Great Reset leads to Socialism 2.0
I decided to write this article after listening to:
“The COVID-19 crisis has shown us that our old systems are not fit any more for the 21st century,”
said World Economic Forum Executive Chairman Klaus Schwab.
“In short, we need a great reset.”
This week’s World Vs Virus is entirely devoted to the launch of the Great Reset — a project to bring the world’s best minds together to seek a better, fairer, greener, healthier planet as we rebuild from the pandemic. (https://www.weforum.org/agenda/2020/06/the-great-reset-this-weeks-world-vs-virus-podcast/)
In this article I will skip the “nice agenda”, like fight racism, make forests greener and water cleaner. I want to focus on the core of the “Great reset” project.
Disclaimer. Below is my personal free thinking about the topic. This is more a philosophical thinking based on my 15 years experience in Digital / Post Industrial / Cyber-Physical Economics. It is interesting, how good the “Great reset” project fits into the picture I had in mind even before this project appeared. In this article I try to explain why.
There are 5 main focus topics declared in the “Great reset” story:
- Redefine social contract (responsibility for next generations);
- Decarbonisation of economies;
- Everything what can be digitalised needs to be digitalised;
- From Shareholder capitalism to Stakeholder capitalism;
- The need for global cooperation and “kind of” network economics.
It is interesting, that a lot of discussion is build around the Churchill’s statement:
“Never let a good crisis go to waste”.
Basically, elites are suggesting to use a COVID opportunity to change things, which are defined above.
The way I read it (and again, this is my private reading):
Phase 1. Limiting freedoms — social experiment and capital-government gambit.
“We need to take away some of the people’s freedoms, since they are not using their rights in a right way, which would be sustainable long term ,”- that is basically the statement of elites. There can be much more others statements like this one (health related, religion related, equality etc.), this is just one of them, since everybody observes the pollution and it is easy to agree on this one. How one would validate this kind of statement? Can you actually limit freedoms for a better future? I think there were attempts already in the past, less obvious than COVID, e.g. global terrorism. We gave away tons of freedoms in the airports and railways stations easily, since its all for our security. That was a small pilot of the bigger experiment, which started 9/11. COVID — is a big rollout of people freedoms limitation. This global experiment is here to validate one hypotheses — freedoms can be limited to create a better future. We already observe the validation of this hypothesis in practice (stay home, social distancing etc.).
Nowadays we observe elimination of people basic rights (like freedom to move or have friends or even have family), so that elites can decide what is good and what is not for people within the country or even better on a global scale. Governments did not manage to sell us freedoms limitations by talking to us. Thus, elites decided to simplify the role of governments by giving them legal power to act, without asking the society (no discussion, no problems). Limiting the role of governments to using forces which are used to limit people’s freedoms. But why one would need this, why elites need it? In any crisis / war/event there needs to be someone, who benefits. An interesting thing, which goes in parallel, is how capital behaves. There is a theory for the “center of capital” which moves between East and West with different periodics. Before COVID it has been moving towards East/Developing economies (this explains China-US trade war etc.), last time there was a second world war etc. This theory even explains crusades. Each time this “center of capital” starts moving, the world has either wars or industrial revolutions. This time Great reset announces Fourth industrial revolution. But each revolution needs capital… While the required capital has been outflowing towards East.
Here comes COVID window of opportunity or “never let the good crisis to go waste”. How to finance corporates so that they shift to the new paradigms of the 4th industrial revolution, provide them enough motivation and capital and do not increase the sovereign debt to the limit? Here comes the decision for capital-government gambit. All resources need to be mobilized.
First, people, staying at home significantly reduced costs, thus the average family savings are at record levels in many developed countries (see the following links: https://time.com/nextadvisor/banking/savings/us-saving-rate-soaring/, https://www.cnbc.com/2020/05/29/us-savings-rate-hits-record-33percent-as-coronavirus-causes-americans-to-stockpile-cash-curb-spending.html). Having no safe places, where the money can be stored (e.g. deposits, due to negative rates), this money are being invested in Stock options. See the market growth:
To make it simple, money are being saved and invested into the stock markets — again, money are back to corporates. People are flooding capitalization of companies with their money. Where are these money are coming from — from the governments, which are printing the money and distributing them across people / small businesses, locked at home. The famous Modigliani effect — give people money and they will save them. (Modigliani proposed a theory of spending in which people make intelligent choices about their spending at each age limited by the resources available over their live, https://ideas.repec.org/a/psl/bnlaqr/200529.html). In a digital age with apps for trade — they will save them and try to invest. This is supported by media showing the Bitcoin & Tesla records going 10%-20%-50% in a month. Corporates are pumping money from the Governments, which are printing money and distributing them to the households and companies themselves as support at Corona times (just look at the DJIA index or even more interesting S&P500). And the sovereign debt in many western countries is growing even faster than before CORONA. We observe “center of capital” being transferred into the corporates capital (call it transferred capital).
Now think for a minute, about what if US stops being AAA economy with its debt? Who will own the debt at this moment is another story (and what happens to the governmental institutions which issued the debt). What is more important that this transferred capital needs to be secured. It won’t be safe in national currencies overloaded with debt. Moreover imagine the problems which will happen with the society, which faces economy collapse? How to ensure the security of the corporate’s capital and balance it with social stability and overloaded state economies? The answer finds us when we are looking into the Bitcoin and other cryptocurrencies behavior since CORONA crisis started.
Money being converted into the cryptocurrencies, stop being exposed to sovereign debts, since belong to corporates, which are global. Moreover, these money are having non traceable full liquidity across the globe. Thus governments lose their ability to control the financial system (this will be followed by banking system collapse, but already today we do not need banks much, we need banking), making the social responsibilities even tougher to fulfil. But why governments would go this way? Assumption: Because the economical battle for the center of capital was already lost by the developed economies to the East. Let’s see the paper of Solow R. 1956. Contribution to the Theory of Economic Growth. Quarterly Journal of Economics 70(1): 65–94., here is the important piece of his theory (citation from this source, in Russian, translated: https://www.socionauki.ru/book/files/%D0%BArizisy_i_prognozy_2_izd/252-308p.php):
The theory of convergence, dating back to R.Solow, was largely derived from his famous model of economic growth, from which it follows that with a relatively low capital-to-labor ratio (characteristic of developing countries), the same investment in trends gives a higher return than with a high capital-labor ratio (typical for developed countries.
Which means if not COVID and the developed economies actions during the pandemic, capital would continue its flow towards the developing economies, strengthening them. The “center of capital” is moving to the East (this is kind of an oscillator if one considers history of economics since Jesus Christ). And here comes the game change. As simple as: “If you can’t win in the game, change the rules of the game or the game itself”.
Trends which we observe at this stage: continuation of lockdowns even if the low number of corona cases is observed, growth of stock markets with no reasons, growth of cryptocurrencies, pressure towards all equality for gender / race / religion / country (since we need more reasons for better future after CORONA) etc.
Phase 2. Decountrisation / Degovermentarisation.
Many of the developing economies are carbonised economies, those, which produce natural resources, like oil and gas, decarbonisation, would destroy these countries economies; this would stop the discussion about whether developing countries can become developed in the future. Elimination of country threat. Basically, there is no more threat from developing countries, since their economies are ruined. This seems to be the bottleneck of the complete project, since will create a temporal huge poverty and inequality across the globe. Another bottleneck can arise due to the probability, that developing economies will read this paper and will demonstrate to the western societies, that COVID limitations is so to say nonsense (to the extent they have been used), causing people to fight for their rights / freedoms on the West.
If everything goes smooth, governments (both developed and developing), being unable to find consensus in the society, will more and more depend on big corporations, since losing one of them may create problems with budgets. Unlike governments, big corporates will be able to offer social security and stability, but only for educated and “useful” people. Governments have a chance to remain with debts and social responsibilities. What happens actually then is this situation will make corporate model become more attractive, compared to the state model for the developed countries (developing do not have that many big corporates). There are already some articles on this matter available (https://www.fastcompany.com/3059005/the-new-world-order-is-ruled-by-global-corporations-and-megacities-not-countries) Creds to Parag Khanna, senior fellow at the Lee Kuan Yew School of Public Policy at the National University of Singapore, fellow at the New America Foundation and Brookings Institution. He is author of the book, Connectography: Mapping The Future of Global Civilization.
Trends which we observe at this stage: new geopolitical conflicts, frequent change in governments of developing economies, chaos/poverty in smaller/non developed countries, working for corporate guarantees you good quality of life.
Phase 3. Establishment of natural digital monopolies.
Digitalization of things will lead to the creation of great monopolies (see my previous article “The luxury of being a human in 21st century”). These monopolies will originate in developed countries, mainly ex. US. Moreover, they will be or already able to select the required government or at least control it. The one, which allows the monopoly to survive for whatever reasons. Following Saxo bank predictions for 2021 (https://www.home.saxo/insights/news-and-research/thought-leadership/outrageous-predictions) Amazon already has enough power to buy certain countries or at least certain government decisions. Now imagine this starts happening with many tech giants. What is the best target for purchase? These are
developing economies have been left without the carbonized economies. Therefore the theory, which says that in the future there will be no countries, but big corporates and their networks in the context of this story becomes a realizable idea. Digitalization always leads to monopoly — global monopoly. Companies which will own data, will own the economic potential, which can be realized only on a global scale. That is why there is a push for digitalization. Basically, instead of countries — global monopolies.
Here is like the ideas, mentioned in the book: Natural monopolies in Digital Platform Markets by Francesco Ducci.
Trends which we observe at this stage: SME collapse, governments are not fulfilling social contracts, global digital monopolies appearance.
Phase 4. New world order.
Following (https://qz.com/1909715/the-difference-between-stakeholder-and-shareholder-capitalism/) Proponents of shareholder capitalism say corporations have one purpose — to make as much money as possible for their shareholders — and that attempting to do anything else would backfire. People who back stakeholder capitalism say companies should consider all their stakeholders — not just the owners, but also employees, customers, and suppliers — and that doing otherwise means companies may well damage the environment while entrenching inequality. Exactly, that is the right choice for monopolies. We are now in the situation where people rights are limited, world is driven by digital monopolies and this allows monopolies to deviate from shareholder capitalism to the stakeholder capitalism. Why? Because there will be a huge demand for a new social contract and culture in the society. In this respect, what can be better, then a corporate contract with a clearly defined strategy, culture and security? These monopolies will declare to make the world better, having the right model in place, they can even try to implement these promises. Basically, the choice is very simple, you either join these monopolies and become a citizen of Facebook or Amazon “new country”, or there is no place for new in a new normal. Moreover, we are coming to the 5th point — collaboration.
Trends which we observe at this stage: only people working for global monopolies are getting stable social contract. Others turn into poverty and substantial decline in the quality of life, companies are buying countries / electing loyal governments.
Phase 5. New normal.
Assuming the world now consists of global monopolies, each of them has its own culture, strategy and citizens, they need to collaborate to exchange different resources. Moreover, they can collaborate to not allow the human resources to declare values different, from what are required for monopolies to stay efficient. In practice, this would mean for people, that changing nationality from Amazon to Facebook, can be challenging. Which means right can be further limited for the sake of stability of the new normal.
Trends which we observe at this stage: monopolies controlling the population, family institution is replaced by colleagues institution and corporate culture, very high discipline in the society and scale effects in fully efficient economics. Appearance of extremely reach new elites capable of having real freedoms.
Summary and open questions.
What is the summary of these thoughts? The summary, is like following. The proposed “Big reset project” is a well thought through concept, which is already being partially implemented in real life. The world stands in front of a serious challenges, where growth of population paired with the necessity to feed them all and resources being limited raised a dilemma of moving into the digital or having a serious geopolitical conflict. Digitalization appeared to be a much softer scenario for all countries. COVID is one of the greatest pushes for digitalization and experimentation with human rights in digital economies (and not just rights, but also freedoms). Probably one has noticed, that the necessity to stay home is compensated by new tools to run virtual workshops or new delivery services, digital banks, online cinemas etc. So as I already mentioned, the Matrix trilogy is a perfect scenario for the mid term future. Industry 4.0 will make productions automated with no humans required at the production level. 5G/6G will allow perfect cyber — physical connectivity. AI technologies will create efficient markets of goods in digital economy for 90% of people to consume and feel satisfied being completely disconnected from physical consumption (besides required minimum level). The luxury of being a human will be realised in the ability of “new elites” to consume real, physical goods. Moreover, in a “new normal” there simply will be no need for uneducated people in the number we have today. The world does not need so many humans and monopolies will have perfect mechanisms to control the population like they now control the number of employees. This will be better for the planet, the social contract will transfer into the employment contract, better for the companies and the world sustainability. Markets will become efficient and thus stable. The whole story will be kind of a Socialism 2.0, driven by Big data and controlled by AI.
There are of course few questions which remain being open. Who will set the objectives, where these monopolies shall develop and who are the investors of these monopolies? What will be the AI control principles for the majority of population? What happens to people outside monopolies? What is the next big thing, which will disrupt monopolies and create new market inefficiencies and new humans freedoms.
To end up, I would like to cite Prof. Rushkoff (https://projects.qz.com/is/the-world-in-50-years/expert/1690893/), the question was “Who will run the world in 50 years?”, the answer was:
Hopefully, people will run the world. Right now, people are increasingly run by the obsolete systems put in place by their predecessors. We are victimized by systems we don’t understand and that don’t really serve anyone. Even the wealthy are accumulating billions they know they don’t need, but can’t figure out how to use to have a positive impact on the world. So, if we survive the next 50 years, it will likely be because we have restored our capacity to make choices and execute them.
Therefore, let’s hope “Great reset” is just a collection of thoughts and not a real project which is already at Phase 1.
by the author.