27 July 2011

Factors of Production and Fictitious Commodities

When economists address the issue of the production of goods they begin with the concept of ‘factors of production’: these can be thought of as akin to resources, but fundamental productive resources that are necessary to make anything that can later be sold in a market. This is important because, as Polanyi pointed out, labour is not labour until there is a labour-market. Before this momentous transformation people are people or citizens or even workers, but not labour.

Land also undergoes a transformation when it becomes available for sale in a market, although it does not undergo a change of name. What an economist means by land, however, is not what the layman means by land. As a factor production land includes everything that can usefully be extracted from land (including from deep beneath it) to become part of a productive process. Thus ‘the economic notion of resources is strictly anthropocentric. That is, the economic value of any resource is defined by human needs and nothing else’ (Hussen, p. 4). There is no space in this definition for land to have a spiritual or relational importance, what economists would call an ‘intrinsic value’, as it does for many indigenous people, who see the land as their mother.

Polanyi referred to land and labour as ‘fictitious commodities’. Real commodities are ‘objects produced for sale on the market’. Land, by contrast, ‘is only another name for nature, which is not produced by man’ while labour ‘is only another name for a human activity’. To refer to these basic economic elements as equivalent to goods that were produced specifically to be sold he considered to be a fiction.

The third conventional ‘factor of production’, capital, confronts us with even greater definitional problems. Within a market system, some additional force is required to harness the two fundamental factors into useful production: this factor is capital. In everyday discourse, capital might be considered as akin to money, but again it has a different meaning for economists:

‘Capital refers to a class of resources that is produced for the purpose of creating a more efficient production process. In other words, it is the stock of produced items available not for direct consumption, but for further production purposes. Examples include machines, buildings, computers and education (acquired skill).’ (Hussen p. 4)

This is a somewhat confused definition combining intermediate goods and plant with human capacities. Shann Turnbull has suggested that instead we use the phrase ‘procreative assets’ for this type of capital. But any definition along these lines excludes the consideration of money and the power money conveys to acquire productive resources and to encourage people to work to transform them into products.

For Polanyi money was the third basic element of economic production: he addressed the issue of money directly and considered it ‘merely a token of purchasing power which, as a rule, is not produced at all, but comes into being through the mechanism of banking or state finance’. Land and labour are both fictitious commodities in the sense that they are not produced directly for sale, but money is surely an even more fictitious commodity since it is called into being to enable exchange and is maintained by credibility. It therefore has the strongest claim to be a fiction.

Hussen, A. M. (2000), Principles of Environmental Economics: Ecology, Economics and Public Policy (London: Routledge).

24 July 2011

Work, Land and Provisioning

When systems of industrial production burst onto the British landscape in the 18th century they represented a break with a timeless pattern of social and economic life: it is this fundamental change in the relationship between people, their land and their systems of provisioning that has led to this process being termed a 'revolution'. In the 250 years since the advent of industrialism this system has spread geographically and across the productive sectors. It has brought extraordinary technological innovation paralleled by unimaginable improvements in lifestyle and longevity. While the yields of this system have been apparent and immediate, the costs have been more diffuse and have taken longer to express themselves.

In the book I am writing about the Bioregional Economy I am considering how the relationships between employer and employed, and between labourers and the resources they work with, changed as agricultural production gave way to industrial production. The complex social networks that typified production in rural communities that had changed little since feudal times were replaced by market exchanges.

In redefining an economy compatible with sustainability we need to reconsider the creation and distribution of goods and services within a market system but taking the achievement of sustainability to be the most important guiding principle. However, it is important to question whether this market system is the most conducive to achieving sustainability, or perhaps at all compatible with a sustainable future.

The achievement of an equal and sustainable society raises questions relating to 'provisioning', and economy that enables people to meet their needs directly, without feeling constrained by the strait-jacket of the market ideology. This may be considered to be a utopian project, but I would rather concur with Polanyi in his suggestion that it is in fact the ideology of the free marketeer that is utopian, in fact not merely utopian but dangerously so:

'the origins of the cataclysm [the Second World War] lay in the utopian endeavor of economic liberalism to set up a self-regulating market system. Such a thesis seems to invest that system with almost mythical faculties; it implies no less than that the balance of power, the gold standard, and the liberal state, these fundamentals of the civilization of the nineteenth century were, in the last resort, shaped in one common matrix, the self-regulating market.' (Polanyi, The Great Transformation, p. 31)

While the precise forms of the institutions has changed since Polanyi wrote his masterpiece in 1944, his central point remains: that they all collaborated in the underpinning of a unified system with the market economy at its heart. Like Polanyi, I would challenge this totalitarian approach to economic life.

21 July 2011

Green Welfare

Why should we look after each other? Why should we have a concern for each other's welfare? Today we launched Green House, an environmentally focused think-tank and one of our initial papers was on the theme of welfare. What we found is that welfare systems have a range of different motivations.

In Britain we have never had a welfare system that was motivated by our commitment to care for each other; rather our system is focused on the labour-market. Pensions reward people for service to the economy; sickness and unemployment payments support people while they are temporarily unable to work; and more recently child tax credits support women with children also being part of the labour market. Our welfare system is designed to support a growing economy rather than a happy society.

In the paper we re-imagine a welfare system designed to ensure real social security, while recognising that we have an ageing population and that our economy has to stop growing. This takes us to several controversial conclusions:

- the close historical connection between welfare and the labour-market should be broken;
- the idea of an official ‘retirement age’ should be abandoned, to be replaced with a more flexible approach to social contribution and dependence through the life-course;
- we should re-open the discussion about the usefulness of a relative definition of poverty in the context of a limited planet.

This is not a prescription for a nanny state: quite the reverse. We suggest that citizens should be given the skills and assets they need to provide better for their own security, either individually or within local communities. A green economy would be based on strong local economies and sustainable livelihoods and we argue that such an economy would, in many respects, reduce the need for a costly social support network.

Finally we welcome Iain Duncan Smith's suggestion of the need for a universal approach to welfare, but we take this suggestion more seriously than he dares to by proposing the introduction of a universal payment—a Citizens Income - paid to all citizens of the UK as a right and without work-based qualifications.

The debate about welfare is dishonest and divisive: commentators focus on the tiny number of so-called welfare scroungers when the overwhelming majority of welfare spending goes to the increasing number of pensioners. Most importantly, from a green perspective, we ignore the way that defining poverty assumes, as well as requiring, continuing economic growth which cannot be maintained within the fixed limits of the planet.

14 July 2011

The Joy of Lean Logic

Shaun Chamberlain, the self-styled Dark Optimist, has provided a tribute to his friend and mentor David Fleming, the green economist who died at the end of last year. He has painstakingly seen through to publication David's masterwork Lean Logic.

I find this a rather bizarre coincidence, since I was sifting through my sheet music over the weekend and came across my ring-bound copy of one of the many drafts that the book went through during David's life. He found it hard to give it up for publication, and it was also typical of his style that more of the bulk of the book is taken up with definitions and notes than with the book itself.

But this is the very beauty of it: each definition perfectly honed like a miniature, capturing David's wisdom and understanding. There is something that strikes me as Japanese in this. Western culture might consider it misguided to focus on the detail, but this is what David did so expertly, and no doubt why he was right about so many things. Here is a wonderful example - David's definition of 'Tactile Deprivation':

'The loneliness, coldness and lack of communication in a society which, owing to anxieties about its abuse, has largely lost the language of touch. At the same time, we are losing the touch of language, for language began as a replacement for grooming and, with careful, gentle articulation, it has mildly erotic qualities, making speech a true heir to grooming. It works best when you take your time, travelling hopefully rather than being distracted by arrival. Community will be held together by touch and sound: soporific, inspissated, stretch, Limpopo. Slow and atthttp://www.blogger.com/img/blank.gifentive is best.'

I do doubt the political or even social value of the concept of 'leanness', which seems so close to meanness and reminds me of the frugality that was once made the unbidden title of one of my own papers by well-meaning green editors. We might be just about able to sell thrift, but frugality and leanness are not going to win people around to our vision of a no-growth economy.

In fact, I also have objections to logic, but let none of this detract from the extraordinary achievements of David's life, now celebrated by Shaun on a dedicated website. And please buy this book and keep it by your bed alongside the sayings of the Dalai Lama. While David may not have reached his level of contemplation he knew a great deal more about economics.

13 July 2011

Repudiating Odious Debt

The frustrating reality of the situation we face in this unwarranted Age of Austerity is the difficulty of turning the anger against the banks and the unwillingness to pay for their corporate corruption into meaningful political action. While it seems unglamorous the answer may be to establish a national Audit Committee.

This idea comes from Ecuador, where President Correa was elected in 2005 to preside over an economy which was oil-rich but whose wealth was being drained whose people were left in poverty because 50% of national income was being spent on servicing foreign debt. The Audit Committee was established to investigate who were the creditors and how they had persuaded the former politicians to take on the debt. Eventually, it found that some 70% of the debt was illegitimate and the creditors were forced to sell at reductions of around 90%.

The story is told in a film called Debtocracy, whose main focus of attention is the debt situation in Greece, where a national Audit Committee has been established. The idea has now spread to Ireland. Exploring the sources of and responsibility for national debt can help to shift the violence in the streets towards a quasi-judicial process and may help to focus political anger, but as London-based economist Costas Lapavitsas makes clear in the film, these are political rather than economic or legal decisions.

The film also helpfully resuscitates the concept of 'odious debt', created by the US in the 19th century to enable it to repudiate the debts it inherited from Spain when it conquered Cuba. It used a similar legal wheeze to renege on Iraq's debts after the 2003 invasion, although it kept this quiet for obvious reasons.

12 July 2011

Elite Syncopations

For those not familiar with the working of universities this post may seem rather obscure, but in reality it explains one crucial mechanism used by neoclassical economists to ensure that the routes to publication and promotion are controlled by their own. It explains how orthodoxy maintains its hold on the economics profession.

This is a large claim made for a research paper presented at the recent Association for Heterodox Economics conference in Nottingham by Harry Bloch, from Curtin University in Perth, Australia. It traced how Australian economists were involved in the process of deciding the quality of different pieces of research produced by their peers. In Australia this process is transparent; in the UK it is not. Hence the focus on scholars on the other side of the world.

The academics were told to rank the journals they commonly read into four categories; it was suggested that they should have 5% in A* (Nobel Prize material), 15% in A, 30% in B and 50% in C. The first conclusion from Table 5 is that economists are very hard on themselves: they considered a full 60% of journals in the also-rans category, a much lower percentage than other disciplines.

But it also demonstrates the domination of the field by proponents of econometrics. The method of regression analysis is the fast route to promotion. A mathematical model is always ranked more highly in terms of esteem than a paper which relates to a real-world problem, such as the financial crisis for example. Theory is rated well, with applied economics – that area which deals with policy – less so. Meanwhile ‘other economics’, such as that which actually questions the status quo, receives the lowest rating, with no journals featuring in the A* category at all.

It is also important to note that these were not everyday academics but Professors and members of professional societies. These are the guardians of orthodoxy, and their own work is likely to be in the field of econometrics and economic theory that presently dominate. As the table shows, none of the journals that covered heterodox economics was included in the A* ranking, making it extremely difficult for those outside the mainstream to achieve research funding. The process of ranking specifically excluded heterodox economists, although they were identified as a specific group - the only group to be excluded.

The second table (Table 7) illustrates the effectiveness of the gatekeeping by the orthodox. It shows the domination of the field by conventional economics while the majority of economists with different views languish at the lower tiers.

Bloch concludes his article as follows:

'The processes employed in the 2010 round of research evaluation under Excellence in Research for Australia (ERA) did not provide a fair assessment of heterodox economics research in Australia. The rankings used as the indicator of the quality for journal articles were unbalanced in favour of economic theory and econometrics and against applied economics and other economics (which included heterodox economics).'

We can expect no better form the UK's Research Excellence Framework process.

11 July 2011

Market Failure

What do the scandals at Southern Cross and News Corpse have in common? They are being treated as separate news stories and yet they make the case, a case that has been growing in strength since the financial disasters that began in 2008, that even on its own terms the market has failed. The failure that is being demonstrated in this case is the failure of the market to know its limits.

It is most unfortunate for the coalition that they have chosen this day to launch their white paper on opening up the provision of public services. For while they seek to imply the involvement of well-meaning middle-aged ladies who will provide better services for less money, the reality is that they will attract the market wolves seeking a profit.

This was the reality of Southern Cross, which picked up care homes cheap from local authorities who had grown tired of their responsibilities. It then sold these assets to venture capitalists and others to release the capital to pay to its shareholders. The value was extracted at that point, so the future progress of the company was presumably of less concern.

Government cuts led to a worrying reduction in budgets for care, meaning that the financial projections about occupancy went awry, the business model failed, and the company folded. It is a classic case of making money during the boom and abandoning responsibilities when the going gets tough. Why should we expect private firms to do otherwise? This is how they are programmed. But given that we know that, should we really be allowing them into vital areas of our lives like health, education and care?

The murky Murdoch affair raises other, but related, questions of public interest. Here we are concerned with the pluralism of the press and the freedom of manoeuvre of our elected representatives. The fact that these cannot be safeguarded in a free market explains why democracies introduce media regulation. A national newspaper or major TV channel is not a business like any other: it is a public service and so should be expected to be subject to greater political control.

The unseemly haste with which Jeremy Hunt is now acting to block the buyout of BSkyB, which he had clearly signalled he would have approved (in fact, why else was Vince Cable removed from the decision-making?) is an attempt to divert attention from the deep entanglements between both Labour and the Tories and the corrupt Australian moghul. But the real questions, about how far we can allow an amoral and profit-driven market to extent its tentacles, remain unasked.

9 July 2011

Green House Gas

If knowledge is power then Tim Jackson's book Prosperity without Growth should have moved the political debate. By now our politicians should have been making plans to shift our central economic objective from growth to sustainability. The book, and the report for the Sustainable Development Commission on which it was based, provided the evidence: where is the policy that should duly follow?

Instead, the government abolished the Sustainable Development Commission during its 'bonfire of the quangos' just three months after its election, giving the lie to the mantra about evidence-based policy-making, as well as its claim to be the greenest government ever. The evidence that the late capitalist paradigm is suicidal is all around us: what we need is to turn that knowledge into meaningful change.

To take a step forward towards that end a group of green-minded academics and politicians are launching a new thinktank: Green House. Its commitment is to a politics of hope and to a greater confidence in the new paradigm in social and economic life that has been built up since the environmental movement arose in the late 1960s. The strategy is one of 'reframing', so that policies which seem disconnected and extreme come to be the common sense of tomorrow.

Caroline Lucas MP will launch the Green House thinktank in central London on 21st July. The launch will begin at 9.30 am and will be held at the Westminster Friends Meeting House at 8 Hop Gardens, off St. Martin's Lane, WC2N 4EH.

7 July 2011

Rule of Law is that Money Talks

The term financialisation has been coined to describe the process where, in late capitalism, all systems of values have been hollowed out and money alone remains the driving-force of economic and social life. The Skygate saga demonstrates clearly the distorting effect this process has on political life.

We are receiving our information about the nefarious activities of News International employees through the lens of the media and so it is inevitably distorted. The focus has, as so often, been cast away from the political and onto the personal. From sordid to disgraceful, the adjectives available to describe a person who would profit from the grief of the parents of a murdered child have grown tired with use. Yet this is not the most serious aspect of the current crisis: that lies in the way the media barons, led by Murdoch, have undermined our democracy.

Our politicians make the laws. Rupert Murdoch's minions have gained control over those politicians by illegally acquiring information about them through hacking into their phone messages. So we have no laws to constrain the the media or to limit them to the role appropriate in a democratic society. Such a claim was made by Adam Price, who later withdrew from public life, although his blogs on the subject are useful evidence. His rhetorical skill and political insight singled him out amongst our dreary politicans - was his decision to quit another proof that the rotten alliance between media and power is destroying the health of our democracy?

Our police should enforce the laws, yet for years it appears they have been bribed by News International: through wining and dining and the open payment of cash for stories the police have been bought by the media. Can we still believe that they are 'our' police, enforcing the laws on 'our' behalf. The Jo Yeates case is just the latest where the interests of justice have been sacrificed to the interests of media power and profits.

This post may seem inappropriate to a blog dedicated to economics, but it is not. The theory of financialisation predicts exactly this sort of behaviour in response to a process where values are lost and only money remains of importance. A public enquiry into the behaviour of our newspapers and broadcasters will not solve these flaws in our democratic system: only a fundamental restructuring of our economic system can do that.

6 July 2011

University Futures

The hiatus in posts was caused by a brief trip to Cambridge to see my son graduate. The ceremony was typically bizarre in a way only Oxbridge can manage. The graduands were gowned and robed, but had little sense of what they were undergoing, since the ceremony took place in Latin. Much of this seemed entirely appropriate to a ceremony which is one of the few rites of passage that remains in our civic life and would have provided excellent subject material for an anthropological study.

More fun might be had designing the robes for the co-operative university, which has been under discussion here and elsewhere. The UK Society for Co-operative Studies held a session at Co-operative Congress last week as part of an ongoing debate about the need to establish a co-operative business school for the UK. The document produced there for discussion, and the report Co-operation in the Age of Google to which it in part responds, can be found on the Social Exchange Repository.

One aim of the Society is to take forward the debate about the structure of education: 'An educational programme, therefore, is not simply an opportunity to accredit what is already taking place. It is a mechanism by which those who have spent years on co-operative development activities can contribute their knowledge in a way that informs the development of higher education.'

In this regard there are interesting developments already underway in Lincoln's Social Science Centre, which is 'run as a ‘not-for-profit’ co-operative and managed on democratic, non-hierarchical principles with all students and staff having an equal involvement in how the Centre operates'. Staff donate their time for free, but such models could be developed as alternatives to the elite private universities that the government is encouraging.

Perhaps more important, though, is to build up our research knowledge about alternative economic models. So much of the existing neoclassical framework, from economies of scale to the concept of profit itself, have no meaning in the context of co-operative businesses. Until we can create our own concepts and coherent intellectual framework we are not equipped to replace the destructive and defunct capitalist paradigm with a new business model that we can teach with confidence in our universities.