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Behind the Modern Malaise

For decades, workers have been missing out on many of the gains of economic growth, and countless analyses have been published to explain why. Though the problem is fundamentally economic, it cannot be understood without also accounting for technology, politics, and culture.

In describing recent economic history as “the inglorious years,” French economist Daniel Cohen’s title refers primarily to a problem that is also examined in the economist Jan Eeckhout’s book, The Profit Paradox. That problem, as Eeckhout puts it, is “wage stagnation and extreme wage inequality.” Over the past half-century, the situation for workers in most rich countries has deteriorated on average, setting this era apart from the 30 glorious years (les trente glorieuses) after World War II, when West Europeans, Canadians, and Americans enjoyed a near-miraculous period of sustained growth, including broad-based growth in real wages and higher living standards.

What can these authors add to the mountain of analyses churned out in recent years showing how workers have missed out on the benefits of the huge (mainly digital) technology-driven productivity gains of the past 30 years? Part of the answer lies in Eeckhout’s insight that there is more going on here than labor losing out to capital. Even owners of mainstream firms have lost out in relative terms. The gains have accrued instead to the “few capital owners” closest to giant firms’ surging profits, whose share of total value added ballooned from 3% in 1980 to 15% in 2019.

Eeckhout enlivens this general analysis with specific examples, offering firm-specific illustrations of the aggregate profit numbers. For example, Pfizer’s profit-to-payroll ratio rose from 41% in 1980 to 210% in 2019; for both Apple and Facebook, that ratio is now over 300%. And Eeckhout includes striking human stories that bring home the reality of today’s labor market. A woman named Erin, for example, is supposedly a “senior technical adviser,” and yet she makes just $12 per hour before taxes working for a firm in New Mexico to which Apple has outsourced client-support services.

The main value of Eeckhout’s book lies not so much in its overview of already widely observed outcomes (who by now hasn’t heard of the “1%” and the “0.1%”?), but rather in his astute analysis of underlying causes. The real villains of the story, he shows, are the “superstar” firms that have amassed overwhelming market power.

The tools used to claim market power – technological innovation and global interconnectedness – sound innocent enough, even positive. But the resulting global scale allows superstar firms to compete for entire markets, rather than competing within markets. Once one or two behemoths have achieved dominance in a given sector, they can maintain their market power by constructing bulwarks against competition from new entrants. These defense mechanisms range from pre-empting competitive threats by acquiring new players – as Facebook did with Instagram and WhatsApp – to lobbying and funding politicians, a process that Eeckhout correctly describes as “legalized corruption.”

Digging “moats around the castle” of market power depresses wages throughout the economy. Eeckhout provides a sophisticated but accessible account of the economics of this process, which he likens to an ebb tide lowering all boats. Extending this metaphor, the millions who have dropped out of the labor force altogether owing to low wages can be thought of as swimmers who have been pulled down by the undertow. For Eeckhout, declining labor-force participation is “the elephant in the room.”


Cohen approaches similar themes with what amounts to an essay on the changing zeitgeist, and references to thinkers from a diverse array of disciplines are scattered throughout The Inglorious Years. The original French edition of the book was published in 2018 to mark the 50th anniversary of the May 1968 uprising against the government of President Charles de Gaulle, which Cohen takes as his starting point. By 1968, the gains delivered by a strong post-war economy had freed up students to take to the barricades and pursue new causes (or what we would now call “culture wars”).

A half-century later, the victories for many progressive social causes stood in stark contrast to the dismal reversal of that era’s economic achievements. No longer could children be confident of enjoying a higher standard of living than their parents.

To the extent that the “spirit of ‘68” had an economic dimension, Cohen thinks it can be traced to the thought of the mid-century French economist Jean Fourastié, whose Great Hope of the Twentieth Century, published in 1948, built on John Maynard Keynes’s insights into the power of compound growth and the potential rise of a leisure society. In his final chapter, Cohen returns to this ideal of a “more human economy,” which he hopes will prevail over the threats to employment and welfare posed by artificial intelligence (AI) and automation. But, between the two authors, Eeckhout has more substance to offer here, because he includes carefully reasoned policy solutions.

In his broader cultural discussion, Cohen touches implicitly on the necessary condition for any true reckoning with the abuses that Eeckhout so lucidly describes. Simply put, meaningful reform will require a change of hearts and minds. Yet Cohen sees no new mobilizing ideal to fill in for the loss of meaning in the years following May 1968. His outlook is thus similar to the philosopher Emmanuel Levinas’s take on the fall of the Berlin Wall. When the Soviet system collapsed, any hope for a liberating alternative to the current capitalist system evaporated, and working-class demands were shunted to the sociopolitical margins.


Cohen shows how contemporary populism arose in this newly unstructured environment – much as its Russian and Latin American antecedents had previously done, starting in the nineteenth century. He identifies the grievances that today’s populists have exploited, such as low or stagnant inflation-adjusted incomes and the social and psychological malaise that comes with economic sclerosis.

But, again, Eeckhout is the more precise analyst on this front, noting that while digital technology has empowered superstar firms to suppress competition and depress wages, it nonetheless has also boosted even the relative “losers’” welfare.

Still, the causes and scale of today’s discontent are all too real. Coming fresh from the research for my own recently published book, What Ails France, I was pleased to see Eeckhout focusing on the gilets jaunes (“yellow vest”) movement in France, rather than on the usual “Anglo-Saxon” (as the French would say) examples of Donald Trump and Brexit. (By contrast, the publication of Cohen’s France-centered book a few months before the gilets jaunes protests began in late 2018 makes it seem already rather dated.)

Triggered by the French government’s announcement of a new fuel tax, this uprising of small-town and rural working poor was a sobering demonstration of contemporary socioeconomic anxieties among those who feel ignored by cloistered political elites. In examining its causes, Eeckhout has offered a fine manifesto for our time. Like all great books by serious economists for a general audience, The Profit Paradox expounds complex ideas clearly and with apparent ease, reflecting the author’s mastery of the economics of labor markets and industrial organization.

Eeckhout readily admits that his analysis of the complexities of antitrust regulation strays outside his own specialist expertise; but, knowing that, the discussion that follows is all the more impressive. Here, his key recommendation is to insist on the principle of “interoperability.” He makes a convincing case, but recognizes its limits. On the positive side, he shows how wage levels would rise if antitrust regulators forced giant corporate platforms to grant equal access to competing providers. Like the policies that corrected the anti-wage bias of the Gilded Age a century ago, this would ensure that productive new technologies and their benefits are widely diffused.

But Eeckhout also points out that even if his antitrust recommendations were followed, all such efforts might be swamped by the potentially “devastating” effects of robotics and machine learning. These technologies could radically compound the problems of market power and low pay, reprising another aspect of the Gilded Age: social backlash, which could take the form of worker militancy, a broader political upheaval, or even revolution. These tremors are already being felt. With Eeckhout’s book, we at least have a blueprint for preventing the lid from blowing off.


That is also the purpose of the more explicitly policy-focused Major Future Economic Challenges report, commissioned in March 2020 by French President Emmanuel Macron and published this past June. Although specifically designed for the benefit of future French governments, this 500-page manifesto offers a rich intellectual resource for policymakers in other developed countries, too.

The report was produced by a committee led by two renowned French economists, Nobel laureate Jean Tirole and former International Monetary Fund Chief Economist Olivier Blanchard. The three main sections – on climate change, inequality, and population aging – are authored by a stellar lineup of economists from the United States and various European countries. (Cohen himself was among the other 16 commission members, who effectively served as an advisory panel.)

After reading Eeckhout’s book, I turned with interest to the Tirole-Blanchard report’s section on wages and inequality, which was prepared by the Harvard University economists Stefanie Stantcheva and Dani Rodrik. I came away with the impression of two ships passing in the night. The diagnoses are similar; Stantcheva and Rodrik refer to the “dualism [of] islands of productive, high-wage activities in a sea of poor jobs and pockets of unemployment.” But they attribute the problem to labor-market and social policies that have failed to narrow the gap between working conditions in the “islands” and the “sea.”

Stantcheva and Rodrik offer many interesting insights into how the “diffusion” of higher productivity can be directed toward broad-based wage gains through policies designed to encourage the creation of “good jobs.” But there is barely a word about the issue that Eeckhout considers decisive: the failure to uphold competition in the face of the encroaching market power of giant firms.

This omission may simply reflect the fact that the Tirole-Blanchard report is aimed at French policymakers, who have delegated antitrust regulation to EU institutions. Or it may reflect a difference of perspective. Recall that Eeckhout himself concedes that action against market power may not suffice to counter the even greater threats posed by AI and automation. These lie in the future, which fits with the Tirole-Blanchard team’s more holistic, longer-term view.


These finer points in expert perspectives ultimately point to another elephant in the room: the problem of politics, whose shadowy presence looms large in Cohen’s writing. The biggest challenge of implementing any policy recommendation at all is navigating today’s fraught social, media, and political environment. No amount of brain power can substitute for the support of political leaders and the work of effective political systems.

In an admirable effort to step out of the ivory tower, the Tirole-Blanchard report seeks to equip political leaders for the task of public persuasion. Each section includes an analysis of public perceptions, listing the precise reasons why people may balk at some of its recommendations, and examining the misapprehensions that often underlie such feelings among voters. These insights provide a sound basis for designing measures to compensate those who may lose out from the proposed reforms.

Assuming that Macron adopts the report as a central element of his economic platform, he should have ample ammunition for his expected re-election bid next year. The strategy outlined in the report is reason enough for renewing his mandate, and its sociological analysis could help him hone his pitch to French voters.

Though Macron sometimes falls short as an effective policy communicator, none of his rivals is any better. They will therefore concentrate on exploiting his unpopularity, most of which stems from voters’ suspicion that he is too distant from their daily struggles. That could be a potent canard. As we’ve seen in recent years, it is easier to engage in demagoguery than it is to design a coherent policy program and persuade voters to accept it.

Macron’s leading opponent in 2022 most likely will be Marine Le Pen of the far-right National Rally party. Lacking credible policy proposals of her own, Le Pen could benefit from tapping into some of the ideas in the Tirole-Blanchard report. For example, its proposal to hike the inheritance tax should sit well with her base (and as a beneficiary of substantial inherited wealth herself, this is one area where she could lead by example). Most likely, though, she will stick to her usual strategy of peddling vacuous or mendacious slogans.

Cohen’s description of populist demagoguery thriving in the vacuum left by failed ideals may leave some readers feeling that they could just as well do without either populism or idealism. But political leaders, like good horseback riders, must channel energies that would otherwise run wild. Perhaps some new cause will mobilize social energies that responsible politicians can harness to advance meaningful reforms. Perhaps the deepening climate crisis will provide that impetus. If so, we will have learned that overcoming paralysis requires nothing short of a planetary disaster.

(Olivier Blanchard and Jean Tirole, Major Future Economic Challenges, a report for the French president, 2021. Daniel Cohen, The Inglorious Years, The Collapse of the Industrial Order and the Rise of Digital Society, Princeton University Press, 2021 and Jan Eeckhout, The Profit Paradox: How Thriving Firms Threaten the Future of Work, Princeton University Press, 2021.)

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