Lord Adair Turner, the former vice chairman of Merrill Lynch Europe and ex-head of the Britain’s financial watchdog, is “increasingly worried” that advances in technology are undermining capitalism and stopping the global economy recovering from its “post-crisis malaise.”
In an interview with Business Insider, Lord Turner said: “We have an economic malaise where the capitalism system is not delivering as well or to enough people to maintain its legitimacy.
“There’s a certain sort of equality of citizenship that requires that everybody does OK. I think that may breakdown. I think it may breakdown because of the fundamental nature of technology. You have to be aware that the way that capitalism works will vary depending on the different stages of technology that we’re in.”
‘Huge returns for them and relatively low and precarious returns for an increasing percentage’
Lord Turner ran the Confederation of British Industry (CBI) in the mid-1990s, before becoming vice chairman of Merrill Lynch Europe from 2000 to 2006. He then served as head of the UK’s former financial watchdog the Financial Service Authority from 2008 to 2013, taking the jobs on the eve of the global financial crisis sparked by the US mortgage security bubble.
Lord Turner is now chairman of George Soros’ economic think thank the Institute for New Economic Thinking and this year authored “Between Debt and the Devil” on the global financial crisis.
He told Business Insider that businesses like Facebook, Uber, and Airbnb are focusing huge amounts of wealth in the hands of relatively few people and generating fewer jobs than previous technological breakthroughs. This is undermining the fundamental promise of capitalism that advances in technology and the wider economy will bring some benefit to everyone.
He said: “Look at Facebook — it now has a market cap of about $370 billion. It only employs 14,000 people and it had to do very little investment in order to get there. The reason is this technology has this extraordinary feature that once you develop one copy of software, the next billion copies don’t cost you anything.
This information and communication technology enables huge wealth creation with very little investment for some categories of people in the economy and creates jobs that are very low pay for others
“There’s zero marginal cost of replication. That is just completely different from the world of electromechanical machinery. Once Henry Ford had built one factory, if he wanted another he’d have to build it all over again. He had to put in lots of millions of stock.”
Technological innovations, such as industrialisation, have traditionally generated more jobs than they destroyed. But research by Citi and Oxford University earlier this year found a “downward trend in new job creation” from the 1980s onwards, with technology generated fewer, lower-skilled jobs than past revolutions.
The World Economic Forum has already forecast that 5 million jobs could be eradicated by technology by 2020 and 57% of all jobs across the OECD are at risk of automation, according to research by Citi and Oxford University.
Lord Turner says: “The problem is this: I think we probably are on the verge of a wave of automation and robotisation and the application of big data etc., which will tend to create an economy of huge returns for the people clever enough to create the software, do the big of data analytics, create the computer game, create the new business model or the data system that sits at the centre of Airbnb or Uber.
“Huge returns for them and, for a variety of reasons, relatively low returns and precarious returns for an increasing percentage of the population.”
‘One of the things is it does seems to be driving inequality’
Multi-billion dollar tech platforms like Airbnb and Uber pitch themselves as part of the “gig economy,” which they say helps people earn extra money through either flexible work or renting out their assets.
But British economist Guy Standing argues that most of the people who work on these types of platforms are part of what he terms the “precariat” — low-paid workers with precarious job security. He claims these types of platforms that connect workers with employers are part of a wider trend of low-paid agency work.
Tech platforms’ role in society has been in focus recently, with a British employment tribunal ruling that Uber drivers were in fact staff rather than freelancers on the platform. As a result, they are legally be entitled to things like holiday pay and sick pay.
Lord Turner says: “I think we’re just at the beginnings of understanding what deep things this [technological change] does. One of the things is it does seems to driving of inequality. This information and communication technology enables huge wealth creation with very little investment for some categories of people in the economy and creates jobs that are very low pay for others.”
Lord Turner thinks this tech-driven inequality has contributed to the popular resentment for elites and mainstream politics that drove the Brexit vote and support from Donald Trump in the US elections.
He says: “I think we may be at a turning point in the nature of capitalism. Our assumption for the last 200 years has been that although there are ups and downs year by year, broadly speaking decade-by-decade capitalism delivers an increase in GDP per capita and although it’s not an equal system, some people do better than others, on average over a couple of decades everybody does OK.”
‘I am increasingly convinced and worried there are more fundamental forces at work’
Lord Turner suggested that a solution the tech-driven equality could be a universal basic income — a flat wage paid to all citizens that is enough for them to live on. Experiments with this are being carried out in Holland and Kenya.
An alternative could be that the government ensures people are paid a “living wage” for essential human roles such as health and social care, Lord Turner says.
He told BI: “There are many jobs that we need to do in our society, care etc., that you can’t automate and you wouldn’t want to automate. They need to be done but it may be that if you leave those entirely to the private sector or the state in trying to buy them, using competitive bidding processes to continually drive the price down, those things where we do need people to do the job will be at rates so low that it doesn’t give people enough income and dignity.
“Does that mean that we just have to accept that the state has to say through the social care system and health care system it’s going to employ people and pay people at a rate which it considers reasonable — a living wage or whatever — rather than at the lowest rate at which it can put it out to competitive bidding?”
But Lord Turner added: “I think it’s a fundamental social issue that we will increasingly have to debate and I think we don’t really know what the policy leavers there are.”
Lord Turner believes that finding a solution to the problems presented by the new tech economy are essential not just to repairing global trust in capitalism but also in repairing the global economy itself.
Lord Turner argued in his book, “Between the Debt and the Devil”, that the global economy’s painfully slow recovery from the 2008 crisis has been caused by the huge debt overhang created by a half century of loose credit conditions in the run up to the crash.
But he told BI: “Whereas soon are 2008 I felt our problem was fundamentally just an enormous debt overhang generated by an out of control credit boom, I am increasingly convinced and increasingly worried that there are some more fundamental forces at work which is why it’s taking so long to get out of, and why we’re still not out of, this post-crisis malaise.”