European School of Governance, position paper # 21 by Louis Klein.
It is an axiom of economic thinking that if we work smart we can with a little help from the invisible hand realise added value. All the busy hands come together and create something that is greater than the sum of its parts. This is indeed a source of wealth; however, it is feeble and flat compared with what informed systems thinking and thought through cybernetics indicate. A shift in perspective would allow us a glimpse of the wide untapped ocean of hypervalue. Collectively we are much richer than national economics could ever fathom, count or calculate. It is about time to engage in informed and thought through politics that understand how to serve the common good in the 21st century. We need to reinvent economics, innovate economic policy and start tapping into hypervalue.
Economic policy can only be as good as its underlying economic theory. Theory suggests the relevant perspectives and establish the guiding logic. It is paradigmatic. Moving deeper into the 21st century we need to acknowledge that we got it all wrong. Neoclassic economics failed us to a catastrophic extent, setting the wrong incentives and accelerating the plundering of people and planet. Economics tried hard to become a pseudo-scientific discipline in a Popperian sense, looking only into things which could be quantified and measured. Human beings needed to be reduced to the quantifiable properties of the homo economics. Economics calculated complicatedness and at the best left, if there had been any awareness of any residual aspects, the social complexity of human beings to philosophers. The focus is still on work and investment, consumption and savings. It is the trivial logic of the glorified Swabian Housewife: working, saving, accumulating “wealth”. It is a trivial logic, a primitive one, easy to understand, fairly suitable for a private household but in no respect able to meet the simplest requirements of economics let alone the complexity of today’s globalised world.
Two shortcomings in understanding the Enlightenment set us on the wrong course, economically as well as politically. The emancipation of the individual led to self-centred hubris and a glorification of self-interest. If everybody pursues his own interest, allegedly all interests are served. The rest can be left to the invisible hand. Adams Smith’s ideas about self-organisation and the metaphor of the invisible hand ensuring balance in perfect markets were misunderstood and blended with the misconception that such an invisible hand could only be the hand of a benevolent god. Self-organisation describes emergent processes which lead to phenomena that cannot be derived from the interplay of single activities. Cancer for example follows the same logic of self-organisation. No benevolent god is involved, and we certainly do not like what the emergent processes of self-organising cancer create.
And then we got the idea of evolution wrong. Competition is not a driver for evolutionary development. Competition is an utterly wasteful activity. It locks in. Wars are expensive, they drain resources, bring poverty, misery and death. All you can win is a little more of much less. Evolutionary biologists know it is symbiosis that accounts for leaps and step changes, creating more from less. So, what shall we expect from self-organised global competition? Certainly not the wealth of nations.
Francis Fukuyama was probably right when he proclaimed the end of history. Politics and economics were conceptualised as self-organised competition, as democratism and capitalism. We engaged in all kinds of war games. Democracies slide towards ochlocracy, i.e. the tyranny of the majority, and inequality rises as more and more wealth is accumulated in fewer and fewer hands while we need multiple planets to satisfy our consumption patterns. This is wrong. We do not even need to engage in the sophisticated critical school thinking to acknowledge and daresay: this is wrong.
When Theodor W. Adorno wrote about Negative Dialectics he demanded nothing short of the enlightenment of the Enlightenment. This sounds complicated and indeed it is, however, already Blaise Pascal observed that all development followed a path from the primitive and trivial through the complicated to the simple. This is like learning a foreign language. The learner’s vocabulary and grammar are small and trivial in the beginning. Additional words and grammar rules add complicatedness until a tipping point is reached where, all of a sudden, even complex conversations are conducted with ease. The new language becomes second nature and the person learns to express himself authentically. Yes, we can.
We can, and we must innovate economics. We need to improve the social contract. We need to balance the principle of merit and solidarity. We need to balance the public realm of politics with the private sphere of the economy. We need to acknowledge the primacy of politics at last.
We can learn inspired by the German sociologist Niklas Luhmann that capitalism is the re-entry of the distinction of politics and economics on the side of politics. A meaningful conversation about economics, any attempt to refine any economic order or tame capitalism needs to be a political conversation. It is structurally impossible to talk meaningfully about capitalism in the economy. Economics is a political science.
Economics needs to go back to Aristotle and reset its perspective on the world. The whole, so we learn from the ancient philosopher, is something different than the sum of its parts. A society, Mrs. Thatcher, is something different than the sum of individuals. Societies are social systems, they are political and cultural. They are entities and actors in their own right. The interplay of its parts creates the emergent whole with surplus qualities. And this is not only value add. It is more. Cybernetically we need to accept a phase shift between the different levels of emergence which results in different logics on the different levels. Neurons embedded in a biochemical context need to fire to allow for thoughts. However, there is no way to access, explain or determine the conscious self along those activities and their logic. And yet, the mind can control thoughts.
Hypervalue is more than the sum of value add in an economy, and it does not follow the logic of work and investment, consumption and savings. But it can still be the source of fuelling an economy. The concept of hypervalue helps us to understand why the interventions of the European Central Bank did not lead to hyperbolic inflation and why Portugal managed to turn its economy around by abandoning policies of austerity. The concept of hypervalue overcomes the problems Adam Smith, David Ricardo, Karl Marx and John Maynard Keynes had with their attempts to find a satisfactory concept of value add beyond the technical gains of labour division.
If a currency is robust or simply too big to fail, you can tap into hypervalue. A central bank can save banks and states without driving inflation. The financial markets are politically irrelevant as long as they play within their own fences. Making money from money is a dull thing. And as long as this excess money is not sprawling into the real economy nothing happens, only the rich become richer, unable to spend their excess money. Excess money looks good on paper but that is all there is to it, really.
Hypervalue can be spent wisely, if it is not turned into excess money but into real fuel for a real economy. Portugal can be regarded as an example for what happens. If you do not cut on welfare and service, if pensions and student grants and wages in the civil service are paid properly, they will be immediately spent, giving someone else the opportunity to spend it, again giving someone else the opportunity to spend it and so on. This does not drive savings, but it creates wealth for many, especially if the line of spending is dominated by services; people serving people.
Tapping into hypervalue allows for solidarity without abandoning the principle of merit. It allows for the primacy of politics which do not have to surrender to a competition of nations and fiscal wars like those which result in the renunciation of one trillion Euro a year by the EU member states in a race to gain individually more from less company taxation.
With the computing power of the 21st century further research into hypervalue becomes possible, and this is not only because we can process big data it is because we can compute complexity. Given not only its potential to ignite a century of social innovation, the concept of hypervalue allows financing those efforts which are overdue to save the planet from the consequences of a misguided first Enlightenment. We need the enlightenment of the Enlightenment, negative dialectics and a systemic perspective on the world able to meet its complexity. Let’s have a closer look at the invisible hand, prepare for a systemic Enlightenment and learn how to tap into hypervalue.