The era of unrestrained growth
Is there an extent to economical growth? Can we grow infinitely or are there economic, ecological and social limits to growth?
In the economic models and broad political views governments, companies and citizens (societies) strive for quantitative economic growth. The economy, the Gross National Product and the individual income must increase and especially not shrink. As a company, you must grow to compete to stay ahead of the competition (mergers, economies of scale etc.). Governments and almost all political parties (except Party for the Animals and GroenLinks in the Netherlands) strife for more quantitative economic growth. The belief that economic growth creates more jobs is very strong. By quantitative growth the debt of the state is shrinking and there is more individual income and corporate taxes in salaries and benefits, in addition it is believed that employment increases and unemployment rates will drop. From this perspective, a growing economy benefits everyone.. So it is not surprising that people believe in the sacred method of economic growth. It is inclined in our daily discourse (media, education, politics, business). The mantra: economic growth is always good is a part of our Western neo-liberal culture. We don’t have to think about moral issues from economic growth. Political parties like to point these dogmas: we have only to ensure economic growth and then all will be well. Economic growth as an utopia and founder of individual happiness within the nation state.
Currently we are still in the (neo-liberal) paradigm of growth, expansion, deregulation, privatization and competition in quantity with the principle of ‘greed is good’. We live in the era of commercial Darwinism: Only the companies and organizations with a large base of customers or members are economically vivid. Selling as many products, services or memberships (member organizations) is the core business of a company or organization. Adaptation to the customer is crucial, but also advertising and marketing are very important tools for controlling hyper consumption (consumerism) or binge-shopping. Today, we sell and buy not only our personal information (google, facebook, etc.), but also other people’s grief. Charities do particularly well when there is a good marketing concept behind it (ice bucket challenge, Alpes d’HuZes, Glass House, etc.). We prefer to reward bankers who contribute nothing to the real economy than people who pick up the dirt on your street. Indeed the bankers do society more harm than good, and yet they think: we entitled to more pay, because we are the gods of the economy.
“The world is in a mad rush: it is increasingly unlimited gratification and less to gaining knowledge and new insights. There comes a time when we ask ourselves what we are doing. One after another civilization emerged, flourished, collapsed and disappeared. Despite all the progress of mankind you may wonder what the purpose is. Are we morally gone ahead (Mohatma Ghandi).
Status and social pressures play an important role in our society. Afford as many luxury products (auto, home, computer, cell phones, vacations) still largely determines your status. People increasingly think you can buy happiness, products or services to redeem grief or bad times. You can boost your life by buying new products or services.
Shop-a-holics, shop till you drop become known spells, currently even the shop and beauty blogs are very popular especially among young women, which mainly involves the purchase of many items.
In men, the status is very important. What kind of car you drive will largely determine your identity. Your job, education level and your income determines your image and your self-image (status). A man with a lower income or a man who is not the breadwinner has a lower status. Furthermore, women do not favour men who are home alone doing only housework.
Items and income control your life and identity. In the Netherlands, most men are working full time and women are working part time. The opportunity to buy many products and services also gives people a feeling of freedom and happiness.
Are you unhappy then buy that unhappy feeling away with short term products or services till you are unhappy again. Marketing and advertisements to let people know that they are better and happier with their unique items and services. You are a truly better person if you like a certain brand of a service or a good (the Apple marketing is strongly related to design and branding the individual, especially with I-phone, I-tunes, I-pod series). This kind of branding meets a certain status and identity related to the individual. Branding a label is often used on group or culture dynamics. Men swear by a particular brand of beer that they need to get their beer brand without label blinded from some beers. Then it’s suddenly a lot harder to recognize your ‘special’ beer brand. Beer brands are affiliated with a certain status, region and meet a certain image, while the taste of a beer differs little from one another. At a beer test most people will not recognize their favorite brand of beer. Image, bonding and marketing plays in beer (lager) a major role. Advertising and marketing is a larger cost than investing in taste, quality and development. Taste does not really matter. It is about image and marketing. A bottle of lager contains more marketing than beer. In the world of advertising and marketing, you are constantly deceived. Marketing is nothing but structural deception of consumers to sell as many products as possible. Our western society is overwhelmed with advertising and brand image has become increasingly important. Welcome to the image-economy. The world of success, big money, little added value and deception. Through image and bonding of brands we present ourselves and give ourselves identity. Expensive brands are not necessarily for quality, but for the image – I can afford it, so I am successful -.
But if you can not provide your own income then you stand on the sidelines, you are evicted from the economic and social ladder and you stand at the bottom of the step. People on welfare who are long-term unemployed are still seen by many as nothing idlers. People where something is wrong with it, outcasts of society. Having a job and the nature of the work also largely determined your status and identity, with hard work in the neoliberal paradigm is the norm. If you’re a complete failure then you have obviously not worked on yourself hard enough. Hard work is also equivalent to a ‘good man’. What that hard work is exactly, nobody knows (have high income, long hours or deliver a lot of physical labor). Let alone that people discuss the term ‘hard work’ or define this term.
The socio-economic stratification of the western society is changing worldwide. A division into classes based on socio-economic characteristics (often classified into Western societies in an underclass, middle class and upper class). These classes are growing increasingly apart due to economic inequality within countries. The middle class will financially benefit little from the progress of technological advance and innovation, the underclass is growing in the number of people but earn less and the upper class earns an increasing share of national income (1% of the population earns 20% of national income in the US). According to the OECD (Organization for Economic Cooperation and Development) thinktank growing economic inequality does not lead to economic growth but rather to less economic growth.
Trickle-down economics (Margaret Thatcher) and Reaganomics (laissez faire offer economy) has not triggered economic growth over time. Economic growth can be initiated by investing in the middle class. This encourages stable economic growth for a larger group of people instead of economic growth of the elite at the expense of the largest group of people.
Reducing economic inequality, according to the OECD over a period of 25 years will ensure a more constant economy with steady economic growth. Preventing economic inequality should be central in the political debate to pursue constant growth and prosperity, says the think tank of the OECD.
The Occupy movement and the “we are the 99 percent” are examples of movements that strive for more equal income distributions, more democracy and transparency. Obama calls on the State of the Union-speech of 2014, the extreme inequality as what voters most concerned and the World Economic Forum called the report “Outlook of the Global Agenda 2014 ‘growing income inequalities as the second largest global risk in the near future.
The Book: Le Capital of Thomas Piketty was discussed in November 2014 in the Second Chamber in the Netherlands. According to Piketty the average capital rate is growing faster (4-5%) than the economy growth rate of nations (2%) and that people get more income from capital than from employment. This phenomena increases the difference between the poor (labour) and rich (people who owns capital). These differences were strongly present in the era before the world wars. Capital was accumulated by the royals and the nobility due to heredity of capital. The world wars litteraly destroyed capital during the World Wars. Differences in capital diminished after the second World War. In the 70s unequality in capital raised again, thanks to accumulation of assets from reconstruction and increased prosperity. The distribution of capital within countries is growing more and more apart. Labor produces less and less income as compared to equity.
Capital and income parity differ significantly between the US and Europe continents. Europe had a much greater inequality of capital and income than the US before The First World War. While 10% of wealthy US now accounts for 50% of total income. In the early days America had a strong capital and income parity. The colonists did not bring much more than a few boxes of belongings. While the income distribution in Europe including the feudal system and the beginning of the industrial revolution (capitalists vs. workers) was enormous. In addition, equality was a very strong ideal of the founding farthers.
After the Second World War America and Europe got an increasingly unequal distribution of income. From the 80’s the inequality trend peaked really drastically, especially on uneven wage differences. In itself this was a break with the past. You could climb the social ladder if you are a wealthy (nobility, aristocracy, royal house) or marry a rich person. Labour did not played a big role in getting really rich. Income from labour had no status, super incomes from labour didn’t existed either. Wealth you gather with power and capital (old money and relatives).
Nowadays, you can become rich by cashing very high salaries (top managers, CEOs, managers, people working in the financial sector, footballers, actors). From the ’80s until now the top salaries increased by 725 percent, while the low and middle incomes in the same period only increased by a few percent. So the top earners from the 80’s were able to save or invest and accumulate capital. Low incomes could not store capital due to a high consumption rate in relation to their income. In recent years, the gap between low-income and high-income earners increased drastically. This leads to major social outrage. In particular, the major differences between managers and employees lead to massive social frustration.
During the 80s a meritocracy superpower culture came into existence. Everyone is rewarded for its ‘added’ value. Super Managers are rewarded because they plan to deliver a top performance. The CEO of Goldman Sachs felt therefore almost like a God: “I’m doing God’s work” said Lloyd Blankfein. Super meritocracy is part of the American dream that anyone can become rich through hard work. This dream appears as Piketty to be an illusion.
In the 80s taxes on the highest incomes have been drastically lowered (in the US from 90 percent to 30 percent). In addition, management usually determines their salaries and the salary of employees is determined by the same management. The bonuses of top managers are debatable, while the employee must hand sharply or be fired. Bonuses are also often issued based on what is feasible and not based on what is just. The perverse incentives in the financial sector is a well known example.
Another factor for the growing inequality in capital and income is that large capital assets yield larger returns (revenues) than small capital assets. Increased returns from accumulated capital can more easily reinvest to get larger returns again and is more capable to regenerate new capital. In addition, larger asset managers can manage their assets by experienced professionals with more knowledge than small private capital investment initiatives. The cost of these professionals (asset managers) often do not weigh up against the benefits (returns). Thus, there is concentration of capital and income concentrated with a small group of big wealthy capital rich people. A final factor that plays a major role is inheritance. Who inherits capital from the past has more chance of a stronger increase in income than a person who gets his income from labour (because capital is growing faster than economic growth). Capital built up from the past (inheritance) is playing an increasingly important role in the unequal distribution of income and wealth (especially in low population growth continues to be the income and wealth divided among a smaller group of offspring). A small group of rich people can now pass more easily donations and entire houses with relatively fewer offspring (less sharing of capital). A relatively small wealthy generation thus immediately have capital (to retire almost immediately and never have to work for income, labour is for paupers). While a large group of people now almost is designated to free labor performed by volunteerism, so-called internships, traineeships, work experience placements, etc.
After the crisis in 2008, many companies have gone bankrupt and many people got fired. Piketty therefore proposes to establish a Global progressive tax on equity and a lower tax rate on labor (although it will probably not be able to measure its impact by the free rider effect and the mobility of capital).
More transparency on assets and asset allocation is needed to combat tax evasion and tax havens. In the Netherlands, labor incomes are relatively evenly distributed through a progressive tax system and relatively large price increases due to allowences and tax (low Gini coefficient of 0.3), the distribution of capital on the other hand is very unevenly distributed. 10 percent of the Dutch have 60 percent of the capital (high Gini coeficient of 0.8).
In particular, the wealthiest 2 percent owns a third of all assets in the Netherlands. The Dutch Wealth Report concludes that 1 percent of the population owns 40 percent of private capital. Half of Netherlands possesses no net assets and 10 percent of the population has a negative equity (debt).
This mainly comes to mortgages that are under water and people with expensive short-term loans (credit cards). Netherlands knew from the 17th century until the 19th century, a highly unequal distribution of wealth (colonial period). After World War II leveled the capital structure (capital nationalization and destruction of capital). After the ’70s capitals grew strongly apart from eachother due to the mortgage interest deduction (villa subsidies). Furthermore, much of households in the 80’s and especially in the 90’s consumed their surplus value (increasing home price) instead of saving. The Netherlands is an exception to many other countries in terms of the retirement plan: the omslagstelsel (basic pension) and a kapitaaldekkingstelsel (supplementary pension working life) builds capacity by premiums and sets the income after retirement. But the Netherlands has one of the largest pension funds in the world. A huge pot of about 1200 billion deferred income / assets. Netherlands is quite unique in this pension system. The pension system has a somewhat equalizing effect.
It is striking that almost all crises before leveling off lead to a more equal distribution of wealth and capital, except the last crisis of 2008. That’s because taxpayers have saved almost all banks (with a few exceptions, such as the DSB). Almost all major capital savings (over 100,000 euros) saved by the deposit guarantee scheme. Major savings are payed by all taxpayers, especially by low and middle income taxpayers without huge savings. A lot of countries raised their taxes on income and consumption to guarantee higher income savings and paid for government bail ins in banks.
Worldwide, an increasing number of people can hardly make a living or participate in society. While the “1% maximum incomes hardly feel any financial pain . The crisis of 2008 has only intensified these differences worldwide and more and more people, organizations and companies no longer wish to participate in such a society and economy.
Alongside social and economic repression on the demand side (consumers) you also have economic repression on the supply side. Small businesses disappear from society and large merged multinationals leave to low-wage countries aiming at reducing costs and mass production. Small companies that do not participate in the rat race can go bankrupt or be acquired (die off) because they can not compete within this cost minimization battle. Small business also receive loans from banks less easily than large multinationals. Loans up to 250,000 euros for banks are risky and banks deliver too little return from Small Businesses. Multinationals and large companies have more collateral capital and assets. Due to higher securities multinationals have to pay less interest and keep higher profits. Profit maximization by cost reduction, lower interest rates and economies of scale (mass) production is the holy grail. Those who can not adapt go bankrupt.
The grocer, the butcher, the neighbourhood market is often disappeared from the streets and replaced by the large retail chains such as Albert Heijn, Wallmart Jumbo and C1000. In the city centers, but also outside, commercial locations are dominated by large retail chains on the A locations. In every big city there are several McDonald restaurants. The process of globalization and the overwhelming power of large retail chains is therefore also called McDonaldization. It refers to the standardization of production and distribution processes and rationalizing societies and economies. In the agricultural industry only profitable companies stay in bussiness due to the production of large quantities of chickens, pigs and cattle on an ever smaller area. The mega stalls and the kilo bangers are a good example of this phenomena.
Where previously the streets were dominated by SMEs, smaller companies, is there nowadays a high degree of corporatisation, globalization, digitization (online marketing) and multinationalisation going on.
Small businesses have been rejected or bought by large multinational companies and venture capitalists. The retail sector is dominated by large retail chains and large-scale multinationals and physical stores make way for online merchants. The marketing and aquisition for online webshops has been obtained through the online privacy data from billions of individual Internet users (IP addresses, cookies, collect data by Google, facebook, twitter, etc.) .
The American secret services use the data privacy (PRISM, Tempora) of citizens worldwide to prevent possible terrorist attacks. Edward Snowden recently revealed that Google and Facebook sells privacy data to the NSA and the NSA sells privacy data to companies for marketing purposes using the tracking technology. The widening of the patriotact after the 9/11 attacks via the “program” made it possible to get significant control over personal information about citizens.
Companies pay billions for search data and preferences of individual Internet users. At the moment you will be bombarded with online advertising, potential products and services when you don’t use a AdBlocker. IT professionals uses algorithms on your personal preferences to link advertisements on specific products you may buy. These algorithms are based on your cookies. These cookies help governments, intelligence agencies (NSA) and companies control individuals and households and collect data on buying preferences. It helps companies specify there strategic marketing release. ICT, facebook, google, intelligence helps Big Data store all your personal information. The privacy interests of citizens has largely been discredited by Big Data and the NSA.
The western economy is dominated by marketing companies, financial institutions (front office), multinationals and the service industry.
In addition, the manufacturing industry (clothing, electronics, plastics, automotive, etc.) largely went to low-wage countries (from the 70s) or is replaced by robots (from the 80s till now).
In the next 40 years most of the human labour will be replaced by automation and robots. In the future this will occur in almost all sectors. The second machine age will require a different view on labour and an other interpretation of jobs. People are going to do work where more empathy is required. Though even this work can be replaced in the future by robots. On one hand, people will invent new jobs, on the other hand, many old jobs will lose the competition to robots. Companies will at least use more robots in the future. Robots are cheap, do not whine, last longer and make less mistakes. In Europe and the US we will be able to compete with labor-intensive countries (China) through robotics and automation.
Japan is the absolute leader of the robot technology. Japan has a very different culture towards robots and robotica. Robots are seen as a neighbor or stuffed animal. InJapan, there is no fear of robots as they do in other western countries for the loss of jobs and taking over the world (Matrix, Terminator, etc.). Japan is also one of the most aging societies in the world. Robots will also have to replace people because there are not enough younger workers. Japan is experimenting with human care robots, robots that teach human behavior itself.
Nowadays you see a small rebound in businesses that come from countries like China, India, Poland (resourcing) to the Netherlands often set up a Lean Tech Industry. Robotize and digitize as much as possible to save costst.
Large-scale production work could be cheaply deployed by countries with low wages. As a result easy manual craftwork largely disappeared from the high wage countries. The textiles (Twente) and automotive industry (production) from the Netherlands and many Western countries moved partly to Asian countries, BRIC countries and Eastern European countries. In the Netherlands low-paid jobs is often done by (temporary) immigrants or people from another country of origin (immigrants). Especially in the horticulture, logistics (distribution) and construction sector labor replacement will be carried out by workers from Eastern European countries.
So there is both economic and social oppression or replacement of certain groups, residents, businesses and organizations in the field of status and materialism (mass consumption) on the consumer side and in scale and cost to the producer side. Only the small enterprises that do not compete on quantity, scale and price are economically viable. These companies don’t have to compete on quantity and price and are focussed on quality and offer a unique product or service.
Currently corporate life in the US and Europe encourage further mass consumption and mass production through the Transatlantic Trade and Investment Partnership, the TTIP. It comes down to less regulation, more free market, less democracy, less transparency, less power to citizens and more power to the large multinationals. It is again focussed on making as much profit as possible at the cost of civil rigths, workers and environmental rights.
Is it socially and environmentally responsible to join the competition of quantity and mass production. What are the effects of quantitative growth and materialism worldwide. What is the impact of market fundamentalism in non-Western cultures? Do they adopt this ideology (Dubai) or do they constitute an opposing force?
Quantity versus quality
To answer this question we need to know what “the economy” and what the meaning of ‘society’ is, but also why we initially have an economy and a society. What is the point of an economy, does a society need an economy and why should a company, society or economy must grow? What is growth, and is growth a necessary precondition for happiness, prosperity and welfare? Does growth has also proven disadvantages? Might it be wise to not participate in quantitative economic growth, large-scale and continuous growth of companies through mergers and acquisitions?
Which side of our economy do we chose? Should the economy mainly exist of quantitative growth or can we also strive for qualitative values such as security, sustainability, leisure, choice, green initiatives, increasing knowledge, social values and commitment?
Do we see an increasing faster growing economy on a tilt after 40 years neoliberal thinking and neoliberal policy? Or do we continue our faster and a strong focus on quantitative growth after the 2008 crisis? In 2015 we see a couple small pinpricks within the neoliberal paradigm.
More and more groups, activists, economists, movements, students, teachers who say that an economy based on efficiency thinking, quantities and infinite growth is no longer tenable. Thoughts of merely economic growth is on a tilt. These movements no longer tolerate an amoral discours on the economy. They wish to take part in a humanized economy and not only in a quantifiable model-based economy in which only numbers and financial growth count. Economy is much more than just numbers, models and financial returns. Economics is about society as a whole and is an eminently human world based on emotions, relationships, power structures, creativity and human actions. The economy is there for the man, the man is not there for the economy. The economy can not be left to only models, figures, robots, machines. Machines and robots only have the purpose to assist the man, whereby humans can focus on humanized activities (health, leisure, relaxation, enjoy, literature, debate, sports, entertainment, discover new things, science, development, creativity , space, etc.).
At the moment the best minds are no longer working in the sectors where real new breakthrough discoveries are made. But the smartest people, the mathematical ‘kids’ started in the financial sector to work on algorithms to have a slightly larger edge over other flash traders (high frequency trading). These gifted mathematicians earn much more money in the financial sector. While these geniuses also had something beautiful to contribute to society in the fields of nanotechnology and artificial intelligence or contribute to cancer research. The economy says that these brains can earn more in the financial sector. So it makes sense that they work in the financial sector. It is an economy without morality. People are revolting against this amoral conception of the economy. Precisely the economy is about morality, ethics, good and evil. Why do we reward people who knowingly ruin our society by financial bad products with huge bonuses and do we fine, control and chase more and more people end up doing tough dirty work in unpaid jobs participation, volunteering and eternal internship jobs? Why do we accept that as a society? Why do we not reward what is good and punish what is bad? Are we still only driven by maximizing profit and economic gain? Or should we go for more morality on economics?
Durng The Occupy movement we saw the first signs of resistance. In 2015 we see the uprisings in the Maagdenhuis where both teachers and students opposed to an administration that thinks in returns and maximizing profits. There are new economic movements within the socio-economical discourse as rethinking economics. We see tippers in the field of energy, bottom-up movements in healthcare, education (Jan Rotmans), there are more and more grass rooted cooperatives that hardly need a management layer. We do not stand the behavior of bankers’ bonuses, abuses with self enriching directors of housing associations, large cumbersome educational anymore. Joris Luyendijk describes the amoral banking industry in the city (London). We have nationalized the banks. Society in 2014 and 2015 waked up from a neoliberal deep sleep. We don’t accept the idea that the economy and the market dissolve any problem anylonger. The question is whether we will act accordingly to this new paradigm shift.
The history of the economy, society and economic growth.
The real economy is engaged in the production, consumption and distribution of scarce goods and services and how people with scarce resources act to satisfy his needs. According to this definition of the real economy is man so still not concerned with growth, but with the satisfaction of needs and not concerned with the satisfaction of becoming ‘more’ needs. Satisfying needs associated with satisfaction. If man is satisfied most needs are satisfied. Growth is therefore mainly due to a growing dissatisfaction with the satisfaction of needs. We were in prehistoric times already busy satisfying becoming ‘more’ needs and satisfying increasingly ‘more’ needs at all times and what impact does it have on the development of the economy, politics, religion and society? Are we as a society constantly dissatisfied? Or discontent fueled by influences from outside such as politics, a specific culture, a paradigm, economics, marketing or large multinationals?
To understand exactly how it works now, I have influenced a description of the different eras especially our Western contemporary culture. Our ideas about politics, literature, leisure, liberty, economy, trade, implementation and organization of the society, growth, power, humanity and religion have arisen in these different periods. The history from which we derive our “western” values is a certain development. Individualism (personal development) and free speech for example are important values in the Western world and honor, reputation and pleasing the group important values for non-Western societies (especially in orthodox Islam, but other Orthodox religious communities).
These values determine how our economy and why are Western values focused on economic growth, efficiency and profitability thinking? Economics is focusing on a social study: how do people deal with scarce goods and transactions. But economics is not primarily a faith? A belief based on faith in a currency as a medium of exchange. Faith in money creation, the belief in endless debt, the belief in the financial sector. The belief that people are able to repay debts. The belief in economic growth as the solution to everything. The belief in the benefits of the growing market that solves all the problems worldwide.
Within the neo-liberal ideology is more growth to the mantra and the solution for everything. More economy has lost its scientific value and is within the neoliberal paradigm hijacked by almost all parties as well unscrupulously. We must always strive for economic growth. More and more economic growth has become a neoliberal dogma and economists study this dogma. Economy has become a religion and economists are the theologians of this study.
In this essay, I use little direct scientific sources. Most of the information I extracted from popular non-scientific sources. I do not represent the most likely theory. Not everything will be exactly the truth. I just try to give a description of the genesis of the western world and the Netherlands in particular. However, I wonder whether the situation in which we now live is still tenable? Do we want to really grow as much on economic grounds and maximizing material wealth, who will benefit from this wealth and what are the effects on non-Western societies of this growing prosperity. We pull off the negative effects on the less prosperous countries of the future generations? Or do we want a society based on common welfare and happiness that we can pass the same way to our children and grandchildren and the less affluent generations? And can it be simultaneously? To answer that question I would like you to go through the world history from a Western perspective, but also from a non neoliberal perspective, with different ideas and possible alternatives.