An economy that works
Prosperity isn’t just about earning more and having more, it consists in our ability to participate meaningfully in the life of society. A vital element that has gone missing for ordinary people over recent decades, Tim Jackson argues. We must question the fundamental structures behind our economies before they will work for everyone. (This article first appeared in RSA Journal in November 2016.)
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A little after 5.30pm on the afternoon of 13 July 2016, two women shook hands on a new era. A press photographer captured the moment. One of the women, at 90, is very familiar to us. The other, three decades younger, a little less so. On bended knee, the eyes of the younger woman are almost on a level with those of the older. Both women seem slightly uncomfortable. But there is one enduring feature to this photograph: the genuine warmth that seems to shine in their smiles. I want to come back to that.
An hour or so later, the taller woman (the new prime minister, Theresa May) gave one of the most striking inaugural speeches in UK parliamentary history. In it, she briefly praised her predecessor’s One Nation conservatism. And then proceeded to savage the “burning injustice” over which it had presided. “If you’re black, you’re treated more harshly by the criminal justice system than if you’re white,” she said. “If you’re a woman, you will earn less than a man. If you suffer from mental health problems, there’s not enough help to hand.” It was a speech in the spirit of a JFK or a Michelle Obama. It signalled a departure not just from the toxic rhetoric of austerity, but from decades of conservative insistence that there is “no such thing as society”.
It’s easy enough to attribute cynical motives to this moment. May’s party had spent the past six months tearing itself apart over Europe. The Brexit vote had cast deep divisions between ordinary people across the country and exposed the architects of the tragedy as duplicitous leaders and treacherous friends. May arrived at her newly won station by stepping carefully through the mire of backstabbing incompetence that swallowed the hopes of several more obvious pretenders to the throne. A speech on the subject of unity might seem like an obvious and relatively safe play.
Reaching for inspiration, not into her own party’s manifesto, but into the core territory of the opposition was a stroke of genius. The near disintegration of the Tory party in the preceding months was overshadowed only by the inexplicable appetite of the Labour Party for self-immolation. What better time for a Tory prime minister to play the social justice card? “Under my leadership, the Conservative Party will put itself – completely, absolutely, unequivocally – at the service of ordinary, working people,” May promised. “We will make Britain a country that works for everyone. An economy that works for everyone… A society that works for everyone.”
A close observer might notice that May didn’t just borrow the idea but actually lifted the language – lock, stock and barrel – from the arsenal of her opponents. Barely two months previously, Jeremy Corbyn had launched Labour’s inaugural State of the Economy conference with a robust challenge to the prevailing paradigm. “We want to see a break with the failed economic orthodoxy that has gripped policymakers for a generation,” he proclaimed. Labour will “create an economy that works for all, not just the few”, he promised. Perhaps banking on the astonishing lack of sympathy afforded to the leader of the opposition by the press and their tendency to forget instantly anything he actually says, May’s speechwriter didn’t miss a beat, unashamedly snaffling the words and cleverly amplifying them for her own purposes.
We don’t yet know what those purposes are, to be totally honest. But if they are anything close to the semantic meaning of the words themselves, I suspect we should at least give them a chance. An economy that works has to be a good thing, right? Meaningful work, decent wages, good life chances, reliable access to healthcare and education, affordable housing, resilient communities, inclusive societies, living in a world that doesn’t trash the climate or the rivers or the soils. What’s not to like about this vision – a tantalising promise to create a ‘good society’?
Of course it rather depends who you are. And what your life chances happen to be at the time of asking. There’s a minority who have done rather well from an economy that doesn’t work at all. The much reviled 1%. A financial (and political) elite who’ve managed to benefit massively from the machinery of growth: globalisation, financial deregulation, asset price speculation, collateralised debt obligations, credit default swaps. An impenetrable language hiding a tale of human misery. Not just to benefit, indeed, but to use their considerable power in persuading a captive state to stack the odds in their favour and sweep the risks under the public carpet. Privatised gain and socialised loss is the defining story of capitalism over the last decades. A story that bears no small part in bringing Theresa May to the steps of 10 Downing Street.
Is she really calling time on the unassailable privilege of her predecessors? Is that what this shared smile signified? It’s still too early to say. But a careful archivist would certainly note that her progressive language has an even longer and broader pedigree. “An economy that works for everyone” appeared in the Green Party manifesto long before it was borrowed by Corbyn. Prior to that it was a campaign launched by the Aldersgate Group – an alliance of leaders driving action for a sustainable economy – with more than a passing nod to the worldwide chorus of disapproval against conventional economics raised in the aftermath of the financial crisis.
The protests of Occupy internationally and Los Indignados in Spain. Bernie Sanders’ unlikely campaign for the Democratic nomination in the US. Pablo Iglesias’ eloquent reign at the head of Spain’s Podemos (‘we can’) Party. Yanis Varoufakis’ brief quixotic stand against the power of the ‘troika’ in Greece. The huge popularity of the ‘rock-star’ economist Thomas Piketty, whose abiding claim to fame was to highlight the deepening inequality inherent in capitalism. The rise of pro-Corbyn Momentum in post-crisis Britain. All of these bear witness to the discontent now levelled at an economy that didn’t work at all; an economy that failed spectacularly, almost catastrophically.
In an iconic moment, shortly after the crisis, the older woman in the photograph visited the London School of Economics and asked the assembled economists why no one had seen the crisis coming. Taken somewhat by surprise, the economists solemnly went away and considered the matter. Some months later they put their names to a carefully written three-page letter to her. “In summary, Your Majesty,” they concluded solemnly, “the failure to foresee the timing, extent and severity of the crisis and to head it off, while it had many causes, was principally a failure of the collective imagination of many bright people, both in this country and internationally, to understand the risks to the system as a whole.”
It was a parsimonious, almost humble letter, but it was also misleading. Of course, there was (and is) a collective failure of the economic imagination. But that doesn’t really answer the question. How did this oversight happen? Why didn’t economists understand system risk? And why on earth would we leave it to “collective imagination” to protect ourselves from financial disaster? Could it be, perhaps, that we had nothing left to imagine with once we’d sacrificed everything to the god of economic growth?
An economy reliant for its stability on the endless stimulation of consumer demand resorts inevitably to monetary expansion to keep growth going. The burgeoning of credit creates fragile balance sheets. Complex financial instruments are used to disguise unsavoury debts. All of this is sanctioned at the highest level by governments and their regulators in the name of growth. But when the debts become toxic, the system crashes. The truth, Your Majesty, the economists should have said, is that growth was undone by growth itself.
One of the most striking aspects of the Brexit vote was the profound disregard for growth displayed by the Brexiteers. People didn’t much care about the economic risk – even when Barack Obama or Christine Lagarde or Mark Carney warned us of it. This tainted economy and its fickle ambassadors clearly weren’t to be trusted. But there was also something more at stake. Economic growth is not synonymous with rising prosperity.
Prosperity itself transcends material concerns. It isn’t just about earning more and having more. It has vital social and psychological dimensions. To do well is in part about our ability to give and receive love, to enjoy the respect of our peers, to contribute useful work, to feel secure, to have a sense of belonging and trust in our community. Prosperity consists in our ability to participate meaningfully in the life of society. All the things, in short, that had gone missing for ordinary people over recent decades.
Let’s just take one of those factors. Work is more than just the means to a livelihood. It’s a vital ingredient in our connection to each other – part of the ‘glue’ of society. Good work offers respect, motivation, fulfilment, involvement in community and in the best cases a sense of meaning and purpose in life.
The reality, of course, is different. Too many people are trapped in low-quality jobs with insecure wages. If they’re lucky. Two thirds of European countries now have youth unemployment rates higher than 20%. In Greece and Spain, youth unemployment in 2015 was close to 50%. This enormous waste of human energy and talent is also a recipe for civil and social unrest. It undermines the creativity of the workforce and threatens social stability. The long-term implications are nothing short of disastrous.
One of the problems is that conventional economics sees work as a sacrifice of our time, leisure and comfort; and wages as a ‘compensation’ for that sacrifice. As Small is Beautiful author Fritz Schumacher pointed out, in a fascinating essay on Buddhist economics, “the ideal from the point of view of the employer is to have output without employees, and the ideal from the point of view of the employee is to have income without employment”.
This perverse dynamic is played out through the relentless pursuit of labour productivity: the desire continually to increase the output delivered by each hour of working time. Rising productivity is viewed as the engine of progress. But the same dynamic is also punishing. If our economies fail to expand, unemployment rises. Higher unemployment reduces spending further and generates rising welfare costs. Higher welfare costs lead to unwieldy levels of government debt. Higher sovereign debt limits public spending, depressing demand yet again. When economic growth is hard to come by, for whatever reason, the dynamic of rising labour productivity is a harsh and unforgiving mistress.
The default wisdom is to get growth back as fast as possible. But there are two more interesting ways out of this ‘productivity trap’. One is to accept productivity growth in the economy and reap the rewards in terms of reduced hours worked per employee. To share a better work-life balance for everyone. The second is to ease up on the gas pedal of ever-increasing productivity growth. Or in other words, to shift economic activity to more labour-intensive sectors.
If this latter option sounds perverse at first, it is probably because we have become so conditioned by the language of efficiency. Output is everything. Time is money. The drive for increased labour productivity occupies reams of academic literature and haunts the waking hours of CEOs and finance ministers across the world. Besides, our ability to generate more output with fewer people has lifted our lives out of drudgery. Who nowadays would prefer to keep their accounts in longhand, wash hotel sheets by hand, or mix concrete with a spade?
But there are places where chasing labour productivity growth makes much less sense. Certain kinds of tasks rely inherently on the allocation of people’s time and attention. The care and concern of one human being for another, for instance, is a peculiar ‘commodity’. It cannot be stockpiled. It doesn’t degrade. Its quality rests primarily on the attention paid by one person to another. And yet compassion fatigue is a rising scourge in a health sector hounded by meaningless productivity targets.
Craft is another example. It is the accuracy and detail inherent in crafted goods that endows them with lasting value. It is the attention paid by the carpenter, the tailor and the designer that makes this detail possible. Likewise it is the time spent practicing, rehearsing and performing that gives creative art its enduring appeal. What – aside from meaningless noise – is to be gained by asking the London Philharmonic to reduce their rehearsal time and play Beethoven’s 9th Symphony faster and faster each year?
These ‘human service’ sectors of the economy – care, craft, culture – are characterised by the fact that the time spent by people in the service of each other is the core value proposition. I (and others) have argued extensively that this concept of service provides for a new vision of enterprise: not as a speculative, profit-maximising, resource-intensive division of labour, but as a form of social organisation embedded in the community, working in harmony with nature to deliver the capabilities that allow us to prosper.
Social investment is vital to this vision. Investment is vital for any economy. It embodies the deepest relationship in economics: the relationship between the present and the future. The fact that people set aside a proportion of their income at all reflects a fundamentally prudential aspect of human nature. Engaging in projects that last over time embodies our commitment to the future and is the basis for prosperity of any kind.
But the success of investment depends inherently on the destination of our savings. When large proportions of investment are dedicated towards nothing more than asset price speculation, the productive relationship between the present and the future is fundamentally distorted, destabilising the economy and undermining prosperity.
This too can be transformed. The rising influence of the international divest-invest movement bears witness to the profound possibilities for change. So far, the movement has focused on fossil fuel investments. But there are other areas where we should routinely be challenging the portfolios of our pensions and insurance companies. Why do we continue to invest in destructive supply chains populated with underpaid labour working in dangerous conditions, when there are decent alternatives and promising technologies available?
Freeing up these opportunities depends on having a financial system which is fit for purpose. Improving the ability of ordinary people to invest their savings responsibly in ways that benefit both their own community and a wider environment is paramount. Crowd-funding, peer-to-peer lending, local community bonds. All these are helpful. But deeper, and more decisive changes are also needed.
Some surprisingly conventional voices now call for an end to banks’ power to create debt-based money through a fractional reserve system, in line with the so-called Chicago Plan, devised by Milton Friedman and Irving Fisher in the wake of the Great Depression. In The Chicago Plan Revisited, published in 2012, the IMF identified multiple advantages of a 100% reserve scheme: better control of credit cycles, the potential to eliminate bank runs, and dramatic reductions in both government and private debt. The result of such a scheme would be to return control of the money supply to the state. So called ‘sovereign money’ systems eliminate the dependency of the state on commercial money markets and reduce the cost of public borrowing, allowing governments to spend (and invest) directly into the economy in support of social needs. Proposals for such systems are currently under consideration in Iceland, the Netherlands and in Switzerland.
What’s at stake here is the nature of money itself as a vital social good. Money facilitates commercial exchange; it provides the basis for social investment; it has the power to stabilise or destabilise society. Handing the power of money creation over to commercial interests is a recipe for financial instability, social inequality and political impotence. Reclaiming that right in the national interest is a powerful tool in the struggle for a lasting and inclusive prosperity.
It’s tempting, of course, to dismiss all this as the musings of an affluent minority – #FirstWorldProblems. I’m not convinced of this. I was asked to talk about some of these ideas at a recent UN meeting on the Sustainable Development Goals. Following my talk, the session moderator turned directly to a young government minister from Ecuador. “Is the post-growth debate just a luxury of countries that have already grown?”, he wanted to know. The response was an emphatic no. “If growth means to reach a state in society in which selfishness and consumption are the basis for the economy, then we don’t want to grow,” answered my fellow panellist. “The model of buen vivir [living well] that we are proposing in Ecuador is not based on consumption but on solidarity, on sustainable development, on a change in the growth paradigm,” she told us.
There’s one fascinating aspect of these emerging visions. They strike a subtly different balance on the question of gender. The economy of care and craft and creativity is a place rich in the participation of women. Often underpaid and chronically under-valued, these sectors are nonetheless vital to our health, security and wellbeing. They bring a set of social norms that embody decency, tradition, longevity and concern for others. They provide a genuine antidote to the hyper-materialism of the consumer society. And to the locker-room banter and frat-house machismo of a male-dominated political elite.
Which brings me full circle, back to that smile. Its warmth suggests a genuine bond, a sense of solidarity. Was it the solidarity of privilege, intent on shoring up the establishment at the cost of creeping nationalism and rising intolerance? Or was it a genuine recognition, between two experienced women, of the potential for a new beginning? The question matters. Because there’s absolutely no doubt at all that stealing a revolutionary rhetoric is the beginning, not the end of things. To take up the language of protest, Mrs May, is to take on the responsibility for change.
I have come to believe that building ‘an economy that works’ is a precise, definable, pragmatic and meaningful task. Enterprise as service, work as participation, investment as a commitment to the future and money as a social good: these four principles provide the foundations for a profound and much-needed transformation of society. One perhaps even the Queen might approve of.