Was Marx right after all? Maybe, but not in a way he could have imagined

Technological change may spawn a bleak new underclass or it could finally smash the class system, argues Yvette Cooper
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Who Says Karl Marx is dead? True, his name no longer graces the official ideologies of half the world's governments. And those persistent campaigning Marxists, the Socialist Workers' Party, did not even have the energy to sell newspapers at the Labour Party Conference this year.

But for all that, I spy echoes of Karl in the new economic theories that are emerging to explain the far-reaching changes in the economy and society that are currently under way. Could Marx really have got some things right after all?

According to Marx's theory of history, the shape of our society - and in particular its class structure - depends on the kind of goods we trade, and the way in which we produce them: feudal agricultural society, for example, is very different from industrial society. And an individual's position within the social hierarchy depends on the kind of economic role she plays. If she owns factories, or capital to invest, she has a different class and social position than her contemporaries who labour for their living.

The engine of social change in Marx's theory - his historical materialism - is technological progress. As technology develops and changes the way the economy works, so the power of different classes changes too. When industrial production replaced agriculture as the most important activity, the capital owners displaced the feudal landowners. The emerging class pushes aside the old dominant class and so for Marx, history is the story of class struggle.

As an account of the transition between agricultural and industrial society in Europe, and the rise of the bourgeoisie, Marxism has some appeal - even if it is simplistic and too determinist. But what next? Marx's own predictions about a working class revolution and the overthrow of capitalism were clearly ludicrous. But technological change marches on. The way we produce and trade is changing in radical ways, just as it did during the industrial revolution. And the class structure is changing, too. As economists and theorists try to analyse these modern changes, their arguments sound reminiscent of Marx's account of the industrial revolution over 100 years ago.

Where Marx talked of historical materialism, one modern economist describes the changes today as "dematerialisation". In a recent London School of Economics pamphlet, economist Danny Quah argues that technological development is making our economies increasingly "weightless". In the past, we traded tangible objects: non-stick frying pans, machines, cuddly toys. Today increasingly, the goods we value and pay up for are dematerialised: ideas, chemical formulae, genetic blueprints, computer programs.

And instead of exchanging these weightless goods, we reproduce them. I can sell you a computer game or an idea, without losing my own - in contrast to the frying pan I sold you, leaving myself with nothing to cook with.

So what are the social consequences of this kind of economic change?

As knowledge becomes more important, those who can acquire and manipulate it easily gain economic power. The wages commanded by those with high skills in Britain are indeed rising relative to their less educated colleagues. In effect, a new class is emerging, well-educated and talented, drawing on their human capital rather than wealth. And arguably, as society becomes more meritocratic, they are pushing aside the old ruling class who rely only on inherited wealth.

In one sense, Marx may have been right about the new society to replace industrial capitalism. The important factor of production is indeed human labour rather than capital, but that labour is mental not physical. Possibly he was right too, to envisage a classless society. If education is what matters, and education is freely and equally distributed, then all should have the same access to economic power.

But of course there's a catch - several catches in fact. For a start, education is not equally distributed in Britain today. Your chance of a good education still depends to a surprising extent on how well educated your parents were. Unless the education system is radically changed, then the successful class could still perpetuate itself across the generations, only this time by passing on a good education rather than inherited wealth.

Second it may be talent rather than education that is really at a premium in this new weightless world. The bright and the brilliant who learn fastest may become extremely prosperous and powerful, at the expense of those who struggle to learn. Society may be mobile, but very unequal nevertheless.

Quah himself offers a third uncomfortable possibility. He suggests that what matters is not so much education but the control of knowledge. Those who own the patents will be the ones who really have power. So long as they can restrict access to their products, and force people to pay to join up, they have the potential to make a lot of money. Just think of Bill Gates, the Microsoft billionaire, who is cashing in on the fact that we all buy his products, simply because everyone else is buying them, too. Every extra reproduction of the software has a tiny cost, but we pay an awful lot for it.

Quah argues that the expansion of these kinds of markets - so different from the competitive markets for material goods that economists usually study - will have wide repercussions. Society could, he claims, even polarise into twin peaks (see graph); the rich who share the important knowledge, and the poor who do not.

Control over the important means of production, this time weightless goods rather than material capital, determines social structure in Quah's speculations just as it did in Marx's writings more than 100 years ago. The trouble is that Quah is, as he himself admits, projecting models into the future without yet having the empirical evidence to back them up - just in fact as Marx did. The kinds of economic changes that are taking place will indeed have social and distributive consequences.

But whether these allow us to destroy the class system once and for all, or simply throw up new kinds of social differentiation in its place we cannot tell. Doubtless the way we as individuals and through our government react to these changes will have an effect on the final form they take.