Thoughts On the Baby Boomers (part two)

In part one, we saw how historical events early in the 20th century lead to lower inequality and greater opportunity for the post-war generation, but that this meritocratic capitalism is no more. So what happened? Why did the conditions that Baby Boomers enjoyed- lower inequality, greater opportunity, more security- come to an end? I would argue that this was largely brought about by two things: faith in the market and distrust in the old bureaucracies. From the 1980s through to the 21st century, politicians, economists and others on both the right and the left attempted to extend an idea of freedom that was modelled on the market. This model could trace its roots back to a scientific theory called Game Theory, which was developed during the Cold War and turned by John Nash into a way of looking at social interaction in general. Nash argued that individuals lived their lives in a game, pursuing only their self-interests and constantly adjusting to one another’s strategies. Economists argued that, if this were true, then we should give up on the very idea of the collective people’s will. There was no way of adding up all individuals’ competing desires to produce one coherent goal. Furthermore, it suggested that the old idea of politicians and civil servants being motivated by some altruistic calling to serve the public good, was a lie. In reality, it was now thought, politics and the civil service were motivated by self-interest to build up their empires. The idea of public duty was based on an illusion. Only the market could possibly respond to people’s self-interested drives and create overall prosperity. The best thing that politicians could do was to stop interfering.
Political leaders like Thatcher, Major, and Blair (and, in the States, presidents like Reagan and Clinton) set about deregulating the market. Following advice from management consultants, John Major set out to create an alternate system intended to mimic the self-interested drive of the free market. This involved setting performance targets, the idea being that this would harness individualism and cause a transformation from self-serving bureaucrats to heroic entrepreneurs who would be driven by market forces to provide great services. The inexorable logic at the heart of game theory lead to this targets-based system spreading much further than bureaucratic institutions, as teachers, nurses and workers in the private sector were also given performance targets.
It wasn’t only politicians who had grown tired of the old bureaucracies. Throughout the 70s and 80s, popular wisdom increasingly saw corporations as bloated and inefficient, with business executives handicapping their organisations with unwieldy bureaucracies, and an overly-entitled workforce who were spoiled by far too generous rewards and low performance demands. In America, the business community was perceived as being unable to compete against more nimble foreign competitors. In the UK, years of industrial action turned the public against the Unions.
This perception lead to leaders in politics and business to taking drastic action in deregulation. In America, President Reagan appointed an attorney, who had previously defended large corporations against anti-trust suits, as head of the Department of Justice’s antitrust division, thereby pretty much guaranteeing non-interference from the government in the face of a growing mergers-and-acquisition movement. And, around the same time, the Supreme Court declared laws aimed at shielding local companies from out-of-state suitors to be unconstitutional, a decision that also helped accelerate an era of mergers and acquisitions.
Meanwhile, in the City, Michael Milken, of the investment house Drexel Burnham, created high-yield debt instruments known as junk bonds. They enabled far riskier and aggressive corporate raids than were possible in the previous, more cautious era. This deregulation and move toward hostile takeovers, leveraged buyouts and corporate bust ups lead to a dramatically different working environment. This change is perhaps best illustrated by considering the nicknames that CEOs of this period acquired. In 1962, Earl S. Willis, manager of employee benefits services at General Electric wrote, “maximising employment security is a prime company goal”. In marked contrast to this, 20 years later General Electric’s CEO Jack Welch earned the nickname ‘Neutron Jack’ because, so the wags quipped, by the time he was done with all the layoffs and cutbacks, only the buildings were left standing.
He was hardly alone. Indeed, the 80s was a period in which employees went through many a corporate crisis, brought about either by deregulatory trends to global competition. The pressures these trends placed on workplaces lead to a corporate perspective focuses on increasingly short-term goals, and job conditions that became increasingly uncertain, unrewarding, and demanding. Permanent careers became impermanent jobs, with a move from permanent staff to contingent labour in the form of temps and independent contractors, and during the 80s and 90s pension protections that had existed for almost as long as a century were cut back or eliminated altogether, resulting in growing numbers of men and women who lack pensions entirely.
The change that these circumstances wrought was summed up by Steven Hill, who wrote in an article for Salon:
“In a sense, employers and employees used to be married to each other, and there was a sense of commitment and a shared destiny. Now, employers just want a bunch of one-night-stands with their employees…with ‘jobs’ amounting to a series of low-paid micro-gigs and piece work, offering little empowerment for average workers”.
It was not only the workplace that underwent radical changes. The deregulations of the 80s and 90s freed up a lot of capital, but achieved this at the expense of creating some highly risky financial instruments. For example, there was something known as Consolidated Debt Obligations. As Dylan Ratigan explained, “CDOs gave banks a way to sell investors bets on whether all of us will be able to pay all our bills”. And then there were ‘Asset-backed Securities’, a type of bond that enabled buying the right to collect on debt payments like credit cards and car loans. Aided by increasingly powerful computers capable of tracking huge quantities of data, those existing bonds became gigantic Consolidated Debt Obligations. As Ratigan explained, “the new idea in banking was to take every kind of obligation to repay borrowed money- trillions of dollars-worth-put them in a statistical blender, and then sell portions of the mixture as investments”.
Investment banks began to intentionally mix high-risk loans such as poor people’s housing loans, with low-risk loans such as wealthy people’s credit cards. This mix of high- and low-risk loans produced a credit score rating comparable to medium-risk loans, even though the safe loans in the mix provided no protection from the really risky ones.
The overall result was ever-increasing risk transfer or what Dylan Ratigan called “playing hot potato with debt…The traditional incentive for banks to act as price integrity police- the standard of making careful, educated investments, was replaced by the incentive to sell as much insurance on as much debt as possible”.
This was a time of mortgages granted to NINJAS. That is, people with no job, no income, and no assets. It was a time when every delivery by the postal service included pre-approved credit card applications. And it was during this time that the City cowboys used their political influence to bring about the Financial Services Modernisation Act of 1999. This lead to the revoking of a rule that had been established after the Crash of 1929, a rule that meant no one company could simultaneously be a traditional bank, investment firm and insurance company. The Financial Services Modernisation Act meant a bank could (in Ratigan’s words) “take your money for safekeeping and use it as collateral with no supervision, all the while insuring itself against losses that taxpayers must pay of the bets the banks made with our money went bad”.
The move to deregulate the market and free capital from political interference and bureaucracy resulted in the rise of a credit casino, which lured people into taking on increasing levels of debt hidden behind such complex financial instruments that nobody could really hope to understand them. The banking and financial sector became increasingly infected with toxic debt and a speculative bubble that threatened to pop at any time, leading to a catastrophic downward spiral.
Of course, something like that almost happened in 2008, when the subprime mortgage speculative bubble burst and threatened to bring down such huge banking conglomerates that the government had to bail out the banks to avoid a crash as bad as the 1920s, if not worse. The massive stimulus packages that rescued the banks has resulted in austerity for future generations, or at least those generations who can’t afford top financial advisers who can use every morally-dubious trick in the book to protect their money. And the dubious financial instruments that lead to the near collapse of the global monetary system are still largely in place, leaving us with the probability that another speculative bubble could inflate and then pop, wiping out your savings.
Still, at least those performance targets had rid us of self-serving bureaucrats and delivered efficient services run by heroic entrepreneurs, right? New Labour certainly expected that to be the case. When they came to power in 1997, New Labour modelled itself on the Clinton Administration. Like their US counterpart, New Labour gave power away to the banks and the markets. And they took the targets-based system that John Major introduced and vastly expanded upon it- to the point where just about everyone from cabinet ministers down, and things that were previously considered unquantifiable- such as ‘happiness’- became part of a huge mathematical system that was supposed to use targets to free public servants from bureaucratic control.
But what this targets-based system did was to provide an opportunity for cheats to succeed by finding sneaky ways of fulfilling their goals. For example, hospital managers were given targets to cut waiting lists, and they achieved this by ordering consultants to prioritise the easiest operations like bunions, over more complicated ones like cancer. When they were given targets to reduce the number of patients waiting on trolleys, management removed the wheels from some of the trollies, reclassified them as beds, and reclassified the corridors as wards. Again, this meant they could take those patients off the list and meet their targets. Obviously, those tactics were not doing much to increase the actual quality of medical care. 
At first the government dismissed reports of cheating as a few bad eggs, but as more reports of fiddling the numbers came in, it became obvious that cheating had become endemic throughout the public services. Harvard Business School and others have shown that when goals are imposed on people, though intended to ensure peak performance, they often result in efforts to game the system without producing the underlying results the metric was supposed to be assessing. As Patrick Schilz, a professor of law, said:
“Your entire frame of reference will change and the dozens of quick decisions you make every day will reflect a set of values that embodies not what is right, but what you think you can get away with”.
This endemic cheating turned what had been intended as a rational system for boosting efficiency, into a weird world in which people were confronted with numbers and simply didn’t know whether to trust them or not. New Labour responded by adding even more mathematical levels of management, devising complex systems of auditing in order to monitor workers and make sure targets were being correctly fulfilled. The effect of all this was to turn what had been intended as a system of liberation into powerful new forms of control.
Worse still, this system had the effect of creating a more rigid and stratified society, and this happened because of what the system did to education. League tables had been created which showed parents which schools were the best performing, and which were bottom of the heap. The intention was that such league tables would incentivise less successful schools to improve their services, leading to rising standards across society. But, instead, rich parents moved to areas where the best schools were, which caused house prices to spiral, thereby keeping poor families out. And since the league tables were based on exam results, schooling was transformed from a system intended to give poor children the well-rounded education they would need to achieve social mobility, into one that focused on training kids to be specialised for passing exams, thereby enabling the school to rise up the league tables. The result was that by 2006, the country had become more rigid and stratified than at any time since the Second World War.
So if we compare life for the Baby Boomers with that of subsequent generations, we find the following. The Baby Boomers had an educational system designed to train them for their future careers and so enable social mobility; future generations received an education intended only to help schools look good on league tables, and higher education that is often not worth a damn when it comes to improving one’s chances of landing a decent job. When they entered the world of employment, the paternalistic corporate model ensured Baby Boomers a secure and steady working life where they were treated as stakeholders in the company they worked for, provided with many benefits in return for loyalty. Nowadays you enter a job and in all probability have no idea if you will still have a job tomorrow. You are a ‘permalancer’, working the same long hours as a full time employee but enjoying the same lack of benefits (like no sick pay and holiday entitlement) as the self-employed. The Baby Boomers left their dependable jobs and received a pension that enabled them to maintain the middle-class lifestyle they had earned throughout their working lives. These days, with austerity eating away at so many services, and a banking and financial sector still very much prone to speculative bubbles and subsequent crashes, you have no idea whether or not you will have any money to provide support in your old age. 
If we can visualise the Baby Boomers as being on a fairly well signposted path to prosperity, we can visualise later generations as being in some bewildering maze-cum-gauntlet, trying to negotiate their way around advice from genuine, well-meaning experts, and cheats disguised as servants but interested only in achieving tremendous short-term gain at their expense. In such a complex and uncertain world, is it any wonder that today’s young have adopted an “eat, drink and be merry, for tomorrow we die” outlook on life? I rather suspect that, had Baby Boomers lived under such conditions of uncertainty, they might have behaved the same.

Images from Wikimedia commons

Capital In the 21st Century by Thomas Piketty
White Collar Sweatshop by Jill Andresky Frazer
The Trap by Adam Curtis
Greedy Bastards by Dylan Ratigan

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