Universal Basic Income and the promises and perils of a leisured economy

‘From each according to his abilities, to each according to his needs’ (Karl Marx, Critique of the Gotha Program)

Introduction

Until recently few people would have heard of Universal Basic Income (UBI), despite the idea having been around for more than 200 years.1 Although it has gone under various names and had various proposed formats (such as basic endowment and negative taxation2) they are all basically the same proposal: that every single person should receive a fixed stipend from the state, regardless of wealth or need, and then be able to choose whether to exist on this or to top it up by working. Its attractiveness is its simplicity – cutting through the complications of means testing – and its ethical appeal to the equal worthiness of human life that has garnered support not just from the left, for whom the appeal is obvious, but across the political spectrum. There is, though, a pragmatic reason for the growing interest in UBI: real concern that the effects of labour outsourcing and automation are having on the continuing existence of many jobs in developed economies, and the political fallout that may arise (some will say it has already begun) as a result, is beginning to be taken seriously.

Like all grand ideas, especially those that unite opinion across a wide spectrum, there are also voices that raise pertinent objections from various perspectives. One is around cost and effectiveness. Some maintain that it is affordable3 and the only thing lacking is the political will to implement it, others that if it were to be set at a rate that would be effective it would be unaffordable4 and, moreover, if it were set at a rate lower than this boundary of effectiveness, poorer households would be worse off than they are under existing benefits system. There is also resistance to the idea of well-off individuals, in no need of financial support, receiving it of right as a bonus, despite this being the point – that it is given universally, regardless of circumstances. Another area of contention is around socio-ethical and psychological issues. Advocates5 of the UBI say that it will free people from anxiety in the face of job loss or being chained to a waged job, allowing them to be creative: to dedicate themselves to art or music, say, or to engage in voluntary work, while others may choose to start their own businesses; thus, it has the potential to reinvigorate culture and even the economy. Opponents6, though, state that it will create a disincentive to work, even undermining the work ethic of entire nations.

I am not placed to judge the economic merits of this idea. Those who are interested can follow up the sources cited in the endnotes. Nor am I qualified to express more than an opinion on the possible psycho-social implications; there are around a dozen medium-size pilot schemes7 of UBI taking place worldwide at present, and the outcome of those will have some bearing on whether individual countries decide to implement them on a larger scale. However, they will have to overcome political obstacles, even if they are roundly endorsed at the experimental level. My purpose in this essay is to critically evaluate the viability of UBI as a social policy and advance a philosophical argument that work constitutes one important aspect of our human value and that a work-free, or ‘leisured’ economy risks diminishing that value, to the extent that we should be wary of the radical restructuring of human society entailed by UBI.

The periodic recurrence of the idea

The fact that UBI has been around for a long time but never been implemented suggests that it is a periodic response to economic crises that tends to fade once the particular crisis has passed. In this case I am not just referring to economic crises like the financial crash of 2008, which has many precursors, but the economic threat implied to individuals’ means of support by new technologies. Today it is the advent of Artificial Intelligence and robots through which many of the jobs we take for granted today may disappear, but this threat has been a real feature of the economic landscape over the past two centuries. The spread of new industrial centres in England in the eighteenth century, driven by steam power, created an enormous dislocation of the population from rural to urban areas. Much the same happened in America in the 1920s and 1930s and is happening today in China. The eventual outcome, in every case, has been increased prosperity (granted that that does not take into account the tally of human misery in the process, or the sacrifice of those who did not live to see the benefits). Moreover, work has never disappeared; only specific types of work have become extinct, to be replaced by jobs required by a new economic infrastructure.

Nevertheless, like the story of the boy who cried wolf, this does not mean that the threat of the extinction of work per se is not a real one this time or the next time. Predictions that the era of free market capitalism, and the social relations that this entailed, are over are not to be lightly dismissed, if indeed the very idea of work on which capitalism has been predicated is headed for oblivion. While it can be argued that the free market has successfully adapted to a largely service, finance and consumer economy, it could be countered that moving the agricultural and industrial jobs – that is, the jobs that ensure that we are fed and have things to buy and sell – offshore to more economically advantageous environments in the developing world, where labour costs are much lower, has condemned us to living in a virtual economy, running on extended credit. Certainly, the size of the deficits in post-industrial nations suggests that this might be the case. If that is so, when there are no more developing countries to which to relocate industries or outsource our agriculture, that might precipitate the end of capitalism.8

Such is, of course, pure speculation. I find more persuasive the argument that the free market is a spontaneously arising feature of every human society, from the simplest to the most complex, because it is human nature to trade, both for necessities and for luxuries. And trade both necessitates, as a precondition, and involves, as a consequence, work of some form or other. That is not to say that the free market principle has not been expropriated and exploited by powerful institutions, of which the capitalist (and socialist) models of economic organisation are the most recent in our historical experience. However, I believe human ingenuity, fostered through the free market, will continue to deliver technological innovation and economic advancement, of which work will always be an integral part, though the nature of work will continue to evolve, and, probably and hopefully, the economic system will evolve in the direction of greater justice and individual empowerment.

Therefore, while we cannot rule out the possibility of UBI being adopted in advanced economies, the historical precedent, and human nature itself, suggests that we are more likely to see an evolution in the type of work and types of jobs available, rather than the disappearance of work and the emergence of a purely leisured economy, though that does not rule out the emergence of a different economic system and economic relations. However, I doubt whether UBI will play a significant role in this future; in some respects, I believe it would be a dangerous and retrograde step, for reasons that I will set out below.

The nature of human value

One of the plausible moral arguments for UBI is that it appeals to our sense of fairness, that everyone should be treated equally, based on our common humanity. Though this intersects with a Rawlsian interpretation of justice ‘behind the veil’, this is not uniquely a sentiment of the secular left, but an idea deep in the anthropology of the monotheistic religions, of man as a created being possessing intrinsic value, and thus due a portion of the earth’s bounty. While I think the idea of intrinsic value is important for human societies, I do not think this is the way we think under normal circumstances; it is, rather, something we take refuge in in extremis, when the normal basis on which moral judgements are made and societies are ordered has broken down, as in natural disaster, in encountering the victim of violence or other criminal acts, or in war.

Intrinsic value makes sense in a theological context, for belief in a divine creator and sustainer, arbiter and dispenser of justice is the ultimate bulwark against chaos. The problem with intrinsic value as a secular concept is that it is essentially a static concept – that, of course, being its virtue and utility. But under normal circumstances we would want to know why something is valuable, not just that it is. This calls for a more dynamic concept of value, one in which the value of something is determined in a relationship between a valued object and a valuing subject, in which both the subject and object have conditions attached to them. From this perspective, intrinsic value can be seen to be a terminal, peripheral or extreme type of value, which sees value as only inherent in the object completely independent of the subject.

When the object under consideration is a member of human society, specifically a player in the economic order of society, this means that the economic value (which I am not claiming, by the way, is the only measure of human worth, just the relevant one in this context) is also established in a relationship, between what society, represented by an employer (of whatever type), needs and what an employee has to offer. From this point of view, no form of government support can ever, or should ever, be more than a transient solution to real financial need, not a permanent state instituted to fix a hypothetical problem. This is what existing systems of income support already accomplish in the real world, albeit imperfectly.

Like all arguments that are deductively arrived at, there is a danger of a reductio ad absurdam. If we were to state that there are no circumstances under which people are valued, and thereby economically supported, outside of their economic contribution, this would be the logic of the workhouse or the concentration camp. In developed economies we do not let people starve and we try to ensure that, as far as possible, people have the means to attain the basic requirements of life, such as health, education and employment. What concerns me is that this could merely be a contingent state of affairs resting on tenuous philosophical foundations (such as intrinsic value, which could be eliminated by the progressive secularization of society), rather than having a sound economic rationale supported by a more plausible theory of value.

The most obvious resolution of this issue is that developed economies invest in potential economic value as well as exploit actual/realised economic value, investing – through policy, education, the health services, professional training and guidance and, if necessary, income support – in those who are not presently economically viable, which does not undermine the premise that economic value is established in an economic relationship. Both historically and at present, bringing formerly marginalised groups, such as women and the disabled into the workforce, correlates strongly with economic development.  However, establishing that there is a strong case for investing for potential, where the norm is to be economically active, is not the same case being made for UBI, in which the assumed norm is to be economically inactive and where economic activity is a choice rather than a necessity. In some sense, this seems to be establishing that humans have no economic value and that they are therefore superfluous to the economic system, which would be a dangerous idea in the hands of a totalitarian state.

The presumption of freedom and development

I mentioned in the introduction that one of the arguments raised against UBI is that it would discourage initiative. This is yet to be proved; projections from the effects of existing benefits could be misleading, as UBI would be given to those over a range of very different social and economic circumstances, rather than targeted at specific groups in society, such as the unemployed and disabled, who will consist of a proportionately larger percentage of individuals experiencing severe obstacles to employment than the general population. My criticism of UBI is not that it necessarily discourages individual initiative, but that its wholesale implementation in a country risks arresting social, political and economic development. I think one of the reasons that UBI has supporters on both the left and right is that sizeable segments of both political persuasions believe in static visions of society: the left in a socialist utopia that will never exist and the right in a golden age that never existed. I believe they see in UBI at least an opportunity, and perhaps a tool, to realise their vision.

Both static and dynamic visions of society grapple with human nature, and any nations seeking to embody these visions would have to meet the requirements and desires of their populations and utilise their talents. The problem is that how people define their needs is relative to the broader social expectations, and they have the nature of escalating once a certain basic level is met (take health care in the NHS as an example), until they become indistinguishable from desires. It could be argued that advanced automation will remove the cap on our wants (being infinitely adjustable upwards) and the requirement for any productive skills, and that our lives can be geared towards leisure – and production only to satisfy aesthetic desires (rather than fulfilling basic needs). It is interesting in this regard that Elon Musk and Marc Zuckerberg, two of the most powerful tech innovators, are public supporters of UBI.9 They have been at the forefront of the technological revolution that is changing the nature of work and making many of the jobs we do today redundant.

The examples of Musk and Zuckerberg and their ilk illustrate one of the paradoxes of the advocates and supporters. These innovators have taken advantage of the opportunities of their socio-economic environment, the scientific, technological, educational and cultural vectors of their time and fashioned new possibilities for the rest of us to interact socially, intellectually, commercially and romantically (and, yes, erotically), yet in supporting UBI they implicitly assume the next generation are to be condemned to a life of consumption and leisure, rather than working to create their own technological miracles. Although I would not want to dismiss genuinely held humanitarian fears, part of the resolution of the paradox may be that the Silicon Valley luminaries see their role as quasi-messianic, as ushering in the end of work and leading us into the land of milk and honey, represented by the leisured economy of UBI, rather than as particularly fortunate exemplars of the principle that work can be empowering and transformative. They have perhaps unintentionally fallen into an eschatological vision of the future of human society as static, as terminal, whereas all experience suggests that it is dynamic and endlessly evolving. UBI could potentially lock us into a static form of society in which there is no development, or – even worse – one in which development is entirely out of our hands and in the hands instead of autonomous technology.

These diverging visions, of static and dynamic societies, engage with human nature in diametrically opposite ways, the static by attempting to limit the needs and suppress the desires of their populations and the dynamic by being shaped by them. One of the reasons for caution regarding UBI is that it can only be administered by the state. Some, admittedly, see the state having a lighter touch in administering UBI than is the case for means-tested benefits, and support it for that reason. I do not think we should be so blasé. Until now, our relation to the state in democracies is fundamentally one of tolerating its power over our lives for the benefits it brings; however, in theory at least, we are free agents who have the power to hold it to account and limit its authority in certain regards. The basis of that freedom in law is property and the means to support oneself. If these would become the sole monopoly of the state, we would be relinquishing the last vestiges of legal autonomy; essentially, every person would become a vassal of the state.

The verdict

While the future is open, and the challenges posed by AI, automation and the limits of capitalism are not to be underestimated, I think that UBI is unlikely to become the prevalent economic mode, and nor do I think we will settle on a sustainable model for its widespread, yet alone ‘universal’ implementation. The experiments are ongoing and we should take heed of the economic, social and psychological outcomes of those trials. Until now, though, there has not been an economic case established, as all the existing programmes have required an enormous investment with no predicted economic output, the financial equivalent of nuclear fusion. Moreover, the purported technology, which is supposed to put us out of work and, at the same time, generate the wealth to support our lives, has not yet arrived, and I suspect, also rather like nuclear fusion, it will prove to be permanently just around the next corner.

Apart from the practicalities, I think there are philosophical and ethical objections to UBI. In every society, from the most primitive to the present, humans have been economically active; in fact human nature defines what the economy means. I do not believe that the financial transaction can be separated from human economic activity, in other words, that there exists an ‘economy’ apart from human economic activity. The financial transaction is the expression of an economic value which is determined in a relationship of trust between economic agents, one offering goods, skills and services and the other paying for them. I would go as far as to say, were this separation to be possible, it would negate the economic value of human lives and diminish human value overall and, therefore, should be resisted at all costs.

The discussion around UBI raises legitimate issues around the quality of life, as many people – particularly young people – work in poorly-paid jobs with no security and few prospects of advancement. Even for those in secure work, there is the prospect of a lifetime of “wage slavery”. There are no easy answers; pointing out that workers today live and work under better conditions than those of previous generations does little to allay the sense for many that life is unfair, because we invariably compare ourselves with others whose circumstances we consider more favourable. One of the more positive outcomes of the 2008 global economic downturn is the number of people who have started their own businesses, and it may be that while this may not presage the next wave of innovation (this is more likely to arise initially from government funding of research in universities and industries such as defence), it demonstrates a willingness of people to be more flexible, perhaps accept a simpler life, and a desire to be more in control of their economic fortune.

I expect rather than the abrupt collapse of capitalism, there will be a transition to a new form of economy marked by advanced technology, superabundant information and a free market in which the autonomous economic agent will be empowered. Work does not make us free, but it shapes our freedom, and is the basis for almost everything else we do that is valuable. I consider that UBI will always be a recurring but peripheral phenomenon in this future.

 

NOTES & SOURCES

  1. Thomas Paine (1737-1809), one of the founding fathers of the United States and the author of The Rights of Man (1791) was an advocate of ‘basic endowment’.
  1. The Republican president Richard Nixon proposed a UBI scheme, called ‘negative taxation’ in the 1970’s. However, it was rejected by Democrats on the basis that the proposed rate was set too low to offer sufficient support.
  2. Affordable
  1. Unaffordable
  1. Supporters
  1. Opponents
  1. Ashifa Kassam (24 April 2017), ‘Ontario plans to launch universal basic income trial run this summer’; The Guardian (online) at: https://www.theguardian.com/world/2017/apr/24/canada-basic-income-trial-ontario-summer
  2. Paul Mason (2015), PostCapitalism: A Guide to Our Future. London: Allen Lane.
  3. Jathan Sadowski (22 June 2016), ‘Why Silicon Valley is embracing universal basic income’; The Guardian (online) at: https://www.theguardian.com/technology/2016/jun/22/silicon-valley-universal-basic-income-y-combinator

Adam Smith and the Rationality of Self-Interest

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Since Adam Smith the prevailing view in economics has been that the free market operates through a principle of rational self-interest. Much as Darwin later identified the underlying mechanism for the variety and dynamism of nature operating at the individual level, so Smith atomised the creation of wealth to the individual’s self-interest: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest”. The notion of rational self-interest, though, needs to be subject itself to rational scrutiny, as it may contain assumptions about human nature which may limit the idea of the type of society which is possible.

Taking Smith’s own assertion at face value, what is it that constitutes the traders’ “own interest”? Clearly, making a living for themselves, which means the buying and selling of goods to and from others, the point being that trade presupposes the existence of others going about their business. Although we can safely assume that Smith had in mind an economy of more than three or four persons, and sustained by more than meat, beer and bread, pleasurable and sufficient as that may sound to some, for the purpose of this thought experiment let us assume a minimal economic model of four players, the butcher, the brewer, the baker and “I” representing the expectant diner. In such a model, it seems clear that whatever the self-interest of each individual is, it cannot be considered in isolation, but only in relation to the self-interest of others. The three traders and “I” rely on each other and can only participate in the market if each is solvent. Therefore, logically, trade in this state is not a zero-sum game, but depends on a certain level of parity, in which only incremental competitive gains are allowed.

Now, suppose that one of the traders defects from this cooperative model in order to gain an economic advantage over the other two. This could be due to simple greed, or it could be due to a fear that one of the others will jump first. In game theory, a branch of mathematics concerned with the logical outcomes of people behaving rationally under given conditions, this is known as the prisoners’ dilemma, based on a specific example, but generally states that when a player has more to gain individually by cheating than by cooperating with a partner, but more to gain by cooperating with a partner than by them both cheating, they will nevertheless both end up cheating and so end up with the worst result. The reasoning runs as follows: if I cheat I will end up with the best result (even though the other person will end up with little or nothing); I would like to cooperate, but if I can think of cheating so can my partner, and if my partner cheats I will end up with little or nothing; therefore, it is in my interest to cheat. The logical result of rational self-interest is that both partners cheat and end up with less than if they cooperated.

Suppose that the baker, in order to gain a competitive advantage over the butcher and the brewer, starts selling meat and beer, judging that “I” the customer will flock to his store for all my necessities; if he succeeds and drives the butcher and baker out of business, he will have gained all my custom and “I” will have gained a more convenient shop. On the downside the baker will have to diversify the business, which will require more work and may result in a loss of edge in the former area of expertise, opening the potential for targeted competition. The baker will also have lost two important suppliers and customers, and potentially made two enemies. From “my” perspective, disregarding the loss of esteem “I” may have had for the baker (for the moment), this places me in a more vulnerable position economically as, if the baker were to go out of business, “I” would have nowhere to buy my victuals.

There is another scenario: in this one the brewer and the butcher do not fold but respond to the baker by similarly diversifying, thus depriving the baker of any advantage gained by jumping first. They gain no advantage over the former cooperative scenario and take on the disadvantages that the baker had previously assumed; there is not even the prospect of my undivided custom. However, there is a payoff if the brewer, butcher and “I” conspire to deprive the baker of trade. Some experiments have looked at the relationship between our sense of fairness and spite. They turn on adding a new element to the prisoners’ dilemma. If the option for the exploited to pay for the punishment of those who defect is added the outcome is very different. Despite the exploited losing even more, they experience satisfaction at seeing the exploiters punished. Moreover, in future rounds group cooperation is far more common.

In real economies, as opposed to simplified models or experiments, there is a huge capacity to absorb the effects of defection, to the extent that the both perpetrators and victims might imagine that there are no consequences for the defector, hence no justice. This capacity is not unlimited, however, and the timescales for restitution – at least for exposure – are growing shorter in this increasingly connected world. Humans are highly attuned to fairness or the lack of fairness in a situation. This may be one of the reasons for the continuing appeal of socialism; it responds at a deeply atavistic level to the inherent injustice of so much of the world’s economic poverty and institutionalises grievance against those who are seen as unjustly favoured (such as bankers in the current climate). The same is probably true of the wave of populism sweeping the developed economies which harness, similarly through partial truths and vicarious appropriation, the dispossessed’s resentment against the winners from globalisation.

Keynes was one of the few economists who attempted to integrate human irrational impulses into his economic theory. Mostly, though, they have been ignored in the pursuit of pure rationality, exemplified by the extreme mathematization of orthodox economics. Rational self-interest as a real-world strategy does not exist in a solipsistic vacuum, however, but must take account of human feelings and sociality, even absorbing short-term disadvantages for longer-term benefits. Most economists despair at the irrationality of voters who turn their backs on the benefits of the free market, specifically global free trade, in favour of the planned economies of socialism or the protectionist policies of the right wing populists. In light of the scenarios considered, though, this does not necessarily violate the principle of rational self-interest, but it reveals that in open societies the concept is more complex and subtle than often thought. Swings in political culture, while manifesting irrational tendencies, may from a broader perspective be reinforcing economic rationality by reining in the irrational outcomes of defection from cooperation, that defection being entailed by supposedly rational objectives.

 It is a fact that free trade has had a beneficial effect on a global level by bringing millions out of poverty, but also that in doing so it has had a devastating effect on traditional jobs and communities in the developed world, not to mention the effect it is also having on the environment. It is little comfort to be told the truth midway through life that one must retrain for a new career in the digital economy because your job has been exported and be prepared to uproot oneself, family and community. These people vote; and in line with rational self-interest they will, in sufficient numbers, vote for those who promise an end to such deprivation, for this is less about declining standards than about economic survival. Among these voters there are true believers; yet probably many more vote with suspended disbelief to punish those in power and the rich even at the cost of punishing themselves. When the euphoria of populism dies down and the reality of broken promises sets in, there will be a reaction and hopefully this will see movement towards a more cooperative economic culture, in which social concerns are integrated into the market ethos.

 

 

 

 

 

 

The role of community in the creation of value: the contribution of Stakeholder Theory

By James Walker

The weakness of traditional business ethics

The raw power of the markets, whether under mercantilism or capitalism, has always tussled with other powerful institutions, be they churches, philanthropic movements or governments, which have attempted to bring another set of values to bear, more human, social and compassionate. Today we talk about business ethics, but this idea, though fine in the abstract, is liable to be itself marketised, in the hierarchical world of corporate life, when the intrinsically spontaneous nature of human communal life is overridden.

Let me share a couple of imaginary workplace scenarios. In the first, a company holds a competition for staff each year in which they are told they must nominate some of their colleagues for a number of awards that have been created to show staff that they are valued. One of the awards is for the employee who best embodies the ethos of the company. The staff resent being forced to nominate colleagues. There is a high turnover of staff which means it is becoming increasingly difficult to build up relationships with each other or know each other on a personal level. Lots of people have had to reapply for their jobs due to the yearly restructuring of departments, and job titles have changed so much that nobody actually knows who does what anymore. The senior management team are insistent that all staff vote and when they don’t, they become angry.

In the second, another company is independently assessed for its ‘green’ values on a yearly basis. These ratings are vital in the sector for attracting new customers. When the auditors come to the company on Monday morning, the workplace has been transformed, much to the shock of the employees. Some ‘locally sourced, fair trade’ coffee has suddenly appeared in the kitchen. Posters appear in the hallway highlighting the importance of switching off computers at the end of the day. Projectors in meeting rooms are switched off. Once the auditing has been done the posters are taken down, the lights go back on, and the ‘locally sourced, fair trade’ coffee is replaced with the more familiar mass produced variety. The company is awarded a gold rating. The bosses are very proud and inform everyone by email.

The above scenarios highlight the kind of problems that arise when staff, who constitute a real community at the heart of every business, and the wider community in which the business thrives, are undervalued. In the first case none of the employees want to vote for a colleague as embodying the ethos of the organisation because they do not believe in the values of the company. These values are deemed duplicitous and the awards feel disingenuous. Senior management feel let down by their staff when there is a poor response and this is made known. In the second case the management are not concerned with living the principles of being a green company or encouraging their employees to do so as a contribution to the wider community. They just want to gain a high ranking so that their customers perceive them to be green. In both cases ethical principles have effectively become subservient to a short-term tactical advantage.

Stakeholder Theory attempts to address these shortcomings in business ethics by recognising the intrinsic communality of human interaction within the business world and incorporating the encouragement of this communality into long-term strategy. I will give a brief overview of Stakeholder Theory and then explain how I am attempting to apply its insights in my own work with large-scale digital literature projects.

An overview of Stakeholder Theory

A stakeholder is anyone with an interest or concern in something, especially a business. Therefore, stakeholders can be individuals, groups or organisations that are affected by the activity of the business. In terms of a traditional business we could define stakeholders as having the following roles or interest:

  • Business owner – concerned about profit and in some cases appeasing shareholders. They are aware of competitors. They are responsible for key decision making.
  • Managers – concerned about salaries and putting in place processes to achieve the owner’s goals.
  • Workers – want job security and good wages.
  • Customers – expect a certain level of service.
  • Suppliers – rely on the success of the business because they need organisations to buy their products.
  • Lenders – need paying on time.
  • Local community – the business could affect them in a variety of ways.

In addition to this we could also classify stakeholders as being internal or external to the organisation.

The key thinker on this subject is R. Edward Freeman of the Darden School of Business at the University of Virginia. He argues: “You can’t look at any one stakeholder in isolation. Their interest has to go together and the job of a manager is to figure out how the interests of customers, suppliers, communities, employees and financiers go in the same direction.”

Most importantly, he emphasises that business and ethics need to work in harmony. Whereas old school industrial capitalism had a faceless approach to business whereby ‘stakeholder’ really meant ‘stockholder’, Freeman argues that Stakeholder Theory gives a ‘face’ and ‘name’ to individuals. It brings in the human element that has long been missing from the workplace. He even goes as far as to suggest:  “What makes capitalism work is our desire to create value for each other. Not our desire to compete. Capitalism is the greatest system of social collaboration ever invented. It’s about how we cooperate together to create value for each other.”

This idea of ‘value creation’ is vitally important, particularly in that all stakeholders need to create value through their respective roles. This suggests equality, as well as an interconnectedness in the workplace. Value is not something that can be imposed or, as per my opening examples, fabricated. Through respect for each other and an awareness of how value is created, I believe the insights of Stakeholder Theory have the potential to turn any negative into a positive.

Applying Stakeholder Theory to a digital literature project

I am currently creating an interactive memory theatre (or cabinet of curiosity) that celebrates the life of a controversial writer from Nottingham. It will include artefacts in each drawer that tell the writer’s story. The writer in question lived a nomadic life, travelling the world in search of a community of like-minded people. Therefore, our memory theatre will retrace his journey, stopping off in the same cities and countries he visited. Audiences will be able to engage with the memory theatre through digital screens, adding their own memories and reactions to the selected artefacts, thereby enabling the memory theatre to gain in provenance as it journeys along.

The writer in question was born in a town northwest of Nottingham towards the end of the 19th century. During this period the area was highly prosperous due to growing industries and the development of the Midland Railway Company that enabled goods, such as coal, to be transferred across the country. Many people flocked to the area for work and the population soon began to expand.

Nowadays, local people resent the success of this author because he turned his back on his community and was highly critical of what he perceived to be the dehumanising effects of industrialisation: The mining industries at the time were the main employer. His novels contain many references to real people and real situations, many of which he barely attempts to disguise. This personal betrayal continues to anger generations of those affected.

Despite this, locals cannot escape him. A pub, café, community centre, school and roads bear reference to his name, as does the surrounding area. Given that his birthplace town is now a relatively deprived area, his success is constantly thrust at people and consequently he is resented by many. By applying stakeholder theory we have the opportunity to rectify this.

In October 2016 I got a call from a funding body saying that a local MP was interested in further commemorating the writer by putting a statue up of him in his home town and asking what I thought. I admitted I couldn’t see the point, as there were already two statues of the author located in Nottinghamshire. I am also sceptical of the gesture as the local Council has recently sold off a property associated with the writer. One more statue creates no additional value as far as I am concerned and would most likely involve commissioning a sculptor who does not live in the local area.

Stakeholder Theory positions ‘community’ as having equal say in how meaning is produced and value is created for all. The memory theatre project has the potential to repair damage in the affected community by employing a local joiner to help build the memory theatre as well as sourcing materials from local suppliers. In doing this, we open up the conversation from a different perspective. When we work with trades people we have the opportunity to explain why the memory theatre needs to be built in a particular way. We can discuss elements of the writer’s life that need to be drawn out in the design in a way that is not prescriptive but via consultation. We will put money in their pockets, something I am sure locals will be more pleased about than a random statue imposed on their town. They in turn will talk about the project with friends, in the pub. Culture, as Raymond Williams and many others have shown us, comes from below, not from above.

The writer at the heart of my project lived an incredible life. He suffered persecution and censorship for nearly everything he wrote. He lived large parts of his life in absolute poverty, often being put up by friends. He consistently defied authority and was highly critical of those in power. Post-2008 working conditions have produced a new class of worker – ‘the precariat’ – for whom every area of life lacks security (Standing, 2011), the writer’s message bears even more relevance. Consulting, listening and empowering the local community on my project is one way of getting this message across. Thrusting a static statue on them will only do more damage.

References

R. Edward Freeman (2009), Stakeholder Theory Youtube lecture https://www.youtube.com/watch?v=Ih5IBe1cnQw

Guy Standing (May 24, 2011). “The Precariat – The new dangerous class”. Policy Network.

 

James Walker is a lecturer in Digital Humanities at Nottingham Trent University. He specialises in digital literary criticism. He is the editor of The Sillitoe Trail, which explores the enduring relevance of Alan Sillitoe’s Saturday Night and Sunday Morning and more recently Dawn of the Unread, a graphic novel serial exploring Nottingham’s literary history. www.dawnoftheunread.com

 

 

The shadow of value: money theory and the roots of economic anomie

In the West, our ambiguity towards money is expressed deeply in religion, politics and art. We have been beholden to the institutions that provide it as a necessity of life, but desired liberation from the corrupting influence of our dependence on our authentic nature. Through money we have both experienced the possibility of living pleasurably, and recognised its power to lead us astray. That ambiguity, and a measure of hypocrisy, is not merely historic, but pervades our society today: while we expect a decent standard of living, there is anger at gross inequalities of wealth, particularly in developing countries, although we may be ambivalent about their economic advancement; closer to home, our desire for personal wealth is often coupled with disdain for the foibles and vulgarity of the rich. This Janus-like relationship with money seems implicit in the nature of money itself. It may not be resolved, but this ambiguity might be explained and mitigated to some degree by understanding the roots of our economic anomie in the philosophical intertwining of the existential and monetary notions of value.

As with much thinking on any issue, the ancient Greeks thought about the problematic nature of money first, or at least mythologised it in this case, in the story of king Midas. The existence of money as a metal coinage was a relatively new invention, but already both its properties of great convenience and the temptation to excessive accumulation were appreciated. Midas desired that everything he touched be turned to gold and the gods granted him his wish, literally. Realising that he could no longer eat or touch those he loved, Midas begged to have the gift removed. This timeless fable teaches us that there are things that cannot be bought with money or gold, and suggests that the modern belief that everything can be monetised hollows out the very things we find valuable.

It is a feature of the word ‘value’ that it has two distinct meanings, that of moral worth and that of monetary worth, a distinction rooted in a common etymology which runs through most European languages, indicating that at some point they have been considered to be closely related issues. In fact, in two worldviews they have been and still are: Thomistic theology derived from Aquinas, with its notion of the ‘just price’ and the Marxist ‘labour theory of value’. Both theories have been superseded by market economics, in which prices are determined by supply and demand in the marketplace, yet continue to inform areas such as business ethics, the honouring of contracts and the critique of exploitation or capitalist excess.

My intention in this article is to explore the relationship between monetary value and existential value, which underlie, respectively, the prices we assign to goods and services and the values that shape our lives and institutions, and in this way attempt to understand the role of money in institutions and how this might inform economic life and our relationship to money. Clearly, to do this systematically would be a massive undertaking and here I am only developing some of the philosophical framework to underpin this project. In particular, I want to take issue with theories of intrinsic value, particularly Locke’s view of natural value and the labour theory of value, and to present a hypothesis that the moral dimension of monetary value exists at an institutional level rather than at a commodity or service level.

Money and monetary value

For an everyday reality that pervades our lives and our society, money is actually something of an enigma, at one level tangible and obvious, but on closer investigation something whose nature is surprisingly elusive. Clearly money cannot be identified with the notes and coins we carry around with us, firstly for the superficial reason that the currency we identify most readily with is not transnational and can only with some difficulty and cost (and even here the equivalence is not always transparent) be converted into another. Then, although we are not quite there yet, it is possible for us to conceive of a cashless society, in which all financial transaction will take place electronically, through the transfer of information in binary code. However, even more than these reasons, if we stop to consider it, the source of the agency that money confers to enter into economic transactions appears to be wholly mysterious.

The emergence of the digital economy and electronic money has popularised the notion that there has been an evolution in our economic transactions, beginning with barter, passing through the money economy, and now moving into the era of credit largely carried out invisibly. This view is based on what we could call the commonsense view of money, first advocated by philosophers such as Locke and Adam Smith, who drew on Aristotle’s and Homer’s observations in the ancient world two millennia previously, and it is the view still propounded in the majority of textbooks on economics (Graeber, 2011). However, it is demonstrably wrong. There is no evidence that any culture that relied on a barter economy ever existed (Humphrey, 1985). The alternative view, previously at the margins but gathering momentum in the aftermath of the global financial crisis, is that human economic activity has always in its foundations been about credit and debit.

Much of this reassessment is based on the century-old writings of Mitchell Innes (1913) and William Furness (1910). Innes pointed out that the earliest recorded notion of debt, found in the Code of Hammurabi, predates the earliest coinage by 2000 years, and that the repayment of a debt was considered to be a sacred duty. The foundations of economy have always been about the agreements between creditors and debtors, in which the origins and function of money is no more than a marker of that relationship and agreement.  Furness recorded the highly unusual money system on the Indonesian island of Yap, which consisted of stone wheels of various sizes known as fei. He noted that even when transactions were concluded the fei were rarely moved; change of ownership was merely acknowledged. In the most remarkable case a fei which had sunk to the bottom of the sea while being transported was still recognised as valid currency. In other words the currency functioned as markers of credits founded on trust. This view eventually won the approbation of economists as diverse as John Maynard Keynes and Milton Friedman, though is still largely ignored in macroeconomic theory (Martin, 2013).

The reason for this misunderstanding lies in the seventeenth century in the period when the Bank of England was being set up. Prior to the establishment of the bank, the ultimate source of the authority for the English currency was the British sovereign. Coins were stamped with the monarch’s image and minted in silver, theoretically to the value as stated per denomination. In fact, it was long recognised that the face value of coin and the price of silver frequently diverged, silver being more valuable that the actual coinage. This led to huge amounts of money being melted down and sold as bullion and the stock of coinage being vastly depleted as a result. The Bank of England, which had in the meantime emerged as a mercantile counterbalance to the monetary authority of the sovereign, saw the obvious solution to lie in debasing the metal in the coinage, alloying the silver, and thus lowering the actual value of the coins to or below their face value, thereby removing the motive for destroying them. Unfortunately, this pragmatic solution was overruled by Parliament on the advice of John Locke, the pre-eminent philosopher of his age and a hugely influential figure. Locke, a fierce republican, wanted the Bank to break entirely with the notion that the value of the currency was based on authority, such as the authority of the king, and instead base it on the intrinsic value of nature, such as that of silver. Locke’s suggestion was followed and the nation’s supply of silver coins was replenished, with both predictable and unforeseen disastrous consequences.

Locke clearly believed, or at least wished to assert for political reasons, that money has an intrinsic value, and the modern capitalist economy, whatever private reservations people individually may harbour, continues to function on the basis of this belief, using gold as the most common standard rather than silver. It is necessary, though, to analyse what the ‘value’ is that is the object of such a belief. The Lockean argument from nature can be dismissed out of hand. Value is not a property of nature, but of human judgement. Even if our currency were ‘worth its weight in gold’ (which it is not, by a significant margin), this would not constitute its value any more than it were worth its weight in manure, because the value of gold or manure is not ‘intrinsic’, but arises fundamentally from their utility, a distinction Pepper (1970) refers to as ‘value proper’ and ‘utility value’, the latter which we could also refer to as social value. The different social value ascribed to gold and manure arises from their relative rarity, flexibility and aesthetic appeal. Gold is almost universally considered beautiful due to its colour and lustre, and useful due to its malleability and ductility, qualities which obviously cannot be ascribed to manure. However, gold’s social value depends to a large degree on the technological capacity of the culture in which it occurs. Primitive cultures in regions in which it was naturally relatively abundant had little use for it outside decoration, and were happy to trade it for coloured beads. Unlike manure which is a good fertiliser and building material, useful in settled agricultural communities, gold perhaps had only marginal social value. This point does not seem to me to be undermined by any subsequent retrospective reassessment by post-colonialist critics.

One of the functions of money in monetary theory is reckoned to be to store value (Nesiba, 2013), which seems a not unreasonable proposition; that is, until we start to interrogate its exact meaning, whereupon it slips rapidly from our grasp. The way in which money stores value is like the way in which the sun rises, that is, metaphorically. Since money has no intrinsic value, either as a physical or digital currency, it cannot store value either. And since, with the exception of some hobbyists or collectors who may fetishize the physicality of money, we do not value money as such, but only its instrumentality, the idea of storing value is really just shorthand for the ability to exchange it in denominated amounts for the things that we deem actually valuable, or vice-versa, to receive it in denominated amounts for goods or services. What is ultimately valuable is that which makes human life liveable, bearable and pleasant, so it is in the social agency of money that its source of value is found.

To pursue this thought further, value does not inhere in money itself, but nor can it in the goods or services which are exchangeable for money, at a price determined by the market, as the same objection which was raised against the intrinsic value of money can similarly be raised against the intrinsic value of any commodity or service, that is, value does not exist in the state of nature. The question this denial poses, then, concerns the ontological foundations of the economy in which money plays such a crucial role. Marx (1859)advanced an alternative view of value: rather than arising from nature, the intrinsic value of a commodity represented the ‘congealed labour time’ of the industrial proletarian whose sweat and toil had manufactured it. Although this view, referred to as the labour theory of value, is disparaged by mainstream economists, and although I believe it takes too narrow a view, nonetheless, I will develop an important insight which I believe Marx had, which is that value is inherently social and that it is generated in the world of work.

Marx was motivated to blame capitalism for the dreadful conditions of the industrial working class which sprang up in the newly growing cities created by the industrial revolution. He identified the profit generated in the manufacturing process as an ‘excess’ derived from the exploitation of the workers who had created the value of the commodities, that is by paying them insufficiently for their labour. A clear objection to this idea is that the price – even the marketability – of any commodity is a function of its quality and the demand for it. If a manufactured item is shoddy or faulty it cannot demand the same price in the market as one which is made to high standards, regardless of the labour invested in it, while if there is no demand for an item, it will not sell. Price is determined largely by these two factors, quality and demand, and any business in order to be profitable, has to identify a market where a certain demand exists and strive for quality that meets the market’s expectations.

Money, then, neither has value nor stores it. As we discussed, according to Pepper there are two types of value, value proper and utility value. Money has utility, clearly, though it is a very specific type of tool, one whose usefulness is in being exchanged for things that are in turn useful or pleasurable to us, and therefore to that extent valuable. It has neither value nor utility intrinsic to itself, only as a medium of exchange. Money, though, is unique in that it is denominated and acts as a scaled measure of wealth. Unlike value, which is a function of judgement, wealth is a function of a social process; moreover, it is a social process in which existential and social values play a critical role. As already mentioned, economic activity can only take place on the basis of trust, and money itself exists as a place marker for relationships of credit based on trust. For much of history this was the common understanding of how money worked. It is only in the past few hundred years that this seems to have been forgotten.

Institutional wealth hypothesis

Rather than value, a nebulous term at best, I suggest it is wealth which both money measures and that links money to the value-driven activities of institutions.  By ‘institution’ I mean any human grouping that has some sense of a common purpose, some shared values, a degree of organisational structure however informal, perhaps some rules, and a boundary demarking inside from outside. This would include businesses and all manner of organisations and even individual family units. It would not, for example, include neighbourhoods as geographic entities, but would include neighbourhood associations. Wealth is generated by and accumulates around such institutions and their activities. We tend to think of wealth in opposition to poverty, but what I have in mind is relative wealth, wealth that can be an indicator of the relative performance of institutions. Rather than engage in a diatribe against the perception of poverty created in our society by gross inequalities of income, I suggest that wealth be thought of as a neutral term that can employed evaluatively across all cultures and historic periods and that poverty be restricted to its more ethical connotations, by which I mean a culture-dependent term of disparagement for lack of aspiration.

The hypothesis, one that does not seem implausible, is that wealth is generated in successful institutions. To emphasise, by wealth I am not talking about vast wealth, but wealth as a relative quality; some institutions, such as banks, are required to process huge quantities of money (leaving aside for the moment structural anomalies in the banking sector that governments are attempting to address), but others, such as voluntary or community-based organisations, might run on a shoestring but be fully functional in achieving their nominal purpose. All institutions need money to function and this has to be considered integral to the institutional ontology not as an add-on. It is also a necessity in a comprehensive theory of value to be able to offer explanations of economic value and explore any underlying unity between economic value and social value/values.

The great monetary settlement of the seventeenth century never fully resolved the issue of the nature of money, and Locke’s intervention saddled us with an erroneous concept, which has had consequences to this day. According to Martin (2013) the final authority for a currency is the people in democratic society, who invest their authority in the government of the day to make sensible decisions regarding the economy for the benefit of the people as a whole. Money is like language, in some sense, in that it pervades our culture and is ultimately controlled by no one (ibid); it is above all a social phenomenon, and always has been, although this has been forgotten by governments, the banking industry and by most economists, with rare exceptions like Keynes. Nevertheless, the current financial crisis has led to government intervention, some reforms in banking and some reassessment of economic theory in line with Keynesian thinking.

Wealth goes hand in hand with success in any venture, and that success is built by gradually building relations of trust around that venture. Building a successful venture requires a range of skills and the ability to work hard, for example, but the focus here is not on this range of skills but on the fundamental ontological requirements of institutional success, which requires the creation of multidimensional trust, both within an organisation and outside in relation to other relevant organisations and constituencies. As I have argued in a previous essay on values and institutional structure, relationships within any organisation are strengthened and organisational conflicts between different constituencies are ameliorated when shared values are sought and promoted alongside core values and organisational goals; in fact, the discovery of shared values in the context of the organisation is one of the fundamental responsibilities and ‘people skills’ that a leader of any organisation needs to manifest, as it demonstrates attention to the particular and the individual rather than just to the general and the abstract.

Trust is not something that can be established at once, and not necessarily easily, and it is something that can be rapidly destroyed. However, as Fukuyama (1995) has argued, trust is the fundamental value of social capital, one which enabled the growing prosperity of Europe through the early modern period. If this is true I suspect it is because, unlike other values which are (or run the risk of being) etiolated when they are monetised, it has the property of self-replenishment. The building of trust, therefore, should be a fundamental goal of every organisation. First, everyone feels happier when they are in an environment in which they feel trusted. When people feel happy they willingly contribute to the good of the whole and invest themselves, their efforts and time for the success of the whole. There is a common interest that whatever goods or services they provide should be to a high standard of quality, and when they are to a high quality the recipient of those goods or services will naturally be satisfied. Those who fund the activities of the organisation, whether consumers, shareholders, banks, or donors should be treated as extended constituencies of the organisation, common values discovered and a basis for trust and satisfaction established. This is the basis for success and wealth in any organisation. The same reasoning can also be applied to an individual and a basic social institution such as a family.

Potential objections to the hypothesis

An objection to this hypothesis would be that many organisations seem to function, even function well, while not adhering to this strategy. I would say that this is due to the dampening effect of society; changes rarely happen suddenly, but usually there is a cumulative effect before something becomes apparent. The economic crisis was building up and was predicted by some many years in advance, as indeed the recovery is many years in manifesting itself. When any institution fails, whether it be large or small, there are always underlying reasons, and those reasons invariably come down to human problems: the arrogance of a leader, the disaffection and even sabotage of those mistreated, greed and eventually dishonesty undermining trust. Even failure to adapt to a changing environment can be laid at the feet of systemic failure to seek common values, because that is a failure to draw upon the variety of skills, to discover and to exploit those skills, that any group of people bring with them. Edward Freeman (2010), in his writings on stakeholder theory, asserts that any business that is not seeking to keep all its stakeholders – such as investors, shareholders, banks, employees and customers – happy is a failing business. I have used the term ‘constituency’ rather than stakeholder, but the logic is much the same, although I have attempted to give a more theoretical underpinning to what stakeholder happiness actually comprises.

A second objection would be that wealth simply means the accumulation of money or its equivalent in assets. This is a commonly held view and it arises out of the mistaken understanding of the nature of money and economic value. This view justifies the moral view (not that I am saying that everyone who shares this understanding of money shares this view) that gaining money is a justifiable end in itself, and it does not matter the means by which one acquires it. Clearly, such a view underlies criminal acquisition, whether that be corporate crime, gang-related crime or street robbery. I have advocated the view that the acquisition of wealth should be understood as a reward for, or a consequence of, institutional strengthening. Theft short-circuits that process; it does not represent the justly deserved reward for valued activity, which reinforces the values of social institutions, but leaves the basis of social chaos in its wake: mistrust, fear and loss. Moreover, the empowering function of money cannot be fully realised; its power to purchase is always accompanied by fear of exposure, fear of punishment, mistrust of others and the knowledge that one is not truly worthy in that one has not been rewarded. As a society we are left to take effective measures to counter the increasing prevalence of this sort of activity and its social fallout, whereas we should be establishing as a norm the correct understanding of money and of wealth, that people can police themselves more effectively.

Money is a token that represents the wealth which is generated in successful institutions. In some respects it has similarities to Austin’s (1962) idea of the performative speech act, in that an exchange of paper, metal or electronic tokens effects a change in ownership and the conferring of rights. Money is effectively a symbol, which exercises symbolic power throughout society, for all social institutions. Externally it has the nature of a tool that quantifies wealth, which can switch between a physical format (currency and perhaps its bullion equivalent in extremis) and a digital format (as an entry in a ledger or perhaps now even as a digital currency, such as bitcoin). In this sense it is proper to speak of it having utility or use-value rather than value proper, in the same way that all things that can be defined as tools have utility, and only have value proper if they enter the sphere of our personal experience in the sense of evoking a (usually) positive emotional response. But as a symbol money also represents things that we recognise as social universals such as freedom, both freedom from want and freedom to choose, competence in earning a living and supporting oneself, and also things like moral obligation, such as to pay one’s debts, to care for one’s dependents materially and to contribute to the common good through supporting enterprise, inspiration and endeavour, supporting the needy, and paying one’s taxes.

Money has been one of the most powerful tools for liberation, as it has freed the masses from excessive social control and opened up the way for individual decision-making, risk-taking and enterprise, which has contributed to the emergence of economically vibrant and democratic societies. A further step is now needed to correct the social injustices that the wrong understanding of money has perpetuated, by a new consensus on its nature.

References

Austin, J.L. (1962). How to do things with words. Oxford: Clarendon Press.

Freeman, E. R., Harrison, J. S., Wicks, A. C., Parmar, B. L. and De Colle, S. (2010). Stakeholder Theory: The State of the Art. Cambridge, UK: Cambridge University Press.

Fukuyama, F. (1995). Trust: The social virtues and the creation of prosperity. London: Penguin.

Furness, W. (1910). The Island of Stone Money: Uap of the Carolines. Philadelphia, PA: Washington Square Press.

Graeber, D. (2011). Debt: The First 5000 Years. NY: Melville House Publishing.

Humphrey, C. (1985). ‘Barter and Economic Disintegration’. Man, 20(1), pp. 48-72.

Innes, A.M. (1913, May). ‘What is money?’. Banking Law Journal, pp. 377-408.

Martin, F. (2013). Money: The Unauthorised Biography. London: The Bodley Head.

Marx, K (1859). A Contribution to the Critique of Political Economy. Moscow: Progress Publishers.

Nesiba, R. F. (2013). ‘Where did “money” come from?’ Western Social Science Association (WSSA) News, 42(2) (Fall 2013).

Pepper, S. C. (1970). The Sources of Value. Berkeley: University of California Press.

What is the point of the Left? A dispassionate assessment of its virtues and vices

communist-poster

After the fall of communism in the Soviet Union and Eastern Europe in the 1990s there was a brief window in which it was predicted that the forces of democracy and the free market had triumphed and leftist and socialist parties would thereafter only wither away. The view from the present is of a very different political landscape, with a resurgence of interest in leftist politics, socialist parties coming to power in Europe and South America, and even a candidate of the left (by American standards) a strong contender in the Democratic primaries. Yet the aetiology of the left seems to be well understood and to flow along only three routes: ideological purity and marginalisation; ‘selling out’ to conservative forces; or – worst case scenario – taking power and creating a totalitarian failed state. This raises the question, most interestingly from an evolutionary perspective, of what the left is for. This is not a rhetorical question, for something so persistent in modernity cannot simply be dismissed.

The socialist parties across Europe are generally conflicted internally between the first two routes. In the UK the political left seems to be in disarray, with the Labour party seemingly in a death struggle between the moderate left and the hard left, with the majority of its MPs out of step with their leader. President Hollande of France came to power on a platform of radical socialist policies, which have been abandoned in the interests of financial realism. Syriza in Greece swept into power with a popular anti-austerity message, only to cave in to the EU’s conditions for a financial rescue package, which has naturally caused a backlash against the government. Only Tony Blair seemed to manage for a few years the intricate balancing trick of allying socialist ideals with financial acumen; however, he managed both to betray the left over Iraq and empty the coffers of government. Even the Scandinavian social democratic model, widely admired but rarely achieved outside the particular cultural and demographic conditions to be found there, has withered in the new economic reality.

China is the case par excellence of a revolutionary party that abandoned socialism for market economics, and accepted some measure of social liberalism, although has shown no sign until now of allowing political freedom. Cuba, though more tentatively, appears to be treading the same path. Interestingly, these countries do not generally seem to have attracted the opprobrium of the left for having abandoned the path of pure socialism. Perhaps having been the emblems of radical chic and poverty tourism for so long before their transition, they had become unspoken embarrassments to the ideologically pure. It raises the question though of whether a country like China even belongs to the ‘left’ anymore, despite being run by a communist party. Russia is also an interesting case study. The communist utopia of radical intellectual leftists throughout the early decades of the twentieth century, only some of whom were deflected from their idolatry when the reality of Stalin’s purges became evident, it sank slowly into being a corrupt, inegalitarian, illiberal, though basically functioning state kept afloat by territorial expansion and proxy wars, until Afghanistan. Then after a few brief years of social, economic and political liberalisation it resumed its centuries-old characteristic of being under authoritarian rule. Given the resurgence of nostalgia there for the Soviet era, it is interesting to speculate at which point it ceased to be the darling of the left and instead began to be be name-checked by the far right.

Meanwhile, socialism continues to exert its hypnotic fascination upon a good part of the globe, with the fatal attraction to its ideals of liberty, fraternity and equality, segueing unerringly into economic dysfunction, subversion of democratic checks and balances and resistance to reform when in power, compounded by the intellectual impermeability of its acolytes and apologists to reasoned criticism. We need look no further than Zimbabwe and Venezuela to see all these criteria in play. Zimbabwe, under the aegis of the nonagenarian national liberation hero Robert Mugabe, has played out the theatre of socialist national decline since independence, only briefly interrupted when genuine democrats managed to loosen his arthritic grip on the tiller, due to a brief, incautious dalliance with relatively free and fair elections. In Venezuela things have, if possible, moved more deeply and more quickly, from reasonable stability and sufficiency (though one should not overstate the case here; poverty was endemic in the rural areas and among the indigenous Indian population) to economic catastrophe. It does not help that their real head of state, Hugo Chavez, is actually dead, and his anointed successor’s only demonstrable qualities stubborn adhesion to power and ideological rigidity. But even these sorry cases are still only at the midway point on the road to the holocausts of Mao’s Cultural Revolution, Cambodia under the Khmer Rouge or North Korea under the Kim dynasty.

Given the evidence of history and the present of failure of epic proportions at every level, it is remarkable that socialism continues to exert such a powerful pull on the imagination of so many, and is a phenomenon which begs an explanation. Let me start with the cynical view, propounded by the conservatively-minded, which is that socialism tends to attract those who are politically naïve, the evidence being that it is disproportionately attractive to the young and people like celebrities. There is certainly a superficial plausibility to this; a reasonable parallel would be with those who are attracted to radical Islam, who tend to be young, religiously naïve or non-practicing Muslims. However, if the argument is turned around, it is not obvious that the politically sophisticated are to be found crowding the political right, and the same charge, of naivety, could be levelled at those who are drawn into right wing politics, particularly of the far right nationalist variety.

A more objective, scientifically-rooted perspective is that our political affiliations, like much else about us, is determined genetically. This seems more plausible, after all personality and temperament, which do have a strong genetic component, play a significant part in the type of worldview we develop. This view also correlates with data from the research of Jonathan Haidt that indicates there are five or six fundamental values in a ‘moral matrix’ which are shared across all cultures, but that liberals typically emphasise a smaller range of fundamental social values than conservatives, being disproportionately committed to care and fairness, but less so to other values such as freedom, loyalty, respect for authority and sanctity, an effect that is more marked the more liberal a person considers themselves to be. The lack of balance in values may help to understand the epic failures of socialism in power, and perhaps also why conservative parties tend to be electorally more successful over the long term.

Haidt’s view is that whatever our political inclinations, it cannot be a bad thing to be more self-aware and that as a society we need to engage more in dialogue, although current trends suggest we are becoming more entrenched in our views, aided by the self-selecting and bias-reinforcing tendencies of the internet. I suspect that the desirability of dialogue is itself something of a liberal predilection. Moreover, dialogue almost never changes minds. Rather, familiarity with different perspectives fosters a degree of empathy and tolerance for the other, in other words contributes to shared meta-values. From this lofty perspective it is possible to discern that the left does indeed contribute to human social evolution:

  • First, socialism can be considered the modern political manifestation of the age old and timeless human sense that the focus on money is not only immoral but fundamentally damaging to the cohesion of society. In a recent article Marian Tupy has argued that there is a pedigree of thought, stretching from homer and Plato through medieval Catholic theology to Martin Luther and Thomas More, which argues that mercantilism is fundamentally inimical to human life. This tradition is, therefore, embedded in western thought and the history of major institutions. It underlies the contemporary critique of corporate greed that has been adopted across the political spectrum.
  • Secondly, it manifests and embodies the more caring and compassionate side of human nature in continuity with the Christian tradition exemplified by Jesus’ forgiveness of sinners and care for the poor and marginalised, sometimes explicitly religious, but more commonly now through humanistic ideals. To grace this idea with a few examples: the changed attitudes towards and improved social circumstances of children, animals, the disabled, and homosexuals.
  • Thirdly, liberals are more open to new ideas, particularly social ideas and trends, than conservatives. Conservatives by their very nature, tend to be content with the status quo, not necessarily because they are beneficiaries of the existing conditions, but because they are averse to change. From the perspective of human social evolution it makes sense to have adaptability as well as stability, and liberal attitudes allow for a greater degree of social experimentation. Although many of these ideas turn out to be culs-de-sac, some are adopted into the social mainstream, such as many of the changes to education.
  • Fourthly, the militancy and obstreperous nature of much of the left means that ideas that might have simply been passing trends remain in the collective consciousness long enough to be adopted more widely, which contrasts with the generally more complacent attitudes of the right. Environmental concern has largely been driven by the left, as has concern with racism, both unfinished campaigns.

Capitalism portrays the world in functional, impersonal and ruthless terms, but has proved to be the only viable economic system for developed societies. But people are not automatons and citizens not functioning units in the economic machine of society, although even our education systems sometimes treats us as if we are. As well as crackpot theories the left embodies virtues that when woven into the narrative of our societies, and accepted by many on the right as on the left, not only make society fairer and more humane, but probably more efficient if they result in just social policy. While socialism as a political and economic system has been tested to destruction in the social experiments of the last 100 years, the fundamental values that it embodies will always re-emerge, as they are not the preserve of leftist revolutionaries or a liberal intellectual elite, but fundamental to all decent human life.

 

Capital Punishment: Marx, Markets and Mortgages

By James Walker

James Walker is the editor of the literary graphic novel Dawn of the Unread. It was created as a response to alarming literacy statistics in young people across the UK. Now what alarms him is how a changing labour market is making it impossible for his son to get on the housing ladder. What is required is greater economic literacy and to do this he’s joined a reading group exploring Karl Marx’s Capital Vol.1.

First off, let’s have a few statistics about the miserable mess we’re in. I’m not talking about Brexit, Trident or Sam (Big Sam) Allardyce becoming the England manager. I’m talking about two four letter words that define our lives: work and home.

According to the Ministry of Justice (MoJ) there were 10,732 repossessions of rented and mortgaged homes by bailiffs between January and March. Although this was down by 123 during the same period in 2015, it was up by 479 for the final quarter of 2015. But we should be grateful as The Council of Mortgage Lenders (CML) believe if repossessions continue to drop at the current rate we’ll be at our lowest annual numbers since 1982. Back when houses were affordable.

There are some reasons to be cheerful in terms of buying a property. The standard variable rate for a mortgage has plummeted and a rise in stamp duty has slightly halted property developers from  swallowing up entire streets. But this has been offset by the ridiculous increase in house prices that simply make it impossible for anyone to save up a deposit, let alone get a mortgage. I bought my first home when I was twenty-one and it was roughly 3 times my annual wage. My current home is 7 times my annual wage. The house is the same size.

This may explain why rents in both the social and private sectors have risen this year by around 7-9%. The landlords who’ve had their wings clipped by the Chancellor are passing this cost onto those who can’t afford to get onto the property ladder. According to the MoJ there were 10,636 evictions during the first quarter of the year. Expect this to increase, as the cap on housing allowance kicked in at the beginning of April. Then there’s the 7.2million, according to Churchill Insurance, who have moved back in with the parents because a relationship ended and are too poor to rent alone.

For those without the luxury of parents, there’s the streets. You always know when the privileged are in power because the number of people ‘begging’ zooms up. On an average walk across town I probably get stopped between 5-10 times for ‘a spare bit of change’. Expect more of this as hostels, Citizen’s Advice, and public sector support service staff increasingly begin to evaporate.

What we really need is change.

Speaking of which, banks have a lot of loose change at the moment. They’ve saved a bundle in wages by adopting the trend set by supermarkets and kitting out their stores with self-service machines. The unidentified item in the bagging area is staff. People are losing their jobs in every area of work as technology slowly takes hold. Ring up for a taxi and you’ll no longer be put through to a call centre of eternally bored operators. Instead there’s an efficient automated service that tells you where you want picking up from before you’ve even said a word. And you know things are seriously wrong when Waitrose gets in on the trend and dismisses checkout staff in favour of self-service machines.

Banks need to cut back on wages because they’ve finally been caught with their pants down. According to the CCP Research Foundation the top twenty banks paid out £252bn in conduct charges over the past five years, such as the six banks fined a record £4.3bn for rigging foreign exchange rates and Lloyds £4bn penalty for mis-selling of payment protection insurance. So why exactly did we bail out the banks again?

According to the Sutton Trust, the poorest British students will graduate with debts in excess of £50,000. (In the US, by contrast, where students study for an extra year, the average debt at a private for-profit university is £29,000.) Although state-sponsored loans are linked to future earnings, these debts are subject to inflation so the money keeps going up. Students who studied a decade or so ago will tell you that although their debts were a lot cheaper, the loans have been sold off to debt agencies, despite the promise that they wouldn’t be, and now fear earning a penny above a certain threshold because it will trigger larger repayments.

For those of us fortunate enough to have a job there is the constant restructuring of departments and the shoehorning of two jobs into one, and for an added bonus, with reduced hours. Some of us have had our wages frozen for so long we have to put gloves on when we draw money out the bank. We’re told we should be grateful that we’ve got a job, and expected to smile when we receive the ‘Happy Friday’ email wishing us the very best for the weekend and remembering not to be late back in on Monday.

For adolescents who’ve skipped further education there’s the temp agencies where you’re guaranteed the minimum of work for the minimum amount of money. One lad I spoke to told me he had to drive to Grimsby to do a two hour shift and he wasn’t paid for his petrol or the four hours the round trip took. He had to do it because if he refused they wouldn’t consider him for other work. Work left him out of pocket. Of course this is completely illegal but it goes on all the time. ‘Calm down and carry on’ is the expression. This translates as ‘Shut up and do as you’re told’.

Zero-hours contracts are the reality for most of us now. University lecturers are paid by the term and join an expendable workforce who can be got rid of with the flicker of an eyebrow. And this is where the Big Society steps in. The volunteers who run our libraries. The volunteers who cut down the forests. The volunteers who write for free for magazines because they have the deluded idea they can make a difference. So in some respects we’ve been complicit.

All of which finally gets me to my point. If we are expected to live flexibly in a big society on zero-hours contracts, isn’t it time we had a more flexible mortgage, a ‘zero-hours’ mortgage, to reflect the reality of our lives?

A zero-hours mortgage would work exactly like a zero-hours contract. If there’s no work, there’s no mortgage payment. Simple. It’s not your fault that you’re losing your job in the call centre to the latest Siri. If you do work a few hours then you pay a proportionate payment. Yes, calculating this could be tedious but isn’t that better than repossessing a home and putting a family out on the street, which is ultimately more costly for society?

A university lecturer told me recently that universities need to throw out all of their liberal newspapers and stock the Financial Times. He said that’s where the power is, in the things people don’t understand. The things that are deliberately made complicated. For this reason he believes economics should be at the heart of everything that it is taught, no matter what the discipline. It’s for this reason that I’ve joined a reading group where we are slowly working our way through Karl Marx’s Capital volume one, reading one hundred pages per week. It’s complicated, but far more humorous and literary than I would have imagined. I don’t believe in communism, and I certainly don’t believe in capitalism in its current manifestation. All I know is that something isn’t right at the moment and the system needs a bit of tinkering. Hopefully this book group – comprised of PhD students, unemployed, artists, etc. – from Manchester, Mansfield and other places not necessarily beginning with M will help me figure it out.

 

(James Walker is a lecturer and journalist. He won a 2015 Guardian Teaching Excellence Award for his efforts to improve literacy through the online graphic novel Dawn of the Unread. He has sought to promote Nottingham’s literary history and was the last person to interview the acclaimed novelist Alan Sillitoe. He was also director of Nottingham’s successful bid to become a UNESCO City of Literature. www.jameskwalker.co.uk @TheSpaceLathe)

 

 

 

 

 

 

 

 

 

 

Economic Rationality and the Common Good

 

Whatever is real is rational, and whatever is rational is real.

(G. W. F. Hegel)

One of the prime responsibilities of a government is ensuring economic prosperity; indeed there is a prevailing view in the modern state, in a world that is interconnected and largely cosmopolitan, and in which tribal loyalties are attenuated, that this is its only responsibility. Personally, I think that is too narrow a view; there are, after all, alternative traditional concerns for the moral community of nations rooted in religion and custom, which may be declining, but are still influential, and emerging narratives, such as those of justice-based and environmental lobbies, that wield an increasing influence over policy decisions. All stake a claim to the ‘moral high ground’ of the common good. But given that economic viability is a first order issue for individual survival and political credibility, other issues must, for natural and pragmatic reasons, find accommodation within an economic framework, rather than vice-versa. The issue to be considered here, then, is whether our evolving ideas about human nature point to weaknesses in how orthodox economic thinking, particularly the idea of economic rationality, addresses the common good.

Two narratives on economic rationality

Although economic theories can be complex, they are rooted in fairly simple views of human nature and of the common good. The two great economic narratives of the modern period are undoubtedly those of the liberal free-market and the socialist command economy, which are fundamentally opposed in their interpretation of human nature and their expectation of the type of economic environment in which we should live and which serves the common good.

The economic theory of the free market is derived largely from Adam Smith (1723-1790) in his most important work, The Wealth of Nations. Smith observed that people pursuing their own advantage unintentionally benefit others, which he considered more effective than people deliberately trying to benefit others. This has been expressed as the working of an ‘invisible hand’ in the emergence of a free market maximising the potential and prosperity of the greatest number. Economic rationality on this view is whatever benefits an individual and, I suppose evolutionists would argue, those in whom an individual has a genetic investment, without regard to whether that self-interest was altruistic or merely selfish.

It is worth remembering the context in which Smith was writing, a world rather different from that which we inhabit today. For most of history individuals had been subjected to tyrannical government of one sort or another. In the eighteenth century Europe was experiencing the flowering of mercantilism along with liberalisation and Smith was able to see many – at that time novel – examples of trade being carried out free from the interference of the state as he travelled through different countries. Moreover, Smith wrote in a milieu in which he could assume a fairly coherent culture, one that included Christian beliefs and the social and cultural norms that grew out of the Protestant ethic and – at least his intended audience – a sophisticated and educated background. In such a setting the idea of rational self-interest made sense. Whether the same can be said today, in a world saturated with images of evanescent celebrity and multiplying opportunities for both self-improvement and self-destruction, is a key question.

In hindsight, even the golden age of liberal economics should give us pause for thought; it coincided with the early stage of capitalism and some of the most violent social dislocations of working populations and the subjection of industrial workers to horrific conditions. Though capitalism made some people very rich – as it continues to do so – there is little evidence of the improvement of the lot of the majority – what today we might refer to as the ‘trickle-down effect’ – manifesting itself outside of the political will to regulate boundaries of permissible economic activity. Self-regulation for the common good, in other words, has generally been in short supply. Individual capitalists sought to improve the lot of their workers, moved by conscience, human compassion or religious conviction, but for the most part improvements were fought in the political sphere and by the enactment of laws. Even in America, probably the country most committed to the idea of the free market, Congress was forced to enact laws in 1914 to prevent the establishment of monopolies, a clear case of government interfering to protect free trade being undermined by the unregulated market. In the last few years, after the denouement of the recent global financial crisis, most governments have acted to regulate the banks and financial markets considered responsible, to some degree.

In reaction to the injustices and suffering created during the early period of capitalism, socialism emerged and advocated social and economic justice over that of individual empowerment and enrichment [1]. Many groups and ideologues claiming to be socialist vied with each other during the nineteenth century, but the ideas of Karl Marx, particularly in Das Kapital emerged as the defining statement of socialist economic thought. Marx believed that the advent of capitalism, based on property ownership, represented the final stage in the alienation of workers from their labour. This alienation could only be ended when the workers rose up and destroyed the capitalist system, eradicated bourgeois institutions such as marriage and private property, establishing a communist paradise in which the ruling idea would be “from each according to his abilities, to each according to his needs”.

Lenin and Stalin took the philosophical doctrines and economic theories of Marx and turned them into a programme for communist revolution and a communist totalitarian state, respectively. While Marx saw the proletarian revolution as rolling on the iron rails of historical destiny, Lenin and Stalin were more pragmatic: they saw the communist party as the vanguard of the proletarian revolution to come and therefore ruling by absolute right. Communist dictatorship was justified as it assured the future common good of justice, prosperity and peace. Regimes and political parties claiming the label ‘socialist’ have spanned a broad spectrum, from the genocidal Khmer Rouge, Stalinist Russia and Maoist China, to horrific, brutal or corrupt totalitarian regimes such as North Korea, China and Cuba, to de facto one-party states such as those in Zimbabwe and Venezuela, to the mild socialism and social democracy within the West that are fully embedded within democratic traditions.

Is there such a thing then as socialist idea of economic rationality? I think that one can be extracted from Marxist thought and socialist reality. It starts from the assumption that work is virtuous (as a contribution to the common good) and should be fairly rewarded, but in a competitive world in which the winner takes all the only guarantor of fairness is the state (as a representative embodiment of the people) and, therefore, the state should control and direct economic activity for the common good [2]. Although starting from different presuppositions, this cannot be too far off a Rawlsian concept of social justice (Rawls, 1977). In reality the various forms of socialism, by neglecting the agency of the individual and its desires in social and economic activity, have distorted the various components of this formulation. Under communism the state assumed total control of all property and the means of production, micro-managing (as we would say today) production goals, prices and availability. Those who lived through the years of the cold war cannot forget the unrelieved grimness of daily life under communism, the empty shops and the queues for basics, the lack of freedoms, the almost comical distortions of the command economy, and the lack of economic parity with western economies. Such conditions have been virtually reproduced in contemporary socialist economies. On the other hand, where milder forms of socialism have taken root, it has often seen the expansion of state largesse to the detriment of the economy as a whole. Socialism as an economic strategy seems to be caught in the dilemma that the more enthusiastically it is imposed the more economically devastating the result.

Given the social and economic cost of socialism, why does it persist? What has been surprising in the aftermath of communist regimes in Russia and Eastern Europe is the genuine nostalgia some people feel for that way of life, for the benefits with which ordinary citizens were provided, for the simplicity of life, for the greater solidarity and community spirit. There are a number of possible reasons. One is the social narrative supplied by the regime, which however cynically it would have been received by some people, during some periods gave shape to people’s sense of who they were. The other is that the economic hardships engendered by the command economy created a second ‘black’ economy characterised by barter and a high degree of economic and social interdependence. Possibly also the restricted availability of consumer goods slowed down the flight into self-indulgence facilitated by most forms of new technology and thus helped preserve traditional social bonds and cultural activities.

The fact that two such disparate economic ideas and economic systems coexist is not a mere accident of history. They underlie the complexity of human psychology in relation to economic activity. We want the freedom to pursue our own benefit and that of our family and even larger social grouping. We are also sensitive to issues such as justice and fairness, which are not predicated by rational self-interest but which have a bearing on our economic outlook. Freedom requires both a sense of responsibility to be knowledgeable about what serves best our long-term interests, but also an element of risk which is irreducible. Socialism in principle removes these from the private sphere and socialises them; and to some extent any system in which social bonds are considered worth preserving must do this; society, after all, cannot be a zero-sum game. But a just society must also create the space in which individuals can have the opportunity to create wealth, and not just for themselves and their immediate families, but for the common good. Squaring this circle is proving difficult, but remains the holy grail of advocates of the good society.

Human nature and rationality in economics

Critics of the free market notion of rational self-interest could point out with some justification that many, if not most, of the decisions we make are based on irrational rather than rational processes, and this much has been established in psychological studies that have looked at decision-making in purchasing. These studies have informed the new wave of advertising and marketing strategies used in, for example, the layout of shopping centres. This is not even to speak of the advent of advertising which will increasingly be targeted and personalised based on tracking our online life and interests. Writ large, it can be argued that irrational forces are at work in the economy as a whole. The euphoria that accompanies an economic upturn is well understood; that this same euphoria all too frequently translates into recklessness, both at the individual level, the corporate level and even national level, is also well attested.

By some strange omission the irrational aspects of human nature do not feature at all in standard economic theory, which remains firmly wedded to the doctrine that economic decisions are fundamentally rational. This bias underlies the extreme mathematisation of modern economic theory as taught at universities. There are exceptions to this though. One of the great twentieth century economists, John Maynard Keynes, in his book The General Theory, was also concerned with the irrational aspects of the human psyche which he collectively referred to as ‘animal spirits’. Written during the Great Depression of the 1930’s, it proposed a number of measures to ameliorate the economic conditions of the time. The US government was keen to seize on the solutions he proposed that could be immediately implemented. The more subtle analysis, of how government could manage economic expectation through taking mass psychology into account, was quietly forgotten. Two contemporary economists, George Akerlof and Robert Shiller, have resurrected this neglected aspect of Keynes work. The authors’ contention is that only by taking the irrational into account does a true picture of these phenomena and of the entire economy begin to emerge. It will also, they argue, provide a more balanced view of economic activity and a more nuanced perspective on the role of government in the economy, neither the laissez faire of liberal economics nor the heavy hand of socialism. [3]

There is, in fact, also theoretical evidence that rational self-interest may result paradoxically in poor outcomes. In game theory, a branch of mathematics concerned with the logical outcomes of people behaving rationally under given conditions, there is something known as the ‘prisoners dilemma’. This states that when a player has more to gain individually by cheating than by cooperating with a partner, but more to gain by cooperating with a partner than by them both cheating, they will nevertheless both end up cheating and so end up with the worst result. The logic runs as follows: if I cheat I will end up with the best result (even though the other person will end up with little or nothing); I would like to cooperate, but if I can think of cheating so can my partner, and if my partner cheats I will end up with little or nothing; therefore, it is in my interest to cheat. The logical result of rational self-interest is that both partners cheat and end up with the worst result.

There are a number of variants of the prisoners’ dilemma attempting to explain through the application of game theory to economic decision-making how rational choices lead to paradoxical outcomes, such as the travellers’ dilemma (Basu, 1994). I came across the following example a few years ago, which imagines a long beach with two access points, one at each end, through which everyone who goes on to the beach must enter and exit. Two ice cream sellers park their vans, one at each entrance, and ply their trade. Both are able to take advantage of the flow of tourist passing both ways. One of them reasons, however, that if he were to move further in along the beach he would not only be able to gain all the trade he already enjoys but also encroach on some of the potential customers of the other seller. Naturally, his counterpart, seeing this move and unwilling to be taken advantage of, mirrors his actions. This process repeats itself until they will eventually both end up at the centre of the beach. What is interesting is that both will now have less trade than they had when they were parked at the entrance, firstly because many people will not venture that far down the beach, secondly because their custom at the centre will have to be shared.

In the 1960’s a population biologist called Garrett Hardin published a paper called The Tragedy of the Commons. It was basically a scaled-up version of the prisoner’s dilemma that denied the role of rational self-interest in realising a collective good and recommended coercion in matters of population control. Named after the common lands which existed in England during the Middle Ages until the Enclosure Acts, which belonged to no one but on which all farmers could graze their animals, Hardin theorised that it was in each farmers’ interest to overgraze the common lands as the benefit of each additional animal was realised by the owner alone, but the negative effects of overgrazing were borne by all who had access to the land, thereby ensuring its exploitation and ultimate destruction. Hardin surmised that, similarly, it was in everyone’s interests to maximise the number of children they had when social and economic conditions favoured large families, to the detriment to society as a whole.

The Tragedy of the Commons, so-called after Hardin, is one argument advanced in favour of coercive government acting to prevent our selfish destruction of the common good. However, in The Origins of Virtue, Matt Ridley contends that Hardin misunderstood the nature of the common lands, arguing that they were not a free for all, but were controlled by a system of jealously guarded rights and obligations honed over generations. He cites many other examples of the communal settlement of dilemmas arising over the issue of public goods by the imposition of rules and regulations, by limited ownership, by penalties, and so on, none depending on the bureaucratic hand of the state. In fact – despite counter-factual examples like China’s one-child policy –in much of the developing world families have voluntarily limited themselves to an average of two children as a result of education, women’s emancipation and the prospect of economic advancement. This latter case illustrates the point that while the heavy hand of government is always unwelcome, it is nonetheless the case that good government policy aids good decision-making, in this case the provision of educational and economic opportunity for women.

Another often cited example is how the interests of both fishermen and consumers was sustained in the past not only by territorial limits, imposed by national governments [4], but also by local knowledge of the fishing grounds and an acceptance that this was a resource that this had to be shared and harvested in a sustainable way, which raises the possibility that self-interest may best be served by cooperation. There is experimental backing for this. One of the puzzling aspects of the prisoner’s dilemma is that if it is played repeatedly it tends to lead to cooperation, which is what we experience in the real world: in real world situations most people tend to trust each other, cooperate and get along. However, the logic of the dilemma is that rational self-interest should result in the worst-case scenario and the refutation of this logic needs to be explained. Just as repetitive playing of noughts and crosses leads to the realisation that there can be no winner and the abandonment of play, so repetition of the prisoners’ dilemma reinforces the rule that rational self-interest is overall best-served by cooperation.

Humans are highly attuned to fairness or the lack of fairness in a situation. This may be one of the reasons for the continuing appeal of socialism; it responds at a deeply atavistic level to the inherent injustice of so much of the world’s economic poverty and institutionalises grievance against those who are seen as unjustly favoured (such as bankers in the current climate). Some experiments have looked at the relationship between our sense of fairness and spite. They turn on adding a new element to the prisoners’ dilemma. Under a system in which all benefit by cooperation, those who exploit the system by not cooperating gain a significant advantage, while those who do cooperate lose out. If the option for the exploited to pay for the punishment of those who defect is added the outcome is very different. Despite the exploited losing even more, they experience satisfaction at seeing the exploiters punished. Moreover, in future rounds group cooperation is far more common (Whitfield, 2009). This suggests that despite its unblemished record of economic failure, socialist rhetoric, invective and militant espousal of marginal causes may have a sensitising effect on the machinery of capitalist productivity, and its socially-grounded morality eventually come to permeate all layers of society.

The relationship between self-interest and cooperation is complex, reflecting that human life is multi-layered and that not every issue, even within the economy, can be reduced to purely monetary considerations. This means that the resolution of dilemmas is likely to be highly differentiated. The case of the ice cream sellers, given above, could be resolved in several ways: one or both could drop their prices, sparking a mini-trade war, eventually forcing one out of business (zero sum game); they could agree to a territorial strategy allowing both to make a fair living (cooperation); one could focus on the quality market and high service (niche). Some issues, though, do not really have the same scope for economic resolutions. A recent case of some NHS trusts tendering out their care provision for the elderly and dying to private companies through negative auctions is deeply offensive to our sense of social obligation and the dignity of human life in its most vulnerable stage (Bennett, 2009). All societies must eventually recognise that for the common good there are some obligations for which the bottom line is not a consideration.

Conclusion: rational economics and the common good

If, as Hegel suggests in the quotation from The Phenomenology of Mind reproduced at the start of this essay, the rational and the real can be identified, that seems an idea worth exploring for its potential implications for economic rationality. As the economy is a complex system of interrelation and interdependence, it implies that a concept of economic rationality cannot be based simply on individual choice but on choices which individuals make in regard of their relationships to others upon whom they depend and who depend on them, beginning perhaps with those closest, but rippling out to the most abstract idea of the public good.

Just as – at the risk of tautology – self-interest is that which serves the long-term benefit of the individual, rather than just the immediate gratification of desires, the common good is that which allows the collective benefit to be sustained, rather than squandered to featherbed a favoured constituency or appease a particularly vocal case of special pleading. And just as we as individuals struggle to negotiate a reasonable compromise between pleasure and our own sense of integrity and self-worth, our societies too seem to be in an incessant quest for a dynamic equilibrium in which the competing demands of the individual and the whole, compassion and incentive, freedom and security, and progress and preservation can be recognised and reasonably accommodated. In this the state, embodied in the government of the day, has a role to play in sifting, innovating and building upon the best ideas of its predecessors.

Since, as discussed, the real economy clearly contains much that is irrational, economic rationality implies policies which – given the impossibility of eradicating irrationality – work to contain and manage it. As a non-economist I have few specifics, beyond the obvious that the state should promulgate the national narrative on the economy, be the creator and maintainer of the conditions for economic prosperity and instigate or legislate for buffering against boom and bust, economic manias and depressions. However, the preceding analysis suggests that, in addition, government should be furthering civil society and generating social capital by encouraging cooperation at every level, building – or allowing the building of – dynamic systems into the society and economy, as a basis for private initiative and communal prosperity, but also for spreading and managing risk, such as that posed by unemployment, accident, sickness and old age, that we know we do not face those entirely alone.

Notes

 

  1. Though routinely touted as ‘radical’, the radicalism tends to be limited solely of its rhetoric; socialism in practice is one of the most atavistic and reactionary of social movements, steeped in tribalism and suspicion of the outsider seasoned with accusatory invective, factionalism and infighting. It is not even a particularly modern phenomenon, as all pre-modern societies have been communal to some degree and socialism consciously boasts a distinguished historical pedigree, claiming precursors in monastic orders, radical Protestantism – such as the Brethren of the Free Spirit, the Levellers and the like – or the ideals and spirit of the French revolution.
  1. Marxists would interpret this differently, seeing the injustice in structural terms, workers (the proletariat) having only their labour to trade, while the capitalists generate income from ‘rent’ on the means of production, such as land, property, capital and labour. The solution to this injustice is asserted to be the destruction of the capitalist class and the appropriation of the means of production by the workers.
  1. Along with the reappraisal of Keynes’ macroeconomic approach in such recent developments as quantitative easing following the economic downturn in America and Europe, there has also been a revival of a more narrative and empirical approach to economics inspired in part by Keynes, but also by theoretical developments such as chaos theory and complex systems theory, which, while having a mathematical basis, are rooted in real-world and human-scale observation and seek to unify the global with the local, in which the particular story has become a renewed focus of interest. The conceptual landscape of tipping points (Gladwell, 2000), freakanomics (Levitt and Dubner, 2005), black swans (Taleb, 2007) and nudge theory (Thaler and Sunstein, 2008) are all attempts to marry individual stories with observation and overarching economic and social theory.
  1. Such as the British government was able to exert in the days before the Common Fisheries Policy of the EU created a global free-for-all exacerbated by Soviet-style quotas which has brought local fishing industries and a number of marine species to the brink of extinction.

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Kaushik Basu (1994). ‘The Traveler’s Dilemma: Paradoxes of Rationality in Game Theory’. The American Economic Review, Vol. 84, No. 2, Papers and Proceedings of the Hundred and Sixth Annual Meeting of the American Economic Association (May, 1994), pp. 391-395.

Rosemary Bennett (2009). ‘Elderly left at risk by NHS bidding wars to find cheapest care’. The Times, Monday June 1, 2009.

Malcolm Gladwell (2000). The Tipping Point: How Little Things Can Make a Big Difference. Boston, MA: Little, Brown & Co.

Garrett Hardin (1968). ‘The Tragedy of the Commons’, Science 13 December 1968:Vol. 162. no. 3859, pp. 1243 – 1248

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John Rawls (1977/1999). A Theory of Justice. Cambridge, MA: Harvard university Press.

Matt Ridley (1996). The Origins of Virtue. London: Penguin.

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John Whitfield (2009). ‘Cruel to be kind’, New Scientist, 16 May 2009, vol. 202, No. 2708, pp. 42-45