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A post-stone age economy

A teaser from the Scottish Left Review which will be out next week. Jim Mather argues that the model of financialised capitalism has very clearly failed to address the ‘Common Weal’ either in terms of shared wealth or economy security. A new approach is needed.

I am very much aligned with The Jimmy Reid Foundation’s opening gambit on the Common Weal and many of its suggestions. However, I believe that given the complexities and competing vested interests that are always present we need learn from the mediators and involve many different opinions in co-authoring the model.

Indeed, I believe in a better approach to management: breaking away from ‘employers versus employees’, ‘them and us’ attitudes towards outcomes that are respectful and fair to everyone. Not just to do the right thing – but also to ensure long term collaboration, intrinsic motivation and better ability to compete with others in different systems.

We also need some humility drawn from George Soros’s brilliant observation that the one certainty about any endeavour is that it will be wrong and that the best that any of us can hope for is that we are working on a “Fruitful Fallacy”. But the fruitful fallacy will be better if we use group intelligence and our combined multiple truths, rather than the gut feel of one person or one group.

Experience teaches us that to make effective progress we need to involve many different voices, set up effective feedback and keep focussed on what we want to achieve, how well we are doing and what needs to change. And you can’t do that if you don’t involve others and try to lift all the boats.

And a lot needs changing: especially as 2008 exposed the bankruptcy of the ‘Free Market’ economics, as supported by Thatcher, Reagan and Blair, with the near-collapse of the global financial system and its awful consequence for millions of people, including ever-greater inequality and terrible hardships.

This outcome was forecast by Hyman Minsky who contended that capitalism was the best system yet devised but that it was much too unstable and did not benefit the Common Weal. He claimed that it was a system, where the majority of us are herbivores doing sound added-value work. However, he also identified carnivores in financial markets, who made money from the euphoria of booms and from the ‘corrections’ of resultant busts. And who hence had a vested interest in the continuing instability of capitalism.

I believe he was right, in that Thatcher and Reagan helped to create the ‘conflict and competition’ model of economic management that takes ‘dog eat dog’ to new levels and created a climate where succumbing to moral hazard and ignoring the adverse  consequences for others became increasingly acceptable.

Last year in Edinburgh, Professor Richard Werner from Southampton University, gave a good explanation of one particular ‘anti-Common Weal ‘weakness of the system in the run up to 2008. He asked the simple question, “Who was creating and allocating the money supply ahead of the Financial Crisis? – offering his answer as being: “three per cent the Bank of England and 97 per cent the UK Banking system”.

The problem being that commercial banks, with that power, were pre-disposed to become involved in what the Common Weal would rightly see as dangerous unproductive lending, skewed towards consumption and speculation,  guaranteed to drive up property and asset prices, thereby unsustainably benefiting the few at the expense of the many.

His solution was to restrict the banking system’s ability to create credit exclusively to those projects that create jobs, new assets and/or help boost the Common Weal. In the process, perhaps learning from Germany, he wanted to see many more local banks aligned with local community objectives.

However, such reform  also needs macro level activity to mitigate the sort of activity that forced Adair Turner to say  “…I have always believed that market economies will not of themselves combine that with environmental sustainability or with a reasonably just and good society. I believe that capitalism needs to be saved from itself.”

That comment mirrors the findings of Ken and William Hopper, who launched their book, The Puritan Gift at the 2009 Edinburgh Book Festival. Their theory is that America became great and powerful in the period between 1870 and 1970 because of the ethos of John Winthrop, who arrived in America from Plymouth in the 1630s. Winthrop believed in an American Common Weal, advocating that the early settlers should pool resources and effort, seek to create heaven on earth, stay open to new ideas and new technologies, challenge old orthodoxies and join the dots to prove that conditions were continuing to improve.

The Hopper Theory then suggests that the cancer that weakened the American Dream was started in 1911 by Frederick Taylor. They argue that his ‘time and motion studies’, reduced job satisfaction, broke the morale of working people, created a gap of mistrust between  workers and management and created the fantasy of Scientific Management whereby managers could move from sector to sector without real empathy for any business or the people involved.

They also point out that this created the short-term ‘thrash the assets’ approach that has killed many good businesses through greed and lack of investment. And they ask the question: “Do you think India and China will let Wall Street and the City cream the profits off the top?” The answer is obvious – with both question and answer making the case for a wider Common Weal that can help financial markets realign with the real economy and real people.

And that realignment is necessary in an industry that has been ravaged by ugly levels of self-interest that are now exposed:  especially, as it has stoked inequality and the resultant waste of human hopes and potential. This has been most marked in the UK and the USA and hence given those countries social and economic outcomes that contrast badly with those of more equal societies.

The facts are stark. According to Stewart Lansley the bottom 60 per cent of wage earners in 1977 were receiving 40 per cent of national income and by 2012 that had reduced to 32 per cent – a reduction of a fifth in real terms and a trend that continues in the UK.

This experience of recent years augments the Economic Case for Independence that I took to the boardrooms and committee-rooms of Scotland in the period 2002-2007 – proving that a Union applying the same rates of taxes to all parts of Scotland as were applied to London and the South East would leave us unable to overcome the tendency for wealth and talent to be drawn into London.

It was a proposition that held true when those in financial services played with a moderately straight bat – but it became shamelessly true with the widespread abandonment of ethical behaviour.

Attending a manufacturing professors’ event in London last year Vince Cable endorsed my view when he said: “Manufacturing is flavour of the month. It should have always have been so – but successive UK Governments have set UK monetary fiscal policy to favour the City and thus damaged manufacturing and ‘peripheral parts’ of the UK.”

Hence I am up for a Common Weal Approach as all this proves that “conflict and competition” is a un-evolved Stone Age solution that is destined to produce many more losers than winners. That is why I think we should make a hero of Dee Hock. He is the man that solved that chaos that engulfed the Bank of America Card and resulted in the creation of VISA.

In doing so he employed two techniques to establish a better way forward that reconciled the interests of many competing stakeholders. Firstly, he persuaded colleagues that collaboration and competition combined to make a two-legged walk with both approaches being critical for success. His proof was as follows:

  • A one-legged walk of collaboration could see us being excessively politically correct, establishing equality where equality was inappropriate, forgiving mediocrity and falling standards and resulting in slavery with someone like Pol Pot in charge
  • A one-legged walk of competition could see us with repeat competitive tendering, a race to the bottom, retaliation, cost cutting, unemployment, low wages and chaos.

His second move was to get people together in the context of the dual need for collaboration and competition to answer the following questions:

  • Where have we been?
  • Where are we now?
  • Where are we liable to end up if we stick to current policies, behaviours and trends?
  • Where ought we to be going – where ‘ought’ carried the meaning of better in terms of effectiveness, efficiency, ethics and humanity

The beauty of his approach was that these two simple moves gave him clarity on the purpose that could unite all those involved and the principles that people believed to be sacrosanct and worth adopting and protecting. That in turn allowed him to set a simple rule about the ’VISA Common Weal’. It was: do anything you like so long as it honours and supports both the purpose and principles. But also making it clear that every available sanction would be applied to those who deviated from Purpose or defied the Principles.

My view would be that we could do the same and augment that approach to achieve a resilient Scottish Common Weal.  Certainly, I know we could produce a worthy statement of purpose and establish sound principles that would underpin our Common Weal. But I also believe that we could come together and identify the many assets we have, the outcomes we want, the results we are currently achieving, and the changes we need to make to get superior transformational results.

I believe we could do this, re-establishing trust in each other by embarking on projects that involve more and more of us and which hit that sweet-spot  between ‘Wishful Thinking’ and ‘Fear’ that is called ‘Hope’: based on clear practical goals, growing competence and the resilience and perseverance needed to flex plans and deliver results.

However, I believe that we will also need Independence – for otherwise we face the prospect of being locked into a London-centric future that will look looking very much like the current unacceptable reality of relatively low living standards, low average life expectancy and emigration from a potentially wealthy nation. That is a real basis for a Common Weal and for being all we can be.