Bottom Up Economics

What would a system based on increasing not quantity, but quality of all life look like? All projections are speculative, but any will differ substantially from the current tech-based, growth-oriented system. But as long as “establishment” business leaders are in the grip of the current system, they are stuck projecting extensions of the current system.

For example, the recent Davos, Switzerland meeting of the rich and famous had the theme Mastering the Fourth Industrial Revolution. Its premise was that by disrupting old ways of doing things, computerization will keep the global economy expanding.

Speakers addressed whatever they wanted anyway, of course. Some expressed concern about genetic engineering using its new tool, CRISPR-Cas9, which enables precise gene editing. Given that, sooner or later someone will custom edit human genes, but are we wise enough to engineer our own genetic destinies? For example, could babies designed to be Einsteins also be open to unintended medical conditions not seen before?

Others questioned the advance of artificial intelligence (AI) and robotics. Many agreed with critics like Stephen Hawking that AI needs tight regulation lest it turn on us. For example, battle robots can already defeat humans at some tasks. Could they be hacked – or could they totally escape human control and wreak havoc on their own?

However, the interest of many macroeconomists at Davos remained priming global economic growth, by high tech or low. China is slowing, and despite quantitative easing and interest rates that in some cases are negative, stagnant economies are not resuming high growth. Bedeviled by uncertainty, economists feared that the next bust of the global financial system could be harder to patch over than in 2008.

Jonas Prising, CEO of ManpowerGroup summarized the frustration, “The current system feels broken. We see high unemployment with unfilled jobs, rising productivity with stagnant wages, and economic recovery with declining upward mobility. Sixty percent of people now live in countries with stagnant or shrinking workforces.” A stock prescription was more STEM education, but paradoxically, all of the top 10 work skills projected for the future were “soft,” including one called “cognitive flexibility.”

Interpreting what’s happening by a marketing rationale has become confusing. For example, petroleum is an energy base for any modern economy. The U.S. industry just sank about $1 trillion in oil and gas fracking, torpedoed by low global oil prices before it could pay off. Mothballed rigs have saddled the industry with $200 billion or so of debt.

Oil exporting states “defending market share” fired the torpedo. They stand to lose at least $1 trillion in foregone revenue. Storage tanks are full. High cost pumpers are losing. However, nations depending on oil exports can’t “afford” to stop pumping, so they are depleting their financial reserves to pay government expenses. This has morphed a conventional market into a shoot out among international fossil fuel pumpers. Whose pumps will be left squirting, and how many uninvolved people are collateral damage?

Conventional private oil industry analysis centers on re-priming market growth. Oil pundits are trying to talk up growth in demand. In this quest they regard problems like CO2 in the air or extraction polluting the ground as minor irritants. The nationalized oil producers see additional problems.

Oil income is a big fraction of government revenue in the hardest hit countries. Sensing that the party may be winding down, some are suddenly becoming serious about a post oil economy. Saudi Arabia, for example, cut perks for all citizens and plans to train natives to run their own oil fields. Beyond that, Saudis should learn to care for their own welfare more and depend on foreigners less.

Why not turn thinking about this situation upside down? Envision what we must do to sustain quality of all life, both humans and nature. To do that, build our economic thinking from the bottom upward. Start, not with companies seeking markets, but with communities experimenting, learning to live well and to preserve natural life all around them. A locality contains all the variables in a complex system, and at a scale that real people might deal with holistically.

But learning to live well while using much less contradicts growth economics. When people at the grass roots level care both for themselves and for nature in their locality they create their own jobs. The more they do for themselves, the less they need from elsewhere, but theirs need not be lives of severe deprivation. Localization immunizes them from the worst excesses of cleverly marketed, but unnecessary goods and services – demand that is created to keep financial flows going, if not jobs.

Why might localization take hold if globalization takes a hit? Globalization treats many people as cogs in its consumption machine, always in deep financial muck, and if unneeded, expendable. True, most poor people today possess more than the poor of 100 years ago. Technology from radios to smart phones lets them experience more, even if vicariously. And on average, they live longer.

But the poor and the declining middle class are frustrated in a global, transactional economy. They have little control over their destiny. Thomas Picketty argues that income inequality is inevitable if the rate of return to capital exceeds the economic growth rate. Inherited wealth gets richer; the working poor get poorer and deeper in debt. To keep this from escalating into a class divide – or a social explosion – our core economic system has to change — and beyond increasing taxes on wealth as Picketty recommends.

The divide between rich and poor is big and widening. According to the Bureau of the Census, the top 20% average $1.4 million in net worth (assets – debt), while the bottom 20% are negative $32,000, deep in hock. The next higher 20% are barely above water financially.

Poor people can’t even afford bankruptcy fees. An Economist survey showed the fees and inconvenience of banks drive the poor to alternative financing, like check cashing and title loan outlets. Interest rates run 3-400%, but the penalty for a bounced check would be higher, and they are ever a hairbreadth from a bounce.

True, some of the poor have dysfunctional lives and substance abuse problems, but in a modern economy, nearly all spend all their income staying alive. BLS data shows the poorest paying over 40% of their income on utilities and housing in sub-prime mortgage land. Any dip triggers utility cut offs or evictions. Per the Wall Street Journal, they spend a bigger percentage of their income on food that is poorer in quality.

Despite incentives to obtain heath insurance, a Kaiser Foundation survey disclosed that the main reason the poor don’t have it is that they can’t afford the premiums – and can’t pay the providers either. The high cost of health care and other benefits is why employers do not want to take on more fully-covered employees than necessary. The middle class too is slowly becoming uncovered.

If you are not dirt poor yourself, you are most likely to see the poor waiting in offices, shuffling between bureaucratic snafus. Many can’t hold a steady job because either they are sick or they are tending someone who is.

From the lofty perch of say, myopic oil industry execs, this problem is invisible because of their paradigm: Energy powers an economy. Economic growth betters life for all. Just wait, all boats will float – no problem. Likewise, environmental degradation is a minor irritant. Income inequality and chronic underemployment are distant social problems. Focused on delivering oil and gas, the only relevant social problems relate to having qualified employees when needed because the industry has a graying workforce.

The oil industry is big and visible, but many other business-oriented people share their viewpoints. If the viability of ongoing business is seen as the magic that resolves all other problems, why worry about other problems.

We can’t go back to the imagined halcyon days of the 1950s, which weren’t great for all citizens, but we thought everything would get better. Back-to-the-future solutions are unlikely to be enough. We need differently motivated micro-economy experiments. Start with the basics needed to live in this new world, and build a new economy on that vision. This goes well beyond monetary economics; we need a different set of social contracts and an expanded set of skills as “responsible citizens.”

The gap between business thinking and practices to improve the quality of all life is so big that communities are a better place to start. There, all the variables come together in a natural and economic microcosm that real people might deal with.

Communities have a reason to want to live better while using much less. Businesses stuck in their old market growth paradigm don’t. The economists at places like Davos would have to invent new macro policies. Instead of kick starting lethargic economic growth, promote quality of life in communities.

From the viewpoint of those trampled under transactional economics anyway, there is little to lose. The challenge is for these communities to develop into fast-learning organizations to cope with their issues using systems thinking that eludes businesses that focused narrowly on markets, although global in reach. Perhaps some enlightened businesses can actually figure out how to help communities do better with less. That’s upside down from normal business logic – so different that to do it, almost any company has to completely rethink its objectives and organization.

To address such challenges, both companies and communities need to become Vigorous Learning Organizations (VLOs), a completely different idea of how to function. For a VLO to work, people have to work through the first learning hurdle, agreeing on the purpose of their work. Otherwise, everything is just politics as usual. The first category of problem solving below is straight from some of the best companies, but any organization that can muster the discipline for it can learn to practice all three.

  1. Some forms of PDCA (including A3; TWI, etc.) These emphasize concentrating on processes and agreeing on facts (whether cued from Big Data or just by looking).
  1. Dialog for Change, a way to resolve or dissolve issues in which we have clashing beliefs, different perspectives, or clashing interests.
  1. Becoming a Vigorous Learning Organization, meaning to become very flexible addressing new problems as they arise and quickly determining what to do. (Much of this is learning from experience — by doing, rather than researching what others have done, although that is helpful.)
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