In the late nineties, the San Francisco Bay Area was caught up in the mania of the high-tech, information-based “New Economy.” Venture capitalists threw money at e-commerce start-ups based on dicey premises, while loss-making companies raked in millions at their initial public offerings. In low income areas like the Mission District, dot-coms moved in, forcing out poor people whose only recourse was to organize themselves in anti-displacement coalitions and hope for the market to crash. In the fray, even a new type of gold digger emerged: women in search of nerdly adolescent millionaires with fat stock options. It was a stupefying time.
Legions of pundits breathlessly filled the airwaves with their celebration of the brave new world of weightless, frictionless production. Many postmodern and left academics followed suit. Intellectuals like UC Berkeley’s Manuel Castells waxed eloquent about the postindustrial network economy where physical objects and places no longer mattered, replaced as they were by a world of flows. Meanwhile, in Silicon Valley, a nonunion and largely female labor force assembled highly toxic electronics components, full of lead, cadmium, and mercury, for an economy lauded for its lack of place or tangibility.
When the bubble came crashing back to earth in 2001 and the foul odor of actually-existing capitalism wafted out, as epitomized by Enron and WorldCom, it became clear that the New Economy hype was as detached from material reality as the dematerialized universe it promoted. In his postmortem of that heady and illusory time, After the New Economy, Doug Henwood skillfully slices away the claims of the era, lays out its still-warm carcass, and probes its entrails. Harnessing a wealth of statistical data to back up his damning assessment, he chronicles the dogma, self-delusion, and reality of the U.S. economy at the end of the 20th century.
According to the New Economy mythos, in the 1990s American capitalism crossed a new frontier into a world where preexisting limits on the economy were no longer relevant. Business cycles were a thing of the past and the physical manufacture of products had been eclipsed by a new, service-based economy. A new way of working had sprung up based on ideas and information, rather than tools and dies. The outsourcing of labor, the elimination of overhead costs, and the importance of information networks and new technologies heralded a new era of unprecedented growth. The Internet and computers were making us more productive than ever, eliminating layers of newly-redundant jobs, and adding to the gross domestic product. That people might use these technologies to send personal e-mails and play solitaire at work was not considered.
The centerpiece of the New Economy was the stock market; the business press exhorted Americans to flock to it en masse. The stratospheric trajectory of stocks supposedly reflected the pent-up potential of new ways of organizing production and distribution. Warnings of a speculative bubble, caused by the unleashing of what Keynes wonderfully termed “animal spirits,” were blithely dismissed. We had entered a new era and only the stodgy and unimaginative could fail to recognize this was so.
The media, the relentless promoters of new era hype, did not report on the irrationality of the stock market: the fact that stocks do better around a new moon than a full one, that the weather in New York affects the market (sunny days are good for capitalism), and that at the market’s zenith, the price of the average InfoTech stock had no correlation whatsoever to the earnings of the company it represented. But according to the pundits, the all-knowing market was consistently right, not subject to whims and ignorance.
Investment banks jumped on the bandwagon as well. The floodgates of corruption were opened with the 1999 repeal of the Glass-Steagall law—which prohibited investment banks from acting as commercial banks, given the obvious temptations. Banks like Salomon Smith Barney lent money to firms with one hand while underwriting the companies’ stock offerings with the other. But, according to the New Economy boosters, it was all for the good, since regulation is an impediment to growth and without such regulation the economy would grow forever.
The reality of the new era was decidedly less stellar than its hype. While productivity in the United States increased in the 1990s, it did so not in a spectacular surge, but at a rate which was rather middling by historical standards. From 1994 to 1999, total factor productivity grew at a rate of 1.0 percent per year, below the average of 1.7 percent from 1950 to 1973. The Netherlands, France, and Italy, which we are told are afflicted with top-heavy welfare states and growth-inhibiting regulation, have surpassed the United States in productivity growth for the last 30 years and only lagged behind the United States by 0.3 percent during the height of the late 1990s boom. And rather than working fewer hours for more pay as the New Economy ideology would have it, throughout the 1990s Americans worked on average nine weeks more per year than their Western European counterparts.
Similarly, income growth was underwhelming in the 1990s, at least for the majority of workers. Although from 1996 to 2001 wages increased somewhat for most workers, those gains were wiped out by the era’s end in 2001. Real wages are now lower for most people than they were in 1973. According to Henwood, a worker paid the average manufacturing wage must now work 81 weeks to make the median income for a family in 2001, whereas in 1973 that worker would have had to work 74 weeks and in 1947, 62 weeks. Yet clearly someone has benefited from the New Economy: the polarization of both income and wealth is now at an almost all-time high.
Henwood makes clear, however, that the boom of the 1990s wasn’t simply a mirage although an enormous amount of hot air and self-deception was involved. It was engendered by a real increase in profitability lasting from 1982 to 1997 (after which profitability and stock valuations markedly diverged). But rather than stemming from soaring innovation achieved through the utilization of new technologies and the dematerialized production of the utopian New Economy fable, this surge was the outcome of class warfare waged against workers by capital.
In the late 1970s, in an era of skyrocketing inflation and falling profits, American workers were seen to have too much leverage and power. It was a time of industrial unrest, wildcat strikes, and assembly line sabotage. The opening salvos in the counterattack came with Reagan’s crushing of the PATCO air traffic controllers strike in 1981, but the seeds were planted two years earlier when Jimmy Carter appointed Paul Volcker as the chair of the Federal Reserve. Volcker jacked up interest rates in order to manufacture a punitive recession. Businesses were bankrupted, many of which had unionized workforces, leading to high rates of unemployment. Simultaneously, unions were attacked and the basic gains of the labor movement were rolled back. Workers were sent the message that they had better accept their lot if they wanted to make the next rent payment. From 1980 to 1995 real wages fell more than 10 percent.
This neoliberal frontal assault on labor and the welfare state was, of course, later exported to the developing world under the auspices of the International Monetary Fund and the World Bank. The backlash to those policies is the subject of the most controversial part of Henwood’s book. In a chapter titled “Globalization,” he challenges the global justice movement’s animosity to trade and its promotion of protectionist and localist panaceas.
Unconsciously echoing the New Economy hype of placeless flows of capital darting at warp-speed from one place to the next in search of the cheapest inputs, many in the global justice movement assert that technology and cross-border capital streams have created a new era. For antiglobalizers like Ralph Nader and Maud Barlow, cross border investment and trade threaten jobs, national sovereignty, cultural integrity, and are a danger for all of us who aren’t members of the global elite.
Henwood argues that what has come to be known as globalization is not in fact unprecedented, that the nation-state has not been eclipsed by the unchecked rampage of the market, and that we should be cautious about the type of xenophobic politics to which such stances can lead. The world has been “globalized” for centuries and Europe was arguably more globally-integrated before the First World War than it is today. Similarly, contrary to both neoliberal and antiglobalization dogma, the nation-state is not becoming obsolete but rather has been facilitating global investment and trade, providing the undergirdings required for the market to operate, such as contract law and trade agreements. And while the looming threat of plant relocations may play a role in forcing wages down, it remains subject to debate whether capital mobility and trade have in fact led to a “race to the bottom,” that is, the fall of wages worldwide.
The way that globalization has been framed by oppositional movements has made some strange bedfellows for the left, such as nationalists and the isolationist right. Henwood points out that internationalism and cosmopolitanism have been some of the most important and noble legacies of the left, and that it is worrying to see the global justice movement evoke unsavory notions of cultural purity in its rush to oppose internationalized capital.
Contrary to what some might conclude, Henwood is not advocating the perpetuation of international production and trade under the present social order. Instead, he wants to transcend it with some form of postcapitalist internationalism, rather than retreating to an imagined self-sufficient golden age. Henwood writes: “It’s evil that Merck will steal plants from indigenous people and then patent them, and be protected for doing so under international trade law, but the plants wouldn’t do much good if it weren’t for some large, complex organization to develop and process them. Socialize Merck, don’t dissolve it.” In other words, the target of the left should not be large-scale production or trade per se, but rather capitalism itself.
While After the New Economy does not preach to the choir, aimed as it is at readers outside of the socialist left, Henwood would still have done well to have addressed the issue of how imperialism fits into an analysis of globalized capitalism. He objects to the use of the fuzzy term “globalization” when people really mean imperialism, but it would strengthen the persuasive force of his argument if he offered his own view of how capitalism’s inequalities operate at the global level. Nonetheless Henwood’s critique is a much needed breath of fresh air, given the simplistic assumptions that much of the left holds about globalization and the absence of criticism of these views from within the left.
Unlike most literature on economics and finance, especially works by left writers, After the New Economy is a pleasure to read. Henwood is able to write about statistics and financial intricacies that in the hands of a lesser writer could be very dull. And he does this while making thoughtful, provocative arguments that the left could profit from hearing.
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