Monday, 14 June 2010

Towards Economic Stability

In my previous post, I reproduced a large chunk of a text I wrote in 2006 about the state of the economy and where it seems to be going, given the other tendencies I've already discussed in this blog elsewhere. I realized afterwards that I had failed to copy all of my text over... but just as well, as the posting was already way longer than it should be to be readable. The text is better broken into shorter pieces.

However, before going on to the next part of the chapter on the economy (which goes into more detail about the "shadow economy"), I have been thinking about the situation with regard to the social economy and have gained what I think are some important insights (that can be stated concisely!).

In the first part of the first decade of the 21st century, the talk about the social economy was primarily organized around NGOs and organizations that harness volonteer work. Already, it was becoming clear that the social economy, even viewed within this, rather narrow, framework, already represents some 25% to 30% of the "productivity" of most developed states.

However, the first decade of the 21st century has seen the emergence of several new types of social economy, particularly in relation to the internet. For example, take Google. Google has built a profitable business on top of a free service, and the provision of its free services seems to be built into its business model. It is likely that, if ever Google reneged on its provision of free search capabilities, its dominance of the internet marketplace would founder. Hence, although Google is a company with a bottom line in dollars, it also has a "community service" bottom line which is, in some ways, more important than its monetary value. Google is not the only internet company like this. These "hybrids" have developed a way to make money on top of a free community service. As such, these companies are a part of the social economy, even as they also share in the monetary economy.

Why is it necessary to define these as different economies - after all, social and community services can be bought and sold - a monetary value can be assigned to them. The reason has to do with this dual "bottom line". A company whose "value" can be reduced to a monetary bottom line, which makes it or breaks it only in terms of its financial stability and worth, belongs to the monetary economy. A company such as Google (or Etsy, or Linden Labs, and there are many others on the net) must maintain its monetary bottom line, but if it loses its social bottom line, it is also "more dead in the water than if it failed on its monetary bottom line". These companies are as defined by their social agenda as by their financial business models.

This type of company is both growing in impact and in sheer numbers of successful outfits. From a marginal phenomenon in the late 20th century, these social hybrids have become major players in today's economy. In tomorrow's economy, they risk becoming dominant players, not just major ones, especially as many mainstream companies are forced to adopt more of a social image as well.

In my previous post, I talked about the fallacy of the managed global economy. Money is not the simple thing the economic pundits would have you believe, it is actually something which by its very nature is highly paradoxical, and hence its management is next to impossible. In earlier postings, I suggested that the world is headed for a series of "crises" over the next twenty-five to thirty years, each of which will move us forward and closer to the convergent, post-sustainable world outlined in these pages (and elsewhere!). The US housing crisis of 2008 was the first major crisis, the collapse of the Greek economy the second. Both of these are events that occurred to nations, but both have had lasting and profound effects on the world's economy. There are signs that other economies may also be in trouble - there have been rumours of difficulties similar to those of Greece in Spain and Italy and other European nations. Last week, the new Japanese prime minister made a public announcement that the Japanese economy is tottering on top of a collosal national debt.

These crises look purely economic in nature, but they are not. They have profound impacts throughout our societies, especially towards how our societies are organized. The housing crisis led to a questioning of banking practice and to changes in the regulatory structure around banking. Banking, of course, is at the heart of our monetary system. Changes to the nature of banking represent changes with profound influence throughout society.

While I indicated that the global economy cannot be easily managed, and though the series of crises that have started to emerge it have made it clear that the global economy is, in fact, highly volatile, the growth of the social economy is actually a sign of change for the better. In essence, the stronger the social economy becomes, the more stable the total economy and the less dependent we all are on the ups and downs of the monetary economy. Remember that one of the consequences of the Great Depression was the beginnings of the Welfare State, that is, the emergence of a significant Social Economy. Each financial crisis strengthens the social economy.

This increased stability is precisely what is needed to handle a zero-growth economy. A zero-growth economy that is purely monetary in scope cannot be stable. Within the convergent, peripheralized world, as indicated earlier, extremes co-habit neighborhoods. Money, which is a complex manifestation of our social sense of economic value, is therefore pulled and pushed by more extreme ideas as part of normal operation. As a result, monetary stability will necessarily decrease, at least over the short term. However, the social economy is common to all the different, interacting groups, and hence will act as a stabilizer. Without the social economy, we would have been doomed to a wildly fluctuating world economy, of which the signs are already present. With a strong social economy, this will damp itself out to some extent. The more we can do to strengthen the social economy, the better.

With the emergence of the third component of the new economy, what I call the shadow economy, we have the three components of a stable total economy in a zero growth world. Value will be determined not only in terms of "money", but also in terms of community benefit (and also as means of disengaging from the community via the shadow economy). Although community benefit can be "monetarized" the model is different. Money is a value exchange commodity. Community benefit is not an exchange - it is a production, a gift, a giving away. Although it can be monetarized, experience has shown that when community benefit if fully monetarized, it loses its "benefit". Community benefit, by its very nature, cannot be converted to an exchange value. This does not mean that one cannot exchange community benefits - indeed, to the extent that one can, community benefit can be monetarized. But it cannot be fully monetarized.

The fact that acts of benefiting the community cannot be fully monetarized because they do not involve a mutual act of exchange between individuals, but rather an act of "giving away" to a collective, is the reason why the social economy is distinct from the monetary economy (or exchange economy, which might be the better term for it), and has very different dynamics. Indeed, part of the act of "giving" includes a "giving up" of control over the results of the act. In mutual exchange, control is also exchanged with ownership. In true altruistic behavior towards the collective, control is abandoned.

It may be that the inability of standard economic theory to deal with a zero-growth economy or, indeed, to stabilize the world economy is a result of its failure to recognize the value of altruism as an economic force (alternatively, its failure to recognize anything else except mutual exchange). Although altruism has been long suspect in our societies, much of the internet is built on altruistic acts. Altruism towards the collective is here to stay.

Fortunately, the somewhat dismal picture of the economy in crisis is offset by the more hopeful image that is developing from the still growing rise of the social economy. We expect the latter to begin to dominate the former as the world situation evolves over the next two decades. The only "dark" element that now needs to be integrated into this model is the so-called shadow economy, which also has its role to play.