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Banbury Cross

a pillow for lost thoughts...

Archives for: May 2015

Social Dividend

Having spent most of my youth in the socialist farce of the Soviet bloc, I naturally tend to the right hand side of the political spectrum, especially when it comes to economic questions. However, that being said, I believe that this century will experience a dramatic shift to the left.

The world is in the middle of two significant revolutions. Globalization and robotization are changing the dynamics of economic growth as we know it. Both processes are subtly undermining the fine balance between labor and capital. Globalization ruthlessly exports the production into countries where labor can be obtained under most favorable conditions, skipping standards and safety nets fought for by generations of workers and leaving armies of unemployed in its wake. And robotization goes even further, disposing of the need for human labor completely.

That puts a tricky question on the table - what are we going to do with the looming excess of workers? Now, and more so in the future, there simply won't be sufficient numbers of naturally productive jobs to support the current populations (again, most of the stuff will be manufactured by machines and automatons).

In the present state of technological progress, we will soon be able to provide basic living necessities for most people and slowly transform the society to a new model, where machines will be the primary producers and people will act as entertainers, managers and governors.

Sooner or later, a question how to redistribute the wealth produced by machines will emerge. Capitalism is not well equipped to handle it. Capitalism tends to concentrate wealth, not spread it around. If left unchecked, pure capitalism would throw us into a dystopian nightmare, where a selected few are ruling the subjugated and completely dependent masses. And that is where socialism will make its come back.

For some time now, the ideas of basic income or social dividend have been bandied about. And although to contemporary ears they sound like a horrible regression to the horrors of Soviet style socialism, I think that a system like that will eventually have to be implemented. But as always the devil resides in the details.

For there is a little fly in this noble ointment. In the old system, wages served as a feed back loop for controlling the size of the labor force. Thriving economy and higher wages would lead to bigger families, more workers and eventually to lower wages through fierce competition for the available slots. Since this mechanism of keeping population in check is going to be retired, something else will have to come in its stead.

And that is the challenge for the economic thinkers of tomorrow. If we implement the social dividend poorly, it will create more damage than good.

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