My conversation with Professor Jeffrey Sachs, an author, economist & globalization guru at Columbia University.
I recently had a chance to catch up with Jeffrey D. Sachs, a world-renowned professor of economics, bestselling author, and syndicated columnist. In his book, The Ages of Globalization, he takes readers through a series of seven distinct waves of technological and institutional change. Given that we are going through another technological shift, our conversation veered into the end of industrialization, the future of society in the digital age, and how to really think about globalization in the age of the network.
Here is an abbreviated transcript of our conversation:
Om: The new book is called The Ages of Globalization. I can’t help but notice the irony of the timing of the book. Whether it’s the coronavirus or whether it is our political environment, it seems globalization is out of fashion these days.
Jeffrey Sachs: Globalization is not going away. The number of terabytes that are circling the globe is unimaginable and rapidly expanding. Throughout human history, there has been an arrow of greater and greater globalization, because fundamentally, globalization is driven by the technology of communications and transportation.
That’s not going away. The digital age will be intensely global. Maybe we won’t move from our offices or from our homes and we’ll work from home, but I guarantee you we’re going to work globally when we do so. We’re going to be interconnected as we have been throughout human history and even more so now.
FUTURE OF WORK & OFFICE SPACE
Om: In the past, the physical location has been a very key part of globalization. If technology and the network and communicating online is a key part of the next phase of globalization, what happens to the physical presence? What is the role of physical location in the next phase of globalization?
Jeffrey: Starting with industrialization two centuries ago, more and more of the population shifted from subsistence farming to industry and then to services. Now we’re largely a service economy in the high-income world, 80 percent or so of employment in services.
It’s generally been true that services have depended on face to face. We moved into cities. As technology mechanized agriculture and raised the productivity of agriculture, people went to do nonagricultural things. Those were almost invariably better done in the cities, especially services.
We became overwhelmingly urban in the high-income world, 80 percent plus. The world as a whole is estimated to be 55 — maybe now 60 — percent urban. There has been no evidence of a change of trend.
Now comes COVID. One thing is clearly changing. Our office culture and production in offices will not be the same after this. We learned that we can do 80 percent of our work. That’s even true for goods-producing industries, but especially for services. We can do it from home. We can do it from anywhere.
It really is true that we can be more decentralized in our activity. That was true even before COVID, but maybe we’re recognizing it a bit more. All those office buildings in Midtown, New York, what’s going to happen to them? Definitely, there’s going to be a huge, huge downscaling of on-location work.
What will that mean for where people live and how they live? In principle, it means people could spread out more. The answer is cities will remain, but that directionality of high-dense population centers probably will be beaten back a bit by technology fundamentally, and by the experience that we’re going through right now.
Om: So the idea of a hyper-scale city is now relegated to emerging economies because they don’t have a choice. Countries like India, Brazil, parts of Africa, they get to hyperdense cities because they can’t afford to do what the more evolved economies have been able to do.
Jeffrey: I live in a hyperdense city in Manhattan, and I like it a lot. I don’t have a car, which is absolutely wonderful. I get to walk to work. I get to walk to the United Nations. There is everything all around, so I rather like it as a quality of life choice.
My guess is that the cities still offer if they’re well-designed quality of life and productivity that is worth it and is not going away. The problem with the hyperdense cities say Delhi or Mumbai, or Rio, or San Paolo is, of course, they’re not just densely settled, but they’re highly polluted.
People on the worst end of the income distribution are breathing foul air, drinking foul water, having very difficult lives. We also know that this virus is killing people in more polluted areas. I think these megacities need a lot of change.
WHY IS STOCK MARKET BOOMING?
Om: This has been an unprecedented event. I cannot comprehend the impact of it from an economic standpoint, and socially. And yet, we have a stock market, which is already predicting a better future and already predicting great times ahead. I’m just trying to figure out how to read this.
Jeffrey: Partly, the Fed’s pumping out trillions of dollars of credit. Partly, there are greatly inflated expectations of an imminent vaccine, which is very doubtful to me that it’s really imminent. There’s lots of irrational exuberance.
There’s another thing that’s going on, which, of course, is that the stock market is not even in its best moments, a snapshot of the economy. It’s a snapshot of a piece of the economy. The S&P 500 is half now, basically tech. It doesn’t represent the small shops, the services, the retail outlets, the restaurants, the office workers, the gig workers. They’re not part of the S&P 500.
It’s not just that the tech side is booming. It is cannibalizing a lot of the rest of the economy also in the sense that Amazon’s success is not only that it’s an efficient, quite remarkably ecommerce entity. It’s actually gobbling up the brick and mortar sector at an accelerated rate because of the pandemic.
IS THIS END OF INDUSTRIALIZATION?
Om: Let me go back to the early days of the industrial revolution. The economic disparity during that time, the living conditions, and the exploitation of the workers led to two schools of thought — the more capitalist thought process, and then what became essentially the socialist or the Marxist approach. It was a direct outcome of the workers and their conditions.
Do you think that we are at the end of the industrialization phase of human history? It’s finally the pandemic that has driven the final nail into the coffin. If that is indeed the case, are we at the cusp of thinking about new institutions and thought processes around economic output?
Jeffrey: The steam engine was the single most transformative invention in history, perhaps up to what the transistor is going to mean for our age. The steam engine changed everything created in the industrial world that was simply impossible before it and led to the start of rapid economic growth.
Yet, that’s the same world that Engels wrote The Condition of the Working Class in 1844. I think the history at this point having sorted out all of this is that, indeed, there was a rise of national income, but a decline of wage income for a significant part of the population in the first three or four decades of the Industrial Revolution of the 19th century. That gave rise to The Communist Manifesto.
It turned out by maybe in the 1870s or 1880s there was clearly a more general lift of wages. Actually, what was experienced in the first decades clearly labor income as a share of national income began to rise, wages began to rise along with productivity.
Then, by the time I got to studying economics — which was, I’m sorry to tell you, 48 years ago — I was taught that there was almost an iron law of the other direction, which is that, if productivity increases, it lifts everybody. My favorite president of my lifetime, John F. Kennedy, made a famous statement that a rising tide lifts all boats, and that’s what I was taught in economics — that the labor share of income was a constant. If national income rose, the labor share of income would rise right alongside it.
This is not true.
Actually, starting around 1980, productivity continued to rise in the US, but wages became stagnant again. We saw a divergence. Mechanically, you can also describe that as a decline of the labor share of national income, which has been going down quite a bit.
National income has gone more and more towards capital income or towards intellectual property, which is sometimes counted also as a capital income. If you’re a high school diploma worker in the service sector, you haven’t seen a real wage increase for 40 years as a typical worker.
Now, digitization could be like that early phase of the Industrial Revolution again making a big, positive contribution to overall productivity but being felt extremely unevenly. The ultimate vision of this is that Bezos owns everything. None of the rest of us has any job, because there’s just one giant set of warehouses. They don’t even have workers in them because they’re all robotized. It’s all robotic warehousing. It’s self-driving vehicles, and it’s ecommerce. You can imagine the disappearance of vast swathes of jobs in the economy, and that’s a logical possibility. It’s not economic illiteracy.
That’s a real possibility that most everything that we want done in the economic sphere can be done by smart machines, AI, and so on. I’m actually a believer in that. What does it mean for humanity? It means one or two things. The dystopic vision is that we’re all impoverished except for Mr. Bezos, Mr. Zuckerberg, and a few others.
Or, the utopian vision, it means we all have our leisure time. We all have good living standards. We all sit with my favorite beverage coffee, and are sitting at coffee shops each day and so forth. That’s actually not unrealistic also.
It’s what Keynes wrote about, John Maynard Keynes, in 1930. A fantastic essay called the “Economic Possibilities for our Grandchildren,” he said, “Our biggest issue in the future will be how to handle our leisure time when we won’t need the mania of having to work for a living because productivity will have gone up so much.” That’s the long answer.
The short answer to your question is we’re definitely in a new age. We’re definitely in the digital age. We’ve been already in it for a while, but the pandemic has accelerated changes that would have taken years to take days or weeks.
I do think the digital age will also create digital governance, not just in the delivery of services but in allowing for people to participate in a more meaningful way in their lives. One of our problems in the United States is that Congress became wholly owned by vested interests. Congress is uninteresting for us, generally speaking because it doesn’t represent the American people. It represents the campaign funders and it’s been a breakdown.
I’ve been interested, for a while, in why aren’t we doing crowdsourced legislation? Why aren’t we participating in a more creative way where people can have their say or listen to experts? Not just have Congress put in legislation in the middle of the night that was written by some lobbyist?
WHAT’S NEXT FOR GLOBALIZATION
Om: How do you view the next phase of globalization?
Jeffrey: Technology is a possibility. Every technology has its downside possibilities as well as its upsides. One should not be purely techno-optimist or a believer. I’m not in the camp of Steven Pinker, that the world just gets better and better no matter what, that there’s an inevitability to it. History has too many U-turns and terrible disasters. Human nature has its very dark side that makes very bad things possible.
In our digital age, digital technologies make possible, much more than in the past, a world of prosperity. I’m a big fan that digital can make e-payments. It can bring people into education. It can bring remote areas to telemedicine. It can create jobs as we’ve been talking about on long distances. It can dramatically lower the costs of doing business and so on.
While there are downsides to the technology for poor countries that used to make their way by cutting and sewing apparel and now, robots do that. That’s true. That’s a negative but on the other hand, the potential upsides of these technologies for decent jobs and decent lives, I think, is much more powerful.
The other point that I would make on this universality is that it means that the world doesn’t have to be divided as it has been since the industrial revolution between the rich world and the big, poor world. We should be aiming for a world of convergence, where living standards are converging everywhere.
Om: Communication is a very key part of globalization. Each phase of globalization has seen the ability to communicate become faster. Now, we are at blitz fast phase where diplomacy and politics is now a tweet, at least, from our president. The Chinese and the Iranians and everybody else are actually using that. It’s becoming a game of showmanship. The communication methodology of today and tomorrow, which is the network, to me, that is probably the dark cloud on this phase of globalization more than anything else.
Jeffrey: The signal to noise ratio is collapsing. In an age where the mass transmission of bytes is so inexpensive, there’s so much garbage. It’s hard to know what’s real. The fake news phenomenon is a very serious problem of signal to noise ratio and we haven’t solved it.
The tweeting is really something astounding. I cannot believe we make politics this way. Can we have a real conversation? Not your tweet versus this tweet. This is what I would say. The medium has its own dangers, but it’s also being used by powerful interests in deliberate ways to make our conversation stupid, to make us respond viscerally, rather than rationally and thoughtfully.
I’m by profession and scholarship, a follower of Aristotle, whose whole theory of politics was building both the virtues of the citizenry and the rational capacities of the citizenry and of the state. We became irrational.
Om: Thank you, sir. This has been quite an enjoyable conversation.