Late Stage Capitalism and Inequality

What causes inequality and how to deal with it?

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Is inequality just a bug or an endemic feature of Capitalism? Inequality is undoubtedly an essential characteristic of Capitalism. With adequate policies we can restrict inequality to some tolerable levels at which Capitalist engine will perform while society will also be able to accept the level of inequality which the engine generates.

But before we go into that, let’s understand why inequality is a feature of Capitalism. Capitalism has highly uneven risk-reward characteristics which means that success is disproportionately rewarded (winner takes all) and losers are swept aside - this is driving force of Capitalism. Capital tends towards concentration (monopolies & oligopolies) which automatically means few & few people/entities reap the larger share of profits and national income. Giant firms, consolidation of Capital, rise of monopolies are not necessarily a bad outcome in Capitalism, rather a natural process of Capitalism.

A giant firm can operate in a climate of much more certainty (in contrast to free market dog eat dog competition) and thus has capacity to plan, invest and produce with more efficiency. Giant firm can be more conducive to process of creative destruction. Another feature of Capitalism is continuous technological progress where production is mechanized and automatized. With continued technological progress and automation, there is downward pressure on wages of labor especially in modern times when bargaining power of labor - by policy choice - has weakened and production is globalized. Weakening of labor’s bargaining power is due to government policies in favor of Capital in Neoliberal era which began in late 70s.

This tendency of Capitalism means concentration of profits and wealth which translates into inequality in society. Now this feature of Capitalism meets with another critical feature of our political economy. Our government’s desire for economic stability and status-quo of growth trends. There are two things which can destabilize and upend the Capitalist ecosystem.

First - A sudden giant leap in technology that can create new Capitalist players on basis of new modes of production. Now chances of this sudden giant leap in technology is getting smaller in late stage of capitalism for two reasons. A lot of the things entrepreneurs could invent (relatively) easily are already invented and the space for new thinking has shrunk. The real innovation in technology now happens in industrial labs of giant corporations who also own various patents & IPs in advance to maintain their market power.

(It’s difficult but still possible for new market players to emerge as we can see Chinese capitalists’s entry into Green industry (batteries, renewable energy, EVs) and cloud Capital when a competent government supports them with industrial policy.)

Second - And this is the part which is more relevant to my point. Capitalist order can be severally destabilized by a crisis.

Crisis in Economy

Crisis can be endogenous - like great financial crisis. Crisis can be exogenous - a pandemic or a major foreign war. Now government’s - that means elected political regime and Central banks - objective is to preserve the status-quo. Preserving Status-quo means protecting the ‘too big to fail’ institutions, important and strategic corporations and big market players. Government and Central bankers don’t want to let economic crisis wipe out these players. Recall the set of alphabet soup of Federal reserve programs to save financial institutions (& many non-financial as well) in wake of great financial crisis. What would’ve happened if Fed didn’t intervene after collapse of Lehman Brothers? A lot more institutions would’ve collapsed like Dominoes.

Stabilization of business cycles and intervention in times of crisis wasn’t always the policy of our governments and central banks. Back in the day, they thought that ‘letting market balance itself’ should be natural response to a crisis. But great depression showed us how much worse and how long a crisis can get without a government intervention. A crisis works in both ways. It can wipe out the established players of the markets. And it also plunges production and employment - In great depression output crashed by nearly 33% and unemployment peaked at 25%. That was the original order of Capitalism. Capitalists can grow unfettered but they can also get wiped out in a crisis.

In a modern State, Private players own the Capital (means of production) and government only acts as a regulator and stabilizer of economic system. Government itself doesn’t own the Capital and can only influence aggregate demand indirectly through fiscal & monetary stimulus. Even in times of crisis when government bails out private players, government hesitates to take ownership of Capital and lets private players sort out things (through mergers, takeovers, restructuring etc). Employment in Modern State is overwhelmingly under private sector and allowing private sector to fail uncontrollably can be devastating.

(China is a peculiar case where government owns big chunk of Capital through Strategic State owned enterprises and uses this Capital for dirigistic goals and industrial policy)

Now crisis doesn’t wipe out the big market players, for they are strategically protected by governments and central banks in process of stabilizing the business cycles. So we have a Capitalist system which inherently creates inequality and it’s supplemented by our political economy that preserves the existing Capitalist order in times of crisis. The result is Great moderation which entails a (relatively) stable economic growth, attenuated business cycle shocks and more certainty in economy. And after each government intervention in face of crisis, there is a surge in inequality.

When crisis occurs (endogenous or exogenous), Central banks flood the markets with liquidity, starts buying bonds and securities of private corporations and open various credit windows & swap lines for the markets (nationally and internationally). Political governments have given ample legality and liberty to Central banks to extensively exercise their powers as they deem fit. Jerome Powell (current Fed chief) says - “we are lending, not spending”. Central banks say that the credit and capital injections in private sector is only temporary to fend off the crisis. But in the long run, established market players & corporations can always be profitable if the incidental risks and acute shocks have vanished due to explicit guarantee of Fed intervention.

Shifts in Macro paradigm and Political attitude

In post great depression era, governments recognized their roles in stabilizing the economy but thereafter the nature of government interventions changed with time (by government I include Central bank which is an institution of government). From 1940s - 1960s, the fiscal policy was recognized as main tool for stabilization of business cycle. The political attitudes at that time was maintaining low unemployment and healthy growth with fiscal interventions. Government in early post war era (Keynesian period) recognized the shortcomings of market system - the endemic instability of markets, the process of creative destruction, fundamental uncertainty in market economy and its impact on aggregate demand. That was the reason government maintained an activist role in economy (microtuning of economy). But that started to change in 1970s as government slowly withdrew its role.

After Oil crisis, 70s inflation and rise of monetarism & supply side theory, the main tool of policy intervention became monetary policy of Central bank while fiscal policy vanished in background. Starting from late 70s, the government intervened in markets in favor of Capital and against Labor. From here on, the wages of Labor could never catch up with benefits of productivity. Globalization and technological transformations lead to outsourcing of many types of jobs but government let the economy to be lead by the market forces.

Guiding economy and dealing with economic downturn since then has been left mostly to be tackled by Independent Central banks. In response to crisis, too big to fail institutions are nurtured backed to health. This is in contrast to government’s attitude towards general population where government’s fiscal policy is constrained by fear of fiscal deficits and inflation. It’s not surprising that with every crisis, inequality always goes up. Central bankers started to be worshiped like Demigods and monetary policy became only game in town.

Taxes, regulations and Rentierism

While profits and income disproportionately accumulate in the hands of Capitalists, the government can tax them to redistribute the income. Taxes have three main purposes - Regulating aggregate demand, redistributing national income, incentivize/disincentivize types of economic activities. US had the highest income tax rates for top earners for couple of decades after World War 2. But thereafter the tax rates were brought down due to political and ideological reasons. For example, Vodoo economics (supply side theory) professed that cutting taxes drives growth and tax cuts pay for themselves. The decline in top tax rates & deregulation (trickle down economics) resulted in surge of inequality and stagnation of income in lower percentiles but there wasn’t any remarkable improvement in growth.

While a giant corporation with an oligopoly/monopoly power operates in an environment of stability and certainty, it doesn’t necessarily mean that it’s aim is to dispense innovation and technological progress. A Corporation can instead capitalize on its market power to enshittify things, stifle innovation and harness rents in most abusive ways. Tech industry of today is the prime examples of enshittification model of corporations which exploits its market power to degrade things. Tech companies like eCommerce, Social media, Search engines, Video games industry, OTT platforms etc in recent years have become notorious for degrading things.

(I am excluding the discussion on more malignant behavior of Tech companies like their algorithms that promote hate & violence, create addiction, are used for political disinformation and propaganda. Many of the Tech Bros are themselves exponents of malevolent ideology who have subverted social democracy in many countries.)

But what’s the connection between enshittification and inequality? Capitalism has two components - Productive and Rentier. Productive component is tangible production, innovation, technological progress and these material benefits reaching average population. Rent seeking component is about extracting rents (profits are different from rents) without any tangible/material increase in output. Rent seeking is like a parasite on productive & tangible component of Capitalism. Earlier, the financial industry was viewed as Rentier industry but now Tech industry has also joined the ranks.

Capitalism inherently creates inequality but degree of inequality is also determined by ratio of Productive and Rentier components. The more productive the forces of Capitalism are, the more tangible & material output of the economy is. The more Rentier forces are there in Capitalist system, the more parasitical and unproductive the economy is. In late stage Capitalism, the Rentier forces are tending towards dominance. This further aggravates inequality because Capitalists who get larger share of income and profits are also joined by Rentiers who extract their share without any tangible production.

Traditionally, the abuse of patent & IP regime was parasitical component of industrial capitalism. A degree of IP protections are necessary but the pendulum swung too far to the extreme where patents & IPs became mainly an instrument of Rent seeking and exploitation. Example is overpricing of drugs which costs pennies to produce but are sold for thousand times their production costs (1, 2). The lobbies and special interest groups nudged governments throughout the decades to create rules & regulation to protect their dominant market position & legalize abusive practices.

Earlier, the financial industry was infamous for deregulation. Now we have Tech industry joining the ranks demanding self-regulation and autonomy. Financial industry created speculative instruments like Derivatives, Tech industry has created toxic & parasitical instruments like digital currencies (Crypto, meme coin etc). A competent government should seek to minimize parasitical, exploitative and abusive practices in economy. But the lobbies of Corporations and especially Tech industry has gotten too much sway over the government which is now drafting regulations to the wishes of the lobbies of worst type (like new Crypto bill).

Putting everything together - The problem of inequality

Inequality in our current system has following causes -

1. Inequality is an inherent feature of Capitalist system due to ‘profit-wages’ dynamics where profits gets accumulated and concentrated to Capitalists, and trend of technological progress which suppresses wages of labor and keep them in position of uncertainty. Globalization and weakening of labor power has put further downward pressure on wages of labor.

2. While income is unevenly distributed (capitalists grab the larger piece of pie), the taxes and regulations are supposed to redistribute national income. But through the past decades, the government has been cutting taxes on top earners for political and ideological reasons (like trickle down, supply side theory etc). This has aggravated inequality.

3. The productive component of Capitalist system - the tangible industrial production - has shrunk in late stage capitalism while the Rentier component - the parasitical and speculative part - has expanded in US & other developed nations. So capitalists and rentiers are grabbing the piece of economic pie that is not sufficiently growing in size.

4. Interventions by governments and central banks in name of stabilization of business cycle protects too big to fail institutions and big corporations. Hence these established market players grow bigger & bigger, and are immune from adverse events like recessions. Great moderation entails economic stabilization policies that protects the powerful players on top of the mountain from where they cannot be dislodged.

5. The government under the influence of various lobbies is creating policies and regulations in service of oligarchs. Corporations and oligarchs with backing of State power are not really playing in a “free market” environment. Rather they are playing in environment which they themselves create/control and in which they always win. The fundamental ‘risk - reward’ equation of Capitalism is now heavily tilted in favor of existing players on top of the mountain.

6. It would be fitting to add another reason for growing inequality. It’s the legitimization of political and ideological decisions on taxes, regulations, fiscal & monetary policy etc by pseudo-scientific economic theory. Doctrines like Monetarism, Supply Side theory, Neoclassical theory (which includes things like General equilibrium & rational expectations), shock therapy, arbitrary limits (like Maastricht treaty) etc reinforced government policies that aggravated inequality. Orthodox economic theory provided the intellectual backing to political & ideological decisions like Austerity, union busting, privatization, shock therapy etc which increased inequality.

Dealing with Inequality - A new Social Contract

The measures for addressing inequality that I will discuss below are not universal. Meaning, they are suitable for developed nations with industrial power (affluent nations) having the productive capacity to serve needs of society. The real problem for affluent society is not production, but improper distribution/allocation. For developing nations, their problem is lack of productive capacity (economic and social backwardness) as well as improper distribution. So measures for addressing inequality in developing nations requires some different solutions among which is Developmental State doctrine - i.e government strategically guiding economic development and certain sectors of economy. Now let’s focus on developed nations.

Inequality is a feature of Capitalist system and it cannot be wiped out. A realistic approach is restricting inequality to socially acceptable levels and this is doable with right policies. As mentioned, there will always be inequality in Capitalist system. Trying some sort of cultural revolution to force hyper-equality on society will be harmful. But too much inequality also means accumulation of power in hands of few people and in a democratic society, we don’t want accumulation of such great power in hands of Oligarchs. Also don’t fall for misconception that Plutocrats are geniuses who will exercise their power with great acumen & responsibility in best interest of society. People like Elon Musk and Peter Thiel are examples of how dangerous is power in reckless hands of oligarchs.

Before going into ideas for Taxes, regulations and other policies, my approach is rather broad which begins with a new social contract. Political rights without economic rights are insufficient. Since the days of New Deal, people envisioned a society with both political and economic rights. I believe many developed nations have reached the stage where they can provide at least some economic rights to their citizens like right to education and healthcare. Right to employment still looks difficult to implement in a market society although some experts are more optimistic about it.

Government shouldn’t rely on markets simply as a buyer of service to provide healthcare and education as this is a highly inefficient way of doing it. US spends most among developed nations on healthcare but still lags behind in ranking because much of the spending is absorbed by Rentier sector of healthcare system (like insurance companies). Direct funding in these areas and taking out the rentier middle-men (insurance companies etc) will make these programs much more affordable and efficient. Universal healthcare will be significantly cheaper than current hodge-podge of a system based on excessive spending and high subsidies.

So government needs to invest more directly into certain areas instead of relying on middlemen. That means building more hospitals, universities & training centers, research institutions, rural health clinics etc. Similar building of an ecosystem is needed in education sector. Build more Schools, colleges and technical training centers and making education free of cost. Economic growth in 21st century will be led by a R&D in industrial scientific areas and high quality labor force.

Universal healthcare and education system will provide significant savings to households, improve their social mobility and bring down inequality. In addition to that it will also create a backbone for 21st century labor force and scientific advancement. I don’t subscribe to hype of AI but if at least some of the hype is materialized, that means we will have more productive powers for our economy and more automation in industry. That shouldn’t translate into cutting of jobs and suppressing the income of labor. Sam Altman suggested a change in social contract in time when AI will alter the dynamics of economic production. If wonders of AI are so great (although i doubt it) that it enormously raises our production and eliminates waste, we may even have to consider a Basic income guarantee for people.

On subject of regulations, the government policies should seek to minimize Rentier, speculative and parasitical activity by either outlawing it or taxing it heavily. Things like Crypto and digital currency is area which has no purpose in our economy other than for illicit drug peddling, extortion and money laundering. Crypto may be outright banned or it can be heavily taxed. Similarly, a financial transaction tax as proposed by Dean Baker can be levied on Stocks, Bonds, Derivatives or Crypto. Baker also proposes Taxing Stock returns which is more effective than Corporate Tax.

Dealing with the enshittified Monopolies

In conventional wisdom, a giant firm can produce, plan and innovate more economically and hence beneficial to market stability and consumer interest. That’s one side of the coin. On other side is that a giant firm can also stall innovation, abuse consumers and even undermine social fabric & Democracy in worst possible ways. Cloud Capital is the epitome of this side of coin. Monopoly power can go both ways and when it starts going to regressive side, it has to be corrected.

Tech companies is the most concentrated sector in global economy & overwhelmingly located in Silicon valley and operating worldwide. The abuses of these corporations are well known and they are among the worst rentiers in current economy. Some of these companies have to be dismantled and put under proper regulation (much of internet companies are self-regulated so far). The abuses of companies like X/Twitter & Google are so bad that consumers want these services to be converted to public utilities for common good (may be a bridge too far).

There is always an interplay between Capital and Politics on which Marx developed (and overemphasized) the narrative of Class conflict. Schumpeter pointed out that there doesn’t have to be an antagonistic relationship between Labour and Capital. Mainstream economic theory has nothing to say in this regard. But look at reality today and all the empirical evidence. The oligarchical financing of Trump (especially from Tech Bros like Musk & Thiel) and entry of Tech Oligarchs into State apparatus - isn’t this an empirical evidence of Class Conflict?

The policies of DOGE - austerity, dismantling of State, cutting welfare, privatization of government etc - is naked exercise of oligarchical power in hostile takeover of the State. The inequality is a political phenomenon as much as it is an economic one. None of the policies like updating Tax system, rewriting social contract and changing regulation will ever materialize in a system which is politically controlled by oligarchs. Maintaining a healthy democracy is in fact conducive to healthy Capitalism. A capitalist economy cannot function without a healthy State and a Liberal Democracy. Thus it’s critical to remove oligarchical encroachment from Political system and dismantling certain monopolies which are brazenly destroying the liberal democratic Political system.

Advancing Technology while minimizing Rentierism

Conventional thinking on technology is that it’s developed solely by private enterprises in their industrial labs but fact is that a lot of scientific and technological progress is financed and developed in private-public partnership (read work of Mariana Mazzucato in this area). For example, military industrial complex which is a fusion of government and private resources (money, institutions, assets) has contributed significantly to technological advancement.

Government is not in a business of making money like a private enterprise so it lets private players to reap profits in market economy even when government finances development of certain technologies. Dean Baker has written much about it like the development of mRNA vaccines which saved millions of lives were funded by the government. However, private enterprises patented and marketed them for hefty profits which created vaccine billionaires. Baker has proposed constructive ideas for financing innovation in Pharmaceutical and Biomedical sector for public good.

Government can finance research based Startups at universities or entrepreneurial level on long term contract basis. The only condition will be that all research that materializes (drugs, vaccines, equipment etc) will be open source. The products that come out of this research will be patent free and thus a lot cheaper as we can bypass the Rentier activity of middle-men (Big Pharma). The concept of patent free research is that private firms can get a hand on technology and compete on basis of economic potential of mass production rather than playing in highly restrictive & paralyzing IP walls.

Another conventional wisdom in western economic philosophy is that private enterprises are best for delivering production and driving innovation. Can a government enterprise innovate and produce more efficiently? Can a government enterprise emulate technostructure of a private enterprise? Actually it can under certain conditions like proper autonomy and competent leadership.

If we look at modern corporation today (say an Aircraft manufacturing enterprise), the innovative core of it is run by technicians - engineers, scientists, various expert professionals. Then there is a managerial class which decides the nature, quantity and quality of production that is to be sold in the market and also other decisions like finances and marketing strategy of the firm. And finally there’re are the owners of company which are giant shareholders, the large equity owners or private equity firms etc - the true capitalists.

A misconception in mainstream thinking is that innovation is driven by pecuniary motive. Reality is that technicians in technostructure of modern corporation are not just driven by pecuniary motive but something more - intellectual satisfaction they find in their line of work, artistic perfection, curiosity - and this drives their innovative work. In contrast, a Capitalist (a private equity corporation like BlackRock) is purely driven by pecuniary profits, there’s no motive of intellectual satisfaction for them.

A government can create strategic enterprises, emulate private technostructure and harness their power for public purpose. Like Dean Baker’s proposals for research and innovation in Biomedical research, Drug discovery and development. Such innovative enterprises (fully or partially funded by State) can dispense technological advances without Rentier side effects. A lot can also be learned from China and its industrial policy where government gives major subsidies to certain companies and government also has strategic ownership of corporations (SOEs). Recall that until Trump created all the chaos, even economists in market economy like America were realizing the significance of industrial policy. Biden administration got praised for its new approach of industrial policy although he did it in very limited way.

One shortcoming of American industrial policy (as also noted by James Galbraith) was that US government only had restrictive tools for exercising industrial policy because it can only act indirectly through subsidies and government spending. A nation like China has a lot more versatile industrial policy because it has strategic ownership of certain enterprises, a large spectrum of technocratic planners along with government subsidies & broader range of other incentives. Simply put - China has a lot more depth in its Industrial policy. And China makes industrial policy on long term picture whereas policy making in America is beholden to party politics and narrow corporate interests.

But coming to the subject matter of this section. Why am I digressing about rethinking Corporate structure and industrial policy? Because to tackle inequality and to achieve a more equitable growth, we need to rethink organizational flaws of our production process and not just limit our thinking to tax reforms and welfare policies, although they are also important. Our aim is to minimize rentier nature of Capitalism and maximize its innovative & productive role that includes some type of government participation in production.

Government interventions and bailouts

In times of crisis like GFC, government (that includes central bank) saves too big to fail institutions to stabilize the economy. Even in times of small crisis like failure of SVB, government is quick to come to the rescue. The ethical role of government in rescuing the reckless behavior of financial institutions is questioned. Government has a standard excuse - the financial system in our economy is so complex that we can’t allow some institutions to fail and expect the rest of the system to survive as normal.

Government can do several things. It can ban the most parasitical & speculative form of financial activity like Crypto and certain kinds of derivatives. It can also stop providing financial backstop to entities and individuals involved in these kind of activities. Why should FDIC reimburse deposits of Crypto company accounts? Even if certain big institutions have to be saved, the wealth of their key shareholders and executives should be liquidated (forcing some personal responsibility on them) and entire management should be overhauled (to bring some accountability). In wake of GFC bailouts, the government never pushed for any changes in management of institutions while top executives enjoyed fat bonuses from bailouts.

The problem in times of crisis is that debts & liabilities have unknown counterparties and it’s too difficult to know the extent of damages. Proper regulation and supervision of financial institutions is thus important to ascertain that they maintain adequate Capital and are not indulging in reckless behavior. Proper regulation and oversight is in fact most critical to financial stability and ironically this is the thing which financial players despise. A contentious remedy is also that government should let some of the reckless institutions to fail in times of crisis to set an example.

Inequality in developing nations and Globalization

A developed nation can think about new social contract because it has productive power but many of the developing nations don’t have this capacity. For example, for a functional healthcare system, State must have the infrastructure and human resources like hospitals, doctors, nurses and medical equipment. This is not the case in many poor nations. A social contract makes sense when its achievable.

There are two main problem with developing nations. First obviously is their dysfunctional or failed political system. A system which is incapable to produce meaningful policy. These nations suffer from policy paralysis, political instability, unbridled populism and, in general, lack of competent people in their governing institutions. These nations are always marred by poverty, inequality and economic backwardness.

Secondly, developing nations often seek to apply western economic doctrine wholesale as if it is recipe for universal success. The Washington consensus & shock therapy - Privatization, Fiscal responsibility, liberalization etc - is implemented without understanding the ground realities of developing economy. This sometimes results in terrible disasters like Post Soviet Russia. A lesson for developing nations is that they should not rely solely on invisible hand of markets or importing economic doctrines in pursuit of progress. Economic progress has to be achieved by developmental policies of State keeping ground realities in mind and some experimentation. Here China & Asian tigers can offer some guidance.

Many developing economies are still industrially backward and Agriculture based like India where half of labor force is employed in rural agriculture sector with extremely low wages. The primary goal of developing economies should be urbanization and industrialization. With limited resources, the investments have to be made on priority basis in developing States. It makes little sense for developing nations to focus on AI and semiconductor industry when they don’t even have proper roads, reliable electricity, clean drinking water and other basic infrastructure.

Developing nations also face a dilemma - should they focus on tackling inequality or should they focus on increasing their Capital? The question of distribution of income becomes relevant only when there is sufficient income to distribute. That means first growing the size of economic pie and then thinking about its allocation (think of Deng’s view on modernizing China). A starting point for developing nations may be a two-pronged strategy - modernizing the economy and tackling poverty. In later stage of development, priorities can be modified to focus on inequality. In short - grow first, redistribute later.

Technology does offer advantages for laggard nations to catch up with affluent nations. For example, the problem of energy scarcity which has plagued developing nations since long is not a major constraint in current times as renewable (Solar & Wind power, modern batteries etc) energy has gotten much cheaper. Energy is important driver of production, urbanization and electrification and with cheap clean energy, developing nations have more space for developmental policy planning. Unfortunately, the incompetent political regimes of developing nations do not realize the developmental opportunities offered by clean energy & other technological advances. Case in point is my country India (1, 2).

Inequality is a global problem and requires global solutions. Developed nations have advanced much ahead of developing nations and thus developed nations have some responsibility to help the laggards. Back in the times after World War 2, America (the leading industrial power at the time) helped rebuild Europe and Japan which were ruined due to war destruction. Looking at the world today, we need a similar role by developed nations (US, EU, China etc) to help advance developing countries. Unfortunately, starting in 1970s, the assistance to developing nations was packaged into Neoliberal programs (like IMF loans) which failed to lift many developing States.

Globalization produced global imbalances which caused income inequality in Developed nations and certain benefits for developing ones. Labor intensive jobs migrated to developing nations in last few decades which made certain manufacturing jobs obsolete in developed nations (think of rust belt in America). These lost jobs in manufacturing & similar skills were not adequately replaced. The job outsourcing did benefit developing nations as it created new opportunities in these economies and hence lifted many people out of poverty. But the benefits were limited for developing nations. What happened?

Globalization created imbalances and task of re-balancing was left to the laissez-faire markets while governments shunned guiding role in economies. But markets never provided a balance. The lost jobs in developed nations were not replaced & compensated. The developing nations initially benefited from job opportunities and took this trend for granted but the benefits plateaued. And now with newer trends of AI & more sophisticated automation in pipeline, there is little hope for new opportunities to come the way for developing economies as they once did in 90s and 2000s.

China fared much better in globalization era as it harnessed the opportunities from globalization to the full compared to other developing nations like India which remained backward & poor. China can be called a developed State today. Reason for Chinese success was government planning, policy guidance and co-ordination with market forces. China understood the nature of globalization trends and channeled market forces into things it wanted to do (and insulated certain other things). Other developing nations failed in two main regards 1) They played little or no guiding role in economies and left economic direction to laissez-faire or 2) They failed to recognize economic trends and simply failed to capitalize on opportunities (nations like Pakistan).

On field of Economics

Something also needs to be said about the economics field which has failed in certain respects. Inequality is an afterthought in mainstream economic theory. Mainstream economic theory in current times is a perverted field, based on unrealistic assumptions and mathematical models. Mainstream economic field focuses on production centric approach while the distributional aspect of production or its environmental impact is outside the purview of mainstream economics. While employment is an important subject of economic theory but in last few decades, the issue of price stability and arbitrary limits (2% inflation targets, 3% deficit targets etc) have undercut its significance. Inequality doesn’t figure at all in economic theory apart from some trivial commentary on it.

Economics right now is reducing to a dismal Science and a hopeless field if it’s studied from Neoclassical viewpoint. Under orthodox economic science, nothing can be done to make things better. Government’s activist role in economy is scorned, spending on infrastructure and social welfare is despised as inflationary, government deficits is scorned as crowding out private investment & upsetting confidence fairy, arbitrary rules on fiscal limits & inflation targets are considered sanctimonious and any proper regulatory intervention is criticized as hindrance in working of invisible hand.

There needs to be different approach to doing economics rather than building complicated models on unrealistic assumptions. A way of economics which focuses on environment & ecosystem, on economic growth with more equitable distribution, a way of doing economics which doesn’t lock us into rigid tenets and applying theories as universal truths. Last several decades of economics has been based on western Neoliberal philosophy which has brought tremendous damage across the world. The rise of madmen like Donald Trump, erosion of liberal Democracy, surging inequality and populist anger, environmental destruction and geopolitical divisions - all these problems can be traced to failures in economics.