The impending decline of current financial systems in the wake of the shared economy.

In the fight between you and the world, back the world.” – Franz Kafka

As western economies continue on a slow-growth trajectory that exacerbates inequalities, increasing numbers of people will recognize that patterns of consumption and sources of value based on current socioeconomic models are no longer sustainable. This will directly impact trust in the financial system and institutions, leading to an increasing embrace of the principles of the shared economy, disrupting current models of banking and finance, and restoring to people greater control over the design and evolution of social and economic structures.

Whilst Millennials contemplate being the first generation since the industrial revolution to have a lower standard of living than their parents, and Gen-X and late Boomers contemplate being less secure in retirement than the previous generation, the great intergenerational machine of wealth transfer that sustained increasing standards of living in western societies has slowed, and in many cases, reversed.  This reversal challenges key tenets of the market economy such as home ownership and wealth generation through investment, as well as the tenets of the modern welfare state such as secure retirements and robust social programs.  Our societies are increasingly left with neither the prospect of enterprise-driven progress nor the comfort of a social safety net, a future that unites free marketers and socialists in disappointment.

As this fundamental realization sinks in, and we as a society adjust to a future that is less promising than what could be contemplated as recently as 15-20 years ago, there will be deep and lasting changes in patterns of living, ownership and value creation for the vast majority of western civilization.  Home ownership and savings are already starkly lower among millennials vs. other generations, and many seniors face the prospect of home and food insecurity in perilous and prolonged retirements.  The linkage between higher education and high-paying jobs is broken, except for some specialized disciplines.  Previous cycles of consumption and accumulation based on readily available credit are no longer feasible given high debt ratios and lower incomes.  Stock market valuations have grown at the expense of employment for over a generation, and are seen as benefiting an exclusive cabal of insiders with privileged access.

These trends conspire to create a slow-growth society with exacerbated inequalities, and challenge the legitimacy of current socioeconomic models. In response, the ownership imperative is increasingly replaced with the values of the shared economy, trust in the financial system is eroded to the point where unconventional definitions of economic value (e.g. Bitcoin) become attractive, and alternative models of trade and commerce (e.g. barter and co-operative living) become preferable to continued participation in a system that the young see as rigged and the old see as failed.

As western societies grapple with the full impact of the great schism between growth and equality, there will be long-lasting impacts on future generations. Millennials and Boomers alike will realize that traditional patterns of consumption and traditional definitions of value are unsustainable. The current financial system and institutions will continue to lose even more relevance, and not matter in the lives of a substantial part of our societies. Banks, credit, stock markets, home ownership, nuclear families – all foundational to social organization in the last 70 years, will be replaced by new models of social and economic organization based on the shared economy. For incumbent leaders that currently shape our economy, this loss of trust will inevitably lead to the loss of control, and the eventual loss of relevance.

In some ways, this is the undoing of four hundred years of economic development, and harkens back to pre-industrial days.  But perhaps a system that robs the young of opportunity and the old of security in equal measure deserves to go gently into the good night.