Medium – Is Growth Necessary for a Thriving Economy

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Believing something you know not to be true, is one thing, believing something you believe to be true is quite another, and it’s at this end of the make-believe spectrum that Douglas Rushkoff takes up his enquiry into the dismal science, in his new book “Throwing Rocks at the Google Bus.”

Over the last few years there has been a flush of books by heterodox economists looking to make sense of a huggermugger economy where multi-billion dollar pseudo-valuations are placed on tech companies with no discernable operating profit, where other companies sit on huge piles of cash without investing it, or paying much in the way of tax, and where middle class Americans haven’t had a pay rise in real terms since 1990.

What makes this book a valuable addition to the genre is Rushkoff’s self-confidence in asking seemingly naïve questions — “how is value created”, “where does money come from”, “what is the purpose of the economy” — coupled to a hacker’s perspective and written in a tone that is humanist and relatable. After all, what is economics if it is not about people and what we decide to do with each other?

Hannah Arendt wrote of the vital importance of a durable human world designed to provide a stable setting for our common existence and shared common sense, without which we are only our individual needs and desires. This is a core theme in Rushkoff’s book and what makes it interesting is that his approach is more from the front lines, looking at how to reprogram the economy from the inside out, organized around the idea of ‘digital distributism’, which harks back to the democratic ideals of the early internet, while grounded in his thinking on the present.

He writes, “what sacred truths must we be willing to reevaluate?” If like me you left college with a conventional economics degree, you could start with these three axioms.
When individuals are left to make choices in their own interests, scarce resources are allocated efficiently, via the price mechanism, and a competitive marketplace runs smoothly. That economics might also involve imagination, creativity and human motivation — all the interesting stuff in life — can’t be plotted on a chart so it wasn’t part of the model. Put another way, simply consider whether fossil fuels are being “allocated efficiently.”

Governments should not interfere in free markets because they just drag the whole thing down with tiresome regulations and put a damper on entrepreneurial vigor. You’re reading this on the internet, perhaps on a touch screen, wireless, GPS enabled, voice activated device, all of which are core technologies initially funded by the US government, thereby creating new markets and liberating entrepreneur’s. Without which there would be no Apple, Facebook, Airbnb, Amazon or Uber. Governments step in early when it’s too risky for private capital e.g. wind, solar, battery tech. And when we, the taxpayer, make a $500m loan to Tesla why don’t we keep some shares? As for regulations, those are hard fought for protections that give you recourse if you’re in an accident while a passenger in a taxi, or a guest in a hotel, or an employee.

A thriving economy is a growing economy, it must grow because that is how we create jobs and prosperity. Growth will be calculated through GDP, the increase in the value of goods and services sold in the monetary economy, simply put the amount of money changing hands each year.

Which makes sense if we all get lifted up in an economy where your spending is someone’s wages and their spending is someone else’s wages and so on. So why then is median income falling?

We’re caught in a growth trap that serves some people very well and a lot of people poorly. This is a key part of Rushkoff’s critique, he identifies that our economy was designed to expect it, then require it, and now demand it. How did this happen?

1. Money is created by banks through debt at interest and there is no other way to pay off debt with interest other than with a growing economy. Rushkoff entertainingly traces this back to its roots in 13th century British aristocrats hiring sophisticated Moorish accountants to fix the emerging money market back in their favor.

2. Companies are routed to shareholder value, and to deliver shareholder value you’ve got to increase profits. Sure, there are some developments here from long term ‘patient capital’ to Unilever renouncing quarterly returns in favor of its ‘sustainable living plan’, but no one is seriously suggesting we disrupt the current economic system. Why not? Schumpeter said the essence of free market capitalism is ‘creative destruction’. If you believe in free markets and free enterprise but not the owners of capital being the exorbitant beneficiaries of taxpayer handouts now seems as good a time as any for a new operating system.

3. To increase profits companies look to create efficiencies through workforce productivity, more work from less hours, therefore we’ve got to grow the economy to create new jobs. Except the paradox we face is record productivity and falling jobs, which will only widen with the rise of automation. As Rushkoff writes, “if we can separate the notion of employment from that of making a valuable contribution to society, a whole lot of new possibilities open up for us.”

4. You might add other more political reasons to do with power, every country wants to rise in the GDP report card, or more aptly every politician wants to be in the group shot with the leaders of the G20. And, there are cultural reasons too, such as the meaning of work that date back to Luther’s idea of vocation and Calvin’s thinking on predestination.

Can we get out of this trap? Pessimistically, we can passively sit back as business-as-usual builds a profoundly dehumanizing model, and this is what Rushkoff sees happening, unless we take back democratic control. More optimistically, it’s up to us, we have to decide what we are programming for. How could we develop a system that rewards people for creating value rather than extracting it? What can we do better than the technology we create?

Rushkoff spends around half the book investigating money and investing. There is a fascinating story about a tech entrepreneur who deliberately set out to game the venture capitalists, who are of course also gaming the start-up market in their futile search for unicorns. As you’d expect for a tech writer his thoughts on Bitcoin and alternative forms of finance are insightful, I was left with the impression that Bitcoin is a brilliant answer in search of a the right problem to solve, I don’t think this undoes his call for being clear about what we are programming for, because the inherent values in Bitcoin are the right ones. It just remains to be seen where it will end up. In an economy that requires debt, a currency with a fixed supply is not going to replace the Fed.

One thing is clear in the book, digital technology is going to have profound effects on what we do for work, and what we will recognize as work. Which then of course has profound effects on how we design the company of the future.

There is an anecdote in the book when he remembers some years ago working in an office where an attractive receptionist took his fancy, unfortunately before Douglas had a chance to ask her out she was replaced by a machine.

The moral of this story is the surplus theory of value, something that I should point out is not taken seriously by present day orthodox economists, perhaps because its author was Karl Marx.

But, it goes a long way to explaining very basic concepts such as where does value come from, and the moral ideas that underpin the economy. If you’re currently employed, the difference between your wage and the price at which your employer sells your labor, is the surplus value. In a competitive consumer market there will always be downward pressure on prices, so the employer will always look to increase efficiencies i.e. replace you with a machine or buy cheap labor. You can experience it yourself everyday, any kind of waiting in line on a phone or using an interactive menu and you’re donating surplus value to that company.

It’s a useful mechanism to understanding the value proposition of most tech monopolies and the concealed labor within them, the lowly serfs sifting for offensive images on Instagram to keep it clean, and millions of other click workers who “invisibly help computers and Web sites create the illusion of mechanical perfection.” Through to the economy of likes and swipes, meaning your social life converted into ad dollars. This might not be different in principle to commercial TV, except if you look at the numbers, as he does, they don’t add up.

At the heart of this is the (false) promise of the full data set a.k.a. Big Data. Sweeping away sampling issues and respondent veracity to a brighter future of capturing actual consumer behavior, subsequent predictive probability, greater certainty, and therefore improved efficiencies and productivity — a familiar ‘value’ story. Knockers will say it‘s demand manipulation through data surveillance, advocates will say it’s enabling better choices, spinning the wheels of commerce, ‘empowering the consumer’ etc. etc. This is the same argument Vance Packard et al had with Ernest Dichter. However it’s worth unpacking in the modern context to see if there is anything new in the box.

Within the marketing industry Big Data, behavorial economics, nudging and persuasive technology all appear to swirl around each other as the current big thing. Finally, cry the marketers, the economists have discovered what we knew all along, people don’t make coolly considered rational choices, it’s all rather unpredictable, but hang on, we’ve codified this unpredictability to make it more predictable. This is starting to sound like the financial sectors concept of ‘riskless risk’, and we know how that ended.

A few years ago I spent a couple of days at Stanford’s Captology Lab learning the in’s and out’s of their behavior change formula, which I was told was ‘probably as important as E=MC2’, and something about how it could spell ‘the end of the brand’. I wasn’t too sure at the time so I kept my own council, but on reflection the conviction of behavioral triggers appears doubtful.

To be frank, back then, I didn’t know anything about BF Skinner, but now I find it difficult to see how current thinking is any different from his experiments rewarding pigeons and the theory of ‘operant conditioning’. Much of what passes for persuasive communication online is just treats, rewarding us to be good little consumers. There is a moral issue here though, as expressed by the philosopher Lewis Mumford, in that, a system of compulsion based on rewards is another kind of hell, of course different from a hell based on punishment, but in his opinion a worse kind of hell because we would think we are in heaven.

Economics isn’t just about technicalities and measurements, buried below the surface are deep disagreements in moral issues that often get skirted around. For instance, will health insurance companies crunch Big Data to offer cheaper premiums to healthier people, who will be most likely wealthier than relatively unhealthy people? Is that your idea of social justice?

So what to do?

There are clearly many, many alternatives to business-as-usual, none of which are a return to state socialism. Under the theme of the ‘steady state enterprise’ Rushkoff runs through a whole bunch of existing projects and company structures. From the nascent B-corp movement to direct public offerings, from hybrid corporates (although he doesn’t mention it think circular economy) to non-profits.

Some feel like a middle ground solution, the B-corps and ‘natural capitalists’ of the world and I think this is to some degree driven by your own starting point. If you’re coming from a traditional MBA background, or you’re in the corporate sector, then you’re going to work with what you’ve got. I just wonder whether in their genuine desire to be seen to be making changes they might win a battle but lose the war.

For instance the great promise of decoupling resource use from growth appears to be an illusion, if a recent paper by the National Academy of Sciences is right. Or, when Keith “Twinkletoes” Weed, from Unilever, gets up on stage to eulogize about their sanitation campaign and advertising soap on roti’s, this sounds to me like philanthro-capitalisms latest attempt to ameliorate a structural fault in the economy, while at the same time suggesting there are some things governments can’t do. True, I’m just not convinced basic sanitation is one of them.

Of the examples Rushkoff presents workers coops are something I know next to nothing about but found the most intriguing, they could be, like universal basic income, an old idea who’s time has come. And, if you’ve got an aversion to authority and hierarchical power structures what’s not to like!

Coops of course come with their own set of considerations, its been shown that in replacing the traditional pecking order a new one emerges around some set of shared cultural values, in other words cliques form. In Greece, a country with a long history of coops, they developed a reputation for corruption. I’d be very curious to know what the progressive lobby think about renowned workers coop, Mondragon, and their common ownership of gun manufacturer BPI Outdoors based in Georgia.

Coops face a host of challenges, from getting financing to competing in an economy not designed for them, and a host of regulatory and legal requirements. Bizarrely American anti-trust law is tipped against them because it focuses its ire on cartels more than monopolies, meaning even with the best of intentions cooperation amongst smaller players in the marketplace can come up against the law, as we saw when publishers took on Amazon.

I’m sure there are other hurdles but these just go some way to explaining why there are less than fifty workers coops in New York State, all pretty small. This does not include consumer organizations like food coops, utility coops, or financial coops.

Perhaps the drive for platform coops could change this; Fuse Labs, Stocksy, Fairmondo, La’ Zooz, Members Media, Resonate, Loconomics. Are all examples of coops where ‘digital distributism’ could scale them into a mainstream economy.

So if this is the direction for tomorrow’s economy how do we move people there, how do we make this outcome more desirable than where we are today? What is the strategy to change the ideological fabric of a nation?

In ‘Sapiens: A Brief History of Humankind’ Yuval Noah Harari writes, “…we might soon be able to engineer our desires too, the real question facing us is not ‘What do we want to become?’, but ‘What do we want to want?’Those who are not spooked by this question probably haven’t given it enough thought.”

Fifty years earlier, in ‘Strategy of Desire’, Ernest Dichter writes, “the basic material with which the battle of human progress must be fought is human desires.”

For this reader this is the piece that is missing, not so much from this book, that would be unreasonable, but from new economic thinking in general. It seems to me the sustainability conversation often falls back to “focusing on real needs”, whatever they might be, while sidestepping the complication of our desires. The latter being, as Adam Phillips described them, a “peculiar species of hope…the future in all its indescribable promise”.
One thing I’m sure of, a compelling emotional story beats rational argument every single time. Perhaps this is a story of liberation and the next step is to figure out how to articulate that in order to “facilitate its acceptance by those who cannot be made to listen to reason in any other way”.

Postscript: Having sat in this for a couple of days I felt I hadn’t directly answered the question in the title, ‘Is growth necessary for a thriving economy?”. I think the answer is nuanced, when is it not, in the sense that GDP as it is currently measured is part of the structural problem. So one answer is change the way it’s calculated, Diane Coyle is an expert on this. Another answer is there is a “good growth” and there is “bad growth”, e.g. investment in green energy is good growth that boosts GDP. And regardless, there is a moral question I did not think about, which is, how can we justify no-growth when hundreds of millions of people are without electricity? So it’s complicated but all the same what this book and others made clear to me is that we need a new operating system and that tinkering with the model is just pretense.