Themes from Human Politics : Human Value
Talk to a group at Schumacher College, Dartington, 3 February 2015
The key economic theme of Human Politics : Human Value, on which I’ve now spoken several times, most recently at the Consciousness Café in Totnes, is the “transactional economy” - the part of the economy that doesn’t generate new wealth, but circulates existing wealth and allows other people to take a cut as it passes through their hands.
When we look at the supply chain - the transactional space that separates a producer from a consumer - we rapidly discover that most of the so-called value of an item that we purchase lies in that chain, and does not go to the producer.
The example I give in the book is a pair of trainers produced in the Far East and sold from the factory for maybe £3, which rises to £5 by the time they are landed at Felixstowe docks. By the time they make it onto the high street that price could be as much as £80.
The difference is “value added”, some of which is transport, but most of which is represented by business and intermediary services: accountants, lawyers, warehousers, packagers, marketers, bankers, wholesalers, retailers and all the services that support them and their premises: office suppliers, landlords, builders, photocopier makers and maintainers, IT specialists… the list is almost endless even before you take into account the government officials and tax inspectors whose job it is to regulate all this activit
This reference to “value added” highlights the importance of the terminology we use to describe the economy. I talked at the Consciousness Café about the use of “cost”, “value” and “producer” in this context; another terms we need to watch out for is “profit”, which is not always what it seems.
In the case of those training shoes, we would conventionally apply the term “producer” to the factory where the shoes are made, by which we mean the owner of the factory. In reality, however, production is the work of making, and producers are the people who actually make and grow things. When production is mechanised we can extend that idea to include the people who make the machines, too.
To the factory owner, however, these makers are a cost of production. Like all their other supplies, they are an input cost that has to be offset against their selling price. The difference they register as their profit. For every step in the supply chain there is a selling price, a cost of sale, and a profit to be made in the difference between the two.
Only when the goods get to the consumer do we stop thinking in terms of cost. We might ask, colloquially, “how much does that cost”, but we think of goods in terms of our need or want of them. Generally, when we buy something, we get something that we want - that has value.
That value, however, lies almost entirely in the item itself. We are, of course, dimly aware that the service of the shop assistant, and the transport to get the item to the shop - or onto our doormat - has value, but our key point of reference is the enhancement to our life that comes from the item itself.
The same is true for the producer (in the real sense of “maker”), for whom the fact that the goods they make have value enhances their own lives by allowing them to earn their living. The relationship is quite simple: the consumer values (gives value to) the work of the producer.
“Cost”, in this arrangement, is everything that sits between the producer and the consumer. These costs weigh equally upon both of them. The more that are incurred along the supply chain, the more the consumer will have to pay, and the less the producer will receive for their work.
In other words, what we conventionally think of as “profit” is, in fact, cost, and much of what we call “value added” is cost, too. The “cost of living” lies not in the work of producing the things that we want and need, but everything that comes between us and those producers.
And that - in passing - is why I said we need to be careful how we use that words “profit”. Conventionally we apply it to, for example, the situation of a cabinet maker who pays for materials, premises, tools, etc., then sells the items that they make. We describe the difference between what they sell for and what they pay out as their profit, when in fact it is the legitimate value of their work.
Now, as soon as we make this distinction between cost and value in the supply chain we create a string of new terminological and interpretive problems. For what we’ve been describing are the workings of the free market economy, and one of the doctrines of the free market economy is that anybody who can find a space in it from which to take a profit is by definition doing useful work. If they weren’t, the free market wouldn’t allow them to find a space: people can only make money because other people want to give it to them in return for a service or goods.
This analysis, however, depends very much on how we interpret the word “want” in that last sentence. Do we mean “really want to give it to them”, or “need to give it to them”, or “are obliged to give it to them”? This is rather important! “Really want” might apply to consumer goods, such as food and clothes; “need” might apply to insurance, or locks, that protect you from things that you hope won’t happen; “are obliged to have” takes us in the direction of financial, accounting, legal and other business services - the activities that do not create wealth but that sort out the question of who is entitled to a share in it.
By making a distinction between these different degrees of willingness to hand over our own wealth in return for the goods and services of others, we begin to see that the celebrated virtue of the free market - that it is efficient in allocating resources to the exigencies of supply and demand - might not be so virtuous after all.
The free market is not efficient; it is actually highly inefficient, precisely because of that huge battery of services that are needed to sort out the vexed question of who owns or is entitled to what.
So it’s worth asking how it gets its reputation for efficiency, and it’s true that if you start from the premise that people are inherently competitive and, left to themselves, will always try to get the better of others, you can construct an argument for the free market along the lines referred to by Churchill on the subject of democracy - that it is the worst system except all those other systems that have been tried from time to time.
A free market is certainly better than warfare, but in order to be so it needs to be appropriately regulated, which is where all that additional activity comes from.
But are people inherently competitive, always trying to get the better of one another? More precisely, are people typically like that? Is that how most people are, or is it only a subset of people who demonstrate those tendencies?
The first port of call to answer this question is to look into ourselves, and the people we know most closely. In my dealing with other people, am I always looking to further my self-interest, and is that what I see in my friends and family?
Now, there is plenty of evidence to suggest that the answer to this is “yes” - we are indeed always seeking to further our self-interest.
But this observation doesn’t help the classical economists very much, because we know that our self-interest - our happiness and sense of wellbeing - very often exists in promoting the wellbeing of other people.
In fact, when we look into ourselves we generally discover that successful collaboration with others is among our most powerful motivations, because we know that in most cases wellbeing is a mutual experience.
So it seems that from what we know of ourselves, we’re not always trying to get the better of others. Which raises the question, therefore, why, whenever I buy something, do I crawl the internet to make sure I’m getting the best deal?
I’m talking specifically about me, here. I know that other people have better uses to make of their time. But for me the idea of being “ripped off” fills me with dread.
And it turns out that I’m not alone in this. Again, good research evidence suggests that most people are much more fearful of being “ripped off” - that is, losing what they’ve already got - than of missing out on an opportunity to get more.
So, the question arises: is the market there to stop people being ripped off (because they are paying (or receiving) the “market price”), or does the market create the possibility of being ripped off, and instill that fear? Is it the cause of the problem, or its solution.
Because problem there certainly is. A fear of being ripped of is arguably the most powerful barrier to effective collaboration. The idea that other people might not be “pulling their weight” in a collaborative venture creates demand for a system of exchange of value and separation of entitlement. The fear of others “taking advantage” of a collective endeavour is one of the primary causes of people acting against their own self interest by denying themselves the wellbeing that collaboration can bring.
What is emerging here is a picture of people who are naturally collaborative, rather than competitive, in economic terms, but who are required to work within a free market, competitive paradigm. So the question naturally arises - where has that paradigm come from?
I mentioned “most people”, and how we reflect that in ourselves. But what about “other people” - the ones who are not “most”: might there be a subset who do not conform: people who are, so to speak, economically dangerous, willing to take risks to pursue a self-interest in which mutuality scarcely features?
We have lots of ways of describing people like this. Egocentric. Anti-social. Sociopath. Psychopath. Lots of gradations. These terms and others describe a lack of empathy or relationship in which mutuality and shared endeavour may not feature.
I’m not bringing medical or scientific knowledge to this, but merely observing how every society has people who don’t fit in. Generally we deal with it: the not-fitting-in-ness is accommodated with tolerance and flexibility on the part of others. But at the margins we send people to prison because they cause too much trouble. The prison population is a rough and ready measure of the proportion of people who lie too far outside a social norm.
Actually it’s a pretty poor measure, because it seems that something like half the current prison population in the UK does not “need” to be there in that sense. That leaves about 50,000 people, or about 1 in 1000, in very round terms. 0.1 per cent is another way of putting it. My point is that it’s very small. We’ve created a society in which 99.9% of the population can get by, in terms of social relationships.
If we turn the same spotlight onto economic relationships, we could hypothesise something similar. That the number of people who are “economically dangerous” in the sense I’ve used that term is also very small indeed. The difference is that whereas we’ve sought systematically to tame our socially dangerous element, in the case of the economically dangerous we’ve done quite the reverse.
There’s a complex historical narrative here which we don’t have time to unpack at the moment. But it is fair to observe that far more intellectual, social and political energy has gone into trying to create societies in which people can live freely on equal terms than has gone into trying to create economies in which people can participate freely on equal terms.
In a history that is not too distant, people accepted the leadership of the most powerful warriors, brutal as they may have been, because the continuation of society depended upon them. Gradually, relationship has asserted itself over confrontation. Whereas, not so long ago, the first thing children learned was how to fight, now we teach them the virtues of civil society. The sociopaths have either adapted, or they have gone to prison.
In the economy, however, we still laud the people who fight best, we teach children how to compete and we maintain a market framework within which they can do so. Our highest ideal of economic activity is sociopathic - that we look out for ourselves to the exclusion of others. We’ve even got a name for it - homo economicus - and governments go to a lot of trouble to persuade people to behave in this self-interested way, for example when they choose their gas or electricity supplier.
A true homo economicus has sociopathic tendencies and in practice most people are not like that. In fact, so few people are like that, that governments have gone out of their way to create artificial sociopaths - legal persons who are obliged by law to behave in a totally self-interested way.
Although the Joint Stock Companies Act of 1844 that gave birth to the modern commercial corporation was motivated largely by a desire to protect shareholders from unscrupulous managers, a much more significant effect has been to protect shareholders’ economic self-interest from their own social, human natures.
Companies are designed to have no empathy. The law characterises their interests purely in acquisitive terms. The legal responsibility of managers is to look after those interests. The larger the company, the more distant the managers are from the decisions they make, and the less likely is their personal empathy to palliate the legal sociopathy they are supposed to represent.
So what we are dealing with here is an economic structure that is designed to discourage people from behaving in a “normal” human way. We have normalised and institutionalised economic behaviour in terms characteristic of abnormal, sociopathic behaviour. And to accommodate that system to our non-sociopathic natures we have created a vast and costly interface of legal, accounting and other business services, all designed to manage the artificial relationships that this sort of economy creates.
Now, if we ask why this has happened, we can point to two reasons. One is easily dealt with: the idea that acquisitiveness and economic competition drives innovation and increases prosperity. It’s easily dealt with because history has few examples of this sort of greed driving true innovation. Most breakthroughs come out of a spirit of enquiry, and although it is true that research and experimentation requires investment, most commercial investors are highly risk averse.
The second is much more significant, and highlights a difference between social and economic advance. Whereas the currency of society has changed, that of the economy is still what it was.
Historically, the currency of society has been identity, expressed in terms of class, caste, occupation, race, skin colour, language, nationality, regionality, family, etc. LIke all currencies, its purpose was to evaluate, and it still operates very powerfully in many parts of the world.
If we think about our own society, however, we can see that differential identity is rapidly being replaced with personal identity, and the whole point of personal identity is that it seeks to emphasise the commonality of humanity and human experience. It is summed up in the phrase - “everyone is different, so everyone is the same”. Our individuality is our commonality, and the currency of identity now relates to shared interests, culture and experience, all of which, theoretically and ideally, are valued the same.
I’m not suggesting for a second that we’ve reached this Nirvana - merely that we see its desirability and are working towards it. By contrast, the currency of the economy is what it has been for millennia - money - and this now has a tighter grip on us than ever before.
The advantage of money is that it helps us to record a surplus, which is useful for an economy seeking to expand. The disadvantage is that not all wealth can be expressed in money terms.
Things such as good night’s sleep, or the enjoyment of a book, or time spent with people you love: although economists do - bizarrely - attempt to find money equivalents for these when modelling policy, they do not have a financial equivalent in human terms.
Other wealth, such as that derived from cooking a meal, or looking after your own children, or painting your own house, does have a money value in the sense that these are services that are often paid for. But when you do them for yourself, no money changes hands, and the money value is generally not what you think of.
When the currency of the economy is money, however, the value of an activity is not registered when money does not change hands. This is literally true. GDP, which measures the economy, only measures financial transactions.
To keep the economy going (not necessarily growing), therefore, it is necessary that as much activity as possible is “monetised” - which is why governments are so willing to subsidise paid childcare so that parents can go to paid work.
Similarly, people working long hours for low pay are effectively forced to buy processed meals instead of cooking their own.
My favourite example of this arose out of the great sandwich debate last November. The Daily Mail carried a splash front page asking “Is there no one left in Britain who can make a sandwich?”
The story was about a factory making sandwiches for supermarkets, which was recruiting workers in Hungary even though there were plenty of unemployed people in Northampton, where the factory was based.
British workers were said not to want the work on account of the pay and conditions, and the feeling on the company’s side appeared to be mutual. People with family responsibilities, children to pick up, etc., were troublesome to employ, compared with single people from much lower-wage countries, to whom the work seemed well paid.
What would be a better way for people to make sandwiches, I wondered? Well, assuming that a supermarket sandwich is priced at £3, that the ingredients can be bought for a quarter of that and that it takes 5 minutes to make, then the hourly rate of making your own sandwich is £27 per hour, or £56,000 per year (after (no) tax).
Clearly, if you made sandwiches in quantity and took them out to sell, the selling would take longer and involve bigger overheads than the making, and the rate of pay would decline rapidly. That’s because most of the £3 is in the supply chain, not in the making.
But if you eat the homemade sandwich instead of buying one, then you really have earned at the rate of £56,000 per year, albeit or 5 minutes. So it will probably be the best paid five minutes of your day.
All of which is to say that the monetising of activity does not make it more valuable. Many of the most economically efficient things are the ones that you do for yourself. What money does do, however, is make wealth transferable. So one of the side effects of a more monetised economy is that inequality becomes more likely, and more sustained.
In the book I identify four key features of the economy, all of which are focused on increasing monetary activity, with a consequent loss of what I call Human Value - the things that really matter to people in their lives.
One of these is the way that land is valued and allocated. High house prices are characterised as a good thing, which, for all sorts of reasons they are not, but one key consequence is that people have to work more and more for money, just to keep a roof over their heads.
We talked a bit about companies. They exist only to make money, and have no human or moral purpose (I’m talking here about shareholder corporations… there are other sorts).
Trade is another big one. I’m not going to go into the controversies surrounding TTIP at this point, but suffice it to say that free trade is mostly about increasing the volume of financial activity, not its usefulness to producers and consumers.
And finally (and this is the big one) the way the economy is measured. If we only measure the money value of the economy, money is all we will get.
All these areas are ripe for change, but my purpose here is not to dive into the politics of how we might change them. My purpose is to illustrate how the direction of travel of social development, and the direction of travel of economic development, have become opposed. To put that another way - both locally and globally we aspire to a model of society that is not achievable with the economic model that we are simultaneously applying with increasing rigour and force.
And this brings me to my final point, which is the alarming way in which the increasing lack of economic freedom that many people are experiencing is pulling back on social freedom, too.
What I mean by that is that in the social sphere - at least in the West, as we’ve seen - people’s individuality is increasingly allowed to express itself. Few people, for example, twenty years ago would have imagined that gay marriage would now be a legal norm in Europe, the US and elsewhere.
If we think about education, on the other hand, we can see that very different powers are at work. Can we say with any conviction that the successive reforms of the education system we have had in recent decades are designed to nurture the emerging individuality of the child? Rather, it appears explicitly focused on preparing children to work in the money economy.
Similarly, the whole direction of politics in recent decades has been towards centralisation, and giving local people less and less control over the politics that governs their daily lives.
I’ve already mentioned the prison population, and in particular the half of it that does not need to be there. Although the number is small in percentage terms, it is far bigger than it need be. In my book I quote the aphorism of John Major, when prime minister, who said that society needs to condemn a little more and understand a little less. That was in 1993, and there is a strong case for saying that the institutional aspects of society have taken Mr Major’s advice to heart in the 20 years since he said it. We live in a society that is in many ways much more tightly controlled.
Some people are comfortable about this, but my worry is that we may be losing, almost literally, the capacity to think for ourselves in terms of deciding how we manage our lives and relationships. It is almost as if the right to be ourselves in terms of expressing our individuality has been purchased at the price of being able to think for ourselves and make decisions (and mistakes) based on that judgement.
And if that is the case, then I think that the increasing monetisation of the economy is strongly implicated. More and more of the things that we do involve money, and much more money than it used to do (eg housing). With a fracturing jobs market we have less and less choice and control over where that money comes from. Many peoples lives are now dominated by the pressures of balancing their money transactions. When, once, spending less was an option, increasingly that is not the case, so people spend on yet another obligatory “consumable”, which is debt.
When once money facilitated life, now money transactions are in danger of “becoming” life - of defining its purpose. And that is why something that sounds dry and technical, such as changing the way that we measure GDP, or whether we pass another trade agreement, or how we regulate big companies, or what happens to house prices, are no longer incidental to the important things in life but are where, in my view, the existential battle for the future of humanity is currently being fought.