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Wordsmith intellectuals fare well in capitalist society; there they have great freedom to formulate, encounter, and propagate new ideas, to read and discuss them. Their occupational skills are in demand, their income much above average. Why then do they disproportionately oppose capitalism? Indeed, some data suggest that the more prosperous and successful the intellectual, the more likely he is to oppose capitalism. This opposition to capitalism is mainly "from the left" but not solely so. Yeats, Eliot, and Pound opposed market society from the right.

can distinguish two types of explanation for the relatively high proportion of intellectuals in opposition to capitalism. One type finds a factor unique to the anti-capitalist intellectuals. The second type of explanation identifies a factor applying to all intellectuals, a force propelling them toward anti-capitalist views. Whether it pushes any particular intellectual over into anti-capitalism will depend upon the other forces acting upon him. In the aggregate, though, since it makes anti-capitalism more likely for each intellectual, such a factor will produce a larger proportion of anti-capitalist intellectuals. Our explanation will be of this second type. We will identify a factor which tilts intellectuals toward anti-capitalist attitudes but does not guarantee it in any particular case.

Intellectuals now expect to be the most highly valued people in a society, those with the most prestige and power, those with the greatest rewards. Intellectuals feel entitled to this. But, by and large, a capitalist society does not honor its intellectuals. Ludwig von Mises explains the special resentment of intellectuals, in contrast to workers, by saying they mix socially with successful capitalists and so have them as a salient comparison group and are humiliated by their lesser status.

Why then do contemporary intellectuals feel entitled to the highest rewards their society has to offer and resentful when they do not receive this? Intellectuals feel they are the most valuable people, the ones with the highest merit, and that society should reward people in accordance with their value and merit. But a capitalist society does not satisfy the principle of distribution "to each according to his merit or value." Apart from the gifts, inheritances, and gambling winnings that occur in a free society, the market distributes to those who satisfy the perceived market-expressed demands of others, and how much it so distributes depends on how much is demanded and how great the alternative supply is. Unsuccessful businessmen and workers do not have the same animus against the capitalist system as do the wordsmith intellectuals. Only the sense of unrecognized superiority, of entitlement betrayed, produces that animus.

What factor produced feelings of superior value on the part of intellectuals? I want to focus on one institution in particular: schools. As book knowledge became increasingly important, schooling--the education together in classes of young people in reading and book knowledge--spread. Schools became the major institution outside of the family to shape the attitudes of young people, and almost all those who later became intellectuals went through schools. There they were successful. They were judged against others and deemed superior. They were praised and rewarded, the teacher's favorites. How could they fail to see themselves as superior? Daily, they experienced differences in facility with ideas, in quick-wittedness. The schools told them, and showed them, they were better.

We have refined the hypothesis somewhat. It is not simply formal schools but formal schooling in a specified social context that produces anti-capitalist animus in (wordsmith) intellectuals. No doubt, the hypothesis requires further refining. But enough. It is time to turn the hypothesis over to the social scientists, to take it from armchair speculations in the study and give it to those who will immerse themselves in more particular facts and data. We can point, however, to some areas where our hypothesis might yield testable consequences and predictions. First, one might predict that the more meritocratic a country's school system, the more likely its intellectuals are to be on the left. (Consider France.) Second, those intellectuals who were "late bloomers" in school would not have developed the same sense of entitlement to the very highest rewards; therefore, a lower percentage of the late-bloomer intellectuals will be anti-capitalist than of the early bloomers. Third, we limited our hypothesis to those societies (unlike Indian caste society) where the successful student plausibly could expect further comparable success in the wider society. In Western society, women have not heretofore plausibly held such expectations, so we would not expect the female students who constituted part of the academic upper class yet later underwent downward mobility to show the same anti-capitalist animus as male intellectuals. We might predict, then, that the more a society is known to move toward equality in occupational opportunity between women and men, the more its female intellectuals will exhibit the same disproportionate anti-capitalism its male intellectuals show.

MacIntyre begins his Cambridge talk by asserting that the 2008 economic crisis was not due to a failure of business ethics.

he has argued that moral behaviour begins with the good practice of a profession, trade, or art: playing the violin, cutting hair, brick-laying, teaching philosophy.

In other words, the virtues necessary for human flourishing are not a result of the top-down application of abstract ethical principles, but the development of good character in everyday life.

After Virtue, which is in essence an attack on the failings of the Enlightenment, has in its sights a catalogue of modern assumptions of beneficence: liberalism, humanism, individualism, capitalism. MacIntyre yearns for a single, shared view of the good life as opposed to modern pluralism’s assumption that there can be many competing views of how to live well.

In philosophy he attacks consequentialism, the view that what matters about an action is its consequences, which is usually coupled with utilitarianism’s “greatest happiness” principle. He also rejects Kantianism—the identification of universal ethical maxims based on reason and applied to circumstances top down. MacIntyre’s critique routinely cites the contradictory moral principles adopted by the allies in the second world war. Britain invoked a Kantian reason for declaring war on Germany: that Hitler could not be allowed to invade his neighbours. But the bombing of Dresden (which for a Kantian involved the treatment of people as a means to an end, something that should never be countenanced) was justified under consequentialist or utilitarian arguments: to bring the war to a swift end.

MacIntyre seeks to oppose utilitarianism on the grounds that people are called on by their very nature to be good, not merely to perform acts that can be interpreted as good. The most damaging consequence of the Enlightenment, for MacIntyre, is the decline of the idea of a tradition within which an individual’s desires are disciplined by virtue. And that means being guided by internal rather than external “goods.” So the point of being a good footballer is the internal good of playing beautifully and scoring lots of goals, not the external good of earning a lot of money. The trend away from an Aristotelian perspective has been inexorable: from the empiricism of David Hume, to Darwin’s account of nature driven forward without a purpose, to the sterile analytical philosophy of AJ Ayer and the “demolition of metaphysics” in his 1936 book Language, Truth and Logic.

Arguing that governments can pick winners, Professor Chang urges us to reclaim economic planning, not as a token of centrally-planned communism, but rather as the simple reality behind our market economies today:

Capitalist economies are in large part planned. Governments in capitalist economies practice planning too, albeit on a more limited basis than under communist central planning. All of them finance a significant share of investment in R&D and infrastructure. Most of them plan a significant chunk of the economy through the planning of the activities of state-owned enterprises. Many capitalist governments plan the future shape of individual industrial sectors through sectoral industrial policy or even that of the national economy through indicative planning. More importantly, modern capitalist economies are made up of large, hierarchical corporations that plan their activities in great detail, even across national borders. Therefore, the question is not whether you plan or not. It is about planning the right things at the right levels.

Drawing a clear distinction between communist central planning and capitalist 'indicative' planning, Chang notes that the latter: ... involves the government ... setting some broad targets concerning key economic variables (e.g., investments in strategic industries, infrastructure development, exports) and working with, not against, the private sector to achieve them. Unlike under central planning, these targets are not legally binding; hence the adjective 'indicative'. However, the government will do its best to achieve them by mobilizing various carrots (e.g., subsidies, granting of monopoly rights) and sticks (e.g., regulations, influence through state-owned banks) at its disposal.

Chang observes that: France had great success in promoting investment and technological innovation through indicative planning in the 1950s and 60s, thereby overtaking the British economy as Europe's second industrial power. Other European countries, such as Finland, Norway and Austria, also successfully used indicative planning to upgrade their economies between the 1950s and the 1970s. The East Asian miracle economies of Japan, Korea and Taiwan used indicative planning too between the 1950s and 1980s. This is not to say that all indicative planning exercises have been successful; in India, for example, it has not. Nevertheless, the European and East Asian examples show that planning in certain forms is not incompatible with capitalism and may even promote capitalist development very well.

As we have argued before, the current crisis raging through Europe (in large part caused by free-market economics), forces us to reconsider our economic options. More than ever before, now is the time to rehabilitate indicative planning and industrial policy as key levers in our arsenal of policy tools.

This is why, for example, large numbers of Americans oppose the idea of an estate tax even though the current form of the tax, slated to return in 2011, is very unlikely to affect them or their estates. In narrowly self-interested terms, that view may be irrational, but most Americans are unwilling to frame national issues in terms of rich versus poor. There’s a great deal of hostility toward various government bailouts, but the idea of “undeserving” recipients is the key factor in those feelings. Resentment against Wall Street gamesters hasn’t spilled over much into resentment against the wealthy more generally. The bailout for General Motors’ labor unions wasn’t so popular either—again, obviously not because of any bias against the wealthy but because a basic sense of fairness was violated. As of November 2010, congressional Democrats are of a mixed mind as to whether the Bush tax cuts should expire for those whose annual income exceeds $250,000; that is in large part because their constituents bear no animus toward rich people, only toward undeservedly rich people.

envy is usually local. At least in the United States, most economic resentment is not directed toward billionaires or high-roller financiers—not even corrupt ones. It’s directed at the guy down the hall who got a bigger raise. It’s directed at the husband of your wife’s sister, because the brand of beer he stocks costs $3 a case more than yours, and so on. That’s another reason why a lot of people aren’t so bothered by income or wealth inequality at the macro level. Most of us don’t compare ourselves to billionaires. Gore Vidal put it honestly: “Whenever a friend succeeds, a little something in me dies.”

Occasionally the cynic in me wonders why so many relatively well-off intellectuals lead the egalitarian charge against the privileges of the wealthy. One group has the status currency of money and the other has the status currency of intellect, so might they be competing for overall social regard? The high status of the wealthy in America, or for that matter the high status of celebrities, seems to bother our intellectual class most. That class composes a very small group, however, so the upshot is that growing income inequality won’t necessarily have major political implications at the macro level.

All that said, income inequality does matter—for both politics and the economy.

The numbers are clear: Income inequality has been rising in the United States, especially at the very top. The data show a big difference between two quite separate issues, namely income growth at the very top of the distribution and greater inequality throughout the distribution. The first trend is much more pronounced than the second, although the two are often confused.

When it comes to the first trend, the share of pre-tax income earned by the richest 1 percent of earners has increased from about 8 percent in 1974 to more than 18 percent in 2007. Furthermore, the richest 0.01 percent (the 15,000 or so richest families) had a share of less than 1 percent in 1974 but more than 6 percent of national income in 2007. As noted, those figures are from pre-tax income, so don’t look to the George W. Bush tax cuts to explain the pattern. Furthermore, these gains have been sustained and have evolved over many years, rather than coming in one or two small bursts between 1974 and today.1

At the same time, wage growth for the median earner has slowed since 1973. But that slower wage growth has afflicted large numbers of Americans, and it is conceptually distinct from the higher relative share of top income earners. For instance, if you take the 1979–2005 period, the average incomes of the bottom fifth of households increased only 6 percent while the incomes of the middle quintile rose by 21 percent. That’s a widening of the spread of incomes, but it’s not so drastic compared to the explosive gains at the very top.

The broader change in income distribution, the one occurring beneath the very top earners, can be deconstructed in a manner that makes nearly all of it look harmless. For instance, there is usually greater inequality of income among both older people and the more highly educated, if only because there is more time and more room for fortunes to vary. Since America is becoming both older and more highly educated, our measured income inequality will increase pretty much by demographic fiat. Economist Thomas Lemieux at the University of British Columbia estimates that these demographic effects explain three-quarters of the observed rise in income inequality for men, and even more for women.2

Attacking the problem from a different angle, other economists are challenging whether there is much growth in inequality at all below the super-rich. For instance, real incomes are measured using a common price index, yet poorer people are more likely to shop at discount outlets like Wal-Mart, which have seen big price drops over the past twenty years.3 Once we take this behavior into account, it is unclear whether the real income gaps between the poor and middle class have been widening much at all. Robert J. Gordon, an economist from Northwestern University who is hardly known as a right-wing apologist, wrote in a recent paper that “there was no increase of inequality after 1993 in the bottom 99 percent of the population”, and that whatever overall change there was “can be entirely explained by the behavior of income in the top 1 percent.”4

And so we come again to the gains of the top earners, clearly the big story told by the data. It’s worth noting that over this same period of time, inequality of work hours increased too. The top earners worked a lot more and most other Americans worked somewhat less. That’s another reason why high earners don’t occasion more resentment: Many people understand how hard they have to work to get there. It also seems that most of the income gains of the top earners were related to performance pay—bonuses, in other words—and not wildly out-of-whack yearly salaries.5

It is also the case that any society with a lot of “threshold earners” is likely to experience growing income inequality. A threshold earner is someone who seeks to earn a certain amount of money and no more. If wages go up, that person will respond by seeking less work or by working less hard or less often. That person simply wants to “get by” in terms of absolute earning power in order to experience other gains in the form of leisure—whether spending time with friends and family, walking in the woods and so on. Luck aside, that person’s income will never rise much above the threshold.

The funny thing is this: For years, many cultural critics in and of the United States have been telling us that Americans should behave more like threshold earners. We should be less harried, more interested in nurturing friendships, and more interested in the non-commercial sphere of life. That may well be good advice. Many studies suggest that above a certain level more money brings only marginal increments of happiness. What isn’t so widely advertised is that those same critics have basically been telling us, without realizing it, that we should be acting in such a manner as to increase measured income inequality. Not only is high inequality an inevitable concomitant of human diversity, but growing income inequality may be, too, if lots of us take the kind of advice that will make us happier.

Why is the top 1 percent doing so well?

Steven N. Kaplan and Joshua Rauh have recently provided a detailed estimation of particular American incomes.6 Their data do not comprise the entire U.S. population, but from partial financial records they find a very strong role for the financial sector in driving the trend toward income concentration at the top. For instance, for 2004, nonfinancial executives of publicly traded companies accounted for less than 6 percent of the top 0.01 percent income bracket. In that same year, the top 25 hedge fund managers combined appear to have earned more than all of the CEOs from the entire S&P 500. The number of Wall Street investors earning more than $100 million a year was nine times higher than the public company executives earning that amount. The authors also relate that they shared their estimates with a former U.S. Secretary of the Treasury, one who also has a Wall Street background. He thought their estimates of earnings in the financial sector were, if anything, understated.

Many of the other high earners are also connected to finance. After Wall Street, Kaplan and Rauh identify the legal sector as a contributor to the growing spread in earnings at the top. Yet many high-earning lawyers are doing financial deals, so a lot of the income generated through legal activity is rooted in finance. Other lawyers are defending corporations against lawsuits, filing lawsuits or helping corporations deal with complex regulations. The returns to these activities are an artifact of the growing complexity of the law and government growth rather than a tale of markets per se. Finance aside, there isn’t much of a story of market failure here, even if we don’t find the results aesthetically appealing.

When it comes to professional athletes and celebrities, there isn’t much of a mystery as to what has happened. Tiger Woods earns much more, even adjusting for inflation, than Arnold Palmer ever did. J.K. Rowling, the first billionaire author, earns much more than did Charles Dickens. These high incomes come, on balance, from the greater reach of modern communications and marketing. Kids all over the world read about Harry Potter. There is more purchasing power to spend on children’s books and, indeed, on culture and celebrities more generally. For high-earning celebrities, hardly anyone finds these earnings so morally objectionable as to suggest that they be politically actionable. Cultural critics can complain that good schoolteachers earn too little, and they may be right, but that does not make celebrities into political targets. They’re too popular. It’s also pretty clear that most of them work hard to earn their money, by persuading fans to buy or otherwise support their product. Most of these individuals do not come from elite or extremely privileged backgrounds, either. They worked their way to the top, and even if Rowling is not an author for the ages, her books tapped into the spirit of their time in a special way. We may or may not wish to tax the wealthy, including wealthy celebrities, at higher rates, but there is no need to “cure” the structural causes of higher celebrity incomes.

to be sure, the high incomes in finance should give us all pause.

The first factor driving high returns is sometimes called by practitioners “going short on volatility.” Sometimes it is called “negative skewness.” In plain English, this means that some investors opt for a strategy of betting against big, unexpected moves in market prices. Most of the time investors will do well by this strategy, since big, unexpected moves are outliers by definition. Traders will earn above-average returns in good times. In bad times they won’t suffer fully when catastrophic returns come in, as sooner or later is bound to happen, because the downside of these bets is partly socialized onto the Treasury, the Federal Reserve and, of course, the taxpayers and the unemployed.

if you bet against unlikely events, most of the time you will look smart and have the money to validate the appearance. Periodically, however, you will look very bad. Does that kind of pattern sound familiar? It happens in finance, too. Betting against a big decline in home prices is analogous to betting against the Wizards. Every now and then such a bet will blow up in your face, though in most years that trading activity will generate above-average profits and big bonuses for the traders and CEOs.

To this mix we can add the fact that many money managers are investing other people’s money. If you plan to stay with an investment bank for ten years or less, most of the people playing this investing strategy will make out very well most of the time. Everyone’s time horizon is a bit limited and you will bring in some nice years of extra returns and reap nice bonuses. And let’s say the whole thing does blow up in your face? What’s the worst that can happen? Your bosses fire you, but you will still have millions in the bank and that MBA from Harvard or Wharton. For the people actually investing the money, there’s barely any downside risk other than having to quit the party early. Furthermore, if everyone else made more or less the same mistake (very surprising major events, such as a busted housing market, affect virtually everybody), you’re hardly disgraced. You might even get rehired at another investment bank, or maybe a hedge fund, within months or even weeks.

Moreover, smart shareholders will acquiesce to or even encourage these gambles. They gain on the upside, while the downside, past the point of bankruptcy, is borne by the firm’s creditors. And will the bondholders object? Well, they might have a difficult time monitoring the internal trading operations of financial institutions. Of course, the firm’s trading book cannot be open to competitors, and that means it cannot be open to bondholders (or even most shareholders) either. So what, exactly, will they have in hand to object to?

Perhaps more important, government bailouts minimize the damage to creditors on the downside. Neither the Treasury nor the Fed allowed creditors to take any losses from the collapse of the major banks during the financial crisis. The U.S. government guaranteed these loans, either explicitly or implicitly. Guaranteeing the debt also encourages equity holders to take more risk. While current bailouts have not in general maintained equity values, and while share prices have often fallen to near zero following the bust of a major bank, the bailouts still give the bank a lifeline. Instead of the bank being destroyed, sometimes those equity prices do climb back out of the hole. This is true of the major surviving banks in the United States, and even AIG is paying back its bailout. For better or worse, we’re handing out free options on recovery, and that encourages banks to take more risk in the first place.

there is an unholy dynamic of short-term trading and investing, backed up by bailouts and risk reduction from the government and the Federal Reserve. This is not good. “Going short on volatility” is a dangerous strategy from a social point of view. For one thing, in so-called normal times, the finance sector attracts a big chunk of the smartest, most hard-working and most talented individuals. That represents a huge human capital opportunity cost to society and the economy at large. But more immediate and more important, it means that banks take far too many risks and go way out on a limb, often in correlated fashion. When their bets turn sour, as they did in 2007–09, everyone else pays the price.

And it’s not just the taxpayer cost of the bailout that stings. The financial disruption ends up throwing a lot of people out of work down the economic food chain, often for long periods. Furthermore, the Federal Reserve System has recapitalized major U.S. banks by paying interest on bank reserves and by keeping an unusually high interest rate spread, which allows banks to borrow short from Treasury at near-zero rates and invest in other higher-yielding assets and earn back lots of money rather quickly. In essence, we’re allowing banks to earn their way back by arbitraging interest rate spreads against the U.S. government. This is rarely called a bailout and it doesn’t count as a normal budget item, but it is a bailout nonetheless. This type of implicit bailout brings high social costs by slowing down economic recovery (the interest rate spreads require tight monetary policy) and by redistributing income from the Treasury to the major banks.

the “going short on volatility” strategy increases income inequality. In normal years the financial sector is flush with cash and high earnings. In implosion years a lot of the losses are borne by other sectors of society. In other words, financial crisis begets income inequality. Despite being conceptually distinct phenomena, the political economy of income inequality is, in part, the political economy of finance. Simon Johnson tabulates the numbers nicely: From 1973 to 1985, the financial sector never earned more than 16 percent of domestic corporate profits. In 1986, that figure reached 19 percent. In the 1990s, it oscillated between 21 percent and 30 percent, higher than it had ever been in the postwar period. This decade, it reached 41 percent. Pay rose just as dramatically. From 1948 to 1982, average compensation in the financial sector ranged between 99 percent and 108 percent of the average for all domestic private industries. From 1983, it shot upward, reaching 181 percent in 2007.7

There’s a second reason why the financial sector abets income inequality: the “moving first” issue. Let’s say that some news hits the market and that traders interpret this news at different speeds. One trader figures out what the news means in a second, while the other traders require five seconds. Still other traders require an entire day or maybe even a month to figure things out. The early traders earn the extra money. They buy the proper assets early, at the lower prices, and reap most of the gains when the other, later traders pile on. Similarly, if you buy into a successful tech company in the early stages, you are “moving first” in a very effective manner, and you will capture most of the gains if that company hits it big.

The moving-first phenomenon sums to a “winner-take-all” market. Only some relatively small number of traders, sometimes just one trader, can be first. Those who are first will make far more than those who are fourth or fifth. This difference will persist, even if those who are fourth come pretty close to competing with those who are first. In this context, first is first and it doesn’t matter much whether those who come in fourth pile on a month, a minute or a fraction of a second later. Those who bought (or sold, as the case may be) first have captured and locked in most of the available gains. Since gains are concentrated among the early winners, and the closeness of the runner-ups doesn’t so much matter for income distribution, asset-market trading thus encourages the ongoing concentration of wealth. Many investors make lots of mistakes and lose their money, but each year brings a new bunch of projects that can turn the early investors and traders into very wealthy individuals.

These two features of the problem—“going short on volatility” and “getting there first”—are related. Let’s say that Goldman Sachs regularly secures a lot of the best and quickest trades, whether because of its quality analysis, inside connections or high-frequency trading apparatus (it has all three). It builds up a treasure chest of profits and continues to hire very sharp traders and to receive valuable information. Those profits allow it to make “short on volatility” bets faster than anyone else, because if it messes up, it still has a large enough buffer to pad losses. This increases the odds that Goldman will repeatedly pull in spectacular profits.

Still, every now and then Goldman will go bust, or would go bust if not for government bailouts. But the odds are in any given year that it won’t because of the advantages it and other big banks have. It’s as if the major banks have tapped a hole in the social till and they are drinking from it with a straw. In any given year, this practice may seem tolerable—didn’t the bank earn the money fair and square by a series of fairly normal looking trades? Yet over time this situation will corrode productivity, because what the banks do bears almost no resemblance to a process of getting capital into the hands of those who can make most efficient use of it. And it leads to periodic financial explosions. That, in short, is the real problem of income inequality we face today. It’s what causes the inequality at the very top of the earning pyramid that has dangerous implications for the economy as a whole.

What about controlling bank risk-taking directly with tight government oversight? That is not practical. There are more ways for banks to take risks than even knowledgeable regulators can possibly control; it just isn’t that easy to oversee a balance sheet with hundreds of billions of dollars on it, especially when short-term positions are wound down before quarterly inspections. It’s also not clear how well regulators can identify risky assets. Some of the worst excesses of the financial crisis were grounded in mortgage-backed assets—a very traditional function of banks—not exotic derivatives trading strategies. Virtually any asset position can be used to bet long odds, one way or another. It is naive to think that underpaid, undertrained regulators can keep up with financial traders, especially when the latter stand to earn billions by circumventing the intent of regulations while remaining within the letter of the law.

For the time being, we need to accept the possibility that the financial sector has learned how to game the American (and UK-based) system of state capitalism. It’s no longer obvious that the system is stable at a macro level, and extreme income inequality at the top has been one result of that imbalance. Income inequality is a symptom, however, rather than a cause of the real problem. The root cause of income inequality, viewed in the most general terms, is extreme human ingenuity, albeit of a perverse kind. That is why it is so hard to control.

Another root cause of growing inequality is that the modern world, by so limiting our downside risk, makes extreme risk-taking all too comfortable and easy. More risk-taking will mean more inequality, sooner or later, because winners always emerge from risk-taking. Yet bankers who take bad risks (provided those risks are legal) simply do not end up with bad outcomes in any absolute sense. They still have millions in the bank, lots of human capital and plenty of social status. We’re not going to bring back torture, trial by ordeal or debtors’ prisons, nor should we. Yet the threat of impoverishment and disgrace no longer looms the way it once did, so we no longer can constrain excess financial risk-taking. It’s too soft and cushy a world.

Why don’t we simply eliminate the safety net for clueless or unlucky risk-takers so that losses equal gains overall? That’s a good idea in principle, but it is hard to put into practice. Once a financial crisis arrives, politicians will seek to limit the damage, and that means they will bail out major financial institutions. Had we not passed TARP and related policies, the United States probably would have faced unemployment rates of 25 percent of higher, as in the Great Depression. The political consequences would not have been pretty. Bank bailouts may sound quite interventionist, and indeed they are, but in relative terms they probably were the most libertarian policy we had on tap. It meant big one-time expenses, but, for the most part, it kept government out of the real economy (the General Motors bailout aside).

We probably don’t have any solution to the hazards created by our financial sector, not because plutocrats are preventing our political system from adopting appropriate remedies, but because we don’t know what those remedies are. Yet neither is another crisis immediately upon us. The underlying dynamic favors excess risk-taking, but banks at the current moment fear the scrutiny of regulators and the public and so are playing it fairly safe. They are sitting on money rather than lending it out. The biggest risk today is how few parties will take risks, and, in part, the caution of banks is driving our current protracted economic slowdown. According to this view, the long run will bring another financial crisis once moods pick up and external scrutiny weakens, but that day of reckoning is still some ways off.

Is the overall picture a shame? Yes. Is it distorting resource distribution and productivity in the meantime? Yes. Will it again bring our economy to its knees? Probably. Maybe that’s simply the price of modern society. Income inequality will likely continue to rise and we will search in vain for the appropriate political remedies for our underlying problems.

as Durkeheim found when looking at Swiss data a century earlier, Catholics had the lowest suicide rate and Protestants higher. What's more, Egger found that the unaffiliated had the highest of all.

ne thing that jumped out was that the gap was much bigger for older people. At ages 35-44, there was essentially no difference. The gap grows gradually with age: in the oldest group (aged 85-94), Protestants are twice as likely as Catholics to commit suicide, and the unaffiliated four times as likely.

Strangely enough, the effect was particularly strong for death by poisoning. That's a perplexing result, until you remember that Switzerland is one of the few countries where assisted suicide is legal (so long as the motive is not selfish). There are several societies in Switzerland that provide assisted dying, with the usual method being an injection of barbiturates. On the death record, that's recorded as a death by poisoning.

That's not to say that Durkheim was wrong about religion. Social integration is important in reducing suicide, and that may well have contributed to the differences seen. Egger found that married people, and those living with others, also had lower suicide rates. But these data couldn't show that religion affected social integration.

government financing agencies as the National Institutes of Health and the National Science Foundation are like the managers of a stock index fund: they buy everything in the market, and the few spectacular winners make up for all the disasters. But just as index fund managers often go astray when they try to improve on the index’s performance by overweighting the stocks they favor, the government can go wrong when it tries to pick winners.

Mr [Andrew] Baum [of Morgan Stanley] argues that the solution for drug companies is to share the risks of research with others. That means reducing in-house investment in research, and instead partnering and licensing experimental medicines from smaller companies after some of the early failures have been eliminated.

Chas Bountra of Oxford university calls for a more radical partnership combining industry and academic research. “What we are trying to do is just too difficult,” he says. “No one organisation can do it, so we have to pool resources and expertise.” He suggests removing intellectual property rights until a drug is in mid-stage testing in humans, which would make academics more willing to co-operate because they could publish their results freely. The sharing of data would enable companies to avoid duplicating work.

The challenge is for academia and biotech companies to fill the research gap. Mr Ratcliffe argues that after a lull in 2009 and 2010, private capital is returning to the sector – as demonstrated by a particular buzz at JPMorgan’s new year biotech conference in California.

Patrick Vallance, senior vice-president for discovery at GSK, is cautious about deferring patents until so late, arguing that drug companies need to be able to protect their intellectual property in order to fund expensive late-stage development. But he too is experimenting with ways to co-operate more closely with academics over longer periods. He is also championing the “externalisation” of the company’s pipeline, with biotech and university partners accounting for half the total. GSK has earmarked £50m to support fledgling British companies, many “wrapped around” the group’s sites. One such example is Convergence, a spin-out from a GSK lab researching pain relief.

Big pharmaceutical companies are scrambling to find ways to overcome the loss of tens of billions of dollars in revenue as patents on top-selling drugs run out. Many sound similar notes about encouraging entrepreneurialism in their ranks, making smart deals and capitalizing on emerging-market growth, But their actual plans are often quite different—and each carries significant risks. Novartis AG, for instance, is so convinced that diversification is the best course that the company has a considerable business selling low-priced generics. Meantime, Bristol-Myers Squibb Co. has decided to concentrate on innovative medicines, shedding so many nonpharmaceutical units that it' has become midsize. GlaxoSmithKline PLC is still investing in research, but like Pfizer it has narrowed the range of disease areas in which it's seeking new treatments. Underlying the divergence is a deep-seated philosophical dispute over the merits of the heavy investment that companies must make to discover new drugs. By most estimates, bringing a new molecule to market costs drug makers more than $1 billion. Industry officials have been engaged in a vigorous debate over whether the investment is worth it, or whether they should leave it to others whose work they can acquire or license after a demonstration of strong potential.

To what extent can approached to innovation influence the trend line in the graph above?  I don't think that anyone really knows the answer.  The different approaches being taken by Merck and Pfizer, for instance, represent a real world policy experiment: The contrast between Merck and Pfizer reflects the very different personal approaches of their CEOs. An accountant by training, Mr. Read has held various business positions during a three-decade career at Pfizer. The 57-year-old cited torcetrapib, a cholesterol medicine that the company spent more than $800 million developing but then pulled due to safety concerns, as an example of the kind of wasteful spending Pfizer would avoid. "We're going to have metrics," Mr. Read said. He wants Pfizer to stop "always investing on hope rather than strong signals and the quality of the science, the quality of the medicine." Mr. Frazier, 56, a Harvard-educated lawyer who joined Merck in 1994 from private practice, said the company was sticking by its own troubled heart drug, vorapaxar. Mr. Frazier said he wanted to see all of the data from the trials before rushing to judgment. "We believe in the innovation approach," he said.

Universities are also being used as flag carriers for national economic ambitions - driving forward modernisation plans. For some it's been a spectacularly fast rise. According to the OECD, in the 1960s South Korea had a similar national wealth to Afghanistan. Now it tops international education league tables and has some of the highest-rated universities in the world. The Pohang University of Science and Technology in South Korea was only founded in 1986 - and is now in the top 30 of the Times Higher's global league table, elbowing past many ancient and venerable institutions. It also wants to compete on an international stage so the university has decided that all its graduate programmes should be taught in English rather than Korean.

governments want to use universities to upgrade their workforce and develop hi-tech industries.

"Universities are being seen as a key to the new economies, they're trying to grow the knowledge economy by building a base in universities," says Professor Altbach. Families, from rural China to eastern Europe, are also seeing university as a way of helping their children to get higher-paid jobs. A growing middle-class in India is pushing an expansion in places. Universities also stand to gain from recruiting overseas. "Universities in the rich countries are making big bucks," he says. This international trade is worth at least $50 billion a year, he estimates, the lion's share currently being claimed by the US.

Technology, much of it hatched on university campuses, is also changing higher education and blurring national boundaries.

It raises many questions too. What are the expectations of this Facebook generation? They might have degrees and be able to see what is happening on the other side of the world, but will there be enough jobs to match their ambitions? Who is going to pay for such an expanded university system? And what about those who will struggle to afford a place?

The success of the US system is not just about funding, says Professor Altbach. It's also because it's well run and research is effectively organised. "Of course there are lots of lousy institutions in the US, but overall the system works well." Continue reading the main story “Start Quote Developed economies are already highly dependent on universities and if anything that reliance will increase” End Quote David Willetts UK universities minister The status of the US system has been bolstered by the link between its university research and developing hi-tech industries. Icons of the internet-age such Google and Facebook grew out of US campuses.

3. Collaboration at scale Across many economies, the number of people who undertake knowledge work has grown much more quickly than the number of production or transactions workers. Knowledge workers typically are paid more than others, so increasing their productivity is critical. As a result, there is broad interest in collaboration technologies that promise to improve these workers' efficiency and effectiveness. While the body of knowledge around the best use of such technologies is still developing, a number of companies have conducted experiments, as we see in the rapid growth rates of video and Web conferencing, expected to top 20 per cent annually during the next few years.

4. The growing ‘Internet of Things' The adoption of RFID (radio-frequency identification) and related technologies was the basis of a trend we first recognised as "expanding the frontiers of automation." But these methods are rudimentary compared with what emerges when assets themselves become elements of an information system, with the ability to capture, compute, communicate, and collaborate around information—something that has come to be known as the "Internet of Things." Embedded with sensors, actuators, and communications capabilities, such objects will soon be able to absorb and transmit information on a massive scale and, in some cases, to adapt and react to changes in the environment automatically. These "smart" assets can make processes more efficient, give products new capabilities, and spark novel business models. Auto insurers in Europe and the United States are testing these waters with offers to install sensors in customers' vehicles. The result is new pricing models that base charges for risk on driving behavior rather than on a driver's demographic characteristics. Luxury-auto manufacturers are equipping vehicles with networked sensors that can automatically take evasive action when accidents are about to happen. In medicine, sensors embedded in or worn by patients continuously report changes in health conditions to physicians, who can adjust treatments when necessary. Sensors in manufacturing lines for products as diverse as computer chips and pulp and paper take detailed readings on process conditions and automatically make adjustments to reduce waste, downtime, and costly human interventions.

5. Experimentation and big data Could the enterprise become a full-time laboratory? What if you could analyse every transaction, capture insights from every customer interaction, and didn't have to wait for months to get data from the field? What if…? Data are flooding in at rates never seen before—doubling every 18 months—as a result of greater access to customer data from public, proprietary, and purchased sources, as well as new information gathered from Web communities and newly deployed smart assets. These trends are broadly known as "big data." Technology for capturing and analysing information is widely available at ever-lower price points. But many companies are taking data use to new levels, using IT to support rigorous, constant business experimentation that guides decisions and to test new products, business models, and innovations in customer experience. In some cases, the new approaches help companies make decisions in real time. This trend has the potential to drive a radical transformation in research, innovation, and marketing.

Using experimentation and big data as essential components of management decision making requires new capabilities, as well as organisational and cultural change. Most companies are far from accessing all the available data. Some haven't even mastered the technologies needed to capture and analyse the valuable information they can access. More commonly, they don't have the right talent and processes to design experiments and extract business value from big data, which require changes in the way many executives now make decisions: trusting instincts and experience over experimentation and rigorous analysis. To get managers at all echelons to accept the value of experimentation, senior leaders must buy into a "test and learn" mind-set and then serve as role models for their teams.

6. Wiring for a sustainable world Even as regulatory frameworks continue to evolve, environmental stewardship and sustainability clearly are C-level agenda topics. What's more, sustainability is fast becoming an important corporate-performance metric—one that stakeholders, outside influencers, and even financial markets have begun to track. Information technology plays a dual role in this debate: it is both a significant source of environmental emissions and a key enabler of many strategies to mitigate environmental damage. At present, information technology's share of the world's environmental footprint is growing because of the ever-increasing demand for IT capacity and services. Electricity produced to power the world's data centers generates greenhouse gases on the scale of countries such as Argentina or the Netherlands, and these emissions could increase fourfold by 2020. McKinsey research has shown, however, that the use of IT in areas such as smart power grids, efficient buildings, and better logistics planning could eliminate five times the carbon emissions that the IT industry produces.

7. Imagining anything as a service Technology now enables companies to monitor, measure, customise, and bill for asset use at a much more fine-grained level than ever before. Asset owners can therefore create services around what have traditionally been sold as products. Business-to-business (B2B) customers like these service offerings because they allow companies to purchase units of a service and to account for them as a variable cost rather than undertake large capital investments. Consumers also like this "paying only for what you use" model, which helps them avoid large expenditures, as well as the hassles of buying and maintaining a product.

In the IT industry, the growth of "cloud computing" (accessing computer resources provided through networks rather than running software or storing data on a local computer) exemplifies this shift. Consumer acceptance of Web-based cloud services for everything from e-mail to video is of course becoming universal, and companies are following suit. Software as a service (SaaS), which enables organisations to access services such as customer relationship management, is growing at a 17 per cent annual rate. The biotechnology company Genentech, for example, uses Google Apps for e-mail and to create documents and spreadsheets, bypassing capital investments in servers and software licenses. This development has created a wave of computing capabilities delivered as a service, including infrastructure, platform, applications, and content. And vendors are competing, with innovation and new business models, to match the needs of different customers.

8. The age of the multisided business model Multisided business models create value through interactions among multiple players rather than traditional one-on-one transactions or information exchanges. In the media industry, advertising is a classic example of how these models work. Newspapers, magasines, and television stations offer content to their audiences while generating a significant portion of their revenues from third parties: advertisers. Other revenue, often through subscriptions, comes directly from consumers. More recently, this advertising-supported model has proliferated on the Internet, underwriting Web content sites, as well as services such as search and e-mail (see trend number seven, "Imagining anything as a service," earlier in this article). It is now spreading to new markets, such as enterprise software: Spiceworks offers IT-management applications to 950,000 users at no cost, while it collects advertising from B2B companies that want access to IT professionals.

9. Innovating from the bottom of the pyramid The adoption of technology is a global phenomenon, and the intensity of its usage is particularly impressive in emerging markets. Our research has shown that disruptive business models arise when technology combines with extreme market conditions, such as customer demand for very low price points, poor infrastructure, hard-to-access suppliers, and low cost curves for talent. With an economic recovery beginning to take hold in some parts of the world, high rates of growth have resumed in many developing nations, and we're seeing companies built around the new models emerging as global players. Many multinationals, meanwhile, are only starting to think about developing markets as wellsprings of technology-enabled innovation rather than as traditional manufacturing hubs.

10. Producing public good on the grid The role of governments in shaping global economic policy will expand in coming years. Technology will be an important factor in this evolution by facilitating the creation of new types of public goods while helping to manage them more effectively. This last trend is broad in scope and draws upon many of the other trends described above.

perhaps of greatest significance from the perspective of Civil Society and of communities is the overall absence of measurement and thus inclusion in the economic accounting of the value of the contributions provided to, through and on the Internet of various voluntary and not-for-profit initiatives and activities. Thus for example, the millions of hours of labour contributed to Wikipedia, or to the development of Free or Open Source software, or to providing support for public Internet access and training is not included as a net contribution or benefit to the economy (as measured through the GDP). Rather, this is measured as a negative effect since, as some would argue, those who are making this contribution could be using their time and talents in more “productive” (and “economically measurable”) activities. Thus for example, a region or country that chooses to go with free or open source software as the basis for its in-school computing is not only “not contributing to ‘economic well being’” it is “statistically” a “cost” to the economy since it is not allowing for expenditures on, for example, suites of Microsoft products.

there appears to have been no systematic attention paid to the relationship of the activities and growth of voluntary contributions to the Internet and the volume, range and depth of Internet activity, digital literacy and economic value being derived from the use of the Internet.

Although there was widespread acceptance that climate change was occurring, Democrats were much more likely to ascribe it to human causes (margins ranged from 20 to 50 percent). Independents were somewhere in the middle. Among those who claimed to understand the topic well, the gap actually increased.

Republicans with a high degree of confidence in their knowledge of the climate were more likely to dismiss the scientific community's opinion; the highly confident Democrats were more likely to embrace it. The authors caution, however, that "The survey answers thus reflect self-confidence, which has an untested relation to knowledge."

The people working with Gallup data performed the same analysis, and found precisely the same thing: the more registered Republicans and those who describe themselves as conservatives thought they knew about anthropogenic climate change, the less likely they were to accept the evidence for it. For Democrats and independents, the opposite was true (same for self-styled moderates and liberals). This group also did a slightly different check, and broke out opinions on global warming based on education and political leanings. For Democrats and independents, increased education boosted their readiness to accept the scientific community's conclusions. For self-styled conservatives, education had almost no effect (it gave a slight boost in registered Republicans).

Because this group had temporal data, they could track the progression of this liberal/conservative gap. It existed back in the first year they had data, 2001, but the gap was relatively stable until about 2008. At that point, acceptance among conservatives plunged, leading to the current gap of over 40 percentage points (up from less than 20) between these groups.

Both groups also come to similar conclusions about why this gap has developed. The piece in The Sociological Quarterly is appropriately sociological, suggesting that modernizing forces have compelled most societies to deal with the "negative consequences of industrial capitalism," such as pollution. Climate change, for these authors, is a case where the elites of conservative politics have convinced their followers to protect capitalism from any negative associations.

The UNH group takes a more nuanced, psychological view of matters. "'Biased assimilation' has been demonstrated in experiments that find people reject information about the existence of a problem if they object to its possible solutions," they note, before later stating that many appear to be "basing their beliefs about science and physical reality on what they thought would be the political implications if human-caused climate change were true."

neither group offers a satisfying solution. The sociologists simply warn that the culture wars have reached potentially dangerous proportions when it comes to climate science, while the group from New Hampshire suggests we might have to wait until an unambiguous consequence, like the loss of Arctic ice in the summer, for some segments of society to come around.