Monday, February 23, 2009

Letter to Barack #15: Better Science, Better Policy

Dear President Obama,

The questionable epistemological status of mainstream economics is displayed daily in the press and on television as scholars trained in that discipline purport to derive explanations of the current crisis (and associated predictions and prescriptions) from a single prior case or period. For some everything went wrong with the deregulation of recent decades. For others today´s case is comparable to the recession of 1981 and 1982, or to the Great Depression of the 1930s, or to the crisis of 1873. The chairperson of your Council of Economic Advisors distinguished herself by studying monetary and fiscal policy in the 1930s, and she is on record as encouraging graduate students who wish to advance in the profession to do detailed empirical studies of particular historical cases similar to those she does herself.

If one accepts the two premises that (1) Observed phenomena do not reveal the causal powers that produce them, and (2) What is happening now, as we move from a chaotic present to an uncertain future, is not a repetition of any single pattern of past events; then we must conclude that comparisons with the Great Depression or any other period or case are not likely yield reliable guidance as we endeavor to select among the options available to us those present actions which will produce a better future.

To begin to dissolve economics into a broader socioeconomics that will be capable of explaining the phenomena we are experiencing, and of contributing to a more reliable guidance of social reconstruction, it helps to consider circumstances in which it is logically valid to draw general conclusions from a single case. When biologists study a single specimen, they have good reasons for believing that their findings will be true of all individuals of the same species. A beginning student who dissects a frog finds structures common to all frogs of the species dissected. A frog, unlike a Great Depression, is made of bones, tissues, and organs that repeat themselves over and over again in numerous similar cases.

Why? Because living beings are built according to instructions encoded in DNA. In a normal environment, a given seed will grow into a given plant or animal.

The ecohistorican Thomas Berry frequently remarks that the human species is biologically coded to be culturally coded. The same word used in speaking of DNA, the word ¨code,¨ can be employed to refer to cultural codes that organize behavior (norms, rules, customs, habitus). Up to a point the anthropologist can echo the biologist in generalizing from a single specimen, learning about a culture by interviewing and observing a single informant who has internalized its codes.

When applied to economics (or, rather, to dissolving economics into transdisciplinary social science) an approach that starts by detecting and articulating cultural structures built from codes (¨¨symbolic structures¨¨ in the terminology of Jürgen Habermas) calls for giving greater attention to what Joseph Schumpeter called ¨institutional framework¨, and for contextualizing what he called ¨¨analysis.¨ When Smith and Ricardo assumed that society divided into three classes of human beings: (1) the landowners, (2) the merchants and manufacturers, and (3) the laborers; they assumed what Schumpeter calls an institutional framework. When they took it to be the task of the science of political economy to explain the natural and proper division among the social classes of society´s annual produce (or, what for them was the same thing, its annual revenue), they were doing what Schumpeter calls analysis. They were proposing a theory of rent, a theory of profits, and a theory of wages.

In Schumpeter´s muddled mind it was possible to write a history of politically neutral economic analysis, devoted to explanation while rigorously avoiding prescription, while assigning to a separate discipline, sociology, the study of the constitutive rules of the institutions that created the phenomena observed. But we will not make much progress in improving the performance of our institutions until we reform our social sciences to bring the basic rules of institutional frameworks into focus; for they are the principal causes of the phenomena observed.

Dissolving economics into a transdisciplinary social science that studies the causal powers of cultural coding contributes to solving what Michel Foucault called the principal political problem of our times. Foucault remarked that the principal political problem of our times was lack of imagination. His remark describes the debates in the United States Senate and House of Representatives on the stimulus package, which were almost entirely about one or another proposal to get the economy moving again by restoring the confidence of the investors who invest, restoring the confidence of the consumers who buy, restoring the confidence of the bankers who lend, and restoring the confidence of the executives who manage firms.

Retiring economics from its splendid and disastrous isolation, connecting it with sociology and with history and all the arts and sciences, helps to free us in many ways. One of those ways is that it frees our imagination and therefore our vision. We see that basic cultural structures might change; we see that they have changed (“Always historicize!” wrote Fredric Jameson): we open our eyes and see that human behavior is in practice not nearly as dominated by profit-seeking as it has been in mainstream economic theory from Smith to Friedman.

We see the present crisis as an opportunity. It is an opportunity to wean ourselves from our excessive dependence on the for-profit subsector of the private sector. We see that the public sector and the non-profit sector can take up the slack when for-profit private business sags. Instead of chasing the will-of-the-wisp ¨confidence¨, which always depends (as Keynes taught us) not on any rational or objective standard whatever, but on people´s subjective perceptions of other people´s subjective perceptions, we can come down to earth and focus on the physical task before us: building sustainable cultures that mobilize resources to meet needs.

We can be thankful that just as global warming is getting out of control, while human population growth is continuing to spiral out of control, and –to generalize a series of ecological warning signs without naming each specifically—just as we are on the verge of destroying our habitat and therefore destroying our species; a financial crisis has come to save us. The financial crisis is slowing down the profit-driven machine that is destroying us. A better epistemology helps us to see the financial crisis as an opportunity to let the private for-profit economy slow down, as an opportunity to bring that machine under ethical and rational control, and as an opportunity to supplement it with other ways (public and non-profit) to mobilize resources to meet needs. The present crisis is our opportunity to become a sustainable species in a sustainable biosphere.

Peace and all good,

Howard R.

Thursday, February 5, 2009

From One of Your Voters: Letter to Barack #1

This is me speaking.

I am one of the 52 million people who voted for you, one of the 3 million in your database who contributed small amounts of money to your campaign.

Remember me?

I am writing to make sure I understand our deal. I watched your acceptance speech at Grant Park in Chicago. I watched many of your speeches.

You said together we are going to transform America and the world. Right? We are going to transform not from the top down but from the bottom up. Did I get that right? It is not you who are going to transform America but we. Is that the deal? You are calling for a spirit of service and sacrifice. That’s what I heard.

In a speech to financiers on Wall Street you said the economy has a higher purpose. The higher purpose is that we are all in this together. From time to time we change the rules of the economic game to make the economic machine serve its purpose better. (I read the speech on your website www.barackobama. com) Your Wall Street friends voted for you even though you told them you would raise their taxes. That sent a message.

So –here is my conclusion, my message: I am not supposed to be just watching TV waiting to see whom you will name to cabinet posts. I am supposed to be out on the street transforming my town and neighborhood. Right?

This afternoon I will donate twelve bottles of cooking oil to our neighborhood food pantry. I will talk up cooperation. I will also work on changing our irrigation system from spray to drip (Drip benefits the environment by producing more food with less water.)

I am copying this to lists of transformers. If I am missing something, or if I have misunderstood something, hopefully somebody will set me straight.

Howard R.

Nov. 6, 2008

To Barack from the South: Letter to Barack #2

OK Barack, I sent out a thousand copies of my first letter to you.   Several friends responded by correcting my number:  You got nearly 65 million votes, not 52 million. 
 
Nobody questioned my concept.
 
The concept is that together we are going to transform civil society.
 
In the campaign your opponent sang the rancid old Republican theme song:  Get the government off our backs.  He repeated the perennial liberal utopian ideology:  He assumed there is nothing wrong with civil society.   He said too much government is the problem, less government is the solution.
 
You put together phrases from Abraham Lincoln,  Franklin Roosevelt, Martin Luther King Jr., John F. Kennedy, …. stirring old roots with Spring rain.   You emphasized some relatively new dimensions:  bottom up, service, transform, higher purpose, save the world.
 
Some people say you won our votes by appealing to our emotions, and then less than 24 hours after the polls closed confirmed that although your words expressed crowd-pleasing sentiments they referred to nothing concrete when you by appointed a no-nonsense conservative Democrat as your chief of staff.   I say behind the emotion there is a concept:  transform civil society.   
 
People are as delirious about your victory in Asia and Africa as they are in Chicago and Los Angeles because you touched their hearts with a dream of  CHANGE.   Although you are legally the President-elect of the USA , and only in some people´s imagination the President-elect of the world, you are for billions the incarnation of HOPE.   The world´s billions may harbour enthuasism without clarity, but what they feel in their hearts can be clarified.   It can be put into practice.
 
There was a promise in your campaign that John McCain did not understand.  You are not the tax and spend Democrat he was attacking.   Amitai Etzioni is right to call you a communitarian. blog.amitaietzioni.org/2008/01/a-communitarian.html
 
CHANGE and HOPE have an operational meaning above and beyond Rooseveltian social democracy: above and beyond stronger government; above and beyond defending the economic interests of the middle and working classes;  above and beyond reversing the dismantling of the welfare state.   They mean a groundswell of social responsibility in the private sector; they mean a culture shift.  Without the second the first is not feasible. 
 
Without the transformation of civil society CHANGE and HOPE will deflate to gasless plastic balloons.
 
I appreciate the difficulty of keeping track of your 64 million electors and  your 3 million contributors, even though you have promised to listen carefully to what we have to say.  I imagine myself as number 32,641,211 among the electors and number 1,025,986 among the contributors.   If you look up number 1,025,986 on your database you will find a California address, but actually I am an expat.   I live on the Continent of Hope ( South America ), and vote by absentee ballot.  I do not usually vote for Democrats.   I made an exception in your case because I thought that because of your background as a community organizer you would know in practical terms what it would take to give concrete meaning to your words.   I thought that someone who had imbibed anthropology with his mother´s milk, and who had lived as a child in Indonesia , would be capable of rising above the ethnocentrism of his father´s profession.  I thought that you could facilitate turning the culture shift the masses vaguely dream and desire into an operational reality.   I thought the other world that is happening at thousands of sites around the planet would find in Barack Obama a leader who symbolized it and understood it because of his personal history.
 
Today I went to a meeting.  You know about meetings.   “Participation” sounds good but meetings are  ……..      well …….     er   …………..     ah…………………..  ..…………..indispensable.    If you cannot endure the boredom and/or petty quarrels that typify the average meeting you cannot change the world.   You are like a soldier who flunked boot camp.
 
Today´s meeting was better than average.  It was at the office of our communal union of neighbourhood councils.   Our little town of 40,000 people is divided into 52 neighborhoods, each with its council.   On the pretext of preparing for the impact of the world financial crisis,  and taking advantage of the opportunities created by our recent success in electing a new mayor with new ideas (who happens to be a gay man who won handily in spite of homophobic propaganda against him)  we are doing what we should be doing even without the crisis and even without the new mayor.    Every neighbourhood will have a community food pantry run by volunteers, through which anybody who is unemployed can earn food by community service.    We are not giving anything away.   Those who do not succeed in selling their labor in the labor market work for the local community and the local community pools resources to make sure they get by.   We have already organized food security in one neighbourhood, and now we are extending the practice to other neighbourhoods.
 
Next time you are in Argentina you might consider visiting Cordoba or any of several other cities to see ABC (Abastecimiento Basico Comunitario).   It is a project of the National Institute of Industrial Technology headed by my friend Enrique Martinez.    Enrique´s proposal is that every Argentine have assured at the neighbourhood level adequate nutrition, primary health care (at the neighbourhood clinic), and housing.   Then let the storms brew as they may at the level of the national economy and the global economy.   (See www.inti.gov.ar)  
 
More later.   I aim to contribute to the transformation of civil society in the North by making better known some of the seeds of transformation that are already germinating in the South.
 
Howard R.
8 November 2008
 
p.s.  Scholars will notice that my use of the term “civil society” blends its classic sense (that of Hegel´s bürgerliche Gesellschaft ) with its more recent senses popularized by the World Bank and others.
 

ABC & ABCD: Letter to Barack #3

OK Barack, this is me again.
 
Here is a question I wanted to ask you:  When you were a community organizer in Chicago did you ever run across John McKnight and Jody Kretzmann?   They are at Northwestern University.  (www.sesp.northweste rn.edu/abcd/)   According to the media you learned some of Saul Alinsky´s organizing methods (as did I via Cesar Chavez, who was trained by Fred Ross, who was trained by Saul Alinsky) but I wanted to ask whether you ever became familiar with the less confrontational and more communitarian approach of John and Jody.
 
The reason the topic came up is that my last letter sparked interest among readers in  Enrique Martinez´s vision of food security, primary health care, and housing assured for every Argentine at the neighborhood level, known as ABC (Abastecimiento Básico Comunitario) .
 
People asked me where they could learn more about ABC.
 
Unfortunately very little is written about ABC.   There is a chapter on it in a book published  in 2007 by the Faculty of Agronomy of the University of Buenos Aires (Hacia un Nuevo Pacto Social en el Agro).   There is a note on ABC  on the INTI website, where there is also a Spanish translation of my paper “Vision of a World without Poverty or Economic Insecurity,” which was earlier published in English in Acorn, the Journal of the Gandhi-King Society and included as an appendix to my book Undersanding the Global Economy (Peace Education Books 2004)   I think my paper expresses INTI´s ideas as well as mine since they took the trouble to translate it and upload it to their site.   (www.inti.gov. ar)   My refrence to Enrique´s idea of assuring in every barrio  food, primary health care, and shelter was not based on any text at all, but rather on what he said at a seminar we did  on methodology for social change at the home of our friend Hugo Arce who teaches economics at U. of Buenos Aires.
 
John and Jody (and hundreds of collaborators)  have invented ABCD.  It is similar to ABC and is extensively documented in English.  You can buy their book Building Communities from the Inside Out: Finding and Mobilizing a Community´s Assets from ATLA publishers in Chicago.   Their book comes with videotapes.  You can sign up for trainings led by their collaborator Mike Green. ( www.mike-green. org )  Several Earlham graduates are using ABCD as we speak.
 
ABCD  stands for Asset Based Community Development.
 
It was invented in Chicago as a response to globalization.  Industry had moved to low wage sites in the third world.   Most of Chicago had become what is known in the USA as an “inner city.”   As Earlham economics professor Jonathan Diskin once said, an inner city is a place where there is little or no investment.   The standard game of civil society has been lost.   That is to say, there are no moves left in the standard game of attracting investors to create  jobs.   The city is checkmated.   The residents are left with making a living selling personal services to each  other, welfare, retail sales to fewer and fewer customers, government employment, missions and agencies, jail (at least they feed you there), rehab (at least they feed you there), joining the military (ditto), a variety of illegal and semi-legal rackets, and new careers in security and law enforcement spawned by the need to protect everybody from everybody else.
 
In a Chicago decimated by globalization the members of an inner city church met to deliberate on the questions, Shall we close the church and move to the suburbs?  Or shall we stay here and resurrect our neighborhood?    They answered the first question NO and the second question YES.   ABCD was born.
 
ABCD starts with taking an inventory of (or “mapping”) a community´s assets.  In the adaptation of ABCD we used in the Roman Catholic archdiocese of Los Angeles we called the assets “gifts.”   We said, “Building community is connecting gifts.”  Everybody has gifts.   Busy professionals who have no time usually have money to give.  There are gifts of the heart (like enjoying cooking, enjoying weeding and pruning, enjoying caring for the elderly, enjoying working with children.... ),  gifts of the hands (like repairing TV sets, playing the guitar, fixing roofs....) and gifts of the head  (languages, accounting, engineering, law....)  Institutions have underutilized assets, like a church building that is vacant every day but Sunday, or a vacant lot belonging to a hospital that could be a community garden.....
 
Sending the Boy Scouts or the Girl Scouts out to map a community´s assets may not seem like a method for changing the world.   However, a little reflection will show that it opens the way to a constructive and open-minded rethinking of the basic rules of the economic game.  ABCD is different.
  1. ABCD is not what Fernand Braudel called traditional material life.  It is not extended peasant families who raise animals and crops and ocasionally sell a pig at the fair and immediately use the proceeds to buy goods they do not produce themselves.
  1. It is not a money-based exchange society where money is required to obtain the necessities of life, where everybody has to sell goods or services in order to survive.  (The type of civil society whose limitations led Hegel to postulate the need for a higher ethic in a public sphere.)
  1. ABCD is not what (following Karl Marx) is called an “extended” exchange society in which decisions to initiate production depend on the investors´ confidence that the products can be sold at cost-covering prices plus a profit.   Meeting human needs, if it happens at all,  is a by-product of turning money into more money.   This type of society is today called “the economy.”   Governments are now throwing huge sums of money at “the economy” desperately attempting to restore confidence.  (The “confidence” analysis is a twist due to Keynes, not Marx.)
  1. The philosophy of ABCD is not that of a typical welfare state in which there is a needs assessment (showing a need for clean and adequate water,  for low cost housing, for safe streets ....   )  followed by public policies, plans, programs, projects, and missions designed to meet the needs of the target population.
  1. It is not a centrally planned command economy.
 
ABCD represents a higher form of pragmatism.   It is persons-in-communit y mobilizing resources to meet needs, employing elements of 1 to  5 above, and also elements of 6 to .... n not shown,  employing what works, discarding what does not work.   As John and Jody say, institutions should be employed to serve communities.   
 
Could all of this have started in Chicago,  in the same Chicago where Milton Friedman was teaching his theories of  free market utopia at another university a few miles to the south of Northwestern, while a young community organizer,  a worshiper in a socially conscious congregation,  a law professor, a state representative,  and  a Senator from the State of Illinois knew nothing about it ?    It did not seem likely to me.    That was why I wanted to ask you whether you had ever come across John McKnight and Jody Kretzmann.   But notice that I put my question in the past tense.    I  now no longer have a need to ask the question because I have learned from a little sleuthing on the internet that you did know John and Jody,     John McKnight wrote a letter of recommendation for you when you applied for admission to Harvard Law School.    Small world.
 
 
Howard R.

Short Term and Long Term: Letter to Barack #4

OK Barack,  I admit that I am one of the millions of people who wish they knew how to read your mind, and I admit that my brother Ken is probably not as good at it as your wife Michelle, but I nevertheless think he has an inside track so instead of guessing myself I will adopt his guess.   Ken has some professional political experience and some high-up contacts and I believe he can assess what you are probably thinking more accurately than average persons, with the possible exceptions of average persons who happen to live in Illinois or Hawaii .    Yesterday my brother expressed the opinion that your mind is probably preoccupied by two questions:
 
One:  How to save people’s 401(k) plans and other retirement assets that are invested in stocks and lose value when stocks lose value.
 
Two:  How to save the American automobile industry.
 
          One might say –I know people who do say—that until these and other short term issues that make up the current economic crisis are resolved, the Obama administration will not be able to turn its attention to the long term.
 
          Indeed you did say –I watched you say it on television—that before implementing some major parts of your program we need to “get past” the current crisis. 
 
          The same day, yesterday, the day my brother expressed an informed opinion concerning what is on your mind, the Secretary of the Treasury, Henry Paulson, reported on what his office is doing to restore confidence in the economy.
 
            Paulson’s office is doing two sorts of things:
 
          1)  It is providing cash to banks and other credit-granting institutions.  For example it has bought preferred (non-voting) stock in banks.   The bank gets the cash and the government gets a right to dividend payments in the future.
 
          2)  It is guaranteeing loans.
 
          The rationale is that if credit-granting institutions have more money and/or run less risk they are more likely to make loans.   Then people can borrow more easily to meet payroll, to buy an automobile, or for any business or consumer purpose.
 
          The Congress has already:
 
          3) Put more money into the pockets of consumers with tax rebates and tax cuts.
 
          The rationale is that the consumers will spend their money buying products, thus making it profitable to produce them.
 
          If I may elaborate a little on what my brother guessed was on your mind yesterday, I suspect that you are thinking of three other ways to stimulate the economy:
 
          4) Subsidies for the automobile, green technology, and perhaps other industries.
 
          5)  Incentives to produce in America rather than overseas.
 
          6)   Massive public works, for example hiring the unemployed to plant trees.
 
          Behind all of these measures is the assumption that the economy runs on profits.  When business stops being profitable it stops running.   The government then takes measures to restore profitability, in order to restart the economy.   Even (6) is about restoring profitability insofar as it expects the workers employed on public works to stimulate business by spending their pay.
 
            Let the above serve as an executive summary of the sorts of measures that are generally expected to “get us past the crisis.”            An element missing in the public debate about these measures is the need for a paradigm shift.
 
          Anybody who does not believe the following should check it out for herself or himself:   Postings on anti-Bush websites and listserves and eloquent print prose pieces in Nation magazine, articulate many arguments in favor of putting money into the pockets of ordinary people and rescheduling their debts to save their homes.  They condemn spending billions to bail out the wealthy.  It is argued that people-oriented stimulus packages are fairer and more effective.   But there is no questioning of the paradigm.  It is taken for granted that the objective is to generate economic activity by making it profitable.
 
          My humble suggestion is to walk on two feet.   One foot moves to restart the economic machine by restoring confidence (not because it is an ideal economic machine, but because it is the one we have).   The other foot moves to diversify the economy, freeing us from our excessive dependence on expectations of profit to motivate production and distribution.
 
          Don’t wait.   Don’t wait to get past the crisis to get started on the transformational agenda.   If we wait for stimulus packages to restore investor confidence (if they ever do); if we wait for gradually rising rates of employment to re-integrate society, we will wait too long.  We need to pick up the slack ASAP with civil society efforts and with public efforts and with private-public partnerships.   A world full of loafers and part-timers (and of people a bit better off who fear crime and despise the loafers and part-timers) is a world that will generate strange and violent ideas.   Before government policies bring about economic recovery (if they ever do), the culture war will be lost.   People will hang on to every word Rush Limbaugh speaks.  They will be attracted to the worldview of Fox News.  On a best case scenario their arms will be tattooed with images of Sarah Palin; in the worst case the image will be a swastika. 
 
          These considerations lead to a renewed appreciation for the work community activists do, not just because they achieve material goals such as decent housing and food security, but also because they engage people in constructive activities.   Organizing, as Cesar Chavez frequently said, means giving people something to do.   A disorganized unemployed population passively waiting month after month for someone to bring them employment is a dangerous population.
 
Howard R.
November 13, 2008
 
 

Obama and the New Paradigm: Letter to Barack #5

Dear President-elect Obama,
            In your speech today you said that in times of crisis like these, ““We have acted boldly, bravely, and above all, together."   You went on, "That is the chance our new beginning now offers us, and that is the challenge we must rise to in the days to come.”
            The phrase “above all together” expresses the reason why I voted for you.
            Your frequent use of ubuntu rhetoric keeps alive my hope that you are open to the required new paradigm.
            New paradigm.   What makes it new is that (in contrast to economics) it works with human nature as it has been discovered by biology and by anthropology.   Economics is the old paradigm.   In the new paradigm economics is not forgotten; it is included as Newton ’s physics is included in Einstein’s.
            What makes it a paradigm is that it governs the nominal level of measurement, defining the objects to which mathematical calculations are applied.
            Required.  What makes it required is that turning back the calendar to the progressive policies of FDR, Harry Truman, and Jimmy Carter; or ditching today’s neoliberal economics and returning to the centrist economics associated with such names as Paul Samuelson, Joseph Stiglitz, and John Maynard Keynes; will not work. 
            There was a reason why free market fundamentalism triumphed in 1980 and stayed in vogue until November 4, 2008.   In the late 1970s Jimmy Carter’s policies were not working, nor were similar policies in other places.  Centrist economics was not working.
            Instead of solving the unsolved problems that tanked progressive politics in 1980, the world returned to old-fashioned free market fundamentalism.   Everybody with any sense knew   that inevitably free market fundamentalism would fail.   It failed in 1873.  It failed in 1929.   It would fail again.
            Today’s question is not, how to get past the crisis and bring capitalism back to normal? Today’s real question is, how to make feasible the good intentions of the Jimmy Carters of the world?  In other words, the question is how to overcome the structural obstacles that made West European social democracy and its analogues elsewhere stop in its tracks, reverse engines, and decline?
            We do not answer today’s real question by demonstrating the errors of free market fundamentalism.   We do not answer it by advocating the standard progressive politics and centrist economics of the past.  We do answer it in practice by transforming the structures that create the obstacles that brought social democracy to grief. 
            In other words, we answer it by transforming civil society.
            (Readers who find the preceding paragraphs mysterious may wish to look up on the Internet ubuntu, nominal level of measurement, Thomas Kuhn, Dilemmas of Social Democracies. Amartya Sen’s “socioeconomics”)
            I spent today trying to cooperate with what I take to be your best thinking.  I made an exception to my vegetarian principles by donating chickens to a chicken-dinner fundraiser for a local corps of hospital volunteers known as “the ladies in white.”   I believe that  today’s immediate priorities include keeping the hospitals running; they also include making sure everyone has at least one square meal a day, a place to live, and something to do.
           Yours truly,
            Howard R.

Creating J.O.B.S: Letter to Barack #6

Dear President-elect Obama,
 
     In contrast to what the media portray as an overwhelming urge to take prompt and bold action to restart the economy of the United States , even in the absence of rational grounds for believing that the actions taken will lead to the results desired, here we are systematically going about creating five kinds of jobs.  They are:  (1) Employment in for-profit Business. (2)  The People’s Economy.  (3) Public sector work. (4) Working for non-profits. (5) Community service jobs.   We are aiming for zero unemployment.
 
     History and anthropology teach us to believe that there must be a 6th, a 7th, an 8th and an …….  nth kind of job.   Here and now we are concentrating on the five just listed.   “Here” in a narrow sense refers to a town in Chile with a newly elected mayor and city council.  They have been studying  the social innovations that are so plentiful in South America .   I will be drawing examples to illustrate our thinking especially from Argentina .  “We” includes both them and your faithful correspondent, who is one of their academic advisors.    “Now” officially begins on December 6, 2008, when the new city officers will be sworn in for four year terms.
 
(1)                           Employment in for-profit business.  
 
In our new paradigm town we will concentrate on small businesses because they generate the bulk of employment.  (I will write letters later about big business and about the social functions of profit.)  We will back entrepreneurs.  Like Joseph Schumpeter and the early utopian socialist Saint-Simon we regard the entrepreneur as a member of the productive classes.  We add a fifth factor, “organization” (contributed by the entrepreneur) to the classic trio of factors of production, “land, labor, and capital,” and to the fourth factor added later: “knowledge.”  
 
          An excellent example of local government supporting for-profit business (and thus creating jobs)  is provided by the Municipal Bank of Rosario, Argentina .  That bank’s Mission Statement and Charter provide that the bank’s function is to serve small business and micro business in the local area.  (www.bmros.com.ar)
 
     The Municipal Bank of Rosario does not manage footloose money endlessly roaming the globe in quest of the fastest way to make itself fattest.    It manages money tied to a place.  
 
     When the Argentine economy collapsed in 2001, the Rosario branches of foreign commercial banks closed.   They were there for one reason:  profit.   When there were no profits to be made, they had no reason for being in Rosario or in Argentina .   They left.
 
     The Municipal Bank was there for another reason.  It stayed open.  It bent every rule in the books to make bridge loans so that its small business clients could meet payroll, save jobs, and survive. 
 
     In addition to standing by its small business clients in times of crisis, the Municipal Bank backs entrepreneurs (and through them creates jobs) in many other ways.  In its auditorium and meeting rooms it runs business seminars.    Entrepreneurs and potential entrepreneurs learn of new opportunities, of new legislation, and of new research findings.   Hands-on classes teach them skills.  
 
     The Municipal Bank uses the information technology expertise it acquired managing the accounts of the city government to help its small business clients calculate payroll deductions, fill out tax returns, prepare balance sheets, and track progress with management information systems.   Entrepreneurs are freed to lead their businesses because the bank’s computers do the routine paperwork for them.   They can pay their employees with a single deposit or transfer.   The employees can withdraw their pay from one of the Municipal Bank’s ATMs.
 
     The profits of the bank go to the Municipal Bank Foundation.  The Foundation gives grants to local musicians and artists.    This recycling of profits creates employment in the arts.   The Foundation also supports studies on solid waste disposal, housing needs, air quality, public transportation, and other topics of local interest.  To some extent the funds granted by the Foundation to do studies create jobs for scientists, but for the most part the grants only cover costs while the scientists voluntarily donate their time to public service.
 
(2)                         The People’s Economy.  
 
The people’s economy creates jobs that do not exist in the for-profit economy.  It is defined by the Argentine socioeonomist Jose Luis Coraggio (holder of a doctorate from the Wharton School and director of the Graduate Program in Social Economics at General Sarmiento University in Buenos Aires )  as an economy where the principal resource is labor and the principal objective is to make a living.   Coraggio contrasts it with the larger scale more heavily capitalized and more technologically advanced economy where the principal resource is capital and the principal objective is profit. (www.coraggioeconomia.org)
 
The workers in the people’s economy are self-employed, whether as individuals, as partners, as members of cooperatives, or as associates in micro-enterprises.   We calculate that about 26% of the jobs in Chile are in the people’s economy.    Many of them are in mom and pop tiny businesses that barely generate the equivalent of a wage and never generate anything that could be called a return on capital.
 
In Argentina today there are some 300 enterprises that used to be in the for-profit sector, and are now in the people’s sector.   They failed to survive as profit-making businesses, but their workers keep them going anyway.   They generate enough income to make it possible for the worker-owners to get by.
 
We believe the people’s economy deserves the support of the for-profit economy.  It sometimes gets it.   For example, at the premises of the Chamber of Commerce in Rosario  major corporations provide training and equipment for women starting self-help micro-enterprises.
 
We believe the people’s economy deserves the support of government.   In Chile the national government has a program that favors making government purchases from the tiny firms we and Corragio place in the people’s economy category.  (www.chilecompra.cl)
 
We believe the people’s economy deserves the support of volunteers.   I doubt that any of the 300 new worker cooperatives in Argentina could have survived without the volunteer help they received from engineers, lawyers, and accountants (many of whom were associated with universities, political parties, and/or churches).
 
Many retired business people around the world regularly lend a helping hand to people who are struggling to get started in the people’s economy and/or in small business.
 
     Among the plans we have for supporting the people’s economy in our town are deliberate support for traditional family businesses now on the wane.   For example, there are some beleaguered ones that have been making fruit jams and/or raising chickens for generations, which we believe could thrive in today’s environment with support from a sympathetic municipality and its associated citizens movement.    We have a plan for city certification of the purity and authenticity of traditional herbal medicines.    The herbal medicines are produced (and more could be produced) on small plots within the town’s limits.   ( Chile is divided into towns as Connecticut is, in such a way that even rural areas are in towns.)
 
             Employment in for-profit business tops out when it hits the profit barrier.  No profits, no jobs.  You will only be hired in a for-profit business if the cost of hiring you is less than the value of the product you produce.   However much good will and social responsibility an entrepreneur may have, she or he still needs to make a return on the capital invested.
 
             The people’s economy breaks the profit barrier.   It creates jobs where there are no profits (although revenue still has to be sufficient to purchase inputs other than labor and to amortize equipment).     But the people’s economy tops out when it hits the market barrier.  No market, no jobs.   If the product or service cannot be sold, then nobody can make a living producing it.
 
             The third, fourth, and fifth kinds of job creation break both the profit barrier and the market barrier.    I will discuss them in another letter.
 
Peace and all good,
 
Howard R.

More on Creating J.O.B.S: Letter to Barack #7

Dear President-elect Obama,
 
          I resume my optimistic suggestions regarding how all of us working together can transform America and the world with the topic
 
3.  Government work.
 
          Two basic questions need to be asked regarding jobs created by public funding:
 
(1)   What kinds of work should the workers do?
(2)    Where ought the money to pay them come from?
 
          One might add a third question:  (3) What institutional forms should be supported or assisted by public funding?    Asking this third question suggests that institutions ought to be diverse and hybrid (public sector/private sector partnerships) rather than monolithic.  I will defer discussion of this first question to another letter.
 
          My (our) answers to the first two questions are:
 
(1)  The workers paid from the public purse should do work that ought to be done, but which is normally not accomplished relying on the motivations that drive for-profit business and the people’s (self-employed) economy.    The government should break the profit barrier to job creation.   The government should break the market barrier to job creation.
 
For example, the biosphere ought to be preserved for the benefit of generations yet unborn.   The unborn are not at this point customers with purchasing power in any market.  Further, as Amory Lovins has remarked, the market quickly discounts the future value of natural resources to zero.   I congratulate you for your plans to use public funds to green the economy.    I add that evaluations of your programs should consider not just the green businesses that your green programs will generate, but also the long term consequences for the species and the planet.
 
For another example, it is easy to reach consensus (as in fact the city of Rosario did reach consensus through a highly participatory strategic planning process) that we want to live in an environment where music and the arts flourish.   Yet when it comes to tearing ourselves away from our television sets to show up on Friday evening to pay money to listen to the local symphony orchestra, the amount of money collected is not enough for the musicians to live on.   The people who derive economic benefit from financing the creation of a highly cultured environment are mostly the hotel and restaurant owners who cater to tourists and the owners of real estate, not the artists.   Public funds ought to break the market barrier to improve quality of life for human beings, both by supporting people who have a passion to live creative lives in the arts and sciences; and by improving the moral, intellectual and esthetic atmosphere for everyone.    Evaluators who do not know how to measure “atmospherics” should learn.
 
A third example and then I will stop although many more could be listed.  Sports.  The value of paying coaches and community youth organizers to run a basketball program for kids is not correctly measured just by what the kids or their parents will pay for it.  It is also measured by health, by the growth of self-discipline, by social integration, by keeping kids off drugs, by crime prevention, and by the accomplishment (or failure to accomplish) of a series of goals not normally served by for-profit business or by the people’s economy.
 
Now let me add two conceptual nuances:   The first is that job creation that breaks the profit barrier and the market barrier should be supported not only by public funding.  It should also be supported by private funding.   It should be supported by foundations and by large scale and small scale philanthropy.  
 
The second conceptual nuance is that public sector performance in general should be measured by social efficiency, not by financial efficiency alone.  I agree with Toye and Toye when they write in their intellectual history of the United Nations that the money spent by the OECD in the 1980s to fund studies designed to justify privatizing public sector enterprises could better have been spent studying how to improve the efficiency of the public sector, and how to measure its efficiency by appropriate criteria.  Admirers of India’s economic miracle would do well to take note that after the reforms of 1991 poverty in India actually increased for a few years due to the unemployment generated by privatization,  and when the gradual reduction of poverty in India resumed it was the resumption of a trend that began not with the 1991 reforms but in 1975 due to a new international division of labor which gave (and still gives) India a comparative advantage as a global supplier of low-priced high quality labor.  Our (my but not only my) view is that public sector job creation should be counted as a plus, not as a minus.  Providing employment is a benefit, not just a cost.   If some workers of a public electric company are redundant in terms of the work that needs to be done to serve paying customers, instead of firing them and increasing unemployment management should consider putting them to work extending service to poor people in outlying areas, or putting them to work on alternative technologies whose benefits will accrue mainly to our children’s children.
 
 
(2)   The money to pay for creating jobs paid for with public funds should come mainly from capturing the income generated (“rents”) by the sale of natural resources.  It should come from public capture of unearned income, easing the burden on earned income.
 
          In this respect North America has everything to learn from South America .  The post-populist regimes of South America are learning how to capture rents from natural resources, and how to use the money to support the people’s economy and to support public sector social, health, and education programs.
 
          The right-wing press and right-wing academics would have us believe that today’s regimes in Brazil , Venezuela , Ecuador , Bolivia , Paraguay ,    Argentina , Uruguay and perhaps Chile are just reruns of traditional Latin American populism.  They are not.   Traditional populist regimes ran up government deficits to fund their social programs.   Unable to simultaneously to increase production and to raise wages, they followed inflationary monetary policies.     In contrast, today’s post-populist regimes in South America are running budget surpluses.  They have sound currencies.  Contrast them with the United States with its astronomical government deficits, and with its beleaguered dollar.
 
          Much of the secret of the nations that are today up-and-coming  lies in the answer to the question, “Who owns the natural resources that are not the products of anybody’s labor, and not  the products of anybody’s creative entrepreneurial skills, but are  gifts of nature to the human species?”
 
          Giving an ethical answer to this question provides one of the keys to putting money in the public purse, so that government can contribute its share toward reaching the goal of J.O.B.S. for all who seek and need employment. 
 
Peace and all good,
 
Howard R.
December 1, 2008

Non-Profits: Letter to Barack #8

Dear President-elect Obama,
 
          Let me start my letter on working for nonprofits (the fourth of the five sectors in which we are creating jobs here in our town in Chile ) by defining two pure types: for-profit business and non-profit business.  I provisionally omit the businesses that do not fit neatly into one or the other of these two categories.
 
          The purpose of a for-profit business is profit.  (Academics will notice that I am not distinguishing profit properly so-called from return on capital; I do not think this distinction is needed here.)   The financial economy drives the real economy.  Investment decisions are made by calculating probable yields taking risks into account.  
 
          Question:  What goods and services will be provided?
          Answer:  Those that can profitably be sold.
 
          Question:  What determines whether the economy will go or stop?
          Answer: Confidence.
 
          Question: Confidence in what?
          Answer:  Confidence that consumers will spend, confidence that credit will be available; and in the end, in sum, in short, confidence that profits will be made.
 
          You have now chosen an economic team (Paul Volcker, Tim Geithner, Lawrence Summers, Christina Romer and others) and a security team (Hillary Clinton, General Jim Jones, Robert Gates, Admiral Mike Mullen, Susan Rice, and others) whose overall objective is to restore confidence.   I am suggesting that at least a major part of the nation’s military objective is the same as its economic objective.   Confidence.   In practice and in official declarations the military and its civilian chiefs seek a world in which business people will have confidence in the safety of  their investments, in access to markets, in access to energy and other inputs, and in being able to count on the normal working of the international economy. (See  www.dtic.mil. searching under “national interest”)
 
            I would suggest that if your advisors were to give nonprofits due weight in their deliberations they might well improve the quality of their advice.   Nonprofit business is the conceptual twin of for-profit business.  The cart becomes the horse.   The horse becomes the cart.  First the social entrepreneurs (people who organize nonprofits) are motivated by perceiving a need.   Then they raise funds to meet the need.   The real economy drives the financial economy.  
 
          Coraggio and his colleagues at General Sarmiento University have studied nonprofits in Argentina using a concept of “hybrid financing” developed by Brazilian socioeconomists.   The “club” is an emblematic Argentine nonprofit.  “Clubs” began as mutual aid societies bringing together people of one or another common ethnic origin who immigrated to Argentina during the 19th century.   Clubs have proliferated, evolved, and metamorphosed so that today they do many things, but one thing virtually all of them do is play soccer.   Diego Maradona got his start in a neighborhood club.
 
          Coraggio studied how Argentine nonprofits piece together their budgets drawing on hybrid sources.    Members pay dues.   Fans pay for admission to games.  Local governments provide subsidies.   Tenants pay rent on buildings the nonprofit owns.   For-profit businesses donate uniforms for the players.   The club runs a restaurant open to the public.   It runs a fundraising dinner dance.    It auctions off prizes at a silent auction, or conducts a raffle.    Decedents leave bequests to the nonprofit in their wills.   Much of the work of the nonprofit is done by volunteers who do not need to be paid.   Etc.
 
          In Argentina and elsewhere nonprofits have shown themselves capable of doing everything for-profits do.   They run schools and hospitals.  They run banks and insurance companies.  (e.g. the Caisses Desjardins of Quebec )   They farm.  (e.g. the farms of the Mormons)  They manufacture refrigerators.  (e.g. Mondragon in Spain )  They build houses.  (e.g. Habitat for Humanity)
 
          Could we then have an economy with no for-profit business at all?  Conceivably such an economy could come into existence if there were social entrepreneurs organizing nonprofits to meet every need.   Our plan here in Chile is not so drastic.   We think in terms of layered job creation.  We support the creation of as many jobs as possible in the for-profit sector.   We go on to support another layer of job creation in the people’s economy.   A third layer of jobs is contributed by government work.    A fourth layer by working for non-profits.   Anyone who still wants and needs a job can participate in a fifth layer, community service.
 
          (Correction:  We do not precisely maximize the number of jobs in the for-profit sector because we insist on decent wages.   Since firms unable to comply with labor legislation must cease to exist, employment in for-profit business falls short of its theoretical maximum.  The other four sectors pick up the slack.)
 
          I would like to suggest that the members of your economic team consider thinking in terms of layered job creation.    At present they seem mainly to think in terms of stimulus packages trying to promote consumer spending, making the government the spender of last resort, loosening credit, and making the government the creditor of last resort.    All of this aims to restore confidence in one sector of the economy, the for-profit sector; it aims to persuade investors and business people to advance funds and hire workers in the expectation that there are profits to be made.  It may well be the case, as the historical studies of one of your advisors (Ms. Romer) show, that increasing the money supply (especially due to the inflow of gold from politically turbulent Europe) helped to restart the U.S. economy during the Great Depression even before World War II.   Nevertheless, no monetary expansion policy is a substitute for a systematic effort to create jobs for everybody, while every monetary expansion policy brings with it the risk of inflation.
 
          I would also suggest to your security team that the currently dominant economic paradigm is not a perfect paradigm.   It assigns to the military the mission of protecting stability and order worldwide for the sake of establishing the confidence required by normal business as defined by the paradigm.      But the paradigm which defines and limits current mainstream thinking may not –I would indeed say it clearly does not— frame a normal science capable of providing  all the needed answers.   It may have something civil to learn from the radicals who at this point in time have been designated as military enemies.  (See www.dtic.mil searching under “radicalism.”)
 
Peace and all good,
 
Howard R.