Part 2 - Chapter 3

How do we know our economy?

The authors set out how we are embedded within, shaped by, and actively shaping, our economy. To understand the economy, we have to engage in 28 forms of thought (set out in Chapter 9) because it cannot be seen by examining its parts. To understand it, the inter-connectedness and relationships within it need to be grasped, and the stories that drive it need to be revealed. Economy is invented through stories and the authors track the stories that classical economist tell us to reproduce our understanding of our economies. Goods have value according to the meaning we them them.

Provisioning

Thr authors advance the view that economies work when citizens are provided with the goods and services they want and need, and are not working when they do not. The economy is a tool invented to do the job of provisioning. Three building blocks are capitals, currencies and marketplaces.

Multiple Capitals

Capitals are stores of value, whereas currencies represent flows of capital when they put to work to support life. Markets regulate the flows and exchanges of capitals (and capitals may flow in opposite directions - e.g. human capital in exchange for financial capital). The authors regard the Integrated Reporting initiates ‘six capitals’ as the minimum requirement. (The descriptions here are not as sophisticated as those published elsewhere in the FairShares Wiki, see Capital, and some need updating).

The first step in reform is to identify a currency other than money to represent each capital. Sticking with financial metaphors, the authors talk about our overdraft regarding natural capital and the need to pay it back. “We need businesses designed to multiply these capitals as well as financial capitals” (p. 58). Human capital is scarce in the sense of having the skills and abilities to ‘pay back’ the natural capital overdraft we have used up.

Nature as an Economy

Energy is the core capital of nature, and it is possible to look at all living thing through the ways they exchange and expend energy to achieve specific ends. Fats, carbohydrates and proteins are the currencies of nature and they are highly tradable across living things and they are constantly regenerated in nature. Days of life is advanced as a measure (e.g. a cup of oil may provide for 1 more week of life). Natural markets include an energy market where trades may be equitable or brutally asymetric (e.g. a predator eating its prey to acquire energy stored in fats and muscle tissue). Ants create collective collaborative markets for sophisticated exchanges and mutual benefits. Mycelia in mushrooms transfer nutrients - a currency - through the forests of the world. With the exception of energy provided by the sun, nature is generative and this provides a lens and story for rethinking economy. The metaphor is that an economy is “any mechanism where valuable capital flows, via a currency, from where it is abundant to where it is scare”.

Failure in Western Economies

The authors assume the economy is failing, using I, Daniel Blake as a proxy for the failure. The concept of seven generations is introduced as a norm for traditional economies. The limited timescale for future harvests is cited as a failure too.

[Climate crisis is taken as a given, but William Methven would have a field day with the claims here. It comes across as polemical, not scientifically defensible - the claims are too bold for the evidence available].

Property in low lying areas are cited as an example of the disconnect between existing views of value, and future value. With rising sea levels, future value of London properties should bring down today’s prices. (p.61).

Is it our ‘old’ lenses that prevent us from seeing what is coming?

The authors introduce the precariat as further evidence of the economy failing to provision us. The tentative solutions are the FairShares Commons and unconditional basic income (UBI).

Provisioning All of Us

To provide for all creates security for each and all of us. As happened in quantum physics (integrating the dialectics of particles and waves) so we need to integrate thinking to broaden the capitals, currencies and marketplaces we talk about in our theories of economics.

Stories that define our economy

The authors introduce Schiller’s narrative economics. Using the example looking at the economy as based on property, it looks different to seeing it through the lens of interactivity. Multiple perspectives are required to become transformative. (p.64).

Economies and Identity

The author's illustrate how economies have an identity through their meaning-making stories (e.g. American made by free individuals, free of government interference, succeed or fail on your own merits). This is compared to the meaning-making story that defined Russian economic development (a job for everyone, basic needs covered). Arguing for the quantum word of 'complementary pairs', the best each each is combined to create entrepreneurial innovation, high regeneration of all capitals, and basic needs met through new forms of security that come from meaningful gainful work.

[Editor's note - this is far from a new narrative, and it is not 'up-to-date' in terms of differentiating philanthropic and mutual alternatives within the social economy, and how they compete with each other as well as states and capitalist markets. Ellerman articulated this 'third way' beautifully in his 1990 book in 'The Democratic Firm', but let's see how the meaning-making narrative emerges in this book].

Complimentary pairs

The interactivity of parts, and observer effects, means giving up on social science based on the hope of predictability. The intellectual skill here is accepting what is unknowable, and accepting capitalism and socialism as a complimentary pair rather that opposites. In addition, there is the complimentary triangle of consumer, investor and worker. Every worker is also a consumer, and many are also investors (through pensions or direct investments).

Another meaning-making story is 'maximising shareholder value. This differs from the meaning-making in the original Quaker businesses of being of service to the community, whilst receiving an individual shareholder benefit. In the 1960s, the story of 'shareholder value' (supposedly because they were 'undercompensated') began to take root (p.67). Referring (implicitly) to transaction cost economics and the theory of the firm, the authors show how the meaning of the firm was stripped down to its existence as a 'series of assets' and 'contracts' between owners of the assets.

[Editor's note - this is much the same as Marx's analysis of 1844].

Biases in Economics

Drawing attention to 'uncertainty avoidance bias' and 'authority bias', the authors show how each makes it harder to know how economies work. The latter is problematic wherever people accept 'authority-figure' assessments without checking information themselves (p. 68). The status quo is not the only possible capitalism.

Stock markets and the myth of consumer sovereignty

The authors draw attention to the disparity between companies as commodities (bought and sold on stock markets) and companies and non-human legal persons. The consumer sovereignty myth is cited as something that obscures investor primacy.

Current and Future Challenges

Identifying emerging narratives will change our conceptions of the economy. The emergent narratives include: climate crisis; ever-narrowing specialist knowledge; renewable energy; artificial intelligence; scarcity of fresh water; internet of things/big data; basic income.

The authors argue we are approaching a point where the individual can not longer be the primary element of reality. [Echoing Bill Drayton, the founder of US social entrepreneurship], the authors want everyone to be entrepreneurial and innovative. The patrons of the past who supported scientist need to be replaced by resources in wider society.

They also argue that competitive edge depends less on knowledge, and more on interactivity and creativity.

To deliver the new reality, the concept of basic income needs to be combined with FairShares Commons - so that all individuals can be creative without fear (p. 71). If FairShares Commons Companies can remove the fear of AI and AG (augmented reality), and provide the incomes that previously the state might be asked to pay out (as benefits), people continue to participate in governance decisions. It frees people to 'find ways of contributing value to themselves, their peers and the economy as a whole).

The economy cannot be controlled

We face adaptive challenges that the current economic system cannot resolve, and in doing so we need to evolve beyond our current 'natures' to adapt the nature of the challenges. The authors advance the Cynefin diagram (simple, complicated, complex, chaos, disorder) to describe five conditions which shape social relations and economic activity.

• Simple conditions enable the development of 'best practice' solutions because little changes.
• Complicated situations require 'good practices' because conditions are variable and collectable data is not timely enough to determine best practice.
• Complex situations defy (quantitative) data analysis as data changes so fast in such unpredictable ways, the adaptive small scale behaviour is the only possible response.
• Chaos describes situations where so much is happening so quickly, that an immediate large reactions is requires to create a patterns of activity.
• Disorder describes situations where all you can do is hope.

Most of the time our world Cynefin complex/chaos, but we are led by people who pretend it is simple/complicated (p.74)

Institutions

The authors introduce the need (and value of) institutions, and how they are related to our hidden meaning-making stories.

Freedom

Freedom is a complex multi-faceted concept covering: freedom to move within any relevant physical space; freedom to join and develop social spaces/networks (places of work, churches, social groups); freedom to become who you want to be. Boundaries might limit our freedom(s), but also provide everyone with choices. Freedom to move is a negotiation in which we are constrained by others exercising their freedoms too. The authors argue that some constrains should come from stakeholders 'yet to be born'. We should not do today that which will limit the freedoms of future generations.

Stakeholders

"Each of us is who we are because of who we all are." (p. 76) The authors define stakeholders as entities that have an interest in other entities (both human and non-human). They also frame the natural environment as a stakeholder (as it too 'has a stake'). Echoing the learning activity of the FairShares Association, the authors use a catering metaphor to show how founders can join many different stakeholder groups.

Stakeholders do not have hard boundaries (and can 'flow into each other'). Using knowledge of physics, the integration of waves and particles in theory, so too the soft fluid nature of change and flux needs recognition in enterprise development (and theory), eventual re-normalised in practice activities.

Property

This leads into new thinking in relation to property. Contrasting the Indian ownership of land prior to European settlers, with the system of agricultural ownership, the authors contrast the idea that a person should be able to claim 'stewardship rights' over any part of the commons that they work on versus the right to claim 'ownership' on the basis of a capacity to generate (financial) wealth. In the former system, no 'rents' are payable (for the right to use land) [access is viable membership], whereas in the latter system rents are demands to gain access to land. The authors argue that the latter property system is at the root of the climate crisis, but the stakeholders requires to steward the land (i.e. natural resources) have been excluded from its governance.

The modern concept of ownership is still anathema (inconceivable) to old cultures and religions. We can reframe enterprise to regard everyone as both steward and beneficiary of a Commons that no one owns.

[p. 79 is oddly worded, but the above is faithful to the argument developing].

The story of property is a story of separation and exclusion, and whilst that functioned for our parents and grandparents, in the context of climate crisis, they need re-evaluating.

Capitalism

Adam Smith's view of capitalism was of people free and able to look after themselves without being indebted, with the balance maintained by God for the greater good. This meaning-making narrative has shaped modern society. Whilst the story has been corrupted by the way money developed on the basis of debt, part of the story shapes modern capitalism.

The authors link Adam Smith's view of capitalism with the regenerative model they advocate, not the corrupted version based on private property and debt finance. For the authors:

"regenerative capitalism includes all capitals [natural, human, social, intellectual, manufactured and financial], all currencies, up to and including the capital and currencies of our planet's ecosystem" (p. 80). The authors seeks to identify that part of capitalism that needs to be retained and which parts changed.

[Editors note: there is a conundrum here that once you include 'all capitals' (and private property), an economy ceases to be capitalist in the sense of being guided by the logics of increasing financial capital. I don't think the authors' capitalism is capitalism any more - but I understand that their argument is for a capitalism of all the capitals, not just one].

Capitalism is contested ("an entire bookshelf of meaning-making stories fighting or supremacy" (p. 81). However, property is central, on the basis that only a person/entity owing something in which they have a self-interest can take decisions that are best for it. The authors state quickly they will challenge this is Chapter 4 because it is 'patently false' in some situations, times and places.

A regenerative economy requires different meaning-making stories around property and freedom. (p.81).

The authors argue for some retention of the idea of property, but also to move beyond 'owning' and 'non-owning' into a zero-marginal cost economy (one where there is almost no additional cost to produce more existing goods and services). They claim that if this is achieved the complimentary pairs of 'owning' / 'non-owning', 'private property' / 'commons', 'capitalism' / 'socialism' start to break down. Furthermore, 'profit maximisation' has a transformed if the orientation is towards maximising production of all Six Forms of Wealth.

On power, the authors argue for a new 'power balance' between contributors of different forms of capital, and this requires us to 'step away from the meaning-making story of capitalism today' towards a story that repairs the 'life-carrying capacity of our planet and society'. (p.83)

Institution: Money vs Currency

Money is not neutral, and the next phrase of economic theory is to study how the nature of money shapes business decisions (and is not just a 'backdrop' to the economy). Money supply is increased as interest on debts paid gradually increase the money supply and are re-circulated into active economic activity.

Using the example of investing in different local currencies, the authors show that the same calculations (of nett present value) would be different in different currencies. Each currency has its own underpinning story (and this shapes its value). For example, the return on 'money' ($, £, €) is higher for pine trees, by on 'Terra' it is higher on oak trees (as more of the Terra currency is created if oak trees are planted).

The chapter concludes with a look ahead to the challenges of creating a world that uses a selection of currencies that match each form of Capital required for a regenerative economy.

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