Growth without growth - a journey down the rabbit hole. Part 3

Wednesday, 29 June 2011 at 14:51
If you're beginning with this post, know that the following will make more sense if you've already read part 1 and part 2.

Previously we explored how the global money system works. We've seen how in this system all money is created from debt and 'normal' economic function quite literally depends on the majority of people getting and staying in debt, and thus the system, by its nature, maintains unequal distribution of material wealth.

Now finally it's time to talk about economic growth. Why is the mainstream view that it's a 'good thing', and what really drives it?

What Is Economic Growth?

When an economy grows, the overall amount of 'wealth' grows - in terms of how much stuff is produced and purchased. Economic growth happens when a combination of conditions coalesce. Broadly speaking, things of new value that are tradable or financially exploitable are created. This could be through new technology, acquiring more material resources, or developing more efficient or cheaper processes to produce products, for instance. Then, there must be demand for an increased total value of trade (from higher volume or higher price) of the new products or services.

Economic growth equates to increases in inflation adjusted GDP (Gross Domestic Product). That is, when the sum market value of all final products and services traded increases, after adjusting for inflation (the decrease in buying power of a single unit of currency), then economic growth is said to have occurred.

Why Is It Thought To Be A 'Good Thing'?

There are several related points in support of the idea that economic growth is a good thing for everyone. Here are the main ones, as far as I can gather:
  1. The overall increase in wealth within the economy not only benefits the business owners and banks who provided the finance, but also benefits anyone who sell products and services to these and other parties. *
  2. Through the trickle down effect, the increased wealth of the more successful businesses owners, investors and banks, is spread further through society. So over time as the total wealth in an economy grows, there is more for everyone. *
  3. When the wealth that comes from growth spreads widely through society, society becomes more peaceful. The more growth there is, the more wealth there is to go around.
  4. When an economy is growing there are also more opportunities for wealth creation for more people, since loans are more easily available. And in times of growth, there are more usually opportunities for trade to be able to repay debt. *
  5. The availability of loans in times of growth, means more people can buy what they need, when they need it, which improves quality of life, and allows further growth to occur. *
  6. The improvements in production methods and new technology that lead to economic growth also lead to an improved quality of life. They do this through effectively cheaper products and services, and through the availability of better products and services, e.g. better health care, better access to education, or better tools needed for various businesses, as well as more and better variety of consumables for entertainment and leisure usage.
  7. The increased wealth from economic growth allows more money and time to be invested directly in science, technology and the arts, for the betterment of all humankind.
  8. There may be a point in the future where, through the driver of growth, technology advances to a point where it can take care of most of our basic needs, like food, water, shelter, security, clothing, transport, healthcare, etc. As a result, people will not need to work as much and will have more leisure time.
Actually, the above list mixes together points which are really about just economic growth alone, with points that are about economic growth in combination with the current money-as-debt system. These latter points end with a '*'. As we'll see later, economic growth in terms of increased total wealth, is not dependent on this system. But for now, I'd like to address each of the above points briefly, before moving on to look more deeply at economic growth as it currently works, what leads to it and what the implications of it really are.
A response to the previous list:
  1. True, there is a kind of wealth distribution with economic growth, so long as it's understood that the money system ensures inequality in wealth distribution (see part 2 for why that is), which has profound effects on the well-being of not just the least wealthy, but the whole of society.
  2. It's true that wealth is spread through an economy, however the 'trickle down effect' is just that, a relatively tiny trickle, while the real 'wealth geysers' - cumulative debt interest from money lending, ownership of stocks and land - deliver the large bulk of their riches to a tiny minority, where it tends to stay. In the UK for example, according to official statistics, 50% of the whole population have only 9% of the country's wealth. And the wealth gap continues to widen, since this effect is built into the system.
  3. It's true, more financially equal societies are more peaceful. They are also more healthy, innovative, trusting and happier, according to peer reviewed research by the Equality Trust. However, as already discussed, the existing method of economic growth ensures ongoing and increasing wealth inequality.
  4. The availability of loans does allow businesses to start up sooner than if no funding were available, and sometimes a loan can save a business from closing. However, in aggregate, as already discussed, debt creates disadvantage through the burden of interest repayments on top of the loan capital. The normality of debt can also have a cultural effect where people become conditioned to living beyond their means and become trapped in debt as a result. In times of growth, good trade will allow some debts to be repaid. However, the money to facilitate increased trade and demand - in the present system - is created from debt in the first place. Thus the debt effectively gets deferred or passed onto someone else. The problem of debt does not really go away. The impossible pursuit of perpetual growth merely delays facing it.
  5. Offering commercial bank loans are one way to allow people to buy things they need, when they need them. Where certain goods are urgently required, gifts, swaps, or very low interest/interest free loans are all other possibilities, in contrast to the standard profit maximizing approach to extending credit. It's worth remembering too, that when someone (or even a whole country), is desperate they are most vulnerable to accepting extortionate loan terms. Thus, what may appear to be 'relief aid' in the short term, can soon turn out to be economic enslavement.
  6. Innovation and new technology may lead to economic growth and in some cases improved quality of life, but that doesn't make economic growth a dependency for such improvements. In fact if an innovation happens to lead to significant quality of life benefits, then that fact may lead to increased demand and thus economic growth - rather than the other way around. Economic growth is not responsible for the benefit, but economic factors may be responsible for denying access to innovation, where insufficient profit potential is seen. Furthermore cheaper and better products provide only a small part of the quality of life picture, and are a facet with diminishing returns once basic needs are taken care of. More subtly, in this point there is the assumption that individual needs are sovereign to collective needs, and that ownership should be preferable to ready access. Given that we are fundamentally social animals very capable of sharing, who live in a world of dwindling finite resources, that assumption seems highly flawed.
  7. We've already mentioned how innovation is not dependent on economic growth (and will explore that major point further on). Part of this point is the tying of economic growth together with improved quality of life and the betterment of humankind. We explore this idea and how it falls down shortly, but investment of time, energy and expertise in the arts and sciences merely depends to a large extent on the flow on money in the current system. But money is only acting as gatekeeper for these real resources, it is not an intrinsic dependency.
  8. The question is not whether technology could lead to this utopian scenario (some say we've already had the required technology for decades), but whether the existing global socioeconomic system could ever lead us there. Given the entrapping nature of debt and how debt is a fundamental part of the existing system, surely one form of labour will be replaced with another? From manual labour, to an unlimited array of 'services'. For as long as one person's time and energy is valuable to another, then debt can be used to harvest it. Since the financial cost of any material good can be defined through controlling the supply of money (as the banking system is designed to) - and making sure access to that good requires money - then debt can be maintained indefinitely, regardless of the level of technology.

Quality of Life And Economic Growth - The Gaping Chasm

The first list in 'Why Is It Thought To Be A 'Good Thing'?' above, shows some of the connections people make with economic growth and quality of life. Indeed, for a long time GDP (or the similar GNP) was treated as an almost direct indicator of the typical quality of life in a society, although now even the World Bank is acknowledging the disparity.

Late American Senator, Robert F. Kennedy, eloquently described the measuring of the economy's size (GNP), in 1968 while running for president (just a few months before his assassination):

"Our Gross National Product, now, is over $800 billion dollars a year, but that Gross National Product - if we judge the United States of America by that - that Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl. It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities. It counts Whitman's rifle and Speck's knife, and the television programs which glorify violence in order to sell toys to our children. Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile."

Just to hammer the point home, let's consider some more awkward facts for the idea that economic growth is a good indicator of quality of life. Imagine an otherwise normally functioning society has an outbreak of some virus, that has various unpleasant effects (e.g. itchy skin, a cough, achy muscles or joints, maybe some minor sexual dysfunction too) but which doesn't significantly affect productivity for the vast majority of workers. Now this society has practically the same GDP, but a definite drop in quality of life. Actually, the demand for a cure leads to new economic growth, as pharmaceutical companies develop and sell treatments. But of course, treating the symptoms is often more profitable than actually making a cure. So then with the sale of ongoing treatment, the economy maintains an increased size, while quality of life remains at a decreased level - the exact opposite relation!

Taking a more serious health issue, cancer, supposing you're the CEO of a pharmaceutical company and by some miracle that company has just discovered two revolutionary treatments for cancer. Each come in pill form, have similar health risks while on the medication, and the cost per pill to manufacture is in the same ball park. But the first is a cure requiring a short course, while the second is an ongoing course of treatment to keep the cancer suppressed and allow an otherwise normal life. Remember, under corporate law you are bound to act for the maximum profit of the shareholders. What treatment are you going to market? Of course, the ongoing treatment will produce more profits for the company and shareholders and thus more economic growth, even though that treatment will cost patients vastly more than the cure and leave them dependent on medication, with its ongoing side-effects. Here we can see that the current money system has no moral compass. (Indeed since exploitation, control and the creation of scarcity often nets big profits, it could be said to be inherently immoral.)

And we haven't even considered war yet, perhaps the largest money spinner of all. Increased demand for arms to be produced and sold, a willingness to take on debt to buy those arms and other supplies (remember debt is profit for the loaners), and then massive business to be done rebuilding infrastructure and housing from the wreckage; war is very big business. With that business comes massive economic growth - for those doing the selling - while those ultimately paying the public debt with their labour and taxes, experience a marked drop in quality of life. Not forgetting those receiving the bombs, who pay the ultimate price. And so, the concept of economic growth is in fact largely decoupled from quality of life, and sometimes in direct opposition.

How much your quality of life is likely to improve as a result of economic growth depends first on how much (or little) or that new wealth has reached you, and second on how effectively more financial wealth will help to meet your needs anyway. If you're lacking the basic material resources such as secure shelter and food which in our system money can get you access to, then you're likely to be nearer the bottom of the wealth pile, which gets the least financial benefit from economic growth anyway. So this potentially large benefit is severely dampened by the highly skewed nature of the wealth distribution. If you're near the top of the wealth pile, which financially benefits most from economic growth, then added wealth nets diminishing returns for your quality of life and happiness. The relationship between happiness and money soon becomes logarithmic, i.e. to double your happiness you need to get ten times as much money as you had before, and even then there's really no guarantee.

The only connection between growth and quality of life that looks like it may be vaguely sensible after a cursory inspection is the increase in production efficiency - and thus the lowering of costs for produce - that is one path to economic growth. When essential goods are cheaper to produce there is the potential for them to become more easily attainable (not considering for the moment the creation of artificial scarcity), and thus the quality of life of those who were lacking those goods before, increases to the extent that those goods allow. We'll look more deeply at that idea further on.

Here's an article from the New York Times that explores the sprawling list of limitations of the GDP/GNP as a quality of life indicator. It's worth noting that some of the alternatives being investigated do look at activities and factors more closely related to human contentment and happiness, but then attempt to put a dollar value on them, to be added up with the GNP. The grim (and flawed) implication of that approach is that anything that makes life worth living can be given a price tag and in those terms be interchanged with any other financial activity.

The 'freedom' and 'efficiency' of markets

The same thinking that firmly associates economic growth with improvements in quality of life, often celebrates the idea of 'free markets' as the most fair and efficient means for allocating resources.

First let's explore the idea of a 'free market'. What would define a free market? Presumably one without constraints over what could be sold or how it could be sold, where people are free to trade what they like, when they like, how they like. But if that were the case, there would be no place for a legal framework to ensure the safety of a market or of the people in it, or sales taxes, since this would impose constraints on trade. For example, all drugs would be freely traded, people would be traded, including the labour of children (as used to be the case about 100 years ago in England, and is still the case in many parts of the world), as would all manner of weapons, and foods and medicines with unregulated content. There would be no consumer protection, neither would the law step in to stop physical force acting as a medium of exchange or price negotiation, since that would interfere with individual choices for how to maximize profit. In fact the law itself would be - at least more openly than it currently is - written by the richest. There certainly wouldn't be any regulation limiting the influx of immigrant labour from poorer countries, which would allow the market to minimize labour costs in its pursuit to maximize profits. Similarly democracy would be for sale, through the selling of votes and government jobs, again, more openly than it currently is. (What are votes for anyway, if not for people to decide how to allocate various resources to meeting their needs? If that's the case and the market allocates resources efficiently for the greater good, then shouldn't the people with the most money have the most say? If so, then there's really no need for a vote in the first place, as the free market will decide all.)

The fact is, for a market to function in anything like a safe, sustainable and orderly fashion, and without totally consuming the rest of society, there must be limits on exchange and how profit may be gained. Thus there is really no such thing as a 'free market', only different sets of rules and regulations that suit some people more than others (which is to be expected where not everyone has a equal say in what the rules and regulations are). When someone talks about the virtue of free markets, what they're really talking about, I think, is a set of market rules and regulations with minimal impedance to, and support for, their kind of business.

As a market becomes less and less constrained, the more the underlying divide between making money and serving human needs in a mutual fashion is revealed. Sometimes the two ends can happily occur together, but they are still fundamentally different ends.

Is an ever evolving set of regulations to tame the market a credible approach to improving the benefit for more people in society? Regulations can certainly help make things safer, more sustainable and fairer, but they are anathema to the drive to accumulate personal wealth, ingrained in our culture and the money system. Thus for as long as the system remains there will be a continual battle against regulation from the market (wherever regulation threatens profit potential) and attempts at subverting it. The resources spent on this battle from both sides might be more fruitfully spent if we had a different system altogether, one less fixated on the accumulation of money.

Now, are markets efficient at allocating resources? That depends on how you measure efficiency. If you take efficient as the distribution of resources to maximize financial profit within an economy, under the constraints of short-term, (personal) risk averse outlook, then I'd agree, markets can be efficient. But if you take efficient as the allocation of resources to maximize human benefit in a sustainable way then markets are certainly not efficient, and there is tremendous wastage, pollution and exploitation. The reason for this is that markets which operate as part of the money system, with each party trying to increase their growth (profits), are subject to the same essential disconnect between economic growth and human benefit as previously discussed.

Lastly, are our somewhat 'liberalized' markets of work and trade 'fair'? From the above it appears the answer is 'no', but again, it depends on what you take to mean 'fair'. Some would say the fact that everyone has a chance to enter the market and make as much money as they can, makes it fair. If you take that view, however, it's important to realize a couple of things: One, not everyone starts with the same chance, which depends to a large degree on where you are born, the wealth of your parents, the quality of your education,your gender and the colour of your skin (for some startling figures see An Anatomy of Economic Inequality in the UK, LSE p131, US figures here for race). Two, in the present system there will always be far more losers than winners in terms of wealth distribution, regardless of how hard people try to succeed.

Paths to Economic Growth

In order to better understand the nature of economic growth let's look at some ways it can happen:
  • Cheaper production: The Acme Widget company discovers a way of making widgets with half the production costs. The company is now making more profit from each widget sold. The company may also be able to stimulate demand by reducing the price of widgets slightly, and still make a higher profit per sale than before but on a higher volume of sales too. If that happens then economic growth occurs, because the total value of products produced is increasing. However, if demand for widgets stays the same, then the Ache Widget company still make more profit due to their cheaper production process. That means the share holders (and maybe some of the employees) have more money to spend. Where this results in increased demand for other products, economic growth will again occur. Economic growth that results from increased production efficiency is often referred to as 'intensive economic growth'.
  • Acquiring exploitable material resources: The Acme Widget company opens a new mine or drills a new well. This allows it to provide the raw materials to expand production capacity, or to sell those materials on to other companies for profit. With expanded production capacity the company has the potential to make more sales thus contributing to economic growth. The more useful processing is done to the raw materials (e.g. the chemical process of refining crude oil into petrol, or turning wheat into bread), the more value can be added, and thus more can charged for the end result. Economic growth that results from exploiting more material resources (including labour) is often referred to as 'extensive economic growth'. Any kind of business (and in general society) that consumes any kind of material resource, from agricultural produce to electricity, must manage its usage according to how quickly, and if, it is possible to renew that resource,. In the case of non-renewable resources such as rainforest, oil (and everything that is made from petrochemicals, such as plastic, polyester, many fertilizers and pesticides), coal, silicon, water and air, the total supply puts a limit on how much stuff can be produced from it. In the case of renewable resources, such as fish stock, rainfall, sunlight, wind, and top-soil, the rate at which that resource is replenished puts a limit on the rate of production. Renewable resources form complex interconnected systems, which ultimately depend on energy from the sun, but which can also be very fragile. If the limit of renewal is exceeded (where that's possible, such as in fishing) then the capacity of the resource to be renewed and utilized can be reduced, either for many years or permanently. 

    Because the total supply or renewal capacity of many resources seem like big numbers and economic behavior is often short-sighted, the limits of resource usage are often ignored until dire consequences are inevitable. Many past civilizations (such as the Mayan, Mesopotamian, and Polynesian civilizations) are a testament to this. Of course now that civilization is global, and the present socioeconomic system is using at least 1.5 times the sustainable resource usage of the earth, continuing our behavior is going to have ever greater and sadder consequences.
  • Stimulating demand: Marketing campaigns are to consumer society (and the interdependent money system), what coffee, invigorating scalp massage and other stimulants are to an overworked member of that society; neither would be able to carry on without the stimulants. Through the use of mass media and online marketing campaigns, people become more willing to buy certain products, in the hope that those products will in some way enhance their life. Naturally the products can't be too successful at doing that, otherwise the cycle would wind down and demand would dwindle with everyone being content with what they already had.
  • New markets: New technology is a major way for new markets to be created. Sometimes though new markets can be created without new technology, by clever marketing. For instance, the female smoker market expanded massively at the hands of the masterful marketeer Edward Bernays, nephew of Sigmund Freud in the 1930's. Female smoking as a strictly taboo habit was seen as a daring act of defiance and subversion of patriarchal society at least as far back as 1851. But it was Bernays calculated invention of the marketing slogan "Torches of Freedom" that helped to take female smoking from a tiny and stagnant market to very big business. Through a publicity stunt in 1929 launching this slogan, which used actors to associate smoking to the female emancipation movement and frame women smoking as socially progressive, he gained global attention overnight and the market ballooned. (From social taboo to 'Torch of Freedom') Might it have happened anyway at some point? No doubt, but Bernays certainly seemed to have precipitated this market, and profited handsomely in the process. In fact Bernays is credited with fathering the modern approach to marketing, inspired by Freud's ideas on human drives, where owning a product is systematically associated with satisfying one or more of those drives, such as sex, recognition, status, health and popularity. This powerful approach, while wearyingly familiar now, was very new at the time.
  • People working harder, better or longer: If a set of employees have the option of working harder, more efficiently, or longer and getting paid extra for the increased productivity, they may take that option (whether it's a preference to earn more money, or simply to keep their job). Providing there is sufficient demand for the expanded production, the result is economic growth, since the total value of products produced and sold has increased. Since the physical capacity of a person has clear limits, this puts a limit on how much growth can be gained this way. A more open ended route is to focus on increasing knowledge and skill sets of people, in amenable industries, so that work can become more efficient and effective. This is limited by the ability for people to gain sufficient education or training, the amount of such work available, and the motivation for doing it (more skilled people tend to have more choice in how they work).
  • Population growth: When the number of people in a population increases then both the productive capacity and demand for products also increases, thus economic growth occurs. Since this in and of itself clearly doesn't lead to increased material wealth per capita, economic growth is often expressed as GDP growth per capita, when talking about standards of living.
  • Inflation: We've already said that when measuring economic growth, inflation is typically adjusted for, so that if the price of common goods has risen by X percent, then that X percent is taken off any measure of GDP growth. However, even when GDP grows chiefly as as result of inflation, there are still certain parts of society that effectively experience real economic growth, aided by that inflation.

    Since wealth is not distributed evenly, the part 'A' of a society which is accumulating money faster than the rate of inflation devalues that money is still winning in terms of financial wealth. While the part 'B' of that society which is accumulating money (through pay rises, bonuses, or other business) slower than the rate of inflation devalues that money, is losing. B finds it progressively more challenging to cover expenses and make new investments, the relative costs of which are rising. This gives 'A' a competitive advantage over 'B' in terms of buying power and financial security, opening up more commercial opportunities and avenues to further profit. In this way economic growth for 'A' is facilitated by the effects of inflation.

With all of the above routes to economic growth, there must be increased demand somewhere in the process for the growth to be actualized.

Demand + Increased Money Supply = More Economic Growth

With increased demand for products and services there is also increased demand for money to buy those products and services with and also to invest with and compete in the market. This leads to the banks creating more money through loans (see part 2 for exactly how that works). This in turn creates more opportunity, incentive and indeed pressure for further economic growth, in order to repay the debt interest.

With more money in circulation, more people can buy, sell and manufacture. Incidentally, it can also work the other way - where if people have more access to credit facilities, then demand for products and services increases. This happens as a result of several factors. One being social conditioning - the idea that material wealth is seen as a route to happiness, being continually promoted and reinforced. Another being competition and not wanting to be seen as inferior ("keeping up with the Jones's"). This is also to some extent a form of social or cultural conditioning, where through continual exposure to marketing (and the  consequential pier pressure), we become more materially competitive than we would otherwise be.

Thus economic growth can be debt propelled. A credit fueled increase in spending power leads to increased demand, which leads to increased production and sales. The obvious problem with this path to growth is how to cover the mounting debt. If the money borrowed is spent on wise productivity boosting investments, you might have a chance of increasing your profits enough to cover the capital plus interest. But often that's not the case. One approach to addressing this problem, popular with governments, corporations and individuals alike, is simply to worry about it later, and later still, then to try and raise the debt ceiling, and then to try and get someone else to bail you out - on terms either favorable or very unfavorable to yourself, depending on your political clout.

Economic Growth and Employment

Some routes to economic growth can be double edged swords. Take, for instance, technological innovation. New technology may reduce production and other costs, but it may also make a workforce redundant. The overall effect on the whole economy may initially be slight, where what the laid-off employees would have been paid then just goes to a smaller group of better paid employees who can spent it as they like. However, the effect on the local economy of the area those jobless employees live in could be drastic. Also, if those employees claim state benefits, then the wider economy may have reduced growth where government spending in other productive areas is reduced as a result.

Actually, there are wider, longer term economic implications for laying off workforces, in terms of human capital. Where work would have provided training and development opportunities, which increases the likelihood of those employees doing more valuable work in future, getting paid more and spending more, if they lose their jobs the economy's chances of future growth will decrease. Ultimately all financial wealth is built using human capital, via technology or not, so just from an economics perspective it's worth protecting that capital.

In a world with rapidly advancing technology and mechanization, work forces are inevitably becoming more services and knowledge based, in economies with access to the technological forefront. Whether employment in aggregate increases or decreases depends on the rate at which jobs in the the service and knowledge sectors are created, and the ability of the existing workforce to fill them. In many G7 countries in recent years there have been 'economic recoveries' (a return to growth), while unemployment has continued to rise [Pianta, Mario, Rinaldo Evangelista and Giulio Perani (1996). “The Dynamics ofInnovation and Employment: An International Comparison.” ScienceTechnology Industry Review 18: 67-93].

How many travel agents, sales assistants and restaurant staff does society need? 

The service industry is obviously an important and growing sector of just about any large economy and society today. The question is really, how much further can this sector grow? The scale of the service industry still ultimately depends of the scale of production of the various products which underpin the services being offered. Travel agents require airplanes and IT systems to be built and sold, sales assistants need whatever it is they're selling to be made, restaurant staff require all the items in a restaurant, including the food, to be produced.

As already mentioned, as technology develops, alongside growth in the service industries, is a shift to a more knowledge driven economy, where is it the development of the know-how for making, transporting and selling products more effectively and efficiently that drives growth. In other words, technology feeds its own development. Nonetheless, for this source of growth, there is still dependence on the capacity of the means of production (and ultimately material resources) growing - even when it's no longer people that are doing the making.

There may come a point in the not too distant future, where efficiency gains in the technology of production, distribution and sales lead to long term mass redundancy. Even if the increasingly automated means of production could expand to materially accommodate full employment through a larger services sector, where would the money come from to buy all the products and services which then pay for the wages of all the people working in that expanded sector? Businesses like restaurants, retail, travel agencies, cleaners, etc, depend on having a considerably larger number of customers than employees. That is, as a whole the people working in them are not sufficient to sustain the businesses that employ them. Thus there is a point beyond which having more people employed in the services industries is not sustainable, even if production capacity can accommodate it. There must be capital and demand for increased production and services.

One way of trying to cope with this bleak outcome, in the face of ever advancing technology, is for wages to fall closer to bare subsistence level. But this only draws out the end game, it doesn't change it. Of course, tourism and export allow for more service industry expansion in a particular economy, but then zooming out to the global picture it is clear the conundrum remains. How can mass redundancy from advancing technology - which is a (or the) major driver of economic growth - be avoided, without creating ever greater numbers of people existing on bare subsistence income?

Obviously, debt has been a popular quick fix, for governments as much as individuals. By living beyond your means, you can forget about the economic facts for a while, but the facts remain. Another idea is the introduction of new types of services which utilize human labor but require less additional material resources. Taking a cynical view, judging by the growth of the pornography industry (one 2006 estimate puts its global revenue at around $100 billion), there is plenty of potential for expansion in the sex business. Then there is counseling (for instance, currently around 1 in 5 people indicate symptoms of major depression and at the rate of increase, it will be the 2nd most disabling condition in the world by 2020, behind heart disease), or teaching (there is a global shortage, although of course teaching often requires teaching materials and tools).

Technology may form part of the answer. Efficiency gains lead to lower costs of production, which can translate into lower purchase costs for products, meaning people need less money - and so potentially less employment - to get by. However, unless this potential source of price cuts is able to counteract inflation across the range of products required, those with incomes rising less than the rate of inflation (at least half of the UK*) will still find it increasingly hard to get by. The sustained price hike of staple foods in recent years due to rising oil prices highlights how inflation can be the least of concerns for those on a low income.

* "A minimum income standard for the UK in 2010" Joseph Rowntree Foundation p13 shows MISPI, RPI and CPI for the years 2000-10. Patterns of pay: results of the Annual Survey of Hours and Earnings 1997 to 2010 ONS, p16 shows median weekly incomes for the same period. The median rose from £360 to £500, 39%, for full time workers, while the percentage of people working part time and earning less rose slightly, and those without employment rose from 5% to 8%. The Minimum Income Standards Price Index (MISPI) rose by 39% over the same 10 year period. This indicates that for a majority of the workforce, income went up less than the price of a broad basket of products considered to be the minimum required for a healthy level of subsistence, went up. That is, the majority of people got poorer, relative to this measure of inflation. In the US, according to this Census data the situation has been slightly worse for the majority of the workforce over this recent decade.

The above considerations lead to the question: Is it economically advantageous for the present pushers of economic growth (the owners of industry and the financial system), or for that matter society as it is presently organized, to allow mass redundancy or growing poverty, if it means embracing more efficient technology? I think, even if it means a growing number of people surviving on state benefits (for those countries that have them), the answer is yes. For those who profit, innovations in efficiency lead to bigger profits, and so long as there's a market that's the way of the system.

In the UK, if one third, say, of the entire workforce were handed out £7000 a year to survive on, that would total £73 billion a year, that's a little under two thirds of the current NHS budget. The UK's GDP is currently around £2.2 trillion, and the government bonds (national debt) interest payments is due to hit £73 billion a year also, in 2014/15. The mean income is £26,000pa in the UK which has a workforce of approximately 30 million people, which equates to around £780 billion in annual wages. So mass redundancy would be costly to the tax payer, but compared to the utter havoc of having 10 million people rioting because they have no money, quite possibly worth it. Let's no forget though that the companies that were employing that third of the workforce would no longer be paying out those wages. If we assume an average of the median income, ~ £21,000pa, for those made redundant, that gives an annual saving of £209 billion for those companies (minus the cost of any technological replacement for the labor)!

To explore this idea of accepting mass redundancy further, here's a thought experiment:

Redundancy Land

Suppose in a population with a workforce of 1000 people we have full employment. £10 million is paid annually in wages to the workforce, and the economy is self contained, i.e. imports and exports do not figure significantly.

Then innovation happens, which means x% of the population can no longer offer competitive labor, and so they get fired. (In reality a certain percentage of these people might be able to find other, generally lower paying, jobs. But in this simple experiment we start with full employment and there are no other jobs available, so they're out of luck.) These people get handed £5000 to live on for the year, enough to survive.

Now what happens to the economy? If the productive capacity is unchanged, then demand will change according to the reduction of spending power of the x%, and the increase in spending power of the businesses from the cost savings they made from downsizing x%. There will also be a reduction of spending power (and thus demand) due to the taxes required to cover the £5000 handout to the x%. For the sake of this experiment suppose x% were earning the median income, £7500, which is 75% of the mean (£10000). The businesses save 1000*x*£7500 minus the costs of the new technology. Let's say it has an amortized cost of half the replaced labor cost (so those jobs are gone forever), so the total increase in spending power is 1000*x*0.5*£7500 for the businesses who downsized. The loss in spending power of the x% is 1000*x*£2500, since their income have gone from £7500 to £5000. The loss of spending power (spread over the rest of the population) due to the taxes to cover the £5000 handout is 1000*x*£5000.

This would appear to give a net loss of spending power, but then since the economy is self-contained, the cost of the technology (1000*x*0.5*£7500) is another business's increased revenue. This leads to a net change in spending power in the economy of zero. There is the same amount of money available to be spent (and the same productive capacity) only now it is in few people's hands. The buyers and sellers of the new technological innovation are the economic winners, everyone else is the loser.

Does it matter whether x is 10% or 90%? Essentially no, providing the technology for manufacture, distribution, sales, or other services, can take the place of the labour to that degree. The level of redundancy merely changes how much wealth moves from the lower ends of society towards the top - even with subsistence level social welfare in place.

As the distribution of wealth becomes more skewed the types and relative volumes of various products would change accordingly. Now if the replacement for labour can be driven harder, or further refined to improve performance, economic growth can still occur, even with growing redundancy. There would come a point though, where so much buying power was concentrated in so few hands that demand for ever more luxury products to sustain the lopsided economy would wane, perhaps. The example of 'Redundancy Land' considers only economic impact, without social or cultural effects. Neither does it factor in the risks of having an increasingly small pool of people who are in a position to contribute economically, or towards further technological advancement. It does however indicate that if relatively short term - i.e. a generation or two - or narrow focused, financial gains are of prime concern, mass unemployment is not necessarily a barrier to economic growth.

The conclusion of this section is really not that technology is the bringer of unemployment and the resulting poverty, but that the predominant socioeconomic system, which harnesses technology as it does, inevitably leads to a growing number of 'have nots', as efficiency gains are monetized. Under this system technology effectively expedites transfer of wealth. On the bright side, the advancement of technology does indicate that potentially, a lot more human time and energy could be freed up to be spent on activities that more directly and effectively enrich our life experience.

Innovation And Economic Growth

What Is Innovation?

To know what leads to innovation, first we need to be clear about what we mean by 'innovation'. Some economists or business people may define it as 'the deliberate process of turning invention into money'. Since this kind of innovation is invariably supported by funding, which is typically more available in times of growth, the easy conclusion is that innovation depends on (as well as supporting) economic growth.

But wait, is that narrow, internal definition of innovation really what we mean when we consider the development of the following:

the wheel,
man-made fire,
hunting tools,
sewage systems,
sound methods of construction
and strong building materials,
the theory of gravity,
electric power,

the steam and combustion engines,
the light bulb,
penicillin and other medicines,
the declaration of human rights,
the transistor,
social welfare and healthcare systems,
mobile communication devices,
the internet,
open source software

A cursory look over some of the above listed human innovations shows that there's a lot of real value there that isn't accounted for by the idea of 'turning invention into money'. Remember that money is only a limited abstraction of value; everything that is valuable cannot be accounted for by the price in money that someone is willing to pay. Perhaps the following will better suffice as a working definition:

Innovation: The creation of new technology, processes or systems that lead to tangible material or social value for people.

Where Does Innovation Come From?

Looking at innovation as 'the creation of new technology, processes or systems that lead to tangible material or social value for people' we can see that it is driven by some desire and can come from many avenues. These include the desire to:
  • Understand the world, create, and experience the joy of discovery.
  • Better meet a basic need, such as health, nutrition or shelter.
  • Contribute to others.
  • Be significant, impress, compete, or win favour.
  • Communicate more effectively.
  • Be more free.
  • Make use of freedom.
The kind of environments and organizational structures that facilitate innovation are thus those that help people pursue the above natural desires, rather than act as barriers to them.

So what structures and environments help? In his book "Where Good Ideas Come From", popular author Steven Johnson describes how major innovations throughout history tend to come from 'the collision of smaller hunches' from various people. So then environments (or networks) where ideas can easily mingle and be swapped to evolve and create new forms, are the kind of environments that are fertile for innovation. The presence of supportive and open-minded peers makes inspiration flow more readily. It is collaboration that accelerates the process of innovation.

There is a cultural fashion of attaching great inventions to lone geniuses, which in part reflects a belief that success in life comes from individual achievement and distinguishing yourself from everyone else. There is an underlying emphasis on competition and individuality. But invariably such accomplished historical figures - even if they seem heretical or highly outspoken by the mainstream of the time - derive inspiration from their peers and mentors, and are enabled by the support of assistants. Furthermore innovations tend to be built on top of the the innovations of the past, i.e. knowledge and inspiration passed between generations as well as across the current one.

Take Archimedes, for instance. Although not a huge amount is known about him, given his contributions to science, mathematics and technology, it seems clear that he conversed with peers and contemporaries while his work developed. Famous amongst other things for his revolutionary machines and mechanisms, Archimedes built an astoundingly intricate mechanical, computational device for modelling the path of heavenly bodies, similar to but pre-dating the Antikythera mechanism. However, according to historical accounts, while his design did make major innovations, it was itself a development on older devices which had been produced by several of the great minds of the preceding generations and centuries. The famous Archimedes screw may also have been a development on designs from the Hanging Gardens of Babylon.

Thomas Edison is another example, a man with 1093 US patents to his name, and credited with the invention of the phonograph, the video camera and with developing to a point of mass production the incandescent bulb, amongst many other things. Edison, a man with incredible drive, ingenuity and vision, nonetheless had mentors, peers, collaborators and many assistants over the course of his life. Reading his history, these relationships and influences seem inseparable from the course of his life and his inventions.

It is common knowledge that many innovations originate from universities. This is largely because they are places intended to help people learn from each other and develop ideas together. Typically much more than in the business world, collaboration is facilitated. (Although there is often a lot of competition here too.) In fact Steven Johnson demonstrates in his book that the vast majority of major innovations since the 17th century have come from outside the 'free market' – from universities and other environments where profit wasn't the overwhelming motivation.

Naturally innovation can be spurred on by rivalry or competition. However, if such competition substantially blocks the sharing of ideas and knowledge, or leads to prolonged psychological stress, then innovation is far less likely to happen. A broader context of collaborative is the key.

Can Innovation Be Pressured Or Bought Into Existence?

The question here is can extrinsic rewards, coercion or punishments - essentially 'carrots and sticks' - be used to bring about innovation? Let's first consider pressure to 'be productive'. Can knowing that if you don't do certain tasks or solve certain problems that there will be some adverse consequences, help you achieve those objectives? It's certainly possible, but it depends very much on the kind of pressure, and the duration. If there is a clear objective and the pressure is congruent with a person's own needs and values, then pressure can be effective, for a certain time (with increased risk of burn-out for longer periods).

One well known example of pressure to innovate seeming to work is the space race - the race of the 1960's to be the first to put a man on the moon. The stakes (national security and pride) were high and lots of innovation took place. Another example would be the development of the Open Source Ecology machines, by Marcin Jakubowski and collaborators. Here the pressures included a need to gain independence, have essential farming and construction machines that didn't break down so often - and were user serviceable when they did, and to do something to address the growing global issue of sustainable living. As a result of that pressure, rapid innovation and progress is taking place, with is leading to more people contributing to the project. Some examples from India are showcased by an ongoing exhibition by the National Innovation Foundation. In it 24 examples of rural innovation are shown, from a mechanical loom 25-50 times faster than previous designs, many improved farming machines, floating soap (useful if you're washing in a river), safer electric power supplies, non-toxic dyes and many more. In each case, there was a pressing problem that needed to be solved.

In all the above examples (and countless more), while money may have played an incidental role in motivation, the prime source of pressure to solve the problem at hand was the problem itself, or the project it was a part of. As a result, those doing the innovating could engage themselves more fully and directly in the work.

On the other hand, if the pressure to create something is not very well connected to a person's own needs and values (e.g. 'we need to appease the shareholders!'), or is, but in a way that involves being controlled by someone else and evokes fear or anxiety (e.g. 'solve this problem or lose your job!'), then innovation tends to be inhibited. This latter kind of pressure, though, can be effective at getting more productivity where the tasks are more mechanical and require less free thinking or creativity.

Motivation expert Deniel Pink talks cogently on what makes innovation more likely. The conclusion is: Don't try to make money the incentive - because it interferes with creative, lateral problem solving. Do facilitate autonomy, mastery and purpose through the work itself. In this way the innovation is its own reward. Actually, the ineffectiveness of financial reward to lead to innovation is clearly indicated by research sponsored by the Federal Reserve, and the London School of Economics.

Even though the research findings on intrinsic vs. extrinsic motivators has been stacking up for well over half a century now, it is still by far the norm for businesses and governments to use contingent financial rewards to try and encourage more and better work. But bonuses and pay for performance schemes, while potentially effective for simple tasks, inhibit innovation and can actually lead to bigger mistakes in work.

Using an extrinsic motivator such as money has other downsides. Besides it being expensive for the employers, the fact that reward itself is not intrinsically connected to the work or the result desired by the employer leads to undesired effects. The more money is the prime motivator the more tendency there is for the employee just to look for the quickest or easiest way of getting the work accepted - so they can receive payment. In many cases that could involve cutting corners, rushing work or overworking if the pay is high, or finding the minimum effort acceptable if the pay is low, or otherwise trying to cheat the system. The result is much time and resources being spend on monitoring workers and further restricting freedoms (which further reduces the likelihood of any innovation occurring). It's a very inefficient situation.

So here's the big question: Given the well established evidence regarding motivation and innovation, and that it is innovation that helps everyone's quality of life to improve, why does industry and business - and thus economic growth - by and large operate in a way that inhibits innovation?

Why Are The Businesses That Create Economic Growth Making It Hard For Innovation To Happen?

Various reasons have been suggested, part culture, part assumption that profitable approaches of the past will continue to succeed in the future, part simplicity of the reward/punishment method, and part necessity.

In many technology and knowledge based companies there is a growing progressive consciousness about innovation. IBM in a 2008 white paper put it this way:

"How does collaboration yield results? By fostering innovation. In fact, true innovation is virtually impossible without collaboration. And innovation is indispensable to success."

But a company such as IBM, as large as it is, is not representative of a whole economy, and because it is as large as it is, many parts of it may not be as enlightened as its vision setters.

So how does innovation ever manage to happen across industry and business (or government for that matter)? It happens when the conditions previously discussed come about; having an environment or culture which supports and encourages autonomy, mastery and personal growth, and collaboration with open sharing and critique of ideas. Sometimes it also happens by luck. In either case, it doesn't happen that often.

From the moment a company is formed, until such time that it manages to become a market leader in its field(s), it is subject to commercial pressure. It must cover it's costs and make a profit, or soon go out of business. This pressure makes it hard to innovate, because:
  • The pressure on the company can easily manifest to employees at the counter-productive kind of pressures; a pointy stick to make them work harder, longer, better to save their jobs, or a sweet carrot of bonuses for innovating (which makes them think about the extrinsic reward of money over the task at hand, or 'what's the easiest, fasted way for me to satisfy the boss so I get this money?').
  • The company is less at liberty to support work which has zero guarantee of being profitable - since innovation is unpredictable and often slow. Under commercial pressure, the more predictable, steady results of carrying on as before (or making small refinements) are preferred, since business must continue and expenses must be paid.
  • Under continual commercial pressure, mistakes are more costly and less likely to be tolerated. A culture of fearing making mistakes results, which is squarely at odds with the experimental process of trial and error required to innovate.
  • If there is competition within the company between employees, either to keep jobs or to secure the biggest bonuses, then the kind of open idea sharing and collaboration that leads to innovation is unlikely to develop well, or to remain if it was there at the beginning.
  • If there is commercially sensitive knowledge central to the company then even employees expected to innovate may only have knowledge of a small component of a system. Thus it becomes harder for ideas to mix and evolve within the company, between people with fresh perspectives, and for more major innovations to happen.
  • At the company level, a continual pressure to turn a profit acts as a distraction from actually providing the best service or goods which the company was formed to provide. This diffusion of focus and energy can negatively affect morale and emotional engagement, making it harder to innovate.
So if a business is to innovate the best times are:
A) At the very beginning when the partners have sufficient resources and time to explore and develop ideas to then build a business around.
B) At end of the long climb, when the business is at the top of the pile and has enough cash to pay for time and resources that may or may not result in further profitable innovation.

If a company's prime business is to innovate (e.g. Research and Development, and Intellectual Property companies), then the picture is a little different, but for the large majority of players in an economy, the lion share of their life is spent in conditions not conducive to innovation - because of commercial pressures. When business-as-usual lead innovation does occur it will generally be in the form of small refinements to existing processes and systems.

The conclusion is that at any one time, only a tiny fraction of businesses are in a position favourable for innovation to happen, the rest don't have the freedom to take the risks required. This outcome is ensured by commercial pressure. Only start-ups and those companies most successful at competing in the 'free market' have the luxury of creating the kind of environment and supporting the kind of networks where innovation can flourish. It is of course the money system itself that creates the commercial pressure and thus these adverse conditions - which are naturally compounded where a business starts out in debt.

Progress, Evolution And The Money System

Speaking of competition, the obvious analogy to make with the wealth distribution, is nature and natural selection - survival of the fittest. Babies are given some nurture, then they have to fend for themselves. It's a struggle for everyone else, unless they're at the top of the pile where they get most of the riches. Sounds about right, right?

A common idea of conservative and right wing political thought is that inequality in society reflects the law of nature and natural selection weeding out the weak for the good of the species. With the competition of 'free markets' we become better adapted and thus progress occurs. However, the analogy so far misses a critical aspect of evolution and innovation; collaboration. Quite often in nature, survival depends more on individuals working well together as a group to hunt, forage or build, rather than competing against each other. As previously discussed, human innovation happens much more readily in the context of collaboration.

The money as debt system, through its guarantee of unequal wealth distribution, its emphasis on personal ownership and accumulation of property, and the social and power stratification that results, engineers competition (and threat-focused thinking) into society. It does this at the expense of collaboration (and collaborative thinking). The result is less innovation and less progress - regardless of economic growth.

Also, the fact that more threat-focused thinking is a natural consequence of a system which ensures continual competition, helps to explain why reward and punishment approaches to 'motivating' people to do work are as prevalent as they are; they are a natural conclusion of that type of thinking. Frederick Herzberg, author of the landmark book ''One More Time: How Do you Motivate Employees?" describes the ongoing battle between this approach, which he neatly encapsulates as KITA - Kick In The Ass, with more progressive and person centred approaches like 'job enrichment'. Alas, because the ethos of the, various and subtle, Kick In the Ass approaches to getting people to do work is most in harmony with the ethos of the underlying money system, this is a battle that KITA is bound to dominate, for the bulk of the workforce.

If person-centred motivation is fighting a losing battle, what about person-centred innovation? When an innovation is adopted through business, remember it must be commercially profitable. This means it need only be tangentially related to a human need, so long as it sells. The people involved in the company may happen to be genuinely passionate about helping to meet real needs in a substantial way, but this is not a requirement for commercial success. The aggregate result is the consumer machine, that swallows not just mind blowing amounts of dwindling natural resources, but also great chunks of human creative capital, first through the creation of endless products, then through the huge effort to endlessly market those products to get them to sell, then finally through the consumption of those products. This is creative capital that is not then available to be spent on more directly and deeply meeting human needs. Again, the net result is less real progress.

How can a product be in high demand, if it doesn't meet human needs? Simply by people thinking that it does, or will meet those needs, or by meeting them somewhat, with various downsides that lead to bigger problems later. This is where clever marketing comes into its own. Competition is often slow (or immobile) to offer a better solution if a market for a type of product is profitable, because in the present system the competition is for the money, not for the meeting of needs (see the difference between extrinsic and intrinsic motivators).

But once any major, real value creating innovation happens to occur, providing there is a short to medium term profitable path to commercialization, of course our money system is eager to assimilate it, and thus create economic growth.

Let's take a back step here and address the question that may already have been burning your lips:
"But if it wasn't for this socioeconomic system, how many of the great human accomplishments would have been made?"

Some questions related to that one include:
  • Without effectively coerced labour and the perpetuation of social and political hierarchy, how many of the great buildings and infrastructure could have been built?
  • Without the money system and the hierarchies it creates and protects, how would the large and complex institutions of science, education, health care, industry and government hold together?
  • If people weren't forced to work by the money system, surely most people would just sit around and not produce anything useful?
  • How would people find a purpose if not through paid work?
  • Wouldn't society just fall into chaos if it wasn't for the all the constraints and stimulations that the socioeconomic system puts in place?
The underlying questions running through the above list seem to be:
  1. Can people be trusted to act with care and consideration for the interests and well-being of others, as well as themselves, without being pressured into cooperating with others by the money system, and constrained by the legal structures build up around it?
  2. Can there be effective, higher level cooperation and coordination between people, without an enforced hierarchy and coerced labour?
  3. Who would do the hard and laborious work, which is nonetheless crucial to the functioning of society, if there wasn't a need to earn money?
  4. Would people find motivation and meaning to apply themselves in various forms of work, without financial incentive?
Let's address each of those questions in turn:
  1. This questions actually cuts to the core of the system, which is built around a belief that the answer is 'no'. The reasons for that belief are explored later, but the fact is, people can and do act with care and consideration for the interests and well-being of others, besides themselves, without the need for the powers, pressures or constraints of money and private ownership (Elenor Ostrom who received a Nobel prize in Economics, reveals many examples in "Rules, Games and Common Pool Resources"). Empathy and looking after each other is a key survival tool not just for humans but many other animals too. This innate ability and attitude is what enables groups of people to be stronger than the sum of their members alone, and it is also what makes true collaboration - that catalyst of innovation - possible. This empathic, collaborative state of being, is the preferred, peaceful and optimal state for human beings. However, when circumstances are very desperate or when people feel powerless, or are pressured or oppressed by others, then it is also natural for them to switch to a threat-focused state of mind. When predominantly in a threat-focused state, people tend to behave more like the self-maximizing 'economics man', who acts in the interests of personal gain above all else. And so while the present system to some extent is self-sustaining (until we run out of resources in the not too distant future) and self-justifying, there is another path that could be traveled.
  2. When people have their basic needs met, it is natural to then focus on better meeting other needs, helping each other, developing relationships, understanding and being understood, and generally exploring what is possible. It is having and recognizing common or compatible needs that bring people together in collaboration. (The money system is just one narrow way of engineering a common need, with various troubling side-effects, as discussed.) Since there is a large pool of needs which people have in common, and since we possess remarkable ingenuity and capacity for collaboration, it would not be at all surprising to see examples of people effectively working together in a coordinated way on a large scale, without no systemic inequality required.
    The Open Source software movement is an obvious example, with global projects involving many thousands of people, like Firefox, LibreOffice, Wikipedia and more. Then there is the wider voluntary sector which makes a tremendous difference to human and environmental well-being across the planet. Of course, because these initiatives exist in a world dominated by the money system, they too are (to varying degrees) also reliant on money for their operations. It's crucial to understand though that these initiatives do not exist for money, and often they are started without any. Furthermore is is human resources that they depend on, which people are moved to give freely where possible. Money is merely inserted as a proxy to some of those resources.
  3. Money is not the only force to move people to unpalatable or laborious work. Indeed money is really only an engineered need, because it is accepted as good for exchange with many of the items and services people really need. It is only when those items and services are scarce that the real pain begins. Without the money system, nature does not go away. If no-one takes care of sanitation, people get sick and start dying. If no-one farms, people starve. Thus it is inherently in everyone's interest to make sure such things get done. Obviously if such jobs were neglected there would soon be no shortage of volunteers as the value of those jobs would become that much clearer to everyone. But, with the willingness to share another's burden that tends to be present with a collaborative frame of mind, the harder, less pleasant jobs could be shared between several people (instead of any one person having to do it full-time or for years on end, for some agreed compensation), even before society is forced into action. This very act of sharing hard work would increase social bonding, mutual respect and trust, and thus genuinely enrich the quality of life of the people involved. Of course, from the threat-focused perspective prevalent in a money-as-debt-system culture, this seems like a utopian vision. However, without the built in pressures of the money system, and sub-cultures that built up around it, people would far more easily re-discover their innate collaborative mode of thinking.
  4. As already shown in the previous answers, there would certainly be motivation and meaning for people to do various kinds of work, without any money incentive. What's more, without the overriding drive to compete and allay commercial pressure, more people would be in a more fertile environment for innovation to happen; through collaboration - and also some naturally arising competition. Wherever there is a desire or unmet need, there is a drive for work and innovation. It's easy to think that without paid employment people would just sit around and do nothing, since that's what so many people currently do when they finish a day's work at a job they don't enjoy or find stressful or otherwise exhausting. It's a draining, motivation sapping experience, day after day. So naturally 'vegging out' or consuming escapism fantasies on TV or on-line, is a popular option. However, this is a reaction to the effects of the money system and what they must do to survive in it. Then again, consider how much time and energy is currently spent at work producing, distributing or selling something which delivers the lion share of benefits to so few, and often harms a great many later on, or further down the supply chain (for instance, much of the disposable output of the consumer society machine, most of the arms industry and a fair chunk of the pharmaceutical industry). Given that, even if half the population did little but sit on their arses all day contemplating their navels, as a society we might still be in a better position than we are now.
In 'The Wealth of Nations' Adam Smith said "The act of competition creates incentive which motivates people to persevere." But surely it is the other way around: people persevere because they have incentive, and that perseverance sometimes leads to competition, where resources are limited. It seems to me that by breaking our bonds with the money system, and the threat-focused, competition-centric mentality at its heart, we can free up our potential for progress, and cultural, social and individual evolution.

Money Is A Religion

"Man must have no idol and the amassing of wealth is one of the worst species of idolatry! No idol is more debasing than the worship of money!" -- Andrew Carnegie, once the richest man in the world.

(Carnegie went on to say: "Whatever I engage in I must push inordinately; therefore should I be careful to choose that life which will be the most elevating in its character. To continue much longer overwhelmed by business cares and with most of my thoughts wholly upon the way to make more money in the shortest time, must degrade me beyond hope of permanent recovery.")

If it seems to be an overstatement to claim our relationship with money is a religion for many people, let's quickly review the evidence.

Faith: Whatever the economy related societal ill, the cure lies in correct monetary and fiscal policy (possibly coupled with regulations as required). The 'free market' is the most efficient and fare means of allocating resources, and the competition it creates leads to innovation, economic growth and the advancement of mankind. Happiness for one and all is attained through the sufficient accumulation of money.

Ideology: Everything worth creating or doing, or currently in existence, has a monetary value. Everything from the earth's ecosystems, biodiversity and climate stability, to volunteering to help without pay care for a family member in need, to sexual intimacy, to your time in 'gainful employment' and of course all the things you can walk into a shop and buy. Whatever can be given a money value can then be weight up against anything else with a money value, traded and further exploited for its intrinsic or economic value. In essence, the value of something is the price someone is willing to pay for it. Reducing our environment, work and relationships in this way naturally leads to the most comprehensive, efficient and fair use of resources. Consequently if someone has a high money value, in cash or assets, they are valuable, and if someone possesses a low money value, all other factors being equal, they are less valuable. Thus to become more valuable the surest path is to accumulate ever more money.

Worship and ritual:  The church of the money worshiper, just like money itself, is an abstraction. It is anywhere which accepts or makes payment. And this is the central ritual, the buying and selling of things, with the aim of taking in more from sales than what you spend. Even (and especially) if you don't perform this ritual well, it is still important to perform it nonetheless, for the sake of the greater economy, and thus the greater good. Of course spending money is performed often as a rejuvenating or cleansing ritual, as evidenced by 'retail therapy' (through which it is believed happiness will eventually be found) and to a lesser extent through charitable giving. Other forms of worship include obsessively focusing on things you would like to buy but can't afford, counting your money, and through the use of mantra-like internal dialogues associating your own self-worth with your net money value.

Priesthood: Like most organized religions, money worshipers have their priesthood, the bankers and financiers, with their acolyte scholars the economists and business analysts. Today as in times past, also like with most organized religions, many people have a conflict of faith. They are not as sure about efficiency or the fairness of 'free markets', or the elusive contentment bought by financial wealth. What's more they see corruption in the priesthood, who are supposed to serve as conduits of The Invisible Hand, allocating money for the greatest profit in order to eventually benefit all. But instead they are perceived as simply collecting the greatest profit for themselves and keeping it. Yet still the teachings of the priesthood remain unchanged: 'the economy must grow', 'growth for jobs', 'spend; do your civic duty', 'the market will self-correct', 'there is no better or fairer way'.

Although the above framing of money as a religion can be read as slightly tongue in cheek, I believe the parallels drawn stand up to the light. A follower of money, as we all are to varying extends, may be conservative or liberal in their outlook, but will be united by a central tenet of this religion: private ownership.
John Locke, author of  the 'Two Treatises of Government ' stated that  'civil society was created for the protection of property'. That is, the whole of society is built on the concept that material things can be owned and that owners have a right to withhold and protect those things from others, with the assistance of government. This was a way to address the threat of land and other material resources being commandeered, as might well happen in times of scarcity or war. As John Locke also recognized in the 17th century, one trouble with this foundation stone of society, designed to protect us from each other, is when it's combined with the use of money, which leads to the limitless potential for the accumulation of property and wealth, by the individual. Unfortunately he did not offer a solution.

Sticks and Carrots - The Real Drivers of Economic Growth

What ultimately enables any kind of growth is society, economic growth included, is people doing work. Labour, of various kinds and sophistication, is what creates new material or social value. Only where this value exists and can be traded can economic growth occur. To really understand how economic growth is driven then, we must answer the question: What drives people to work?

Money obviously plays a big role for most people, so let's look more closely at financial incentives. As far as financial motivations go, for a few it's the desire to accumulate ever more material wealth and power, for others it's the desire to keep up with their peers and live a comfortable life, for many it's the desire to pay off their debt, for still others it's the desire to survive. If you've read part 1 you'll know that those latter camps vastly outnumber the former. That is to say there is a tiny sector of society that amasses the bulk of wealth, followed by a long tail filled mainly with those possessing very little wealth and the indebted.

How many people are there whose primary reason for engaging in work that contributes to economic growth, is the enjoyment of that work? That is, they have choice in selecting their job, and they choose their job not for the financial reward or the relief of pressure, good status or lifestyle that it offers, but for the enjoyment and satisfaction they get from the work itself. Based on figures from this comprehensive survey of national surveys on 'work satisfaction', the percentage is perhaps as high as 20%, or 1 in 5, in Europe.

Considering the whole world - where almost half of all people live in poverty according to World Bank figures, with the standard $2 per day international poverty line - the percentage of people who work mainly for the pleasure of their work is likely to be under 10%. (In the Appendix the idea of working because you enjoy it is explored in more depth.) This means that over 90% of the jobs done by people in the whole world are done because of financial incentive - to repay debt, through pressure to fund a certain life-style, or just to make ends meet and survive.

Since it is ultimately the work of people that allows growth in an economy, and it is money that is driving the large majority of work, this leads to the conclusion that in a 'money as debt' based system, economic growth is driven largely by financial pressure, obligation or desperation. So mainly sticks, with the hope for a carrot, and actual delivery of carrots to the tiny fraction who make up the unusually successful.

But wait! If money drives work and work is required to create technological innovation, then surely the money system is to thank for the advancements in technology which benefit all? No, this does not follow, because it is predominantly work that comes from certain needs and a certain kind of environment that leads to innovation. The competition fostering effect of money and the desire first to be free from debt then to increase financial wealth is effective at getting more productivity from people for simple, mechanical tasks. But the research indicates that financial incentive is counter-productive at helping people to be more creative and inventive.

As far as the money system being responsible for the creation of the kind of environments conducive to innovation (and therefore to be given credit for such innovation), it is more accurate I think to understand money as a gatekeeper of such environments being created. Just about every school or university was created with the exchange of money for work. But without money, the same human needs to understand, create and improve our quality of life would remain. Therefore it is reasonable to believe other ways of creating effective environments and conditions for innovation might be found, without the intermediary of money in conjunction with the legal framework of private ownership.

Looking at a higher organizational scale, of say a city or a town, when a useful project is proposed that would benefit a great many people, one of the first questions asked is "How much money will it cost?" But if the proposal was actually evaluated in terms of the real human benefits and the resources available for achieving it (along with other objectives) then the question should simply be "Do we have the resources?" In this way the money system can put a wedge between the needs of people, and their ability to meet those needs.

Imagine a city (and its supporting rural areas) where somehow all the money has been stolen, and the electronic banking system is malfunctioning. Essentially they are without money. Now all the same human and material resources remain in that city, along with all the same human needs for various kinds of work to be done and services to be provided. But now there is no money to pay for it. Since all the same resources remain that were allowing the work to be done before, in theory, most things could carry on as before. But because the societal system is money based, pandemonium would likely ensure (long before any import dependencies kick in). Now apart from this extreme scenario you can imagine there might be many cases (through accumulation of debt or lack of monetisation) where human and physical resources are available for doing some work which would benefit many people, but insufficient money, and so the work doesn't get done. Such cases clearly show an inefficient allocation of resources, disconnected with underlying human needs.

On a national and international scale, suppose that all the corporations at the forefront of energy, transport, medical and other technologies suddenly forget about protecting their patents and maximizing financial profit, and spend a year openly sharing ideas and pooling their resources in collaboration, purely to maximize human benefit, in an environmentally sustainable way. Imagine what genuine progress could be made without the diversions of jealously guarding secrets, litigating, and feeding the consumer machine through endless marketing, building in obsolescence and figuring out how to externalize as many costs as possible. There would surely be a global renaissance.

Without the constraining framework of carrots and sticks and economic growth, there is surely larger scope for growth in human development.

Working With Congruent Motivation

Let's talk briefly about the kinds of enjoyment that can motivate work. What non-financially associated needs can be satisfied through work? There are many, including: a sense of contribution, learning, inspiration, excitement, play and personal development. Where there's a social element intrinsic to the work, then needs for sharing connection, compassion, affection, support, nurture or humour may also be met. (If you mainly like work because that's where your friends are, then the work itself isn't primarily the source of enjoyment, and could in theory be substituted with other work, or even play, so long as your friends were there.)

If your motivation for working in intrinsic (the motivation is the work itself), then your thoughts and actions relating to that work will be more congruent, you will apply yourself more and thus be more productive. Extrinsic motivation leads to divided attention and narrowed thinking.

But what about the benefits of extrinsic motivation through money and competition for and within work? Accomplishment and recognition, winning against the odds, distinguishing yourself, one-up-manship, personal power. All of these satisfying outcomes can motivate some people to apply themselves to their work. While money promotes these satisfactions to the pinnacle of achievement, it does not own them. Where work and its outcomes provide reward enough in themselves, a tremendous sense of accomplishment and recognition can be felt. The motivating power of money as a status symbol and gateway to resources is certainly a cultural factor. But this power cannot compare to the power of intrinsic and congruent motivation, when it comes to productivity and innovation.

Of course when the whole purpose of your work is simply to make money, your motivation is perfectly congruent. Although most people are either not corporations or not working in the financial industry.

The implication of this section then is that to lead to more and better work being done by the people in a society, there must be more emphasis on helping each other to connect with intrinsic motivators, and much less faith in and emphasis on extrinsic motivators to prompt efficient, non-trivial work. Due to the inevitable disenfranchising, inequality generating and cost externalizing effects of the present money system, I see no way of realizing this outcome without some major changes to that money system.

It is people who can do so now, working with congruent motivation that will continue to add pressure for these required changes, which will then help more people work in ways that fulfill them more deeply and thus serve a greater good than someone's bottom line.

Key Points Raised About Economic Growth

In the context of the present money system economic growth is merely a means for and consequence of some people making more money. Any quality of life benefits are tangential, with diminishing returns, and unevenly distributed so that those whose quality of life would most benefit from increased financial wealth tend to get the least of it.

Often (e.g. war, environmental degradation, cure vs. on-going medication medical treatment, consumer machine marketing) there are clear conflicts between economic growth and human interest.

There is no one tide of wealth which raises all boats; in this system, the foundations of which adhere to classic game theory which pits one person against another, we are practically compelled to built our own little islands, piles of essential and non-essential stuff. If we want a substantially bigger pile we must leverage the work, land or resources of others (in present or future generations). If there is any tide, it is a tide of debt which periodically sweeps away those working at the bottom of the pile.

There is no such thing as a 'free market', only markets with varying types and levels of constraints, including property rights along with human rights. The drive to maximize profits creates pressure for economic parties to either change the constraints to give them a competitive advantage, or find ways of bending or breaking the rules without being found out. Thus regulations or state intervention does not disable or enable economic growth per say, more precisely it alters which parties can most easily enjoy economic growth and how.

While innovation fuels economic growth, the predominant culture and threat-focused, competition heavy mentality which arises from a society founded on the idea of making perpetual profit, is harmful to the birth of innovation (as well as to ourselves). Thus there is often a parasitic relationship between economic growth and the pockets of innovation that occur. Financial wealth being a gate keeper for resources which help innovation to happen should not be conflated with it being responsible for that innovation.

When harnessed by 'free market' forces for economic growth, new technology and innovation accelerates the rising inequality in wealth distribution, even though it can sometimes lead to an improved baseline of wealth, through passed on cost savings in production or distribution.

Economic growth does not necessarily mean more jobs, particularly where the growth is technology driven.

Looking Ahead to Solutions, and a Sad Narrative

So here we are again at the end of the (rather lengthy) blog, and still not much in the way of clear, systematic suggestions for a 'better way'. I think at this stage I'm about ready to start thinking along those lines though, so I hope to have some ideas to share with you in the next post. As part 1 may have indicated, my thinking is gravitating towards getting back to 'needs'. I'm also interested in what Elenor Ostrom (Nobel prize winner in economics) has to say on the subject of sustainable and efficient common pooled resource management.

I believe that part of any robust improvement to how we organize our society is having and helping to spread a clear understanding of how we currently operate, and what the issues with that really are.

I'd like to leave you with a thought, relating to the concept of a 'ruling class'. Without sinking into conspiracy theory land, it's clear that our socioeconomic system protects, favours and ensures the existence of people with vast sums of capital. Specifically, it inevitably leads to an on-going redistribution of wealth (despite the tax system) upward.

So much value and power is placed on money. Beyond physical resources for the mass-production of food, shelter and other goods, money controls the media through private ownership of outlets, selling of programming or advertising space and other less direct methods where money talks. Money to a large degree also controls politics through campaign funding, lobbying and various cozy yet unseemly relationships between those in the political and corporate worlds. Taking all those facts into account it appears thoroughly reasonable to say there is in fact a 'ruling class', whose power stems from money, and that there has been for quite a few centuries, or rather millennia.

To understand how we ended up with the society we have now, it may be instructive to consider the origins and values of this ruling class. Although I've focused a lot on the modern socioeconomic system of money, the origins of the ruling class can be traced back to the development of agriculture.

[storing of value, money and debt natural evolutions from technology of agriculture]

The more or less current money system and supporting legal framework in Europe came about at a time of relative chaos, hardship and violence. A time where political power was more routinely asserted with physical force, where light, heat and sometimes food were luxuries, and education was for the rich few.

The money system then, which aided trade and the accumulation of capital, could be seen as a reaction to protect vulnerable and rare privileges, a way of securing hard won safety and comfort for those few that had it. Beyond the drive for self-protection of course, the trappings of power which come with wealth are highly seductive, conveying high status and sex appeal. Naturally enough these trappings provide further motivation for those with power to act to protect and consolidate it. For the rest of society, the system acted as a yoke, to keep things in check and maintain a kind of order, with carrots and sticks. It harnessed labor to do what needed to be done for profit, which included improvements to infrastructure that over time brought benefits or means of support to many people. In short, the current system was a refinement of what came before it from the dawn of the agricultural age, with the same principles of concentrated power in operation.

In summary the development of the money system (and its precursors) imposed control over chaos and threat, by controlling most people, while empowering a few. This strategy for meeting the needs of the ruling class forms a narrative about the way in which order must be maintained and how progress is made. This narrative is built from a mistrust in people, especially those less well off, a preference for control or domination over others and threat-management over collaboration, a belief that material self-interest is the prime motivator, and a faith in money as the bringer of a better world.

This culturally ubiquitous narrative of the ruling class is reinforced by popular inclination to vilify that ruling class. Which is exactly why doing so is counter productive. It does not lead to lasting change, only sometimes new faces. Even while freedom may be the goal, fueling and engaging in conflict between one group or class of people and another is part of the predominant narrative; it lives squarely in a threat-focused mindset.

Sadly this is a narrative which has persisted through many generations, despite the technological and social backdrop of our civilization doing away with many of the original more desperate conditions which gave birth to the narrative. But a threat-focused state of mind can be addictive and self reinforcing, and when accustomed to wealth our baseline of what is 'enough' or 'normal' shifts.

If a new ruling class were to develop today without any ties to the old guard, if somehow all the present ruling class left for another planet to leave a clean slate, would the new ruling class vision of what must be done to bring about 'a better world' be much different from the old - would the narrative change? I think if the same financial institutions, banking system, economic policies and law which make up the 'money system', were present, then the answer is no. The reason is that the money system encapsulates and institutionalizes the ruling class narrative, or mind set. It would be hard for anyone who was bought to power by that system to be very ideologically contrary to it. Thus for the narrative to change, the system must change, not merely the people.

Incidentally, the ruling class narrative, now ingrained in our culture, naturally spans the mainstream political spectrum. Traditionally on the right is an emphasis on 'free market' economics, and the virtue of competition. On the left is an emphasis on social engineering, on battening down our ruling avarice, and enforcing rules and regulations, for the protection of the weak from the strong and themselves, as well as a broad acceptance in the money system as a power for good. On both sides there runs the underlying idea that people must be controlled (they can't be trusted), either through money and its harnessing of their greed for good, or through more direct political power to guide them along the right way.

So the thought I'd like to end with until part 4 is: Maybe we can all be part of the 'ruling class', by asserting authority over ourselves, as we search for a different narrative? Accepting that some of us are between a rock and a hard place, how much power are we giving away only because we believe in the old story?

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