March 14, 2006

For years now I had been wondering about a few disjointed, seemingly paradoxical realities of our modern society. Why, in a universe where energy and mass and momentum and the very fabric of spacetime all works toward an ultimate, entropic balance, should the economy be the sole exception? Why, with all our resources, human and material, can we not seem to sustain a quality space programme? (We seem to have managed it quite adequately when it was just another branch of the Cold War.) Why are hospital floor staff and researchers perpetually short of money, but hospital shareholders reap steady dividends regardless? Why does a dog-in-the-manger patent trump the active implementation and vitalisation of a new communicative technology, and nearly end up destroying it? Why are employees of a plant, who had willingly taken cutbacks when times were difficult for that plant so as to keep it alive, almost never re-compensated to their previous level (even without allowing for inflation) when business for that plant is once again booming? How is it that these experienced and skilled employees are so easily sideswiped by contract and temporary employees; and then so often find themselves also temping, at a fraction of their previous wages compensating exactly the same (or even higher) skill level? Why do farmers, growing more crops more efficiently than ever before, consistently find themselves so heavily in debt that they require government subsidies to survive, and so often end up having to sell off their farms even so? Why is it that money seems to have become such a negative mirror: that, where money is, skills and other resources seem not to be?

I think, just maybe, I might have finally found an answer. What I am about to propose flies in the face of all conventional economic theory, of whichever polemic: in fact flirts with rank heresy.

Banks don't create wealth. Banks redistribute wealth. The illusion of creation is caused by a hidden de-valuation of raw goods and labour.

Among the very first economic truisms demonstrated to me, in my academic introduction to formal economics, was how a structure based on credit and loans, with only 10% or less of the value of that loan on deposit to back it, could keep generating new wealth indefinitely. Thus banks -- and their children, stocks, bonds, buying on margin, venture capital etc. -- are the primary generators of wealth in a modern economic system; with maximum wealth invariably generated in a laissez faire partnership with private enterprise. With no ceiling and no artificial restrictions, nothing other than a human being's own willingness would stop the indefinite and infinite generation of wealth -- systemic wealth, for in this theoretical structure individual financial success generates new wealth for everyone in the system, most commonly by creating jobs. (Specific variants of this basic concept have been sometimes termed "trickle down" theories of economics.)

Such creation of jobs does not, however, increase the overall system value of jobs. In fact, the highest levels of job creation are consistently in two areas (service, assembly-line manufacture). As one example of how this works, consider the influx of the automated teller machine into the marketplace. Consumers loved its instant and easy availability of funds; even though it often came with a heightened service fee and definitely with less personal security than one would find in a bank. They acted to replace tellers and bank personnel with a few centralised paperwork operations and a single human computer monitor for all ATMs of a single bank within a given city ... and, having worked after hours in such a centralised facility (no windows; people on the street who didn't know what it was kept thinking it was a prison), with several such monitors in the past, I know that their salaries did not rise proportionate to their responsibilities: but remained startlingly close to minimum wage. The bank cuts labour costs by getting consumers to do more of their own labour and centralising what remains, with no raise in monetary compensation to reflect increased value. They can't negotiate it either: there are always more people available with the appropriate, minimised skills, than there are such jobs. Additionally, many of the "new" jobs are created under limited-time government incentives: and thus, in addition to coming with no job benefits, have no long-term security whatsoever. For all intents and purposes, regular labour is increasingly becoming contract work.

Nor does money solely, primarily, or perhaps at all any longer serve its original function of "fixing" the value of labour or goods. (I use "fixing" here in the sense that a legume "fixes" free nitrogen in the soil into something organic, and thus something which can be used by other plants: a backbone of crop rotation.) Instead, what money primarily "fixes" now is a conglomeration of time and distance -- appropriate, for an understanding of world and universe built upon the concept of spacetime. Thus, money no longer stores value in the sense that value has anything whatsoever concrete behind it, in the way that raw goods and primary skills are translatable directly into something that, for example, is nourishing. It can be used to purchase such items or skills, but this transaction is based solely upon the mutual trust of both parties that money, as the symbol of "value", will continue to be so (at a similar rate of exchange) in the future. For most western societies, such stability has been the case for enough decades that we have by and large completely forgotten that this essential level of trust is actually necessary. A very few, however, have experiences with hyperinflation or close approximations thereof, where money was eroding in perceived value almost more quickly than it could be printed: Argentina, Israel, and especially between-the-wars Germany come to mind. Money is a second-order symbol, ultimately relying on a confidence that the possessor of money will always be able to exchange that money for a certain value of skills or goods, modified only by a rate of inflation somewhat less than 10%. Without that confidence, money is worth only its own weight in metal or fuel.

In parallel with this shift away from symbolising labour and raw goods comes an increased focus on interest, dividend, shareholding, management sciences, and venture capital. This is no coincidence.

As money increasingly shifts away from being a marker of labour or raw goods value and toward being a fixer of distance and time, the capitalist ideal becomes no longer to personally work for one's money but already to have acquired (inherited) it, whether or not through one's own efforts (and thus let the money itself do the working); or, alternately, to have others doing the labour and to personally live off the proceeds of that labour. The most gifted, skilled, and public draw of a teacher-researcher-doctor at a teaching hospital will not, cannot, earn anywhere near the salary and perks of the least of its administrators. At this point in time, the cold fact is that, no matter how gifted one may be at one's job, however necessary that job may be, one can never get rich at it ... unless that job happens to be either in some variant of business or financial management; or in (crowd-pleasing/"bread and circuses") arts/entertainment/sports, this kind of talent being absolutely unique to the individual, and thus absolutely non-delegatable.

And even here, in the realm of popular and crowd-pleasing talent, the value of labour is constantly eroded. Romances and other popular fiction have been reduced from the levels of Pride and Prejudice to regular assembly-line production farmed out to as many authors as possible, every piece to be written to the same template. (Over a million books are currently in print in the English language alone -- and how many pages of newspaper? -- certainly enough that the consumer need never bother to re-read anything , let alone seek in it for any depth.) Reality shows are produced for the cost of the filming and the set, with by far the greatest percentage of expenses, cast and writers, having been neatly dissected out: increasing talent pool numbers (and thus decreasing individual monetary value/expectations) both through non-use in this setting and through the show's implication that its "cast" and "writers" have now become part of that pool; while at the same the audience-consumers of reality shows are conditioned to a lower standard of "acting" and "writing". In a culture of youth, time and age by itself takes care of reducing and removing the vast majority of sports and entertainment stars before they can see a return on their personal investment of self comparable to their contribution.

Even the great innovators and inventors of our time cannot become rich without themselves becoming business managers, or otherwise diluting the value of one's own, personal invention to the benefit of those who already have the money and wish to make more of it. To fulfill the capitalist dream, one must have a natural, crowd-pleasing talent which either cannot be diluted by time/age/technology/labour pool quantity/lowered consumer standards, or one must engage in speculation.

Thus the capitalist ideal is no longer tangible innovation but to find a way to benefit from the labour of others. Meritocracy cannot enter into this equation, not when money no longer fixes the value of labour to society.

(A common counter-argument here is that in a free, capitalist meritocracy, one can always choose to follow a different path, one that society finds more profitable. I invert this argument: the true merit of a person's position in society being reflected not by its monetary compensation, but rather by how well the society would be able to survive if that particular job were to vanish, while retaining the overall societal structure. I specify that second to allow for the vanishing of jobs such as gaslighters in an electrical world. But I ask you to imagine a world without farmers, or without nurses, or without sanitation and electrical workers, or without teamsters and dock workers. How long could any city survive? Are these positions really worth a tenth or less of the average executive? Is the value of these life -vital positions so much less? Just maybe, perhaps: financial reimbursement does not accurately reflect societal value after all?)

Both labour and innovation (where it is not only an innovation in financial manipulation) are consequently and consistently devalued. Wherever possible they are made:All of these act to steadily erode and gradually destroy the value of labour as it translates into monetary terms. Suffrage came into popular acceptance not with a shift in public values but with the necessities of war (one of the great drivers of modern capitalism: both in how its destructive nature increases consumption; and in how the drive to win quickly becomes a technological race): but women were allowed to remain in the workforce after the war -- despite the jump in unemployment for returning troops -- because they were willing and even expected to work for less, then ... something that still has repercussions to this day. Consider: if a quick drop in post-war unemployment had truly been sought, it would have been a very straightforward matter simply to keep some pieces of discriminating legislation on the books. (During times of higher unemployment, public sentiment of the empowered majority always slips toward favouring discrimination in employment, a trend commonly echoed in membership numbers of racist organisations: yet, because they can be paid less, the actual numbers of lesser-enfranchised groups employed never decreases. They can be paid less, and thus the current economic structure needs them.) Even tenure, that stand-by of academic freedom, is steadily being trimmed to favour part-time specialised lecturers and researchers: as well having the useful side effect of placing limits on academic freedom among precisely those most likely to be able to make fullest use of it. Even unions, at a basic level, contribute to this pattern. Economic theory demonstrates how unions -- in fact, any attempt to organise, sellers or buyers -- reduces the net monetary value of the economy ... but a significant percentage of that "loss" is only a clawback from what would otherwise have been (re)generated now almost entirely at the venture capitalist/stockholder/interest level.

This persistent devaluation of labour has to some extent been disguised by inflation: but is instantly stripped naked in any significant recession, or depression, or whatever you choose to term the current globally lopsided stagnation-boom.

Shift all of these trends to a global stage, in an increasingly globalised market in which labour and raw goods can be constantly devalued, de-"wealth'ed" by the simple agency of corporate shift of labour and other supply-side resources to the poorest parts of the world: allowing the monetary value lost at this end to be translated into shareholder pockets ... without actually raising the level of wealth in either supply-side or consumer nations, something recently touched on by The Economist:
Companies are no longer tied to the economic conditions and policies of the country in which they are located. The world's 40 biggest multinationals now employ, on average, 55% of their work forces in foreign countries and earn 59% of their revenues abroad.
The Economist's focus of concern is that this situation -- which seems to create large corporate profits without raising the standard of wages or hiring in traditional consumer countries, might result in more government intervention: always undesirable from a laissez faire capitalist perspective.

But -- why should monetary wealth be the one exception to the universal constant: that, within a closed system, the essential mass/energy momentum of the system must always be conserved? Wealth, too, is conserved. Unlike money, it does not arise from nothing. In a closed system, there is a fixed amount of resources and labour (and a closed system can allow for expansion, eg. population growth); along with a multiplier (asymptotic? although I see the function more as a bell curve with a tight peak: having a defined maximum and with the x-axis denoting a subsistence level of efficiency for the then-current population) denoting de facto increases in "amount" through increased efficiency: and the area under this curve would represent the total value of the system -- not in monetary terms, but in what we can actually access to sustain our lives and benefit our standard of living.

I say that -- in a closed system -- because the only morality of corporate capitalism is profit, the modern corporate capitalist structure itself cannot but create a devaluation of labour and raw goods to the profit of the shareholder: and that globalisation (especially in the sense of rapid information flow) has only accelerated this process. Ask any producer of raw resources, anywhere in the world (including the First World!): and you will find that in the monetary translation required by a global marketplace, the real value of those resources has been sharply reduced. Why should it be otherwise? Capitalism has no responsibility to anyone except shareholders (who, originally, were one and the same as those supplying resources and coming up with the innovations, but no longer); and thus cultivating a market no longer equates with benefit to anyone except those shareholders: not those who provide the raw goods, not labour ... even not the consumer! Why develop a market one cannot oneself fill? Why should a pharmaceutical company pursue research into actual cure or even prevention (of, for example, any of the forms of cancer), when research into continuing treatment with continual possibility of relapse is so much more profitable? Why discourage debt-based consumption? even if the debt is borrowed against future generations? It is not only French farmers who find that they increasingly require government subsidies simply to break even: a downward spiral that can have no end, and which much of the world simply cannot match.

But government subsidies to farms that produce more than enough food to feed themselves should not be necessary!

("Should", I say specifically. The fact remains: translate the output of a farm into monetary terms, taking away the overhead and per unit costs; and the money generated thereby will frequently not be adequate even to cover the cost of living.)flow of money: link edited to cite direct example from a later story

Insularity -- the slogan of "buy domestic" -- to some extent acts to protect producers of raw resources globally : for it forces everywhere a tighter supply line between production and consumption, and consequently far fewer wholesaler tiers and far less outsourcing. Direct-labour products rare in one market would be far more likely to be valued appropriately to that rarity; rather than (as is currently the case) devalued in an illusionary cornecopia where everything is constantly available to the consumer because of top-level direction of specialised mass-production. Globalisation benefits -- in fact is essential to -- the continual rise of share prices: for continued profits in this model, at the level to which shareholders have become accustomed, absolutely require a continuing (and preferably steep) differential between the local economies of the supply side and the shareholder side ... but, interestingly, not the consumption side. All that is required there is that there be some profit after per unit and overhead costs have been deducted. Sheer volume can easily make up for small margins ... which, since overhead and utility costs are relatively non-flexible, are most readily increased by cutting, wherever possible, the basic labour and raw goods portion of the per unit cost. Any rise or threatened rise in these last two thus cuts directly at potential profit, and thus at shareholder dividends. The carrot of potential wealth beyond basic subsistence levels must always be held out to labour and suppliers of raw goods -- or else we have drifted into slavery in fact as well as de facto -- but the ideal is to not allow more disposable income than can be returned to the tip of the pyramid, the shareholders.

For, in a closed system, capitalism is a pyramid scheme, concealed, thus far, behind the curtain of infinite frontiers. The idea of everyone involved in a closed capitalist model to grow richer together is a pipe dream. For a capitalist model to be self-sustaining in a closed system, there must always be a devalue-able source for raw goods and labour: be it local or a country halfway around the world. One sees this reflected in doughnut cities and retail death around malls and the increasing erosion of the middle class, even in the increasing wealth gap between the generations. Worth noting, in this context, that the demographics of most developing countries are proportionately young : and that youth -- even highly skilled youth -- are disproportionately represented at the raw labour level in every country. Until recently, we hid this part of the pyramid behind the curtain of Experience ... but now, as western populations age, we are starting to see it creeping up to affect even the youngest of the baby boomers. How often have we heard that someone is considered by employers overqualified, or, alternately, too old to be worth investing in? but, apparently, not too old to be re-trained into an isolated-skill, dead-end job. The curtain of Experience is starting to look rather tattered.

Ironically, even unions buy into this pattern: their higher wages/benefits end up pulling from those of non-unionised labour.

But the sheer busy-ness of our lives serves only to obfuscate ... and (let's face it) we really don't want to look too closely at this in any case. We don't want to know that the vast majority of us are getting nowhere -- or even sinking -- fast. We suspect uneasily -- and quickly set it aside as we go rushing through our lives: impatient red lights, time-saving gadgets, assembly line paper-make-work, container ships arriving, trucks leaving (their drivers often running hand-to-mouth), each level of busy-ness adding another tier of raw goods and labour de-valuation upon which to pull out "new" wealth -- the whole disguising that exactly the same transactions could be done, locally, at far greater recompense to the labourer/creator/supplier of raw goods, at far less cost to the buyer. The current relative "cheapness" of processed goods comes only because, in a global environment, shareholder cultures have found a way to de-value the raw goods and labour of other countries. The last tiers of any pyramid, in a closed system, get burned.

Are we willing to have it any other way?

Comments:
Your theories are fundamentally flawed, and your communist propaganda has been taken note of!
 
Curious interpretation, considering there is not a single statist note in the entire essay. Perhaps you have some different understanding of communism you would like to share?
 
You might find this interesting:

Will Wilkinson's post "Health Care Fantasia"

http://willwilkinson.net/flybottle/
 
Be a sport and tell us what the "other way" is...
 
Why assume that there can be only the existing path, and maybe one other (soon to be discredited)? Are you a creative human being, or an ant?
 
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