I have suggested that we need a new ‘ism' when it comes to economics. I am far from alone in doing so. The demand for a new paradigm stretches across the left, at least, in politics. But what we get, time and again, is an analysis of what is wrong with what we've got. Let me try to push this forward, a little.
First, let me point out that quite a lot of what we have is quite good. Don't get me wrong: I know, and moan about the flaws from inequality, environmental degradation, short termism, austerity and the consequent poverty of public services onwards in the economy we live in. Please take that as read. And then also note that very large numbers of people are at work; much demand for goods and services is met; there is food to go round in many countries, and education too in quite a lot of them, as well as health care that would have been beyond the wildest expectations of many not long ago. We haven't got a panacea, very obviously: if we had we wouldn't be looking for something else. But let's also not ignore the reality that something is working, because some things clearly are.
Second, in that case let's be clear that what is not working are the descriptions of what is working, and why. This is true of the left and right. If descriptions of socialism worked the left would have to look no further. However, since the left are looking we have to conclude that most descriptions of what socialism has to offer do not chime with a reality people see, or appear to want.
The same is just as true of capitalism. We very obviously do not live in a capitalist economy. Capitalism requires that there be an efficient mechanism for the distribution of capital through a market system that is free from the tendency to monopoly to ensure its efficient allocation for the benefit of all. That, very obviously, is not happening: markets and even whole functions of government have been captured by monopolists working in the interests of a few to capture much of the gain from the economy for the benefit of a tiny part of society as a whole. The fact is capitalism is not working, and it is glaringly obvious that those with power don't want it to do so. In addition, the fact is that no one has any idea how to make capitalism function as theory suggests in reality. In that sense it's just like socialism.
Our two big ‘isms' do not, then, describe the world as it is.
Neoliberalism has in the meantime filled a void. It has corrupted capitalist theory and sold a narrative that is about rent extraction, not profit seeking, and the two are entirely different. Its power has been in the quality of the corruption, which has been first class: the corrupt narrative it has had to sell has been well crafted to ensure that what capitalism does in theory has been adapted to deliver a very different outcome in practice, and this has very clearly distorted reality in ways that are now apparent, and repugnant to, many.
There are lessons to be learned. I will offer just three. First, neither socialism or capitalism describe a world that is close to the reality people recognise.
Second, neoliberalism works by describing a distorted view of reality with a very specific goal implicit in it, which has been the delivery of bias towards a few.
Third, narratives that are recognisable but have an implicit goal can bend the way the real world works in their own favour, and have.
Those three conclusions may be sufficient because they hint at a solution. The solution cannot be based on pure theory: the real world does not work like that: reality keeps crashing in. On the other hand, narratives based on reality do work, and can change outcomes. But, most importantly, a narrative that is biased to the few is no longer acceptable.
So we need a new narrative. It must reflect the reality that the economy is mixed. There is a role for the private sector, and for the state. The reality is that each does some things well, and is sometimes deeply unsuited to tasks that the other is best able to deliver.
The reality is that there are almost no unfettered markets: indeed, the reality is that fettered markets are essential precisely because markets rarely work without being fettered. And the reality is that the process of limiting market power, and abuse within them for the benefit of all, is best done by a state.
The reality is that the state works best when people believed its interests are aligned with their own. Democracy assists this process. The reality is that this requires that democracy empower a wide range of views, some of which will appear repugnant to others. But to do this the market for democracy must be fettered by rules that ensure capital (or the power of money) cannot corrupt it.
This democratic expectation means that in reality a diverse media has to be encouraged and even supported, even if there is also a need for a state news service, albeit that seeks to provide as objective a news base as possible.
The reality is that the environment has to be respected.
The reality is that if there is to be a bias inside any new ‘ism' then it has to be in favour of most people, since the existing bias has been against them. Assuming the returns in an economy really are rents, interest, profit and wages then there is no doubt that the new ‘ism' has to prioritise these in the reverse order from that listing, which reflects the current ‘ism'. In other words the priority must be wages, profit (as properly stated as the return to enterprise, rarely seen beyond small business now), interest and rent (which is the return most large business now extracts).
And the reality is that this requires different goals. So, GDP, which is indifferent to stagnant wages, is of little use to a new ‘ism' when GDP can celebrate ‘growth' that most can never enjoy.
And the reality is that goals must therefore be different: rather than growth the new ‘ism' must make its bias clear by making full employment and rising median wages its objective whilst ensuring that real need is met with the lowest environmental footprint we can achieve.
This reality demands that the interest of the person owing money is as important as the person to whom money is owed. That means monetary inflation need not be controlled just to protect the creditor.
And this reality does not demand that a government balance its books to serve the mistaken desires of a capital market dedicated to savers when saving does no longer fund investment in the real economy where and when fiat money prevails.
And this reality requires that interest be kept low as an end in itself to minimise redistribution from those who have not to those who have.
Whilst this reality says that regulation to control market abuse is more important than the free movement of capital.
And at the same time this reality respects the real need of people to move to work, and aids it, whilst respecting the need of communities that transition their membership to receive support to do so.
These are realities. They are not myths. These are assertions based on what is actually required to bias the economy which, as I noted at the outset, has many qualities that do work, in favour of most of those who work in it.
And the reality is that policy to achieve these goals can be offered, based on modern understanding of money; of tax; of democracy; of corporate and market forms and regulation; of environment and related issues; and even of automation which can be embraced to release people to do the work that society really wants if only the combination of all those understandings is brought to bear to fund those new ways of working from which the communal gain that new productivity could deliver could be shared by all, which neoliberalism would deny.
So what is this economics called? I'd call it realism, because it is based on reality.
The reality of the economy that exists.
The reality of the way it works.
The reality of what people know is wrong with the narrative we have.
The reality of the aspirations of most people.
The reality of the constraints we face.
And the reality of the opportunity we have.
We've had capitalism, socialism and neoliberalism.
Now I want realism.
Could this be the new ‘ism'?
Is that too much to ask?
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is definitely worth a look.
I guess the problem with that term is its existing use in international relations theory.
But i get where you are coming from… that you want an economic philosophy which not only reflects reality but is also a practical tool for setting out what we want and how to achieve it, in the real world.
I accept the point re IR
I th8nk that can be managed
Agreed including the priority order (wages, profit, interest and rent) and…
I think you have to name what has gone wrong to guard against it, you could argue that realism wrt Human nature perhaps has made socialism, capitalism even communism unworkable. However the word I would suggest is protectionism. Just like the economic form of protectionism which was intertwined with the depression this protectionism has produced lower than needed living standards for the majority. Capitalism has morphed into protectionism of those with capital, neoliberalism and communism morphed into protectionism for the elite and even socialism morphed into protectionism solely for the workers to the detriment of others. All seem to have short-term vision, without universal collaboration and not for the benefit of everyone.
They all have had a familiar outcome. They all damage the country — compared to a counter factual optimum outcome — and more importantly they damaged the lives of some people and some of the ‘isms were more damaging than others.
Whether we can now have neo-protectionism for everyone (though it would seem wrong to use an existing negative economic term), dualism (public and private — though again using an existing term), collaborate(ism), pan(ism) or some term that indicates this consults everyone and for everyone.
Frankly if we get something close to what you are suggesting then a rose under another name would smell as sweet.
Thanks Ken
You say:
“Capitalism requires that there be an efficient mechanism for the distribution of capital through a market system that is free from the tendency to monopoly to ensure its efficient allocation for the benefit of all.”
I’ve never seen that claim before. Where does it come from? If true, it suggests capitalism does not exist, which is surprising.
That is a basic neoclassical economic interpretation
Isn’t that the basis of Adam Smith’s thinking in “The Wealth of Nations”? Current Tory dogma constantly cites Smith while their economic policy encourages monopoly. Hypocrisy or what?
Really? I’ve never seen that in any paper or textbook. Source?
How about “sociocapitalism” – socialism and capitalism in partnership for the benefit of the many?
That’s as hard to explain as predistribution – which was a failure as a word even though it makes complete sense to consider it
I agree with much of your sentiment although not perhaps your economic thinking. What i am interested to know is your hostility towards saving? I understand saving takes away from consumption etc but surely it is a positive and rational thing for an individual to save in peak earning years for retirement? I work in private equity and development capital and have for many years seen the positive aspect of investing promoting entrepreneurial activity and the positive effects it has in creating jobs and general prosperity. But we cannot expect all savers & investors to accept this risk /reward profile. The majority want to come down the risk curve and presumably move into your definition of “rentier”. But so be it, If they work hard and save for later life why should they be treated with hostility?
I am simply making two points
First, savings do not pay fir investments: credit does
Second, you can’t save for a pension as such: you can at best hope the next generation will provide for you on the basis of the capital your generation has left them to inherit. And tyat’s real capital, not money
Your micro view of the world continually fails you
‘reality’ is a tricky concept – we tend to only accept a shared reality when something hits us in the face such as ‘war’, natural disasters etc.-which is when behaviour changes on the spot ( think command economy WW2- price controls/banks forced to lend to Government/mobilisation of populace).
Climate change and the need for social justice world-wide should be creating a similar response but it isn’t because it doesn’t impinge on everybody at the same time which allows us the luxury of living in semi-solipsistic worlds.
Richard -not sure the things you think are ‘working’ are necessarily good exemplars of ‘working’:
‘very large numbers of people are at work’
You have often reported how misleading that is with: Underemployment; spurious ‘self-employment’; very poor quality jobs; low pay; poor condition; people who have given up and not in the workforce. If employment were truly low there would be some upward wage pressure.
‘much demand for goods and services is met’
goods are supplied by low-labour cost countries which largely produce poor quality goods that add to environmental destruction and is utterly insane – lost count of the number of crap kitchen items I’ve had to recycle due to poor durability.
‘there is food to go round in many countries’
yes, but the glut of food we have here and the globalisation of it is madness: green beans from Guatemala, Kenya; fruit from Peru; potatoes from Egypt -what is this export prioritisation doing to the food supplies of the exporter countries? Not to mention the lunatic air freight involved.
‘health care that would have been beyond the wildest expectations of many not long ago’
soon to be beyond the wildest expectations as we Amercanise our system. People are struggling to get dental care ( I don’t remember that being a problem when I was a kid) and private health care is being gradually foisted upon us.
I think we have to accept that capitalism is a hideous system and always was: it is irrational. inflexible, creates alienated relationships, often immoral and lacking in ethical scrutiny and reduces people to a vicious instrumentalist. It distributes goods unevenly , pretends there are things called ‘externalities’ which are really aggressive ‘internalities’ and creates bizarre and unpredictable disastrous shortages due to commodity price manipulation. personally, I like Richard Wolff’s historical, evolutionary view that, just as slavery and feudalism have been stages of development , so too is capitalism a stage we have to transcend.
Simon
I will muse on this
Richard
Simon – that’s an excellent exposé of Capitalism. Thanks. Like feudalism & slavery it has its place in our evolution and is now no longer ‘fit for purpose’ (assuming it ever was). Any positives that it may ever have brought to the global table are now overtly outweighed by the negatives. Therfore, to continue along this socio-economic path is clearly insane. As Richard Wolff has said – all we’re getting is a better form of slavery, but it’s still slavery. And for those only guided by exoteric wisdom, the ‘scientific’ facts are publicly available. So no ‘rational’ excuses. Descartes has a lot to answer for!
Back in the day, the Green Party – or People then Ecology Party as it was – publicly stated it was the only political party with a ‘spiritual dimension’. Maybe, sometime in the future, it will not be afraid to mention again the ‘S’ word. But I’m not holding my breath.
Not for the first time, I would recommend anyone to revisit Schumacher’s ‘Small is Beautiful – A Study of Economics as if People Mattered’. After 45 years his basic principles remain a valuable guide. And his 1977 book ‘A Guide for the Perplexed’ is perhaps even more rewarding and relevant to coping in the Age of Complexity. Food for thought.
This direction of philosophical travel is definitely worth ‘musing on’!
Simon,
“so too is capitalism a stage we have to transcend”
I think that you are generally right with the operative words being “have to”.
To begin with, consider this:
“An apocryphal tale is told about Henry Ford II showing Walter Reuther, the veteran leader of the United Automobile Workers, around a newly automated car plant. “Walter, how are you going to get those robots to pay your union dues,” gibed the boss of Ford Motor Company. Without skipping a beat, Reuther replied, “Henry, how are you going to get them to buy your cars?”
Whether the exchange was true or not is irrelevant. The point was that any increase in productivity required a corresponding increase in the number of consumers capable of buying the product.”
http://www.economist.com/blogs/babbage/2011/11/artificial-intelligence
The increasing intrusion of artificial intelligence in to the service industries completes the process that began with the mechanisation of agriculture and the robotisation of manufacturing. The industrial revolution is a story of machines replacing human effort which is fine as long as the benefits are shared widely enough, the demand is there and new jobs replace the old. But if the robots replace most, half or even a third of tertiary industry labour (they will) we will be in a spot of bother. “The Invisible Hand” will be permanently broken. Capitalists will be ostensibly pursuing their own individual self-interest in shedding millions of jobs but the robots aren’t going to buy their cars, their food, fashion, insurance, packaged holidays or anything else.
We are arguably at a point now where ‘productivity growth’ is no longer a a solution its a problem. Automation could bring a collapse of employment, demand and living standards. To avoid that outcome the limited work-hours that remain would need to be allocated by design as would income. A “free market” can’t do that.
So we either have a dystopian Hell where technological advances bring misery rather than progress or the industrial revolution and capitalism, as we know them, come to an historic end – we transcend that phase and move on.
I have no problem with automation IF it releases people to provide the more valuable services we need
BUT thT requires a radical new approach to taxing the resulting rents arising f4om automation
“BUT thT requires a radical new approach to taxing the resulting rents arising f4om automation”
Is that single malt keying or blended 🙂
That’s rushing before getting on a Eurostar to get home
Still on my way
Yeah, nonetheless, a ‘free market’ can’t do that either. Any of it.
I believe Ford increased his workers’ wages so they could buy his cars – something employers have failed to do (in real terms) for the past few decades.
Wolff, who has many interesting and radical ideas, suggests reducing workers hours to maintain employment. He also proposes “workers self-directed enterprises” (along the lines of Mondragon) as an alternative to capitalism.
Richard, I’d worry about any paradigm that accorded itself the label of “realism”, given that every philosophy – however far removed from “reality” – claims to represent that reality, so that its proponents accuse their opponents of not being based in reality, and urge (order? command?) those opponents to “get real”, which is usually code for “Don’t rock the boat. Get in line and follow, unquestioningly!”
It seems to me there are two foci to your “manifesto”: one is clearly pluralism (the REAL McCoy, where diverse views and approaches really ARE welcomed), and optimisation (with a hint of its cognate, “optimism”).
So I would propose the – admittedly clunky – label “optimising pluralism”.
Well, that’s my two penn’orth!
And there was me thinking ‘get real’ was a plus for this idea…..
“…And there was me thinking ‘get real’ was a plus for this idea…..”
Hmmmm. Get real, Richard. 🙂
Language is very fluid, (man).
(If you get/make time to read fiction there are lovely references to the changing of ‘in’ words in Chris Brookmyre’s ‘A tale told in blood and hard black pencil’. I like his stuff – he’s shifted the ground in thriller writing and makes it humorous, albeit dark. Chandler for the modern age maybe. The opening sequence of Ugly one Morning’ had me in stitches, but it isn’t even remotely an amusing situation he’s describing. Haven’t found a bad one by him yet.)
I don’t know what you want to call it but ‘realism’ simply isn’t going to cut it.
There is a fatalism about our relationship to ‘reality’ which assumes it is beyond our control. That is what the gods were responsible for.
What we term ‘reality’ is what we get foisted on us and don’t like. The classic cliché ‘Death and Taxes’ springs to mind).
One of the difficulties we have inherited with a lot of other flawed social/economic/political theory (much of which works for a while and often for long enough to be classed as orthodoxy) is that we accept ‘laws’. Such as the ‘law’ of supply and demand as if neither supply nor demand can be controlled, but are just one of those things (like death and taxes, earthquakes, volcanic eruptions and rain on parade day) which we have to live with. We accept at some level the ‘laws of nature’ whilst constantly attempting to trash them or circumnavigate them and their consequences.
There is no natural law of economics unless you accept the ‘law of the jungle’.
Political Economics is supposed to be our attempt to codify behaviour so we can live together in some degree of harmony. The rational conclusion of the ‘realist’, based on millennia of documented empirical evidence has to be that that is a fool’s errand.
So I think we need a better label. Not that it will survive for long before it becomes corrupted. (I mean what could possibly sound more cuddly and progressive than ‘neoliberalism? What’s not to like? It’s liberal which is a ‘good thing’ and it’s ‘New’ which makes it saleable)
I suggest Magic Money Tree-ism. Like the Quakers and the Methodists just accept the moniker delivered by your fiercest critics and wear it with pride.
Sod reality. Reality sucks. Let’s have some magic.
In the beginning God said “Fiat Lux.”
In 1971 Richard Millhouse Nixon said (tautologically) Fiat Fiat Currency.
And in 2018 I say ‘Fiat Arbor Pecunia Magia’
Just at present I can think of no better way to piss-off the reptilian-brained paleo-conservative monetarist scumbags.
Maybe……
‘the reptilian-brained paleo-conservative monetarist scumbags.’
I think you are unfair hear to reptilians-I’d change it to ‘sub-reptilian.’!
Simon,
The reptilian brain is very finely attuned to looking after its host. Think crocodile.
Below that is pondlife. Pondlife is mostly fairly passive. Think elodea. (and perhaps supermarket trolley)
“First, savings do not pay fir investments: credit does”
“Second, you can’t save for a pension as such: you can at best hope the next generation will provide for you on the basis of the capital your generation has left them to inherit. And tyat’s real capital, not money”
Maybe i should have made myself clearer – i am referring to saving /pension via a SIPP so all are self financed..sounds like saving to me. Nothing to do with capital from a future generation – just need Glaxo, novartis etc etc etc to keep paying dividends and not be crowded out by the state.
And I am addressing the macro consequnces of the same issue
And you refuse to see them
dc says:
January 18 2018 at 7:27 pm
“Nothing to do with capital from a future generation — just need Glaxo, novartis etc etc etc to keep paying dividends ….” Which requires the human capital of the next generation of producers, managers and customers. Robots don’t need pharmaceuticals…. or financial services …or food…
“…..and not be crowded out by the state.” ooooofph! Neoliberal cliché alert. Whoop! Whoop!
“and not be crowded out by the state”
For God’s sake, not that old chestnut.
Crowding-out does not exist and cannot possibly exist unless the economy as at capacity with full-employment. (some of us are old enough to remember full-employment). You can’t be “crowded-out” in a room that isn’t full – that isn’t “crowded”.
At any rate Keynes nailed that one over 70 years ago.
More particularly, crowding-out assumes high and rising interest rates. Some of us are old enough to remember high interest rates as well.
https://www.economicshelp.org/blog/1013/economics/crowding-out/
http://economistsview.typepad.com/economistsview/2009/09/crowding-in.html
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