Schools get fleeced – and we all watch

The Bureau of Investigative Journalism recently published an article (http://www.thebureauinvestigates.com/2012/09/25/schools-fleeced-by-it-scammers/comment-page-1/#comment-9117) following the exposure on Panorama (BBC 1) that schools in the UK had been “fleeced” by IT companies (“scammers”). The article and Panorama drew attention to schools which are burdened by the need to run themselves as businesses and are often ill-equipped to do so when set against the complicated requirements of funding, procurement, suppliers and the like.

 

The BIJ summed up the problem with the thought that the FMSiS (Financial Management Standard in Schools) had been wrongly abolished and that the Government should think again. It was abolished after it had become a paper ticking exercise as reported by the Government in 2010 in their White Paper – “The Importance of Teaching” – http://www.education.gov.uk/inthenews/inthenews/a0067711/government-announces-end-of-complex-school-financial-reporting-tool.

 

The BIJ article missed the fact that most of the schemes that Panorama reported on were entered into while the FMSiS was in place!

 

Why is Finance so hard for non-profits (public and private sector)?

 

This does not just happen in Schools – it happens wherever greater knowledge is brought to bear.

 

So, the banks have run out of control and, five years’ later, we remain stunned that the financial regulators did not see this coming – or even understand the huge range of sub-prime schemes, poor management controls, over-leveraging, bad morality, lack of risk aversion, inability for banks to fail, dislike of customers and similar.

 

In the same way, companies like Enron fooled their highly paid auditors (some of whom connived with them) – we never learned much from that or from the countless, other financial scams that have been served up on unsuspecting publics since at least the south Sea Bubble in 1720 and for thousands of years before.

 

But, we expect more from public sector and the third sector organisations that supposedly guard our taxes and donations. What makes it so hard for them to adequately ensure that the financial and support arms of those organisations are able to be a good as all those they work with?

 

Where the incentives are

 

Of course, much has been written about how the wealth potential of banks suck in those with the highest intelligence and motivation (and maybe those with the lowest ethics) and that the regulators are filled with those who cannot compete – maybe those who failed to make it in banking themselves.

 

Enron was full of highly motivated and driven people who bought into a scheme (or schemes) and worked like fury to implement their scam / scheme. The manipulation of an energy market was not understood by the regulators and auditors just as auditors and clients failed to understand how Bernie Madoff was making such returns on their “investments”.

 

In a money-driven economy, which has created tremendous wealth for society, there are, at the margins and even more in the centre, incentives provided to people that lure those who are massively motivated and driven to participate – to work 24 hours a day, to spend their time working up schemes to make money and their companies profitable. Business is a money-driven part of the economy in a way that the non-profit sectors (be they public or private sector) are not. The latter are full of people driven (and maybe just as motivated) by other things – a passion for human rights, for education, for people, for society – but not for the thing that drives those they may meet at the interface of private sector and the non-profits.

 

As Galbraith wrote in The Affluent Society, public goods are always at a disadvantage in a market-driven economy and the crucial problems always exist at the interface between the two.  I tackled this is a previous post – https://jeffkaye.wordpress.com/wp-admin/post.php?post=192&action=edit – and the inability of societies to establish how to provide the “social balance” to which Galbraith refers enables the problems to persist – such as the fleecing of schools in the UK.

 

Enabling the “social balance”?

 

The “social balance” (Galbraith ibid) is about how society reacts to private enterprise. The most obvious example is the automobile – private industry propels the development of cars but it is the public sector that provides the roads, traffic control and policing, emergency services and hospitals (usually), pollution control and similar. India is a great and recent example – http://uk.finance.yahoo.com/news/india-car-sales-soar-where-054302682.html. But, the ability of the private sector runs well ahead of the ability of the public sector to react.

 

Nowhere is this lack of social balance clearer than in the provision of expertise in “back office” areas in the public sector and in the third sector. While their front of office capabilities may be excellent, the non-profit sector cannot, in the main, recruit the best people (it cannot offer financial incentives to match anything like the private sector) and therefore its systems and processes fall well behind.

 

This is compounded by the continuous belief by government that they have to “do something” directly (like the FMSiS above) and in the third sector that anything spent outside of front end is a waste of money. Donors (whether governments, trusts and foundations, companies or individuals) suddenly have a different mindset as soon as they donate. How many would ask companies to stop spending on finance operations – yet, many donors insist that their donations can only be applied to front end work – the cause – and nothing to overheads. While it is good to keep overheads low, governance and financial management dictate that these “enabling” areas of any organization (like people management training) are as good as the front end operations so as not to stymie the work of the charity, NGO or pubic sector organization.

 

Having worked in all sectors (with most of my working life in the private sector) it is clear to me that the non-profit sectors are continuously starved of capability and expertise in the areas that could make them far more efficient and capable – not just to survive but also to enable far better work to be accomplished. If they work well it is in spite of the problems put in their way. Most don’t manage and the failures of the public sector to manage large IT projects, for example or the non-profit sector to survive continue.

 

So, how can the non-profits develop a response to the needed social balance so that they don’t get fleeced?

 

Pro-activity in the social balance

 

Governments and those who provide central governance to the non-profit sectors have undertaken so many actions and some have provided stability. But, each sector and those within it are challenged continuously.

 

What is needed is first, recognition that there is a problem. Each sector should assess where the main problems lie and government has to step up and signal that it will not do everything but begin to be the chief enabler for the non-profits. For example, restrictive funding for charities, whereby donors only provide money for front-end purposes, should not be allowed. The practice is akin to shareholders telling companies which part of the business their funding is allowed on. It is not a loan – it is a donation and restrictions mean more bureaucracy and less ability for the charity to manage itself.

 

If a donor believes that a charity spends too much on overheads, it can withhold donations just like a shareholder can invest elsewhere – but restricting funding in this way is counter-productive.

 

In the UK, this is something for the charities Commission and government to act on.

 

Second, there has to be a stepping up on ability – which will lead to improved processes and systems (although improvements in each need money as well and the proposal above is one way of directing more into this area).

 

This stepping up of ability should be driven by government who should require firms of accountants to do what the legal profession does – provide at least 2% pro-bono capability into non-profits. I have been highly impressed by law firms’ ability to do excellent pro-bono – less so by the finance industry.

 

CSR divisions of companies should also be driving their best finance people into non-profits – in a meaningful way to address the social imbalance.

 

Governments should look to reward those who go from the private sector into the public or third sector (even for a time) with tax incentives (much like students having to repay their student loans). It is not a great time to do this, but it would indicate a lot.

 

Third, the big accounting organisations should ensure that they focus more attention on public sector and third sector – understanding the problems and devising exams and maybe alternative paths to accreditation rather than the one-size-fits-all approach. Certainly, the CIPFA and IPSASB provide the basics for the public sector but the incentivisation for the best to go into that sector let alone education or charities / NGO’s is far less and the number of accountants that enter the charity sector (for example) with the same skill levels and drive as those in the private sector is small.

 

Fourth, trustees from private sector organisations have to become involved – not just from a governance standpoint but setting examples and putting the bar as high as it needs to go to make the enablers work. This is hands-on stuff not just remote governance.

 

Separate sectors, common interests

 

Except in a society where the three sectors don’t exist (e.g. communist states), the challenge is greatest at the intersections of society – where the sectors clash. Yet, as in the example of automobiles above (or any other transportation systems), different sectors live off each other – and the charity sector fills many of the gaps that society does not see fit to fill in private or public sectors.

 

The sectors need to be different, of course, but there does need to be a far better understanding of the problems that our economic structures throw up and how to deal with them or fleecing of our schools will recur but be seen to be a mere tip of the social iceberg.

 

 

 

 

Looking Down from Mount Olympus

With Olympics fervor at its height, it’s tough to resist Homer’s description:

“Olympus was not shaken by winds nor ever wet with rain, nor did snow fall upon it, but the air is outspread clear and cloudless, and over it hovered a radiant whiteness.” Homer, Odyssey.

Today, the equivalent of the 12 Gods on Olympus are, maybe, the G-20, or G-2, or the UN or any of the international organisations that are set-up on our behalf.

Or, maybe it’s closer to home – the national heads who make up the EU or the lesser number that make up the EZ; the 100 Senators in the US Congress.

Or, maybe they are the 1% who own 40% of the earth’s assets (financially-speaking).

Or, how about Forbes Global 2000 – the top 2000 of the world’s companies that, between them, account for $149 trillion in assets and employ 83 million people. This compared to McKinsey’s estimate of $212 trillion value of the world’s capital stock in 2011 – a huge percentage.

Icy Slopes

The Greek Gods took their place after a war with the Titans – who ruled before them. Mythology into reality – our new Gods rule in much the same way after a 20th Century where totalitarian regimes fought each other, amongst each and against  democratic nations in bloody conflict. Millions died in China, the Soviet Union, Europe, Vietnam, Africa, Indonesia and elsewhere as different theories of government battled for supremacy.

Francis Fukuyama declared it “The End of History” as liberal democracy supposedly triumphed. We know now that he was wrong (as he has himself declared). For, the winner (for now) was not democracy but a form of capitalism that promotes a new set of god-like creatures and a new Olympus where the wind does not blow and the air is clear. This new capitalism – the complete dominance of quantity no matter what type of government is in power – was relatively bloodless in its conquests, but no less callous in its purpose. Indeed, its callousness is worse than before as it is merely the “invisible hand” that drives the marketplace that has led to the victory of the new Gods.

Now, sitting upon the summit, surrounded by the icy slopes that let few into their circle, they can look down upon the rest in their eco-defended enclave.

How the War Was Won

 

The titanic struggle was won on the back of the primacy of goods – developing the ability for ordinary people to secure their basic material needs and then onwards to “choice” and leisure and luxury. This has been wonderfully accompanied by the ability of business to promote their products so that demand could be developed without the consumer realizing it. This ability to influence demand (so brilliantly described in Galbraith’s “The Affluent Society”) has led to a victory of quantity over quality in the West and will do so elsewhere.

The victory was made easier by Governments’ willingness to adhere to the 19th Century economic theories that made “growth” and GDP the concepts upon which all governing was placed – but, placed them in simulations which cannot reflect reality. Mathematicians and econometricians have extended the fallacy – we live for numbers. The evidence for this can be seen so well in Russia and China. For most of the 20th Century, both held out as anti-capitalist bastions as the world moved to strengthen democracy. Neither has succumbed to democracy – Russia is a gangster-elite State, China is a legalist, centralized State. But, both yielded wholeheartedly to the market.

Who Won the War?

Many argue that the democratic West won the war (as Fukuyama attempted to suggest) but this is wrong. The western form of liberal democracy with its desire to provide representative government, elections and low corruption levels (comparatively) as well as supposed access to education and upward social mobility is losing out. It is arguable that even in those countries that still pursue these ends, there is now a vastly worsening separation between rich and poor and a hardening of social structures – with far less mobility.

In China and Russia, elites have won the war and their instruments of war have been capitalist – as their citizens climb up Maslow’s hierarchy of need from the very bottom, quantity of goods is supreme no matter how they are derived. As Jonathan Fenby describes in “Tiger Head, Snake Tails” this is, in China, despite rampant corruption, ecological degradation and vast differences in wealth between elites as well as complete indifference to the vast population when their houses are demolished to make way for new buildings or motorways (for example).

Who Lost the War?

Millions of lives were lost in the 20th Century as nations defended themselves against the onslaught of totalitarianism. But, a new totalitarianism has taken root right beneath our noses.

It is the totalitarianism of the elites that control the markets – markets fed by a constant diet of GDP statistics and growth targets.

The losers are (in Orwellian-speak) supposedly the winners – the mass of the population that has grown “wealthier” throughout the latter half of the 20th Century.

So, it seems to be a benign revolution but the problems are becoming clearer by the day.

In Greece, home to Mount Olympus, the country is in its fifth year of recession. In Spain, 24.6% of people are now officially unemployed. In most countries, the gap between the wealthy and the rest is growing steadily.  Economic strains are now working their way around the system as growth (measured traditionally in 19th  Century models) stalls outside of newly developing nations (yet, who believes the measures coming from China?). Today’s youth in the developed west are unlikely to be “wealthier” than their parents in pure GDP terms.

But, we should not be focused on pure numbers. Economic growth is also threatening the ecology of the planet at an alarming rate. Whether or not fossil fuels are near their end, the effects on the planet are growing and recent changes to our weather patterns merely the first signs. Our damning footprint is ever more etched on the planet and real risks are emerging that the life styles we live now may not be available for long. As Rumanian economist Georgescu-Roegen surmised over fifty years ago, maybe we can’t change and will simply go out in a puff of smoke.

Maybe, though, society will not, for ever, tolerate the new totalitarians, the new Olympians.

The Gods were not immortal

 

Of course, nothing lasts forever. The Greek Gods did not survive (except in mythology) and neither will the current ones.

The problem is that we are engrained with the belief that quantity is the key to good life (which it may be up to a point) and have lost a connection with what society is about. Mass production has led to greater wealth but, as Galbraith saw 60 years ago, society cannot be all about quantity.

Maslow, developing his Hierarchy of Need as a marketing tool, expected that we would go beyond quantity to some form of self-actualization. We have definitely not managed that yet but we have some signs that societal self-actualization is possible.

A major problem in the way of this is that different countries are at different stages of economic development. China has a massive population still well down the material scale and there will be no let-up in the leadership’s drive for “growth” to stem the dismay of their people on all other issues. In Africa, the longing for material wealth is as strong and who can blame them bearing in mind the economic and social torment they have suffered?

So, initiatives like Zero Impact Growth being developed by John Elkington and his Volans company are worth considering.

This is an approach to growth with zero impact on the planet and ultimately to give back more than is taken out. Where others seek to quantify (and there are dangers in the approach of quantifying everything), the Elkington approach is to develop a maturity matrix as follows:

Maturity Level Definition from ‘The Zeronauts’ Analogy: Characteristics of a company on that level
No strategy and goals No definition The company barely understands the relevance of restructuring its actions towards sustainable solutions and hardly reports on sustainability. Furthermore, no strategy has been defined and no targets have been set.
Eureka Opportunity is revealed via the growing dysfunction of the existing order. The company understands the relevance of restructuring its actions towards sustainable solutions. No considerable actions have been taken yet and almost no strategies and targets have been set. The company does already understand the relevance of the topic though, has started reporting and communicates plans to ameliorate its sustainability performance in the future.
Experiment Innovators and entre­preneurs begin to experiment, a period of trial and error. Although the company has started its first inno­vation efforts and internal programs in certain sustainability areas and has developed initial policies and strategies, no concrete milestones and an overarching future vision have been defined yet.
Enterprise Investors and managers build new business models creating new forms of value. The company has developed a short- to mid-term strategy ( ≤ 2020) for specific areas and has set measureable targets. Nevertheless, almost no long-term milestones have been defined. Furthermore, they do not communicate an over­arching future vision.
Ecosystem Critical mass and part­nerships create new markets and institu­tional arrangements. Measureable, ambitious (zero) targets based on a mid- to long-term vision (≥2020) are set. Nevertheless, a conjoint approach and some collaborative aspects are still missing since the holistic zero impact growth vision has not been (fully) adapted.
Economy The economic system flips to a more sustainable state, supported by cultural change. The company has fully adapted the zero impact growth vision. Measureable zero targets that have been adapted jointly are set out for each field of action. A clearly defined strategy is in place on how to achieve these targets, with defined short- and long-term milestones. The underlying benchmarks are clearly defined.

Maybe there is some fight left and the reality behind the model is clear – we can’t fight the invisible hand but maybe there is a chance for society to develop some self-actualisation behind the corporate drive towards zero impact growth where the planet survives along with humanity.

That doesn’t impact on the gap between the wealthy and the rest as the focus is on economics and sustainability. Inequality is as important a problem as ecology. Numbers should be seen for what they are – where money is one aspect of our lives not the only one. Demos, a UK think-tank has just published: Beyond GDP – New Measures for a New Economy.

It is an attempt to seek a rationale for economics beyond numbers. Briefly it posits that:

  • GDP does not distinguish between spending on bad things and spending on good things.  By this measurement, the BP oil spill in the Gulf of Mexico “positively” contributed to the economy just like the many good and services that people actually want or need.
  • GDP doesn’t account for the distribution of growth. Our total national income has doubled over thirty years, and so has the share of national income going to the wealthiest households, but average households have seen little or no income gains. GDP doesn’t care if growth is captured by a few or widely shared.
  • GDP doesn’t account for depletion of natural capital and ecosystem services.  If all the fish in the sea are caught and sold next year, global GDP would see a big boost while the fishing industry itself would completely collapse.
  • GDP doesn’t reflect things that have no market price but are good for our society, like volunteer work, parenting in the home, and public investments in education and research.

Two studies that show on this morning after that wonderful Danny Boyle-inspired Olympics night – where values were keenly shown as more than just money – that the slopes of Mount Olympus are slippery but not completely impassable: a Danny Boyle-inspired dose of self-actualisation.

Education and Examinations – back to Plato

In the UK, a leaked document from the Department for Education proposes that we go back to the 1950’s and separate kids at 15 or 16 into two sections of society: those who can and those who can’t. I guess this may be better than the separation at 11 that took place then (the UK’s “11 plus” exams) but not much. Hearkening back to a “bygone age” of seeming perfection is often the norm for conservatives – there to preserve rather than illuminate – but, the mistake is that we have lost the meaning of education.

Education as a Feeder system for the Economy

To educate is to develop the faculties and powers (of a person) by teaching, instruction, or schooling.

Going back to definitions may be important. If the crucial objectives of education are to develop “faculties” and “powers” – which parents are doing from the time a baby is born – why has the education system decided not to do this? Why is it that the education system devised in the mid-20th Century has, through national curricula, worked to establish something different?

In all the discussions and discourse on education that reaches most of us through TV and newspapers, the focus of education is not about maximising the powers and faculties, but about developing certain skills in order to make pupils employable. How this has come about is debatable but is likely to be as a result of economics and the view of governments that it has to feed the economic system.

Now, this is not completely unreasonable and it is not as though citizens want everyone to be a Plato, a Socrates or even an A C Grayling. Economics applied to most citizens means that we want to develop ourselves sufficiently to have a decent job. University degrees in subjects that are not job-focused are decried because they dare to deviate from the GDP-focus that dominates all our lives.

We are continuously subjected to the competition between the newly developing nations and their own devotion to exams and economic prosperity as the new mantra. “Communist” China is now held up as the beacon – we are, in effect, at war with the soldiers now the pupils in our schools and universities who are in competition with their counterparts in China. It is not just league tables to compare your local schools; we are now homogenized into comparisons on a world basis against the maths and science students of China and Singapore and Thailand.

Across the world, education has made Huxley’s dystopian Brave New World a closer reality.  We now have schools / academies split into alpha, beta and epsilon (through the division of private sector, and maintained sector split by geography / location). We have exacerbated the problem (if we agree it is one) by the almost complete drive to make our children the feeder for gross domestic product (GDP) growth. This is leading (in the UK) to Michael Gove’s attempt to split our kids into two sectors – those who can and those who can’t – by type of exam taken at 15 or 16. But, citizens are not being given the exam question that he is attempting to answer in this way.

What is the question?????

Gove wants a division of society into those who can pass exams at 16 and those who cannot. Why? Because there is a view that young people need to be divided at some age into those who can be management and leaders within the private and public sector and those who will be providers of services to them and the organisations that they manage and lead.

The 19th and 20th Century devised organisations, which have led to societies, which are now run by government and private sector priorities. Government is supposed to be (in a democracy) at the will of the people but is now a mix of career civil servants and career politicians (especially the case in Europe but true in most developed societies).

The private sector (which has been the source of so much wealth creation and so much that is good) has through competition developed an amazing monopoly over our lives. Economics never envisaged a duopoly of forces that would dominate in this way. The accommodation of the private sector by government and vice versa is how our societies are now run and education is seen more and more as the provider into these monolithic power centres.

So, the question we should be asking of our education system is whether we wish to have our kids taught in order to supply the system in this way and in addition to suffer the effects of the Brave New World of demarcation into alpha, beta and epsilon schools AND even more between top tier pupils and service providers  OR whether we wish real education to take place? Huxley’s dystopian vision (or Plato’s world view that we should divide children at an early age to educate those who will rule early and divide the rest) was based on a top-down philosophy that is outdated and pretty totalitarian. In any emergent society (and human occupy the same emergent plateau as any other living creature), we should ensure that the best opportunities are provided wherever possible and at any age. This is possible in a developed society and where our gross domestic product should be directed.

If education is really to develop the faculties and powers of an individual through teaching, we should continuously ask what these faculties and powers should be and then whether we are providing them (and, if not, how we should be).

Faculties and Powers in the 21st Century

We have reached the stage in our economic development (we probably did many years ago – as Galbraith’s “The Affluent Society” so well testified) when rapid and continuous economic growth as measured by current measurement systems is no longer rational. We are wasteful of resources and wasteful of our freedoms in the pursuit of more goods. The challenge to society is how it remodels itself in the light of diminishing economic utilities and diminishing returns for this wealth as well as the potential calamities that divisive wealth distributions (between the top 1% and the rest) are creating.

Jobs are central to economic well being and naturally feature in our minds as one of the most important priorities in our lives. They aren’t the only ones, though.

Equipping our children for the difficulties that the 21st Century society has on offer as well as for the opportunities that it provides is the most important requirement for education.

I have been involved with Education and the system for over 20 years as a pro-bono School / academy Governor and as a Chair of Governors for the last eight of those years. I have seen successive governments in the UK pass the buck on education as different theories are tried and children used for experiments. What Michael Gove is now stating is that all the changes made over the last fifty years have not allowed us to progress and that we should go back to where we were.

The trouble is that the assessment is mistaken. There is little in the proposal about exams and divisions at 16 that would provide any confidence that our children will be better educated as a result. The imperative is to equip them with the faculties and powers to make decisions, be real and pro-active members of society and to make real contributions. Some of that is about the ability to work. We are leading much longer lives, though, and young people will go through a variety of careers and need to use many of their skills (inherited and learnt) as a result. There is little chance of having one job for life any more – change is too fast and we need to change to keep up.

Where is this faculty being learned if we are determined to divide up our kids at such an early age and send them off into the world without the faculties and powers that will best equip them for that world?

Employers bemoan the low level of maths and English taught in many schools and this needs to be improved; we have too few scientists and that needs to be changed. However, employers look to the short term and to their current needs. Economics is very poor at forecasting (as the banking disasters of 2008 to now show so clearly). Therefore, friends in Government must not only listen to employers groups and change our education philosophy as a result to their advantage only.

Education must be centred on providing the faculties and powers to enable young people to make the most of themselves in society – not just to gain immediate employment when 18 (the age when young people will soon be obliged to stay at school in the UK).

Civil Society as the Bridge Between Private and Public Sector Monoliths

Most of us work in the private or public sector. I don’t these days – I have worked in the so-called Third Sector for the last five years – for NGO’s and charities. But, the Third Sector is not just about charities and NGO’s. As a School / Academy Governor, I play a civil society role in a public sector school / academy. I don’t see myself as being in the public sector.

We all live in society – some of that in work and much outside. A good education is the crucial foundation for anyone to enable them to take best advantage of what life has to offer. Getting a good first job is important but not everything. Each individual’s contribution to society (whether local, regional, national or international) is important and a good education which stretches an individual’s faculties and powers at an age when our brains are most able to grow, develop and take on new ideas is essential. This is the fundamental notion that the best societies don’t work on a top-down basis (the essence of totalitarianism – a Brave New World) but provide the opportunities to those who can best use those them – and at whatever age.

Education is core to our well-being. We should have learned much since Plato opened the first Academy in 387BC in Athens. The essence of education has to be that it is a central provision of society and that it has to be there for all to take full advantage. Arbitrary divisions at any age from the top-down perpetuate societal divisions and hinder society’s ability to grow – its emergent properties are stymied by the imposition of extra rigidities.

Further, the division of our schools by location would drive us backwards not forwards as many schools in economically poorer areas will continue to be second-tier (compared to the better maintained sector schools and remote, third tier compared to the private sector) and will never have a chance to recover that position. Plato’s division of society (or Huxley’s) will be set.

Those of us who can stand aside from public or private sector top-down views of society don’t need to accept this position. Our children should retain access to the best throughout their lives. A two-tier exam system on top of a three-tier education system is out of date and condemns too many, too early.

Should Everything have a Price?

Michael Sandel in his recent book “What Money Can’t Buy: The Moral Limits of Markets” writes excellently on how the market economy has turned into the “market society”. This view echoes Galbraith and “The Affluent Society”. Galbraith’s warning from the 1950’s has not been heeded – we are now subject to the “market” in everything we do – anything and everything has a price.

 

Sandel cites many examples – such as someone selling their organs, someone saving a place in a queue, schools being sponsored by companies and many others.

 

It could be argued that it was always so. Slavery, the selling of humans in the marketplace, was a common market phenomenon and still exists. Bribery and corruption – the selling of favours or ensuring something goes in your favour – remains common and Iraq and Afghanistan are riven by corruption on the grandest scale. Russia and much of Eastern Europe are held to be gangster nations – like much of the USA in the time of prohibition. Somalian pirates resort to kidnapping as an outcome of pure economic theory.

 

Yet, society does, from time to time, attempt to apply limits in a world where it seems that everything has a monetary price.

 

Market domination

 

The libertarian view that the market should be allowed to rule means that we abrogate our responsibilities. It is the role and duty of civil society (usually through Government) to judge where market rules and where other forms of decision-making are paramount.

 

We make those judgments continually. The right to be safe on the streets is, in most developed societies, made possible by laws which are enacted through general agreement by citizens. It is enforced, where needed, by legal systems and enforcement agencies – again, only there by the general agreement of civil society. In those countries where the market and price dominate, then the danger is that laws and police forces can be bought off. This is the case in many eastern European countries and many countries in Africa. Bribery and corruption rule through what may be called the market society – against the agreement of most of its citizens. As Sandel points out, this is against the best outcome for society – and by a long way.

 

Libertarians may argue that a legal system and an “open society” are the foundations for market economies to work, but the world is a global economy and it is no longer possible for one country to be cut off from the rest. The market domination into so many areas of life is a threat if basic norms do not exist.

 

The market versus societal norms

 

Sandel does not go too much into how society develops its norms – where market pricing should not intrude. We are in danger, of course, of taking on pricing into every form of our lives and there are plans to price our natural resources and to ensure that accounting incorporates aspects of social life into accounting rules – for example, through the Prince’s Accounting for Sustainability Project; through the Natural Capital Committee – which will report into the UK Government’s Economic Affairs Committee, chaired by the Chancellor of the Exchequor.

 

While this acknowledges the problem in one respect (i.e. we are not properly accounting for externalities like pollution, the loss of natural capital – our rivers, forests and such) it is perhaps giving up the struggle against the market society. By the very nature of accounting in terms of numbers for such “externalities”, we subscribe to the essential condition for market pricing of everything – the market society is allowed to dominate.

 

Our focus on GDP and numbers betrays a failing of society – our inability to see anything outside of numbers – so-called economic wealth. GDP, which rewards only that which can be measured, has been a poor simulation of real “wealth”. Our drive to economic success (measured by how many unnecessary items we make and buy) takes no account of what is really important. Ability to buy is all that “counts” – literally.

 

Societal norms are now up for sale. Instead of a rearguard action against the market society (as against market economics) where we defend those areas of society against pricing (as they should be beyond price), we succumb to pricing everything. This leads to everything having a price – an accounting-driven doctrine, a market society doctrine.

 

Beyond economics

 

Of course, this may be the price (!) we are paying for economic growth and relative economic success. As we become more economically successful and as the world derives basic economic success, maybe our brains are becoming hard-wired to numbers as the only register of what is successful. The left-hand side of the brain is assuming victory over the right.

 

There is no question that the discovery of numbers has made the human successful and to understand and control large areas of science. We have changed the world entirely. Our ability to count is now dominating our lives. Since the dawn of accounting (when we counted our grain), numbers now “account” for everything.

 

Where has been the debate to question the way we account? If numbers dominate everything we do, what outcomes do we envisage, what changes result? If all our successes depend on numbers, then what lives will we lead?

 

This is now beyond economics – which, as George Soros has recently outlined, http://www.georgesoros.com/interviews-speeches/entry/remarks_at_the_festival_of_economics_trento_italy/

has been shown to be terribly mistaken in its misunderstanding of the world. His analysis, that economics, in trying to copy the rules of science has travelled the wrong path. Economics is a social science and, as such, does not have definitive outcomes. But, the situation is worse than Soros makes out.  Macroeconomics is being subsumed beneath a torrent of numbers so that, worse than following a quasi-scientific path, we are now following an accounting outcome for everything.

 

Where are the norms for society? Who are the guardians?

 

The financial crash of 2008, which is still playing out in 2012, opened up severe cracks in our economic system. It is also opening up divisions in society between the very wealthy and the large swathe of middle-income earners who make up most of civil society. These divisions show how we are valuing society and show clearly that pricing is not working. The value given to bankers and bonuses (no risk activities for the individuals who can only lose their jobs, not their wealth and no risk activities for the banks, who are too big to fail) shows a dramatic failing in pricing – in which we apparently put all our trust.

 

Pricing mechanisms are not working successfully, yet we place more and more of our faith in pricing as the only arbiter of success.

 

We now price (or will soon be attempting to price) everything – from CO2 to education, from healthcare to shoes, from our rivers to our right to pollute – everything with a price.

 

Yet, macro-economics (the economics of society) is a social science – it is not based on rigid rules. It is (as Soros rightly states) bound up in decisions and thoughts of men and women.

 

Pricing is one outcome of a social science that is not unquestionably right in every case – it is actually, mostly wrong and most economists are only good at describing what has passed (i.e. rear view mirror gazers).

 

Accounting was originally a micro-based activity – to help regulate and tax individuals and firms. It is now being used to price everything.

 

Are there any alternatives to pricing everything?

 

Of course there are, but it is becoming tougher. The Bribery Act in the UK (following a mere 34 years after the Foreign Corrupt Practices Act in the US) is an example. Society has (at least in the UK) decided that winning contracts or influencing economic decisions should not be subject to corruption. In China, as Jonathan Fenby’s excellent “Tiger Head Snake Tails” so ably describes, bribery and corruption have existed for many years but (at least at home) it is not considered acceptable. In many other countries in the developing world, it is.

 

But, we know that price is in play throughout society. The best lawyers cost huge sums and only the wealthy can afford them – so, our legal system is subject to pricing. The best education is paid for; the best healthcare is paid for.

 

With wealth divisions becoming wider, pricing is everything. It is time for a real debate in society on how economics needs to be changed to reflect reality and how accounting for everything (and a price for anything) may not be the answer. The invisible hand of the market should not be allowed to grab everything.

Politics – the battle lines between citizens and the state

 

Why the party system is breaking down

Communications leads to changes

 

Types of government have changed with changes in communications. When communications was by word of mouth, strong central government through despotic leaders was the norm.

 

With the advent of the printing press, information could be made more available and (certainly in the West) education could be obtained more widely, leading to different forms of government and wider emancipation.

 

Now, with the dramatic communication changes wrought through mobile telephony and the internet, information (of all types, good and bad, intelligent and unintelligent) is made available throughout the world and the strains in our current governing structures are made worse.

 

The Arab Spring erupted for a variety of reasons but spread through new communication devices and systems. The organization of mass campaigns becomes easier and the attempts to stifle protests by shutting down websites and demanding changes to other, online capabilities is progressively harder.

 

Is the Party over?

 

Political parties are now finding it tougher to piece together coherent and wide-ranging policies that appeal to more than a small percentage of a nation’s population. In a word of communication possibilities, single-issue lobbying is becoming the norm. Politicians in the west continuously argue for choice but the choice that is now on offer, between major political parties without a cause (such as labour rights in the early 20th Century) is not welcomed.

 

As wealth increases (as we develop into the Affluent Society of Galbraith – see:   https://jeffkaye.wordpress.com/2012/05/06/the-affluent-society-and-social-balance/

 

so do the opportunities to connect with a wide range of issues – be they environmental, health, sport, education, self-help, business, charitable or whatever. The numbers of people that engage with politics becomes less because people are engaging with single issues. Parties rarely have a key message that intoxicates any more and are driven to compromise on a wide range of issues that appeal to no-one in particular. This means that voting may be on single issues or they are watered down to choose a party that is less bad than the others.

 

 

 

 

Greece – democracy’s floundering founder

 

In Greece, so dismally rent by bad government and economic disaster, the situation is playing out. Here, the people cannot elect a majority party to power and are being forced to vote again until they do. The party system is broken in Greece and single-issue politics dominates to the extent that the people have made their choice but the politicians don’t like it and tell them to do it again.

 

This makes a mockery of democracy in the home of democracy – an irony that is surely not lost on anyone but a potential disaster. The problem is that even if the Greek people are forced to make a different decision in a few weeks’ time, there is no guarantee that the result will be accepted by them and the demonstrations will begin again. The parties need to adapt to the will of the people by ensuring that the single-issues are wrapped into an acceptable set of policies that the majority are willing to accept – they should have done this first time around and it speaks volumes about the paucity of leadership in Greece that this has not happened.

 

Centralisation no longer works

 

A problem with the European Community which has been exacerbated by the Euro is that political judgements made after the end of the Second World War are not relevant to the 21st Century. While trading blocks are an economic decision, a political block (aimed at tying Germany into a framework which would prevent it from the belligerence of two world wars and providing Europe with a seat at any political table for many years to come) becomes a heavy weight to bear in a world that is likely to eschew centralization.

 

Vastly improved communications (including air travel) means that real globalization is the norm. Opportunities are now in place for a dramatic de-centralisation of political power in many countries and between them. Even if we need the UN, the WTO and other world-wide organisations, they are based on a 19th Century division based on the nation-state. We witness daily the huge challenges that this brings in places like Sudan or Iraq – nation states drawn by the pencils and rulers of 19th Century European civil servants, where older affiliations strike at the heart of the state philosophy.

 

In developed nations, the struggle is less severe but the economic stresses that are beginning to tear at countries like Greece, Spain (where half of the young people are unemployed), Ireland (the scene of a mass exodus after so many years of its reversal) are leading to a disenfranchisement. Italy, with an unelected government of “technocrats”, is surely not the model for the future – where votes are wasted and bankers rule from the centre.

 

A New Model needed?

 

New Model politics has to take into account the needs of a better-educated and often single-issue motivated people who need politicians that are there for them.

 

The political parties have to show themselves to be free from corruption and independent of being in politics for what they can get out of it.

 

The parties have to work together where needed and confront the problems of the past that means that each party opposes each other.

 

In the UK, this has been shown very clearly when, after a hundred years of parties being set up to oppose others, the Coalition of Tories and Liberal Democrats is set upon by many (especially a quixotic press) because they are trying to work together!

 

This is likely to be the norm. It means that coalitions will be the norm. This will be the political “new normal” to go with the new normal posited for our economic future.

 

Single-issues dominate our thinking and generate enthusiasm more than any political party in the developed world. It is only where democracy is new that parties with major and wide-ranging programmes gain real enthusiasm – which is usually dissipated quickly. Elsewhere, massive disenfranchisement is continuous and leads to a dissatisfaction with politics and politicians.

 

Parties are now the vested interests that need to change. We should see a situation where each party’s manifesto shows clearly what they would do together if that is the way it turns out – not be scared of the prospect because it may lose some votes early on. This is a big change but essential as voters’ (citizens’) needs over single issues dominate and they have no way to select a range of issues from those on offer – only a range of parties with massive ranges of policies.

 

In a world of perceived “choice”, the parties need to change to excite and enthuse or we will suffer the continued estrangement of citizens and political parties that will not result well.

The Affluent Society and Social Balance

Public goods and market products – and what else?

John Kenneth Galbraith in “The Affluent Society” wrote how the obsession with production was getting out of hand and that there had to be a rebalancing between social goods and products. The absence of this balancing would be seen by ever growing debt burdens as individuals chased products which provided ever diminishing value to them. At the same time, social goods – such as education, street lighting, rubbish collection – would suffer because the focus was always on products. Debt burdens would end only with economic depression – before rising again as the economy improved.

“The Affluent Society” was written in 1958 and revised in 1973. Forty years’ later, much of the book reads as if it was written today – or, at least the analysis section of the book. Galbraith’s analysis was right as far as it went, but the prescriptions for change were never likely to be implemented.

Galbraith’s focus was on products and how our wealth was fixated on production – production that the “market” determined was needed. As wealth grew, so the market for goods is increasingly the subject of corporate advertising in order to promote goods that we may not need – but believe we do.

Public goods – such as education and anything produced by the public sector – was deemed wasteful and could never compete with corporate advertising. So, taxation (whether national or local) was harmful in most eyes as it deprived the payer of marketed products and was spent on ill-conceived public goods (such as education, waste collection and keeping the streets clean – or, worse, providing a baseline of income for those most in need). Other than defence spending, which Galbraith believes is wasted, he contends that a “social balance” is needed between the market for products and social goods.

He also saw the problems caused at the intersection of public sector and the market – two estranged bedfellows who often wake to find themselves in the same bed but unable to understand why or how to cope.

A good example of this was recently seen in London’s Heathrow Airport where lines / queues at customs on entry were up to 3 hours. Businesses impacted by such horrors in the year of the Queen’s Jubilee and the 2012 Olympics were outraged at the inefficiency of Government – who control customs. Heathrow is a business – a travel and shopping centre. It is also the key entry point for people from across the world and Government is responsible for who enters the country. This intersection of the two clearly shows the difficulty of creating the “social balance” between government and the market.

Galbraith’s Missing Elements

Forty years ago, four, major elements were missing from or only sidelines in Galbraith’s analysis – issues which have become more central over time:

Global trading – or the Global Social Balance

The errors in GDP accounting – quantity vs quality

The Environment

Civil Society

Global Social Balance

The world is a different one from 1958 or even 1973. We trade globally and the developed nations increasingly use labour from the undeveloped nations to do low-cost, manual work (often in conditions we would not tolerate in our own countries). It is a 19th Century state of work but internationalised– where now, international companies tend to operate as the mill owners of old.

From a micro-economic sense that is understandable – each company is different and many act responsibly. However, from a macro-economic viewpoint and from an international political viewpoint, there are limited mechanics for equalizing health and safety laws let alone education and pay scales.

Galbraith’s concern was that we produced too much and that we should be able to make less in a country like the USA. When the work goes international, the responses to the problem have to as well.

Production by numbers: quantity versus quality

In an affluent society, production is made the cornerstone of all we do (the economy is central to all our decisions) because work is needed to secure income. Even in an affluent society, income at a certain level is deemed to be critical. Products of progressively less use (or utility) are sold (often solely on the back of advertising) and we buy them and this is meant to keep us in work and more buying goes on.

Of course, in an international labour market, that won’t always work (as Gandhi found out in the early 20th Century when England produced most of the cotton garments sold in India) and it has become harder to focus just on one country.

However, the global economy does not mean that products become more useful – much of what we make is simply wasting energy and resources. However, it is keeping people in work in many developing nations.

But, growth is measured by GDP and GDP is a poor measure of quality of life or even production. Quality of education, for example, is measured in GDP by its cost (an input) not an output. A £500 handbag is deemed worth the same as £500 worth of essential foods – no difference in utility is assessed.

The felling of a rare tree is “valued” at the cost of felling or its price in the market as a table. The value of a river is missed completely – unless over-polluted when its clear-up costs may enter as a cost in a nation’s GDP.

It is production by numbers, quantity versus quality.

Environmental Balance

While mentioning the issue of environment, the main topic of “The Affluent Society” is the social balance between public goods and market production. All these are made by people – so, the environment in which we live is ignored. The trade-off is not, of course, that simple (even though the Galbraith trade-off has never been seen to function). The environmental trade-off (our need to maintain our natural capital) is now being understood but remains relatively hidden in economic debates. Natural capital needs to be brought into any debate on affluence in society – our quality of life as opposed to the quantity of life.

Civil Society

To Galbraith, the game is between the market and the public sector and to most, this battle still exists as the only one. There was not much mention of civil society – where most of us spend most of our time – except through discussion of leisure time. Here, the trade-off was between productive working and spare time. I expect that this assumes that all non-productive time is spent on hobbies or watching TV.

The creativity and value of civil society – a huge array of organisations from sports to international development, from charities to women’s institutes – is normally missed completely by economists and thinkers on society. The problem is that it does not fit easily into econometricians’ computer simulations: more of the “if you can’t count it, it doesn’t exist” syndrome.

Of course, for centuries, people have been undertaking “good deeds” – the history of the 19th Century is full of examples of charitable activities. However, society is changing fast and as politics loses its appeal for so many (with parties genuinely fearing for their future), the role of civil society is growing and, in affluent societies, taking back more from the state that it lost to the state in the 20th Century.

This escape from the centre is to be applauded, but needs to be better understood.

Social Balance

Complete reliance on the market or on the centre (libertarianism or communism) may still appeal to some. The reality is that complexity is the norm. Society is a mixture of competing ideas and competing structures – out of which we muddle through and where individuals take centre stage and form organisations to make their voice louder.

Nevertheless, we should learn from history and our mistakes. Centrism is a doctrine of the defeated; totalitarianism a doctrine of the damned. There is no one answer but a constant mix of opportunities that society provides and where changes are constant in the way we answer our problems.

The mix of competing answers does no longer rest between public and private sector in an affluent society – that is a 20th Century doctrine or response. The response now has to take into account the social balance we want from our lives between products, social value, natural capital and civil society relationships in a global context not a rigidly national one.

This means being adult about the causes of change and grown-up about the challenges – it means being international in approach and understanding the complexity of the problem – not something that can be understood wholly by quantities or computer simulations.

As we grow materially (i.e. through the quantity of products we are able to manufacture) and bump up against the troubles of environmental degradation and massive disparities of wealth and conditions (on a global scale), the question to be addressed is how does a complex society best form itself to take the decisions it needs to maximize the value we all give and receive from this “affluent society”.

 

Do we care? Ethics in the 21st Century.

To corrupt: cause to act dishonestly in return for money or personal gain

(Oxford Dictionary)

 

Dishonest: behaving or prone to behave in an untrustworthy, deceitful, or insincere way

(Oxford Dictionary)

It should not be too hard for the world of politics, economics and our society to focus at least occasionally on the ethical foundations on which we have to operate to survive. In order to live with each other and prosper together, there are written and unwritten laws which lead us to reduce dishonesty to a minimum and rid ourselves of corruption.

Society as a concept is one in which all participants should have respect for each other even if we disagree with each other’s beliefs.

The central core of society is that we should not be dishonest or act dishonestly.

Underlying the way society works is the split between the various sections of that society – and, in a well ordered state, the division and co-operation between legislature, executive and judiciary (as marked out in the USA, and less clearly in the UK). Making law, executing the law and ruling on the law are fundamental to any just society – but, the debate (that we hear and see through all the media) is about the mechanisms that rule society more than the ethical under-pinning.

In the UK and the USA (and many other nations), the law (its formation, its implementation and the rulings on it) seems to be the pervasive elements that dominate everything we do.

The debate is constant – no government feels it has done anything without changes in the law on a constant scale. The legal apparatus has overtaken so much of what we do and think. Even though the number of lawyers in parliaments may have diminished in many countries (viz statistics from Dawn Oliver and Gavin Drewry, The Law and Parliament, 1998) the debates in legislatures (which formulate laws, of course) are based on the premise that a range of laws exist and need to be tampered with regularly.

In the UK the situation is made worse by the fact that the Executive (those whose remit is to implement the laws) are also part of the legislature – where they are seen by the public most often.

Ethics in the Centre

Tinkering with laws – whether social issues or economic – represents the norm in many societies where the rule of law has been in place for some time and where the division between the three branches of the system operate. Of course, elsewhere, the attempt is made to copy the tenets of those countries’ already established procedures. This is basic and proper in many cases if it correctly enshrines the ethical basis of a society.

Recently, the new country of South Sudan was formed after many years of extreme strife (and continuing strife with Sudan). South Sudan has recently formulated laws that attempt to take into account the subtle (and sometimes not so subtle) divisions in society between regions, tribes and religions but the society is based on a legal system and laws. The ethical basis of that society in its various legal charters is subsumed within the economic struggle to survive – which is leading to grotesque corruption.

In the same way, many other nations are set up with detailed legal systems (as was the U.S.S.R. under Stalin – which did not stop millions being executed and many more sent to the gulags) but where the law is not enacted as the ethical underpinning does not exist.

It is not just a legal system, which has to underpin society – it is an ethical stance that is the grounding for that legal system and for society in general that has to be formed and around which society has to operate. People do not stop killing each other because of the law except where terror rules (although many in parliament believe that is the only thing that stops us) but because an ethical process and system exist within which cultural norms apply.

Ethics – the moral principles which guide our behaviour may well change over time and geographically. A continuing debate about our ethical grounding is key and often lost in the debate over which tax is being increased or reduced. Often laws overtake the ethical consideration; often economic decisions (many short-term) discard ethical consideration; often politicians have no ethical stance or forget it.

Forgetting ethics

Recently, many examples come to mind (some minor, some major), which highlight a forgotten set of ethics. Here are some but I bet we can all see many more every day:

Example 1: George Osborne slaps a limit on tax deductions by the wealthy when making charitable donations – a tax decision, an economic decision but completely bereft of any apparent ethical standards.

Example 2: the death of Neil Hayward in China highlights the completely different ethical basis on which Chinese politics rests. The hushing up of the death because Bo Xilai’s wife may have been involved is reminiscent of 18th Century ethics in the UK. How do we deal with this? One way is proposed by Martin Davidson, the CEO of the British Council – see: http://blog.britishcouncil.org/2012/04/we-must-engage-with-china-through-culture/

who proposes continuous normalization of relations.

Example 3: Transparency International produces its annual corruption perceptions index. Corruption (see above) is a key indicator of ethics (or lack of) in a society. The index is seen by many yet is not generally held to be a decisive indicator of action by those in power – to whom practical issues like exports are far more important.

Example 4: the death of Sergei Magnitsky in a Russian jail (as highlighted by Bill Browder – a hedge fund owner for whom Magnitsky worked) while investigations were under way over corruption making Browder appear to be guilty of fraud shows a manipulation of the legal system and power in Russia and an ethical framework, which is defunct.

Example 5: care homes in the UK are filmed by the BBC showing mistreatment of patients.

Example 6: reports show elderly patients in hospitals in the UK are malnourished and allowed to die as efficiency statistics become more important than patient care.

We can multiply these examples by millions…….

So What?

Society in the 21st Century moves on. Developed countries are saturated with products so that economic discussion is more about the next iPad or its equivalent. Elsewhere, the production processes are ramped up to meet the rising demands of increasingly developing nations such as China, Brazil, India and, maybe, Africa. Worldwide, short-term economic issues are central to all decision-making.

Other issues are sidelined in the pursuit of short-term economic growth. Externalities (like resource depletion) are sidelined and economic growth, the measure of success, is the politician’s mantra.

So, society becomes focused on a prospective nightmare. We may well now be at a critical point in the world’s history – a point where economics by numbers cannot be the central objective of mankind, where a resurrection of ethical considerations should begin – not just in universities but also throughout all we do. The basic tenet of how we live has to be that we weigh whatever we do against crucial ethical norms.

So what? Well, it becomes essential that our politics, our economics, our legal systems, our strategic decision-making and the way we operate in the world be ethically based. In the 19th Century and before, the ethical basis was religious and formed the backdrop to Empire-building; in the 20th Century, economics and totalitarianism were the backdrops to communism and fascism as human ethics disappeared down the throat of centrist power building.

Today, economic short-termism and a blindness and inability to act on what is right provides societies worldwide with real risks. It is not just climate change that can impact our society in the future (although it will in ways we don’t yet fully comprehend). Just as great is the risk that we have developed simply into short-term, economic robots, where real society-driven ethics are lost.

As John Kenneth Galbraith wrote in “The Affluent Society” in 1958:

“To furnish a barren room is one thing. To continue to crowd in furniture until the foundation buckles is quite another. To have failed to solve the problem of producing goods would have been to continue man in his oldest and most grievous misfortune. But to fail to see that we have solved it and to fail to proceed thence to the next task would be fully as tragic.”

The next task is the re-establishment after hundreds of years of conflict over land and resources of a global set of ethics which should form the bedrock of our societies: an ethics system that swings us away from the corruption-centred economic system so prevalent that we can think that reducing charity income is some sort of solution, that the elderly are a burden, that special needs are wasteful of resources, that we support unethical regimes in order for Formula One racing to continue.

We show every day that we have limited ethical bedrock and that decisions and actions are undertaken in its absence – not after real consideration. Listen to David Cameron on F1 in Bahrain?

“It’s important that peaceful protests are allowed to go ahead. Bahrain is not Syria, there is a process of reform under way and this government backs that reform and wants to help promote that reform,” Mr Cameron said.

We run the risk of self-corruption.

So what?