“We can afford what we can actually do” — 2
Across the country people from all walks of life — from those running families to those running organisations and Governments — are wrestling with financial shortfalls that restrict what they can do. ‘Affordability’ is the theme of our times. Whatever the issue, the big question always, it seems, is “but can we afford it?”
Right now, for example, in the run up to a General Election, opinion polls are suggesting that the Labour Party might win. And, in a determined effort not to rock the boat, Labour’s leadership keeps banging the same drum of ‘fiscal responsibility’: of only doing things we can afford. Of only spending money we’ve already got.
Yet …
We’ve been here before!
As a society we’ve been here before, only worse. In the dark days of the Second World War for example, Britain had run out of money. Having spent every penny it had fighting the Nazis, it actually began to look as if we could win the war. So peoples’ attention turned to the question: what comes next? How to win the peace? How to rebuild?
This triggered an almighty spat between the forces of financial orthodoxy — the people whose worldview was dominated by the mantra ‘we can only do what we afford’ — and those whose focus was on underlying economic realities.
John Maynard Keynes believed that keeping to the mantra ‘we can only do what we afford’ would be disastrous for the country. “At one level — the level of bank balances — it’s true we can only do what we can afford,” he said. “But at another level — of underlying economic reality — it’s utter nonsense. In fact, the exact opposite is true. In reality, we can afford what we can actually do”.
Actually, Keynes didn’t use these words. But below are the words he did use in a BBC broadcast on 2 April 1942, when the spat between the two worldviews public.
Keynes called for an ambitious programme to “build homes, libraries, theatres, concert halls and dance halls” so that “every substantial city [has] the dignity of an ancient university or a European capital”. But the financial establishment would have none of it. We don’t have the money, they argued. We can only do what we can afford.
Keynes replied to the financiers (whom he addressed as ‘Sir John’) as follows.
“The money?”, I said. “But surely, Sir John, you don’t build houses with money? Do you mean that there won’t be enough bricks and mortar and steel and cement?”
“Oh no,” he replied, “of course there will be plenty of all that”.
“Do you mean,” I went on, “that there won’t be enough labour? For what will the builders be doing if they are not building houses?”
“Oh no,” he replied, “of course there will be plenty of all that”.
“Well,” I said “if there are bricks and mortar and steel and concrete and labour and architects, why not assemble all this good material in houses?”
Keynes finished his talk by saying “anything we can actually do we can afford”: wherever there are people with skills and energy capable of doing work, and wherever there are sources of energy and materials that could be deployed, then it’s possible to bring them together to meet human needs. It is this that defines ‘affordability’: what we can actually do.
The elephant in the room
Here we have a clash between two types of truth. On the one hand there is the practical, physical operational truth of putting people and resources together to produce stuff: the truth of doing. On the other hand, we have an institutional truth of keeping within the rules of the road: the truth of ‘affording’.
Such institutional rules that have consequences. It is a brutal fact of institutional life for example that if we as a family, organisation or Governments keep on spending money we haven’t got, then at some point we’ll go bankrupt. After which, we might not be able to do anything.
Yet, on the other hand, if we only act according to the mantra ‘we can only do what we can afford’ we are tying our hands behind our back, reducing what we actually do, making our situation worse, not better. Trapping ourselves into a spiral of decline.
Which leaves us with a choice. Which would you prefer? Misery and decline or misery and decline?
This is not acceptable or viable. Somehow, somewhere, we need to find ways of opening up and expanding what we can actually do. What could this look like?
Here are some suggestions.
Think capabilities
In recent decades, policy-makers and decision-makers have become obsessed with targets: of defining what outcomes they want to achieve and focusing resolutely and exclusively on achieving these outcomes. This sounds sensible. But in fact it’s insane, once you stop to think about it. Why? Because what really matters is not whether an outcome is achieved, but whether you have the ability to continue achieving this outcome. What really matters is your capabilities, because results follow from capabilities.
Yes, it is possible to strain every nerve and expend every ounce of energy achieving a particular target (and then collapsing in a heap afterwards). But doing this doesn’t build capabilities. It destroys them. And that’s what’s been happening with decades’ worth of outcomes-obsessed target setting, outsourcing and so on. Just look at the NHS.
Once we think of outcomes as results of a byproduct of capabilities, then the main goal of every activity shouldn’t be just to deliver this or that particular outcome. It should be to do everything we can to build underlying capabilities along the way of trying to deliver this outcome.
Results are ephemeral. Once you’ve achieved them, they’re gone. But skills, knowledge, know-how and infrastructure are not ephemeral. They last. It’s capabilities that make results permanent. It’s capabilities that make it possible to improve on these results as time goes by. It’s capabilities that make it possible to expand what’s possible.
Think genuine productivity
It’s all very well saying “we can afford what we can actually do” but what happens if what we can actually do is constrained — if our resources are limited?
This has been the human dilemma since the year dot. This is why expanding the scope, range and volume of the things we can actually do, using the same or less resources, has also been a focus of human economic activity since the year dot. At the heart of this lies productivity.
Unfortunately, it’s sad but true, but in recent times the word ‘productivity’ has got itself a bad name. It’s become associated with negative things like cutting corners or sweating the labour force — or, perhaps, with simply being boring and tedious.
But in reality productivity is all we’ve got, because productivity is about making enough of the things we need physically and practically available: generating more, better outcomes using less resources. Without increased productivity it’s not possible to sustainably improve peoples’ material wellbeing. (And without productivity innovations — the sexier, cooler side of wealth creation — would be meaningless. Because without productivity they would never be made affordable and available at a mass scale.)
Genuine productivity is liberating. When, for example, some clever sailors decided to start putting up sheets of fabric to capture the power of the wind rather than relying on rows of tired, sweating men desperately pulling on oars, they achieved a huge productivity revolution. Men who had previously spent their time pulling oars could now devote their time and energy to doing other things. Boats could carry much bigger cargos (using the space previously occupied by oarsmen). And sailors could take these cargoes much further, because the wind never tires.
Sometimes productivity revolutions are generated by technical breakthroughs (LED lighting uses 85% less energy than previous forms of lighting). At other times, they are generated by changing the ways in which work is organised. Henry Ford’s moving assembly lines cut the time and labour needed to make a motor car by over 90%, making cars available to ordinary people.
Whether it’s from technical or organisational innovation, genuine productivity enables humans to achieve more using less resources. It is how real wealth has been created since the year dot.
But there is a snag with genuine productivity. In the short term, genuine productivity requires extra effort, extra resources. The effort and resources that go into working out how to do things better, and building the capabilities to enable them. For example, it may require investment into the development of new skills, knowledge and infrastructure. Effort and resources that are in the immediate term diverted away from ‘achieving results’.
Therefore, to expand what we can actually do, we need both improved capabilities and genuine productivity, both of which may require investment.
Here, we hit another problem.
Think genuine investment
Back in the heyday of industrial capitalism, investment was all about building capabilities that improved productivity. That is where capitalists’ ‘returns’ came from: from taking a slice of the extra wealth that their investment had made possible.
But that was back in the heyday of capitalism. Things are different now. Things are corrupt now.
Nowadays, very few ‘investors’ actually invest in expanding the possibilities of wealth creation. They’ve grown tired and impatient with the boring, time-consuming, hard work of actually producing something. They just want to cut to the chase, their question being “how big a return can I get, how quickly?”.
For them, a return is a return is a return. They don’t really care how it is achieved. From their point of view, whether these return is generated by building infrastructure that delivers better results for decades to come or from gambling on the prices of existing assets is irrelevant. Except …
Except that it is usually much quicker and easier to get a high return by shuffling and gambling on the prices of existing assets than on actually building such assets. Today, banks and the City of London hardly invest anything at all in real productive capacity. Virtually all of their money is ‘invested’ into the money prices of existing assets such as houses, stocks and shares, or in gambling on the future prices of such assets in secondary ‘derivative markets’.
For them, ‘investment’ has got nothing to do with expanding what we can actually do and everything to do with ‘returns’. For them, ‘investment’ is all about eating the cherries while doing nothing to plant cherry trees or tend cherry orchards.
The early 20th century economist Thorsen Veblen had a term for this phenomenon. He called it sabotage. Ths was the process by which people holding the money — the people with the power to decide what is ‘affordable’ — effectively go on strike. They refuse to invest in anything productive unless it also maximises their own returns, and they up investing huge amounts in other things that are not productive at all.
People who refuse to invest in expanding what we can actually do they are effectively acting as saboteurs, Veblen argued. They are sabotaging society’s creative potential. Instead, they are making the possible institutionally impossible. They are essentially parasitic.
Today, every time you come across the words ‘investment’ or ‘investor’ it’s helpful to replace them with the words ‘sabotage’ or ‘saboteur’. With a rare few exceptions, that will get you closer to the truth.
This is the elephant in the room of ‘fiscal responsibility’. It’s all about power. Committing to fiscal responsibility, to only do what we can ‘afford’, is committing in advance to not rocking the institutional boat. To preserving the saboteur’s power to sabotage.
You can see why opposition politicians are desperate to make such commitments. Precisely because of the dynamics of power. Today’s saboteurs wield immense institutional power. Power over ‘the markets’. Power they deployed very quickly to overturn Liz Truss’s Government when she threatened to rock the boat. Power that traditional politicians dare not challenge.
Which leaves the rest of us — the citizenry — with a problem. Because, in the name of preserving institutional stability we find ourselves having to accept increasing misery and decline. We are having to accept the parasitic sabotage that now lies at the heart of “we can only do what we can afford”. We are being told to accept that we cannot do what we can actually do.
This is untenable. At some point, sooner or later, our society is going to have to slough off its kowtowing to the forces of finance; to the forces of ‘the markets’. The question is, how? That’s the subject of the next blog.
