Oikonomics: a social life of money

Is subsidy the best way of starting a real recovery?

Now that Northern Rock has spawned its evil twin, (Northern Wreck?), can we expect a boost to the economy as its good twin spreads its angelic wings?  Is a lack of bank lending really at the root of our relatively sluggish exit from this generation’s “when I were a lad, we were so poor that…” experience?

 

In theory, the ability of banks to leverage deposit money through their status of institutions which inspire confidence should be wealth creating and efficient as they make a little capital go a long way.  However, as has been commented passim, you don’t become a banker out of an altruistic desire, you are in it to make money.  We have pumped close to a trillion pounds into the banking system on the basis that this is the best way of allocating capital to where it is needed in the economy.  What is less clear is what effect that state subsidy will have on banks and their ability to deliver on that promise of efficiency. 

 

The problem that I can see is a cultural one.  By privileging one form of making money (lending through institutionally rigid (rule based) organizations) over others we make that form of production intrinsically less competitive with the universe of wealth creation  as a whole.  The improved margins created by the subsidy remove the need to compete for every ounce of lending available and for every basis point of advantage.  Banks like Northern Rock start to resemble institutions like the Royal Opera House, Museums, Art Galleries etc who cannot exist without funding from the state because not to have them would, it is perceived, leave us less well of culturally or economically speaking.

 

An example closer to home is the proliferation of incubation and venture agencies (from the lottery sponsored NESTA to the individual university organizations) which are trying to play an increasing role in helping graduates and entrepreneurs (in particular social enterprises, but also technology ideas).  On balance the effect these organizations is to place subsidizing forms of capital into the very DNA of these start-up companies which then affects the way in which that company views and uses money from that point on.  There is nothing written in stone about a company needing a business plan, working capital, lawyers, accountants, hangers on, advisory boards, quango grants in order to be a success.  The art of Bootstrapping is being lost by the rationalization of business through the influence of MBA schools and management consultants (who have an interest in the fees that perspective generates – as such they are the modern sophists so derided by Socrates).  John Mullins's book – getting to plan B is a breath of fresh air on that front, reminding entrepreneurs that the best laid plans of mice and men are best treated as a work in progress and too much ‘institutional’ baggage can undermine the effectiveness of the business creation  process.  Business benefits from uncertainty, competition requires its, removing risk fundamentally undermines the ability of an economy to compete on the global stage – in other words we can’t have it both ways.  A Boom requires the potential of a bust to exist in any meaningful sense.

 

Subsidy occurs in other markets, such as retailers, who charge large amounts of money for brands to inhabit their ‘gondola’ – one referred to their subsidy by leading manufacturers as ‘crack cocaine’ which hampered the efficiency with which that brand could operate as a retailer (as opposed to being merely a department store).

 

The solution? Well subsidy is inherently culturally and economically conservative because it is money distributed from the top down.  What is required is new forms of “non-institutional” (individual?) money creation which can introduce real competition against these subsidized dinosaurs who are currently being insulated from the ice age of “austerity living” and more importantly in the future the effects of sustainable energy strategies on patterns of consumption, production and the wealth of nations.

What's your financial IQ?

Working with an internet bank a few years back, we tried to come up with a segmentation based on the different answers to the question ‘being good with money’. It was designed to be a remedy for the stuck record of financial services segmentation which produces such conformist responses to perceived consumer problems – such as Halifax thinking that people will prefer to pay a fixed daily fee for an approved overdraft rather than an interest rate! I was reminded of the findings of that segmentation, and the reaction by some individuals within the bank, by the Channel 4 programme tonight about race and science in which Rageh Omar set out to explode the myths of the scientific link between IQ and intelligence. The point he made – in the round about grand tour style by which documentaries assert their perspectives in the limited medium of television - that IQ is a measure of our adaptation to modernity (and our aspirations for success defined by modernity) rather than a measure of any innate ‘intelligence’, has wider implications than highlighting the cultural ‘handbrake’ which affects many children of ethnic minorities who feel that in order to be ‘intelligent’ you must act ‘white’.

Time and again, this and past governments have sought policies which seek to ‘educate’ consumers about money and financial services. However, before you can set out such a policy you need to define what ‘being good with money’ actually means. Too often, it was the ideal of rationally led scientific progress which informed the opinion both of what money is and therefore the definition of ‘being good’. At other times, a nostalgic conservative agenda has come to the fore encouraging us all to act like ‘’er indoors’ and stick our money into jam jars.

In reality, our liquid modern culture defines being good with money in many more ways than that (and for that matter measures of success). There are as many ways of being good with money as there are high end brands of fashion, types of whisky, cars, front door styles, flavours of fabric conditioner, in fact anything from the pantheon of consumer experiences which define success in some form or other. Front doors are bread and butter to an ethnographer working in the UK – just look at your own and think about what it says about you and trust me there will be people who a) notice and b) care about what it says, most of whom, it must be said live on the Cheshire borders of greater Manchester!

 

Having just re-read Bauman’s classic sociological text, Culture as Praxis, in preparation for constructing a research proposal, the issue of culture sits centre stage in our attempts to create wealth and social well being through our usage of money. In general, such policies fail because they adopt too conceptual /theoretical perspective on money or alternatively, see money as something practical or technical – a tool that is fixed in its purpose. Conceptual approaches treat money as representative of an ideology (currently one based on freedom and liberation) that by definition exists in a world that is fundamentally disconnected from human experience and perception of reality. A world where bankers and economists live in the blinding light and we sit transfixed on the shadows and puppets playing stories on the wall – or at least on daytime television which is as close to Plato’s cave experience as you will find in the modern world. Technical/Practical approaches are usually characterized by overly deterministic and materialist in their definition of money reducing both currency and user to the role of billiard balls on the snooker table of life – ironing out the inconvenient ambiguities and uncertainties of culture. Currently it strikes me that the Bank of England seems to be siding with its comfort zone – the theory of money – the FSA with the technical/deterministic view of ‘evidence based’ policy. As anyone who regularly pops in to read this blog knows, my particular soap box is that they are both in denial about both the way society makes money and the way money makes society.

I will have opportunity to put my view at the next CFSI event on the ‘non-bank sources of consumer finance’ – I may leave the word praxis out of my talk but I certainly hope to introduce some ambiguity into the proceedings in an attempt to get elements of the audience to appreciate how liberating money is not about disconnecting it from everyday life but appreciating how it is fundamentally entangled in the human stories and experiences which shape the social life of things.

FSA tackles binge borrowing

We’ve all been there. The morning after the night before and promises that we will never drink again. If there was an ‘offbooze’ we would all be chastised regularly for our irresponsible moral lapses. It seems the FSA has finally stepped in with some nice new bolts for the stable door.

Again the answer to the question, ‘how do we stop people acting "irrationally" and "irresponsibily",’ is to replace the old application process with a shiny, new application process but this time based on the assumption that we are all one step away from getting a financial ASBO. This faith in hard and quantifiable ‘facts’ (i.e. that a question was asked and the respondent answered it a) truthfully and b) using the assumptions, moral interpretations and cultural field of the inquisitor) frankly still makes me choke on my cornflakes every time Radio 4 feels the need to promote the idea that we all just need to rein in our animal spirits and then recreate the enlightened morals of the 1950’s when nanny (state) knew best and the Archers was an educational programme.

Stepping back into the real world for a minute do we really think that asking ‘clever questions’ will create better lending decisions and transform the moral economy of credit relations? I suppose it is better than asking no questions at all, and speaking as someone who renewed his self cert mortgage over the phone in 20 minutes in the no man’s land of days between Christmas and the New Year, I guess that the old system had become about as reliable as tax credits or the benefits systems for creating just outcomes. What the FSA have put forward is essentially a political statement as in reality there is little they can do to affect the proceedings of millions of conversations through regulation. Making lenders more liable for offering money irresponsibly may create some financial incentives for banks to curb their enthusiasms the next time the music is playing and we are all dancing, but I suspect that rather than take on the double cost of investment in new processes (or more to the point, better trained and more expensive people in the front line) the effect of these ‘incentives’ will be for people to lend less and only to those who have a good credit history. Nice for your average listener to Radio 4 but not necessarily promoting social mobility.

Can we really expect banks to start putting significant costs back into their branch networks in the middle of a recession just to avoid potential penalties if they start selling too much of a good/bad thing to the wrong people? Where are all these trained and experienced individuals going to appear from who will carry out these interviews? Perhaps we will see a reverse flow out of the likes of B&Q (who recognize the benefits of employing people who can remember what it was like when you fixed something yourself and didn’t throw it out, ebay it and buy a new one).

My prediction is that mortgages, now the state has started tinkering with them, like the systems which bring you tax credits, benefits, and many other centrally organized schemes will go through an endless cycle of reform and renewal – including expensive ad campaigns, creation of some quangos, at least two reports by experts and in reality very little change on the ground.

I am speaking at a CSFI Round Table on the 29^th October which is looking at non-bank sources of consumer finance – once again a timely debate and what will hopefully generate some lively discussion on this and other issues of how much we want politics to define the way our money works.

Talking about a revolution

I have spent the week grappling the problem of pitching an idea whose essence is a social revolution but whose initial (VC investment) audience cultural field is based in the ideas and myths of capitalist production and technological innovation.

The inherent belief seems to be that social revolutions cannot be about ‘making money’ even though, if not semantically in the same sense, that is exactly what this idea does!

Perhaps it is a cynical belief that nothing really changes (in terms of power relations), we just acquire new ‘masters of the Universe’ (or the old ones prove remarkably resilient). The Greeks had the idea of ‘regime’ change built into their religious beliefs, the current gods being the result of a internecine corporate takeover and they in turn fearing their own doom at the hands of some new upstarts exploiting their own (very human) weaknesses. It seems that the death of god has not stripped off the ‘roof of the world’ merely decked it out in a modern glass ceiling of consumerism. Our ‘grand designs’ have become limited to expressions of domestic bourgeois isolationism or monumental but ultimately empty ‘consumer experiences’.

Perhaps it is that ‘revolutionary critiques’ have become too literary and ‘think tanky’ – too obsessed with their place in the intellectual ‘hierarchy’ - with the requirement to be engaged with and sponsored the lords and masters, rather than being able to think the sort of thoughts that made a quick trip to France a necessity of life and death not just a jaunt on the Eurostar to enjoy a coffee and a Gauloise. Gandhi certainly recognized this in his sometimes contradictory and controversial interpretation of ‘moral force’ – disobedience to the state which always teetered on the edge of violence, even if that was the threat of violence to the self rather than others. He recognized the dangers that creating a moral vacuum in place of religion generate in terms of an apathetic, unempowered and passive society of individuals.

Perhaps revolution is just another commercial opportunity to turn a profit from consumption? Certainly the experience of deep hanging out on May Day parades at the beginning of this decade demonstrated how such revolution from within could tear itself apart by its own contradictions. Rather than protest, here was a form of contemporary performance art – all ‘sound and fury, signifying nothing’.

Which brings me back to the nature of the revolution which needs to happen. In my conversations with Richard Duvall, an anti-establishment guy who understood the possibility of a new point of view (his premature death a massive loss to the world of innovation and beyond) we used to talk about the individual revolution. Such a revolution is not a concept, nor it is merely a structural force, revolution is based on the creation of new and competing praxis through which values and ideals are embedded into everyday life and action.

The individual revolution will arise out of what we do, not from the creation of new institutions telling us what to do.  More specifically it will arise out of what we can create as individuals - enabled by social media technologies that resist hierarchy and provide swift retribution for those who lord it in such contexts.

And for any venture capitalists who might be reading – there is real value to be made from the sponsoring of such a revolution (and perhaps it will achieve the absolution of one or two bankers along the way!).

Socially useful money

Some good challenges from the guru of LETS and alternative currencies, Michael Linton, specifically about my slightly loose opinions on the social economics underpinning the Brixton pound and similar schemes in other parts of the UK.

His final (and very useful)  comments seemed to agree with my underlying premise, however, which is that focusing the ‘usage’ of such currencies on consumption as the major economic activity of communities rather than production is perhaps creating contradictions with these alternative capitalist models, just as our dominant neo-liberal model of wealth creation has experienced (if for different reasons). It is these contradictions which have arguably reduced the ‘green’ movement to being a political force rather than a more active economic force for change in our society.

Tackling the problem of communities becoming more ‘self sufficient’ and autonomous (and therefore less dependent on the more unsustainable practices of the global economy) requires recognition that money can produce new relationships and exchanges not just affirm or protect existing hierarchies. I was arguing that money can be a force for creating positive effects of ‘creative destruction’ within a community through which the community itself, through the actions of individuals within the community, can adapt and develop new forms of wealth creation without recourse to the traditional supplies of such ‘risk’ capital which bring their own rules, impacts and unsustainable practices into play.

Michael rightly raises the point that the creation of local currencies enables the creation and accounting of social and cultural capital in the form of exchanges of services, favours and obligations and makes the flow of those favours more liquid and liberated than merely relying on informal accounts of friendship, kinship and altruistic public service. I merely want to add to this earned money with the creation of money through new forms of credit relations which are also created and managed within the community thereby breaking down the conventional consumer/producer model of value exchange and encouraging a new more collaborative and equal endeavor which over time provides the community with more sustainable sources of growth as well as circulation of goods and services.

I am hoping to put together a series of posts over the next week, which will become a paper on how the creation of such currency mechanisms could ‘lighten the gloom’ currently our political master’s view of steepness of the climb towards economic recovery.

Any and all comments will be welcomed and stolen with pride!

Sport as individual achievement or socially meaningful experience?

Having channeled my need for competition into Marlow’s Rowers Revenge (pfd of results) at the weekend, I am left reflecting on the ‘cost’ of that competitive spirit. The time trial format of Triathlons supposedly makes them a ‘race of truth’; it is only you against the clock for motivation. The reality is less solipsist and more social than that. You end up racing just about anything with the aim of pushing yourself further than you believe your body thinks is possible. On the ergo I found motivation from watching the guy next to me as we matched each other stroke for stroke and then continued the battle on the bike for the next 25k. Clocks didn’t come into it and though he managed to pull away on the last climb, I ‘clung’ onto him metaphorically as I maintained sight of him through the 7.5k of the run. Corners were highly de-motivating! In the boat (rowing) you push off everything, other boats, other rowers, stationary objects on the bank, etc.

It is our competitive spirit which drives us to ‘overstretch’ ourselves, take risks, ignore aches and pains which has taken centre stage in our idea of ‘culture’ as reaching or achieving our individual "potential". Empowering the individual has taken the ascendancy against universal ideals of attainment. But such competition does not have to be purely an affirmation of potential of ‘individual’ excellence (which arguably has what the Olympics now celebrates) but also about the more epistemologically ambiguous ideas of social potential and achievement.

Which brings me to the relevance of this mildly philosophical reminiscence of the "joys" of competitive exercise. Just what is the "potential" which we seek, is it merely our individual ‘nature’ or does it offer a socially transcendent outcome? Is our competitive potential (potentia) to be seen as an assertion our natural ‘power’/’will’ (both means and end of competition being the need to compete) or as a striving for some ideal ‘form’ or state of perfection?

The Oxford and Cambridge boat races are often characterized as such a competition, between the raw power and emotion of the Oxford approach and the calm perfection of technique that sits at the heart of Cambridge’s ethos. In the former, the individual strives to be "superhuman" and to crush the foe in the opposite seat; in the latter the individual is lost to the whole, which when it clicks it holds an almost ritualistic power over you as you become ‘conscious’ of the collective movement of the boat above all personal concerns about heart rate, pain or breathlessness. As such it is a moment of philosophical insight which leaves a lasting impression (and one that is more meaningful than the rantings of a diehard ‘boatie’).

The dislocation of philosophy from physical pursuits in the West is, I think, a mistake which is carried into other areas of ‘practical’ life. Practical philosophy becomes like a form of social homeopathy; an immaterial ingredient supposedly affecting material life, rather than being about understanding the ambiguous reality of our ‘nature’ (perhaps more like ‘physis’ as the Greeks would characterize it). A potent combination of natural necessity and human techne (a much broader word than our conception of technology – implying something like the skill of Rooney or Ronaldo rather the workings of an ipod) which is realized through the pursuit of ideals of both mental and physical achievement.

All of which is a round about way of linking to my own reason for competing which is to raise money for Chelsea and Westminster Hospital - a social ideal well worth the morning after ache in my legs!

http://chelwestcharityfundraising.org.uk/oikonomics_brucedavis

More donations welcomed!