Where Do We Start?

This is the penultimate post of the blog, and in these final two posts I’m going to move towards some kind of conclusion.

All the technical economic analysis is contained in the previous sections of the blog (accessed through the menu bar above, and summarised on the Overview page). A repeated conclusion that stands out in that analysis is the role for government to directly intervene, shape and coordinate the functioning of the economy. This flies directly against the creed of mainstream economics and against what “everyone knows” – that the economy is best left to free markets and government intervention always makes things worse.

So this section of the blog, on ‘Political Economy’, has explored how these ideas have attained such dominance, despite having no basis in historical or economic fact. I’ve then gone on to explore what the role of government should be, and drawn the conclusion that this role is not to “plan” the economy and does not conform to any standard notion of socialist thought. In fact, we need to discover the precise role of government and the relationship between all actors in the economy through a process of learning.

Now this is potentially a complete cop-out – I can’t spend 3 years on a blog about how we create an economy that provides enough for everyone, and then conclude that the answer is we need to learn how to do it! So I wrote two posts looking at some literature on learning organisations, and demonstrating how these concepts are directly applicable to a society seeking to learn how to create a functional economy. I concluded with a post highlighting the ‘systems of innovation’ research, which reveals a wealth of empirical knowledge on how governments can actively promote innovation and growth.

But if what is required is a process of learning then it needs to have a starting point – a foundational assumption about the world on which all involved can agree, and upon which they can then build a body of knowledge based on evidence and rational analysis. In this post I am going to propose just such a starting point, that I believe can be acceptable to all mentally healthy people, and then next week I will list core facts about the economy which should be the focus for learning specifically about the economic life of humanity.

The starting point I propose is the oneness of the human race. Now you might think that’s a pretty broad and vague starting point, that it’s too soft and fluffy an idea to act as a solid foundation to begin thinking about economic life. But stay with me, because in this post I am going to show how the profound implications of this truth can transform the way we approach thinking about the economy.

But first of all, I just need to hammer home that this statement is a truth. It is a statement of scientific fact. Both biology and genetics absolutely affirm the truth that there is only one “race”, the human race. This is not a statement about equality – I’m not saying that all the “races” in the world are equal – I am saying that the very idea that there are different races is wrong. There is only one race, the human race, and you will not find a credible biologist or geneticist who disagrees.

The differences between people that, in everyday language, we describe as “race” are in fact differences in culture, where culture means the shared values and beliefs of a group of people giving them a common identity, and expressed through patterns of behaviour such as customs, traditions and social norms. This is why we today refer to “ethnic minorities” – no professional or academic working in fields studying questions of race unity or racial prejudice would ever talk about different “races”, they will refer to different ethnic groups.

Indeed, the only legitimate use of the word “race” is in the word “racism”. The ultimate fallacy of racism is not in seeing some ethnic groups as inferior, but in believing that you can actually make a distinction between different “races” in the first place. Racism is not just morally wrong, it is scientifically wrong and should not be tolerated to even the slightest degree by any society with pretensions to rational, intelligent thought.

But the principle of the oneness of the human race reaches beyond the issue of racism, and excludes any notion that any group of people in society is superior, be that on the basis of gender, nationality, religion, class etc…

And this brings us to a fact of human history that we need to come to grips with, to stare in the face, and to grasp its profound implications: every society and civilisation in the history of the human race has been built around some social, political and economic order that assumed a hierarchy based on the idea that one group within that society is intrinsically superior.

Most obviously this operates through some kind of class system, in which some people are born into the royal or aristocratic class. Sometimes this takes on a religious aspect, with the priestly class being seen as intrinsically superior. Between societies as well as within them, national or ethnic identity often becomes the defining marker of superiority, as does religion. We should not forget, of course, that in most societies, for most of human history, 50% of the population has been regarded as inferior and denied the opportunity to develop their potential and fully participate in society on the basis of their gender. And sometimes it is as basic as the colour of skin.

All of these prejudices – all of these denials of the oneness of the human race – found expression in the European empires. These were the embodiment of Christian, white, male, Western nationalism, while also being internally structured around a rigid class system. And these found their apogee in the British Empire, which dominated the world and even looked down its nose at its European counterparts.

Therefore, every society in human history, including Western civilisation, has been based on a denial of basic scientific reality. Wealth, power and opportunity were distributed according to systems based on the believed superiority and entitlement of specific groups.

Now you may say, “But Bill, life isn’t like that now. No decent person believes in the superiority of white men any more. The law prevents discrimination on any of these grounds. That’s one of the things that makes the West so great.” (Do you see what I did there?)

Even if these statements were true, there was no point when our society said, “You know what, we’ve based our social, political and economic order on prejudiced beliefs that have disadvantaged different sections of society. We therefore need to address the disadvantage caused by these historic injustices.”

And because no effort has ever been made to address these injustices, we have to conclude that the current distribution of resources, wealth and opportunity in the world continues to be unjust. And this becomes the significant starting point for considering economic intervention.

One detailed example will help highlight my point. The Home Owners’ Loan Corporation (HOLC) was a US Government agency responsible for providing assistance to home owners in mortgage arrears. In 1935 it mapped 239 cities, indicating how secure each neighbourhood was for mortgage lending by outlining them in different colours. Those considered least secure were outlined in red, from which we now get the phrase “redlining”. The HOLC would usually mark predominantly black neighbourhoods in red in an openly racist way, regardless of the level of income.

The upshot was that after the Second World War, when working class white Americans were increasingly able to get themselves on the housing ladder, even affluent, middle-class African Americans could find it difficult to secure a mortgage because they lived in a redlined neighbourhood. The practice was described in some detail as it affected Atlanta in a series of Pullitzer Prize-winning articles by Bill Dedman in 1988. The practice was outlawed in the 1970s, but carried on unofficially. Shockingly, as recently as 2015 a string of banks were successfully sued for racially profiling mortgage applicants.

Now this sounds pretty bad already, but the real horror for the social fabric of the US unfolds when you pause to consider the long term economic effects of this. Mortgages are cheaper than rent, so of course these families now had more income for other things. And over time they owned their own homes and could leave this wealth to their descendants. But most importantly, this meant that as homeowners repaid their mortgages they now owned capital in their homes, against which they could borrow. So working class white families could start to put their children “through college” (as they say in the US). And this opened up a whole new world of possibilities for these children, in terms of jobs, income, social standing, prestige, etc. Today, their grandchildren, great-grandchildren and even great-great-grandchildren will have been able to likewise benefit from a university education and push themselves up the social ladder, all the while believing that this is because of their own hard work and intelligence and not recognising the systematic discrimination at the heart of their society. How often do we see extreme, angry reactions from some white people in the US when it is ever suggested that they have benefited from an unjust system?

It is hard to imagine peace in the US until this sordid history is acknowledged, apologised for, and steps taken to redress. But the purpose here is not to demonise the USA. And I must emphasise that I wrote the first draft of this post before George Floyd’s murder and everything that has since ensued. Even though it may seem to make this post more relevant, I don’t want this to be viewed as a commentary on this specific issue.

Because every country in the world has its similarly shameful history. Sitting there pointing the finger at the US can just be a way to avoid looking at uncomfortable truths closer to home.

So let us take a broader view by looking at the same issue at the international level. The concept of reparations is well known – that countries that suffered from imperial domination or from slavery should now receive some form of compensation. It is a concept with which I have great sympathy. And in the most extreme cases – for example, the treatment of Haiti by France and the USA – the case for direct compensation seems indisputable.

But is it really possible to identify all these injustices and set a price tag on them? And even if we could, does that really constitute justice? Does the West really believe there is a monetary amount sufficient to repay their debts to the countries on whose subjugation and on the theft of whose wealth their own fortunes are built?

So here is an alternative way forward. We could accept and acknowledge that the current distribution of wealth, power and opportunity is based on historic injustice (even if not perpetrated by the current beneficiaries). We could then commit to doing what it takes to create an economy that provides enough for everyone – providing the education, the infrastructure, the access to markets, so that all can earn a living that enables them to purchase the necessities of life, working in decent conditions for a reasonable number of hours. Wherever this is not happening, we could view this as intolerable, and make every effort to rectify this situation. We should automatically want to devote every available penny to investment to alleviate this situation.

And here is the key point – we could choose to stop worrying about whether specific interventions are precisely fair. Already, with the support provided to businesses and workers during the Covid-19 crisis, we have seen people worrying about freeloaders, questioning whether some people are just using the opportunity to be paid for doing nothing. We need to do away with this childish, “But he got more than me”.

Just as we could never work out a precise monetary amount that those who have suffered injustice in the past deserve, we cannot work out a precise and exact way to allocate the world’s resources to the alleviation of poverty in a way that treats everyone with absolute fairness. The exercise is futile, and instead we need to accept that whatever steps we take will be flawed and imperfect. But these steps can easily, with a little thought, be better than what we are doing now. So let us not worry about whether the West is spending “too much” on foreign aid (indeed, let’s stop calling it “aid”, as argued in this post). The only question to ask is, are sufficient resources being channelled to the needed activities to stimulate sustainable economic growth.

And the other side of this coin is not to worry whether the necessary wealth transfers are sufficient compensation for the injustices of the past. As long as we fully acknowledge the reality of that injustice and genuinely commit to a process of rectifying it by striving to create an economic system that provides enough for everyone, the human race could step forward on a path of learning.

And this requires that we stop pretending that free markets are the best way to allocate resources. As has been clearly explained earlier in the blog, this is just an excuse to justify the continued injustice, promoted by those who want to believe that they earned everything that they have – who simply cannot bear to face the enormity of the historic injustice from which they benefit and prosper.

We also need to understand that this path will be a process: creating an economy that provides enough for everyone is not about “designing” the perfect “system”, it is about an on-going process of learning. Mistakes will be made, but we can be committed to learning as a society from these mistakes.

But I hope this post makes clear that we cannot even begin this process until we consciously accept the principle of the oneness of the human race and all that it entails. It is a practical necessity. Ideally, it should be part of the curriculum in all schools around the world. And there is still one more implication of this principle that needs to be explicitly stated.

If society is to be based on this principle, then every member of society should play their part in contributing to the progress and development of that society. And this requires a system of education that draws out the capacity of all to contribute to this collective effort (as has already been discussed here and here). We cannot create a functioning economy by leaving it to academics, professional economists or governments. Every individual has to consider consciously their own role as a protagonist in the economy. This has profound implications for the system of education required.

Indeed, justice requires that everyone is able to participate in shaping the economy, and a prerequisite for this process is not, in fact, consideration of economics, but the development of appropriate systems of education.

Yet neither can we wait for such systems of education to be developed, implemented and to yield their fruit – our economy is in crisis now. And this blog is not about education, it is about economics. So I will conclude next week with a summary of some fundamental facts about economic life that provide a foundation for this process of learning.

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