How many crises?

RTE structured its Sunday morning report on the Spanish elections around a young women studying for an MA in Psychology in Madrid who speaks four languages and can't find a job. I've had her on my mind as just one example of what is happening to millions of people across Europe and America.

Of course if you are a particular kind of economist the idea that she "can't" find a job is wrong. Rather she won't accept work at the price it would be available and she, and the rest of us, have to traverse a difficult adjustment until a new equilibrium is found. I think this a profoundly mistaken understanding of what is going on. Embedded in that young woman, and everyone like her, is up to four generations of investment in her capacities. As the Atlantic and European economies have matured asset prices have been driven up, capturing too much of the value of productivity gains, but what hasn't been captured in this way has been used to build social capacity, a lot of it embedded in people like my Madrilena. If someone suggested digging up the railway system for the metal in the rails, or burning the books in the British Library for fuel we'd recognise both suggestions as vandalism. Using someone like this as cheap undifferentiated labour is  also vandalism and totally unnecessary.

The financial crisis that has made her prospects so insecure is an event, but the globalised world she and I have to make our way in is a process. All we have going for us is the flexibility, creativity and capacity for collaboration we learn in our wonderfully complex societies. No matter how cheap we make our labour someone else will be cheaper and if we go this way we will end up burning the furniture. So the crisis she and I share is that of systematic underinvestment in the industries and activities we could flourish in.

There is no mystery about what kinds of social organisations foster successful, high value enterprises in mature economies. The SMEs clustered around the Marche, the Rhineland and that used to be the backbone of places like Sheffield, assign human and financial capital in wonderfully creative ways and reproduce themselves through real apprenticeships, proper colleges and financial institutions committed to long-term results. Similar complex social systems are the backbone of university towns, or the cities that house the fashion industries. The core strategy of the developed world in the last thirty years of using financial services, backed up by political hegemony,  has been to claim as much as possible of the growth in the developing world through rents. The financial crisis is, in my view, epiphenomenal to the emerging limit on that strategy. The Atlantic littoral may be in the situation of the Asian core in the late eighteenth century: still dominant but becalmed.

The creativity and capacity of my iconic Madrilena, and all her brothers and sisters, offer the best possible route out of our current situation. But to unleash those capacities we are going to have to have a jubilee, not a default. A set of defaults might have worked a few years ago but now we re too deeply in. We will have to discount every asset against labour, to reassign the productivity gains away from capital. If she is used up rebuilding the value of assets we will stop the process of social investment that makes the complex, subtle daily miracle of society possible, let alone the economy that feeds off it. My suspicion that an inchoate sense of this demand is already latent in the Occupy protests.

So many crises and that is without even looking to Cairo