Economists ask, 'Are we measuring progress the wrong way?'
Growth isn't always good for creating just societies and trustworthy news media
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You’ve probably been reading a lot about multiple crises in the news media. The public’s trust has steadily declined. News organizations have been closing their doors as they lost ad revenue to a handful of powerful tech companies. Their content is being plagiarized and distorted by artificial intelligence.
And, to top it all off, according to Reality Check, a fact-checking website, “The worst of social media emerged in the aftermath of the July 13, 2024, assassination attempt on former President Donald Trump, as diametrically conflicting conspiracy theories about the origins of the attack spread far more quickly than did reliable information.”
Did people believe these conspiracy theories?
Democracy vs. dictatorships. The news media provide the information that allows free people in democratic societies to decide how to rule themselves. Autocrats around the world are wresting control of the media to spread propaganda and consolidate their power.
Somebody needs to do something so that public-service journalism can survive, we say. But who? What? How?
The institutions we create
It’s time to take a step back and look at some of the roots of these crises. They actually go back centuries. An MIT economist, Doran Acemoglu, has written about the impact of technology on societies throughout history. Steve Levitt, who studied under him at MIT, interviewed him for his podcast “People I (mostly) Admire.” What follows is an edited summary. All the boldface emphasis is mine.
Steve Levitt: So back in 2012, you and James Robinson published a book called Why Nations Fail: The Origins of Power, Prosperity, and Poverty. What’s the basic idea in that book?
Doran Acemoglu: It’s about human choices. . . . . how we organize society, which we broadly refer to as institutions — those are the root causes [of prosperity and poverty]. So whether you have democratic governance or not, how you control corruption, how you structure the tax system, how you enforce or fail to enforce property rights, for whose interest you enforce property rights … It’s all about politics and conflict when you think which type of institutions, which type of economic arrangements are going to prevail.
Editor’s note: Acemoglu goes on to talk about how colonialism affected the kinds of institutions and types of governments that were created around the world.
Acemoglu: When you look at the former European colonies today, you see a tremendous amount of inequality. Some places like the U.S., Australia, Canada, Singapore are very, very rich — among the richest nations — and some of them, many of the colonies or former colonies in Sub-Saharan Africa or the Caribbean or Peru, Bolivia are very, very poor. . . .
. . . . why is it that the U.S. got something very different from colonialism than, say, Peru? In Peru, they wanted to set up what we call an extractive system, an institutional structure so they will be able to extract valuables and human labor out of that area. And given the conditions that they encountered on the ground, they succeeded.
In the U.S., they were more confused about what they wanted to do, and when they tried to set up similar extractive institutions, they failed. So at the end, self-governing institutions started emerging.
Editor’s note: Acemoglu links prosperity to democracy and self-governance. In his new book— Power and Progress: Our Thousand-Year Struggle Over Technology and Prosperity — Acemoglu and co-author Simon Johnson talk about how “politically connected monopolies” over the centuries decided how technologies were deployed: A perfect example of how technology was deployed, and its impact on institutions, was the invention of the cotton gin.
Acemoglu: So in the middle of the 18th century, the U.S. South got completely transformed by an equipment called the cotton gin, which enabled the cleaning of the type of cotton that the South was suitable for its growth.
And once the cotton gin was in action, the U.S. South became the biggest exporter of cotton in the world. And it fueled the Industrial Revolution. The beginning of the Industrial Revolution was all about textiles and all about cotton. And many, many, many people made fabulous fortunes out of cotton plantations, cotton intermediation, exports, and all sorts of other things that are linked to cotton production.
So you would think this is an innovation that just creates all sorts of benefits. But then look again, and you’ll see that the people who are actually doing the production of cotton, the enslaved Black workers of the U.S. South, they did not benefit. In fact, their conditions got much worse because they were moved to the deep South where the cotton plantations were. They started working longer hours under harsher conditions.
Editor’s note: Acemoglu goes on to talk about how technical innovations in our own era — computers and digital technology — are also creating benefits for a few on the backs of the many.
Acemoglu: But over the last four and a half decades, let’s say, the U.S. economy has been on an innovation binge. All sorts of amazing widgets, apps, and new equipment have been invented and put to use in the production process. Robots, advanced machinery, software systems, now artificial intelligence.
You would expect that this is going to bring benefits that are broadly shared, but in the United States inequality has skyrocketed and in a very peculiar way, where it’s not just that some people have benefited more. It’s that people with very specialized skills — management consultants, software programmers, people who have very high levels of education like medical doctors — their wages, their incomes in real terms are increasing very rapidly.
But workers with high school education, even associate degrees, even some people with college degrees are seeing their real incomes decline quite sharply. So it’s a very lopsided way in which the economy has evolved over those last 45 years. . . .
. . . And what happened in the late 1970s and ‘80s is [that] both ideological and economic shifts have created much more powerful forces towards the profit motive. And one set of factors for this was related to competition from Japan and competition from China and all sorts of other cost cutting pressures on corporations.
But another one was ideological, and this is the famous New York Times Magazine article that Milton Friedman wrote and said, ‘The only social responsibility of business is shareholder value. That’s the world we should strive for.’
And I think that really created a very different mindset among managers or a justification for managers and shareholders to sideline workers.
UPDATE, July 12, 2024: A new paper by Acemoglu questions the potential of artificial intelligence tools to improve worker productivity by a significant factor.
My take on profits and sustainability
Acemoglu argues that some corporations have prospered by considering more than just the profit motive and that others should do so. His thoughts are echoed by Larry Fink, the chairman of BlackRock, one of the world’s largest asset managers with more than $10 trillion (with a T) in assets under management.
In his 2023 letter to shareholders, Fink repeatedly urged corporate managers to make the transition to sustainable practices that benefit all the stakeholders in the communities where they operate.
That means considering not just the profit for investors — the Milton Friedman approach — but living wages and health care for their workers, a pollution-free environment, and paying their fair share of taxes for high-quality public services. It also means not bullying companies down the supply chain to source their products in low-cost countries that tolerate forced labor, child labor, and other abusive practices.
Fink warns that corporations are in danger of killing the goose that lays the golden eggs. In search of short-term profits, they’re gobbling up land, forest, fisheries, and other natural resources, and polluting the air and water to the detriment of the communities where they operate. They need a more sustainable long-term model.
The role of journalism
Here is where public-service journalism comes in. It is one of the pillars of democracy, one of those institutions critical to free, independent people around the world. It fits right in with our discussion of how we apply technology in a sustainable society.
In the same way that the cotton gin created winners and losers, the technology driven digital media industry has gobbled up resources in the media ecosystem. Big tech companies have monopolized digital search, social media, and digital advertising, leaving scraps for media that produce high-quality news and information.
Public-service journalism has been crowded out of its niche in the media ecosystem.
Yes, but . . .
New business models for trustworthy journalism are emerging. I’ve written about many of them here before. That includes more collaboration and less competition among public service media. It also includes a blend of public support — sponsorships, donations, memberships — and possibly some government support along the lines of the BBC.
I’m optimistic. The news all looks bad, in part because the algorithm-driven tech platforms deliberately feed you stuff that will get you excited so that you will be emotionally disposed to buy more of the stuff they’re advertising.
What you don’t see is the groundswell of grass-roots organizations working to counter these trends. The short-term looks bad. The long-term could be better if we make better choices in how we structure our institutions.
Both Acemoglu and Fink — an economist and a businessperson — agree on an economic model that could produce fairer, more just societies. We can do it by sharing benefits with all stakeholders and their communities, business, and government.
That sounds to me like a good plan. What do you think?
Good points 👌