December 11, 2012

"It appears as if Xi Jinping is finding nationalism an irresistible ingredient in his effort to galvanize his people" (*). In quoting this remark by "Orville Schell, a veteran China observer", Edward Wong implicitly reminds us how closely China models itself after the Second Reich. However trite today, what with the bulking up of the navy, this parallel is hardly comforting. Since the rise of the Second Reich ended in the collapse of the great European powers, one would rather not think of scaling up this collective suicide to the whole world.

To balance the pessimism of such a doomsday scenario, I have injected a large dose of optimism into a rosy one according to which the Information Age will bring new sources of revenues to individuals, revive economic growth for societies and contribute to fund governments so as to sustain social solidarity. However utopian, this vision is grounded in a new asset class whose emergence is not disputed, personal data.

Such scenarios are subject to serious shortcomings. Essential to the First World War plot were both Bismark's deliberate grab of Alsace-Lorraine and Wilhem the Second's physical and mental limitations, for which no comparable contemporary counterparts exist yet. Similarly the promises of personal data cannot prevail unless privacy rights become real property and its title given to the people whose behavior creates it in the first place.

This leaves unfulfilled the need for a more realistic scenario.

Many American voices have lamented the trend to outsource manufacturing. Some demand it be reversed. But it is doubtful political action can have a significant impact. As John Kay pointed out recently, manufacturing no longer adds much value compared to design and marketing. Besides adds Paul Krugman, "technology is displacing workers of all, or almost all, kinds" (**). Robots and algorithms decrease job availability not only in low value manufacturing but in highly paid services as well, such as "translation and legal research".

One outcome oft mentioned is that the middle class will go with the jobs and disappear entirely. But what does this means precisely?

Its very name implies the middle class is stuck between two others, traditionally called the higher and the lower classes. Yet one should not be fooled with what looks like a one dimensional scale, now ordinarily pegged to money. Today's western middle class is not based so much on money as on independence, the social freedom guaranteed by the rule of the law and the economic opportunities offered by efficient markets.

Take away the latter, whether because of technology or what Paul Krugman calls the "monopoly power" of the "robber barons", corrupt the former by what I call pronaocracy, the sale of the laws under cover of campaign financing, and you compel people to turn to the only genuine powers left standing, the capitalists.

Endowed with the autonomy which flows from economic power, this class indeed presents itself as the sole source of sustainable job creation and wants small government to stop unfairly competing for patronage. But although people will continue to work for a living in a pronaocratic Information Age, the way in which they will do so will be utterly changed. Expect the economy to be split into a star sector and a retainer sector.

Entertainers, whether in sports or the arts, have long lived according to the so-called "winner take all" bet. This model creates a crowd of famished hopeful from which emerge a glamorous few, easily coopted into the higher class. Lawyers, traders, entrepreneurs, CEO's have embraced it. Teachers, physicians, engineers are pressed to fall for it. In a lottery however, the real winners are those who run it, not those who buy the tickets.

Outside of the star sector, the rise of personal retinues does not imply only menial jobs will remain. The Duke of Saint Simon was not to be confused with his lackeys. Yet, how much he would have seethed at being lumped together with them, however exalted Louis XIV's Versailles was deemed, to be present at court was to be part of a retinue, its glue the personal confidence which attaches each member of a retinue to its head.

What makes this evolution both possible and necessary? Work gets broken into tasks, some of which are automatized. The rest derives most of its added value either from personal performance, which one can imitate but never duplicate, or from information, so easily copied, so easily falsified. And so these tasks will be handed over either to the best possible performers, backed by their personal irreplaceability and their public reputation, or faithful attendants, gifted with their patrons' private confidence and their permanent availability. Job markets can be dispensed with.

Thus the middle class must either lose independence or embrace poverty. This will only happen in the future. Still signs are present everywhere.

Who can boast to be immune from fanciful information free from responsibility? Nicole Perlroth describes how "ransomware" "is making more than $5 million a year" three year after launch, better than many a startup at this stage (***). Tom Braithwaite, Michael Mackenzie and Kara Scannell analyze ex-employees' allegations that "Deutsche had [...] hidden billions of dollars of losses", as long as its independence was threatened(****).

Poor banks. Regular jobs are no answer when revealed to harbor either would-be stars turned rogues, from Société Générale Kerviel to UBS Adoboli, or disgruntled whistle blowers like Deutsche Bank Eric Ben-Artzi. Contrast this lack of corporate loyalty with the sorrowful fate of the nurse "Jacintha Saldanha, [...] found dead, an apparent suicide" (*****). According to Sarah Lyall, "two Australian radio hosts [had convinced her] they were Queen Elizabeth and Prince Charles", which led to the disclosing of "medical information about the pregnant Duchess of Cambridge".

Regular jobs are not supposed to inspire such a misplaced sense of honor and loyalty. Yet this devotion to the death is precisely what will be in growing demand by capitalists. With his failed bet on MySpace and his known love for the newspaper industry, Rupert Murdoch hardly seems to be among today's visionaries. Yet the way he runs News Corp is as good an illustration one can get of building a personal retinue. Having done all what he could to protect Rebekah Brooks, he can count on his retainer's silence to protect him in turn as she faces the British law in his place.

In case this fillip casts a pie to close to her taste, Deng Wendi may still savor the irony of my scenario. While an open target for pies, her husband is obviously a master of guanxi. Mr Xi meanwhile wants China to best the United States at its own game, a token of admiration.

This East meet West story is just a scenario, for the future is not knowable. Perhaps people will even find eprivacy a public good worth fighting for.

Philippe Coueignoux

• (*) ......... A New Leader Who Harks Back to an Old Idea, by Edward Wong (New York Times) - December 10, 2012
• (**) ....... Robots And Robber Barons, by Paul Krugman (New York Times) - December 10, 2012
• (***) ..... For PC Virus Victims, Pay or Else, by Nicole Perlroth (New York Times) - December 6, 2012
• (****) ... A show of strength or a fiction, by Tom Braithwaite, Michael Mackenzie and Kara Scannell (Financial Times) - December 6, 2012
• (*****) . Prank Call Seeking Royal Family Secrets Takes Horrifying Turn, by Sarah Lyall (New York Times) - December 8, 2012