These technology giants, upending our economic fundamentals
Up until the mid-1970s, full employment and rising wages coincided perfectly with the interests of big-time capitalism. It allowed for consumption and therefore production to increase exponentially, mostly to the benefit of industry leaders. These constantly increasing salaries also had a very positive impact, albeit indirect, in driving technological research forward. The objective of this research was quite clearly to figure out how to do away with human labour as much as possible, which had become more and more onerous. This was until wage progression started to massively eat into – from the mid ’70s onwards – bosses’ profit margins. In response they turned to neoliberalism, whose most ardent torchbearer was Thatcherism.
It was henceforth only possible to generate growth by weakening trade unions, cutting social welfare, and making job markets ever more insecure: so many prices to pay to restore companies’ profit margins through increased productivity. The secular stagnation that we are currently suffering – that I’ve been talking about for years – is thus the direct consequence of economic policies that have intentionally brought wages down and that have had a disastrous impact on aggregate demand. So, why invest in developing new technology when people’s wages are so low? By not doing so, neoliberalism has shot itself in the foot because low wages are toxic, and not just for the massive working class, but also for big-time capitalism, which finds itself forced to plunder on with stagnant productivity, falling profit margins, rising interest rates and woeful returns on savings… To date, in a traditional macroeconomic environment, supply and demand have of course determined prices with strong growth stimulating consumption, which, in turn, has brought wages up, and vice versa.
This paradigm is now being dethroned before our very eyes as it gives way under pressure from tech giants like Alphabet, Amazon and Uber, who now occupy the dominant position on consumer and labour markets, and whose business model is breaking away from the long-standing ideas of supply and demand. Prices actually famously drop when one of these mastodons takes the stage. Doesn’t Amazon’s recent buyout of Whole Foods clearly show how companies operate nowadays? Thanks to their disruptive technology, haven’t they managed to upend old clichés and reduce prices and – as a result – inflation? In yesterday’s world and according to classical theory, increased production costs are of course offset by prices, doomed to rise because it indeed costs the company more to increase its productivity.
This new paradigm actually shows us the opposite, in that today’s giants are saving so much more – and are amassing even larger profits – than their production is increasing. And this is without raising the price of their services or products. The constant, uninterrupted fall in prices over the last 15 years shows us, without a shadow of a doubt, that this cause and effect relationship between prices, production and wages is now defunct.
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