This post is situated in the context of a country and a world recovering from an economic crash.  It was written to suggest an alternative to our current economic system, which is less than ideal.

To start the analysis, we must first look at what ‘the economy’ means.  Then we must understand the meaning of an ‘economic crash’.  Briefly, we (advanced Western countries, such as New Zealand, UK, France and USA) live in a society where the dominant method of exchange is capitalism.  What is capitalism?  It is a means of producing goods and services which requires  an investor who has significant ‘spare’ money, to invest in a business, with the expectation of getting a return.  By spare, I mean he or she does not need the money to live on, i.e. to eat, pay for accommodation, travel, clothes, entertainment, holidays, etc.  The business can be any type of business, either wholly-owned by the investor (such as a family business) or not (such as business which trades on a stock market); the only concern is that it attempts to operate at a profit.  At this point, we must define profit also – in general language, the word ‘profit’ relates to any activity a person or persons may undertake which results in a gain of money to that individual.  The profit I speak of here is more strictly defined that that – when an investor invests money into a business, they expect a return without carrying out any work themselves (this can be somewhat confused by the possibility of an investor also being the managing director, chief executive operating officer, or some other generally high-level position within the company – but the two sources of income to him/her are considered separate for the purposes of this analysis).  This profit is known as ‘surplus’, and is generated by relying on employees who receive a wage for producing some good or service, which is then sold at a higher value than it costs to make it.  There are those who object to this state of affairs, regardless of anything else, and this is a valid objection – the investor makes an income out of the work of others, whilst putting in no work themselves – but it is not directly of concern here.

We now turn to the nature of a country’s ‘economic growth’.  The Prime Minister and Finance Minister of any country will often talk of economic growth, and how it is good or not good enough.  What does this mean?  It is the net return on all invested money across the entire country – if the economic growth for a given year is 3%, then for an economy worth $100 billion at the start of the year, the value of the economy at the end will be $103 billion.  The $3 billion created has gone to the investors who invested their money in various companies, who may or may not have been successful – generally, most will gain, but some will lose.  Some companies will make money at a higher rate than others, but the net growth across all, in this case, is 3%.

The next question to look at, is how the money is made.  The answer is selling those goods and services to people.  A small amount is made by investors selling things to each other (high-value goods such as luxury cars, yachts and clothes).  However, this ceased to account for the majority of money flow in the early 20th century, when Henry Ford introduced high wages and short hours for his all workers, in the hope they would use these wages to buy cars and other items.  They did – resulting in the mass consumerism we have today.  Thus, the majority of the profit is made from selling things to the same workers that are being paid to produce those items.

Regardless of any perceived unfairness here, there is a further problem with this situation.  Over time, this must result in a net movement of money from those doing the work, to those doing the investing – the rich get richer, the poor get poorer.  This is somewhat muddled by the presence in developed countries of a large middle-class, who generally, through pension schemes, small-time share-trading and investment funds, own a fraction of profit-generating companies – but not usually enough to live on until they retire.  The majority of profit-making enterprises are still owned by 1-3% of the population in a developed economy.  If the flow of money is mostly one-way, then we end up with an unsustainable situation.  How does this lack of sustainability manifest?  In an economic crash – this destroys equity for a certain segment of the population (the bottom, sometimes part of the middle), and allows the cycle to start over.  Hence, an economy predicated on never-ending growth is fundamentally flawed.

How do we right this situation?  The key part appears to be an economy which must grow to sustain itself (if the economy stops growing, i.e. profit returns are zero, investors stop investing, and there is no work for everyone else).  Is it possible to have a zero-growth economy?  Communism gave one possible solution, although that failed – not due to any lack in the concept itself, but in the method of attaining it: huge, disruptive changes to society, which resulted in one oppressive system being replaced by an ‘interim’ situation of oppression from a different source – the Dictatorship of the Proletariat, which merely transferred the power from one small group of individuals to another, who are unwilling to give it up – see Animal Farm for more on this.  It necessarily relies upon a violent, coercive effort to convince people to change – that’s no better than the system we have now.

I propose a different route: collectives/cooperatives.  There is nothing new in this concept, the Co-op in UK is one of the biggest supermarkets in the country, and also provides insurance, banking, car sales, funeral parlours and travel agencies, amongst other services.

why are cooperatives zero-growth?  The key feature of a cooperative, is the owners and the customers are the same people.  As customers, the tendency is for the price to be as low as possible.  This low price in a business is usually achieved by a variety of methods: mass-production, rationalisation of work (such as the division of labour, implementation of efficient, consistent procedures, etc.).  It can also be achieved by cutting margin.  In the case of a capitalist enterprise, this is undesirable, as it results in lower profits, to the point where there is no reason for the investor to invest, hence the business ceases trading, or goes bankrupt.  However, in the case of a cooperative, the profit is not important – the service or goods are the only aim, thus there is benefit in running the enterprise, even with zero profit.  Also, as the owners make profit from customers, there is nothing to be gained from a profit – the money goes back to the same people who paid it.

This also brings up another point – there is a long history, starting with Taylorism, and progressing through Fordism, lean manufacturing, McDonaldisation and many others, of rationalising the work force in not entirely positive ways.  These methods are used to improve productivity, but usually at the cost of turning the workers into drones – Charlie Chaplin’s ‘Modern Times‘ shows this to good effect.  If there is no profit to be generated, there is less of an impetus to rationalise in ways which mould workers in this way, showing a further benefit to this type of enterprise.

How to start this in New Zealand?  The same as anything else: from small beginnings (grow mighty oaks), to paraphrase someone or other.