What is this invisible amalgam of rights and duties holding together society and which fends off our desires, impulses and whims? Almost 300-hundred years ago, a middle-aged Swiss-French man of many professions and a penchant for philosophy explored this critical question in his book The Social Contract. Published in 1762, its original title was On the Social Contract; or, Principles of Political Right. His name was Jean-Jacques Rousseau.
The book came at the cusp of the industrial revolution and the birth of capitalism. New forms of wealth production were changing the social landscape. Land ownership, until then the hallmark of the governing class, was no longer the exclusive generator of affluence. An urban middle class was emerging with the ability to produce goods and services, and, most importantly, charge for them. Their accumulated wealth empowered them to express a long-stewing malaise towards the reigning social order, and which was shared by the dispossessed majority. It was a seething discontent that would eventually fuel the French Revolution and set forth the wave of political reform that washed over Europe and the Americas in the decades to follow.
Rousseau was witness to this growing unrest. Hence, the timing for his book is no coincidence. Considered one of the cornerstones of modern political, economic, and social thought, it states that in every social contract the main transaction is not economic but behavioral. In order to function and be accepted as part of society, Rousseau tells us, the individual must relinquish personal desires in exchange for civic rights. Society functions as a continuous contractual exchange between the individual and the governing power structure, so that social behavior is willingly molded to cultural expectations under the promise of securing a sustained livelihood.
At the time, a new social contract was taking shape before Rousseau’s eyes. Access to wealth was no longer primarily determined by birthright and inheritance. Instead, the dynamics governing the distribution of resources across society were shifting to accommodate a new circular system of wealth production and accumulation. One, in which each individual was bestowed the dual function of producer and consumer. Namely, capitalism was being born.
In the simplest of terms, capitalism goes something like this: the system allocates resources to individuals who participate in the production process of goods, thus, transforming them into producers (e.g. workers, managers, owners). This, so that these same individuals can consume the produced goods at a higher price than the production cost. Hence, the producers are transformed into consumers, generating a differential between the production cost and the sales price. Namely, creating profit. In turn, this generated wealth allows for the production of more goods, demanding the creation of more producers, which breeds more consumers, and leads to the generation of more wealth, and so on and so on, ad infinitum.
Since wealth generation is contingent on profit, it follows that capitalism is more dependent on consumption than production. Thus, the driving force of capitalism is not to produce more, after all, what benefit is there in unsold goods and a saturated market? Its raison d’être is consumption and its biggest challenge is to make individuals buy goods even after their needs are met. In other words, how to make people buy what they don’t need? Historically, the answer was to incorporate into the social contract subtle and not so subtle forms of control and enticement that led to the standardization of the consumer and the rise of consumerism.
Capitalism was revolutionary not because of the technology that supported its rise but because of the shift in priorities in resource allocation and the way in which it redefined power. In a capitalist society, geopolitical power is no longer determined by capital or possessions, nor by production capability. Instead, it’s intimately tied to the strength of the market. That is, the consumer. Without a strong consumer, the cycle is broken. Case in point, in our globalized world, the leading power is not the leading manufacturer but the leading consumer. However, this is also changing. New powers are superseding the nation-states: the transnational conglomerates that, free to operate across borders, are able to redefine the flow of resources so that the consumer of one good may no longer be its producer and vice-versa.
What happens when the system fails to absorb the individual into the production process and the conversion from producer to consumer doesn’t take place? Or, what happens when the individual loses purchasing power? In other words, what happens when the system no longer supports its required level of consumption? Our social contract is at a crossroads and capitalism, as we understand it, is facing its demise. On the one hand, new technology is slowly but surely pushing the individual out of the production chain across different industries, from agriculture to manufacturing, and all the way to services and entertainment. On the other, wealth generation is no longer a tryst between owners and employees.
Unlike traditional proprietors, prone to experience an emotional connection to their privately held companies, current-day shareholders have little to no attachment to the enterprises they invest in. Intentionally or not, they tend to remain blissfully unaware of what each company represents beyond the projected return on investment (ROI). They are interested in profit, not the survival of capitalism nor supporting producer/consumer individuals. If an industry or company fails to produce the expected gains, they can simply move on to the next venture. Theirs seems to be a locusts mentality, moving onto the next field once the plot they’re grazing on loses appeal, leaving behind a death zone. Of course, in the natural world locusts serve an important role in the food chain. But, financial locusts are a problem. They are also a symptom of the state of the capitalist system and the extent to which the social contract is broken.
The growing pressure placed on companies to yield evermore higher profits has shifted the production/consumption cycle into reverse. Cutting costs has become the first port of call and, as a consequence, automatization and layoffs have become normalized and expected. As an example, last year the tech industry laid off more than 160,000 individuals; and, in what goes of 2023, the number of layoffs is up to more than 250,000. How did investors respond? With an uptick on the stock prices. Alphabet, Google’s parent company, which has laid off 12,000 employees, saw its stock price rise 15%; Microsoft’s stock is up 6% after laying off 10,000 workers; while shares of Meta, Facebook’s parent company, rose nearly 50% after announcing its plans to let go of thousands of employees. These are just examples but are not exceptions. Data analyzed by Bloomberg shows that large American tech companies have seen on average their stocks rise 5.6% after announcing job cuts. Shareholders are being rewarded for breaking the social contract that supports the same system that allowed them to exist in the first place.
So, what does this mean for us, the lay person? What does it mean for the vast majority of us whose livelihood depends on the dual role of producer and consumer? What does this mean for our future as a functional society, for social stability and wellbeing? The social unrest we are witnessing around the globe points to how pressing these questions are. In response, some countries are considering a Universal Basic Income (UBI), some have even implemented pilot programs. But, the fiscal burden this represents is significant and no country has fully committed to the cause. Perhaps, the answer lies not in government but in the hands of those critical to a system based on consumerism. That is, the intentional consumer, one who exercises power by supporting only those who honor the social contract.
Great content! Keep up the good work!