Large multinationals are getting away with murder. They don’t employ anybody (few that make any decent wages at least) but make obscene amounts of money. Not only are their profits at all-time highs but countries such as Ireland – especially Ireland – leave those rapacious revenues both unregulated (they are monopoly profits) and untaxed.
Economics textbooks teach that international trade means countries are better off when they have no external tariffs. Treatises written by long-dead authors say there are counterintuitive laws about “comparative advantage”: we are better off when nations trade with each other. Modern corporations today take advantage of near zero trading costs, spineless regulators, absurd tax regimes and frictionless borders to negate these so-called natural laws.
Countries no longer benefit from trade but companies do.
Comparative advantage – something that is supposed to make us all better off – is shifted from countries to corporations. Countries such as Ireland – especially Ireland – get some crumbs from the table. Crumbs that are large because we are small. But our gains come at great cost to citizens of those nations where corporations are really conducting business.
The changing nature of global trade is one thing. The rise of the robots is another. Particularly artificial intelligence. It is now commonplace to assert that the robots are coming for all our jobs.
Robots have have been taking over factory jobs for a long time. More recently, computers have been stealthily moving up the value chain. One place where this is obvious is on the once great trading floors of the world’s stock and bond exchanges.
The days of young men (usually) in brightly coloured jackets shouting and screaming at each other as they traded financial assets are long gone. It’s all computer-to-computer now. If anyone is wondering why global equity markets keep going up, it’s not just because profits are high and untaxed. It’s also because some investors know that AI is coming for their jobs: so best to own the robots. We aren’t sure who will design the best robots, so just buy an index fund. Then we are guaranteed we will own some of the corporate winners and their profits.
Purchasing power
Capitalists – some of them – used to understand that if anybody is to stand a chance of buying the goods they produce then it is a good idea to employ people and pay them wages. Purchasing power is created and everybody wins. No longer. Now it’s a case of: build a ride sharing app in order to displace – or, at best, put on the minimum wage – hundreds of thousands of erstwhile drivers. Design driverless vehicles to make millions of workers unemployed. And so on: even accountants, doctors and lawyers are not immune.
Maybe it isn’t quite as bad as this. After all, the US and UK economies are at full employment. Even Europe is now growing and creating jobs at an unexpected clip. Technological change has been a feature of economies since the industrial revolution: look what happened to farm labourers and horses. The world of finance may have been transformed by technology, but humans are still there, freed from the grunt work. But as they move up that value chain, bankers are nervously looking over their shoulders at the pursuing robots. It’s all happening too fast and on an unprecedented scale.
There is something to the dystopian vision of a world of software doing all the things that we think are immune to automation. Silicon Valley is full of people who believe that no job is safe from software. Where are the jobs of the future to come from? Optimists say every generation has asked that question.
Blissfully unaware
Free-traders often sound evangelical: just listen to the Brexiteers proclaiming a vision of “global Britain” freed of the shackles of the EU’s external tariff wall. They believe in free trade as the panacea to all of the UK’s ills, blissfully unaware of how the world has changed.
But the old trade models contained a dark secret: even in the 19th century there were losers. But the obvious gains swamped the losses and nobody worried too much: the welfare state was invented to take care of, usually, a small problem. But that relatively trivial issue becomes bigger by the day. Economists have rarely talked about the downside of free trade for fear of giving ammunition to those nut jobs who believe in protectionism. In the jargon, losses from free trade are called the “distributional impact”: some people’s incomes are seriously squeezed, usually via job losses.
But the winners used to far outnumber these unfortunate souls who, in any event, usually moved, eventually, into jobs created in the growing parts of the economy. The problem these days is that there are just so many losers, most of whom have ended up voting for Trump and Brexit.
Globalisation, monopoly profits that are untaxed and technological change have started to produce profound political shifts. It is the stuff of revolution. It certainly explains the rise of extremist politics of the right and left. Ireland is going to need a new business model.
