A new ‘ism’

Herman Royce

In the March-April ERA Review, John Hermann reported that an ERA Survey conducted in December 2011 found the issue of most “major concern” amongst those polled to be the “need for new economic theories and models”. I argued in the same ERA Review that a “steady-state economy requires the abolition of profit (and interest) – indeed, it requires a new ‘ism’”, hence I interpret “new economic theories and models” to necessarily include new economic systems. Below, after a brief introduction further justifying the attempt, I outline such a new system/ism…

What’s wrong with capitalism

Steve Keen once remarked that: “Reform .. cannot make capitalism stable” [i]. Indeed, as my previous ERA Review article explained, profit and interest directly and unavoidably make competitive market economies inherently unstable. Yet market competition for profits creates other problems.

In any competitive game, not all can win. But winning at market competition increases the chances of continuing to win, and likewise losing fosters more losing; hence, as inevitable consequences of market competition, wealth tends to concentrate, and inequality generally increases [ii]. The need to grow in order to avoid collapse (explained in my previous article) also promotes endless work creation, which in combination with unavoidable and generally rising inequality, and inevitable attempts to maximise profits by minimising or avoiding costs – often via production methods that erode, deplete, pollute and/or in some other manner degrade the environment – all but unavoidably leads to ecological degradation [iii].

But if the causes of the major problems besetting modern civilisation can be traced back in this way to the inherent dynamics of our economic system, then avoiding these problems requires fundamental changes to those dynamics, most fully achieved by abandoning profit and interest. Doing so would also provide numerous other advantages, as I shall explain…

(Please bear with me – given how genuinely radical are the ideas that follow, you’ll probably need to read it all at least twice, once to take in the parts separately, the second time to see the big picture to which they sum [iv].)

Balance

Consider an economy of any size over (say) a week during which, for the sake of explanation, it’s expected to neither grow nor contract: production won’t change, and everyone keeps their jobs and consumes as normal. Production costs for such a stable economy over the week are known in advance: without interest or profit, total producer costs equal total wage costs

(either paid directly to the producers’ employees, or indirectly to those of other producers providing materials or parts). Hence, without profit or interest, the total prices of the goods produced over the week can be set to equal the total production costs.

Of course, expectations are not always met. So, at the end of the week, it makes sense to examine what actually happened, what work was really required, especially the time needed to do it. If less work was needed by some producers than anticipated and paid for over the week, then average working hours for the entire economy can be reduced accordingly for the next week, with the necessary work shared. But if the total costs of work reduce, so too can the total prices of the goods produced by that work – by the same proportion.

This approach – ‘Cost And Price Equalisation’ (CAPE) – has the main effect of absorbing changes which now give rise to the boom-bust business cycle into altered working hours and prices. If efficiency improvements and/or sales declines and/or reduced consumption and/or anything else decreases the need for work by x percent, the same work is shared over a working week also lowered by x percent. Income and total costs then also reduce by x percent, because of which CAPE requires an x percent reduction of all prices. Similarly, more shared work, whether because of reduced productivity, natural disaster, or any other reason, causes the working week, income and prices to all rise by the same proportion.

So, though people can get less (or more) income, none lose (or gain) purchasing power because all prices drop (or rise) in proportion to income.

Affording

Importantly, although CAPE balances total costs with total prices, the price of any individual product need not equal its cost. Given a choice, people might indeed prefer some goods to be made free — housing, education, health care, a reasonable minimum yearly quota of staple food and basic clothing, and perhaps more. Also, some work definitely needs doing but does not directly result in finished consumable goods, such as environmental regeneration and repair, construction of community facilities and public roads, international development and aid, and the less dysfunctional work of governments such as welfare for the disabled, retired, injured, and anyone genuinely unable to work. With CAPE, any product can be made free, and any worthwhile work that does not produce consumable goods can be afforded – simply by increasing the prices of all non-free consumables by the proportion required to balance the costs of the free and/or ‘non-consumable’ goods. In effect, the costs of free and/or non-consumable goods are ‘absorbed’ into the prices of all non-free consumables.

Saving Work

If prices and income move up or down in unison via CAPE, then growth or contraction or a steady-state can be handled by sharing the work around. But this not only avoids needing to constantly invent work as market economies require, it allows work to be reduced – indeed minimised.

We could work a lot less than we do now if we abandoned all the unproductive work currently performed, automated everything we could of what remained, and shared the rest – especially if we also built to last instead of to obsolesce, and if we produced and consumed less slavishly and more responsibly (particularly by minimising or avoiding pollution, resource-hungry processes, and non-renewable energy use).

Buckminster Fuller estimated that seventy percent of jobs in the USA and similar developed countries do not produce “any wealth or life support – inspectors of inspectors, reunderwriters of insurance reinsurers,… spies and counterspies, military personnel, gunmakers etc”[v]. If accepting this estimate, that leaves thirty percent of existing jobs to share amongst all wishing to be employed, meaning roughly a one-and-a-half-day working week.

But a somewhat shorter working week than this follows if taking into consideration negative multiplier effects and the ability to work closer to our capacities. After considering these matters, Ted Trainer concluded that “it is quite plausible that our non-renewable resource use and the time we would have to spend on commercial production could be slashed to the region of one-fifth or less of their present values” [vi]. So, a one-day working week is more than plausible.

However, the spare time unleashed by a shorter working week would be at least partly taken up by additional responsibilities required by decentralising and democratising political and economic decision-making.

Plurocracy

To make decisions on which goods are free or discounted, what work is done and how it is shared fairly, and much else, requires more than what now masquerades as democracy. It can be attained via a bottom-up decentralised participatory form of Internet-based direct democracy underpinned by small self-governing electorates arranged into progressively larger associations whose decisions require the majority agreement of constituent groups. Call this plurocracy (since it allows a plurality of views), and base it on electorates called ‘localities’, each consisting of (say) two hundred voters. Groups of (say) twenty localities form electorates called ‘towns’. Groups of towns, in turn, form larger electorates (‘cities’) – groups of these, still larger electorates – and so on. At least at the locality level, voters make most or all decisions — not their representatives, who ‘merely’ provide or disseminate options and proposals to their electorates, and make sure they have all available and necessary information to make up their minds. Representatives can only be elected if they live in their electorates, their votes stored online, able to be changed any time a voter wishes.

Electorates at every level function semi-autonomously. Although each locality, for example, must heed the plurocratic decisions of its town, these apply only to issues affecting two or more localities, such as construction methods or building height restrictions. Each locality makes its own rulings for purely internal affairs, such as where to build a new house or shop (though recommendations might be made by the town or city). Most importantly, each electorate can secede from its ‘parent’ electorate, and join more-like-minded electorates (not necessarily with common borders) or become independent.

Determining & Doing

Plurocracy provides a market surrogate: it enables needs and desires, for goods and services and provision of labour, to be tabulated and accrued from the bottom up, assisting producers and workers to plan and employ resources accordingly. It also enables free land, homes, factories and other fixed capital to be stewarded rather than owned or rented. People living in the smallest plurocratic electorate with borders enclosing unused land have responsibility for looking after the land until they agree on how, if at all, to use or develop it. Home stewards have all the usual rights bestowed by ownership, except they cannot sell (or buy) their houses: those who look after or improve their homes simply move house – the more responsible their stewardship, the greater their options (assisted by nomination of preferences to create online waiting lists). Fixed capital is stewarded mostly by the people operating it – all the workers of a factory, for example – but also, and ultimately, by those most directly affected by the capital’s operations: those living in the smallest plurocratic electorate with borders fully enclosing the capital.

Accounting

To handle all of the above, at the start of each year interest-free finance credits each producer account with funds sufficient to cover expenditures planned for that year following plurocratic determination of needs, desires and work commitments, and credits consumer accounts each week with earnings.

A purchase debits the purchaser’s account by the price, but credits the producer’s account with the cost. Over the year, some producers undoubtedly spend more or less than they expect, or sell fewer goods, or suffer shortfalls — so by year’s end, their accounts differ from at the start, data which should help inform future allocation of work and resources. At year’s end, though, producer accounts are reset to zero, then re-credited for the next year’s expected expenditures (revised plurocratically, based partly on this year’s performance). ‘Project’ accounts for work that does not produce consumable goods (such as housing construction or factory building) function like producer accounts, except they involve no purchases of produced goods.

Consumer accounts are not adjusted but remain cumulative: then, hard workers and frugal spenders keep accounts mostly in credit, while big spenders and lazy burdens more often have debits. And consumer account balances are always publicly available for anyone to inspect, to evoke pride or shame and so increase motivation towards working and spending responsibly.

Motivations

So what would stop a person from simply refusing to work at all, while still spending like a millionaire? After all, even if those who deliberately and consistently choose not to contribute receive no welfare payments, they could still run up unlimited debts.

I suggest few people would abuse a system based on plurocratic decision- making, and built around cooperation and the sharing of both the work and the fruits of that work, especially with community approval likely to play an even more significant role than it does now. Those who did fail to pull their weight would likely have personality problems of a scale that would them difficult for any system to handle. However, probably few could persist for long without ending up shunned by their communities – which might well change their minds. Most people, however, would instead feel liberated – not just by stable economic conditions, and the abolition of any need to compete, but perhaps by the absence of compulsion. They’d be motivated to choose responsibly because they could do so without coercion. And we’re talking, remember, of (eventually) only one day’s work per week. So, probably, most people would keep their accounts in approximate balance from one year to the next.

Nevertheless, while no one would be forced to work, they can still be encouraged in different ways to do the responsible thing. The most obvious encouragement stems from publicly available account balances, but also from the knowledge that if enough people take the lazy option, too few people are left to do the necessary work, and then everyone suffers. Co-operation can be further, and more inventively, encouraged if any refusing work for more than a year (or with an account in debit beyond a plurocratically agreed amount) are disallowed moving house except to a place of lesser quality than their existing residence (the longer they refuse to work, or the larger their debit, the less the quality of housing they can choose). Having everyone’s final account balance displayed on their gravestone or memorial plaque also seems likely to motivate most people to avoid an unflattering epitaph. As a last resort perhaps, anyone refusing to work for a long enough period might have their plurocratic voting privileges revoked until they start putting in a reasonable effort.

Conclusions

Undoubtedly, some will see the preceding proposals as utopian or idealistic. Of course, any proposal faces difficulties of implementation, and these have to be assessed, but rejecting alternatives out of hand – by simplistic labelling – without fully considering them or why the inbuilt flaws of the status quo make them so desperately needed, misses the point entirely. Keeping this in mind, it seems far more utopian and idealistic (if not living in denial) to proceed on the basis that we just need to tweak things a bit here and there to solve our problems, while ignoring inherent contradictions and destabilising, unsustainable, problem-causing dynamics of the current arrangements.

To fully and adequately address the world’s major problems requires fundamentally changing the system that causes those problems, by designing a different economic and political system able to avoid the present’s failings. The above outline of such a system is a first tentative step in that direction.

[i] Steve Keen, Debunking Economics: The Naked Emperor of the Social Sciences

(Pluto Press, Sydney, 2001), p.255

[ii] For instance, according to Paul Gilding, The Great Disruption: How the Climate Crisis Will Transform the Global Economy (Bloomsbury, London, 2011), p.216: “Whereas the average African was almost eleven times poorer than the average North American or Australian/New Zealander in 1950, they were over nineteen times poorer by 2000.” More recently and generally, national Gini inequality indices, graphed at http://en.wikipedia.org/wiki/Gini_coefficient, show that income inequality within many nations has worsened since 1990, yet improved significantly in few if any.

[iii] For a more thorough explanation of how market completion all but inevitably leads to ecological degradation, see http://home.spin.net.au/freelunch/, especially http://home.spin.net.au/freelunch/A_Free_Lunch-Chapter1.html#1.4 and http://home.spin.net.au/freelunch/A_Free_Lunch-Chapter2.html#2.1.

[iv] For a fuller exposition of these ideas, see http://home.spin.net.au/freelunch/, especially http://home.spin.net.au/freelunch/A_Free_Lunch-Chapter6.html and http://home.spin.net.au/freelunch/A_Free_Lunch-Chapter7.html.

[v] Buckminster Fuller, Critical Path (St. Martin’s Press, New York, 1981), p.226. Given the expansion of the financial industry since Fuller’s book was published, the figure now is probably higher than seventy percent.

[vi] F.E.Trainer, Abandon Affluence! (ZED Books, London, 1985), p.217

Herman Royce is God Almighty’s biographer and self-appointed spokesperson (see http://www.pearlstreetpublishing.com/GodAlmighty.htm), inventor of A Free Lunch (see http://home.spin.net.au/freelunch/ which provides more details about the ideas of this and my previous article), and the first person in history to say “Now I’ve seen you naked, I could never eat turkey.”