Stakeholder Capitalism: A Global Economy that Works for Progress, People and Planet (2021) by Klaus Schwab and Peter Vanham is a highly interesting read for all people interested in stakeholder capitalism and current economic developments. Stakeholder Capitalism isn’t exactly the most popular idea in capitalism, as most capitalist thinkers don’t consider equality an important element in economics. However, for someone like me, who thinks inequality is a huge problem in today’s societies, it is definitely worth reading. Inequality has been on my radar for a long time and I found a highly interesting passage about Simon Smith Kuznets, a Nobel laureate in economics I had never heard of before, in the book:
As Kuznets continued his work as an economist in the 1950s, he started to theorize on an interesting phenomenon. He noticed that US income inequality had started to decline in the post-war period, as the economic boom intensified. That contrasted to the pre-war period, in which America had become a major economic power, but income and wealth were concentrated in the hands of a few. A similar observation, though less extreme, could be made for many other developed countries. Kuznets theorized about the numbers he found, in a paper for and presidential address to the American Economic Association. He derived a potential game-changing insight for development economics, provided the findings held true over time. Indeed, it implied a sort of economic law. Inequality worsens as a nation begins to develop, but as development continues, inequality subsides. In other words, the price of inequality societies pay for development early on is offset by higher development and lower inequality later.
Kuznets was cautious about this law himself, which is one reason why the chapter is titled Kuznets’ Curse, the other being that this law simply hasn’t come true for our current economic situation. The digital revolution should have followed this pattern, but it failed. Why? Let’s assume Kuznets’ Second Law really is a law and it merely has failed to materialise. To find out why let’s start at the very beginning of economic production. Our hunter-gatherer ancestors basically didn’t have any (surplus) economic production, so we stand with primary food producers: agro-pastoralists.
The primary industry sector was basically in place around 10,000 years ago. The secondary sector evolved during the secondary products revolution during the Chalcolithic around 4,000 BCE. In this period we see the emergence of milk, wool and traction and diversification of jobs from farmers and herders to craftspeople such as metalworkers. We can assume that these innovative jobs had a higher prestige than the traditional ones, which can be seen in the fact that craftspeople belonged to a higher caste or class than peasants, traders (tertiary sector) had a higher prestige than craftspeople (secondary sector) and that the innovative intellectual tech elite today has the highest prestige in our society. We can also assume that those who would have been able to would have tried to emulate the innovative class. Each industrial revolution would require more skills and training and the personality trait of openness to new ideas as each revolution would represent a step away from physical work towards more cerebral work:
Of course, this is not entirely true, as each revolution would also open up possibilities for less cerebral jobs (e.g. hairdresser in the service economy) and possibilities for upward mobility would be created. From an evolutionary point of view, we can see that each industrial revolution would foster higher openness (people willing to transition first even when the transition itself is risky) and higher willingness to be lifelong learners (transitions will be especially taxing as two sets of completely different skills may have to acquire, a traditional one and an innovative one). A gene O (for openness) would therefore thrive.
What we are looking for now is where in this process exactly does the
- increase in inequality
- increase in equality
happen.
Let’s go back to the beginning once more. Foragers, who had no economic surplus production, were quintessentially egalitarian and tried to avoid inequalities at all costs in order to maintain social harmony. Agrarian societies often quickly started to have high levels of inequality as people who had the ability to work harder had an evolutionary advantage and could produce more viable offspring. Let’s call the resulting gene mutation C (for conscientiousness in the Big 5 inventory). C includes the facets of industriousness, orderliness, achievement striving, self-discipline (delayed gratification) and long-term planning, all traits that served early farmers well and that are part of bourgeois values.
Kuznets’ Second Law assumes that inequality starts with an industrial revolution and then somehow mysteriously disappears. If we look at history, we see inequality arising BEFORE each industrial revolution, i.e. farming or C created the first inequality. We know that modern people are genetically a mix of farmers, herders and foragers. A rise in inequality would therefore have hurt egalitarian foragers most. In fact, I have argued that O = foragers. The work of foragers is far more cerebral than the world of farmers and herders: foragers often have an encyclopaedic knowledge of fauna and flora (openness) and a hunt consists of a lot of cerebral work (recognizing patterns, making inferences and hypotheses about many different variables, such as species, age, sex, the direction of the prey). In fact, Louis Liebenberg has argued in The Origins of Science that science very much follows the logic of animal tracking. Hunters also do much less physical work than farmers, especially when it comes to routine work. Therefore hunter-gatherers are disadvantaged when it comes to doing farm work or work that requires high C. The higher the inequality is the higher the competitive disadvantage for forager types.
We have to re-write Kuznets’ Second Law: high inequality triggers higher innovation. Once the path for new occupations has been opened it will first be filled by O (hunter types) with C slowly following. This will temporarily make O richer, i.e. increase inequality initially. Then comes the turn. Forager types, who have an instinct to make the world more egalitarian will then increase social mobility and equality. If you think this model is ridiculous, better think twice. Basically, all tech entrepreneurs support a version of stakeholder capitalism and most of them even support universal basic income (UBI), which isn’t a capitalist concept at all but could be safely labelled "communist". Marc Benioff (Salesforce), Bill Gates (MS), Jack Dorsey (Twitter), Larry Page (Google), Jeff Bezos (Amazon) and last, but not least, Klaus Schwab, the founder of the World Economic Forum himself. All of them are hunter types, who actually enjoy an intellectual debate and an invitation to a TED talk or Davos much more than sipping champagne on a yacht like the previous generation of the rich elite who believed in the “greed is good” mantra. Again, you can doubt my hypothesis, but I challenge you to come up with a better one because there is a serious need for an explanation here.
So, while it looks like each industrial revolution increases inequality, it actually decreases inequality. Kuznets’ Second Law is solid. So, why didn’t it work for the digital revolution? There are many reasons, to begin with, the digital revolution requires far fewer people for its infrastructure than previous industrial revolutions. However, education is one of the key points: years of education have already reached absurd levels (and I am saying this as someone who loves life-long learning). No level of education will get you where Bill Gates, Larry Page and Elon Musk (all hunters) got. What’s more, these are people who, despite their passion for learning, don't even have a lot of faith in formal education. Bill Gates effectively invented the college-dropout billionaire trope in 1975 when he left Harvard University to found Microsoft many more would follow: Steve Jobs, the Google boys, Mark Zuckerberg, etc.
And they are dead right. Formal education has actually become a farmer enterprise that rewards and promotes C and not O, i.e. hard routine work, conscientiousness, obedience, conformity, but not innovativeness. The late Sir Ken Robinson worked hard to uncover this problem. Ironically, the harder schools try to produce the right people for our knowledge economy the more they filter out the best candidates. Forager types hate authority, conformity, and routine work, they are often among the first to drop out of high school, which means they will unlikely ever have the chance to become innovators. We have been seeing this phenomenon in the Japanese hikikomori for a while now, young people who refuse to dance to the beat of modern school or work life, Japanese society is effectively locking its highest innovative potential into their own homes.
Our society has seen rising inequality for much too long. It does not create a better society, but more tribalism, polarisation, insecurity and distrust. It’s high time this trend saw a reversal. How to get there is beyond me. We are failing to produce innovators as a society and the current hunter elite often is too complacent in discussing egalitarian ideas while at the same time sticking to a farmer economic model and enriching their own companies instead.
For more on the hunter-gatherer vs farmer hypothesis check out my book
and Foragers, Farmers and Pastoralists : How three tribes have been shaping civilization since the Neolithic
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