It's the economy, stupid
Our economic model is broken but it can be changed
One thing that I think should be clear from my writing here is that I believe we have a very broken economic system.
Too many people face huge insecurity and are excluded from our economy.
The massive degree of financialization of the economy causes many problems - prioritizing short-term value extraction over long-term sustainable growth.
We consistently encourage developments that can cause massive societal harm and aren’t doing enough to develop and deploy innovations that can do a huge amount of good.
I could go on.
But this system and the sub-systems that sustain it are all human constructs. They were built by people accumulating and exercising power. And they are sustained by how we talk about them, by what we accept as inevitable, and by what we choose to use our power to do.
As human constructs, these are systems that can be changed. As Heather Boushey has argued, “We need to recognize how economic power translates into political and social power, and reject old theories that treat the economy as a system governed by natural laws separate from society's.”
There is nothing inevitable or preordained about the current economic model that we have now. We can work to build a more inclusive economy by probing these systems and structures and developing a deep understanding of why they work the way they do and what that means.
And then we need to follow it up by telling a detailed story of where we go next. What is the positive vision that we should be working towards and what are the steps we need to take to get there?
Today I want to take a quick tour of a few economics-focused pieces - a couple that analyze the flaws in our current system, and then one that looks at some of the strengths before offering a few concluding thoughts.
Economic Inclusion in Canada
Canadians face startlingly high financial insecurity and suffer from severe economic exclusion. Those are some of the chief takeaways from this new intelligence memo from the Financial Resilience Institute. Some stand-out facts:
39% of Canadians face job insecurity
84% report the increase in the cost of living has outpaced any income growth they’ve seen
57% are living pay cheque to pay cheque
18.7% face extreme financial vulnerability - 4.81 million people
On top of all of these factors, people facing one or more barriers have even worse outcomes across a range of metrics - compounding their economic exclusion and vulnerability.
Notable to all the talk about Canada’s lagging productivity - financial vulnerability unsurprisingly has a negative impact. 61% of households experiencing income volatility report money worries impact their productivity or performance at work, compared to 41% of Canadians overall.
This economic model is not working. As the memo concludes, there is a “pressing need for policy interventions and support systems to help Canadians secure meaningful work and overcome systemic barriers”. Governments need to get on that.
The Private Equity Playbook
This piece by Rachel Wasserman, published by the Canadian Anti-Monopoly Project this week, zooms in on one of the actors in the system that are contributing to this vulnerability - buyout private equity firms. With first-hand experience, Rachel breaks down the mechanics of private equity buyouts and their impact on the businesses they purchase.
And those impacts are not good. This model is built around value extraction, not value creation. They serve to add debt onto bought-out firms, they deprioritize worker interests (adding to the insecurity detailed above of course), they increase consolidation in turn reducing competition and dynamism, and reduce the transparency of the economy at large. Though Rachel doesn’t use the term, they also contribute to the enshittification of the economy as products and services decline in quality.
Rachel proposes several policy actions to help counteract this model and its negative impacts, including increasing oversight and disclosure requirements and increasing regulation to prevent private equity firms from adding unmanageable debt to companies while they extract wealth for their investors.
In Defence of Capitalism for Climate Adaption and Mitigation
The final piece I want to highlight takes a different tack. Written by Patrick Brown, the Co-director of the Climate and Energy Team at the Breakthrough Institute, this article makes a defence of economic productivity and capitalism as key to transitioning to a sustainable low-carbon, high-living standards economy.
Drawing on a range of data points, Patrick paints a picture of how capitalism is an effective mechanism at channelling “natural self-interest in a way that is socially beneficial” - specifically when it comes to climate by working to reduce fertility rates, improve energy efficiency, and reduce the carbon intensity of energy. In Patrick’s view:
decentralized economies do not inherently result in indefinite climate change, and instead, they may be the best system available to stabilize the climate while supporting the continued improvement of human welfare.
I think this is an important argument - and that freeing human ingenuity through in this model is one of the most powerful drivers of change. But where I differ from this is where I started today’s newsletter - our current neoliberal version of the capitalist economic model is a human construct, not an inevitability or natural law, and right now it is not working well for people, for society, or even for the economy itself.
We don’t need to go to the extremes of degrowth to see that there is a lot we need to fix to better serve society’s interests - in the process helping remove some of the barriers to resilient and sustainable economic growth and innovation. Increasing oversight and regulation of our financial system in ways that Rachel suggests, for example, would support these wider goals. They can help provide guiderails to a capitalist model that could then more efficiently allocate resources to long-term value-generating endeavours. That is the economy we need to build towards.