An extremely weird Compass report

Adam Lent (chief econ guy at the TUC and a buddy of Our Ritchie) has a report out.

And it\’s very weird indeed.

Looking at economic history, there\’s a pattern. When the huge world economy changing events come along (canals, trains and steam power, electricity, the internet and digital technology, roughly five of them since 1750) then finance capital goes into a frenzy chasing the potential profits. Then there\’s a crash in finance capital and it all moves over to production capital being where the action is.

One way of describing this would be first round chasing the returns from owning the new technology, the second after the crash from employing the new technology to do things.

Now so far, I\’m just fine with this (yes, like every model it\’s a model, it doesn\’t explain all of the world, just sheds light on a part of it).

Finance capital has in fact done its job, pouring money into the development of these new technologies (and it\’s noticeable how important VC money has been in the digital economy). And now, quite naturally, after the crash we\’ll move into a period when we\’re employing capital to exploit the uses of these technologies rather than the creation and ownership of them.

Hey, great! Markets work, things get ever better and it all happens quite naturally.

So Adam Lent\’s proposal is that we must intervene in this process and manage it.

WTF?

8 comments on “An extremely weird Compass report

  1. It’s inevitable that people get a bit carried away, most recently with dot.coms, or with oil a year ago, but such is life.

    The damaging bubbles are the eighteen-year bubbles in property prices (with corresponding credit bubbles). It’s not like land and buildings are a new invention or even that we get more or them. We just get less for our money.

  2. These Compass people want state planning but realising it’s negative connotations, lack the stones
    to say that.

  3. “(canals, trains and steam power, electricity, the internet and digital technology, roughly five of them since 1750)” … hmm, one can easily think of others –
    karl benz/ gottlieb daimlers / rudolf diesel for the ICE.
    Machine tools and mechanical engineering could be classed a technical revolution in their own right.
    Sanitation.
    Haber-Bosch and artifical fertiliser.
    Chemistry.
    Telegraphy/telephony.
    Antibiotics.
    etc
    They all had periods of explosive change that changed the way we live.

    It is probably no more use to assert that there where N “huge world economy changing events” than to count the cats of zanzibar.

    Do I recall reading that the investors who paid to build the railways lost their money, that nobody made profits from rail?

  4. Of course we need to intervene in the economy. As Chairman of the State Planning Board, I will control all the money in the world and my salary would need to reflect that level of responsibility. Of course the Deputy Chairman will also be doing quite nicely thank you – fancy a job, Tim?

  5. @ Johnny Bonk “the investors who paid to build the railways lost their money, that nobody made profits from rail?”

    As a generalisation that is largely true – but some people did make a fortune from railways, namely the people who happened to own land near where the stations were built, see “Metroland”, “Canary Wharf” or “Once upon a time in the west” for examples.

  6. What Mark said. Of course some people lost money on railways, just as others did on the dotcoms, but then a lot of folk made a killing, also. It does not back up the Compass point.

    Fail!

  7. Tim,

    You can do better than that.

    The piece I wrote for Compass is based closely on the work of Carlota Perez and her detailed historical analysis of the way technologies interact with business paradigms and finance capital. Perez concludes that the state often plays a greater role in economic development after a major crash and that this is necessary to ensure that the full productive potential of a new technology and associated paradigm is achieved. I argue in the piece that there is also a shift to demand-side policy.

    Importantly Perez also points out that this post-crash phase of development gives way to economic stagnation at some point. It is then that finance capital and supply-side approaches tend to return to the fore.

    You might disagree with Perez’s analysis and mine (they are after all very far from a neo-classical understanding) but I don’t think they can simply be dismissed as “weird”.

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