But first - in response to Mark Patton - I agree that "Wealth, power and
opportunity in the hands of the many, rather than the few" is the distinctive
aim of the left, because we believe that in the long term this benefits the few
too, by reducing conflict, waste and environmental exhaustion. My beef with
Jack Straw’s comments was that the methods he appears to be relying on have
very little chance of achieving this on their own, either on theoretical and
empirical grounds. I’ll try to explain:
Old and New Planning
-----------------------
Perhaps the left (as defined by new Clause 4) has failed to grasp why communism
failed so completely. Because I think there are very positive lessons as well
as negative ones. It was believed that a supposedly altruistic elite could
match ‘from each according to his ability’ and ‘to each according to his need’
using rational principles. But the universal needs of human beings, while
vitally important, are relatively few. Beyond these each of us has our own set
of unique needs without which we will have some difficulty in leading happy and
fulfilled lives (which for a social animal like us will almost always involve a
positive role in our community). We are adaptable and can adjust our goals
according to resources and constraints (and conversely to excess of resources
and to lack of constraints - which is of course why ‘power corrupts’), but
where these resources are withheld or constraints are placed that frustrate us
more than they reduce the frustration of any other person, they will impair our
potential.
To balance these resources and constraints in a way that maximises the
potential of all of us is a task too complex for direct planned action by
single individuals or small groups of individuals, however good our software.
As is the nature of complex systems attempts to manipulate the system risk
magnified deleterious consequences. This understanding gives Smith, Hayek and
Co their intellectual justification - but those that have attempted to use
their reasoning have (as is only to be expected) developed blind spots in
their interpretation which favour their own interests. I suspect that in the
dynamic economy we only have one axis of control - either toward greater
inequality and reduced quality of life, or toward less inequality and greater
quality of life. Once it starts going in one direction - although some measures
may slow the trend - without radical change it will continue in that direction.
There is no equilibrium position which allows static levels of inequality and
quality of life. Either things are getting worse or they are getting better.
Currently all the evidence points to the fact that things are getting worse.
Rising inequality, greater global insecurity, environmental degradation, ever
increasing resource depletion, rising crime, suicide, drug abuse, unemployment,
illness, despair. Or do I exaggerate?
The political wielders of neo-classical economics were only interested in
attacking ‘state’ planning (and even then only in economic terms) but ignored
all the other sorts of planning that goes on, for example in the structure of
markets, businesses and welfare systems. Stuart White quite rightly mentions
the needs of those who dissent from our economic system altogether. If their
needs are legitimate (that is they are not just mentally ill) then this points
us to the fact that there are alternative ‘economic’ systems. To prescribe one
form of economics (for example: one based on an undifferentiated symbol of
exchange) is therefore in itself a form of planning and may produce fearful
unintended consequences - as indeed I believe it has, as I have tried to point
out in previous contributions.
To achieve the balance required needs both fully involved democratic mechanisms
as well as the evidence-based approach rightly urged by Derek Bradbury. But it
is important to avoid the common pitfall of governments anxious to take action.
They identify a problem that the public wishes to be removed, and then they
find a method shown to achieve the desired aim. Yet unless the means is itself
tested for acceptability in some way the cure may well be worse than the
illness. When widespread debate and decision-making is not practical, the only
rational way to compare different aims and different means for different
problems is the Happiness/Quality of Life perspective. From a party political
view, this must also have the merit of being the most reliable way to ensure
‘political sustainability’, although one would hope over time to move to a
situation where certain ideas had increasing sustainability (because firmly
based in the evidence) rather than political parties.
A Response to Stuart White’s paper
-------------------------------------
Stuart’s Asset-Based Egalitarianism is along the right lines, but his
perspective is a very Northern one. The assets we must start with are the
universal ones - adequate food and water, security (rule by military force
being another form of planning!), shelter, healthcare, human companionship,
information (ie a rounded education which enables and expects each of us to
play our part in full citizenship) and some form of collective decision-making
process which gives equal weight to the needs and potential of all
(essentially democracy, whether parliamentary or otherwise). Then we can worry
about land, capital, skills and jobs!
What also follows from the argument I have developed above is that the
objective of Stability of Growth and Inflation is unlikely to be achieved
without sacrifices in other areas which are often not predictable. In other
words, unless we believe that GDP growth and inflation control are the sole
arbiters of the ‘good life’ and the ‘good society’ we are going to get into
trouble sooner (already?) or later.
Seemingly the evidence that improvement of skills can itself improve growth is
not as clear-cut as Stuart suggests. Professor Alison Wolf of the Institute of
Education, writing in this month’s Prospect magazine, disagrees, and I must
say that I have felt for some time that if the costs of improving skills are
likely to be exceeded by their economic benefits in terms of profits and
therefore growth, it says little for the rational incisiveness and efficiency
of the business community that they have failed to address this on their own.
Either business leaders are incapable of co-operating in their own interest
(which makes the respect with which the government apparently views them
greatly misplaced) or the evidence that increased skills will on their own
boost growth must be decidedly dodgy. This is not of course to say that it is
not good for people to improve their skills - just that to justify this in
terms of GDP growth potential may well be misguided. And of course this has
important implications for the sort of skills that we promote - are they only
to be those that might add a premium to profitability?
I think that Stuart’s idea of Social Insurance ends up being a Citizen’s Income
(Actually we effectively have one now but this is surrounded by hypocrisy). But
I have a couple of quibbles. I cannot see how the distinction between
misfortune arising through ‘brute luck’ and that arising from ‘bad personal
choices’ can possibly be made in practice. Some external cause will always
have contributed to a ‘bad choice’ unless we assume that some people want to be
‘significantly worse off’ - which in Quality of Life terms is clearly
nonsensical.
‘Positive’ redistribution (from rich to poor) as opposed to the ‘negative’
redistribution (from poor to rich) that exists at present is essential, but it
is a mistake to see this purely in money terms. Unlike real assets, money’s
ultimate use-value is negotiable - and the poor always lose out in the
negotiations. The same caveat applies to the ‘Basic Capital’ idea.
As for new Trade Unionism, the immediate question must be who will actually pay
for their new activities? If the state - then surely the state must take
responsibility on behalf of all of us, if the unions’ members then this is
simply for the workers to subsidise the profit-seeking of businesses.
Non-unionised workers will have no chance! And David Thorp’s ‘Union
Investments’ proposal may well benefit some skilled workers (as the
proliferation of ESOP schemes in the US shows) but it fails to address the
problems of the increasing numbers of those outwith this cosy circle. The
ability to take advantage of such schemes is dependent on having an income
which provides the spare cash to contribute to them.
I think that the supposed benefits of any kind of ‘privatisation’ will come to
be seen as illusory when the long term costs and benefits are added up. The
management of nationalised industries was ‘inefficient’ in financial and
development terms because they served other purposes which conflicted with such
single stranded aims. They were an arm of the welfare state and in many areas a
structural part of communities. They played a real part in ‘asset-based
egalitarianism’ by ensuring essential services and resources were provided
everywhere at a reasonable cost. (That is not to say they were particularly
efficient at doing these either, but at least they did them to some extent). In
the long run will the boost to the stockmarket provided by these privatisations
and the relatively paltry sums received by the government outweigh the
long-term costs of losing these unaccounted benefits? There is after all little
conclusive evidence of benefit to the consumer in many of the privatised
industries. When he advocates proceeding on an open-minded basis with ‘internal
markets, competitive tendering and performance-related pay, and so on’ I
presume Stuart means we should experiment. But we must bear in mind that these
are all devices which look to improve narrow financial criteria. Do we really
believe that this always equates with the ‘many not the few’ aim, and if not
how are we to judge when it does and when it doesn’t?
The ‘Community Fund’ is a fascinating idea - new to me. I can see some problems
however! Is the state to be an ethical investor or will it simply cede
‘fiduciary’ duty to the ‘private sector agency’? I can see endless ructions
over the merits of particular investments! What about conflicts of interest - I
cannot believe it would be possible (or appropriate) to keep secret which
companies the state had shares in! And if the state became a major player in
the market but acted differently from other players the whole fragile balance
of the market would be altered - with probable major unintended consequences.
An Alternative Macroeconomic Policy
--------------------------------------
First establish an aim that everyone (and I mean everyone) could agree on. What
about this one: ‘To create an environment in which the public and private
sector work together to improve the economic, social and environmental
conditions in which people live and work’? This is the aim of the Scottish
Office as described for the CSR! Good old Donald Dewar! If we now add the
‘many, rather than the few’ bit because we on the left believe this is central
to achieving this aim - then all should become clear!
Since this is Economics we’ll concentrate on the ‘Wealth’ - although Power and
Opportunity should follow. Wealth comes in three forms: human capital,
material/environmental capital and money capital (which is ultimately human and
material capital to be used in the future).
We need to deal with money first. As I have pointed out above the value of
money is in fact negotiable, and it is thus cheaper to those that have more
already. To counteract this the rate of creation of money must become much more
transparent. An accurate estimate of the money supply - adjusted for real
growth - should replace the Retail Price Index. The availability of credit must
be democratised (NB Tony Coleman’s Private Members’ Bill on ‘Redlining by
Postcode’). On their own these policies may prove potentially inflationary, but
I believe this can be counteracted in two ways:
1) Genuine stakeholding must be introduced into businesses and lending
institutions. John Kay has come up with what should be a workable framework. A
truly stakeholding business is less likely to borrow in this situation (thus
raising the money stock), because the effects on most of the stakeholders will
be seen to be negative, and in any case its desire for short term profit will
be reduced. Equally, stakeholding banks should be less keen to lend in these
circumstances.
2) At least in the short term - higher but variable reserve ratios will need
to be placed on all lending institutions. I am well aware of the problems
reduced access to credit could cause, but I believe stakeholding partially
addresses this by allowing a more flexible and co-operative business and
economic environment. When it is clear that it is people and materials that
have been invested in a business and not simply a certain sum of money, these
will be given the extra value that I think Anthony Painter is looking for when
he espouses ‘sustainable productivity’. Next week I will suggest microeconomic
policies which should further resolve this situation. In practice, all these
changes will have to be introduced gradually and consensually, to minimise
unnecessary disruption.
Having sorted out money, we must then go on to make our aims measurable as far
as possible. The gold standard of success is that everyone, armed with all the
relevant information, agrees that the policy proposed or carried out maximises
their long-term happiness potential and therefore they vote for it! Clearly
this is impracticable for every policy proposal, but it does indicate the need
to infiltrate genuinely democratic means of decision-making and freedom of
information into all activities - whether political, social or economic. Second
best is to use Quality of Life measurements (and sometimes evidence-based
estimations), both to assess the merits of particular policies and monitor the
effects of their implementation. Sustainability of all types must be included
in all of these deliberations. Third best is to use measures that attempt to
take into account the sustainable (or otherwise) use of the three types of
capital, such as the Index of Sustainable Economic Welfare. This should replace
GDP.
Human and Material capital need to be matched (that is individual or group
control of resources) in the way that maximises our measurements (I regard the
efficiency of this matching in maximising Quality of Life to represent what
Simon Szreter and others consider as ‘Social Capital’.) While essential
resources (listed above) should be equitably distributed, specific
non-essential resources need to find their way to those best able to make use
of them (taking overall quality of life and sustainability into account). The
distribution of the latter is best achieved (in practice, can only be achieved)
through a market system with equal access and good information and
communication. This will produce a society that is maximally equal yet
encourages diversity of talents, skills and innovation.
‘Good’ information and communication is a topic for another debate, but I think
equality of market access (including the labour ‘market’) requires a formal
Citizen’s Income (instead of our current informal and stigmatising version) -
which will as a minimum include the right of access to the essential resources.
It also requires a Community Land Value Tax - which either persuades
landowners to use their land to the local community’s benefit or makes them
provide fair compensation for not doing so. The improvement in working
conditions and choice of occupation produced by a stakeholder economy would
ensure the minimum of free-riding on the Citizen’s Income, while allowing the
choice to concentrate on raising children, caring for elderly relatives or
community participation etc if desired.
Diarmid Weir
djgw@febl.abel.co.uk
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