At the root of what I would call ‘social accountancy’ is how money has become divorced from its reason for existence. It is now a ‘thing’ in its own right, seeming to be building a life of its own.
One reason for this is the way it is accounted for, particularly in terms of the short-term, bean-counting model currently called accountancy. A change in that model to one that included and accommodated what money achieved when being used, might be more beneficial.
This idea started years ago when people used to call Concorde a ‘White Elephant’. Yet I would argue it cost hardly anything because building it, then using it, kept thousands employed directly, who all paid tax, and then many others employed indirectly, who also paid tax. The money kept moving, and hundreds of thousands, if not millions, enjoyed a reasonable life… arguably not bad for a White Elephant.
And lessons were learned – not least being the huge technological spin-offs that have led to other businesses growing, where people are employed and….pay tax. An obvious example here is DARPA, the US Government’s Defense Advanced Research Projects Agency whose work led directly to the development of the internet. And look how many new businesses have sprung from that.
A more topical example is the planned Government investment of £9.8m in Nissan’s much lauded new car venture, which is expected to yield ’2,000 new jobs’. If we were to assume a collective average wage of £26,000 and a 20% income tax take, that equals £10,400,000 a year in income tax: a complete Return on Investment in less than one year. Many businesses would kill for that.
Going back to Concorde: From the signing of the contract the two governments invested heavily as staff were employed and contractors signed up. The staff were paid, and in those days income tax rates were higher than today. So let’s say some 30% (on average) of that salary bill came straight back to the Government in income tax. In practice it was probably more.
But now extend the idea. One example: any education the new staff needed required not just trainers but an organisation to support them. The trainers, the support staff and even the builders paid income tax. Add the shopkeepers, energy suppliers, transport providers (even if that is just shoe leather), farmers and food processors, and a panoply of others – all making a living, all paying income tax.
One person’s disposable income became the next person’s salary and a source of income tax.
Yet modern accountancy models oblige businesses to, for example, close down here and move off-shore because the manufacturing costs – to just that business – are lower. In fact the money system (such as the stock market) even ‘praises’ them for doing so.
But neither the company nor the stock market has to account for the people put out of work – no longer paying tax, and requiring support from the benefits system. That is a model where money wins for its own sake – not for the sake of the people whom it once served.
And such actions also give other countries an income tax bonanza which maybe the UK should be getting.
The by-products in terms of wider economic growth, more contented and fulfilled people and intangibles such as reduced load on law and order services, the health service and a wide range of other services cannot be fathomed because we have no process that can account for them as part of the ‘whole’.
Is our present trajectory completely mad? What do you think?
Bravo! Moving from a growth economy to a sustainability economy is the single most important thing any of us can do for the world. I had high hopes that the so-called advanced nations would seize the opportunity of the collapse of 2007-8 to fundamentally change the basis on which “the system” operates, but no. But I am continually heartened by the number of people who are committed to their communities, to local, sustainable food production (no, you don’t need “fresh” bell peppers in January), and to significantly reducing disposable goods consumption. Yes, if everyone consumes less, less production will be needed. But less money will also be needed, so people can work fewer hours on their primary jobs and spend more time being productive in the home environment (growing and cooking fresh food). The more of these conversations that take place, the more we increase the likelihood of reaching sustainability, at least in our local areas.
“Is our present trajectory completely mad?” In a word, yes. At least it is unsustainable, self-defeating, and probably a greater threat to the world that incoming asteroids, nuclear proliferation and the Yellowstone caldera put together.
It ought to be clear to even a child that money only has value as a token of exchange. Wealth, like electricity, is not a static concept. It’s only when it flows that it has value and utility. You can buy sweeties with pocket money, if you have it. If you put it in a piggy bank, it’s only useful for future sweeties. But if you don’t buy sweeties, confectioners go out of business. Then what use is your money?
To put this another way. Mr Rich might pay Mr Poor to grow food or build houses or make iPads for him. Mr Poor then has some money to trade for his needs too. But if no exchange is forthcoming, money may as well not exist and they all starve.
Well, Mr Rich didn’t get where he is by empathy with the wretched of the Earth. He wants more for less, and he has the relative power to skew the notion of fair exchange toward distinctly unfair. But there are limits to self-interest, which generally come in the form of scarcity, angry mobs, crime and general unpleasantness that even gated communities can’t insulate against.
In other words, money is a potential for making the world more to our liking by moving from one place to another. Fairness is much more than some vague moral relative here. It’s more like a physical component. Unfairness is the equivalent of an electrical resistance that impedes flow and wastes utility. A wealthy economy is one where exchange is prolific and fair. In an unfair economy exchange can be prolific but will be useless, since the exploited parties are denied adequate reward they are denied participation.
Worse still is the economy where a lot of money is stored into assets where it can achieve nothing.
We seem to have attained a situation where financial organisations invent money out of thin air via fractional reserve banking, then speculatively accumulate it into assets exactly so it cannot move anywhere or do anything useful. The assets and derivatives are then leveraged and traded, sucking yet more capital into a vortex of biblical social dis-utility.
More recently this has been aided and abetted by Governments QE to inject further liquidity and prevent the whole shell game from stalling. It should not surprise anyone that very little of this money has found its way into the real economy. The banks are the gatekeepers and habituated to greater profit from the casino regardless of the social consequences. There’s little reason to take on the risks that they have themselves generated, no matter how much government shouts at them that they must lend to foster growth. Where is the prospect for growth when demand is strangled by austerity [tm] and bail-out costs? It’s a far better bet for all the cheap, freshly-minted cash to be lobbed into bond and commodity speculation, oil, food, metals. The bank is betting against us, not for.
Like a vast tapeworm, the banking system simply has no concept of symbiosis let alone the live-and-let-live necessity of fairness. Given the chance it will kill its host. The concept of making money by trading money is essentially pass the parcel, back eventually to some poor sod somewhere in the real economy, with an army of profit seeking middlemen ensuring that the exchange is as inefficient and unfair as possible.
In perspective, the markets are now a giant tail wagging a very small and helpless dog. c.2002 an economist – I am now not sure who, possibly Nouriel Rabini – calculated that the value of financial assets traded on the worlds markets during a single day exceeded by 10,000x the total value of real trade for goods and services in the world. This was, he said “the economics of the madhouse”. That was before high frequency trading, a lot of deregulation, the explosion in Forex, CDI’s, systemic fraud and the credit crunch.
I don’t see this playing out well unless and until politicians see the need for reform of the monetary system, banks and markets.
We are so embedded in market ideology that we lack even the tools of discourse now. There is a single unopposed conventional wisdom since communism obligingly collapsed of its own contradictions 20 years ago. This shouldn’t surprise, Marx predated psychology and a prescription for humans that ignores human self interest is clearly doomed. But Capitalists took this as an endorsement of market ideology, of the virtue of selfishness, and it never was. Rapacious unfairness and greed is a brake on development, an incitement to corruption and conflict and source of untold misery and squandered potential. It denies the other half of our human nature, the need for community, security and interdependence. This is a small planet now. Either we get a grip on fairness as a vital parameter of our economic ecosystem, or Darwin will sort us out.
I just read a different tilt at the same mailaise, by Danny Schecter. Excellent stuff.
http://www.aljazeera.com/indepth/opinion/2012/04/2012415105257878742.html
Excellent piece. Great writing and great commentary. Thank you. I plan on sharing this with others. It should be an op-ed in the New York Times.