Sunday 30 October 2011

Occupy the Economy

Much has been written recently about the rise of a new protest movement. A movement that occupies commercial space to protest against the global capitalist system which they believe to be steeped in inequality. They claim to represent the 99% of society that have suffered from the credit crunch, high unemployment, low growth rate and the government's austerity program. In New York this has taken the form of Occupy Wall Street where a camp of protesters has taken up residence in Liberty Plaza. Occupy Wall Street itself takes its inspiration from the Egyptian protesters whose occupation Tahir Square in Cairo was instrumental in the downfall of Hosni Mubarak earlier this year. In London a similar demonstration was planned to occupy Paternoster Square outside the London Stock Exchange. Upon finding that this square had been closed by the police, they instead have set up camp in the adjacent area outside St Paul's Cathedral.

These occupy movements are different from previous anti-capitalist protests in that they lack a central leadership, a core demographic of members and clear stated goals or grievances. They use a consensus decision making model to plan action across the myriad of different groups which have joined the protest. In many ways the Occupy Movement is The Culture of Resistance, although they do not represent all of the Culture which is an even more diverse anti-establishment group. But the Occupy Movement represents a subset of the Culture of Resistance that has mobilized to take direct action. The Occupy Movement is an expression of dissatisfaction with the current capitalist hegemony. It is not exactly a defined political movement in itself as it lacks set goals and memberships, which is also one of the defining features of the Culture of Resistance.

Technology has allowed these decentralized protests to take place. Social networks such as Twitter and instant messaging programs such as BBM have allowed the disaffected to communicate with each other and organize a protest without the need for a central authority. The new technology has allowed those looking to start a protest to connect with those who are feeling alienated by the current political and economic system.

Expressions of alienation and dissatisfaction via online social-networks have culminated to create an Ecosystem of Discontent within the social network. Heightened chatter in the Ecosystem of Discontent creates the feeling that the physical space is safe for direct action. In other words the more people discuss the Occupy Movement on a social network, and how alienated people are by mainstream politics, the more appealing the occupation itself becomes to members of the Culture of Resistance. The ecosystem just needs a single event focused around a specific action or group to begin the chatter. Unlike in the past, the vanguard that begin the chatter and created (sometimes without intention) the ecosystem are not necessarily the ones who shape its development into direct action. Any node in the ecosystem can influence its development and those involved in its creation frequently have nothing to do with the point when the ecosystem achieves the critical mass required to spill into a real world protest. It is the Ecosystem of Discontent and the connections to strangers possible through social networking that allow the idea of the protest to spread beyond the group who initially conceived it to encompass the huge variety of seemingly unconnected people found in the Occupy Movement.

The existence of the Occupy Movement is evidence of the growing mobilization of the Culture of Resistance and growing dissatisfaction with the status quo. Unemployment, poverty and poor growth is drawing more people into the Culture of Resistance and technology is allowing them to become involved with ecosystems facilitating direct action.

The next question is, what can economists do about the situation to improve people's material circumstances and halt the growing tide of alienation. The answer is not the obvious one of getting the economy growing again as fast as possible, as the dissatisfaction currently felt has its roots in the recent decades of economic prosperity.

What economists can do to help is reexamine their thinking. The Occupy Movement is further evidence that current neo-liberal consensus is not working. Previously we believed that the best course of action was to grow the economy as a whole, and through the infamous Trickle Down Effect all sections of society will benefit from increased wealth. Although during the boom all sections of society where wealthier than they had been the past this did not make everyone content. Inequality between the rich and the poor has grown during the Thatcher, Major, Blair and Brown years. The divide between the rich and poor is greater now than it was in the late 1970s. Class mobility has decreased over the same period. If you are born poor now you are more likely to die poor than if you were born in the years following the Second World War. This situation has been created by our neo-liberal economic policy and huge sections of society are clearly not happy about this.

Many people in the Occupy Movement are middle class. The people who stand to benefit from the neo-liberal agenda but have grave concerns about the kind of society that we are becoming by following this agenda. To continue down the route we have been following is for the gap between the rich and poor to grow wider and wealth to remain trapped amongst a privileged few.

We need a new way of thinking about our economy which must involve a revival of the economics of equality and full employment. We need to do away with the attitude that by making it easier for private business we are benefiting all of society. Other new as yet unknown ways of thinking about economics will also be needed but I feel that certainly a good place to start is look at a commitment to greater wealth equality. The outdated neo-liberal view of economics is not working and people know it. Inequality will not stand and the best thing we as economists can do is find a way to more evenly allocate society’s scares resources.

Thursday 6 October 2011

Steve Jobs: An Obituary

"It was sponsored by that guy from Apple computers." - Homer Simpson, 1996

Today the word of Information Technology mourns the passing of a giant in the field, Steve Jobs. The Apple logo, and technical innovations such as the iPod and Macs, have become synonymous with the information age and the very idea of western capitalism. No one more than Jobs incorporated the ideal of the capitalist system. Adopted by a working class family, Jobs grew up to co-found the world's largest technology firm and amass a personal net worth of $8.3bn. He also embodied a middle-class aspiration of incorporating creativity and design into his firm's USP. Apple's innovations were as much artistic and design triumphs as they were technical and financial successes.

It is difficult to overstate the influence Jobs has had. His early Macs where the first computers to use a mouse and the Graphical User Interface (GUI), which allowed them to move away from the previous Command Line Interface and bring personal computing to the less technically minded. It is very telling that Apple's OS operating system has the most logical names for features (Finder and Trash versus Explorer and Recycle Bin); this is because they were the first into this brave new territory and were able to coin the names. As well as defining the personal computer, his firm still sets the benchmark in modern computing. All modern smart phones are modelled heavily on the original iPhone design, and the iPod is the baseline by which all personal MP3 players are measured.

Jobs' financial successes are also many. When he returned to Apple in 1997, he took the firm from being literally a joke (see the 1996 Simpsons episode Homerpalooza for proof how much of a joke Apple was before Job's return), to eclipse the behemoths Microsoft and IBM and become the world's largest technology company, with a market capitalization of over $350bn. More than any other CEO, Jobs led from the front, his personality being inseparable from the brand and his trademark keynote addresses a defining feature of their new product launches. Apple more than any other technology company has fans as opposed to customers, and devotees would queue for hours to see the man in person and catch a glimpse of the latest products.

Regent Street
Tributes to Steve Jobs outside the Apple Store on Regents Street, London



Under Job's leadership Apple have become a powerhouse of creative and technical accomplishments. The brand has a reputation for being original and for being the best choice for digital artists, graphic designers, and many others in fields where computing and creativity go hand in hand. Always with a keen eye for good business ventures, they have sponsored smaller firms to great technical innovations. It is telling that it was Jobs who first saw the possibilities that Pixar offered when he bought the company in 1986. It is difficult to say which direction the company will move in now, but it is clear that the new CEO, Tim Cook, has some very large shoes to fill.

I started by saving that Steve Jobs epitomised a western capitalist ideal and I will conclude by returning to this point. The foundation stone of western capitalist society is the belief that personal individualism can be expressed through mass produced consumer products. Apple is the pinnacle of this, as being an apple customer makes a statement about you as a person. No other innovator or company has been the alternative, rebel in the market (against the mainstream Microsoft) whilst being the larger, dominant, top-dog firm. The mark Steve Jobs left behind will be felt by his firm and his fans, and his accomplishments will belong to the ages. Truly today we have lost a great innovator and businessman.

Wednesday 5 October 2011

Do not let John Nash ruin the government

The current government is pursuing a program of public sector reforms more aggressively than any other previous administration. This is more than an effort to balance the budget but is an ideological drive to put the mantra of choice at the heart of state provided services. This notion of choice is borrowed from the market meaning of the word as in competitions between different providers offering a range of services and products. In the market, the spending choice of the consumer is the feedback mechanism which determines which products remain on the market and which are withdrawn. When the government says choice what they actually mean is competition between providers with public choice acting as the feedback mechanise. Through their reforms the government intend to create a market for public services.

For those on the right these reforms represent an opportunity to inject market efficiencies into the ailing public infrastructure. For those on the left, this bill is seen as an attempt to privatise by stealth publicly owned industry.

The changes being put forward by the coalition government will allow private companies, charities and groups of private individuals to bid to run local services. Charities or parent groups can bid to run schools. Patient groups can bid to run hospitals. GPs will be allowed to choose which providers they purchase health care from. All of this is driven by the view that the competition created by a choice will make public spending more efficient. What I fear the most is that the coalition government’s plans will have the opposite result from what they intend, that their reforms will lead to a much more inefficient public sector.

The idea of introducing market based competition to the public sector is not new. It first emerged in the late 1970s as John Forbes Nash, Jr.’s economic theory became widely accepted. Nash posseted that individual’s selfishness will always undermine the success of government programs. He believed that competition for resources between departments and programs as well as competition between individuals for promotions would ultimately sabotage the best interests of government. The TV show Yes Minister is Nash propaganda. The struggle between Sir Humphrey and Jim Hacker usually ends up derailing both of their schemes.

Margret Thatcher was a big believer in both the works of John Nash and Yes Minister and dismantled the old consensus of government work as public service which Nash believed was impossible. In its place she and those who followed her have put the mantra of free market competition as the optimum method to distributed resources.

This legacy was continued by the following Labour government and now redoubled under the current coalition. The logic of Cameron is that the competition in state services will use the profit maximizing incentive to harness the power of human selfishness to create the most efficient public sector. As in the private sector, costs to consumers will be driven down (in other words taxes will be lower) and output will be raised in the form waiting lists disappearing.

Rather than apply market efficiencies to public services, these reforms will fall victim to the very pitfalls Nash railed against. The powers given over the external bodies which will run our public services will effectively make them the new management class of the public sector. Instead of using their new powers to drive down costs, a perverse incentive to raise costs will be created by management’s selfish drive to maximize their wages and bonuses.

We have seen this demonstrated during the banking crisis. Unbridled self-interest was let loose on our finical markets in the belief that this will build a robust finical system through optimising the allocation of funds to where they were most effective. The motivation for optimum fund allocation was drawn from the monetary incentive offered to investment managers. However, the selfish motivation for personal wealth failed to create the most efficient banking system and ultimately led to a deeply flawed system vulnerable to collapse.

The government’s reforms will also cause public sector efficiency to suffer by reducing the quality of services provided to the public. This is because most of these external bodies outside government that will be competing to run our services will either be or function as private companies and will follow a profit maximising incentive. The incentive to increase profits will cause the external bodies to drive down the cost of delivery public services as the government has planned but this will not always be through a more efficient allocation of resources. In some cases this cost savings will take the form of reducing the quality of services delivered to the public. This behaviour will be reinforced by the profit maximising incentive of because the profits for these external bodies will be the remainder left over from our taxes after the external body has delivered the service. A good example of this process is the collapse in the nutritional value of school meals since the service was privatised.

Economic efficiency is not always a job done at the lowest cost by cutting as many corners as possible. Sometimes it costs more for a job to be done more effectively. A good demonstration of this is investment in infrastructure and training staff which can be expensive and drive up the costs of delivering a service; however, there are net gains for the whole economy derived from improved infrastructure and having a better trained workforce. Long-term investments such as these will suffer under a system drive by a short-term profit maximising incentive.

Much has been written about the perils of privatizing public services at the lowest cost per unit. I will not insult the writers who can explain these problems much more eloquently than I by paraphrasing them here. I seek simply to debunk the idea that enlightened self-interest will lead to the most efficient economic system.

My message to MPs is not to let John Nash and selfishness run our public services. Headlines of waiting lists and rising costs might prompt radical change but once we open up a closed system to market competition it will be all but impossible to restore the values of government work as public service. Selfishness will not optimize state provided services but will instead provide new inefficiencies. We should think gravely about the consequences of opening the door to competition in the public sector. These reforms will offer the public a choice between a series of cost-cutting, bloated over paid private organizations. This is not the road to economic efficiency in public services.