After the Rain : how the West lost the East Part 31

They are the upstarts, those who seek to undermine the existing elite, to replace it and, ultimately to join it. Indeed, the Newly Rich can be cla.s.sified in accordance with their relations with the well-entrenched Old Rich. Every society has its veteran, venerable and aristocratic social cla.s.ses. In most cases, there was a strong correlation between wealth and social standing. Until the beginning of this century, only property owners could vote and thus partic.i.p.ate in the political process. The land gentry secured military and political positions for its off spring, no matter how ill equipped they were to deal with the responsibilities thrust upon them. The privileged access and the insider's mentality ("old boys network" to use a famous British expression) made sure that economic benefits were not spread evenly.

This skewed distribution, in turn, served to perpetuate the advantages of the ruling cla.s.ses.

Only when wealth was detached from the land, was this solidarity broken. Land - being a scarce, non-reproducible resource - fostered a scarce, non-reproducible social elite. Money, on the other hand, could be multiplied, replicated, redistributed, reshuffled, made and lost. It was democratic in the truest sense of a word, otherwise worn thin. With meritocracy in the ascendance, aristocracy was in descent. People made money because they were clever, daring, fortunate, and visionary - but not because they were born to the right family or married into one.

Money, the greatest of social equalizers, wedded the old elite. Blood mixed and social cla.s.ses were thus blurred. The aristocracy of capital (and, later, of entrepreneurship) - to which anyone with the right qualifications could belong - trounced the aristocracy of blood and heritage. For some, this was a sad moment. For others, a triumphant one.

The New Rich chose one of three paths: subversion, revolution and emulation. All three modes of reaction were the results of envy, a sense of inferiority and rage at being discriminated against and humiliated.

Some New Rich chose to undermine the existing order. This was perceived by them to be an inevitable, gradual, slow and "historically sanctioned" process. The transfer of wealth (and the power a.s.sociated with it) from one elite to another const.i.tuted the subversive element.

The ideological shift (to meritocracy and democracy or to ma.s.s-democracy as y Ga.s.set would have put it) served to justify the historical process and put it in context. The successes of the new elite, as a cla.s.s, and of its members, individually, served to prove the "justice" behind the tectonic shift. Social inst.i.tutions and mores were adapted to reflect the preferences, inclinations, values, goals and worldview of the new elite. This approach - infinitesimal, graduated, cautious, all accommodating but also inexorable and all pervasive - characterizes Capitalism. The Capitalist Religion, with its temples (shopping malls and banks), clergy (bankers, financiers, bureaucrats) and rituals - was created by the New Rich. It had multiple aims: to bestow some divine or historic importance and meaning upon processes, which might have otherwise been perceived as chaotic or threatening. To serve as an ideology in the Althusserian sense (hiding the discordant, the disagreeable and the ugly while accentuating the concordant, conformist and appealing). To provide a historical process framework, to prevent feelings of aimlessness and vacuity, to motivate its adherents and to perpetuate itself and so on.

The second type of New Rich (also known as "Nomenclature" in certain regions of the world) chose to violently and irreversibly uproot and then eradicate the old elite. This was usually done by use of brute force coated with a thin layer of incongruent ideology. The aim was to immediately inherit the wealth and power acc.u.mulated by generations of elitist rule. There was a declared intention of an egalitarian redistribution of wealth and a.s.sets. But reality was different: a small group - the new elite - scooped up most of the spoils. It amounted to a surgical replacement of one hermetic elite by another. Nothing changed, just the personal ident.i.ties. A curious dichotomy has formed between the part of the ideology, which dealt with the historical process - and the other part, which elucidated the methods to be employed to facilitate the transfer of wealth and its redistribution. While the first was deterministic, long-term and irreversible (and, therefore, not very pragmatic) - the second was an almost undisguised recipe for pillage and looting of other people' property. Communism and the Eastern European (and, to a lesser extent, the Central European) versions of Socialism suffered from this inherent poisonous seed of deceit. So did Fascism. It is no wonder that these two sister ideologies fought it out in the first half of the twentieth century.

Both prescribed the unabashed, unmitigated, unrestrained, forced transfer of wealth from one elite to another. The proletariat enjoyed almost none of the loot.

The third way was that of emulation. The Newly Rich, who chose to adopt it, tried to a.s.similate the worldview, the values and the behaviour patterns of their predecessors. They walked the same, talked the same, clad themselves in the same fashion, bought the same status symbols, and ate the same food. In general, they looked as pale imitations of the real thing. In the process, they became more catholic than the Pope, more Old Rich than the Old Rich. They exaggerated gestures and mannerisms, they transformed refined and delicate art to kitsch, their speech became hyperbole, their social a.s.sociations dictated by ridiculously rigid codes of propriety and conduct. As in similar psychological situations, patricide and matricide followed. The Newly Rich rebelled against what they perceived to be the tyranny of a dying cla.s.s. They butchered their objects of emulation - sometimes, physically. Realizing their inability to be what they always aspired to be, the Newly Rich switched from frustration and permanent humiliation to aggression, violence and abuse. These new converts turned against the founders of their newly found religion with the rage and conviction reserved to true but disappointed believers.

Regardless of the method of inheritance adopted by the New Rich, all of them share some common characteristics. Psychologists know that money is a love subst.i.tute. People acc.u.mulate it as a way to compensate themselves for past hurts and deficiencies. They attach great emotional significance to the amount and availability of their money. They regress: they play with toys (fancy cars, watches, laptops). They fight over property, territory and privileges in a Jungian archetypal manner.

Perhaps this is the most important lesson of all: the New Rich are children, aspiring to become adults. Having been deprived of love and possessions in their childhood - they turn to money and to what it can buy as a (albeit poor because never fulfilling) subst.i.tute. And as children are - they can be cruel, insensitive, and unable to delay the satisfaction of their urges and desires. In many countries (the emerging markets) they are the only capitalists to be found. There, they spun off a malignant, pathological, form of crony capitalism. As time pa.s.ses, these immature New Rich will become tomorrow's Old Rich and a new cla.s.s will emerge, the New Rich of the future. This is the only hope - however inadequate and meagre - that developing countries have.

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The Solow Paradox

The Productive Hardware

The world is debating the Solow Paradox. Named after the n.o.bel laureate in economics, it was stated by him thus: "You can see the computer age everywhere these days, except in the productivity statistics." The venerable economic magazine, "The Economist" in its issue dated July 24th, quotes the no less venerable Professor Robert Gordon ("one of America's leading authorities on productivity") - p.20: "...the productivity performance of the manufacturing sector of the United States economy since 1995 has been abysmal rather than admirable. Not only has productivity growth in non-durable manufacturing decelerated in 1995-9 compared to 1972-95, but productivity growth in durable manufacturing stripped of computers has decelerated even more."

What should be held true - the hype or the dismal statistics? The answer to this question is of crucial importance to economies in transition. If investment in IT (information technology) actually r.e.t.a.r.dS growth - then it should be avoided, at least until a functioning marketplace is there to counter its growth suppressing effects.

The notion that IT r.e.t.a.r.ds growth is counter-intuitive. It would seem that, at the least, computers allow us to do more of the same things faster. Typing, order processing, inventory management, production processes, number crunching are all managed more efficiently by computers. Added efficiency should translate into enhanced productivity. Put simply, the same number of people can do more, faster, more cheaply with computers than they can without them. Yet reality begs to differ.

Two elements are often neglected in considering the beneficial effects of IT.

The first is that the concept of information technology comprises two very distinct economic activities: an all-purpose machine (the PC) and its enabling applications and a medium (the internet). Capital a.s.sets as distinct from media a.s.sets are governed by different economic principles, should be managed differently and be the subject of different philosophical points of view.

Ma.s.sive, double digit increases in productivity are feasible in the manufacturing of computer hardware. The inevitable outcome is an exponential explosion in computing and networking power. The dual rules which govern IT - Moore's (a doubling of chip capacity and computing prowess every 18 months) and Metcalf's (the exponential increase in a network's processing ability as more computers connect to it) - also dictate a breathtaking pace of increased productivity in the hardware c.u.m software aspect of IT. This has been duly detected by Robert Gordon in his "Has the 'New Economy' rendered the productivity slowdown obsolete?"

But for this increased productivity to trickle down to the rest of the economy a few conditions have to be met.

The transition from old technologies to a new one (the computer renders many a technology obsolete) must not involve too much "creative destruction". The costs of getting rid of old hardware, software, of altering management techniques or adopting new ones, of shedding redundant manpower, of searching for new employees to replace the unqualified or unqualifiable, of installing new hardware, software and of training new people in all levels of the corporation are enormous.

They must never exceed the added benefits of the newly introduced technology in the long run. Hence the crux of the debate. Is IT more expensive to introduce, run and maintain than the technologies that it so confidently aims to replace? Will new technologies be spun off the core IT in a pace sufficient to compensate for the disappearance of old ones? As the technology mature, will it overcome its childhood maladies (lack of operational reliability, bad design, non-specificity, immaturity of the first generation of computer users, absence of user friendliness and so on)?

Moreover, is IT an evolution or a veritable revolution? Does it merely allow us to do more of the same only in a different way - or does it open up hitherto unheard of vistas for human imagination and creativity? The signals are mixed. IT did NOT succeed to do to human endeavour what electricity, the internal combustion engine or even the telegraph have done. It is also not clear at all that IT is a UNIVERSAL phenomenon suitable to all climes and mentalities. The penetration of both IT and the medium it gave rise to (the internet) is not uniform throughout the world even where the purchasing power is similar and even among the corporate cla.s.s. Countries post communism should take all this into consideration. Their economies may be too obsolete and hidebound, poor and badly managed to absorb yet another critical change in the form of IT. The introduction of IT into an ill-prepared market or corporation can be and often is counter-productive and growth-r.e.t.a.r.ding.

The Cycle of the Internet

Then, of course, there is the Internet.

The Internet runs on computers but it is related to them in the same way that a TV show is related to a TV set. To bundle to two, as is often done today, obscures the true picture and can often be very misleading. For instance: it is close to impossible to measure productivity in the services sector, let alone is something as wildly informal and dynamic as the internet. It is clear by now that the Internet is a medium and, as such, is subject to the evolutionary cycle of its predecessors. Central and Eastern Europe has just entered this cycle while the USA is the most advanced.

The Internet is simply the latest in a series of networks, which revolutionized our lives. A century before the Internet, the telegraph and the telephone have been similarly heralded as "global" and transforming.

So, what should the CEE countries expect to happen to the Internet globally and, later, within their own territories? The issue here cannot be cast in terms of productivity. It is better to apply to it the imagery of the business cycle.

As we said, every medium of communications goes through the same evolutionary cycle:

It starts with Anarchy - or The Public Phase.

At this stage, the medium and the resources attached to it are very cheap, accessible, under no regulatory constraints. The public sector steps in: higher education inst.i.tutions, religious inst.i.tutions, government, not for profit organizations, non-governmental organizations (NGOs), trade unions, etc. Bedevilled by limited financial resources, they regard the new medium as a cost effective way of disseminating their messages.

The Internet was not exempt from this phase, which is at its death throes. It started with a complete computer anarchy manifested in ad hoc networks, local networks, networks of organizations (mainly universities and organs of the government such as DARPA, a part of the defence establishment, in the USA). Non-commercial ent.i.ties jumped on the bandwagon and started sewing these networks together (an activity fully subsidized by government funds). The result was a globe-encompa.s.sing network of academic inst.i.tutions. The American Pentagon established the network of all networks, the ARPANET. Other government departments joined the fray, headed by the National Science Foundation (NSF) which withdrew only lately from the Internet.

The Internet (with a different name) became public property - with access granted to the chosen few.

Radio took precisely this course. Radio transmissions started in the USA in 1920. Those were anarchic broadcasts with no discernible regularity. Non commercial organizations and not for profit organizations began their own broadcasts and even created radio broadcasting infrastructure (albeit of the cheap and local kind) dedicated to their audiences. Trade unions, certain educational inst.i.tutions and religious groups commenced "public radio" broadcasts.

This is followed by the Commercial Phase.

When the users (e.g., listeners in the case of the radio, or owners of PCs and modems in the example of the Internet) reach a critical ma.s.s - the business sector is alerted. In the name of capitalist ideology (another religion, really) it demands "privatisation" of the medium.

This harps on very sensitive strings in every Western soul: the efficient allocation of resources which is the result of compet.i.tion; corruption and inefficiency which are naturally a.s.sociated with the public sector ("Other People's Money" - OPM); the ulterior motives of members of the ruling political echelons (the infamous American Paranoia); a lack of variety and of catering to the tastes and interests of certain audiences; the equation private enterprise = democracy and more.

The end result is the same: the private sector takes over the medium from "below" (makes offers to the owners or operators of the medium - that they cannot possibly refuse) - or from "above" (successful lobbying in the corridors of power leads to the appropriate legislation and the medium is "privatised").

Every privatisation - especially that of a medium - provokes public opposition. There are (usually founded) suspicions that the interests of the public were compromised and sacrificed on the altar of commercialisation and rating. Fears of monopolization and cartelisation of the medium are evoked - and justified, in due time. Otherwise, there is fear of the concentration of control of the medium in a few hands.

All these things do happen - but the pace is so slow that the initial fears are forgotten and public attention reverts to fresher issues.

A new Communications Act was legislated in the USA in 1934. It was meant to transform radio frequencies into a national resource to be sold to the private sector, which will use it to transmit radio signals to receivers. In other words: the radio was pa.s.sed on to private and commercial hands. Public radio was doomed to be marginalized.

The American administration withdrew from its last major involvement in the Internet in April 1995, when the NSF ceased to finance some of the networks and, thus, privatised its. .h.i.therto heavy involvement in the net.

A new Communications Act was legislated in 1996. It permitted "organized anarchy". It allowed media operators to invade each other's territories.

Phone companies will be allowed to transmit video and cable companies will be allowed to transmit telephony, for instance. This is all phased over a long period of time - still, it is a revolution whose magnitude is difficult to gauge and whose consequences defy imagination. It carries an equally momentous price tag - official censorship.

"Voluntary censorship", to be sure, somewhat toothless standardization and enforcement authorities, to be sure - still, a censorship with its own inst.i.tutions to boot. The private sector reacted by threatening litigation - but, beneath the surface it is caving in to pressure and temptation, constructing its own censorship codes both in the cable and in the internet media.

The third phase is Inst.i.tutionalisation.

It is characterized by enhanced activities of legislation. Legislators, on all levels, discover the medium and lurch at it pa.s.sionately.

Resources, which were considered "free", suddenly are transformed to "national treasures not to be dispensed with cheaply, casually and with frivolity".