.
- Anonymous, “The Mystery of ISIS”, The New York Review of Books, August 2015.
- Tim O’Reilly, “Workers In A World Of Continuous Partial Employment”, What’s the Future of Work?, August 2015.
(This is an issue of TheFamily Papers, a series which covers various areas such as entrepreneurship, strategy, finance, and policy. Thanks to Kyle Hall and Laetitia Vitaud.)
