International data shows there’s no need to panic about the rise in self-employment and micro-business
The rather marvellous Steven Toft (AKA Flipchart Rick) has been blogging a lot recently about self-employment. He’s not keen on it. Based on international data he argues that higher self-employment correlates to weaker economies.
The reason being that less successful economies can’t afford to employ and pay everyone properly so large numbers have to scratch out a living working for themselves. He also suggests that the causality runs the other way: smaller companies and self-employed people are not as productive as big companies because they do not have the same scale of resources to throw at innovation and efficiency.
For these reasons (and this is his main point) it is wrong to get enthusiastic about the rise in self-employment and small businesses we are experiencing in the UK. In fact, we should be concerned that it is a symptom of a weakening economy.
I’m certainly not a dab hand at tables like Steven but I had a go using the data for 2010/2011 he recently employed himself. Here I’ve plotted the percentage of self-employment in the labour market for every OECD country against their GDP per capita.
At first glance, this table seems to uphold Steven’s point. Countries with low self-employment rates have higher GDP per capita while those with high self-employment are in the growth doldrums. But look closer and there is more nuance.
There are actually three groups on the chart:
1. Over on the left are two very low self-employment and very high GDP per capita countries. The two countries are Norway and Luxembourg.
2. Then there is a large group that has self-employment ranging from 7% to 17% and with GDP per capita of between $30,000 and $50,000 but largely centred on the OECD average which is just shy of £40,000. Group 2 is almost entirely made up of Western and Northern European economies (plus the US, Japan and Australia).
3. Finally, there is a group of countries with GDP per capita of between $15,000 and $30,000 with a much wider range of self-employment rates stretching from 8% right up to 36%.Group 3 is mostly made up of the developing nations of Eastern Europe and Latin America and the Southern European nations.
What does this tell us?
Firstly, that group 1 are outliers. Neither Norway nor Luxembourg have conventional economies: the first is heavily dependent on oil and gas exports for its income and the second has a population the size of Manchester’s and is dominated by its banking sector. Neither of these can tell us much about the relationship between self-employment and economic health.
Secondly, that self-employment rates are closely correlated to economic development (a fact that has been widely documented in the past). As countries become more advanced economically, their self-employment rates tend to drop.
Thirdly, that the Mediterranean economies are in a bit of a mess. Self-employment levels may bear some relation to this but it is clearly far from the whole story. Go back a decade, for example, and Italy was actually out-performing the OECD average for GDP per capita even though its self-employment rate was higher.
Finally, and most importantly, when an economy reaches a certain level of maturity it can exhibit a wide range of self-employment rates of between roughly 7% and 17% and that this rate does not correlate in any obvious way to performance within the $30,000 to $50,000 band.
So, the fact that the UK’s self-employment rate has seen an increase in the last decade of just over 1% to reach 14% is not necessarily a cause for concern. Of course, it also suggests it is not necessarily a cause for great celebration either.
Obviously GDP per capita is only one measure so I’ll be blogging more on this theme over the next few days and weeks. I also think there are shifts occurring in the labour market and business population which should worry us but that will also have to wait until another post because I need a lie-down after doing that chart. I don’t know how Steven does it!
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In case you were too busy enjoying yourself in the late 1980s or weren’t actually born, Marxism Today was a magazine that argued socialism was dead and that the world was changing beyond all recognition because of the collapse of traditional class identities and the rise of individualism and the like. They called this new era New Times and claimed it had replaced the Modern Times that had existed for the most of the 20th Century.
Their views annoyed an enormous number of people, particularly on the left, but they turned out to be more right than wrong and ultimately exerted an influence on the big shifts in the Labour Party that happened in the 1990s.
Today, my esteemed colleague, Luke Robinson (Head of Media here at the RSA), dug out a list that Marxism Today put together for their influential edition of 1988 comparing New Times with Modern Times.
I couldn’t resist adding our own list to theirs based on the RSA’s Power to Create approach which argues that we are entering a new period just as revolutionary as New Times based on mass creativity, new empowering technologies and a challenge to existing power structures. A fair bit of what Marxism Today did was tongue in cheek (playful postmodernism, see) so I wouldn’t take this too seriously (and sorry it’s all a bit wobbly – WordPress hates lists it seems)
Modern Times New Times Creative Times
Fordism Post Fordism Self-generated Value
Modern Postmodern Digimodern
Steinbeck Pynchon William Gibson
Le Corbusier Venturi Zaha Hadid
Sartre Foucault Pikkety
Futurism Nostalgia Optimism
Marlon Brando William Hurt Jesse Eisenberg
Production Consumption Prosumption
Mass Market Market Segmentation Bespoke Markets
Ford Toyota OSVehicle
Self-Control Remote Control Out of Control
Depth Surface Interaction
Belief Credit Likes
Elvis Michael Jackson Lady Gaga
Interpretation Deconstruction Creation
Butlins Theme Parks Makespaces
Relationships White Weddings E-Harmony
The Beatles Bros The Vamps
Determinism The Arbitrary The Mission
Maxwell House Acid House The RSA House
Concrete Holographic Glass Polylactic Acid
Liberalism Libertarianism Peer Progressivism
Mass Hysteria Fatal Attraction Social Network
Raspberry Ripple Hedgehog Crisps Granola
Lady Chatterley Blue Velvet Fifty Shades of Grey
World Wars Terrorism Cyber-war
Roosevelt Reagan Birgitte Nyborg
In/Out Lists New Times Guides Buzzfeed
Newspapers Colour Supplements Blogs
Z Cars Miami Vice The Wire
Conservatism Thatcherism Red Tory
Dow Jones Nikkei Index AIM
Stalinism Glasnost Chinese Capitalism
Free Love The Free Market Freelancing
The Cabinet The Prime Minister The Disengaged
The popularity of banning, taxing and regulating daft behaviour never seems to dim. Just in the last two months we’ve seen smoking in cars with children banned, plans laid out to prevent ‘vaping’ in public, rising demands for a sugar tax and today we’ve been told that cigarette packaging will face new regulation to make it look boring.
The common (and usually ineffective) objection to these plans is that they restrict the freedom of the individual and create a ‘nanny state’.
But I wonder if we should be exploring a somewhat different concern: what such solutions do to our capacity to deal with the next problem that comes along.
The truth is that the human tendency to give in to temptation is very strong. I am certain that by the time smoking, drinking and eating fat has been regulated out of existence, we will have found other enjoyable things to do us harm. Who knows, maybe we’ll face vociferous campaigns from opticians for the Government to restrict the use of virtual headsets and relationship counsellors will be up in arms about the failure to regulate robo-love.
My worry is that the more we rely on the state to stop us doing bad things, the less we develop creative, voluntary and lasting solutions to avoid temptation. As a result, we just keep going through this cycle of discovering a new pleasure, enjoying it too much and suffering the consequences before the state finally steps in after a lot of damage has been done.
This notion that banning things only sets us up (ironically) for further damage is just a hypothesis; I do not know if it’s true. But I think we should find out because when I look at the now famous voluntary and imaginative effort by Oklahoma to lose weight, I wonder what sort of long-term resilience and benefit that City has now secured that we would miss should we go down the route of taxing and regulating away the latest crisis of temptation.
The big economic debate of the 21st C has just been launched – and it’s about power rather than money.
Six years after the Wall Street Crash, a book was published that revolutionised economic thinking and set the tone for policy for decades to come. That book was, of course, The General Theory written by John Maynard Keynes. Has history just repeated itself?
Thomas Pikkety’s book Capital in the Twenty-first Century* has beaten Keynes’s record appearing five years and six months after the 2008 Crash. Nevertheless, it does look set to create just as much debate. Whether it will recast policy in the same way is less certain but, if there is any justice, it should although maybe not in the way Pikkety himself suggests.
Pikkety’s central claim is that material inequality persists because the wealthy earn their income in a different way to everyone else. The rich get rich because of the return they make on their investments in capital which for Pikkety encompasses land, housing, shares, machinery, intellectual property amongst other elements. The rest of us poor schlubs have to rely on income from selling our labour.
Nothing that original there but Pikkety’s key contention, based on a vast study of historical data, is that the return on capital always outstrips economic growth which is what determines any rise in income from labour. So the rich will keep getting richer while everyone else increasingly lags behind. The only exception to this is an anomolous period in the middle of the twentieth century when, due to a strange coincidence of factors, growth outstripped the return on capital meaning inequality consequently fell.
This insight has the power to influence public debate about the economy hugely. Instead of the current obsession with relative levels of pay, tax and benefits, it could force a much more profound discourse about ownership. Pikkety points out that the source of inequality is not ownership as such but a complex interplay of legal, historical, political, social and cultural factors which allow ownership to be incredibly concentrated meaning that the financial benefits of that ownership flow to the few. Fiddling about with fiscal, regulatory and labour market policy (a not too inaccurate characterisation of current political debate) will never make a significant difference to such profound forces.
This plays in to the divide I outlined in my last post. Those in the Conservative and Labour parties who believe we need a broader distribution of power away from the unholy alliance of big state and big business are closer to offering a solution to Pikkety’s contradiction than those who think growth driven by corporations or by government is the answer. In fact, Pikkety’s analysis has the potential to give major empirical weight and provide an economic focus for the ‘Littleendians’ that is currently lacking.
But that raises the more disappointing aspect of Pikkety’s analysis. His one hit solution is the introduction of a punitive global tax on wealth. Leaving aside the fact that the idea is, in many ways, a total non-starter it surely repeats the mistake socialists and social democrats have made for decades namely that the solution to the concentration of economic power is a countervailing concentration of political power.
As a recent detailed empirical study of public spending across the world showed, it is an approach that becomes less effective – both in terms of improving social outcomes and generating economic growth – the more it is relied upon. It also, of course, generates all sorts of constraints on freedom of choice which extend well beyond the immediate impact on the yacht-buying classes to affect the whole of society.
Far better surely to explore how capital ownership could be spread much more evenly without the need for the intervention of an over-bearing state. Could we not, for example, imagine a world where intellectual property is far more widely shared as a result of the unfolding empowerment through new technologies, a much stronger focus in school on creativity and a liberalisation of patent and copyright law?
Such thinking aligns with the RSA’s idea of the Power to Create. Jonathan Rowson has very helpfully broken the idea down into five elements:
An analysis of ongoing socio-technical disruption: The reality of new technologies undermining old forms of cultural, political and economic power.
A grasp of the urgency of innovation: The need for new ideas and institutional forms to tackle major systemic problems (such as structural inequality).
A belief in the value of of mass creativity: A vision of social transformation grounded in meaningful creativity for the many, not the few.
A reappraisal of ‘small is beautiful’: The belief that a legion of small initiatives can and should challenge or usurp big businesses and governments in areas where their activity is relatively ineffectual.
A philosophy of freedom: A commitment to a vision of the good life grounded in self-actualisation and the joy of turning our ideas into reality.
All of these, it seems to me, could have a bearing on the current narrow distribution of capital ownership and the concentrated power structures that maintain it.
Importantly they provide a framework for us to respond to Pikkety’s observation that given the complex forces upholding the status quo means that a wider distribution of capital must go far beyond piecemeal economic solutions (such as employee ownership or community asset schemes) to a more profound reformulation of the way we think about our work, our ambitions and our institutions.
With this sort of focus and through Thomas Pikkety’s insight, it feels like what will be the fundamental economic and political debate of the twenty-first century might be about to begin.
* I should say I have yet to read the book (give me a break: it’s 950 pages long and was only published a few days ago) but, in my defence, there are already plenty of reviews, at least one very detailed and lengthy summary of the core arguments while Pikkety himself has written (£) and given interviews and talks about his work, many of which are on-line.
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According to Jonathan Swift, Lilliput was riven by a fierce dispute between Bigendians and Littleendians. The former believed an egg should always be cracked at the big end and the latter argued fervently for it to be cracked at the little end. How clever of Swift to foresee the row that would shape British politics around the 2015 election and disrupt the traditional allegiances we take for granted.
The core issue in this emerging dispute is, of course, not about how we crack eggs but about how we crack our biggest problems.
The Bigendians hold with the idea that big concentrations of power hold the key to problems like inequality, climate change, public ill-health and unbalanced economic growth. The Littleendians believe power needs to be widely distributed to solve these problems.
Bigendians have faith in the huge resources, co-ordinating power, clarity and universality that the big or centralised state and big business can bring to bear on our thorniest challenges.
Littleendians favour a smaller state working at local level combined with small business and small civic endeavours. They think our problems are complex and fast-moving and require a plurality of solutions. They also look back on the failing progress made by the big state and big business towards a fairer, stabler world and are sure that there must be a better route.
Both Parties Split by Endianism
This fight is splitting both parties and with ever greater intensity. It is a division that has crystallised out of the rather bewildering array of different perspectives and colours that characterised the period after the 2008 Crash: Red Tory, Progressive Conservative, Blue Labour, Black Labour, Pragmatic Radicalism, Purple Labour.
Many Labour people have recently renewed their belief that a powerful state is key to the achievement of greater social justice. They worry that a reduction in the size of the state, as planned by the Coalition, will lead inevitably to greater inequality between individuals and communities. There is also a mistrust of small business which it is feared pays less and has a weaker respect for employment rights than big business.
But this view has been facing challenge in recent years from a group who celebrate local entrepreneurialism, fear that the big welfare state has damaged the pre-war Labour tradition of small-scale mutualism and charitable endeavour and wants a vigorous decentralisation of power from Whitehall.
The influential figure Jon Cruddas, who leads the party’s policy review, is a firm Littleendian. The equally influential Tom Watson tends to the Bigendian way of thinking. There are strengthening rumours that this battle in Labour may soon be blown wide open as a public fight begins about whether the election manifesto will have a Bigendian or Littleendian feel.
However, the Conservatives are also riven. All conservatives would like to see the state shrink, of course, but what that smaller state looks like and what plugs the gap when it shrinks is a source of Endian dispute. For part of the Conservative party, a strong if smaller central state batting for Britain’s biggest businesses, particularly in the City, is a cornerstone of their political beliefs. That strong state is needed to defend our shores against immigrants and security threats, to crack down on crime and give the British people a sense of identity and focus.
It’s a traditional Tory view but one that has been challenged recently by an insurgent group who want to see decentralisation combined with a powerful resurgence of small-scale civic activism (alongside the more traditional Tory faith in the market) and who rather suspect that big business often survives only because of its cosy relationship with the big state.
Jesse Norman is probably the most outspoken Littleendian Tory. Bigendianism, on the other hand, much like Labour remains hardwired into the mind-set of the Party’s grassroots activists across the country.
In Whom We Trust?
While so much of British politics is concerned with the distribution of resources, this dispute is really about the distribution of power and who should be trusted to exercise it.
Nothing exemplifies this better than the argument now raging over pension annuities. By changing the rules so that individuals can take their money out of their pension pots in one go, the Chancellor has struck a blow for Littleendianism. Whatever his motivation and whatever the concerns about how it was announced, he has removed a power from the big, universal state and given it to a million little individuals to do as they wish. He has put his trust in those millions to do the right thing rather than the state.
This has immediately made some people very uncomfortable who don’t share Osborne’s faith in those little millions. The Labour leadership’s uncertain response reflected the fact it felt pulled both ways by the Bigendian and Littleendian instincts in the party. While many Bigendian Tories are probably deeply worried about what the Chancellor has just done to one of the biggest industries in the City of London even if they won’t say it out loud (yet).
A Littleendian Centre?
For years the political centre in Britain has been defined by vote-winning pragmatism. The left of the Conservative Party and the right of the Labour Party shared a managerial outlook that was often indistinguishable. Could this be about to change as the Endian dispute heats up?
The Bigendians in both parties are miles apart politically: one side believes fundamentally in a big, high spending state regulating business, the other in big, high spending business free of the shackles of regulation.
Littleendians are much closer in spirit. Both Conservative and Labour Littleendians believe the state should be decentralised, they both believe that small-scale civic activism is a good way of dealing with deprivation and inequality and they value small business. Most fundamentally, they place their trust in the millions of individuals and small organisations that make up the country and believe power should follow that trust.
It’s very unlikely that these two sides of a Littleendian centre could ever work together formally. They are from different parties after all and there are important differences of emphasis, most notably around faith in the unregulated market. For example, some Littlendians may be very comfortable with the idea that pension pots can now be spent on Lamborghinis; others may hope this freedom could give rise to a new wave of mutual savings based on voluntary rather than statutory principles.
But as battle within the parties heats up, we may see some surprising informal conversations spring up across the party divide.
The Power to Create
From the RSA perspective such conversations would be a good thing. William Shipley founded the RSA in a Littleendian spirit. He launched the Society with a deep belief that the solutions to our problems could be found amongst the mass of the population not just a powerful elite. For Shipley, there was no monopoly on good ideas and effective solutions. He also believed, unlike hardly anyone else at the time, that small-scale innovation in the commercial sphere had to be matched by small-scale innovation in the social sphere. Creativity had to be released for the wider public good and the poor as well as private benefit and the rich.
Historically, Littlendians have usually lost out to Bigendians. That may be changing now as the big and powerful find it harder to govern and deliver in an age of technological disruption and huge attitudinal shifts. That’s one major reason why the RSA is trying to capture the original Shipley spirit through the idea of the Power to Create: the notion that we will solve our biggest problems and live better lives if we are free to turn our many different ideas into reality.
In other words, we think there’s never been a better time to start cracking your eggs at the little end.
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A big mistake was made after the Second World War. The UK Government and its officials convinced themselves that they could co-ordinate a peacetime economy just as well as they had a wartime economy. Except now the goal was to be stable prices, a strong Pound and full employment instead of military victory. In short, the Government was to play the central role in delivering a sound and growing economy for the good of the country and its citizens. It all unraveled in the 1970s as the British economy tanked and by the 1980s many of the features of this post-war approach were being ditched.
But it didn’t die entirely. Politicians believed that one lever still worked: control of money and interest rates which could be used to prevent inflation at times of growth and to stimulate the economy when things were slow. Then it was decided that that approach was flawed because politicians couldn’t be trusted not to mess around with interest rates to win votes so the lever was handed over to the Bank of England in 1997. That seemed to work reasonably well until we got to 2008 when all hell broke loose.
Last night Mark Carney, the Governor of the bank of England, signaled the next stage of this long search for economic stability. It was a mightily important speech (much more important than the short term measures George Osborne will announce today). Carney says that the Bank will no longer focus solely on prices but will have a much broader remit. It will deliver sound money; it will ensure individual banks are trustworthy; it will prevent systemic crises like that of 2008; and it will help British banking to drive national and global growth. The bank will also use the “synergies” between these different goals to achieve its overall mission to “contribute to the good of the people”.
So effectively we have come almost but not quite full circle. The economic levers are now being pulled in Threadneedle Street rather than Whitehall and the focus is not as broad as those of the post-war governments but the notion that officials working for a central institution can have a major impact on the general health and direction of the economy is back.
Sadly, the view is even more wrong-headed today than it was in 1945. This is a world where power is drifting away from big, centralised institutions not to them. As Moises Naim has charted with exceptional clarity, growing complexity, mobility and individualism mean governments, corporations, armies and churches are failing to achieve what they want far more regularly than in the past.
Central Banks can’t escape this trend. The recent rise of crypto-currencies, dark pool trading, peer to peer finance, and the rise of new financial centres show that the world of money is no more protected from the growth of creative and disruptive micro-powers than any other area. Rewriting missions, shuffling your top team and streamlining your committee structure won’t change this truth.
I fear Mark Carney is an analogue Governor for a digital era as David Cameron was fond of saying in a different context.
I ended my previous post on a downer arguing that the political system would never embrace the deep change required to reduce popular alienation from parliamentary democracy. But since then an idea has occurred to me which might at least open up a possibility of transformation.
The idea is to establish, in legal or semi-legal form, that an MP’s prime responsibility is to seek out and represent the views of their constituents in Parliament.
Most voters probably think that is already an MP’s primary role but it isn’t at all.
As far as I know, there are only two places where an MP’s responsibilities are codified. The first is the Oath of Allegiance that MP’s must declare following their election to the House. Here it is:
The other is the MP’s Code of Conduct most of which deals with the registration of interests and the like but does include the following line on the role of MPs:
Members have a general duty to act in the interests of the nation as a whole; and a special duty to their constituents.
A 2011 review of the Code of Conduct admitted that the phrase “special duty to their constituents” was open to a very wide range of interpretations (although it still decided not to clarify the phrase). So as long as an MP doesn’t actively support a pretender to the throne from outside the House of Windsor, they can pretty much fulfil their role in any way they want.
It’s far from the whole story but this vagueness around the responsibilities of MPs to their constituents’ views allows the flourishing of those ‘intermediaries’, I mentioned in my last post, and which ensure legislative and political agendas are set by party leaders and the press rather than citizens. A fact which, I think, adds to popular alienation at a time when people more than ever expect a direct and influential say over the decisions that affect their lives.
If an MP had a legal or semi-legal duty to represent the views of their constituents in any parliamentary debate or vote then the power of the party whips would be hugely reduced (and possibly eliminated) and the media could only exert power by influencing popular opinion rather than directly influencing the views of MPs.
It would also place a very great obligation on MPs to get far better at aggregating the views of their constituents into a meaningful position. Doing that properly is by no means cheap or easy but as I pointed out initiatives like NHS Citizen are developing ways to use new technology to aggregate diverse views on complex issues in as neutral a fashion as possible. Significantly enhancing the budgets of MPs so they can employ sophisticated ways to discover and develop the views of their constituents seems to me one of the rare occasions when the public might actually support more taxpayers’ money being spent on their parliamentary representatives.
If enacted seriously such a shift could transform Parliament. The Commons would cease to be dominated by the phoney battle between two big, widely disliked parties and would instead be a place where MPs navigated their way through to a consensus built around the considered views of citizens (as I put it in my last post).
Much would depend on how seriously any such codified responsibility was taken or enforced. It may be that the MP’s Code of Conduct is not strong enough to generate real change and another approach would be required but, nevertheless, it is interesting to note that a new review of the Code will probably be held at some point in the next Parliament.
Of course just as with the Recall legislation, establishing a prime responsibility principle would be very difficult. It’s the old ‘turkeys voting for Christmas’ problem. But at the very least it would provide a simple rallying cry for all those who recognise how much the system needs to change if it is to meet the aspirations and expectations of a 21st Century electorate.
What if the World Wide Web had been invented in 1949 instead of 1989?
My guess is it would have taken much, much longer to get to the Web 2.0 stage. The huge explosion in on-line interactivity is based on a popular mind-set which rejects passive consumption, believes everyone has something valuable to share and revels in creativity. Moises Naim labels it the “mentality revolution”. It’s a big part of what the RSA calls the “power to create”. And it’s an outlook that has its roots in the social changes of the 1960s. The post-war generation just wouldn’t have ‘got’ the internet in the same way.
The internet is so good at releasing the ‘power to create’ because of its capacity to ‘disintermediate’. Those elite bodies that usually control what gets published, manufactured and funded are losing power at an astonishing speed as readers, customers, entrepreneurs secure direct access to writers, companies and investors.
And key to making this disintermediation work is the power of the web to ‘aggregate’ and create platforms where users can choose from a vast pool of options to shape what gets read, bought and funded.
Making politics more like the internet
This is hugely relevant for the popular alienation from politics. Unlike the web, politics is jam-packed with intermediaries (ministers, MPs, Spads, officials, researchers, councillors, mayors, think tanks) and is run by platforms (political parties and large media outlets) where agendas are shaped in ways that are utterly alien and bemusing to the great majority.
Most discussion about politics and the internet focuses on how MPs and others can better use the internet to ‘engage’ with voters. This misses the point. The key question to ask is: how can politics be more like the internet so that it better reflects the expectations of a generation that loves the web?
Answering this would mean disintermediating politics and ensuring that genuine aggregation occurs. Innovations like NHS Citizen give a hint of what that might involve.
NHS Citizen has been designed to ‘discover’ what issues are genuinely concerning people about healthcare, provide a ‘gather’ process where those issues can be debated more deeply and get aggregated into an agenda, and then call an ‘assembly’ where representatives can hold the NHS England executive officers to account in line with that agenda.
NHS Citizen does make wide use of the internet. But this is far less important than the fact that it reflects the spirit of the internet. It is deliberately designed to create agendas and ultimately decisions that are not shaped by layers of intermediaries and where aggregation is as neutral as possible to reflect what people really care about.
Politics without parties, papers and point-scorers
Thinking about what such an ethos might mean for national politics shows how far we have to go to create a system that overcomes deep seated alienation.
It would be a world free of political parties which claim to be the great aggregators of the system but whose agendas, in reality, are deeply shaped by the ideological prejudices of activists and MPs and the self-interested calculations of their leaders.
The big media outlets that have such a grip (despite shrunken circulations and ratings) on political agendas and decisions would be far less important than spaces (probably mostly on-line) where citizens discussed issues directly with each other without the benefit of columnists and editorials.
And Parliament would be a place where MPs meaningfully navigated their way through to a consensus built around the considered views of citizens rather than follow the whips into lobbies while playing tiresome political games designed to get a grip on diminishing state power.
No chance of change!
There is not the slightest chance such a system will ever be created willingly by the political class. They are invested far, far too much – materially, intellectually and emotionally – in the current system. This means two things.
Firstly, mass alienation from politics is here to stay for a very long time. The idea that making PMQs less boisterous or introducing primaries is going to make any difference is clearly ludicrous. In fact, the whole conventional constitutional reform agenda (elected House of Lords, written constitution, PR etc.), probably has no bearing on ending popular alienation in the light of Naim’s mentality revolution.
Secondly, change of this sort – what might be called ‘creative democracy’ – is only going to emerge gradually in different public spaces such as the NHS, the police service and local authorities. Then there might come a point at which national politics is so degraded by having lost power to institutions with much more meaningful mandates for its decisions that it has no choice but to change. Here’s hoping!
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Here at the RSA, we’re getting very interested in what we call the ‘Power to Create’: the notion that by unleashing the desire of billions to turn their own, unique ideas into reality, we’ll all end up richer, solve some of our biggest problems and feel a lot more fulfilled along the way.
It occurred to me today that the fascinating saga of Bitcoin tells you a lot about the idea and, in particular, why the Power to Create notion can be so exciting, dangerous and bemusing simultaneously. So here’s a rapid fire tour of the idea by way of Bitcoin.
1. Great ideas can come from anyone, anywhere.
By any measure, Bitcoin is an astonishing achievement. To create a new global currency that is engaging increasing numbers across the world every day is a mind-bogglingly original and, so far, effective idea. But it did not come from any of the titanic organisations of the financial world but from an anonymous individual or group of individuals who claim to be from Japan (but probably aren’t). It is one sign that sometimes the people you think should have the best ideas (or who claim to have the best ideas) can be outrun by those thinking in a completely different way. This is why Bitcoin is now far from alone – dozens of crypto-currencies are springing up in its wake such as Namecoin, Litecoin and Peercoin. Like most great ideas, there is soon a long queue of diverse people who can’t wait to develop and build on it all bringing their own unique perspective and added value.
2. Unleashing the Power to Create is just plain good.
Much public debate these days is what philosophers call “consequentialist”. We try to understand proposals for change in terms of whether they have beneficial or damaging consequences. A very great deal of public debate is consequentialist. But sometimes you just have to admit that something is good because it is a fundamental feature of what it is to be human. Turning an idea into reality, using your ‘power to create’ is just such a good. Bitcoin is no different in that regard to the cave paintings of Lascaux.
Once Satoshi Nakamoto had got the idea for Bitcoin, I doubt anything could have stopped her, him or them making a reality of it. The same goes for all the crypto-currency creators around the world.
3. Releasing the Power to Create will help solve our problems.
However, letting thousands or even millions have a crack at solving problems is far more likely to yield results than relying on a select group of bureaucrats, professionals or experts. The huge advances that have been made in living standards and well-being over the last 250 years derive directly from the unleashing of creativity of a much wider group of ‘low-born’ thinkers and innovators associated with the scientific and industrial revolution of the 18th century.
The immediate problem Bitcoin solves is the need to trade anonymously (admittedly not always for the best of intentions) but clearly it also provides a unique store of value for others.
But the Holy Grail that crypto-currencies might one day secure (undoubtedly some time off) is the creation of a global medium of exchange that eliminates the national currency fluctuations that obstruct and slow trade and cause so much economic volatility. In effect, in a century we may have a global Euro but one (or more) chosen voluntarily by the world’s people rather than imposed by governments. Chances are that currency won’t be Bitcoin but it could well be a descendant of it.
4. A lot of people don’t like the Power to Create
Everyone loves creativity, right? Absolutely. That is until it challenges their power, position or privileges. Bitcoin and its cousins are small fry right now but they are growing quickly. Already the supposed guardians of our money – the central banks are getting twitchy. It’s telling that the two countries that have so far proved most hostile to Bitcoin and have taken active steps to suppress it are a one-party oligarchy (China) and an increasingly authoritarian semi-autocracy (Russia).
But across the world, right and left now buy into a policy consensus that says control of a nation’s money is the best way for them to shape an economy in the way they see fit. That consensus justifies the huge power held by Central Banks (and has done no harm to the balance sheets of commercial banks either). Once crypto-currencies place real monetary power in the hands of ordinary businesses and consumers, expect a backlash.
5. The Power to Create is troubling and dangerous
No doubt such a backlash will make much of the damage that could be done by Bitcoin et al. But the problem with letting creativity out of its cage is that outcomes always are deeply unpredictable and often not benign. A few sentences ago I suggested a monetary utopia free of national currency barriers. It’s quite possible, however, that a dystopia awaits: one where poorly regulated monetary institutions ruin investors, criminals trade anonymously and where business is severely damaged because no-one really knows whether the currency they are using will still exist tomorrow. Alternatively, because of these problems, crypto-currencies will remain a marginal affair, of interest only to the risk-takers and the naïve.
6. The problems of the Power to Create can only be solved by unleashing more Power to Create
The solution, however, is not to crush nor attempt to control the power to create. As William Shipley (the RSA’s founder) recognised 250 years ago, the answer is to apply the power to create to the less happy consequences of creativity. This is, in fact, what is happening in the world of crypto-currencies. Namecoin, Litecoin etc. are not simply replicas of Bitcoin. Each one is an experiment trialling different ways to address the weaknesses of Bitcoin and crypto-currencies more generally. The same is true of the different monetary institutions that are springing up around Bitcoin. The fact that a major Bitcoin exchange, which was widely perceived as flawed by experts, collapsed a few days ago without bringing confidence in the whole crypto-currency system down with it suggests the power to create is working just as it should.
7. There has never been a better time to unleash the Power to Create
Bitcoin is not the first attempt to launch currencies free from the control of central banks and governments. But what makes it different is, of course, the internet. Innovations can be shared and used so much more easily and widely now. The web is a huge machine that has enhanced the power to create a hundred fold.
For that reason, what Bitcoin could do to the world of currency is just a hint of what can happen in every area of life as the potential of this new tool inspires billions to turn their ideas into reality across the globe.
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The ‘Power to Create‘ is the notion that by unleashing the deep desire of billions to turn their ideas into reality we will not only stand a better chance of solving our biggest problems but will become a more fulfilled and happier species in the process. It is becoming an increasingly central idea to the way the RSA sees itself, the world and the future. This is an edited version of a presentation I gave about the Power to Create at the RSA’s staff away-day. (Huge thanks to Travis Wentworth who helped with the research and look of the presentation.)
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