Happiness is (about to be) overrated

11 01 2011

I have to be careful here. A few years ago I spoke at a discussion on happiness and passed the flippant comment that I had not been happy since 1963 (a reference to Philip Larkin as I am sure you all know). After the discussion I was approached by a man who,  identifying himself as a therapist,  offered to help me with my ‘problem’ of unhappiness.

So to be clear, this piece is not about my own state of mind, which those who know me well will confirm is that of a sunny optimist who can only see the bright side of life. It is rather about the intention of the UK government and others to find a new and better way of measuring the wealth of nations, not through the present measure of growth, GDP, but by adding in some as yet undefined way of assessing the happiness or state of well-being of the nation.

Tim Harford, in his excellent summary of the current discussion, makes the point that all of the information that the government purports to want to find out in its new ‘happiness’ initiative is already available from numerous other official surveys. So, if the information already exists, why has the government decided to make a public issue of surveying ‘happiness’ at this moment in time?

The ‘happiness’ debate is a product of the coming together of two different but connected social phenomena. One is the pervasive sense of ‘limits’ which imbues much of contemporary society, the idea that we are reaching the end of the road of exploitation of the earth’s natural resources, that we need to learn to be more sustainable and less dependent on material growth.

The second is the recession and  the very real impact on our lives, here in the west, of the cutbacks in living standards which we are beginning to experience. When we face a future of stagnant  growth and financial pain how tempting it must be for those in government to try to convince us that growth is not what we need, or indeed that it may even be a hindrance to our happiness and well-being.

I am not suggesting that this is simply a cynical ploy by Cameron and others. They undoubtedly have been influenced, as have many people in our society, by the idea that the value of material wealth is overstated and that we should all be looking to other aspects of our life for solace. (Although, I  doubt that this will lead Cameron and his wealthy chums to forswear their own vast riches along the path to a supposed happier existence.)

It would also be wrong to dogmatically assert that all that matters in life is money. Of course, there are many aspects of our daily life which give us pleasure and a degree of contentment that do not depend on money. Most of us get a sense of well-being from achievement and a feeling of control over our lives. But I am opposed to a happiness index precisely because  those kind of things are not measurable in any meaningful way, they are mainly subjective and often temporary and individualised.

The importance of economic growth and its measurement, in GDP, is that it is measurable. It gives an approximation of how dynamic a society is, how much wealth is being created, how productive its people are being.  Wealth creates possibilities which do not exist otherwise. If you look at the world today the nations which have the most human longevity and the best health are the most developed ones. Generally speaking those countries also have the most stable and democratic institutions and the most flourishing cultural activities. This is because wealth creates spare time and spare cash, time and money which can be used to pursue other things than the mere struggle for subsistence that occupies much of the world’s population even now. Economic development  transforms the nature of work from being dangerous, long and tedious to safer, better remunerated and less time-consuming.

The development of a bandwagon around the ‘happiness’ debate at this time is a tacit recognition by the ruling elites in the west that they have lost faith both in their belief in economic development and in their ability to maintain economically dynamic societies. They would like us all to stop pushing for more, to accept austerity and to learn to love it. It is an acquiescence to stagnation at every level in western society. They would like to encourage us not only to accept this stagnation but to call it happiness.

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Are we all co-operative now?

5 10 2010

The co-operative movement has been around in one form or another for centuries, both in the UK and elsewhere. Its heyday was in the late 19th and early twentieth century and it now plays only a peripheral role in modern life. The most generous estimate of ‘employee owned businesses’ is stable at around 2% of GDP. Why then has there recently been a sudden resurgence of interest in common ownership?

In the past, small producers and working class people joined together in producer and consumer co-operatives to defend their interests in the face of a chaotic capitalist system dominated by big business. In addition, common ownership was seen by some as part of a peaceful and gradual move from the market to a more socialised economy. Even today the Co-operative Party, as an ally of the Labour Party, returned 28 MPs to the current parliament under the joint title of Labour and Co-operative candidates, including Ed Balls, one of the defeated leadership candidates.

But the current enthusiasm for common ownership does not come from those sectors of society who have traditionally seen common ownership as some kind of limited defence against capitalism, but rather it comes from within society’s elite. Indeed, even David Cameron is said to be keen on promoting common ownership as part of his ‘Big Society’. In other words, it is not a grassroots movement as it used to be, but more a top down strategy developed within the elite and proposed as part of government policy through state ‘empowerment’.

There are some critics who see some of the discussion of common ownership as an attempt to offload the responsibility for social provision from the state on to other sections of society. The proposals for more common ownership in the area of social services, for example, are in this view a cynical attempt to justify cutting state provision of social services as part of deficit reduction. While it is true that there is a congruence between arguing for a smaller state and the reduction of public spending it would be wrong to think that fiscal issues alone are at the heart of the common ownership revival.

The broader problem which common ownership proponents are trying to address is the overall loss of dynamism of British society and the consequent loss of authority of those who are running it. This  crisis of authority is most evident in politics but operates throughout society. It has prompted a search for new ways of engagement between leaders and led. The recession gave extra impetus to this but was not the initial cause.

The elites who run Britain are faced with a tremendously important paradox, that capitalism is both unpopular and unchallenged. Its unpopularity means that large sections of society oppose those elements of capitalist society which are the most positive, economic growth and human control over the environment. The fact that it is unchallenged, in terms of any alternative, leaves the mass of society powerless, passive and apathetic. The elite search for resolutions to these problems has created  pressure to find new ways to engage with and incorporate larger sections of a disaffected and cynical populace.

Workers control or shared sacrifice?

Does any of this matter when considering the pros and cons of more common ownership in our society? After all, arguing against the idea that people should have more ownership and control over their lives would appear perverse. What democrat could be against more democratic control?

 William Davies in his Demos pamphlet ‘Reinventing the Firm’, which focuses on the private sector, and Philip Blond, whose ’The Ownership State’ is about the public sector are the two weightiest contributors to the current debate. Davies argues that there are 4 interlinked reasons why common ownership has become important today:

1. The banking crisis

2. The longer term crisis of the UK economy

3. The crisis in public spending

4. The moral crisis of consumer capitalism

According to Davies these 4 crises all point towards a new model of social ownership.

Common ownership  can take many forms, with differing levels of ownership and control. The best known, John Lewis, has a structure which rewards staff out of profits, but offers only limited control over major decisions. There is some evidence that employees in firms with an element of common ownership identify more with the business and exhibit greater job satisfaction.

However, a major problem with private sector co-operatives from the employee point of view is that they offer no extra guarantee of stability or job security. Co-operative businesses enter the market in the same way as any business and are subject to the same market pressures and to the laws of profit. If they do not comply with these laws then the businesses will fail alongside their non co-operative competitors. This kind of failure was the fate of many of the workers co-operatives set up in the 1970s, such as the Meriden motor cycle cooperative formed out of the collapse of Triumph.

 Normal shareholders have the option of selling their shares if they sense the business is failing. Employees do not have that option. Employees may be better off without the extra worry that the equity they have in the business, along with their jobs, can disappear if the business fails. This is especially true if the ownership is separated from effective control of the company. The danger here is that shared ownership becomes shared sacrifice.

Should we be more co-operative in the public sector?

Philip Blond points to the advantages of common ownership in the provision of social provision as being better productivity and better services. He locates his argument within the context of a decay of civil society. In that sense his argument is attuned to Cameron’s view that the solution to the crisis in the public sector is the ‘Big Society’, the rebuilding of civil society as a buffer between the impact of the recession and the needs of ordinary people.

 Leaving aside for the moment the economic imperative for cuts in spending is there anything positive about the ‘Big Society’ in this regard?  There is something positive about community initiatives which bring together people to pursue local objectives, such as school improvements or community run nurseries for children. Calling this the ‘Big Society’ does not seem to me to make much difference. The people who do this will do it anyway and everybody else will continue their normal lives. The main way that this would change is if the provision of social services outside the state becomes a necessity, in other words if existing provision is taken away.

Any argument for changes in the way that social provision is made which begins from the premise that there will be less rather than more resources available would tend to  have an inherent austerity dynamic to it. Of course, just because something is cheaper does not necessarily make it worse. There is an inbuilt tendency for production goods, tvs etc, to get cheaper but without any loss of quality. Perhaps both businesses and services can become better and more efficient through the adoption of co-operative principles.

Measuring productivity in the public sector is a highly contentious issue. Philip Blond makes a lot of the Office of National Statistics’  estimate that productivity in the Public sector fell by 3.4% in the past 10 years compared with a rise of 27% in the private sector over the same period. Just quite how you measure or compare the productivity of a factory worker with that of a teacher escapes me. The commodities that a factory worker produces get cheaper because it takes less labour to produce them. Are we saying that a teacher should be judged by how much they can cut the time they put into their pupils, or a doctor into the general care of their patients for that matter?

This is of course where the plans to cut public spending come in. The danger is that if we buy into the co-operative model for social provision, how long before we are told that the old and infirm need to be looked after outside of state provision, or that community soup kitchens should feed the unemployed rather than them receiving unemployment benefit? Philip Blond offers some justification for this view when he argues that common ownership can compensate for low pay in the public sector. He also highlights the fact that voluntary carers save the treasury £87 billion per annum

The state provision of social services was the compromise outcome of a struggle between the aspirations of the working class for more security in their lives and the recognition by the ruling class that some measure of social welfare, usually provided at the cheapest possible level, was desirable for social stability and the maintenance of the workforce. The events of the past two years have shown yet again how easily capitalism can descend into chaos and how powerless individuals are to defend themselves when that happens. Common ownership is an attempt to paper over the huge problems that our society faces. It is a paternalistic policy which at best can only affect the fringes of our society whilst having no impact on the central problem, the stagnation of our economy and of our society.

*I will be debating the issue of co-operatives with Will Davies and others at this event





Our fight is not with the Chinese, but amongst ourselves

4 02 2010

 “Since the crisis, developing countries have lost interest in the old Washington consensus that promoted democracy and liberal economics. Wherever I go in the world, governments and business leaders talk about the new Beijing consensus — the Chinese route to prosperity and power. The West must come up with a new model of capitalism that’s consistent with our political values. Either we reinvent ourselves or we will lose.” Times

The recession may be over, and I stress the ‘may’, but the deep damage done to the confidence of western leaders remains. Anatole Kaletsky’s article in today’s Times, written as a review of the mood at Davos last week, reveals how deep the loss of confidence is. Let us review what forms the damage has taken.

Firstly, the recession has accelerated the economic balance towards China and the east. Secondly, it has destroyed the Reagan/Thatcher rhetorical commitment to free markets which underpinned most western economies. Thirdly it has revealed the ideological bankruptcy of western political parties. Kaletsky is right to point out that the failure of the meetings at Davos, and we could add of all of the global summits since the recession started, to address these issues is symptomatic of the crisis itself. There has been a studied refusal to properly debate the recession and its consequences. The western ruling elite has spent its time in the modern equivalent of a bar room brawl rather than addressing the main issues.

Kaletsky’s proposed solution is that western capitalism should reinvent itself. His suggested routes for doing this are themselves a symptom of the limited imagination that exists within the western elite. In fact, while appearing to want to challenge the Chinese model, Kaletsky’s solutions look suspiciously as if he wants to get as close to it as possible.

Do Western political systems need to be reformed to make them more conducive to compromise and rapid, consensual decision- making instead of the political paralysis that now threatens the US? Do we need an economy in which government plays a bigger role in finance, energy, environment and strategic infrastructure investment, but actually reduces public spending and taxes by backing away from some of its traditional, and ruinously expensive, responsibilities for health, pensions and education?

A political system which is based on consensus is what the Chinese Communist party enjoys. It is the antithesis of openly contested democracy. The ‘political paralysis’ which infects western governments is a product of the lack of any coherent political programme for change which can force its way on to the political agenda and persuade the majority in a democracy to support it. It is not more compromise that is needed, but more contestation.

It is not at all clear what western societies need to do in order to continue to make general progress. At present it seems as if the market is the only route. It may be, as Kaletsky suggests, that the state needs to play a more central role in developing the economy. But if this is the case there is even more need for a vigorous democracy to exist which can challenge and guide the state. At the very least we need an open public debate about the role of the state. It is not the form of politics which needs to be changed, but the content. Giving the state more powers without strengthening democratic control over it takes us closer again to the Chinese model.

Even Kaletsky’s final summation of the ‘choice’ facing us is wrongly framed. What we are trying to win against the Chinese is not continued global dominance by the west over the east. If it were only that why we would care? Capitalism is firmly entrenched in China and there is no threat to the market. If the stakes were only about which capitalist country comes out on top then most of us probably would not care very much. What is at stake is the future of democracy.

The experiment in democratic politics, which began with the Greeks and was taken up much later mainly in the west, is now weaker and feebler than at any time in the past sixty years. We do have a fight on our hands, but it is not with the Chinese. It is with our own narrow perceptions of what is possible. We suffer from a failure of political imagination and a climate of low expectations which infect every area of life. Any challenge to the status quo has to begin by taking on the pessimistic, risk obsessed cultures of the west.





2010-the year of living uncertainly

12 01 2010

Welcome to 2010, a year which is pregnant with doubt and uncertainty. The western world has moved from the certainty of recession to a fear and acceptance of stagnation, the ‘flat is the new up’ mentality derided by Martin Sorrell. In the UK we have a general election contested by three parties which is shaping up like a contest between weak boxers. Every time they land a punch on each other they weaken their opponent without strengthening themselves.

There is a general mood of cynicism and disgust towards the political process which means that whichever party or parties win the election then nothing can really change. Mick Hume has accurately summed up the state of modern politics as dominated by;

..the politics of fear, with many apocalyptic warnings, but little analysis of the underlying causes; the politics of behaviour, with attempts to blame the crisis of the system on the greed of individuals; and the politics of low expectations, with efforts to persuade us that the most we can hope for in the future is no/low growth in a stable/stagnant capitalism on a life-support machine of state intervention.

We  have reached the end of a political cycle which began with the collapse of communism in 1989. Just to remind ourselves, the collapse of the Soviet Union created an initial surge of optimism that history had ended with the triumph of western liberal democracy.  In the East new democracies arose. In the west the third way concensus politics of Bill Clinton, adopted by Blair and others, replaced class based politics. It is very hard now to remember the enthusiasm which accompanied the election of Blair’ s New Labour in 1997. Many people welcomed what they saw as a decisive break with the past and the opening of a new chapter in history. We can now see that the idea of a new era of peaceful and stable capitalism which dominated the twenty years since the end of communism has come to a political dead end.

The upcoming defeat of Gordon Brown in the general election here will mark the final eclipse of New Labourism in the UK. What we are left with is a severely confused and disoriented western elite which is struggling to tackle the major changes taking place in the world. During the credit fuelled  boom years of the noughties the absence of any clear economic and political blueprint for the future did not matter so much as it does now. The best that any politician can do now is to try to navigate the future without a map. On the economic front there is just as much confusion. While there are some commentators who wish to paint a rosy picture the general view is one of foreboding. The underlying problems facing western capitalism, which have been extensively debated in this blog over the past year, have not even begun to be addressed. The lack of a plan means they will fall back on restraint and cutbacks in public spending rather than bold policies for economic growth.

Elsewhere the triumph of liberal democracy is looking very hollow. The most dynamic economies in the world now pay lip service to democracy in general if at all. The recession has played its part in deepening the crisis of western politics by accelerating  both a shift in global power eastwards and by undermining the western model of (supposedly) free markets plus democracy.

All of this means that the stakes are even higher for anybody who can come up with a better idea of how to run things. The depths of cynicism amongst the elite and the general populace will prove a huge barrier to any ideas of change, but there are always some people who will not want to give in to these  widespread negative sentiments. Uncertainty can be a good thing if it leads to broader questioning and wider debate. There are those, such as Martin Wolf, who accept that we have reached a ‘hinge in history’. Whether this leads to a turn for the better or the worse is up to us.





What next for UK banking? Not learning from the past apparently

15 12 2009

uk after the recessionI was at this event yesterday jointly organised by the New Statesman and Barclays Bank and addressed by representatives by the three main political parties. John Varley, the Chief Executive of Barclays Bank, began by arguing that banks should adopt more social responsibility, by which I think he means not to get into the same mess as last year again.

Two things struck me from the discussion. The first is that there is hardly a cigarette paper’s difference between the three parties on the issue of banks or by implication in their understanding of the recession. They all supported the populist tax on bonuses (described privately to me by one senior banker there as ‘puerile’). They all agree that there should be more competition in banking, better management of risk  and better regulation. One wonders yet again why there are three parties when there are virtually no policy differences between them. The cosy atmosphere was upset only marginally by John Snow asking why no bankers were in jail yet.

The second problem is that in this discussion, supposedly about the future of banking, there was disappointingly no discussion about the role that banks could be playing in the regeneration of the UK economy.  The whole discussion was about  not repeating the mistakes of the past rather than tackling the problems of the future. Lord Myners, Labour’s  Financial Services Secretary to the Treasury, mentioned in passing that there no longer appeared to be a blockage in banks financing business, although the cost of credit was perhaps too high. The banks say that there is less demand for credit from business. If there is little demand for credit this should warn us that the economy is unlikely to see a fast recovery from the recession.

The main lessons from the recession appear to be passing the parties by. The financial bubble, as I have argued before, was not the product of too much risk taking but too much risk aversion. Investors were seeking ways of making money through apparently safe new financial ‘products’ rather than through investment in apparently riskier new industries and new technologies.

The government now effectively controls two of the major banks in the UK. It would be a good idea if it could enter into some major planning exercise to encourage investment from these banks in the kind of infrastructural projects that the UK desperately needs. It would also be a good idea to encourage these banks to set more investment aside for innovation and those areas of the UK economy which have the most promise.

None of the parties is facing up to the real problem facing the UK economy, what is going to be the engine of growth if financial services does not recover its dynamism, a prospect which appears to be receding all the time. Banks have a role in solving this problem, but the leadership has to come from politicians and there is precious little sign of that at the moment.





We need real growth not sustainable growth

3 12 2009
It is not clear how the UK will earn its living in the years to come        Financial Times  3/12/2009
A new survey of the state of the UK’s economy has drawn a bleak, if not surprising , picture of the weaknesses of the UK economy as we begin to come out of the recession. The survey, carried by the FT today and over the next few days, reveals that despite all the claims of New Labour to have turned the UK economy into something more dynamic the truth is that the long-term trends of sluggish growth and the disappearance of manufacturing have if anything gone faster under New Labour than before:
  
  • Growth since 1997 has averaged just over 2%, slightly less than in the previous 20 years
  • Manufacturing has shrunk from 20% of the economy in 1997 to 12% now
  • The growth areas of the UK economy have been business and financial services, real estate and public services-all financed directly or indirectly from the proceeds of the financial bubble.
  • Around 2/3 of jobs created under New Labour have been in the public sector-which bodes badly for employment prospects if public spending is cut
To add to the ominous character of this survey a timely piece of new research by two academics at Kent University has looked at the experience of recessions around the world over the period 1960-2000 and concludes that deep recessions such as the one we are currently experiencing have profoundly negative impacts on productivity for years after the recessions are over. 

Our main findings show that, cumulatively, from the last year of the recession up to fours years after, recessions have significant negative productivity effects. These effects, however, arise as a combination of different mechanisms. Recessions tend to increase the level of frontier TFP (technology growth and efficiency) but decrease the rate of technical progress. The combination of these two effects is a fall in frontier productivity relative to the one that would have prevailed without a recession. Recessions also increase significantly technical inefficiency in the economy. Finally, deep and long-lasting recessions tend to have larger impacts on productivity, although the mechanisms differ from standard recessions.
  

 There are key debates to be had still about to what extent the UK needs to restore manufacturing as opposed to services, and also whether cuts in public spending are necessary and in what areas. However, one thing is crystal clear, that whatever route the UK has to take to recover a growth dynamic it is going to be very hard work. The dawning recognition that this is the case, and the absence of any coherent plan to achieve it,  must be one reason at least why those arguing for a more sustainable (ie environmentally focused ) economy are influential today. For a clear explanation of what the sustainable economists have in mind for us this new report spells it out. 
   The traditional function of investment, framed around increasing labour productivity, is likely to diminish in importance. Innovation will still be vital, but it will need to be targeted more carefully towards sustainability goals. Specifically, investments will need to focus on resource productivity, renewable energy, clean technology, green business, climate adaptation and ecosystem enhancement. These are precisely the kind of targets that emerge from the consensus around a global Green New Deal. Foregoing consumption growth seems inevitable if we are to sustain this enhanced need for ecological investment. 

 The necessity of ‘foregoing consumption growth’ in favour of saving the planet is, in this context, a convenient way of also avoiding the issue of tackling the stagnation of advanced economies such as the UK’s. The question of how to create a turn around in the UK economy should not get sidetracked by the sustainable growth lobby. The solution to all our problems, including environmental ones, involves greater control over our environment, through scientific and technological breakthroughs and through greater productivity of labour, which creates more human time to focus on new challenges rather than slogging away at the old ones. 





Austerity or growth-Cameron flips and flops

23 11 2009

David Cameron appears to have realised, as I predicted, that his party’s call for austerity is not terribly appealing. He is now talking af the need to promote economic growth. At this stage there is no substance behind the talk and it seems to be as rhetorical as his earlier call for austerity.

There are really only two main ways in which government can influence what happens in a market economy. The first is at the level of political leadership. This means that government sets an agenda for the nation, and creates a legislative framework to enable the agenda to operate. In that sense focussing on the need for growth is a step in the right direction. However, even at this level it is important to identify what the barriers to growth are that need to be overcome.

In the UK, some of these are historical and structural and to do with the shape of the UK economy, particularly its over-reliance on financial services. Some are to do with social and cultural factors, particularly the culture of risk aversion which has enveloped our society in the recent past. One of the main dangers as we creep out of the recession is that the lessons we learn may make us even more risk averse at a time when boldness is at a premium.

A new report from the Confederation of British Industry (CBI) for example predicts that businesses will adopt ‘a more balanced, less risky pathway to growth’. This may seem sensible in the aftermath of a recession, except that it contains the wrong assumption that it was risky behaviour which created the recession in the first place. This has now become the default position of those who have tried to explain the recession, that it was the product of risky behaviour in the financial sector.

It is vital that we do not allow this interpretation to remain unchallenged. The bubbles in the financial and housing sector which preceded the recession were the product of a stagnant economy, not caused by risky behaviour. Real productive investment in the UK and other western economies was seen as too long term and risky and has declined in favour of speculation. The bankers were responding to a demand for risk free investment with high returns hence the boosting of both the housing sector, seen as a one way bet, and the slicing and dicing of investments to spread the risk.

The second area in which governments can affect what happens in the economy is in the areas they have direct control over such as education, civil administration, health and infrastructural projects. The main danger here is that without an overall plan of how to revive the economy, decisions will be short term  and based on trying to placate public opinion. Here we can see the dangers of the weakness of the political class at its most exposed. Without the confidence to make long term decisions, which may be unpopular, the decline of the UK threatens to become a self fulfilling event.

What all these factors mean when put together is that collectively there is little belief that we can become a dynamic economic nation once again. One can sense that behind the flip-flopping of Cameron on the economy lies a genuine lack of belief that major change can be effected. In the absence of  clarity on this issue it is very unlikely that real political leadership in the form of agenda setting will emerge.