Lord Young’s report on micro-businesses contained some fascinating data pointing to radical change in the UK economy:
- in 1971 there were 820,000 small businesses in the UK; by 2000 there were 3.5 million
- since 2008, over half a million new businesses have been established
- 95.5% of all businesses are micro-businesses (with less than nine employees) accounting for 32% of private sector employment and 20% of private sector turnover – this makes micro-businesses a far more important part of the economy than SMEs with between 10 and 249 employees
- most notably the number of microbusinesses has been rising inexorably since 2000 – there are 40% more of them now whereas all other sizes of business have remained static or even fallen.
I wonder if anyone, for example, has explored a possible link between the well-evidenced growth in hostility towards the welfare state and the rise of the micro-business. It seems at least possible that if you have much larger numbers of people working as sole traders or leading businesses that they are less likely to have sympathy for welfare claimants exhibiting no entrepreneurial spirit. It’s not so much a ‘get on your bike and find a job’ but a ‘get on the internet and start a business’ attitude that might be growing.
It could also start having a very big impact on how we understand routes to a fairer economy. Both right and left see the growth of traditional organisations in the private and public sectors as the key to more jobs which ultimately leads to greater wealth shared out more fairly. The left, of course, tends to favour a bigger role for the public sector in this while the right tends to favour the private sector.
But if millions of people are establishing their own businesses then the imperatives shift. What is required is not the expansion of the leviathans of the public or private sectors but precisely the opposite. The big players would need to be encouraged to get out of the way to allow more business activity and hence more wealth to flow to the growing ranks of micro-businesses. That might mean looking very hard at all the subsidies, regulations, legal structures and political prejudices that keep those leviathans in place.
For example, how would we bring about a micro-business revolution in banking, energy generation, transport or construction? It can’t just be through the sort of exhortation and very minor interventions Lord Young recommends. Surely the oligopolies that exist in key parts of the economy that have yet to see a micro-business revolution need to face a more forceful policy challenge.
It was Friedrich Hayek’s birthday yesterday. Were he actually alive I imagine he’d be having a rye chuckle at today’s criticism of the Queen’s Speech which, despite including twenty-one parliamentary bills most of which either extend or tinker with regulations, has been accused of not having enough in it or even of being a laissez-faire programme.
The Nobel Laureate is reviled and loved in equal measure but here’s three reasons from me why I think he should be read whether you agree with him or not.
1. Hayek is a great counter-point to our dominant culture of ‘do something’ politics. In a world of highly competitive political parties and 24 hour news coverage, the pressure on governments to be seen to be taking action in the face of any and every problem is intense. Sometimes it is undoubtedly right for governments to act but Hayek offers an important challenge to the easy assumption that the blunt instrument of legislation is any match for the highly complex world of distributed information in which we live. For FH, this was nowhere more the case than in economic policy where the best governmental intentions can often lead to awful consequences particularly over that deeply unfashionable time period: the long run.
2. Hayek was more subtle and complex than many of his opponents and proponents recognise. He is, of course, regarded today as the high priest of laissez faire, sink-or-swim economics. What Mao’s Little Red Book was for the Chinese Communist Party, The Road to Serfdom has become for Tea Party sorts in the US. What is less acknowledged by both sides is that Hayek argued that certain state protections did have to be extended to citizens. For example, he was a supporter of a universal basic income: the guarantee of a flat rate income to all citizens without conditionality. Indeed, it has even been asserted by some that Hayek was much closer to being a moderate social democrat than a classical liberal.
3. Hayek could never be accused of thinking boom and bust had been abolished. While our most influential economic policy-makers and more than a few economists may have convinced themselves that The Great Moderation was some sort of proof that the biggest economic challenges had been cracked, I think we can be pretty sure that Hayek would have thought no such thing. Based on his analysis of trade cycles in his early academic career, Hayek argued that rapid swings in economic fortunes were only exacerbated by the efforts of governments and central banks to stimulate growth. The idea popular in the nineties and noughties that committees of economists and politicians could tweak fiscal and monetary policy to keep the economy chugging along nicely as though they were the Captain of a ship gently touching the tiller would have had him chortling into his Viennese coffee.
Like any thinker of Hayek’s prolific output and enormous influence, he wrote and said a lot of things that were less impressive than his best work and in the case of his warm words for Chilean dictator Pinochet shameful and bemusing. And, of course, those who fundamentally disagree with his beliefs also have a lot of good arguments and evidence on their side. But there is a bracing quality to Hayek’s work and more than a little wisdom worthy of consideration by all whatever their values and outlook.
Anthony Painter is the newest Director in the RSA’s Action and Research Centre leading on the Independent Review of the Police Federation for which the RSA is acting as secretariat. Here he argues that the UK’s democracy will be severely tested by the rise of UKIP.
UKIP has captured the headlines following their first convincing performance in a set of local elections. What has been largely ignored is that these results may hint at something rather more profound. It is commonplace to explain away any seemingly new political development as the ‘same as it ever was’. Yet, there is the possibility that the emergence of UKIP is just the latest manifestation of democratic stress. If so, this would have serious consequences for the ability of any party to govern effectively in the near future- even if they were in possession of a majority.
The psephologists, Colin Rallings and Michael Thrasher, project a small Labour majority on the basis of Thursday’s vote. This is rather unsurprising given that we are mid-way through the Parliamentary term. What is surprising is that this majority is secured on the basis of a 29 per cent national equivalent vote.
Given the very inefficient way that our electoral system turns support into seats, its singular virtue is that it produces majorities which, it is argued, is a recipe for stable government. Interestingly, in 1992-97 it failed to cushion the then Government from the instability of a small majority. Then in this Parliament it has failed to engineer a majority. In two parliaments of the last five, the UK has had either an absence of stability or majority. The benefits of the current system are over-stated.
At the same time, the negatives are considerable. Imagine for a moment that Thursday’s result was replicated in 2015. This is not a forecast, it should be emphasised but a low support, majority government is entirely with the realms of possibility. On the basis of national support of 29 per cent, we would have a Labour Government faced with enormous national challenges, having to make very difficult and unpopular decisions, with a majority of a handful of seats that would leave it susceptible to backbench rebellion. Unless some magical economic fairy bestowed her generosity on the Government, it is not difficult to imagine such a Government going into rapid meltdown at the first sign of difficulty. It is a shocking prospect. It would be a Government of the few at risk of capture by the even fewer.
Electoral democracy is a special type of ‘market’. In the UK’s case, it has exceedingly high barriers to entry. Dominant market players rarely become extinct in western democracies. In the UK’s case, it is even harder for the major three parties to face such a prospect – they just continue for long periods of time with a low market share. This was the case for Labour in the 1980s and the Conservatives in the 2000s. UKIP, like the SDP and the Green party before it, challenges the status quo and is likely to find convincing market entry beyond reach.
It’s rather like Napster and the music industry. They will create panic for a while – witness the Tories calling for an early European referendum – but eventually the market structure and legal framework will prove formidable. Eventually, the upstart is neutered then subsumed.
Before it collapsed, the SDP to a certain extent helped Margaret Thatcher to a landslide in 1983 and in part spawned New Labour. Like the SDP, UKIP will leave its mark as it responds to a portion of the electorate who are perturbed – even angry – at both political elites and the nature of national, cultural and economic change. The Searchlight ‘Fear and Hope Report’ suggested that this could be around 20 per cent or so of the electorate in England. It is not inconceivable that UKIP will win a seat or even a very small handful of seats at the next election. If they get their organisation right, they now know where their potential support is concentrated following Thursday’s results. Beyond that, it is difficult to see them making any real progress unless we are seeing a seismic re-configuration of the political ‘market’.
It would be easy to dismiss such a scenario but I wouldn’t completely rule it out. Again, building on the low support, small majority Labour government scenario, adding in two or three UKIP MPs, a Conservative party in disarray post-2015 and a distrusted Liberal Democratic party, where will disaffected voters then turn? What is being described here is a completely dysfunctional market. When we add in the diminishing ability of parties to hold on to support as voters become more footloose, it compounds the problem.
The desire to rig the market-place protects the dominant players but potentially undermines the market itself. Democracy is not a luxury product but nor is it a necessity – large numbers of people can simply choose not to participate with no noticeable and immediate direct impact on their lives.
We are in a situation of democratic stress . Political leaders of the dominant parties have two broad options. They can accept the risk, trusting the system to resolve itself and eradicate new entrants. This option means accepting that the space of democratic party politics may well diminish further. Or they can open out.
This means unpicking nepotistic, guild-like structures that retain control for a self-chosen few nationally and locally. Having used the duopolistic structure of the political ‘market’ to shield themselves, like any bureaucratic institution the major parties have failed to innovate and are now paying the price. The alternative path is to change parties as institutions through such mechanisms as primaries and looking at how to open out the electoral system and wider democracy. Yes, AV failed but it was a system promising little or even negative change. Constitutional reform may well be the preserve of ‘chattering classes’ but disdain for the current state of the UK politics is widespread. Linking that to change could be the route to real reform.
Given the strong path dependency that exists within party structures and amongst the leaders who have benefited from them, it is entirely likely that today’s leaders will choose the risk option over opening out. They have been warned: just occasionally it is not just the same as it ever was.
One of the frequent accusations of inconsistency thrown at UKIP is that this self-proclaimed libertarian party wants tight controls on immigration, would like to ban gay marriage and even once flirted with the idea of making the veil illegal. These positions are, of course, incompatible with libertarianism. Even the so-called ‘paleolibertarians’ who combine a strong cultural and social conservatism with a libertarian outlook don’t call for the state to impose their views.
However, UKIP are hardly alone when it comes to a confused mix of commitments to freedom and coercion. This is an issue that cuts across every major party. Farage and co. are just more noticeable because of that eye-catching claim to the libertarian tradition.
Take banking, for example. As has been pointed out widely elsewhere, demanding ever tighter regulation of the financial sector is hardly compatible with a desire for much greater competition amongst banks. Either the freedom of doing a certain type of business is tightly constrained by state agencies thus reducing the number of people willing and able to undertake that business or it is not. And yet this ‘more regulation and more competition’ position is one now held by all the major parties.
Then there’s welfare. Every mainstream politician will, of course, proclaim their utter commitment to the basic liberal principle that state interference in a citizen’s daily life is only justified to prevent serious harm to others. And yet, strangely, this view ceases to apply in the case of the unemployed. Once someone is receiving unemployment benefit the limitations on what the state can demand of a citizen are suddenly much looser.
Did that child benefit recipient consider contraception?
Even the recently canonised Margaret Thatcher managed to build a whole ideological outlook based on an inconsistent approach to freedom summed up nicely in the title of Andrew Gamble’s influential book on Thatcherism: The Free Economy and the Strong State. As was pointed out at the time, and as it did indeed turn out, offering people greater economic freedom while demanding that they all behave like the bourgeoisie of Victorian mythology was hardly sustainable. Freedom is catching and once you have it in one area of your life you tend to want it in every other area.
So while Farage will rightly face an increasingly tough scrutiny from the other parties maybe they should reflect on the fact that UKIP are maybe just a less sophisticated version of their own contradictions.
One of the best aspects of the RSA is its ethos of trusting in the general public to come up with solutions to big problems. Indeed the Society’s raison d’etre for a very large part of its existence was to offer cash prizes and honours to anyone who could develop new inventions or ideas in response to challenges set by the RSA. It was by this method, for example, that the Society played a central role in revolutionising agricultural practices in the eighteenth century.
It’s a spirit which seems in short supply these days. Since the Crash, the claim that only the state and its agencies can solve our biggest economic problems has grown ever louder. As a result, the arrival of a new Governor at the Bank of England becomes a matter of the gravest importance. The Government itself is divided no less than four ways over what interventions it should make to get us back to growth. And HM Opposition’s almost entire beef with the Coalition is about the failure to intervene sufficiently to revive the economy.
The irony (not to say political narcissism) in all this is that major shifts are already underway which will entirely reshape the economy over the next few years. An RSA report published later today reveals how rapid change in the manufacturing sector promises to bring production back to the very nations that have spent the last two decades furiously out-sourcing to China and elsewhere. This will have a huge (potentially positive) impact on jobs, productivity, exports and growth over the next few years. Is this change a result of government policy? Not at all. As ever in the highly innovative economic system that the RSA did its bit to create 250 years ago, it is driven by a combination of technological change and unpredictable socio-economic phenomena – in this case rising production costs in China.
As Paul Ormerod has shown rather brilliantly in his work, the belief that state policy can have predictable effects in the face of a complex, dynamic system like the economy is largely false. The reason the delusion persists is as much the fault of Plato as of Keynes or Friedman.
Plato’s great achievement was to place truth-seeking at the absolute heart of human life. More questionable, although clearly worthy of debate, was his claim that there is an absolute, pristine truth out there just waiting to be discovered. Downright abysmal, however, was his argument that those who had ‘discovered’ that truth were the most qualified to rule: a perspective that has led to all sorts of damaging elitism and autocracy.
And yet it’s this spirit that informs our policy more now than it has done in decades. In central banks, economists pull their monetary levers based on their models and (usually flawed) forecasts as an expectant, largely passive public looks on. While in government, economic analyses and views have an overwhelming influence on policy today. If you doubt this look at the way the discovery of a single data error in a single economics paper became a global news event a couple of weeks ago.
This is truly the age of the philosopher kings. We are increasingly ruled by people who believe they have some superior technical insight into the workings of our world which qualifies them to manage the whole thing. Again, if you doubt this, read this very recent post by the high priest of Keynesian economists (although this is a delusion that afflicts the Friedmanite right as much as the Keynesian left).
I’m struggling now to write a concluding paragraph. That’s because questioning the Platonic perspective means it is much harder to come to clear, simple conclusions. By contrast a Platonic view of the world inevitably leads you to strong recommendations: my analysis shows the world has this form, so do what I say. One very significant reason why it remains (albeit unconsciously) popular with governments and leaders who always have to be seen to be doing something.
Suffice it to say, however, that the economy itself will keep on developing and shifting in highly unpredictable and radical ways (with nudges from independent bodies like the RSA) while the policy makers maintain their increasingly intense cycle of activity always linked but never quite connecting in the ways they claim with that economic change. The economy, given enough time, has a way of making the politics and even the economists ultimately something of a sideshow.
A poll found last week that only 26% believed public utilities were best run by private companies answerable to shareholders. Fully 61% thought they were better off located in the public sector.
This is a pretty resounding ‘no’ to the policy that came to define Thatcherism. It should also give the Government some pause given they are now planning another round of privatisation (£).
I think it is fair to assume that one key element behind the public hostility must be that those public utilities now in private hands are dominated by a small handful of companies that are disliked and distrusted. Firms that are seen as treating their customers as cash cows and offering poor service rarely win widespread public affection.
Despite the rhetoric of popular capitalism, Thatcher was better at delivering the capitalism part than the popular part
The problem originates back in the 1980s themselves when privatisation was delivered in such a way as to effectively replace public sector monopolies with private sector oligopolies. Despite the rhetoric of popular capitalism, the Thatcher era was much better at delivering the capitalism part than the popular part. Privatisation as it turned out was really a gift to a select group of big businesses rather than to a wider group of entrepreneurs and the general public. If the above poll is anything to go by, the result (as one might expect of an oligopolistic situation) is services delivered by organisations that are barely less remote from their customers’ interests than the public sector leviathans they replaced.
Given that harnessing the enormous power of popular innovation, enterprise and competition is a sound route to better products and services, the key question must be: can privatisation be done in a different way to prevent the rise of oligopolies and monopolies?
The Big Four Monopolies
We could do much worse here than look to the great nineteenth century opponent of monopoly, Benjamin Tucker. Tucker identified four areas of deeply embedded (and almost unquestioned) state-led practices that he felt kept business big in size but small in number and which effectively prevented a wider flourishing of entrepreneurialism and thus a fairer distribution of wealth and power.
The ‘Big Four’ for Tucker were:
- the protection offered to big banks through strict controls over who can issue currency and credit;
- the protection offered to big landowners by the enforcement of titles of ownership even if the owner has no link nor interest beyond the rent they can secure from the land;
- the protection offered to domestic companies through tariffs and subsidies;
- the protection offered to holders of intellectual property through patent and copyright law.
Others have noted that Tucker’s list is probably too short but nevertheless it is remarkable to note that (with the possible exception of tariffs), state intervention in these areas is as active now as it was when Tucker was writing in the 1880s. Were he alive today, Tucker would probably argue that it is hardly a surprise that we still face huge problems in relation to the use of and access to credit, real estate and, increasingly, intellectual property given that regulation ensures that the playing field is still skewed towards bigger, established and wealthier organisations rather than the smaller entrepreneur.
This actually directs the eye to another flagship policy of Thatcher – deregulation. For while some in Government may obsess about labour market and workplace regulation, they actually ignore the deeply embedded laws and rules that protect oligopolies and which do far more to prevent market entry, diversity and competition and ultimately undermine the potential benefits of privatisation.
Tucker’s approach suggests that the focus of any policy to spread the benefits of the free market into previously restricted areas should be on the dismantling of the legal structures that protect monopolies and oligopolies wherever they appear not primarily on the mere shifting of ownership from the taxpayer to shareholder. Demonopolisation rather than privatisation should be the goal.
Put another way, it is hardly worth privatising if such a process does not go hand-in-hand with a wider effort to challenge the legal and financial eco-system that favours big, established businesses over the small.
As the references to a long-dead political writer reveal, this is hardly a new area. But it seems to me to have added resonance today. If we are potentially on the brink of an entrepreneurial (or maybe I should say ‘venturist’) revolution driven by radically lowered costs for start-ups then to repeat the mistakes of previous privatisations would be less forgivable now than it ever was.
Every government wants entrepreneurs in its economy. They’re the innovators, the leaders, the job and wealth creators that any modern nation needs to compete and grow. The UK Government is no different: all sorts of initiatives and reforms are underway to encourage people – particularly younger people – to set up a business.
But the UK has a problem: there isn’t the same appetite for entrepreneurialism here as there is in other countries. For example, a recent study found that while 1 in 17 young people in the UK are actively involved in early stage entrepreneurial activity, the figure is 1 in 12 in Germany and 1 in 10 in the US.
Bring together a group of young entrepreneurs (as the RSA has done a lot recently) and pretty soon the conversation turns to the cultural barriers that exist in the UK to entrepreneurial activity. There just seems to be a greater fear of risk and maybe a whiff of moral doubt about going into business. Unfortunately, the conversation tends to stop there because while we can all dream up government policies on tax and regulation no-one really knows how to change culture.
no-one really knows how to change culture
So here’s a modest proposal (suggested only half in jest) to start breaking down the barriers: abolish the use of the word ‘entrepreneur’. This is why:
1. ‘Entrepreneur’ is associated with the wrong types of people.
From my own highly scientific straw polling, the word seems to conjure up two sorts: either the highly belligerent types seen on The Apprentice and Dragons’ Den or the money-grubbing untrustworthy characters that make regular appearances in soap operas such as Ian Beale in Eastenders. The underlying message being that unless you are very aggressive or morally dubious, the life of an entrepreneur is not for you.
Not only is this hardly a great incentive, it’s also untrue. The dozens of young entrepreneurs I have met in the last few months have (what a surprise) displayed a wide variety of personality types. A fierce commitment rather than a boorish aggression seems to be the only common feature.
2. ‘Entrepreneur’ is too closely associated with money.
I think many people probably believe that personal enrichment is the key motivation for entrepreneurs. Most all of us would like to be well-off, of course, but the young people I have met have their eye on a mission not money. They may be attracted by the idea of being rich but they seem to recognise that money flows naturally from the fulfilment of the drive to solve a problem or seize an opportunity not from the pursuit of wealth itself.
Those I have spoken to want greater literacy, more renewable energy, superior delivery of mental health services etc. etc. And they are convinced they have a better way of achieving those things. That’s what drives them, what gets them out of bed in the morning not the possibility of a bigger bank account.
In fact, a view of entrepreneurialism that captures this spirit far better than existing TV portrayals can be found in the rather brilliant Moo.com adverts.
This issue is important because it goes to the essence of those British concerns about the turpitude of the entrepreneur as a money-grubber rather than someone who has the wider good of the community at heart.
3. ‘Entrepreneur’ is associated with a narrow business model.
I think most people probably see the entrepreneur as someone who runs a limited liability company with the main eye on generating profit and maybe ultimately the sale of the firm to a bigger player. It’s a view which reinforces the belief that being an entrepreneur is about technical stuff like cash flow projections and company accounts. As well as reinforcing the view, once again, that entrepreneurs care more about the money than the mission.
But again based on the people I have met this seems a simplification. The young entrepreneurs I have spoken to value a diversity of forms including social enterprise, non-profits, co-operatives, charities, loose networks, partnerships as well as the more conventional limited company. And the diversity of legal forms speaks to a diversity of motivations and goals for young entrepreneurs that goes well beyond the standard ‘build it up and sell it on’ approach we are told afflicts the UK economy.
Of course if we do ban the word ‘entrepreneur’, we need to know what to put in its place. But ‘business person’ or ‘company director’ certainly don’t cut it.
Ian Beale has never called himself a ‘venturist’
My humble suggestion is ‘venturist’ meaning someone who sets up a venture. The reason is that ‘venture’ better captures the diversity of forms now attracting young people than ‘business’ or ‘enterprise’. It’s also a word that signifies an activity designed to achieve a goal or mission rather than being primarily about money. And, thankfully, Ian Beale, as far as I know, has never called himself a ‘venturist’.
And I realise I’m losing the plot now but ‘venturism’ has a solid teutonic feel to it while I can’t help feeling that that air of French ethereal intangibility that hangs around ‘entrepreneur’ does nothing to endear it to the anglo-saxon ear.
It’s not easy to agree with everything David Stockman says in his lengthy New York Times essay that has kicked off a big row in the US. The sweeping criticisms levelled by this former Republican Congressman and Reagan era official at Western and particularly US economic policy-making since the 1930s overlooks the fact that there have been extraordinary leaps in living standards and innovation in that time.
An Eye on the Big Picture
The reason is that Stockman has his eye on the very big picture in a way that mainstream politicians do not. Stockman asks hard questions not about the last five or ten years but about the last eighty years. This is important because in all the verbiage over the Crash and its repercussions, it rarely gets noted that we have lived in a very volatile economic world not since 2008 but since the mid-1970s.
Few commentators seem aware that, in the UK, recessions were negligible events for the thirty years after the second world war. If you judge recessions as two or more quarters of negative growth then there was one in in 1956 and one in 1961 but both were remarkably shallow and short-lived neither coming close to shaving even 1% off of GDP. Since the mid-seventies, the story has been very different. There have been long periods of growth and stability, of course, but there has also been no less than six recessions, three of which took over 3% off of GDP and two of which (1980 and 2008/09) were particularly deep and extended.
recessions were negligible events for the thirty years after the second world war
This matters enormously because in all the discussion about inequality, poverty, productivity and competitiveness, it rarely gets noted that the cumulative effect of a series of recessions can be hugely damaging in the long term in all of these areas. Understanding and debating the cause of our more recession prone economy would seem a fundamental condition of understanding how we address these profound problems. And yet the issue is very rarely discussed in those terms.
You may or may not agree with it but at least David Stockman tries to comes up with an answer:
With only brief interruptions, we’ve had eight decades of increasingly frenetic fiscal and monetary policy activism intended to counter the cyclical bumps and grinds of the free market and its purported tendency to underproduce jobs and economic output. The toll has been heavy.
He is particularly critical of the malign impact of activist monetary policy, pointing out that since Alan Greenspan opted for a loose money approach around the turn of this century …
… the payroll job count has crept up at a negligible 0.1 per cent annually. Real median family income growth has dropped 8 percent, and the number of full-time middle class jobs, 6 percent. The real net worth of the “bottom” 90 percent has dropped by one-fourth. The number of food stamp and disability aid recipients has more than doubled, to 59 million, about one in five Americans.
It is significant that his harshest words are reserved for Richard Nixon who decided to end the dollar peg to gold. Stockman feels this was the beginning of a particularly damaging period in US and global economic management. Notably it is also the period when the volatility mentioned above started.
Stockman’s harshest words are reserved for Richard Nixon
Seeking Historical Answers
The causality involved in these decisions and the phenomena to which Stockman links them can be disputed. There is also a fair amount of simplification. Many, for example, would argue for example that Nixon merely confirmed a de facto collapse of the Dollar peg.
Nevertheless, Stockman has had the courage to think big and to think genuinely historically. That is undoubtedly a good thing at a time when populations in the US and across Europe are increasingly asking hard questions about whether the current political and economic settlements, which have broadly been in place for decades, offer anything meaningful to working people. It is also particularly a good thing when mainstream political parties, such as those in the UK, are always looking to pin blame on incumbents or recent incumbents. A practice which ensures that debate never finds sources for our problems much further back than a few years and, as such, will probably never generate effective solutions.
For Marx, meaningful change would only come about when the workers seized control of the means of production. In his day that meant land, factory machinery and transport networks. Were he around now, I think he would probably cast a tired eye over the left’s moral crusading on executive remuneration and welfare payments and look instead with enthusiasm to what is stirring in the economy.
It is already widely noted how rapid technological change is transferring the power to design and manufacture from large companies into the hands of individuals and small networks. Less noticed is the way that a similar transfer of power is happening for other business practices associated with the service sector as much as manufacturing.
Marketing, for example, no longer requires expensive advertising or marketing departments but can be done through a skillful use of peer-to-peer online networks. Distribution can be conducted immediately and cheaply if your product is intellectual content but even if you are selling something with a physical form then firms like Ebay and Amazon offer sophisticated distribution infrastructures. R&D no longer requires an office full of pointy-heads as there is a sea of free advice out on the web if you know how to access it. Even the mysteries of the finance department are opening up to individuals and networks with the rise of crowdfunding and other investment sites.
what started as a consumers’ revolution is becoming a workers’ revolution
I have characterised this as a shift towards ‘self-generated value’ because consumers are creating the things they value for themselves rather than relying on business to do it. However, the capacity provided by the internet to generate this value for yourself also means the tools are now available to generate value for others. Millions of people are now producing on-line content or using the internet to provide fundamental support to their off-line activities. And many of those millions are finding ways to make money from that value generating activity. In effect, what started as a consumers’ revolution is becoming a workers’ revolution as people increasingly produce things directly for customers rather than having to work for a company to do this.
What Marx got wrong
However, Marx was very wrong about two things which explains why this is not a revolution he would entirely recognise.
Firstly, he believed fundamentally in the labour theory of value: the notion that the value of any commodity is determined by the work that has gone into producing it. For him the reason workers should seize the means of production is so they can lay claim to the full value that they, and they alone, have created.
Over the years, it is an economic theory that has taken a very serious intellectual battering. Quite rightly as it turns out because the shifts we are seeing towards self-generated value are not being driven by Marx’s concerns. Instead they owe far more to a strong desire to participate directly in the production of value for oneself and for others. Put another way, what is driving this is an entrepreneurial and creative spirit to generate value not a campaigning spirit to seize value.
Secondly, Marx saw the means of production being seized only when the workers acted collectively as a class to do so. Again, this is a theory that has been beaten to a pulp both intellectually and in reality as class allegiance has dwindled along with the industrial sector which Marx and Engels studied so closely. So the means of production are not being seized by unions and workers’ communes but by individuals and loose networks of individuals.
For these reasons, today’s Marxists who have noticed this shift to self-generated value either regard it as unimportant or as something to be appropriated by the ‘working class movement’ and transformed into a collectivist phenomena.
A new battle for economic control
Marx might have been more intellectually adventurous than today’s Marxists
I’d like to think that Marx himself might have been more intellectually adventurous. I wonder if what he might see in its very earliest stages is a conflict not over control of the existing means of production as such but over the right to use a new means of production free of the constraints imposed by those who control the older means of production. This is closer to what happened in the sixteenth and seventeenth centuries as merchants and early industrialists battled to loosen the old feudal nobility’s grip on property and trading law which had been established when the main means of production was the land.
So today we see those making wide use of new technologies struggling against the laws that served the interests of those who run the more centralised and closed economy of public corporations and large companies. Hence the battles over intellectual property law which is raging most acutely in the creative industries. The rather fraught relationship in the US between banking regulators and crowdfunding sites. And the emerging tensions between the users of the on-line currency Bitcoin and state officials.
However, the question Marx may have asked himself given his radical concerns is not only whether those who are seizing, or more accurately, transforming the means of production will triumph but whether their new power will be shared widely when they do. In short, is this really the coming of a new age of democratised ownership and trade or is it simply one elite facing down another?
Every Budget debate is a category error. The notion that decisions taken by a centralised, structured body like government can have a seamless impact on a dispersed, self-organising system like the economy is one of the great fallacies of our political era. But rather than acknowledge the vast obstacles this places in the way of meaningful economic policy, our public discourse is full of voices aghast at the wooden-headedness of a Chancellor failing to do the obvious thing.
And those voices should be considerably more wary of sounding too strident at a time of economic volatility. The tax cutters on one side of the party divide and the bond sellers on the other must know that when a person has to walk an unknown path they are bound to wear sensible shoes.
What responsible Chancellor is going to bet the farm on a radical course of action when unexpected events (of which there are many these days) could quickly negate any supposed benefit leaving him with an even bigger problem to resolve. Whiz bang solutions like slashing CGT or borrowing billions to spend on house building would fizzle like a damp sparkler should the Eurozone suddenly fall to a Cypriot contagion.
It is sad but true that when faced by the biggest economic test that the UK and the world has endured in many decades, the state is looking mighty small. What was never really in the gift of Chancellors – economic health – is even less available at a time of high risk and great uncertainty.
There is only one meaningful question we can ask ourselves at a time of economic crisis. It is not “what should the Chancellor do” but “what should I do”. It is the inestimable strength of capitalism that it generates growth not through the decree of a central authority but through the aggregated force of a million decisions made every day by millions of people some of which are tiny, some much larger. If we would but recognise it, the power to get the economy back on course rests in our hands.
The ideological out there will be rolling their eyes at the piety; they are after all mostly professional state botherers for whom every path to heaven and to hell passes straight through the doors of 10 and 11 Downing Street.
But get out of your party political citadel and talk to a younger generation and there is a spirit at large that entirely reflects this more voluntarist ethos. There is a fascination with practical ideas and with innovation. There is a fresh belief that rather than griping about a problem, the obligation is ours to resolve it. There is a desire to be an agent of change not as the baby boomers understood it – going on marches and ‘dropping out’ – but by establishing ventures that have an impact here and now. In short, it is a new entrepreneurial spirit but one applied not just to commercial business but also to charitable, public sector and network activity.
Hence the sudden sharp rise of the number of 18-29 year olds undertaking early stage entrepreneurial activity in the UK. And before the cynics claim this is a sort of forced entrepreneurialism brought about by a stagnant labour market, note that the great majority of young entrepreneurs deny this.
If we really do care about the state of the economy, rather than merely the state of our political credibility, then the best thing we can do is turn away from the bi-annual pantomime of financial statements and work out what our organisations – educational bodies, charities, businesses – can do to nurture and spread this youthful spirit of ‘venturism’. As the state cowers, the obligation can fall nowhere else but to us.
This post first appeared on the LSE British Politics and Policy Blog.