Different Cultures – Different Economies

A homogeneous nation where everyone wants to be productive fails uniquely, oversaturation of consumption. What economic system should be installed to moderate this?

Advertisements

In a previous post, an example nation was assumed, one where people were not interested in material things, or in careers, but in interpersonal relationships, and they avoided work when possible. In this nation, an economist would be faced with several problems, including the one of how to motivate people to work sufficiently to support the economy. It seemed to be a soluble problem.

Consider a different nation, again with a homogeneous population. In this second example, all of the people with few exceptions, pride themselves on what they produce that is of use to the remainder of the population. They do not particularly care about amassing wealth, or surpassing others in their possessions or ownership, but they do compete in some fashion on how useful they are to society.

As in the previous example, an economist concerned with devising an economic system for this nation and its industrious population, needs to cover three things. The first is the trinity of production, allocation and consumption. The second is employment and motivation. The third is capital accumulation and allocation.

The second is solved by assumption. The entire population, at least the work-capable fraction, having the right age and lack of disability, want to work and are motivated. They want to be productive and will do whatever they need to in order to be productive. Some people are productive in one way, others, in another way. There should be managers and tradesmen, salespeople and maintenance workers. Because their self-worth depends on being productive, not on having some particular job, all work slots will be filled as flexibility will be part of the core value of productivity. Their motivation is simple: work productively at whatever is available. Move up to more productive positions when possible. Work as long as possible. Get whatever education is necessary to do a job.

Productivity is the core value, there will be no difficulty in reducing consumption sufficiently to accumulate capital, and then finding those who can make use of it, by increasing productivity of the nation in general. Technological progress might be brisk, except for one point. For the primary trinity of economics, production is assured. Allocation is not a problem, as the population will not be finicky about how produced goods are allocated among workers. But who is going to do the consumption? Taking time off for consumption is not a core value, and is not appreciated. None of the workers cares much about what they own or use, but principally about their work. So, as the nation progresses, production increases, and who gets what is produced? There is, in this example, no one interested much in consumption.

One might say, let the children consume, but in a society where everybody of working age and able body is interested in what they can do, not what they can get, the children are going to learn from early age what is important to adults is what is important to them. They will dream about becoming productive adults, not idle consumers. Thus, children are not the answer to a lack of interest in consumption, particularly in consumption goods. Neither are disabled people going to pick up the slack.

There is a certain amount of production that can be drawn off for economic growth. More extraction means more economic growth, but this should saturate due to the constraints needed for the various operations necessary for growth, such as the construction of factories. Fairly soon, some economist will note that it is quite hard to find anyone to take existing production for consumption, and more of it certainly will not be needed. Improvements in quality might be possible, but a saturation in production bottleneck appears inevitable.

Government siphoning of some production is always necessary, but it has its limits in a society where there are no government officials looking to become extremely wealthy from bribery of various types. Government officials come from the same nation, and would not expand government past what promotes production. So the bottleneck is not resolved by government expense. You can build one city hall, but you can’t build two. You can build adequate school space for all children, but you can’t double or triple it. Parks that no one visits are not the things that a nation of productive people build.

In this second example, as we have constructed it, there is no way to eliminate the lack of interest in consumption, except by changing the culture, meaning, what children learn and carry with them through life. There are here also inevitable tight connections between the social part of the nation, meaning the culture, and the economics. One route for an economist is to enlist those sectors of the nation able to change the culture. The other route, more true to the culture and preserving it, is to deny to some fraction of the population the opportunity to do what they want to do the most, be productive. Only by decreasing the employment level by some amount, or artificially reducing productivity, could this be accommodated. Low productiivty may be the light at the end of the tunnel.

This example again shows the impotence of economics as compared to the culture that is embedded in the population. If the economic system is to be of maximum service to the population, it would have to determine a way to reduce productivity, so that the real goal of the population, being productive, could be assuaged. There might be a severe tax on productivity development, so severe that it could not be afforded by any entity, and no funds devoted to it by any government organization. Instead of an economy based on consumption, and designed to maximize it, this economy would be the opposite. It would be built around productive work, and the work hours would be the right thing to measure as a test of how well one particular policy of suppressing productivity would work.

Having this example seems to break the lock that consumption has on economics. Everything in previous economic systems has been about consumption, and of course, its use in maximizing the wealth or status or power or importance or whatever of those who make decisions about economic matters. It is not necessarily the case that productivity bottlenecks could not exist before, as standards of living were much lower, and saturation of consumption could easily occur. However, there is no way to advance the position of the czar or monarch or emperor by having productivity lowered. They would always be able to spend more production on larger palaces, bigger navies, or other things available only to a national leader. Favoring production instead of consumption can only seem to happen in a nation which was not run by an elite group which did not share the culture of the population. If the elite leadership group wants to accomplish anything on their own, typically they would want as much production as possible to amass for its use. Limited productivity would almost seem as an offense or even a treasonous act. In a milder view, any nation which is concerned about its defense might want to maximize productivity so as to divert some of that productivity to bomb shelters or tanks or spears or whatever was currently useful in the art of war.

Suppose we return to the example in its full splendor. Even those in the government just want to be productive, and there is no external threat to drive productivity. If these two barriers to a complacent, low-productivty, fully-employed, happy population are removed, that is the population that this situation will lead to. The lack of productivity gains means that the situation is likely to go on and on, without break, with a happy population just continuing to work and to raise their children to work and enjoy it.

One thing, not discussed so far, that an economist might be concerned with, is the stability of the population to various disturbances. The only disturbance embedded in the scenario so far is the contrast between the desire to be productive and the ban on the desire to increase productivity. This has to be solved by some explanation of the choice to the population.

Another disturbance that the nation in question is vulnerable to has already been mentioned, and that is conquest by a nation which does not espouse low productivity and uses their production to prepare for war and conquest. Other disturbances might be situations of crop failure or destructive natural weather phenomena, The latter might be solved by storing up productivity ideas, in other words, allowing the development of productivity gains, but not putting them into practice, until some even happened which made it important to use them. The former might be covered by having large inventories of stored food, renewed to prevent damage via aging, and kept ready to be used in the instance of a bad crop year. It would certainly be a productive task to prepare for possible dangerous uncertainties, so the culture would emphasize doing both of these tasks. Even preparation for defense in the unforeseen instance of invasion might be done under the guise of useful production. Thus, with forethought, the second example could be elaborated into a stable, very long-lasting economic system, which could continue until the culture eroded or some other change crept in.

Culture Dominates Economics

Economists like to postulate a particular model of an individual in their economic system. The only problem is that there are many different types of people in any society.

To understand the motivation of the title, just consider designing an economic system for a nation which was very easy to satisfy. Just about everyone in this nation is happy with a spartan existence, and believes that interpersonal interactions are the high road to happiness. Nobody much cares about having a personal robot servant, or a cellphone, or a fancy dinner or a large house or a new car. Pretty much, as long as food is on their tables, their roofs do not leak, and there is some way to keep clean, they are satisfied. They don’t worry about unemployment, as people share what they have. They don’t find pride in the work that they do, nor in the square meters their land occupies. Refined interpersonal interaction is highly prized, and this is what children are raised to appreciate and imitate.

What kind of an economic system would be best for this nation?

By asking this question, we are entering a whole new world of economics. Economics has been fixated on finding the best economic system, but it may very well be that a particular type of culture, if homogeneous and wide-spread, would dictate the economic system and trying to foist a “Best” system on it would lead to grave dissatisfaction on the part of the population where it was inflicted. What is a “Best” economic system anyway? It typically is one which meets the unconscious or conscious desires of an ideal person, as envisioned by the economist who is writing up the new system. By instead starting with the cultural attributes of the population, we force such an economist to consider the origins of his notions of “Best” and perhaps open his eyes to the possibility that there is no “Best”, only ones which are more or less appropriate to the people who will use it.

Three things that a new economic system must cover start with the flow of benefits of the economy. Within this there is the trinity of production, allocation, and consumption. Secondly, there is employment and motivation to work and to work harder and smarter. Thirdly, there is capital accumulation and allocation – how does excess production benefits become diverted to all of the needs for capital?

An economic system should give the population it serves what they want, not what an economist might think they want or thinks they should want. When we start the discussion by defining the characteristics of the population, this is easier. They have been defined as people who do not want high levels of production and therefore do also not want high levels of economic growth. They do want stability in which to enjoy their chosen activities. When technology develops, the direction they might choose is for productivity gains, rather than production gains. Productivity gains allow for shorter working hours and more leisure hours in which to pursue other activities.

Allocation between capital and consumption would not be a contestable decision, as long as the level of consumption was adequate for all the members of the population, or some non-ostracized portion of them, to subsist reasonably comfortably. If deprivation did happen, the character of the problem changes from one in which leisure time is to be maximuzed to one is which production needs to be increased. Thus the population in this example has two phases, assuming no catastrophes happen to diminish production. The first is a growth phase when some acceptable level of average consumption is achieved, and after that, a tapering off of growth, with what growth there is being directed toward productivity gains.

How are workers in this economy motivated to work sufficiently to keep up the level of production to an acceptable average? Personal goals might be to minimize the amount of work done, which conflicts with the need for some average amount of work from each capable of productive employment. Each person’s goal might be to work as little as possible and have other people take up the slack so that average production is maintained. Then they would expect that some allocation of benefits to them would occur, through some channels, such as from some agency of the government of this nation, from other individuals, or from some non-governmental agency. This type of attitude in our example is the overwhelming norm, so it would seem that the first difficulty with an economic system for the example nation is motivation and assurance of employment, undesired as it may be.

Let’s give the example a name. Let’s call it a leisure-oriented economy, populated almost exclusively with leisure-oriented individuals. A leisure-oriented individual would prefer not to work at all, as long as the amount of consumption that he has access to is not too small. Recall that in setting up the example, the population deliberately would choose spartan life styles. Some interested economist is going to have to figure out a system which sufficiently motivates individuals who prefer not to work to actually do it. The only available levers are social pressure, which is great in a society where interpersonal interactions are the dominant value, and economic necessity, which would result from the use of some market value for each job and the restriction of the right to donate benefits to those not working. In a society where donation of benefits has high social value, how could a market economy in employment overcome the reluctance to work? The only realistic method is to implant in the society a connection between social standing and working. If a person who lives in a culture where social interaction is the principal value, and society had some set of beliefs that a person who can work and makes a choice not to is shunned or avoided or somehow separated. The idea that donation of benefits can be wrong if it demotivates work would need to be somehow implanted in the society as well. So, a socio-economic system for this example nation would stress the socio- side in order to make the economic one work.

The third aspect of an economic discussion to be brought up here is capital aggregation and allotment. Usual economic systems in the past have had capital formation done by individual who were the opposite of the leisure-oriented ones who populate the example nation. They would be very acquisitive individuals or those who have a goal in life to be the founder of businesses, companies or corporations. Their use of the various economic systems which have existed in the world would result in the diversion of benefits of the economy into their own hands, which would then be used for the purposes of capitalizing business. Other needs of capital, such as the infrastructure of various levels of government, would have to be done by taxation at some boundary point, such as at the company or corporation profit calculation or the wage and salary payment point or some periodic income tax.

Capital formation in a leisure-oriented society has to be done differently. The extraction of some sort of tax from, for example, the profits of a business, can be done as it is in other types of economic systems, but once capital is extracted, who is there who would want to take on the formation of a business. But alternatively, taking involuntary contributions from workers to form more capital in an employee-owned enterprise fits in nicely with the orientation of the population. Since living standards are not highly regarded as the purpose of one’s employment, this type of taxation should be one of the least objectionable ones. Still, there is always the problem of too little capital formation arising from the culture’s propensity to donate benefits. If there is a capital fund formed by some withholding of benefits from workers, the person or committee who is charged to allocate it to building physical capital or other uses cannot be allowed to siphon off too much for charitable donations. That would defeat the entire purpose of the withholding.

It seems that a general outline of an economic system which will function well with a leisure-oriented population can be created. It might have to have a social component that makes the social standing of those who refuse possible work much lower than of those who do work. Without this cobbling of some societal propaganda, training, education, advertising and anything else that will serve to bind the social system to the economic system, it would apparently not work. Capital formation might also work if capital formation is done either in very small doses, or through the growth and eventual budding of employee-owned enterprises, or by government intervention. Again, some social barrier against diverting capital into donations would have to be in place on the social side of this picture. There probably are many ways in which benefits of production can be allocated, as this is not a main item on the agenda of the population. No one would be seeking to amass large wealth, so there is no need to wealth taxes or other mechanisms which would be necessary in other types of cultures.

Choosing Goals for an Economic System

Having very few goals for a new economic system makes it more likely there will be no conflicts. Here we discuss the most fundamental goal: survival.

If an economic system is being designed in a top-down manner, coming up with one or more top-level goals is the place to start. Current economic systems have many goals, and the problem with that is that they sometimes compete, not in the sense of being opposite, but in the sense of giving contradictory guidance in certain situations. It is better to have fewer goals than many. Often goals for an economic system which are set up early in the history of the system are added to or modified in later eras. So, in designing an economic system, it is important to choose few goals, but also to choose them in a way which makes they less liable to change as time goes on. Societies change as technology changes, so this factor is one which should assist in the choice of goals.

In early eras, there was a clear goal. It was to benefit the upper echelon of society. Ever since there was a top leader, it has been the leader and his court or companions which have been the recipients of most of the benefits of the society. This group may represent one percent of the total population, or twice that or half that, but in any economy, the beneficiaries of the economy are a small fraction, and they are those who command the economy. In different places it has been military leaders, and in others the descendants of military leaders. In later eras, the benefits flowed to a top layer of individuals who had ownership rights on much of the land in their vicinity. Even later, it was a group of owners of businesses who prospered far more than anyone else. Later than that, it was the owners of financial establishments who received the lion’s share of the benefits of the society. In other societies, it was the higher castes which benefited the most, in the sense of having a higher living standard, or more freedom from want.

Only in very recent times has there been much discussion of a wider distribution of benefits. There was never any discussion about whether it makes much sense to have such a wide distribution of benefits. In one aspect, it is a question of the division between the use of the products of society for infrastructure and common defense and other society-wide tasks and for direct consumption. The direction of a large share of the benefits of society to a small top-level percentage of the population means that this group’s consumption uses will not use up the whole amount of benefits allocated to them, and therefore there will be an amount available, usable for any benefit to the whole of society. Traditionally, the control of the allocation process has been in the hands of a such a small percentage of population, and this has resulted in the provision of things that the society needs to gradually improve. Over periods of time, this allocation pattern has resulted in the economic growth of societies.

There are some quantitative measures that might be discussed. Society needs a balance between these different allocation factors, and the fractions allocated to lower class consumption, to upper class luxury consumption, to various societal needs, to supporting economic growth, to supporting technology development and deployment, and other ones that might be critical to the improvement of a society. The wrong set of values for these fractions might lead to social collapse, or revolution, or loss of defense capability, or simply stagnation or negative growth.

If there is one goal for society that seems to transcend others, it is self-preservation. If there is something in a socio-economic system which causes the society to split in two, or to descend into turmoil, or to lead to invasion, or to give rise to waves of criminality, or some other ill, then this is perhaps the strongest indication that this particular socio-economic system is flawed and not to be recommended. It is not that there is some unique lack in a bad socio-economic system, but instead a departure from a range of values which worked. If too much allocation goes to upper class luxury or to the process of altering the allocation fractions via financial manipulations or corruption of the political tax-levying process,then the socio-economic system may get into trouble.

There are feedback loops which definitely change the allocation of benefits, and if these are allowed to control it, instead of themselves being monitored and controlled, the system may depart from the range where the society is successful and may move into a danger zone, where one or more of the pitfalls of a system can arise. Some strong controls would be necessary in order to thwart these feedback loops.

Perhaps the strongest feedback loop is the one where wealth is used to concentrate wealth further. Because of the diversity of mechanisms by which this can happen, only direct controls on the accumulation of wealth can control it. Controls on income alone might be bypassed, if there are ways that, covertly or overtly, can add to the wealth of particular individuals. Wealth controls can be done by different formulas, and can be thought of as some type of property taxes. There are few historical instances of progressive property taxes, where it is not the value of property itself which is used but the concentration of property ownership which is the important variable. However, this seems to be the only taxation method which will control corruption and excess allocation to the leadership cohort.

Why not give gigantic amounts of benefits to the leadership cohort? There needs to be capital amassed for many purposes in a society, and the old method of having the leadership cohort take it and use it for socially beneficial purposes did bring society this far. There are three reasons for looking for a better way of allocating benefits. One is that the allocation of great wealth to a small minority works for some range of allocation, but because of the feedback effects of wealth concentration, it always increases until there is a breakdown in society. The second is that the provision of social benefits is voluntary on the part of the extremely wealthy, and may be very distorted in the choices of what is to be supported, with vital needs being shortchanged while frivolous expenses increase. The third is that as society becomes more aware of economics, unearned income, solely for the purposes of capital accumulation for valuable purposes of the society will appear and be appreciated as a wrong solution.

All three of these reasons can be collected under the goal of having a society which continues, instead of breaking down in one of the many ways that societies can suffer or even collapse. It is curious that this goal, the preservation or survival of the society is analogous to the first goal of any living organism. Survival is built in to the genetic programming of all organic creatures, and it makes sense to also attribute it to social arrangements. Once primates, and subsequently humanoids, divided themselves into clans or small groups who cooperated rather than competed, the concept of clan or group preservation made sense. So not only does this primary goal of living organisms match that of the proposed goal of the socio-economic system which we are trying to design, the same goal is present in the organization of humans and earlier, humanoids, into cooperating groups. It is almost a tautology that a group which does not concentrate on self-survival will disappear and be replaced by a group which does concentrate on self-survival. Thus, there should be little reason to dispute this goal as being the most elemental one for a socio-economic system.

What about other goals? There are an uncountable number of possibilities, all of which arise from some emotional connection between a person and a concept. Take justice. Each person can define what justice is, and there will be some discrepancies between one person’s take on this and another’s. The same goes for all of these emotionally derived goals for a socio-economic system. There may be some core to some or all of these concepts, but which of them might be taken as preeminent enough to be used to define the structures, organization and procedures of a society attempting to live under a new socio-economic system. Self-preservation does not have much of the heightened enthusiasm associated with it as a fair society, a just society, or other similar concepts, but as discussed above, it is much more fundamental.

Are any further goals other than self-preservation needed to define how a socio-economic system should be structured? Do the mechanisms of a society help to define how it might be defined? In order to fully utilize the goal of self-preservation can be used to define the whole structure of society, there has to be a model of how human beings behave. Only by understanding, well and in detail, how humans would act within a society can this goal be fully utilized.