Category Archives: economics

Loop to Loop

How does systemic change happen?  That’s a big question but fortunately, here’s a very simple and powerful explanation.  It’s the Two Loops model from the Berkana Institute:

I think it’s excellent because it at least gives a clear model to start from and think about.  It’s also easy to see interesting examples of this happening in lots of categories.  So, she talks about energy and education and then there’s also finance with the Finance Innovation Lab.

However, there’s a very big gap between the existing loop and the new one.  In thinking about it, I don’t think that’s quite right.  This is because I don’t think if we go from the current loop to a more sustainable one then its going to take the outright collapse of the existing system to give birth to the new one.  The way its drawn is that there is no link and carryover.  I don’t think this is right because, given the nature of business, there are people in business (in the existing loop) that are evolving and already trying out more sustainable ways of doing business that can easily work in the new loop.

So, if the existing system collapses and with it, the idea of the publicly-listed business then it’s likely that co-operatives can be a new way to do business in the new loop.  (Loads of assumptions in here, obv.)  But, John Lewis, the Co-operative are already doing this successfully in the existing loop.  Does this mean that they will not survive the collapse?  Or should they be re-framed as examples of how businesses can successfully work in the new loop?  To be seen a ‘loop-crossers’ or similar?  Similarly, charity shops, freecycle and ebay can be seen as businesses that work very well in the current loop and would be likely to be ‘loop-crossers’ as well.

So, business has always been about creative destruction and it just so happens that some current businesses have evolved in such a way that they’ll do well if we transition to a different loop sometime in the future.  So, if Berkana are right (and it makes a lot of sense to me), then I think that it’s okay to not be as pessimistic as the gap between the two loops suggest.

If you want to get pessimistic you also have to accept that the new loop could be anything, not just a more sustainable one.  Say fascism for example.  Like what happened in Germany when their existing loop collapsed in the 1920/30s.  Just saying.

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Children for Sale

Should you be able to buy and sell babies?  Should you be able to buy and sell votes?

These are the sort of questions posed in the excellent ‘What Money Can’t Buy: The Moral Limits to Markets’ by Michael Sandel.  His basic premise is that we’ve moved from a market economy to a market society.  That the Rules of Economics rule.

He covers lots of themes within the book raised by this basic premise – like the coercive and corruptive nature of money and the issue of democracy.  One area is the use of incentives.  Economics say that incentives are a good thing because if you put a price on something then it encourages people to act in the ways you want.  So, paying children to read a book, or the offer of money to work hard to get a high grade.

What this does, which he eloquently points out is that by incentivising something, you run the risk of ‘crowding out’ the social norm that currently exists, to the detriment of society.

So, in America, like here in the UK, people donate blood.  They did this because they saw it as their civic duty.  It was then realised you could make money buying and selling blood.  So, you can now either get paid to give blood (typically done by poor people who are being coerced into doing so because they have little money) or donate blood.  What’s happened is that fewer people donate blood.  As he says “Commercialisation and profit in blood has been driving out the voluntary donor” and that “once people begin to view blood as a commodity that is routinely bought and sold, they are less likely to feel a moral responsibility to donate it”.  Further, “it is likely that a decline in the spirit of altruism on one sphere of human activities will be accompanied by similar changes in attitudes, motives and relationships in other spheres”.

That last statement sounds like a leap, but he’s got 203 pages of why that may well be true.

Another example is nuclear waste in Switzerland.  The government did their research and found out that the most appropriate place to build the waste site was near the small mountain village of Wolfenschiessen (pop. 2,100).  51% of residents said that they would accept it.  The economists added a sweetner to try and get the % up.  They offered money of an annual monetary payment.  The result?  The financial incentive cut the rate of acceptance in half to 25%.  Why?  In the world of economics, increasing the incentive should have increased demand.  So, why did it go down?  “For many villagers, willingness to accept the nuclear waste site reflected public spirit – a recognition that the country as a whole depended on nuclear energy and that the nuclear waste had to be stored somewhere.  If their community was found to be the safest storage site, they were willing to bear the burden.  Against this backdrop of civic commitment, the offer of case felt like a bribe – an effort to buy their vote.”

Sandel uses example after example to drive home the point that we should examine the line where economic thinking is impacting on our sense of civic duty and the ideals of democracy: paying to jump the queue, executive boxes at sports stadiums, paying to be late to pick up your kids, bribes to lose weight, carbon offset, paying to kill endangered species, life insurance, corporate naming rights in sports stadiums, advertising in schools etc. etc.

We decided that buying and selling people (slavery) was morally incorrect, yet there seems to be little to no public debate about what else should or shouldn’t be bought or sold.  So, you may well be able to go into a store soon and say “I’d like to buy two children” although Madonna and Branjelina may have already passed that line.

A very timely book.

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“It’s just the beginning….”

Errr, another one of those ‘we’re in for a very bumpy ride’ posts.  This time it’s a radio interview with Australian Economist Steve Keen.

He predicted the 2008 crash, continues to run the numbers and his outlook is not good.  Especially for the UK.  He reckons that Britain is about a third of the way through the crisis (i.e. a lot of pain to go) and so we’d better get prepared for things to get a whole lot worse.

He’s pretty punchy and has some interesting thoughts as to why he doesn’t get listened to more.  However, off the back of this I’m reviewing my finances.  Meeting next week.