Principles Matter, Part 2: by John Barnes

Taking back the Economy — a Thought Experiment

This thought experiment is an invitation to wipe your conceptual slate clean, to leave preconceptions behind, no matter how “tried and true” they may seem, and enter with an open mind into what will probably be an entirely new train of thought. Explore and test it, sentence by sentence, as you would test the proof of a mathematical theorem.

  1. The fundamental purpose and function of any economic activity — whether it be a service, the production of goods, distribution, sales, or even investment — is to meet the needs of others. By its very nature, therefore, economic activity is altruistic.
  2. If we look at the economy as a whole, we see the same principle at work. In a highly developed economy — an economy characterized by the division of labor — people do not produce goods for themselves but specialize in some service or in some productive activity that benefits others. In fact one can say that the more people work for others and the less they work to satisfy their own needs, the more effectively the needs of all concerned will be met.[1]
  3. Conversely, the more an economic activity is undertaken for other, extrinsic reasons — whether it be to meet one’s own needs, to make money, increase profit, eliminate competition, or to achieve other extraneous purposes — the less effectively will it meet the needs of others. As Henry Ford said in his autobiography, putting profits before service is putting the cart before the horse.[2]
  4. The thoughts expressed above have their own internal logic and consistency. They are in fact true in and of themselves; but, at the same time, they strongly contradict existing realities of economic life. They certainly run counter to the prevailing economic theory: Adam Smith’s theory of the “invisible hand” — an anonymous mechanism regulating the economy, driven by the self-interest of all economic players.
  5. The thoughts set forth here are also contradicted by the way many — perhaps most — workers think of their work: most people will say that they work because they have to make a living, to provide for themselves and their families. However, this is a half-truth, an internal contradiction: On the one hand, they are working to earn a living; on the other, they are working to serve others. Working for extrinsic reasons — for the “carrot” of one’s wages — is necessarily felt as a violation of one’s human dignity. As has been shown,2 extrinsic motivation also leads to poorer performance. The only way that this dilemma can be overcome is if wages and salaries are disassociated with people’s work — if wages and salaries are paid to meet the needs of workers rather than to pay for their labor; if they are thought of as the workers’ rightful share of gross income. Labor should not be purchased on the market like raw materials and supplies. As Rudolf Steiner pointed out, paying someone to do something is a more elevated form of slavery. Instead, workers should be fully recognized co-workers, or partners, whose salaries are seen as their rightful share of the income derived from the product of their common work. This restores dignity to workers, gives them a true sense of solidarity with their company, and opens up the doors of intrinsic motivation, enhancing their efforts and creativity.
  6. We now come to the role of capital in the economy. As Karl Marx foresaw, private ownership of capital leads to an ever-increasing gap between the rich and the poor. However, experience has shown that state ownership of capital is economically inefficient and unproductive. Our modern economy produces tremendous accumulations of capital. From an economic point of view, the only valid use of this capital is to invest it in ways that best serve society as a whole.[3] For example, one very important way to secure long-term prosperity is to invest in education. Capital needs to be placed in the hands of people who understand the real needs of society and who are given the mandate to direct capital to the places where it is most needed. It is essential that such people act in the interests of society as a whole. Speculative capital investment driven by the profit motive leads to economically destructive bubbles and busts. While it is important for entrepreneurs to control the capital assets they need in order to be productive, it is harmful to the wellbeing of society as a whole when unproductive individuals receive income derived solely from their private ownership of capital.
  7. Another universal aspect of all economic activity is that it involves cooperation. Any productive activity involves the organized cooperation of a number of people. This is essential for any efficient supply chain — whether on an industrial scale, in a financial institution, or in a restaurant. Every time you sign a contract with another person or another business, you can experience a sense of mutual trust and cooperation. All good business relationships are fundamentally cooperative and mutually beneficial. If they were not, you would not enter into them.
  8. While altruism, service and cooperation are certainly essential in the workplace, they do not — initially at least — play any role in consumption. The fact is that we purchase things because we need them, which is an egoistic rather than an altruistic motive. We are also inclined to purchase the best quality for the lowest price. In other words, when we are shopping we are thinking primarily of ourselves and not of the people who are providing the goods we buy. This is, however, only true up to a point. Consumers are becoming increasingly conscious not only of the quality of the products they buy but of the environmental and social impact of the way in which they were produced. Every time you purchase a product — if you do so with a certain degree of consciousness — you can be aware of the mutually beneficial relationship between you and the people involved in the production and sale of the product. By producing and making it available, they are serving you; and by buying it, you are supporting them. As consumers, we are increasingly aware of the fact that every purchase we make has a direct effect on the health of the earth and on the lives of other human beings. We therefore feel called upon to combine the satisfaction of our own needs with supporting the needs of others.
  9. And how could such economic activity, based on altruism, service and cooperation, function on a larger communal, national or even global scale? In the agricultural sector, for example, the principle of Community Supported Agriculture (CSA) could be extended from mutually beneficial direct agreements between consumers and a particular farm to associations of farmers, distributers, retailers, and consumers within a larger area. In these associations, the production and distribution of food could be organized in a meaningful and efficient way so as to meet the needs of the consumers; waste could be reduced, ecologically healthy farms placed on a solid economic basis without farm subsidies, and consumers’ needs more effectively met. These associations would be managed through representatives of the various constituent groups: farmers, distributors, retailers, and consumers. These “higher level” associations could then, for example, contract with growers in more southerly countries to deliver vegetables and fruit during the winter months. Similarly, every branch of the economy could work cooperatively through such nested associations to effectively meet the needs of its customers, who would also play an active role in the decision-making process. By working cooperatively in this way, production would constantly be adjusting to meet actual demand; competition would no longer lead to overproduction, cyclical crises, degradation, and waste. Associative cooperation would more effectively regulate production than centralized top-down state planning or the wasteful market mechanism based on uncoordinated, profit-driven decision making, competition and advertising. Government regulation could be reduced to a minimum because the economy would regulate itself. Through representative associations, all the economic stakeholders would take responsibility for, and control of, the economy and shape it according to their actual needs and wishes.
  10. What is necessary today is that the fundamental principles of economic life be recognized and consciously implemented. This will break the spell of a web of dogmatic, mechanistic theories that is supported by powerful interests and an outdated legal structure and that has led to the increasing gap between the rich and the poor and to the exploitative, wasteful practices of our current economy. Once this spell has been broken, a new business ethic will arise and the altruistic, cooperative, deeply human nature of economic activity will come to the fore.

by John Barnes

Footnotes

 [1] This is the fundamental social law first formulated by Rudolf Steiner in 1919.

[2] Daniel Pink has shown that, especially when creativity is required, extrinsic rewards —such as higher pay — result in lower performance than the intrinsic reward of doing something for its own sake.

[3] See my article on Ernst Abbe.