When I read essays like Paul Gilding’s today and see the worldwide groundswell for a “new capitalism”, my overwhelming reaction is: “Uh oh.”
I think: this really is going to be a bad one.
Usually in credit-crunch induced recessions, firms stop spending because the banks shut up shop, but governments and households take over and the ship is righted.
That is, governments employ fiscal stimulus — direct spending on both consumption and investment — and individuals eventually respond to monetary stimulus by opening their wallets.
This time everyone has too much debt — firms, governments, households, banks — and the only ones that don’t care are the governments, because they’re mainly worried about the next election.
This time a profound shift is taking place in attitudes towards debt and consumer spending, partly manifested in the debate sparked by Paul Gilding.
His idea, in linking the debt bubble to global warming and calling it “The Great Dislocation” has struck a deep chord because it combines two visceral fears in one. Also the questions he poses at the end of his article this morning are good ones, especially the one about whether the “shop till we bounce” solution from government is the right one (it’s not, because it won’t work and will just increase government debt further).
More generally, there is now an emerging global conversation around the idea of a “new capitalism”.
For example the Financial Times has a begun series under that title, including a piece today by Richard Layard of the London School of Economics, in which he argues: “Our society has become too individualistic, with too much rivalry and not enough common purpose. We idolise success and status and thus undermine our mutual respect.”
I’m all in favour of a better world, so the idea of some kind of “new capitalism” is appealing.
But, but … let’s not apply a big solution to a smaller problem. And anyway, there is no such thing as capitalism. It was only a useful noun during the 20th century when some alternatives were being tried — socialism, communism, anarcho-syndicalism etc. Then capitalism was one of a variety of “isms”.
Now there is just freedom and a few brands of totalitarianism, including the teetering vestiges of socialism (China, Zimbabwe), militarism (Burma), hereditary monarchy (Saudi Arabia) and the new, violently ambitious one: Islamism.
So the idea of “new capitalism” can only involve the observation of change in western society, not the imposition of it, since that would mean the removal of freedom and the imposition of control — in which case it would no longer be capitalism but something else.
The one area in which capitalist governments are moving towards the removal of freedoms is in climate change, because they are persuaded that atmospheric carbon is threatening the planet.
But all of them are trying to use a market-based solution — emissions trading. Given the collapse and dysfunction of financial markets, and the difficulty in coming up with an emissions trading system that comes close to doing the job, there will presumably now be a debate about whether something more draconian is needed, such as a carbon tax or straight out legislation against carbon.
Or perhaps there won’t be a debate at all because a global depression will reduce carbon emissions anyway and we can all just concentrate on keeping, or getting, a job.
Which brings us back to economic growth, and Paul’s and Tom Friedman’s proposition that “we can’t do this anymore”.
Paul writes: “There are plenty who dismiss this idea, that we have a broader system problem, as a lack of understanding of the brilliance of the market. They believe we’ll soon bounce back and ‘resume normal programming’ i.e. growth, growth, growth.”
I like and admire Paul, but with this he is walking down the street with a sandwich board that reads: “Repent. The end is nigh.”
Economic growth is a function of population growth plus improving productivity.
GDP is simply a nation’s output: it must grow if the increasing population is to be fed, and because we are an endlessly inventive and curious species, stuff gets invented all the time and new ways of doing things are found. New technology constantly improves productivity, which means the same number of people can produce more stuff by doing less.
The only problem that occurred over the past ten years — the only one in my view — is that debt grew faster than economic growth.
That is, the present generation borrowed excessively from the future to pay for a better life today. It’s now payback time.
Many banks will be owned by the government and the “push-banking” of recent years, in which loans were marketed to susceptible, greedy individuals, will give way to utility banking — the old way in which credit used to be rationed.
And we will watch capitalism become new again.
(finally)
A quick aside about turmoil. Turmoil only produces the appearance of wealth because the vulnerable lower layers are exposed to predation from above. Think about this: if you want to produce sustainable wealth from your vegetable garden, you establish some sort of equilibrium in which plants can grow to fruition. Digging over your garden every day will produce a similar appearance of wealth, but only because you are constantly killing the bacteria in the soil which in turn allows things to thrive momentarily. Eventually all the lower levels in the system die out and you can grow nothing.
The economic reforms of the last three decades has seen the emergence of “turmoil as normal” and there is a direct cause and effect relationship between reagan-ism/thatcher-ism and our current economic, social and environmental poverty. We have literally re-structured ourselves and the planet into the poor house.
Once we have a truly scientific model of the economy, one that incorporates the basic concepts outlined above, and one which correctly positions money based economics as being totally reliant on people and environment we will be on the path to avoiding extinction.
It will take more than just a better economic model of course. The looming triple whammy of economic, social and environmental collapse is of biblical proportions – real sodom and gomorrah stuff – so expect the emergence of a prophet at the appropriate moment. Prophets of course are outliers on the bell-curve, often bringing about change by their own demise, usually at the hands of those in the top percentile of bell-curve.
You’ll recognise the real prophet when they appear by their marked indifference to this fate. In the meantime beware the false ones.
(continued from above)
Each level is more complex than the one on which it rests and less complex than those that rest upon it. This increasing complexity is a function of the horizontal plane and it is in this plane that things get really interesting.
Deeply influenced by the underlying randomness of the universe, the horizontal plane is essentially an exercise in evolving probability (DNA is an accumulative probability machine and the entire system is based on the building block of DNA so this shouldn’t be a surprise).
The algorthm of evolution is based on populations of individuals conforming to bell curves on their internal properties. This bell-curve-ism is present throughout the entire system – from atomic level to corporate level – and is probably the result of sub-atomic properties (which is where the “Deeply influenced by the underlying randomness of the universe” bit comes in).
Evolution happens in two ways. It can occur explosively when outliers (in a population) are produced that can survive. This produces new levels (species of animal or types of business). And it can occur slowly as the population gradually centres around the best bell-curve over time. This produces equilibrium within that species (species with genetic stability, business models that are stable).
Basically what happens is that outliers in a population create new probability proposals, which are then whittled down until long term sustainability is achieved. Each level in the system interacts with the system as a whole so that for a level to achieve equilibrium it must achieve it within the constraints imposed by all other levels. Growth and collapse are a natural part of the system – in fact are integral to it and it is really just a process of pushing the limits, through a series of growth/collapse events, to find out what those limits are.
(continued)
This is the “law of the jungle” so often touted by people as justification for ruthless behaviour. Unfortunately what these people neglect to mention is that extinction is the most likely probability (something like 99% percent of all species ever evolved in the history of this planet are extinct) so blindly following our natural instincts to push the limits will almost certainly result in our extinction.
One other important aspect of these systems is the way in which energy is transferred vertically. There are 2 ways, which I’ll call push and suck. Energy can be “pushed” up the system by a level producing an excess of energy (say, plants that produce fruit or, in the economic realm, primary producers). Energy can be “sucked” up from the lower levels (lions eating impala, banks charging fees above and beyond the actual cost). Most of the energy in the higher levels is energy that has been “sucked” from the lower levels, and thus requires some in-built restraint mechanism (via the bell-curves of the horizontal plane) if it is to be sustainable.
The entire system is comprised of a nesting of three such systems, each of which has inputs/outputs to the others, making it even more complex.
All of this is very abstract of course and there are enough caveats to fill a book, but returning to the real world, several things should be apparent:
1. we have allowed the higher levels of our economy to suck too much wealth from the lower levels (both socially and environmentally) to the point that these lower levels are no longer capable of supporting themselves, let alone support the higher level.
2. To remedy this we need to allow the lower levels a period of recuperation so that they can resume “pushing”.
3. Given the damage done to both our society and our environment it will take a while until equilibrium, and thus actual energy creation, is restored. It is after all equilibrium that produces wealth, not turmoil.
The loony left’s ultramodern catchall call-to-arms: “new capitalism”.
And the enemy? Why “neo-liberalism” of course.
It’s like playing Whack-A-Mouse. Just when you think the infestation has been dealt with a new form of the old scourge pokes its moonbat head above the parapet…..
I thought Pauls article was pretty good – as far as it went. He is right in thinking that our economic and environmental woes are merely symptoms of a set of much greater underlying problems that indicate a system so out of balance that it is close to collapse.
These problems have arisen because our view of “the system” is fragmented, incomplete and dominated by our need to exploit the system. We desperately need a model of economics which integrates our traditional money economy, society and the environment.
We view “economics” as being a stand alone system of money markets, commerce, industry etc. Economics however is a extension of society, which in turn is an extension of the ecosystem (which is itself a product of the hard environment). It would appear that creating a unified view of these sub-systems is impossible until you realise 2 things.
Firstly – all three systems (economy, society & ecosystem) are of the same type – i.e they are all implementations of the same underlying algorithm, albeit operating in differing realms.
Secondly, the common thread that ties them together is energy. In this context, the definition of energy is a pretty loose one – “a force that causes change”.
The basic structure of each sub-system could be described (in very abstract terms) as a pyramid of energy storage entities in which energy enters the system at the base and is converted and consumed by the higher levels until eventually the energy is returned to that sub-systems base environment. It is actually less a pyramid and more a cycle of energy, but the pyramid analogy illustrates its hierarchical nature better.
These sorts of systems have 2 major planes – which I’ll call vertical and horizontal.
In the vertical plane, energy is converted at the lower boundary layers (think plants converting sunlight or factory workers converting raw materials) and travels up the levels (as mentioned).
Each level is more complex than the one on which it rests and less complex tha