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Adventures on the new frontier John Rapley Queen's Quarterly. 122.4 (Winter 2015): p574+. Copyright: COPYRIGHT 2015 Queen's Quarterly http://info.queensu.ca/quarterly Full Text:

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Whereas the barbarians advanced on Rome, today's great empire is moving its wealth to the periphery. After two centuries in which net global capital flows went from the periphery of the world economy to its core, capital recently started heading towards the so-called emerging markets. Tempting as it is to blame greedy capitalists for shipping our jobs offshore, the truth is that all of us in the top ten percent have pushed for this change. In our relentless desire to get more for less, we have rewarded firms that have outsourced production to low-wage zones. The modern Attila didn't sack Rome; he went to the mall ...

L EGEND HAS IT that when the stock market crashed in 1929, millionaires leapt from buildings. Though probably apocryphal, the tale reflects the fact that many tycoons were wiped out. Second time

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around, though, in the Great Crash of 2008, billionaires got bailed out. The only ones airborne then were those flying personal jets to their private islands.

Once governments and central banks got together to bathe the markets in bailout funds and cheap money, asset values resumed their long rise. Unfortunately, the effect failed to trickle down, and inequality continued a long worsening trend. The bailout probably deserves some blame for this. In Capital in the Twenty-First Century, Thomas Piketty notes the equalizing impacts that periodic episodes of wealth destruction have had on income distribution. The 1929 Crash both thinned the ranks of the capitalist elite and, in producing a Depression whose impact was indiscriminate (some former bankers actually did join bread lines), helped forge a broad consensus for the New Deal.

Today, by contrast, that elite's ranks are scarcely thinning, and our politics seem more polarized than ever, reflecting the widening economic divide and competition for scarce spoils in the age of austerity. The rich have now pulled so far away from the rest of us that a recent Oxfam report reckoned the poorest half of the planet's population could pool all its wealth and still have less money than the world's richest seven dozen people--a group so small they could all fit into a London bus (not that one can imagine they'd ever have reason to take a bus, mind you).

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A 2011 network analysis by the Swiss Federal Institute of Technology uncovered their growing remoteness from society. The study revealed a small web of global corporate control comprising a few hundred tightly networked and extraordinarily wealthy individuals, dominated by bankers, commanding vast pools of capital, and moving to a considerable degree in lockstep. Able to tempt politicians with outsized political donations and, on retirement, lucrative fees on the speakers' circuit or even outright job offers (if they don't already come from Wall Street, US Treasury officials tend to head there upon leaving office), corporate elites now sink much of their capital into influencing government policy.

In The Great Stagnation, the economist Tyler Cowen argues that with firms shifting their focus from innovation to privatizing their existing technologies' dividends--say, lobbying to extend patent protection--technological progress has slowed. What is emerging therefore is a model in which a small, über-rich, cohesive, hereditary, and increasingly closed class is exerting its political weight to defend its existing privileges rather than to create new social gains.

The dynamic and entrepreneurial class that was so beneficial to capitalism in its youth thus seems to be maturing, in its dotage, into something resembling a feudal nobility. But before we get too carried away with our denunciations of the one percent, here's a sobering thought. Just about everyone reading this article is either in the one percent or nearly there. Take a high school teacher in Ontario; give her a home, and put her near retirement. According to the figures in Credit Suisse's Global Wealth Report, the value of her assets, including her pension fund, already place her in the global top

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one percent. This realization, that we have seen the enemy and it is us, leads to the I heart of the matter. You see, our problem is not that someone else has enslaved us in an unfair system. It's that an unfair system which long served us is now turning on us.

Let me explain--and fear not, dear reader, there is a happy ending to this tale (or, at least, there can be). In 1800, on the eve of the high age of European imperialism, when American slavery was entering its most advanced phase and European colonists were about to carve up the planet, average per capita incomes were roughly level across the globe. By the mid-twentieth century, Western incomes had risen to be thirty times greater than those of folk in the colonies. Then a great wave of decolonization ended the British and French empires. Yet, oddly, the independence of the colonies failed to bring the curtain down on this Great Divergence. The global trading and financial system still favoured industrial countries over poor ones. Most of the newly independent states therefore turned inward to build their economies. Whatever idealism might have driven these strategies of national development, they had the unintended consequence of worsening the divide. By the end of the second millennium, as Ha-Joon Chang writes in his 23 Things They Don't Tell You about Capitalism, Swedish bus drivers earned fifty times what Indian bus drivers did--despite, as Chang notes, having the easier job. Come 2000, the tenth of humanity living in the developed countries was gobbling up eight tenths of the planet's output.

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F UNNILY ENOUGH, sixteen centuries ago on the eve of the Roman Empire's crash, the empire's nobility also amounted to about a tenth of its population. And much as the Romans once did, we would credit a superior civilization for our wealth--good work habits, honest bureaucrats, democratic government. But this was only ever a small part of the story. Our good fortune was to have been born in the driver's seat of the modern empire. Economist Branko Milanovic has done the math and concluded that some three fifths of our income is a function of where we're born, while another fifth is a function of whom we were born to (i.e. our parents). What we actually do with our lives affects only the last fifth, a marginal contribution.

Put simply, we are born rich and will die that way, full stop. If we're not oligarchs, we surely constitute global feudalism's lesser nobility. And we got rich in no small measure because for two centuries net flows of capital moved from the global economy's periphery to its core, where we lived, continually enriching us and enabling us to pull away from the pack.

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However, history suggests that such episodes of extreme divergence can only ever be temporary. In our upcoming book The Roman Road, Peter Heather and I compare empires ancient and modern to conclude that when the income gap between the core and periphery of a common economic space reaches such extremes, economic convergence becomes inevitable. Whichever factor of production happens to be mobile at the time, either capital or labour, brings it about. In the case of the Roman Empire, for instance, capital was immobile. Rome's invaders had to move in, because they couldn't cart its aqueducts and olive groves to the northern forests.

Today, the reverse obtains. The progressive expansion of immigration restrictions in the twentieth century, which would greatly limit the mobility of labour, would in time produce a global political economy that gradually came to resemble a sort of global apartheid, in which the "white suburbs" of the North were serviced by the cheap labour reserves of the South's black townships. We kept our wages inflated by a sort of influx control that limited migration into high-wage markets--hence that doubling of the income ratio over the last half of the century.

Sooner or later, though, this model was bound to collapse for much the same reason South African apartheid did: businesses were eventually going to want direct access to that cheap labour. In the final decades of the second millennium, a series of innovations lifted the barriers to capital mobility that had long kept producers close to their markets. New transportation technologies, like containerization, lowered transport costs. The gradual lightening of production--the substitution of plastics for metals,

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the miniaturization of components, the increasing knowledge component of goods (fifty years ago, children played with wooden toys; today, they play video games they can order over the Internet)- reduced the weight of each dollar's output. Since the value of a container's goods steadily rose, producers could afford to ship them greater distances without raising their costs. Integrated supply chains further enabled firm managers to abandon large plants, where everything from design to assembly had been done under one roof, to break up the production process so as to source various components from their cheapest locales. A car might be designed at home, but labour-intensive assembly could easily be outsourced to where workers were cheapest. Finally, in the late twentieth century, policy changes rolled back government barriers to capital export; deregulation and the liberalization of trade and financial markets made it easier for firm managers to shift their production overseas .

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As a result, by the 1980s capital had attained a degree of mobility that would have made Attila the Hun green with envy. Thus began the great wave of corporate outsourcing that has stirred the ire of anti-globalization protesters across the political spectrum. Whereas the barbarians advanced on Rome, we're instead moving our wealth to the periphery. After two centuries in which net global capital flows went from the periphery of the world economy to its core, capital recently started heading towards so-called emerging markets.

Tempting as it is to blame greedy capitalists for shipping our jobs offshore, the truth is that all of us in the top ten percent have pushed for this change. In our relentless desire to get more for less, we have rewarded firms that have outsourced production to low-wage zones. The modern Attila didn't sack Rome; he went to the mall. And if this story ended with poor countries catching up to the rich, it might be a happy one. However, the plot now thickens just a bit. For while convergence has been occurring between countries, within them the inequality discussed by Piketty is widening everywhere.

The original justification offered by neoliberal politicians in the 1980s and 1990s for rolling back the state and allowing firms to move offshore was that it would restore growth to a sputtering economy. The 1970s, after all, were a decade of high inflation and low growth across much of the Western world, and the Keynesian model of state direction did seem to be past its prime. Furthermore, the lifting of barriers to trade and foreign investment appeared at first to restore moribund economies to growth, with the late 1980s and 1990s seeing a surge across much of the Western world.

However, the boom years obscured an ominous underlying trend. Since the 1960s, reflecting the declining productivity mentioned earlier, and compounded by the declining population growth that has constrained the expansion of the labour force, economic growth has been slowing across the West. The average annual rate of per capita growth in Western countries, which hovered around six percent in the two decades following the war, has been trending relentlessly downwards. It now stands at around one percent, and continues to slide. In hindsight, the go-go '90s were but a brief interruption caused by a temporary effect. The outsourcing of jobs, and an attendant assault on unions, restrained wage growth. This in turn inflated profits. Inequality began to worsen, but the resulting rise in stock markets provided a short boost to growth. But inevitably, the stock market

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boom became a bubble, and when it burst the underlying trend reasserted itself--in a climate of rising inequality.

It appears increasingly likely that the roaring days of the West are behind us. However, there are no votes in telling people that we're going to have to learn to do more with less. Instead, politicians keep insisting that a new technological revolution will come along to save the day, while promising their constituents that they can continue to enjoy the gains of the past. In the meantime, in an effort to boost short-term growth, they try to fight the tides by luring capital back from the periphery. To make their countries more attractive to investors, they've cut taxes on capital. They then try to make up the resulting deficits by cutting services to, and raising taxes on (in the form of consumption taxes), the least mobile-workers-and the least organized.

In consequence, politicians have been targeting their austerity in such a way as to protect their own constituents. Given, for instance, that senior citizens are more likely to vote than young people, rare has been the cost-cutting politician who has said we'll need to reconsider pensions. But tuition fee increases? That plays in Peoria. The most we'll hear is that while they can expect to pay the same taxes, today's young people can't expect the pensions their elders get.

This will probably end badly. Research on "tax morale" has found that when taxpayers perceive a discrepancy between what they pay in taxes and what they get in public services evasion tends to rise. This shows up in societies with powerful in-groups that benefit disproportionately from public spending or societies that are saddled with high public debt, since tax revenues go to pay bondholders rather than to fund public programs. To peer into this possible future, one can do worse than look at present-day Greece. There, a punishing and uneven austerity--the axe has fallen especially heavily on young people, who account for most of the nation's unemployed-has atrophied the state. New and frightening players like the fascist Golden Dawn movement have stepped into the gaps left by the imploding public sector to build social bases in the most deprived networks .

We can fight to distribute austerity unevenly, watch as the state is hollowed out by people retreating from the tax system, and passively surrender to a rising tide of Golden Dawns and other such movements that respond to social fragmentation with a militant tribalism. Or we can creatively embrace the challenge, deliberately building the community networks that will together help us enter a new era. There are some grounds for optimism. A young generation of entrepreneurs, forced to fend for themselves in an age of jobless austerity, is devising radical technologies, from sharing apps to gift economy networks, which are helping to forge grassroots responses to the age of austerity.

IT ALL SEEMS TO COME DOWN to a choice between attempting to preserve our standard of living at all costs and retreating into ever-smaller concentric circles of privilege, on the one hand, or, on the other, accepting a more gracious equalization-of both income and standards of governance-so as to preserve the cultural and political elements of our civilization that we'd want to take with us into the future.

Rome, incidentally, chose the first option. I reckon we've learned a lot since then. The baby boomers said they'd create a more just world, but the Millennials may actually do it.

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JOHN RAPLEY, a writer and academic based in London, is spending the winter term of 2016 teaching in the Department of Political Studies at Queen's University. His latest book is The Money Cult: The Priests, Prophets and Magicians of Economic History (Simon & Schuster, 2016). Twitter and blog: @jarapley and brixtonsubversity.wordpress.com.

Source Citation (MLA 8th Edition) Rapley, John. "Adventures on the new frontier." Queen's Quarterly, vol. 122, no. 4, 2015, p. 574+.

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