(Washington, DC) Inspired by the work of the late Ulrich Beck, let’s say that capital and risk are two different issues. Whether you face low or high risk, you may have anywhere from zero to vast amounts of capital.
The more capital you have, the more power you can wield over other people. But the more risk you face, the more vulnerable you are to other people and to nature and fate. Governments and citizen groups can try to make the distributions of capital and of risk more consistent with justice, although the nature of justice is perennially controversial.
I think that companies and big investors have gotten better at handling risk, most individuals are more exposed to risk, and governments are worse at mitigating it.
In (say) 1932, capital was unequally distributed: Daddy Warbucks had a lot more cash than Little Orphan Annie. Risks were also unequally distributed: you were a lot more likely to get black lung disease if you were a miner than a stockbroker. But governments had a toolkit for analyzing, predicting, and remedying both sorts of inequalities. They could use tax and health statistics to see how capital and risk were distributed and could intervene by taxing and spending, by regulating big accumulations of capital (mainly banks and large corporations), and by implementing health and safety regulations. Labor unions also helped to socialize or mitigate risk. Meanwhile, corporations had limited tools to predict the risks that they faced individually, from strikes to earthquakes. And they had lots of sunk capital, such as the vast factories of Detroit. So they shared in the risks faced by their workers and were probably better off when governments mitigated risks for all.
Fast forward to 2012. Risks remain very unequal. With smaller unions and other strong membership associations and with generally less effective regulations, risks tend to be individualized. We also have a strong cultural presumption that risk belongs to the individual. A teenager who gets in trouble is supposed to pay the full price for his mistake.
Entities that have a lot of capital can navigate this environment. A company like Google in 2015 has much less sunk capital than a company like GM in 1932. Google can move investments anywhere in the world. It can fire an
employer employee who is not performing or whose skills have become obsolete. The private sector also has sophisticated tools to forecast at least short-term risks and exotic financial instruments to hedge against risk. Overall, a company or an investor with lots of capital and sophistication is better off in a high-risk/high-opportunity economy than in a more predictable environment. To an increasing extent, money can simply purchase protection against risk.
But risk has shifted from capital to labor. Whereas the private sector can use a whole panoply of tools to predict adverse events and to externalize or limit their risks, individual workers have little recourse, and governments do not seem to be able to plan for even the most obvious risks, such as climate change. They choose systematically foolish responses to risks, such as dramatically overreacting to terrorism while ignoring the threat of financial meltdowns. Their unwillingness and incompetence are not inevitable laws of nature. They have been made weaker on purpose. Nevertheless, even a well-intentioned government would now have a long way to go before it possessed an adequate toolkit for understanding and mitigating risk.