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accelerator of crisis, and – in the present context – the effects of financialized consumer behaviour, the instabilities injected by fiat money, which allows credit expansion and speculation on a scale nineteenth-century capitalism could not have withstood.

In this sense Hilferding, Luxemburg and the rest were not ‘bad Marxists’ when they began to move away from abstractions and towards the concrete facts: they were being good materialists. Their mistake was to assert that monopolized state capitalism is the only pathway to a postcapitalist system. We can be certain today that it is not.

Marxist economists have made perceptive contributions to our understanding of what happened in 2008. The French economist Michel
Husson and New School professor Ahmed Shaikh have both demonstrated how neoliberalism restored profit rates from the late 1980s onward. But these show a sharp fall in the final years before the 2008 financial crisis.28 Husson argues, correctly, that neoliberalism ‘solves’ the problem of profitability – for both individual firms (by suppressing labour costs) and for the system as a whole (by massively expanding financial profits). But alongside higher profits, the overall rate of investment after the 1970s is low.


This conundrum of rising profits alongside falling investment should be the real focus for modern crisis theory. But there is a fairly clear explanation: in the neoliberal system, firms use profits to pay dividends rather than to reinvest. And in conditions of financial stress – obvious after the Asian crisis of 1997 – they use profits to build up cash reserves as a buffer against a credit crunch. They also relentlessly pay down debt, and in the good times buy back shares as a kind of windfall profit distribution to their financial owners. They are minimizing their exposure to being financially exploited, and maximizing their own ability to play in the financial markets.

So while Husson and Shaikh successfully demonstrate a ‘falling profit rate’ prior to 2008, the crisis is a result of something bigger and more structural. Its cause (as Larry Summers suggested in his work on secular stagnation) is the sudden disappearance of factors that had compensated for inefficiency and low productivity for decades.29

The determination to trace crises in general to one abstract cause, ignoring the structural mutation that was actually going on, was the original source of confusion in Marxist theory. This time around we have to avoid it. The account must be concrete: it must include the real structures of capitalism: states, corporations, welfare systems, financial markets.

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The crisis that broke out in 2008 was not the result of a breakdown of this or that counteracting factor, or due to a short-term fall in the profit rate. It was the breakdown of an entire system of factors supporting the profit rate, called neoliberalism. Neoliberalism was neither a great boom nor, as some claim, a hidden period of stagnation. It was a failed experiment.

THE PERFECT WAVE

In the next chapter I will explain what led to this experiment. I will describe in detail how the fourth
Kondratieff Wave unfolded between 1948 and 2008; what disrupted it and what prolonged it. I will propose that the impact of technology, and the sudden availability of a new outside world, created a break in the long-term pattern.

First we must establish – as a mental tool – a model of a normal wave. Kondratieff was right to warn that each wave, building on the next, creates a new version of the pattern. But only by distilling the essence of the first three waves can we see how the fourth diverged.

What follows is my ‘normative’ restatement of longcycle theory, merged with what is rational about the
Marxist understanding of crisis:


The start of a wave is usually preceded by the buildup of capital in the finance system, which stimulates the search for new markets and triggers the rollout of clusters of new technologies. The initial surge sparks wars and revolutions, leading at some point to the stabilization of the world market around a new set of rules or arrangements.

Once the new technologies, business models and market structures begin to work in synergy – and the new ‘technological paradigm’ is obvious – capital rushes into the productive sector, fuelling a golden age of above-average growth with few recessions.
Since profit is everywhere, the concept of allocating it rationally between players becomes popular, as does the possibility of redistributing wealth downwards. The era feels like one of ‘collaborative competition’ and social peace.

Throughout the whole cycle, the tendency to replace labour with machines operates. But in the upswing, any fall in the profit rate is counterbalanced by the expanded scale of production, so overall profits rise.
In each of the up cycles, the economy has no trouble absorbing new workers into the workforce even as productivity increases. By the 1910s, for example, the glass-blower displaced by machinery becomes the projectionist in a cinema, or the worker on a car production line.

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When the golden age stalls, it is often because euphoria has produced sectoral over-investment, or inflation, or a hubristic war led by the dominant powers. There is usually a traumatic ‘break point’ – where uncertainty over the future of business models, currency arrangements and global stability becomes general.

Now the first adaptation begins: there is an attack on wages and an attempt to de-skill the workforce.
Redistribution projects, such as the welfare state or the public provision of urban infrastructure, come under pressure. Business models evolve rapidly in order to grab what profit there is; the state is urged to organize more rapid change. Recessions become more frequent.

If the initial attempt to adapt fails (as it did in the
1830s, 1870s and 1920s), capital retreats from the productive sector and into the finance system, so that crises assume a more overtly financial form.
Prices fall. Panic is followed by depression. A search begins for more radical new technologies, business models and new supplies of money. Global power structures become unstable.

At this point we need to factor in the concept of
‘agents’: social groups pursuing their own interests. A problem with the Schumpeter-inspired version of wave-theory is its tendency to obsess about


innovators and technologies, and not see classes.
When we look closely at social history, each ‘failed adaptation’ phase happens because of working-class resistance; each successful one is organized by the state.

During the first long wave, roughly between 1790 and
1848 in Britain, you have an industrial economy trapped within an aristocratic state. A prolonged crisis begins in the late 1820s, characterized by the factory owners’ determination to survive by deskilling the workforce and cutting wages, and also by chaos in the banking system.
Working-class resistance – the Chartist movement culminating in the General Strike of 1842 – forces the state to stabilize the economy.

But in the 1840s a successful adaptation takes place: the Bank of England gains a monopoly over the issue of banknotes; factory legislation ends the dream of replacing the skilled male workers with women and children. The Corn Laws – a protective tariff favouring the aristocracy – are abolished. Income tax is levied and the British state finally begins to function as a machine for the ruling industrial capitalists, not as a battleground between them and the old aristocracy.

In the second wave – which starts with Britain,
Western Europe and North America but pulls in

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Russia and Japan – the downswing begins in 1873.
The system tries to adapt through the creation of monopolies, with agrarian reform, an attack on skilled wages and by pulling in new migrant workers where possible as cheap labour. Countries move on to the Gold Standard, form currency blocs and impose trade tariff measures. But sporadic instability still plagues growth. The 1880s see the first mass workers’ movements. Though the movements themselves are often defeated, skilled workers succeed spectacularly in resisting automation, while unskilled workers benefit from the beginnings of a social welfare system. Only in the 1890s, as monopolies become fused with banks or backed by a liquid financial market, does a strategic change take place. A cluster of radically new technologies is deployed and – as in the 1840s – there is a step change in the economic role of the state. The state – whether in Berlin, Tokyo or
Washington
– becomes indispensable to maintaining optimum conditions for big monopoly companies through tariffs, empire expansion and infrastructure building.

Once more, it is working-class resistance that prevents the system adapting on the cheap, without technological innovation.

For the third wave, if we take 1917–21 as the start of the downswing, the system adapts by tightening state control of industry, and by trying to revive the Gold


Standard. In most countries there is an attack on wages during the 1920s but they do not fall fast enough to solve the crisis. Then, once the Depression begins, fear of social unrest pushes each major country to pursue a competitive exit route: destroying the Gold Standard, creating closed trading blocs, using state spending to boost growth and reduce unemployment.

In emphasizing this, I am making what I consider a crucial addition to wave-theory: in each long cycle, the attack on wages and working conditions at the start of the downswing is one of the clearest features of the pattern. It sparks the class warfare of the
1830s, the unionization drives of the 1880s and 90s, the social strife of the 1920s. The outcome is critical: if the working class resists the attack, the system is forced into a more fundamental mutation, allowing a new paradigm to emerge. But in the fourth wave we found out what happens if the workers do not successfully resist.

The role of the state in creating the new paradigm is equally clear. The 1840s see the triumph of the
Currency School economists, who impose sound money on British capitalism by insisting the Bank of
England has a monopoly on issuing notes. In the
1880s and 90s, there is the rise of state intervention.
In the 1930s, it is outright state capitalism and fascism.

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The history of long cycles shows that only when capital fails to drive down wages and when new business models are swamped by poor conditions is the state forced to act: to formalize new systems, reward new technologies, provide capital and protection for innovators.

The role of the state in major transformations has been well understood. By contrast, the importance of class has been underplayed. Carlota Perez’s work on long cycles deals with workers’ resistance as a sub-set of the more general problem of ‘resistance to change’. For me workers’ resistance plays a crucial role in shaping the next long wave.

If the working class is able to resist wage cuts and attacks on the welfare system, the innovators are forced to search for new technologies and business models that can restore dynamism on the basis of higher wages – through innovation and higher productivity, not exploitation. In general, for the first three long cycles, working-class resistance did force capitalism to reinvent itself on the basis of existing or higher consumption levels (although the flipside was that imperial powers then sought ever more brutal ways to extract profits from the periphery).

In Perez’s account of long waves, resistance to the death of the old system is cast as futile. A line is


drawn ‘between those who look back with nostalgia, trying to hold on to past practices, and those who embrace the new paradigm’.30

However, once you factor in class, wages and welfare states, working-class resistance can be technologically progressive; it forces the new paradigm to emerge on a higher plane of productivity and consumption. It forces the ‘new men and women’ of the next era to promise and find ways of delivering a form of capitalism that is more productive and which can raise real wages.

Long cycles are not produced by just technology plus economics, the third critical driver is class struggle.
And it is in this context that Marx’s original theory of crisis provides a better understanding than
Kondratieff’s ‘exhausted investment’ theory.

WHAT CREATES THE WAVE?

Marx’s theory effectively describes where the energy that creates the fifty-year wave comes from. If we strip away the false additions made by his followers, we can understand what was right about Marx, and where it fits with the fifty-year mutations we’ve described.

The falling profit rate and its counteracting tendencies can be assumed to operate throughout the

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fifty-year cycle. Breakdowns happen when the counter-tendencies become exhausted.
In the immature capitalism of the nineteenth century, they were frequent – but always more frequent in the decline phase. Marx, for example, underestimated the possibility that working-class resistance to wage cuts could be a factor in triggering profit crises.
However, the falling profit rate – fundamental as it is
– now operates beneath layer upon layer of social practice designed to counteract it.

Kondratieff’s account – which said that the fifty-year cycles were driven by the need to renew major infrastructure – was far too simplistic. Better to say each wave generates a specific and concrete solution to falling profit rates during the upswing – a set of business models, skills and technologies – and that the downswing starts when this solution becomes exhausted or disrupted. The most effective forms of the solution during the upswing are the ones Marxist theory describes at a deep level within the production process: increased productivity, cheaper inputs, a rising mass of profits. Once the wave inverts and the solution’s downturn begins, it is the more contingent surface factors that tend to kick in. Can new markets be found outside the system? Will investors take a reduced portion of profit in the form of dividends?

The tendency of the rate of profit to fall, interacting


constantly with the counter-tendencies, is a much better explanation of what drives the fifty-year cycle than the one Kondratieff gave. And once you meld the two, long-cycle theory becomes a much more powerful tool than the orthodox Marxist left suspected.

Put simply: fifty-year cycles are the long-term rhythm of the profit system.

An arrangement that allows for the rapid replacement of labour by machinery works for a while, generating expanded profits, and then breaks down. This is my alternative to Kondratieff’s
‘exhaustion of investment’ thesis.

As to financial crisis, it is always possible during the up phase of the long cycle (for example in the US panic of 1907) – but virtually certain during the down phase. As capital flows out of the troubled productive sector and into finance, it destabilizes the latter, leading to speculative boom-bust cycles. And across the first three long cycles capital became more financially sophisticated and complex overall.

A final observation concerns the need for capitalism to interact with a world outside to search for new markets for goods and a new labour supply. This is a crucial consideration in systems theory but is underplayed by Marxist crisis theory with its focus

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on closed and abstract models.

During the nineteenth century there was a ready internal market waiting to be developed within most capitalist countries provided that the agrarian economy could survive the shock of disruption.
Likewise, an ample labour supply was on hand. But after 1848, adaptation also involved the search for external markets.

By the start of the twentieth century, the internal supply of labour was constrained – in part by the working-class resistance to child and female labour, in part by the birth-rate. As for new markets, by the
1930s virtually the whole world was cordoned off into closed trading blocs.

With the fourth wave, a substantial part of the world outside is initially closed off. Once the Cold War starts, about 20 per cent of the world’s GDP is being produced outside the market.31 After 1989 the sudden availability of new markets and a new labour force plays an important part in prolonging the wave; so does the West’s new freedom of action to shape markets in neutral countries that were formerly offlimits.

In other words, between 1917 and 1989 capitalism’s full potential for complex adaptive behaviour was suppressed. After 1989 it experienced a sugar-rush:

labour, markets, entrepreneurial freedom and new economies of scale. On this basis, 1989 must – on its own – account for some of the phase-distortion story
I am about to tell. But it cannot account for all of it.

The long-wave pattern has been disrupted. The fourth long cycle was prolonged, distorted and ultimately broken by factors that have not occurred before in the history of capitalism: the defeat and moral surrender of organized labour, the rise of information technology and the discovery that once an unchallenged superpower exists, it can create money out of nothing for a long time.

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4 The Long, Disrupted Wave

In 1948 the Marshall Plan kicked in, the Cold War began and Bell Laboratories invented the transistor.
Each of these events would shape the fourth long cycle that was about to unfold.

The Marshall Plan, a $12 billion US aid package to
Europe, ensured the post-war economic boom would take place under American leadership. The Cold War would distort the unfolding wave, first by taking 20 per cent of world production out of the reach of capital and then fuelling a new surge of growth when it ended in 1989. As for the transistor, it would become the core technology of the post-war era, enabling the use of information on an industrial scale.

Those who lived through the post-war boom were amazed, mystified and constantly worried that it would end. Even Harold Macmillan, who told Britons in 1957 that they’d ‘never had it so good’, added:
‘What is beginning to worry some of us is, is it too good to be true?’1 In Germany, Japan and Italy the popular press – quite separately in each country – dubbed the nation’s growth a ‘miracle’.

The numbers were startling. The Marshall Plan, combined with domestic rebuilding efforts, allowed most European economies to grow at well above 10


per cent per year until they reached their pre-war highpoint, which for most was achieved by 1951.2
Regular growth took off spectacularly – and didn’t stop. The US economy more than doubled in size between 1948 and 1973.3 The economies of the UK,
West Germany and Italy each grew fourfold in the same period. Japan’s economy, meanwhile, grew tenfold – and this was against a baseline figure close to pre-war normality, not some catch-up effect due to the scale of nuclear destruction. For the entire period, Western Europe’s average annual growth rate was 4.6 per cent – close to double that of the 1900-
1913 upswing.4

This was growth driven by productivity on an unprecedented scale. The results are evident in the
GDP per-person data. For the sixteen most advanced countries, per-person GDP grew at an average of 3.2 per cent per year between 1950 and 1973. For the entire period between 1870 and 1950 it had averaged
1.3 per cent.5 Real incomes soared: in the USA, the majority of households saw their real incomes rise by more than 90 per cent between 1947 and 1975;6 in
Japan the average real income increased a staggering
700 per cent.7

Across the developed world, the new technoeconomic paradigm was clear – even if each country had its own version. Standardized mass production – with wages high enough to drive consumption of

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what the factories produced – was unleashed across society. There was male full employment and, subject to cultural variations, increased employment of teenagers and women once the reconstruction phase was over. In the developed world, people moved from the land to the factories in large numbers: between
1950 and 1970 the agricultural workforce in Europe declined from 66 million to 40 million; in the USA it collapsed from 16 per cent of the population to just 4 per cent.8

The most frenetic period of growth in human history was bound to produce glitches. But there were sophisticated economic management techniques to overcome them: realtime statistics, economic planning bodies at a national level, armies of economists and number crunchers in the HQs of the big corporations.

As the boom unfolded, it produced disorientation on the left. Varga – Stalin’s tame economist – actually got it right: in 1946 he warned the Soviet leaders that the state-capitalist methods pioneered during the war could stabilize the West.9 The dominant AngloSaxon powers would, he forecast, probably loan the rest of the world enough money to kickstart consumption again, and the wartime methods of state organization would replace the ‘anarchy of capitalist production’.10 For saying this he was hounded from his post, forced to recant and admit to


being ‘cosmopolitan’. Stabilization of the Western economies was impossible, Stalin had decreed.

In the West, the far left remained on the doomy side of the argument: ‘The revival of economic activity in capitalist countries weakened by the war … will be characterised by an especially slow tempo which will keep their economies at levels bordering on stagnation and slump,’ wrote the Trotskyists in
1946.11

When this was proved nonsense, Marxists were not the only ones left confused. Even the theorists of moderate social-democracy were so perplexed that they declared the West’s economic system had effectively become non-capitalist.
‘The most characteristic features of capitalism have disappeared,’ wrote Labour MP Anthony Crosland in
1956, ‘the absolute rule of private property, the subjection of all life to market influences, the domination of the profit motive, the neutrality of government, typical laissez-faire division of income and the ideology of individual rights.’12

By the mid-1950s, almost the whole left had embraced the theory of ‘state monopoly capitalism’ – first suggested by Bukharin, then by Varga, and now turned into a full-blown theory by the US left economist Paul Sweezy.13 He believed that state intervention, welfare measures and permanently

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high military spending had abolished the tendency to crisis. The falling profit rate could be offset by rising productivity – again, permanently. The Soviet Union, it was clear, would have to get used to coexisting with capitalism; the Western labour movement would have to forget revolution and take the upside of the boom, which was considerable.

For the whole period, the focus of debate was on what had changed at the level of the state, the factory, the supermarket, the boardroom and the laboratory. Very little attention was paid to money.
However, the crucial factor that underpinned economic reality in the 1950s and 60s was a stable international currency system, and the effective suppression of financial markets.

THE POWER OF EXPLICIT RULES

On 1 July 1944, a special train delivered a cargo of economists, statesmen and bankers to White River
Junction, Vermont, from where they were ferried to a hotel in New Hampshire. ‘All trains, regular or scheduled, had to look out for us,’ the train’s fireman remembered, ‘we had the right over everything.’14
Their destination was Bretton Woods. There they would design a global monetary system that, like the train, had ‘the right over everything’.

The Bretton Woods Conference agreed a system of


fixed exchange rates designed to restore pre-1914 stability, only this time with explicit rules. All currencies would be pegged against the dollar, and the USA would peg the dollar to gold at $35 an ounce.
Countries whose trade balance became seriously out of kilter would have to buy or sell dollars to keep their own currency at the agreed peg.

At the conference, the British economist John
Maynard Keynes pushed for the creation of a separate global currency, but the USA rejected the idea. Instead, it secured the dollar’s position as the unofficial global currency. There was no global central bank, but the International Monetary Fund and the World Bank were designed to reduce friction in the system, with the IMF acting as a short-term lender of last resort and enforcer of the rules.

The system was overtly stacked in favour of the USA: not only was it the biggest economy in the world, it had an infrastructure undamaged by the war and – for now – the highest productivity. It also got to appoint the boss of the Fund. The system was also stacked in favour of inflation. Because the link to gold was indirect, because there was leeway in the currency peg, and because the rules on balanced trade and structural reform were loose, the system was designed to produce inflation. This was recognized by the free-market right even before the train to Bretton Woods left the station. The journalist

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Henry Hazlitt, a confidant of free-market guru
Ludwig von Mises, railed against the plan in the New
York Times: ‘It would be difficult to think of a more serious threat to world stability and full production than the continual prospect of a uniform world inflation to which the politicians of every country would be so easily tempted.’15

But this was a system also stacked against high finance. Strict limits on bank leverage were imposed by law and ‘moral suasion’ – quiet pressure from central banks on banks that lent too much. In the
USA, big banks were required to hold cash or bonds equivalent to 24 per cent of the money they’d lent out.16 In the UK it was 28 per cent. By 1950, bank loans across fourteen advanced capitalist countries equalled just one fifth of GDP – the lowest since 1870, and much smaller than the scale of bank lending during the pre-1914 upswing.

The result created a form of capitalism that was profoundly national. Banks and pension funds were required by law to hold the debt of their own countries; and they were discouraged from making cross-border financial trades. Add to that an explicit ceiling on interest rates and you have what we now call ‘financial repression’.

Here’s how financial repression works: you hold interest rates below inflation, so savers are


effectively paying for the privilege of having money; you prevent them moving money out of the country in search of a better deal, and force them to buy the debts of their own country at a premium. The effect, as the economists Reinhart and Sbrancia have shown, was to shrink the combined debts of the developed world dramatically.17

In 1945, because of war spending, the public debts of the developed countries were close to 90 per cent of
GDP. But with an inflation spike straight after the war, and then moderate inflation throughout the post-war boom, real interest rates became negative: in the USA between 1945 and 1973, long-term real interest rates were on average minus 1.6 per cent.
Because the banking regulations acted as an effective tax on financial assets, economists calculate they raised the equivalent of a fifth of all government income during the boom, even more in the UK.18 The result was to shrink advanced country debts to a historic low of 25 per cent of GDP by 1973.

In short, Bretton Woods achieved something unprecedented: it shrank the debts run up during a global war, suppressed speculation, mobilized savings into productive investment and enabled spectacular growth. It pushed all the latent instability of the system into the sphere of relationships between currencies, but US dominance ensured these were, at first, contained. Right-wing

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outrage over the inflationary aspect of Bretton
Woods was overcome by the greatest period of stability and full production ever known.

Keynes had emphasized, at the design stage the importance of explicit rules – going beyond the gentlemen’s agreement that lay behind the Gold
Standard. In the event, explicit rules backed by a global superpower had a multiplier effect few could have imagined.

If the Depression was in part a product of Britain’s decline and America’s refusal to become a global superpower, then it was at Bretton Woods that the
USA assumed the duties of a superpower with great passion. In fact, the twenty-five post-war years are the only time in modern history when a great power was truly hegemonic. Britain’s nineteenth-century dominance was always negotiated and relative.
Within the capitalist world of the mid-twentieth century, America’s dominance was absolute. This acted like a massive reset button on the world economy, amplifying the upswing. But this was not the only reset button pressed.

THE POST-WAR BOOM ASACYCLE

A second major change had taken place during wartime, with the state taking control of innovation.
By 1945, national bureaucracies had become adept in


the use of state ownership and control – and indeed mass communication – to shape private-sector behaviour. Perfectly ordinary managers, under the ultimate pressure of ‘you lose, you die’, had finetuned technocracy. Even in the Axis powers, where the state was dismantled in 1945, this culture of innovation and a large part of the technocratic system survived the war.

The case of General Motors is instructive. In 1940, the
US government hired
GM’s president,
Alfred
Knudsen, to run its
Office of
Production
Management, which coordinated the whole war economy. He proceeded to place $14 billion-worth of contracts with GM during the war. The corporation converted all of its 200 factories to war production, making – among other things – 38,000 tanks, 206,000 aircraft engines and 119 million shells. It became, in other words, a massive arms company with a single customer. Within this and other giant segments of
American industry management effectively operated like a profit-driven state-planning bureau. Nothing like it had been seen before – or since.

At the Federal level, research and development was centralized and industrialized by the Office of
Scientific Research and Development. Key to the whole deal was the prohibition of profit directly from research. ‘Profit is a function of the production activities of an industrial establishment, not of a

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research department,’ the OSRD decreed.19 Contracts were placed where skills were high, where the danger of mass-production overload was least and
‘spread among as many organizations as possible’.
Only when all these criteria were equal could the lowest cost be brought into consideration.
Competition and patent ownership issues were put on hold.20

These were remarkable things to achieve within capitalism: to treat research as public property, to suppress competition and to plan not just production but the direction of research. And though the USA perfected it, all major combatant states attempted it.
The result was to stimulate an unprecedented culture of cross-fertilization in strategic disciplines. The new approach inserted maths and science into the heart of the industrial process; economics and data management into political decision-making.

It was the OSRD that took Claude Shannon, the founder of information theory, out of Princeton and put him into Bell Labs to design algorithms for antiaircraft guns.21 There, he would meet Alan Turing and discuss the possibility of ‘thinking machines’.
Turing, too, had been scooped out of academia by the
British government to run the Enigma codebreaking operation at Bletchley Park.

This culture of innovation survived the transition to


peacetime, even as individual corporations tried to monopolize the results and scrapped over patent rights. And it was not limited to technical innovation.

In 1942, GM gave management theorist Peter Drucker open access to study its operations. Drucker went on to write The Concept of the Corporation, arguably the first modern management book, which advocated the breakup
 of
 command
 structures
 and
 the
 decentralization of control. Though GM rejected his advice, thousands of other firms did not: the postwar Japanese auto industry adopted them in full.
Management theory became a generalized discipline, not secret knowledge, with a whole cohort of consulting firms dedicated to spreading successful techniques rather than hoarding them.

In this sense, the wartime economy gave birth to one of the most fundamental reflexes within the capitalism of the long boom: to solve problems through audacious technological leaps, pulling in experts from across disciplines, spreading the best practice in a sector, and changing the business process as the product itself changed.

The role of the state in all this contrasts with the meagre role of finance. In all normative models of long cycles, it is finance that fuels innovation and helps capital flow into new, more productive areas.
But finance had been effectively flattened during the

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1930s.

What emerged from the war was a very different capitalism. All it needed was a raft of new technologies – and these were plentiful: the jet engine, the integrated circuit, nuclear energy and synthetic materials. After 1945, the world suddenly smelled of nylon, plastic and vinyl, and buzzed with electrified processes.

But one key technology was invisible: information.
Though the ‘information economy’ lay decades in the future, the post-war economies saw information used on an industrial scale. It flowed as science, as management theory, as data, as mass communications and even – in a few hallowed places
– out of a computer and into a tray of folding paper.

A transistor is simply a switch with no moving parts.
Information theory plus transistors gives you the ability to automate physical processes. So factories throughout the West were re-tooled with semiautomated machinery: pneumatic presses, drills, cutters, lathes, sewing machines and production lines. What they lacked was sophisticated feedback mechanisms: electronic sensors and automated logic systems were so crude that the latter used compressed air to do what we now do with iPhone apps. But human beings were plentiful – and for many manual work became the act of controlling a


semi-automated process.

The Cambridge economist Andrew Glyn believed the extraordinary success of the post-war boom could only be explained by ‘a unique economic regime’.22
He described this regime as a mixture of economic, social and geopolitical factors, which operated benignly throughout the upswing until they began to clash and grind in the late 1960s.

State direction produced a culture of science-led innovation. Innovation stimulated high productivity.
Productivity allowed high wages, so consumption kept pace with production for twenty-five years. An explicit global rules system amplified the upside.
Fractional reserve banking stimulated a ‘benign’ inflation which, combined with financial repression, forced capital into productive sectors and kept speculative finance marginal. The use of fertilizers and mechanization in the developed world boosted land productivity, keeping the cost of inputs cheap.
Energy inputs were, at the time, also cheap.

As a result, the period 1948–73 unfolded as a
Kondratieff upswing on steroids.

WHAT CAUSED THE WAVE TO BREAK?

There is no dividing line in economic history clearer than 17 October 1973. With their armies at war with

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Israel, the majority of the oil-exporting Arab countries imposed an oil embargo on the USA and slashed output. The oil price quadrupled. The resulting shock pushed key economies into recession.
America’s economy shrank by 6.5 per cent between
January 1974 and March 1975,23 Britain’s by 3.4 per cent. Even Japan – which had averaged growth rates close to 10 per cent in the post-war period – went briefly negative.24 The crisis was unique because in the worst-hit countries falling growth coincided with high inflation. By 1975, inflation in Britain reached 20 per cent, and 11 per cent in the USA. The word
‘stagflation’ hit the headlines.

Yet even at the time it was obvious that the oil shock was merely the trigger. The upswing had already been stuttering. In each developed country, growth in the late 1960s seemed beset by national or local problems: inflation, labour troubles, productivity concerns and flurries of financial scandal. But 1973 was the watershed, the point where the energy driving the fourth wave upwards caused it to peak and then invert. What made it happen is a question that has defined modern economics.

For right-wing economists, the answer lay in the exhaustion of Keynesian policy. For the left, however, the explanations have varied over time: in the late
1960s, high wages were seen as responsible; in the following decade, economists of the New Left tried to


apply the Marxist overproduction theory.

In fact, 1973 can best be understood as a classic phase change on the Kondratieff pattern. It occurs about twenty-five years into the economic cycle. It is global in scope. It heralds a long period of recurrent crisis.
And once we understand what caused the upturn – high productivity, explicit global rules and financial repression – we can understand how it became exhausted.

The post-war arrangements had effectively locked away instability into two zones of control: relations between currencies and relations between classes.
Under the Bretton Woods rules, you were not supposed to devalue your currency to make your exports cheap and boost employment. Instead, if your economy was uncompetitive, you could either protect yourself from international competition through trade barriers, or impose
‘internal devaluation’ – cutting wages, controlling prices, reducing the amount spent on welfare payments. In practice, protectionism was discouraged by the
Bretton Woods rules and wage cutting was never seriously attempted until the mid-1970s – which left devaluation. In 1949, Britain devalued Sterling by 30 per cent against the dollar and twenty-three other countries followed suit. A total of 400 official devaluations took place before 1973.

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So, from the outset, Bretton Woods was a system where states were repeatedly trying to offset their economic failings by manipulating their exchange rates against the dollar. This was seen in Washington as a form of unfair competition, and the USA fought back. By the 1960s, it was devaluing its own currency in real terms, as measured by price differences, against those of its competitors. This subcutaneous economic warfare became overt during the inflation crises of the late 1960s.

Inside the factories, the long boom had been a productivity story and a wages story. In the advanced countries productivity grew at 4.5 per cent per year, while private consumption grew at 4.2 per cent. The rising output of automated machinery more than paid for the rising wages of those operating them. All this was the result of new investment. But the upswing ended once investment could no longer increase productivity at the previous rate.

There are clear signs of a productivity slowdown in the pre-1973 data, and of a fall in the ratio of output to capital invested.25 Productivity, as a countertendency to the downward pressure on profits, ran out of steam. But as conditions tightened, the sheer strength of working-class bargaining power in countries with full employment and no will to break the post-war social contract made wage cuts a nonstarter. Rather, managers were forced to increase


wages and non-wage benefits, while reducing working hours.

As a result, a ‘profit squeeze’ kicked in. Comparing profit rates for America, Europe and Japan in 1973 to their respective peak years during the boom, Andrew
Glyn found that in each case they had fallen by onethird. With falling profits, rising wages and alarming levels of shop-floor militancy, there were two pressure valves: to let inflation rip, eroding the value of real wages without having to provoke more disputes; and to go along with social wage rises – easing the pressure on individual businesses by, for example, boosting family allowance and other payments from the state to workers. As a result, social spending by the state – on benefits, subsidies and other income-boosting measures – soared to dysfunctional levels, especially in Europe: from 8 per cent of GDP in the late 1950s to 16 per cent by 1975.26
Over roughly the same period in the USA, Federal spending on welfare, pensions and health doubled to
10 per cent of GDP by the late 1970s.

All it needed to tip this fragile system into crisis was a shock. And in August 1971, Richard Nixon delivered one, unilaterally breaking the commitment to exchange dollars for gold, and thereby destroying
Bretton Woods.

Nixon’s reasons for doing so are well documented.27

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As America’s competitors caught up in productivity terms, capital flowed out of the US into Europe, while its trade balance declined. By the late 1960s, with every country engaged in expansionary policies – with high state spending and low interest rates –
America had become the big loser from Bretton
Woods. It needed to pay for the Vietnam War and the welfare reforms of the late 1960s, but could not. It needed to devalue but could not, because to make that happen, other countries had to raise their own currencies against the dollar, and they refused. So
Nixon acted.

The world moved from exchange rates fixed against the dollar and gold to totally free-floating currencies.
From then on, the global banking system was effectively creating money out of nothing.

With this change, each stricken country was temporarily free to solve the underlying problems of productivity and profitability in ways the old system had made impossible: with higher state spending and lower interest rates. The years 1971–3 were lived in a kind of nervous euphoria.

The inevitable stock market crash hit Wall Street and
London in January 1973, triggering the collapse of several investment banks. The oil shock of October
1973 was the final straw.


CARRY ON KEYNES

By 1973, every aspect of the unique regime that had sustained the long boom was broken. But the crisis looked accidental: low input prices destroyed by
OPEC; global rules ripped up by Richard Nixon; profits eroded by that figure of loathing, the ‘greedy worker’.

The iconic British Carry On movie franchise chose this moment to switch from ludicrous historical parodies to an attempt at razor-sharp social commentary.
Carry On At Your Convenience (1971), set in a toilet factory, satirizes a world in which workers control production, where managers are incompetent, and where sexual freedom is transforming life even on the small-town factory floor. The subtext of Carry On
At Your Convenience is that the present system is ludicrous: we can’t go on, but we don’t seem to have an alternative. This, it turned out, was the subtext of the policy response as well.

After 1973, governments tried to fix the system by applying the old, Keynesian rules harder. They used price and wage control policies in an attempt to suppress inflation and appease worker unrest. They used state spending – and borrowing on an increased scale to maintain demand in the face of the slump.
But though growth recovered after 1975, it could never reach its old levels.

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During the late 1970s, the Keynesian system destroyed itself. This destruction was not just the work of policymakers but of all the players in the
Keynesian game: the workers, the bureaucrats, the technocrats, the politicians.

Working-class militancy had already moved out of the factory and into the arena of bargaining nationally with the government. In the mid-1970s, in almost every country the attention of trade union leaders was focused on national wage agreements, price controls, social reform programmes, together with strategies that would maintain their grip over specific sectors – such as the British dockers’ attempt to resist container technology. The ultimate aim of labour movements in the developed world became to put in power leftist social-democratic governments that would permanently guarantee
Keynesian policies.

But by this time the business class and key politicians of the right had walked away from the Keynesian world altogether.

THE ATTACK ON LABOUR

It has become commonplace to think that the triumph of globalization and neoliberalism was inevitable. But it was not. Their emergence was just


as much the result of government action as corporatism and fascism had been in the 1930s.

Neoliberalism was designed and implemented by visionary politicians: Pinochet in Chile; Thatcher and her ultra-conservative circle in Britain; Reagan and the Cold Warriors who brought him to power. They’d faced massive resistance from organized labour and they’d had enough. In response, these pioneers of neoliberalism drew a conclusion that has shaped our age: that a modern economy cannot coexist with an organized working class. Consequently, they resolved to smash labour’s collective bargaining power, traditions and social cohesion completely.

Unions had come under attack before – but always from paternalist politicians who had proffered the lesser of two evils: in place of militancy, they’d encouraged a ‘good’ workforce, defined by moderate socialism, unions run by agents of the state. And they helped build stable, socially conservative communities that could be the breeding ground for soldiers and servants. The general programme of conservatism, and even fascism, had been to promote a different kind of solidarity that served to reinforce the interests of capital. But it was still solidarity.

The neoliberals sought something different: atomization. Because today’s generation sees only the outcome of neoliberalism, it is easy to miss the

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fact that this goal – the destruction of labour’s bargaining power – was the essence of the entire project: it was a means to all the other ends.
Neoliberalism’s guiding principle is not free markets, nor fiscal discipline, nor sound money, nor privatization and offshoring – not even globalization.
All these things were byproducts or weapons of its main endeavour: to remove organized labour from the equation.

Not all the industrialized countries followed the same path, nor at the same pace. Japan had blazed the trail for flexible working in the 1970s by introducing small-team work into production lines, through individual wage bargaining and shouted propaganda sessions in the factory. Of all the advanced economies, Japan was the only one to successfully rationalize industrial business models after 1973.
There was of course resistance, dealt with in a brutal fashion – by taking out the ringleaders and beating them physically every day until resistance stopped.
‘It is as though the “company world” were immune from the law of the state,’ wrote the Japanese leftist
Muto Ichiyo, who witnessed some of these beatings.
‘And it is natural that in this company world, workers, petrified with horror, their free thinking frozen, keep their mouths shut.’28

Germany, by contrast, resisted labour reforms until the early 2000s, preferring instead to create a


peripheral migrant workforce in low-grade service and construction jobs alongside the paternalistic world of the production line. For this it was branded the ‘sick man of the euro’ by The Economist magazine, which as late as 1999 lamented its ‘bloated welfare system and excessive labour costs’.29 These were eradicated in the Harz II labour reforms (2003), which have now left Germany a highly unequal society, with many of its communities gripped by poverty.30

Many developed countries took advantage of the recession of the early 1980s to impose mass unemployment.
They adopted policies overtly designed to make the recession deeper: they hiked interest rates, sending old industrial businesses to the wall. They privatized or closed large swathes of coal, steel, auto and heavy engineering production owned by the state. They banned the wildcat and solidarity actions that had plagued managers in the boom years. But they did not, yet, try to dismantle welfare systems; these were needed to maintain social order in communities whose hearts had been ripped out.

The attack on organized labour was punctuated by signal moments. In 1981, the US air traffic control union leaders were arrested, paraded in chains, and the entire workforce sacked for taking strike action.
Thatcher used paramilitary policing to destroy the miners’ strike in 1984–5. But the anti-labour

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offensive’s true success was on a moral and cultural level. From 1980 onward, in the developed world, strikes diminished and so did union density. In the
USA, union membership fell from an already low 20 per cent of the workforce in 1980 to 12 per cent by
2003, the survivors heavily clustered in the public sector.31 In Japan it went from 31 per cent to 20 per cent, and in the UK the fall was even more spectacular, from 50 per cent to 30 per cent.32

With the unions sidelined, the transformation of work could begin in earnest, creating the atomized and precarious workforce of today. Those of us who lived through the defeat of organized labour in the
1980s experienced it as traumatic, but told ourselves that our grandfathers had lived through just the same. But if we step back and look at it through the kaleidoscope of long-wave theory, it is in fact unique.

The 1980s saw the first ‘adaptation phase’ in the history of long waves where worker resistance collapsed. In the normal pattern, outlined in chapter
3, resistance forces the capitalists to adapt more radically, creating a new model based on higher productivity and higher real wages. After 1979, the workers’ failure to resist allows key capitalist countries to find a solution to the crisis through lower wages and low-value models of production.
This
 is
 the
 fundamental
 fact,
 the
 key
 to
 understanding everything that happens next.


The defeat of organized labour did not enable – as the neoliberals thought – a ‘new kind of capitalism’ but rather the extension of the fourth long wave on the basis of stagnant wage growth and atomization.
Instead of being forced to innovate their way out of the crisis using technology, as during the late stage of all three previous cycles, the 1 per cent simply imposed penury and atomization on the working class.

Across the Western world the wage share of GDP fell markedly. The economist Engelbert Stockhammer, surveying the damage for the International Labour
Organization, showed that this fall in the wage share had been driven entirely by the impact of globalization, financialization and reductions in welfare provision. He wrote: ‘This constitutes a major historical change as wage shares had been stable or increasing in the post-war era.’33

That, as it turns out, is an understatement. It was to trigger the reshaping of the world.

THE DISRUPTED WAVE IN PICTURES

When change is massive and obvious but takes place over decades, two-dimensional charts are sometimes the clearest way to see the big picture. The graphs that follow indicate very clearly what does and does

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not fit the classic pattern predicted by Kondratieff.
They can also give us a clue as to why.

1. World GDP growth

The chart above shows the overall shape of the fourth long wave at a single glance. There’s a clear phase change in the early 1970s. Using the IMF definition of a global recession – when the growth rate dips below 3 per cent – there were no recessions for the first twenty-five years of the wave and six after 1973, the last one a humdinger.34

2. Interest rates35

Kondratieff measured his waves using interest rates, and for the post-1945 period there is no clearer metric than this one: the average interest rates banks charge to companies and individuals in the USA.


Interest rates rose gradually during the long boom, spiked in the early 1980s – when high interest rates were used to wipe out swathes of the old industries – and have gradually declined, flatlining at the end of the graph because of quantitative easing.
Kondratieff’s colleagues, who’d seen this exact pattern in all the previous cycles, would have concluded: ‘Comrade, that’s a long wave.’

3. Commodity prices: nickel

However, Kondratieff also tracked the prices of basic commodities, such as coal and iron. This graph tracks the price of a modern equivalent, nickel – a key component of stainless steel – over fifty-seven years.
I think it would have knocked Kondratieff off his chair. It’s only one commodity but with just a few exceptions, it is fairly representative of what has happened to raw material prices since 1945: there is always a spike to the right of the graph, caused by the rapid development of industry and mass consumption in the global south, above all in China.

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A 2007 report by the US Geological Survey shows how, after 1989, all industrial metal prices were driven upwards by China’s entry into the global marketplace.36 China’s nickel usage goes from 30 kt in
1991 to 60 kt in 2001 to 780 kt in 2012. By contrast, over the same period most other major producers’ consumption of nickel and other metals rises fairly slowly, with Germany going from 80 kt to 110 kt
.


4. Government debt to GDP in twenty advanced economies37

Kondratieff didn’t measure government debt, but in a modern nation it is a good indicator of the economy’s overall health. The chart above shows the debt of states compared to their annual GDP. Financial repression combined with inflation wiped out their war debts over twenty-five years of sustained growth. Then, in the face of crisis from 1973 onwards, the advanced world was forced to raise its debts

 It’s normal for economists to compare prices to inflation; if you do, the price of this and many other metals is fairly constant over the post-1989 period, and even declines. However, in long-cycle analysis we want to see inflation and deflation, not factor it out.

relentlessly. This debt piles up close to 100 per cent of GDP, despite three decades of welfare cuts and privatization receipts.

5. Money in circulation

This is Exhibit A in the story of fiat money, money not backed by gold. The graph starts from the moment Nixon abolished Bretton Woods in 1971, and shows the volume of money in circulation in ninety countries, in different forms, ranging from cash, which barely changes, to credit and financial instruments, which grow steadily in the neoliberal era and take off massively after 2000.38

Nixon had detached money and credit from the underlying reality and, although it took decades to create a financial system that could exploit this freedom to the full, from the late 1990s the rate of increase becomes steep.

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6. Inequality

The dark line shows the real income of the 99 per cent over the fourth long wave. It had already doubled during the Second World War, as people moved from farms to factories, and doubled again between the war and the oil shock. Then it grows very slowly for the whole period after 1989. But for the 1 per cent it is the opposite: the downswing of the cycle is immensely lucrative. Having plateaued during the boom and the crisis years, their incomes
(grey line) rocket once free-market economics are unleashed in the late 1980s. There is no more graphic example of who wins and who loses39 within developed countries once the cycle turns downwards.

7. Financialization40

This graph shows US finance sector profits as a total of all business profits. During the long boom, financial sector profits in the USA are small. The change picks up pace in the mid-1980s, and in the years before Lehman Brothers collapses we see banks, hedge funds and insurance companies making over 40 per cent of all corporate profit. This is clear evidence for the idea that more of the profits raked in by financialized capitalism are generated by our borrowing and consumption, and less from employing us. On the eve of the crisis, financial profits made up four out of every ten dollars of corporate profit.

8. Global investment flows

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8. Global investment flows

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This graph shows in one striking image the reality of globalization. The top line is the total amount of foreign direct investment (FDI) in the world, between
1970 and 2012 (in millions of US dollars at current prices and exchange rates). The middle line shows the amount flowing into developing countries; the bottom line into former communist countries. The gap between the top and middle lines represents the amount of foreign investment flowing between advanced countries.41

Globalization begins the moment the Keynesian paradigm is abandoned. There is a surge of crossborder investments between the advanced countries, mirrored by a steady flow of investment into what we called the ‘Third World’. Capital flows into Russia and its satellites are significant given the size of their economies, but not significant in terms of the bigger picture.

9. GDP per person42

GDP per person is a way of illustrating human


9. GDP per person42

GDP per person is a way of illustrating human

progress: how much growth is shared among how many people? The top line shows global GDP per person rising by 162 per cent across the whole world between 1989 and 2012. The former communist countries achieve about the same – albeit via twelve years of catastrophic decline and then a growth surge spurred by Euro entry for the satellites and oil money for Russia itself. But the most spectacular thing is what happens to the bottom line – the developing world. It grows by 404 per cent after 1989.

It is this that prompted the British economist
Douglas McWilliams, in his Gresham lectures, to nominate the last twenty-five years as the ‘greatest economic event in human history’. World GDP rose by 33 per cent in the 100 years after the discovery of the Americas, and GDP per person by 5 per cent. In the fifty years after 1820, with the Industrial
Revolution underway in Europe and the Americas only, world GDP grew by 60 per cent, and GDP per person by 30 per cent. But between 1989 and 2012 world GDP grew from $20 trillion to $71 trillion – 272 per cent – and, as we’ve seen, GDP per person increased by 162 per cent. On both measures, the period after 1989 outpaces the long post-war boom.43

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10. Globalization’s winners

During the post-war boom, capitalism suppressed the development of the global south. The means by which it did so are clear and well documented.44
Unequal trade relationships forced much of Latin
America, all of Africa and most of Asia to adopt development models that led to super-profits for
Western companies and poverty at home. Countries that tried to reject these models, such as Chile or
Guyana, had their governments overthrown by CIA coups or, as with Grenada, by invasion. Many found their economies destroyed by debt and by the
‘structural adjustment programmes’ the IMF dictated in return for debt write-offs. With little domestic industry, their growth models relied on the export of raw materials, and the incomes of the poor stagnated.

Globalization changed all that. Between 1988 and
2008 – as the chart shows – the real incomes of twothirds of the world’s people grew significantly. That’s what the hump on the left-hand side of the graph


proves.

Now move to the right-hand side of the graph: the top 1 per cent also see their incomes rise, by 60 per cent. But for everybody in between the super-rich and the developing world – that is for the workers and lower-middle classes of the West – there is a Ushaped hole indicating little or no real increase. That hole tells the story of the majority of people in
America, Japan and Europe – they gained almost nothing from capitalism in the past twenty years. In fact, some of them lost out. That dip below zero is likely to include black America, poor white Britain and much of the workforce of southern Europe.

Branko Milanovic, the economist who prepared these figures for the World Bank, called this ‘probably the profoundest global reshuffle of people’s economic positions since the industrial revolution’.45

11. Doubling the world’s workforce

The Harvard economist Richard Freeman calculated that between 1980 and 2000, the world’s workforce doubled in absolute numbers, halving the ratio of capital to labour.46 Population growth and foreign investment boosted the workforce of the developing world, urbanization created a 250-million-strong working class in China, while the former Comecon

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countries’ workforces were suddenly available to the global market.

The next two graphs show the limits to what can be achieved simply by employing large numbers of lowwage, poor-country workers.


First, above, here’s what has happened to the incomes of the workforce in the developing world since globalization began.

Strikingly, the graph shows the group earning between $4 and $13 a day growing the most rapidly: from 600 million to 1.4 billion.47 (Though the demographers call them the ‘developing middle class’, the $13-a-day mark corresponds roughly to the poverty line in the USA.) These people are mainly workers. They have access to banking and insurance, are likely to own a TV, and usually live in small family groups, not the multigenerational families of the slum, or the solitude of the dormitory. Threequarters of them work in service industries. The growth of service sector jobs in the developing world reflects both the natural evolution of the job mix under modern capitalism and a second round of

offshoring, focused on call centres, IT departments and back-office functions. In short, the graph shows the limits of what offshoring can achieve. That growing wedge of $13-a-day workers is nudging into the income bracket of the poorest American workers.

This means that the days of easy wins for firms offshoring their production are drawing to a close.
For the last twenty-five years, large parts of industry in the global south have used ‘extensive’, rather than intensive, methods to boost production. Meaning, if you want to make double the number of trainers, you build an extra factory rather than work on more efficient production methods. But that option is closed down once you have to start paying your most skilled workers the same as a poor person in
America. In fact, the impact of rising wages in the developing world is apparent once we look at the second graph, opposite. This stark calculation shows that the initial boost to productivity from the offshoring of hundreds of millions of jobs is over.

Look at the three lines. Dashed, for the developed world, declines to zero. Its workers are making almost no contribution to productivity in the world.

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Solid, for the developing world, shows a massive contribution in the first years of globalization, petering out to almost nothing in the last few years.
It’s evident from this that much of the productivity boost from globalizing the workforce is over, and that the slowdown in growth in the emerging markets – from China to Brazil – is about to turn into a strategic problem. It is clear from these graphs that the normal wave pattern has been utterly disrupted.

HOW IS THE PATTERN BROKEN?

When the upswing runs out of steam, in the 1960s, it does so for a reason that would not have surprised
Kondratieff: the exhaustion of the regime that promoted high productivity alongside wage growth.
This led to the famous stop-go crises of the 1960s, when the global system forced governments to rein in growth, and then a breakdown of the global economic order, high inflation and a war in Vietnam so hubristic that the American psyche has still not recovered from the shock of losing it.

Here is the critical difference: in all three previous cycles, workers had resisted the cheap and nasty solution to the crisis – wage cuts, de-skilling and a reduction in the social wage. In the fourth wave, for reasons we will explore in chapter 7, their resistance failed. It was this failure that enabled the entire global economy to be rebalanced in favour of capital.


For about twenty years, this rebalancing worked – and worked so well that it convinced many rational people that a new age had dawned. What the
Kondratieff theory had indicated should lead to downturn and depression led instead to two exhilarating decades in which an upswing in profits coexisted with social breakdown, military conflict, the return of abject poverty and criminality to communities in the West – and spectacular riches for the 1 per cent.

But this is not a social order, it is a disorder; it is what you get when you combine the move from production to finance (which Kondratieff would have expected) with a defeated and atomized workforce, and a super-rich elite living off financial profits.

We have listed the factors that allowed neoliberalism to happen: fiat money, financialization, the doubling of the workforce, the global imbalances, including the deflationary effect of cheap labour, plus the cheapening of everything else as a result of information technology. Each seemed like a ‘Get Out of Jail Free’ card, allowing the ordinary karma of economics to be suspended. But as we have seen – and as most of us have experienced in some way – there has been a huge price to pay.

What emerges from this shattered dream? The new

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technical and economic system will have to be built from the materials to hand. We know it will involve networks, knowledge work, the application of science and a large amount of green technology investment.

The question is: can it be capitalism?

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Part II

We are now engaged in a grand scheme to augment, amplify, enhance and extend the relationships and communications between all beings and all objects.

Kevin Kelly, 19971

5 The Prophets of Postcapitalism

The jet engine was one of the core technologies of the post-1945 long wave. Invented during the Second
World War, the turbofan – to give it its proper name
– is a mature technology and should not be producing surprises. Yet it is.

It works by sucking compressed air in at the front and firing a flame through it so that the air expands.
This drives a set of fans at the back, which transform the heat into energy. But turbofans are highly inefficient. The first jet engines converted 20 per cent of the heat into thrust. By the year 2001 they had achieved 35 per cent efficiency, with one industry veteran cautiously predicting 55 per cent
‘during the second quarter of the 21st century’.1

Why should we care? Because by 2030, manufacturers expect the number of airliners in operation to double. That means 60,000 new turbofans.2 They will


boost the airline industry’s contribution to global warming from 3.5 per cent in 2005 to something like
5 per cent at mid-century.3 So the efficiency of a turbofan is not a geek issue, it’s a global survival issue.

Over the first fifty years of its life, designers managed to improve the turbofan’s efficiency by 0.5 per cent per year. Today, however, they are making innovative leaps: 65 per cent efficiency is within reach and radically new kinds of engine are on the cusp of being deployed. What’s driving the change is a mixture of carbon emission rules and the price of fuel. What’s allowing it to happen is the core technology of the fifth long wave: information.

In the living memory of the people who make them, fan blades were hammered from solid metal. From the 1960s they were cast – that is, moulded from liquid metal. But cast metal contains imperfections, making the blades prone to failure.

Enter one of the most spectacular engineering solutions you have probably never heard of. In 1980, engineers at US aviation manufacturer Pratt &
Whitney grew a fan blade out of a single metal crystal formed in a vacuum.4 The result was a metal with an atomic structure that had never before existed. A single crystal blade can tolerate higher speeds. With superalloy metals, the blade can cope with air hotter

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than its own melting point. So the official roadmap5 for aircraft engines now sees gears being added in
2015, a weird-shaped open fan system by 2020 and, sometime after 2035, a self-cooled engine that should take thermal efficiency close to 100 per cent.

Information technology is driving every aspect of this evolution. Modern jet engines are controlled by a computer that can analyse performance, predict failure and manage maintenance. The most advanced engines beam their data from the plane in flight back to the manufacturer’s HQ in realtime.

Now consider what information technology has done to the design process. There are aircraft still flying that were designed on paper, stress-tested using slide rules, constructed from full-sized templates drawn on silk. New aircraft are designed and tested virtually, on a supercomputer. ‘When we designed the tail fin of the Tornado fighter we did twelve stress cases on it,’ one veteran engineer told me.
‘With its replacement the Typhoon, we did 186 million.’

Computers have revolutionized the building process as well. Engineers now build every element of the aircraft ‘virtually’, using 3D digital mockups on supercomputers. In these models, every brass screw has the physical qualities of a brass screw, every sheet of carbon fibre bends and flexes as if real. Every


stage of the manufacturing process is modelled before a single physical object is made.

The global market for turbofans is worth $21 billion a year, so what follows is a $21 billion question: how much of the value of a turbofan lies in the physical components used to make it, how much in the labour, and how much in the information it embodies?

You won’t find an answer in the accounts: in modern accounting standards, intellectual property is valued by guesswork. A study for the SAS Institute in 2013 found that, in an attempt to put a value on data, neither the cost of gathering it, nor its market value, nor the future income it might generate could be adequately calculated. Only through a form of accounting that included non-economic benefits and risks could companies actually explain to their shareholders what their data was really worth.6

The report showed that while ‘intangible assets’ were growing on US and UK company balance sheets at nearly three times the rate of tangible assets, the actual size of the digital sector in the GDP figures had remained static. So something is broken in the logic we use to value the most important thing in the modern economy.

However, by any measure, it is clear that the mix of inputs has altered. An airliner looks like old

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technology. But from the atomic structure of the fan blades, to the compressed design cycle, to the stream of data it is firing back to its fleet HQ, it is ‘alive’ with information.

This phenomenon, merging the virtual world with the real, can be seen across many sectors: auto engines whose physical performance is dictated by a silicon chip; digital pianos that can pick from thousands of samples of real pianos, depending on how hard you stroke the keys. Today we watch movies that consist of pixels instead of grains of celluloid and contain whole scenes in which nothing real ever stood before a camera. On car production lines each component is barcoded: what the humans do, alongside the whizz and purr of robots, is ordered and checked by a computer algorithm. The relationship between physical work and information has changed.

The great technological advance of the early twentyfirst century consists not of new objects but of old ones made intelligent. The knowledge content of products is becoming more valuable than the physical elements used to produce them.

In the 1990s, as the impact of info-tech began to be understood, people from several disciplines had the same thought at once: capitalism is becoming qualitatively different.


Buzz phrases appeared: the knowledge economy, the information society, cognitive capitalism.
The assumption was that info-capitalism and the freemarket model worked in tandem; one produced and reinforced the other. To some the change looked big enough to conclude it was as important as the move from merchant capitalism to industrial capitalism in the eighteenth century. But just as economists got busy explaining how this ‘third kind of capitalism’ works, they ran into a problem: it doesn’t.

There is a growing body of evidence that information technology, far from creating a new and stable form of capitalism, is dissolving it: corroding market mechanisms, eroding property rights and destroying the old relationship between wages, work and profit.
The first people to say this were an awkward squad of philosophers, management gurus and lawyers.

In this chapter, I am going to survey and critique their main ideas. Then I am going to propose something even more radical: that information technology is leading us towards a postcapitalist economy.

DRUCKER: ASKING THE RIGHT QUESTIONS

In 1993, the management guru Peter Drucker wrote:
‘That knowledge has become the resource, rather

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than a resource, is what makes our society “postcapitalist”. It changes, and fundamentally, the structure of society. It creates new social dynamics. It creates new economic dynamics. It creates new politics.’7 At the age of ninety, the last surviving pupil of Josef Schumpeter had jumped the gun a little, but the insight was correct.

Drucker’s case rests on the assertion that the old factors of production – land, labour and capital – have become secondary to information. In his book
Post-Capitalist Society, Drucker argued that certain norms essential to capitalism were being replaced.
Writing before anybody had seen an internet browser, Drucker observed the information-rich capitalism of the 1980s and imagined in broad outline the network economy that would emerge in the next twenty years.

And that’s what visionaries are for. While many around him saw ‘info-tech plus neoliberalism’ as capitalism perfected, Drucker allowed himself to imagine info-capitalism as a transition to something else. He noted that, despite the rhetoric about information, there was no theory of how information actually behaves in economic terms. In the absence of such a theory, he posed a series of questions about what a postcapitalist economy might entail.

First, he asked, how do we improve the productivity


of knowledge? If previous eras of capitalism had been based on the increased productivity of machines and labour, then the next must be based on the increased productivity of knowledge. Drucker guessed that the solution must be to connect, creatively, the different knowledge disciplines: ‘The capacity to connect may be inborn and part of that mystery we call genius.
But to a large extent to connect and thus raise the yield of existing knowledge, whether for an individual, for a team or for an entire organisation, is learnable.’8

The challenge was to train knowledge workers to make the kind of connections that the brain of an
Einstein would make spontaneously. Drucker’s solution was straight out of the playbook of management theory: a methodology, a project plan, better training.

Humanity came up with a better solution: the network. This was not the result of any centralized plan or management group, but the spontaneous interaction of people using information pathways and forms of organization that did not exist until twenty-five years ago. Nevertheless, Drucker’s focus on ‘connection’ and the modular use of information as the key to productivity was inspired.

His second question was equally profound: who is the social archetype of postcapitalism? If feudal society

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was epitomized by the medieval knight, and capitalism by the bourgeoisie, then who is in the historical scheme of things the bearer of postcapitalist social relations? It’s the same question that preoccupied Karl Marx, but Drucker’s answer would dismay most traditional leftists, who think it’s the proletariat. It would be, Drucker proposed, ‘the universal educated person’.

Drucker imagined this new kind of person emerging as a fusion of the managerial and intellectual classes of Western society, combining the manager’s ability to apply knowledge with the intellectual’s ability to deal with pure concepts. Such an individual would be the opposite of the polymath – those rare people who are simultaneously expert in Mandarin Chinese and nuclear physics. This new type of person would, on the contrary, be someone able to pick up and run with the products of expert research in narrow fields and apply them generally: applying chaos theory to economics, genetics to archaeology, or data-mining to social history.

Drucker made a plea for the emergence of such people as the ‘leadership group’ of the new society: ‘a unifying force … which can focus particular, separate traditions onto a common and shared commitment to values, onto a common concept of excellence, and onto mutual respect’.9


Since he wrote that, such a group has emerged: the Tshirted techno-bourgeoisie of the early twenty-first century, their information stored in the Cloud and their ultra-liberal attitudes to sexuality, ecology and philanthropy seen as the new normal. If all we are talking about in the next fifty years is a fifth long wave of capitalism based on information, then we already have the new men and new women that the theory of long waves would lead us to expect. The problem is, they show no interest at all in overthrowing the old capitalism, and scant interest in politics at all.

However, if we are talking about postcapitalism, then this universal educated person would have to exist in large numbers and have some interest opposed to that of the big hierarchical firms that dominated the twentieth century. They would have to fight, as the bourgeoisie did, for the new economic model and to embody its values in their behaviour. They would have to be, as in the materialist approach to history, the bearer of the new social relations inside the old.

Now look around you.

On the London Underground, I’m in a carriage where everybody under the age of thirty-five has white wires connecting their ears to a device on which they’re listening to something they’ve downloaded via a network. Even those obviously going to business

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or management jobs have a studiedly informal air and mode of dress. Some – even here where there is no wifi – are working through emails on their smartphones. Or maybe they’re playing games, for the physical actions and intense levels of concentration required are the same. They are glued to digital information and the first thing they’ll do on emerging at street level is to plug back into the global network via 3G.

Everybody
 else
 in
 the
 carriage
 fits
 into
 a
 demographic from the twentieth century: the elderly middle-class couple in their hats and tweeds; the stubbly manual worker reading his newspaper; the guy in the suit typing on his laptop, too busy for headphones, but who’s taken the time to polish his shoes (ie. me).

The first group consists of what sociologists call
‘networked individuals’, adept at drawing down knowledge from a relatively open and global system.
They behave in a networked way – from work to consumption to relationships and culture. Thirty years on from Stewart Brand’s famous claim that
‘information wants to be free’, they instinctively believe that under normal circumstances it should be free. They will pay for their drugs at a dance club but still find it an imposition to pay for downloaded music.


This group is already so large and well defined that in some cities – London, Tokyo, Sydney – it is the twentieth-century types that are the minority: still consulting analogue maps instead of GPS, still confused by the coffee options available at Starbucks, appalled and fascinated by the mercurial lifestyles that the other group sees as normal.

The networked individuals of the early twenty-first century – the ‘white wire people’ – conform exactly to the kind of person Drucker expected to emerge: the universal educated person. They’re no longer confined to a niche techno demographic. Any barista, or admin worker, or legal temp can become, if they want to, a universal educated person – as long as they have a basic education and a smartphone. In fact, with the rise of the mobile internet, the most recent studies show that even Chinese factory workers have become – in the face of stringent work discipline and long hours – avidly networked people in their nonwork time.10

Once you understand how information behaves as an economic resource, and who the new social archetype is, you are part of the way to understanding how the transition to postcapitalism could occur. But this still leaves the question: why should it occur? Drucker’s answers are speculative but they provide the first glimpse of the framework on which a rigorous theory of postcapitalism would have

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to be based.

Drucker divides the history of industrial capitalism into four phases: a mechanical revolution lasting most of the nineteenth century; a productivity revolution with the advent of scientific management in the 1890s; a management revolution after 1945, driven by the application of knowledge to business processes; and finally an information revolution, based
 on
 ‘the
 application
 of
 knowledge
 to
 knowledge’.

Drucker, a pupil of Schumpeter, was consciously using the Kondratieff long cycles here (although merging the first two together), but seen from the viewpoint of the individual firm. This leads to
Drucker’s most profound observation: that none of these turning points can be grasped without understanding the economics of work. From Virgil to
Marx, he argued, nobody had bothered to study what the farmer or factory worker did on a day-to-day basis. Only in the late nineteenth century did capitalists notice what their workers were actually doing, and try to change it.

‘There is still no history of work,’ Drucker complained, and twenty-five years later the history of work remains under-explored. Labour market economics continues focused on unemployment and pay rates, and occupies a lowly status in academia.


But once we understand what information is doing to work, to the boundaries between work and free time, and to wages, the scale of the change we’re living through will be apparent.

In the end, Drucker left us with a series of questions.
They were the right questions, but twenty-five years on we still have no synthetic theory of infocapitalism, let alone postcapitalism.
However, mainstream economics has – accidentally – come close to discovering one.

INFO-GOODS CHANGE EVERYTHING

In 1990 the American economist Paul Romer blew apart one of the key assumptions of modern economics and in the process thrust the question of info-capitalism into the mainstream.

In their search for a model that could predict a country’s rate of growth, economists had listed various factors: savings, productivity, population growth. They knew that technological change influenced all these factors but they assumed, for the purposes of the model, that it was ‘exogenous’ – external to their model and therefore irrelevant to the equation they were trying to write. Then, in a paper titled Endogenous Technological Change, Romer reset the whole argument.11 He demonstrated that, since innovation is driven by market forces, it cannot

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be treated as accidental or external to economic growth but must be an intrinsic (‘endogenous’) part of it. Innovation itself has to be situated within growth theory: its impact is predictable, not random.

But as well as completing a neat piece of algebra about capitalism in general, Romer had come up with a proposition specific to info-capitalism, with revolutionary implications. He defined technological change in a deliberately facile way, as an
‘improvement in the instructions for mixing together raw materials’. That is, he separated out things and ideas – for that is what ‘instructions’ are.
Information, for Romer, is like a blueprint or recipe for making something either in the physical world or in the digital world. This led to what he called a new fundamental premise: ‘that instructions for working with raw materials are inherently different from other economic goods’.12

An information product is different from every physical commodity so far produced. And an economy primarily based on information products will behave differently from one based on making things and providing services. Romer spelled out why: ‘Once the cost of creating a new set of instructions has been incurred, the instructions can be used over and over again at no additional cost.
Developing new and better instructions is equivalent to incurring a fixed cost.’13


In one paragraph Romer had summed up the revolutionary potential of the tiny gesture I just made to extract that quote out of a PDF and put it into this book: copy and paste. Once you can copy/paste a paragraph, you can do it with a music track, a movie, the design of a turbofan engine and the digital mockup of the factory that will make it.

Once you can copy and paste something, it can be reproduced for free. It has, in economics-speak, a
‘zero marginal cost’.

Info-capitalists have a solution to this: make it legally impossible to copy certain kinds of information. For example, while I’m allowed to quote Romer for free in this book, downloading the PDF of his famous 1990 paper cost me $16.80 on the JSTOR academic website.
If I tried to copy and paste the design of a turbofan engine I could end up in jail.

But intellectual property rights are notoriously messy: I can legally copy a CD that I own into my iTunes folder, but it’s illegal to rip a DVD. The laws of what you can and can’t copy are unclear. They are enforced socially as much as by law, and like the patents of the pre-digital era, they decay over time.

If you are trying to ‘own’ a piece of information – whether you’re a rock band or a turbofan

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manufacturer – your problem lies in the fact that it does not degrade with use, and that one person consuming it does not prevent another person consuming it. Economists call this ‘non-rivalry’. A simpler word for it would be ‘shareable’.

With purely physical goods, consumption by one person generally blocks their use by another: it’s my cigarette not yours, my hire car, my cappuccino, my half-hour of psychotherapy. Not yours. But with an mp3 track, the information is the commodity. It can technically exist in many physical forms, and at a scale so small that it allows me to carry around every piece of music I have ever bought in my life on a 2- inch flash drive, ak.a. an iPod.

Once a commodity is ‘non-rival’, the only way you can defend your ownership of it is by what economists call ‘exclusion’. So you can either put a bug into the software that makes it impossible to copy – as with a DVD – or you can make copying illegal. But the fact remains, whatever you do to protect the information – bug it, encrypt it, arrest the pirate-DVD seller in the car park – the information itself remains copiable and shareable, and at negligible cost.

This has major implications for the way the market operates.


Mainstream economists assume that markets promote perfect competition and that imperfections
– such as monopolies, patents, trade unions, pricefixing cartels – are always temporary. They also assume that people in the marketplace have perfect information. Romer showed that, once the economy is composed of shareable information goods, imperfect competition becomes the norm.

The equilibrium state of an info-tech economy is one where monopolies dominate and people have unequal access to the information they need to make rational buying decisions. Info-tech, in short, destroys the normal price mechanism, whereby competition drives prices down towards the cost of production. A track on iTunes costs next to zero to store on Apple’s server, and next to zero to transmit to my computer. Whatever it cost the record company to produce (in terms of artist fees and marketing costs) it costs me 99p simply because it’s unlawful to copy it for free.

The interplay between supply and demand does not come into the price of an iTunes track: the supply of the Beatles ‘Love Me Do’ on iTunes is infinite. And, unlike with that of physical records, the price doesn’t change as demand fluctuates either. Apple’s absolute legal right to charge 99p is what sets the price.

To run a multibillion dollar business based on

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information, Apple does not only rely on copyright law, it has built an entire walled garden of expensive technologies that work together – the Mac, iTunes, the iPod, the iCloud, the iPhone and the iPad – to make it easier for us to obey the law than break it. As a result iTunes dominates global digital music sales, with around 75 per cent of the market.14

With info-capitalism, a monopoly is not just some clever tactic to maximize profit. It is the only way an industry can run. The small number of companies that dominate each sector is striking. In traditional sectors you have usually four to six big players in every market: the big four accountancy firms; four or five big supermarket groups; four big turbofan makers. But the signature brands of info-tech need total dominance: Google needs to be the only search company; Facebook has to be the only place you construct your online identity; Twitter where you post your thoughts; iTunes the go-to online music store. In two key markets – online search and mobile operating systems – there is a two-firm death match, with Google currently winning both of them.

Until we had shareable information goods, the basic law of economics was that everything is scarce.
Supply and demand assumes scarcity. Now certain goods are not scarce, they are abundant – so supply and demand become irrelevant. The supply of an iTunes track is ultimately one file on a server in


Cupertino, technically shareable by everyone. Only intellectual property law and a small piece of code in the iTunes track prevent everybody on earth from owning every piece of music ever made. Apple’s mission statement, properly expressed, is to prevent the abundance of music.

So Romer’s new theory was simultaneously bad news for mainstream economics and reassuring news for the emerging giants of info-capitalism. It tied together in a single explanation many of the anomalies conventional economics had struggled to explain. And it gave a tacit justification for the market position of tech monopolies. The journalist
David Warsh summed up its impact:

The fundamental categories of economic analysis ceased to be, as they had been for two hundred years, land, labour and capital. This most elementary classification was supplanted by people, ideas and things … the familiar principle of scarcity had been augmented by the important principle of abundance.15

On the publication of Romer’s paper in 1990, then, did the world of economics start singing ‘Hallelujah’?
It did not. Romer was greeted with hostility and indifference. Critics of mainstream economics,
Joseph Stiglitz at their head, had been saying for years that its general assumptions – of perfect

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information and efficient markets – were wrong. Now
Romer, working inside the mainstream and using its methods, had knocked down the mainstream’s defence against these critics. For Romer’s research had shown that, once you move to an information economy, the market mechanism for setting prices will drive the marginal cost of certain goods, over time, towards zero – eroding profits in the process.

In short, information technology is corroding the normal operation of the price mechanism. This has revolutionary implications for everything, as the rest of this book explores.

If they’d understood capitalism as a finite system,
Romer and his supporters might have explored the massive implications of this extraordinary statement
– but they did not. They assumed the economy was, as in the textbooks, composed of price makers and price takers: rational individuals trying to pursue their self-interest through the market.

Those who did see the bigger picture were not to be found in the world of professional economics but among the tech visionaries. By the late 1990s they had begun to understand what Romer did not: that info-tech makes possible a non-market economy and creates a demographic prepared to pursue their selfinterest through non-market actions.


THE RISE OF OPEN SOURCE

There is a chance you are reading this on a tablet: a
Kindle, Nexus or iPad. They rarely crash and you would not even dream of programming them but they are computers nonetheless. The chip in an iPad
Air has one billion transistors etched into a single piece of silicon – that’s equivalent to the processing power of 5,000 desktop computers thirty years ago.16

The base-layer of software needed for an iPad to work is the operating system: iOS. Because computing is today so easy, we barely comprehend the challenge that operating systems presented to the pioneers in the 1970s. In the early years of software, a struggle began over operating systems, which spiralled into a struggle over who should, or can, own information.

For the first thirty years, computers were big and rare, and computing took place in businesses and universities. When desktop PCs were invented in the mid-1970s, they were little more than an assembly of electronic boards and a screen. And corporations did not build them, hobbyists did.

The Altair 8800 was a breakthrough machine, sold via magazine ads to a subculture of geeky people who wanted to learn programming. You needed a programming language to make the computer do

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what you wanted, and two Seattle-based guys came up with one: Altair BASIC, distributed on a reel of paper with holes punched through it, price $200. But soon they noticed that sales of the language were lagging behind sales of the computer. Users were copying and distributing the punched paper reels for free. In an angry ‘Open Letter’ the software’s author urged them to kick pirates out of computer club meetings and to pay up: ‘Most of you steal your software. [You believe] hardware must be paid for but software is something to share. Who cares if the people who worked on it get paid.’17

The author was Bill Gates, and he soon came up with a solution: to own the operating system as well as the programming language. Gates designed Windows, which became the standard operating system on PCs.
Soon Windows built a near monopoly of the corporate desktop and Gates became a billionaire. His
‘Open Letter’ would go down as the second most important document in the history of digital economics.

Now here is an excerpt from what I think is the most important document:

If anything deserves a reward, it is social contribution. Creativity can be a social contribution, but only in so far as society is free to use the results.
Extracting money from users of a program by


restricting their use of it is destructive because the restrictions reduce the amount and the ways that the program can be used. This reduces the amount of wealth that humanity derives from the program.18

That was Richard Stallman in The GNU Manifesto, which launched the free software movement in 1985.
Stallman had been irked not just by Microsoft but by the attempt by makers of much more powerful business computers to ‘own’ a rival operating system called Unix. His plan was to write a free version of
Unix, called GNU, distribute it for free, and invite enthusiasts to collaborate on improving it – with the proviso that nobody could own or make money out of it. These principles have become known as ‘Open
Source’.

By 1991 GNU had incorporated Linux – a version of
Unix for PCs developed by hundreds of programmers working collaboratively, for free, and licensed under the original legal contract that Stallman had designed.

Fast-forward to 2014 and maybe 10 per cent of all corporate computers are running Linux. The ten fastest supercomputers in the world all run Linux.
More importantly, the standard tools for running a website – from the operating system to the web server to the database and the programming language – are Open Source.

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Firefox, an Open Source browser, has currently around 24 per cent of the global browser market.19 A staggering 70 per cent of all smartphones run on
Android, which is also technically Open Source.20 This is in part due to an overt strategy by Samsung and
Google to use Open Source software to undermine
Apple’s monopoly and maintain their own market position, but it does not alter the fact that the dominant smartphone on the planet runs on software nobody can own.

The success of Open Source software is startling. It demonstrates that new forms of property ownership and management become not just possible but imperative in an information-rich economy. It shows there are things about information goods that even monopolies can’t monopolize.

According to standard economics a person like
Richard Stallman should not exist: he is not following his self-interest but suppressing it in favour of a collective interest that is not just economic but moral.

According to market theory, it is those motivated by the pursuit of private property who should be the more efficient innovators. According to mainstream economics, large corporations such as Google should be doing what Bill Gates did: making a land-grab for


everything and trying to destroy Open Source software. Now Google is a hard-assed capitalist firm, but in pursuit of its own interests it is forced to fight for some standards to be open and some software to be free. Google is not postcapitalist – but as long as it keeps Android Open Source it is being forced to act in a way that prefigures non-capitalist forms of ownership and exchange, even if, as the EU is investigating, they use this position to carve out dominance.

The birth of free software and the pursuit of collaborative software projects in the 1980s were just the opening shots of a war that is still raging, and whose battlefront is fluid. The Open Source movement also gave impetus to a movement for freedom of information, to Wikipedia, Wikileaks and a branch of the legal profession dedicated to writing contracts that could defend openness and shareability.

It was within this milieu, in the late 1990s, that the first systematic thinking took place about a question obvious to Drucker, but not to Romer: could an economy based on information networks create a new mode of production beyond capitalism?

SKATING TO THE EDGE OF CHAOS

There is a sound, now forgotten, that will remain

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