Capitalism: Getting The Balance Right.

I recently came across a paper by author Sue Rule, which takes a sober look at the kind of Capitalism we’re experiencing nowadays and where it’s going wrong. In my personal life I’ve often criticised our consumerist culture for taking a market economy and turning it into a market society, where everything is for sale but the only thing of any value is money itself. I’ve never posted anything here because I’m not as adept at economic theory as I am with philosophy.

This article, which I’ve published in full below, strikes me as a very common sense approach, pulling apart the threads of what actually has value and arguing that we need to maintain the balance across all channels. For an overview of this thinking, written by Sue herself, please see ‘What is balanced power?’ after the jump. But then I’d urge you to come back and read the full article here as I feel it’s a message that would benefit from being disseminated and discussed.

Here it is in full:

The Six Forms of Capital

It is only in fairly recent times that we have understood wealth purely in terms of money. Early peoples amassed gold and treasure as a means of displaying their wealth and power. The wealth came first, the gold second.

In early human societies, wealth and power belonged to those who were adept at exploiting natural resources. The successful hunter. The quick, the strong and the fertile; those who could raise strong sons to enhance their hunting prowess and buxom daughters to make good alliances with other families. The individual who had the skill and courage to collect prized but hard to gather foodstuffs – such as honey.

Knowledge – such as where to find the quarry, and how to tackle creatures bigger and better armed with natural weaponry than a puny human being – rapidly becomes another asset, passed on from father to son. The ability to make fire, cook meat, cure leather all contributes to the quality of the life the people lead, which must surely be regarded as one if not the only true measure of wealth.

Similarly, physical assets develop: tools, weapons, utensils; shelter and clothing. These too can be passed on or traded. The ability to make them has value.

As farming begins to establish a dominance over hunter-gatherer lifestyles, wealth and power begins to be associated with the means of production – the land on which foodstuffs are grown and stock is kept. Ownership of land begins to acquire kudos, and communities begin to become more complex, with labour communally expended on the different tasks associated with the growing of crops and the management of stock.

Now, we buy land and property as a means of displaying how wealthy we are. It is all about squeezing the last cent from every acre. We no longer care about what the land produces, and how to ensure it continues to produce by using sustainable farming practices. We buy and sell money as if it had an intrinsic value. But it is merely the means of exchange, a token representing things of real value. There is no more foolish statement than ‘we can’t afford environmental stewardship’.

 

The current financial crisis is marked by the deafening sound of chickens coming home to roost. Building a mythical fortune based on credit and borrowing stores up trouble whether you are a profligate running amok with a credit card or a city trader playing with the phenomenal processing power of the computer chip.

We will never get out of the mire the irresponsible attitudes of the 1980s and 1990s have plunged us into unless we take a step back and consider the true nature of wealth. That’s what this paper explores.

 

Capitals and Debts

This paper argues that true wealth is made up of five tangible capital assets and a sixth intangible one.

Financial capital is undoubtedly one of the five. Money is a key enabler. Without it, wealth cannot grow, ideas cannot be developed and human ingenuity and resourcefullness cannot be exploited to its full potential. Making money is a positive and honourable pursuit. But before it becomes true wealth, it must be wisely invested in other forms of capital.

What we seem to have lost sight of is not only the meaning of wealth, but the meaning of life itself. There is no great mystery to this to my way of thinking. All the rest of Earth’s flora and fauna take it for granted that life exists to perpetuate life, and they just get on with it. People now face the prospect of their species itself becoming so successful at perpetuating human life that we begin to destroy the planet on which we live.

Natural capital is the first and fundamental capital. Without our planet and our atmosphere, there would be no life on Earth and no wealth-creating human beings. Simples. If we destroy our planet and our atmosphere, human beings will prove to have been a failed evolutionary experiment. The jury is still out.

The key to saving mankind from himself is our knowledge. We have always shaped the world in which we live. In the past, our understanding of the impact our activities had on the balance of the natural world was limited. Today, we are beginning to realise that we cannot afford such ignorance. Eating the fruit of the tree of knowledge has consequences; we created the problem. We have to solve it.

What we seem to lack is the will. This is largely down to neglect of another crucial capital; that network of cultural, family, religious, political and business interactions that make the global village tick. We are still thinking in terms of tribes when we should be thinking in terms of survival. More equitable distribution of wealth, and greater empowerment of all individuals, everywhere, is not a floaty liberal dream. Investment in social capital has never been a more urgent necessity.

Over the many centuries of man’s existence on this planet, we have built huge assets. Buildings, transport networks, religions, political systems and economies. We have invented the microchip and created the internet. We have travelled into space and probed the mysteries of the universe. This legacy of man’s ingenuity is another capital resource to be managed and maintained intelligently, building on the past to create a better future.

We know how to investigate and analyse problems and devise ingenious solutions. We are inventive and creative creatures. We can capture beauty in pictures, and sound, and words. We are magical, spiritual beings inextricably woven into the mystery of life itself. We can imagine better, and make it so. This sixth and greatest capital asset gives me hope that we will use all the capital assets we have on our global balance sheet – financial, physical, intellectual, social and natural – to ensure that the evolutionary experiment called homo sapiens is ultimately successful.

 

Flows and debts

Where there is capital investment, it follows that there can also be debt. What you can measure, you can manage, and by understanding debt we can begin to measure the five capital flows. If we want to grow the common wealth of humanity we have to devise a whole new balance sheet.

The consequences of unmanaged financial debt are all too evident in today’s world. Its impact on social cohesion, political and economic stability are all too evident. We are witnessing the impact of financial mismanagement on a massive scale, from the tortuous mysteries of the stock market to the failure to collect taxes.

Where financial debt is incurred for reasons understood and supported by the populace, social capital can be applied to restore the balance. The vast majority of the British population supported resistance to Hitler, and put up with continued rationing and austerity after the end of World War 2. The humanity of the allies devised a plan of enlightened self-interest to restore Germany’s economy, to the benefit of all.

Trust is the foundation of such social capital. Without trust, economic and political systems cannot function effectively. Suspicion and envy are rife. Protectionism and intolerance dominate as each individual community seeks to protect their own and lay the blame for their hardships on others.

The consequences of unmanaged social debt are catastrophic. Law abiding citizens express their dissatisfaction through organised protest and industrial action. However, persistent neglect of social capital (I cannot but recall Margaret Thatcher’s chilling words, “there’s no such thing as society”) creates a dispossessed underclass who do not see themselves as having a stakeholding in society. They look after their own and seek to cheat the system at every turn. Where this attitude becomes endemic, gangs form and crime rises. If the protests of the more law-abiding are continually ignored and dismissed with platitudes, a downward spiral can be created which escalates through rioting and civil disobedience to a breakdown of law and order and ultimately, civil war.

Over recent decades, politicians worldwide have raided social capital again and again to further short-sighted policies. Dictators rob their people to feather their own nests. Democratic leaders trade on lies and spin to further their own prejudices. There are few people with the vision of a Mandela or a Churchill, who are genuine statesmen seeking to further the best interests of their people. Most politicians do not seem to take the time and trouble to actually investigate what the best interests of their people are, let alone how they might be achieved.

We are only just beginning to recognise the scale of the debt mankind has incurred by plundering the natural resources of the planet for generations. The wealth created by the industrial revolution leaves us a legacy of depleted fuel reserves, impoverished soils and unsustainable lifestyles. If we don’t redress this imbalance rapidly, we will pay a massive and perhaps eventually, the ultimate price. That which is unsustainable does not survive. The human race is no exception to the rule.

One of the key reasons why both natural and social capital are so poorly managed is because their worth is so poorly understood. Knowledge capital also has been the poor relation of financial gain. Our universities are increasingly pressured to behave like money-making businesses rather than stewards of the past and shapers of the future. The myth of the market infects everything. There is nothing wrong with markets. But when so much of what is traded is so severely undervalued, the model is not helpful.

Pushing the boundaries of human knowledge and capturing the know-how we already have requires people to be educated to investigate, analyse, imagine, invent and implement. A fundamental understanding of homo sapiens’ extraordinary ability to think should never be subject to the short-term self-interest of any party, dogma, individual or so-called ‘economic necessity’. Money is the means of exchange and should be used to keep all the capital flows in balance.

Just as buildings cannot be restored without skilled bricklayers, plasterers, roofers and plumbers, the complex software-intensive systems which underpin human interactions in the 21st century need informed management. The power of the micro-chip can bring down financial markets. It can bankrupt nations. It can overthrow political regimes. By the same token, computer aided ignorance is a frighteningly powerful thing. Computers are incredibly good at processing data. They can crunch, analyse and report huge numbers while the man is still looking for his pencil. But they don’t understand what any of it means. It still requires human intelligence to create wealth from this massively powerful engine. As systems become ever more complex and sophisticated, individual people can only ever understand part of it – if no-one is keeping an eye on the end-to-end operation we have loose cannon rolling all over the ship. The speed of computers means they can make spectacular mistakes. Small errors become major disasters; petty deceptions can be magnified into huge frauds. We can’t afford a world where the computer says no.

 

Without knowledge, we cannot maintain the legacy of physical assets past generations have bequeathed us. When specialist know-how is lost, there is a danger it can never be retrieved. It is all very well (for example) for the UK to decommission all its aircraft carriers in the interests of cost saving; but should we wish to bring aircraft carriers back into service at some point in the future, will we still have any pilots capable of landing on an aircraft carrier? This is not to say such decisions should never be made, simply that the full consequences of them should be properly considered. ‘Do what you will, but be very sure that you will it’ places a responsibility on those in power to make proper investigation of the evidence, model the impact on other capitals, and take informed decisions about how the balance is maintained.

 

The Sixth Capital

In a recent discussion of the five capital model, it became apparent that there is also a sixth capital. That is the inspired and inspirational human imagination. The indomitable spirit that binds us together in a common humanity. From this intangible and extraordinary trait come works of art, including everyday skills perfected to artistry by the workman’s pride in his or her task. It engenders acts of heroism, sacrifice and astounding physical achievement. It shows compassion for those in need, and practical action to ease their suffering.

Since I was brought up in a Christian country, I turn to the words of St Paul in his letter to the Corinthians to sum up the sixth capital. Few have said it better.

If I speak in the tongues of men or of angels, but do not have love, I am only a resounding gong or a clanging cymbal. 2 If I have the gift of prophecy and can fathom all mysteries and all knowledge, and if I have a faith that can move mountains, but do not have love, I am nothing. 3 If I give all I possess to the poor and give over my body to hardship that I may boast, but do not have love, I gain nothing.

4 Love is patient, love is kind. It does not envy, it does not boast, it is not proud. 5 It does not dishonor others, it is not self-seeking, it is not easily angered, it keeps no record of wrongs. 6 Love does not delight in evil but rejoices with the truth. 7 It always protects, always trusts, always hopes, always perseveres.

8 Love never fails….And now these three remain: faith, hope and love. But the greatest of these is love.

All the great religions share a similar message of peace, love and understanding. Divided, we fall. Together, we can overcome all odds. And what’s more, we can enjoy the journey.

 

 

 

I enjoyed reading this and felt there was a lot of truth to it. The idea that money is not the only form of capital is not new but I like that here, we also explore other forms of capital. As well as financial, we also have natural, intellectual, social, creative and created capital.

We’re suffering, at the moment, from a mismanaged economy. A ‘loose cannon rolling all over the ship’. You can’t manage what you don’t measure, so it makes sense to take a fresh look at the balance sheet. Let’s measure those things we care about. Let’s measure the health of out ecosystem, the knowledge and aptitude of our children, the depth and richness of social and familial connections, the breadth of our curiosity and imagination, the sustainability of our built environments.

Yes, money is a measure of value, but it’s not the only one and its certainly not intrinsically valuable. There are other, equally important forms and measures of wealth, it’s time we started getting the balance right.

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