‘Late Capitalism’? Not Even Close
(Bloomberg Opinion) -- Even the most ardent defenders of capitalism must acknowledge the indignities it occasionally imposes. The toilet seat designed to be uncomfortable with the goal of getting employees back to work quickly seems to capture some of the essence of the criticism that capitalism has jumped the shark. The image of a tiny, environmentally friendly paper straw inside a large plastic cup is similarly absurd, as are the straps you can fashion around your thighs with clips that attach to your shirt to help keep it tucked in.
I found these examples by searching Twitter for “late capitalism,” an ominous phrase associated with Marxist theorists (though not Karl Marx himself) that has been borrowed widely to express exasperation with the economic system that governs the developed world today.
Beyond the absurdities and affronts, critics of contemporary U.S. capitalism are concerned about corporate power, inequality and economic injustice. “The innovators (lords) capture the majority of the gains,” as a New York University professor recently put it, “and the 99% (serfs) get an awesome phone” and “Mandalorian action figures delivered within 24 hours.”
Use of the term “late capitalism” has exploded during the past decade, no doubt driven by the economic and psychological damage the Great Recession of 2007-2009 inflicted on millions of people. Capitalism may have once delivered broad prosperity, the critics argue, but now the system serves to entrench the elite. And there are reasons to be concerned. Productivity growth has lagged for over a decade, threatening prosperity. Declines in geographic mobility and entrepreneurship raise legitimate worries about the energy necessary to sustain a market economy.
But despite real economic challenges and the trauma of the recession, it’s important to ask whether the current “stage” of capitalism, as the pessimists like to frame it, is as dire as they would have you believe.
Now is an odd time to argue that capitalism is broken. Only 35 U.S. workers out of every 1,000 are looking for jobs but unable to find them — the unemployment rate is lower than it has been in a half-century. The rate at which people in their prime working years hold jobs is higher than it has been in over a decade. I noted in November that it had finally fully recovered from the Great Recession, despite much concern that it never would. In 2009, there were over six unemployed workers for every job opening. Today, there are more job openings than there are unemployed workers.
Are the theorists of late-stage capitalism right to be extremely concerned about income inequality? The level of inequality is high, but this is an odd decade to bemoan its rise. According to the nonpartisan Congressional Budget Office, between 1979 and 2006 the rich-poor gap in income after taxes and government transfer payments increased by 27 percent. But from the beginning of the Great Recession, when criticism of capitalism became much more common, to 2016 (the last year data are available), inequality actually decreased by 7 percent. Or consider the ratio of weekly earnings between high- and low-wage workers. Between 2007 and 2019, this measure of the wage gap grew by only 1 percent.
Innovators are presented as the villains of late-stage capitalism. It is true, of course, that the market can reward innovators with fabulous wealth. Jeff Bezos, the founder of Amazon.com Inc., is worth $118 billion, according to the Bloomberg Billionaires Index.
But critics of modern capitalism seem to be confused about the market’s ability to distribute benefits. Bezos’s net worth doesn’t come close to fully capturing the improvements in household welfare he has created. In a 2004 paper, the economist and Nobel laureate William Nordhaus concluded that “most of the benefits of technological change are passed on to consumers,” not the innovators themselves. Using data from 1948–2001, his model suggests that innovators capture only 2.2 percent of the total social value they create. Applying a back-of-the-envelope calculation using Nordhaus’s result to Bezos suggests he has created $5.4 trillion in value for the rest of society.
A team of economists, including Massachusetts Institute of Technology scholar Erik Brynjolfsson, recently attempted to measure the benefit of several new digital services that are free to consumers. To place a dollar value on the benefit these services provide, they studied how much money consumers would be willing to accept to give them up. The typical U.S.-based Facebook user in their study values the social networking site at $42.17 per month.
For other free digital services, the economists studied people in the Netherlands. There, consumers value Facebook at 96.80 euros a month (roughly $108). WhatsApp is worth 535.73 monthly euros ($595) to the Dutch participants in the study, and Google, Bing and Apple maps are valued at around 60 euros per month ($67). Consumers don’t value everything this highly. Participants in their study would give up Skype for less than 1 euro, Snapchat for around 2 euros, and Instagram for about 7 euros.
Because they are free, these services are not well captured in current national income statistics. Brynjolfsson and his coauthors calculate that the benefits from Facebook alone would have added between 0.05 and 0.11 percentage points to the annual growth in U.S. gross domestic product growth starting in 2004. In other words, these free services represent trillions of dollars of consumer benefit.
This may seem abstract, but daily life in modern societies abounds with confirmation that critics of capitalism seem to ignore. On Christmas Day, my family in Washington was able to FaceTime with relatives in Singapore, Kansas City and Brighton, England. My children know their aunts, uncles and cousins much better than they would without this technology. That is worth a lot.
While driving around town this week, I received a text message with the picture of a friend’s daughter, born just the day before. It was lovely to be connected with him in real time during this important moment. People value connectivity, and the modern economy provides it to the broad middle class — not just the rich — in ways that would seem like magic just a few decades ago.
And by dismissing innovation so flippantly, proponents of the late-capitalism critique are myopic. Technology builds on itself.
Taking a longer view, the discussion of late-stage capitalism also seems to miss basic income statistics. According to CBO data, median household income grew by 21 percent from 1990 through 2016. After accounting for taxes and government transfer payments, median income increased by 44 percent. Incomes grew faster for households below the median. Capitalism has delivered significant increases in purchasing power for typical households.
The phrase “late capitalism” suggests that capitalism is spent and exhausted. It isn’t. True, the Great Recession was traumatic, and its effects are still with us. Public policy should work hard to alleviate those effects and provide economic opportunity to all. But enemies of modern capitalism seem to be late to the fact that the Great Recession is largely in the rear view mirror. We aren’t in the twilight of the market economy. The storm clouds from the recession have passed.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Michael R. Strain is a Bloomberg Opinion columnist. He is director of economic policy studies and resident scholar at the American Enterprise Institute. He is the editor of “The U.S. Labor Market: Questions and Challenges for Public Policy.”
©2020 Bloomberg L.P.