New Economic Model
25/01/17: An alternative way to evaluate the effectiveness of the economy/society (updated 08/02/17)
The financial crisis of 2007, followed by the Great Recession of 2007–2015, highlighted the fundamental failure of economics to forecast the future. An economy is the interaction of literally hundreds of billions of actions by billions of people, each with their own way of looking at the world. Perhaps it is not surprising that forecasting is a crude aspiration.
However, there are aspects of monetary economics that are troubling, and which may obscure the bigger picture. This article outlines an alternative model of society and the economy that provides a different way of assessing the likely outputs. The concepts introduced in the book are not repeated below. Many component concepts are well understood and researched. Others less so. But it is the refocused objectives of society and the alternative measures of the outputs of the economy that are its most striking aspect. The changed perspective opens up a vast new world of tools and techniques to influence and forecast the wellbeing of Humanity.
In my book Designs for a Better World, I introduced the simplified version of the model below. It is explained in the book and is freely available to download. It is replicated here for those who prefer the more simple explanation.
Below is a more comprehensive version of the model, followed by some explanatory notes.
The first column, called “Centralised Control” represents getting to first base. Unless there is a sufficient degree of centralised control, anarchy rules. It is only once Statehood is secured that the remainder of the model kicks in.
The last column, called “Output”, represents the output of society. In traditional economics, it is measured in monetary terms. But this reflects a dehumanised outlook. The basic premise of this model is that the purpose of society is to maximise the aggregate Quality of Life for members of society. Output of society must be measured in terms of Quality of Life. Economic contribution to Quality of Life remains of crucial significance. In this model, social contribution has an equal significance.
Powering Up the Engine
The two blocks in the middle represents the structure — the environment or soil in which policies and cultures are planted, and the application — what happens in practice. As the influences in society rise up the chart, so the power increases of the engine that drives growth.
Progressing from left to right, each pillar of influence impacts the state of its neighbours.
The first block focuses on the structure of society.
The first pillar is “Structure of Politics”. The low point is totalitarianism. The high point is democracy. I should mention that the state of influence is not the constitutional political model, it is the actual practice. In the US, for example, gerrymandering has started to influence the outcomes of elections. Despite everyone being promised a free vote, hundreds of thousands of people in key areas are disenfranchised, which drags down the outcome away from democracy towards totalitarianism.
The second pillar is the “Structure of Society”. Another premise of this model is the objective of society is to empower people to live and work together for mutual gain. Specific policies are introduced to make society more effective, with unintended consequences of achieving the opposite on occasions. Whether the policies make society more is less effective depends on the structure of politics, and the underlying laws and cultures. In China, for example, there is an enormous gap in wealth per capita compared with other world powers. It is going through monumental changes for the better. The Chinese government are rightly concerned that the breakneck speed of growth, with its uneven impact in different parts of Chinese society, risk unleashing a destructive wave of social unrest. Its Structure of Politics is lower than the structure of some of its competitors. But given its current conditions, elements of Totalitarianism may actually make society more effective. This demonstrates the influential role of each pillar on the next, rather than on its absolute role.
The third pillar is “Social Culture”. This is the cumulative social outcomes of the individual social awareness and competences applied by individuals in their day-to-day lives. Each of us is a member of many different communities (family, friends, work, religions, hobbies), each community embodying different cultures that influence our behaviours. Cohesive cultures are the attitudes and behaviours to others that help draw communities to live and work proactively for mutual gain. Divisive cultures weaken or fracture the bonds of cohesion and collaboration towards mutual gain.
The next block focuses on the application in society, how we actually structure ourselves in practice, which is very influenced by the social structures each society has developed.
The fourth pillar is “Opportunity”. Everyone has a capacity to contribute to the output of society. The capacity may be influenced by factors that are fairly spread, or not, such as uneven education or minority suppression. This pillar represents the state of limitations between the capacity each person has, and their capability — the freedom they have to realise their potential to contribute. The earlier pillars deliver the capacity an individual may have. This influences the equality of opportunity in society.
The fifth pillar is “Resource Deployment”. This is the way we allocate in practice our investments, our productive resources, and our social support networks. When our structures create the right influences, the deployment of resources are aligned with the objectives of society. Good ideas are not constrained by artificial barriers, the ideas that are best at delivering a higher quality of life for society are the ones that are favoured.
The sixth pillar is “Reward”. It is one of the more difficult pillars for people to accept who are brought up within a traditional monetary culture. The narrative, which I believe is false, is the more we contribute to society, the more we are rewarded. My belief is that share of reward is much more influenced by the degree of control we each have relative to each other, and much less influenced by contribution. The more enlightened society will rise towards a system of contributions-based rewards. The less enlightened ones drop towards control-based rewards. The height of each society within this pillar is influenced by the preceding pillars. More equal opportunity gives rise to fairer division of control, which in turn creates a more even distribution of wealth.
Put it all together and the end product is the final pillar, the output of society, the aggregate quality of life of member of society, measured in terms of Quality Years. If we want to improve the outcomes, we now have a better idea of what to do.