Ch 2. The Ethical Economy is Already Here:

This chapter analyses a number of pertinent contemporary phenomena, like knowledge and brand management, the problem of ‘intangibles’ and the increasing recourse to user led innovation and other forms of Open Business, to argue that, at least in this cutting edge manifestations, the contemporary information economy is no longer ‘capitalist’ in the strict sense of that term . Instead corporations depend ever more on a different economy, an ‘ethical economy’ that depends on a different value logic. In this ‘ethical economy’ what creates value is not primarily investments of scarce productive resources (like labour and machines) but the ability to construct durable and significant social relations: strong links in a world of abundant weak links. Ethics in this sense creates value in three ways: by reducing the complexity of hyper-complex global value chains; by attracting ‘free labour’ from actors external to the firm, like consumers and other stakeholders and by offering an immaterial extra that sets of products form competitors with virtually indistinguishable offers of price and quality. In conclusion, the chapter suggests that the current financial crisis can be traced to an inability to correctly value the presence of such ethical values within the monetary economy.

Download it at www.ethicaleconomy.com

This is an article I have been writing which explores the meaning and practical application of collaboration with an eye on the environment, the ecology in which people can, or cannot work together. And since ‘everybody is talking about it’ these days I rounded it of with a couple of principles that I feel are important if you want collaboration to happen and “walk the talk”.

Collaboration Ecology - The Challenge of the 21st Century

Mushin J. Schelling

“Peer consumption” happens when consumers use technology to coordinate their consumer behavior in an intelligent way, in this case, for purposes of alleviating the environmental, health, and social implications of products and companies.

On Smart Mobs, Stephanie Gerson describes the plans of GoodGuide, a guide to ethical consumption that aims to become social-media enriched in order to create peer communities that build knowledge about such products.

For more on this emergent phenomena, see also our own Delicious tag on P2P-Consumption.

I’d like to expand a bit on a number of ideas that came out of a discussion with Christian Marazzi on the financial crisis, organized by the student movement at the University of Milano, last Friday. Marazzi has done a lot of innovative and thought-provoking work on the role of finance within the post-Fordist economy and the deep structural roots of the financial expansion that has marked the last two decades (or since 1979 and Paul Volker’s monetarist turn at the Fed). Indeed, the growing size and importance of financial markets is one of the two important structural trends that have marked the transition away from industrial Fordism (to an ‘information economy’ a ‘knowledge economy’ an ‘ethical economy’ or simply ‘post-Fordism’ the exact denomination is not an issue here). Indeed, with Geroge Soros, we can argue that the current crisis is the end of a financial ’super bubble’ that has run its course since the early 1980s. This has built on a continuous expansion of credit (refinanced by a massive inflow of cash from emerging economies like China). The consequence has been a substitution of credit and financial rent for wages as the source of income of the US (and Western European) middle class. The most visible structural consequence of this financial expansion have been  a financialization of a number of services related to the reproduction of everyday life: credit card debt, housing and mortages, pensions, insurance, health care and education. To this transfer of the responsibility for the reproduction of life from the public sector and the welfare state to financial markets has corresponded a massive securitization of life conduct, that is; the invention of a number of often very complex financial instruments, the risks of which are are in the end related to the life conduct of human subjects (their liability to pay their mortages, to get sick and so on). Indeed Christian Marazzi argues convincingly that this link between finance and life conduct is one of the defining elements of the neoliberal political order, tracing it back to the New York City bancrupcy in 1975. At that point, the City relied heavily on the issue of municipal bonds. In turn, its ability to repay those bonds was contingent on its ability to reduce costs for social services and crime. This way, the financial rent that the middle class (that had purchased the bonds through, mainly pension funds) could receive, came to rely on the life conduct of the underclass (who were the main recipients of costly social services) and, consequently, policing the latter became a way of securing the income of the former.

The second deep structural tendency of post-Fordism is the massive flight of value from the mechanisms of capture that were established with the Fordist industrial economy. We discuss this at length in the forthcoming second chapter of the Ethical Economy book, but to reassume the argument in a nutshell: Social production, the production of (mostly but not exclusively) immaterial wealth outside of the capitalist economy has increased massively with the diffusion of information and communications technologies. Companies increasingly rely on what they see as the ‘free lunch’ of social production by institutionalizing various forms of ‘prosumerism’: brand management and marketing where consumers play an active part, user- led innovation schemes, customer co-produciton of goods (Ikea) and services (McDonalds) and the cultivation of reputation and public opinion through Corporate Social Responsibility Schemes. Furthermore, social production has become an important element within the capitalist production process itself. Knowledge workers create value by using their social and communicative capacities to organize processes of cooperation and collective intelligence. Complex global production chains (or networks) thrive of meaningful relations of trust and cooperation between supplier and other partners. These are all forms of wealth that are produced outside the capitalist economy proper: that is they are generally not motivated by monetary gains, and they cannot be commanded or sanctioned by bureaucratic power. Indeed, because such socially produced wealth is generated outside the reach of the mechanisms of capture and governance with which the capitalist economy works, they are not easily measurable as valuable resources. Indeed, the products of such forms of social production tend to figure on financial statements as ‘intangibles’ for which there is no coherent method of measurement. In 2005, seven per cent of US corporate investments were directed to building such intangible resources, principally, trust, brand equity, corporate reputation and ‘intellectual capital’: that is, principally values that build on the ability to establish meaningful and durable social relations, or what we call ‘ethical values’.

This massive recourse to social production has changed the situation of both companies and workers. For companies, value is increasingly generated outside of the wage relation, in diffuse practices of social production that cannot be easily managed or measured. Success and profit becomes increasingly contingent on the ability to capture such socially produced wealth, and depend less on the direct contribution of salaried labour. For workers, gainful employment tends to be configured less as a single wage relation to one employer, and more as a multitude of income streams from very diverse forms of practices: regular salaried employment, short term work, consultancy, childrens work, unpaid forms of social production that can be monetized in different ways, entrepreneurship, engagements with the growing informal economy, financial or real estate speculation etc. This way, both the appropriation of value on the part of companies and the generation of income on the part of workers tend to move outside the once dominant wage relation. Present phenomena like the neonomads who launch start-ups out of Starbucks cafés with wifi connectivity or the return of the ’sublimes’ testify to these tendencies.

Since the wage relation looses its centrality as a way of distributing social wealth, it also looses it centrality as a way of appropriating surplus value and profits. This way the enormous expansion of personal debt as a the source of the new kinds of securitized value streams that underpin new financial instruments could simply be seen as the establishment of an alternative to salaried labour as an instrument for the capture of value.  In the fordist model the extraction of surplus value relied on the exploitation of salaried labour. This way the labour contract guaranteed both the worker a secure long term access to the means for the reproduction of life, and for the capitalist, a secure long term and predictable stream of surplus labour ( in the form of the productivity of the working day that exceeded the cost of labour). In the post-Fordist model the financial system anticipates necessities for the reproduction of life (a house, health insurance etc.) and receives in turn a long term and (relatively) secure value stream in the form of interest payments. The interest payments become a direct extraction of surplus from the whole life practice, and not just from the working day.  This happens in a situation where the wage relation is becoming less representative of the real process of wealth creation. The sources of this surplus, just like the sources of the ‘living wage’ can , and increasingly do, drive form a multitude of diverse sources of income. What is more, the value of these activities is set outside of the wage relation controlled by capital. As a free lance worker, entrepreneur, or member of the ‘precariat’  the value of my products is generally determined by my networks of friends, colleagues and clients. They are the ones who determine how much I work, when and what I get paid. Even i forms of regular employment- like many forms of knowledge work, productive agency engages a number of activities that lie outside of the wage relation (free time, contacts, networks etc.)

The parallel rise of, on the one hand such ‘anomalous forms’ of employment and the importance of social production in general,  where the determination of value is increasingly autonomous vis a vis capitalist government, and, on the other hand the direct financialization of life conduct, would suggest a general shift in the modality of extraction of surplus value: from the wage relation and its dependency on discipline and controlled time, to the debt/finance relation where the comprehensive surplus generated by the multitude of productive practices that make up he life process is directly captured by means of interest payments. Correspondingly, the modality of government shifts from discipline, from imposing a certain form of conduct, to control, form making calculable the risk arising form a multitude of forms of conduct that  evolve autonomously.  Class distinctions are configured around the access to such financial rent. Who has the capital and ability to benefit from rising real estate markets, in which the social production of the metropolis is monetized, and who does not. The terrain of social movements shift from the factory  to the city and the banlieus.

Together with the Swedish think tank fenomenal, Kesera has produced a research report for the Muncipality of Malmö, Sweden, on how to handle new, participatory cultural forms, like social production and citizen innovation. The abstract follows below, the whole report is available by contacting adam at adam [dot] arvidsson [at] unimi [dot] it

This report presents the results of ‘Laboratorum för Spontanklur’, a research initiative financed by the Culture Board of the municipality of Malmö in 2008.Laboratorium för Spontankultur worked for six months in 2008 with the task of defining the concept of ’spontankultur’ (spontaneous culture) and elaborate a strategy for future cultural policy based on this understanding. Spontankultur refers to the proliferation of self-organized acitvities of cultural production that has become a feature of the informational city. Empowered by new information and communication technologies, people in different ages and life situations tend to organize their own cooperative networks to provide goods (like organic produce), experiences (like music or other forms of aesthetic expressions) and services (like care of the elderly) on an autonomous basis. These productive networks also constitute a revitalized civic culture that has the potential to compensate for the declining activity of traditional organizations. The report suggests that ’spontankultur’ can provide a substantial resource for the development of the city of Malmö in three main respects. First spontakultur can work as a field of cutting edge cultural research, feeding the creative and cultural industries with new ideas and input. Second, spontankultur can serve as a way to revitalize the civic culture of the city, providing new spaces for interaction and democratic participation. Third, spontankultur can be put to work to generate strategies for sustainable livlng form below, offering an innovative take on sustainable city development. In order to work with this new cultural factor, the municipality needs to rethink its cultural policy. Culture needs to be conceived as a productive material, rather than as ready made products destined for consumption. A strategy to support and empower spontankultur would build on three factors. One, supporting actors, giving people the time and resources to engage in self-organized forms of production. Two, supporting environments, making sure that the city offers spaces for such spontaneous production, ensuring an active city life and contrasting gentrification. Three, empowering and enabling networks and projects, particularly through the simplification of regulations and forms of municipal financing. The report concludes by presenting a concrete suggestion for how such a new cultural strategy could be institutionalized in a specific municipal institution, Spontanlab.

This contribution by Frank Pasquale, Visiting Professor of Law (Spring 2009) at the Yale Law School is a reponse to the earlier contribution by Adam Arvidsson, entitled Ethics, Finance and Crisis.

In this text Adam stated:

“the present crisis was preceded by a boom that built essentially on the securitization of life conduct, where the ethics of everyday life became a direct foundation of value. Like in the 1920s, however, the crisis resulted form a lack of rational measurements of the value of such forms of life conduct.”

Now that we have a crisis, because of a mismatch between the evaluation and the underlying value, Adam suggest that, instead of ‘punishing’ the financiers on the output side, we work on the input side, i.. we recognize that this, however faulty, financial evaluation of the immaterial surplus value, nevertheless has a sense and function.

He proposed:

“In this sense financial markets serve to distribute a global surplus, which is essentially produced in common. What we need is a democratization of the standards of value. We need established, generally accepted standards for how to value forms of life conduct to underpin a rational valuation of the securities that they support. How can this be done? A centralized authority build around the state, like in the Fordist compromise is simply not possible. Furthermore, standards of life conduct are multifaceted, so that a rational measurement requires a multitude of points of view. This seems like a task for the collective intelligence of the networked multitude! My suggestion would be to use social media platforms that combine the functions of networking and rating.”

The above is the background to Frank Pasquale’s reaction, which follows here.

The numbers refer to notes that are added below.

Frank Pasquale:

“I have some constructive comments regarding these ideas and some critical views. Parenthesized numbers refer to footnotes (which are usually points I’ve elaborated on my blog).

But I also realize that the finance sector’s domination of political discourse here will probably prevent any truly fundamental reform of it.(9) So I welcome your proposal as a way of bringing some accountability to it.”

NOTES

(1) see http://www.concurringopinions.com/archives/2008/10/rating_agencies.html, and my comment on it

(2) see http://www.concurringopinions.com/archives/2007/08/from_first_amen.html

(3) see http://blog.ericgoldman.org/archives/2007/06/lawyer_ranking.htm

(4) see http://www.concurringopinions.com/archives/2008/04/financial_produ.html

(5) see http://www.concurringopinions.com/archives/2008/09/the_black_box_b.html

(6) see http://www.concurringopinions.com/archives/2008/10/parasitism_inc.html

(6.5) For example, I think there were pump & dump schemes on Yahoo! Finance. The speed with which financial information is used makes it more susceptible to gaming and manipulation than, say, a Wikipedia page.

(7) see http://www.concurringopinions.com/archives/2008/09/on_the_simultan.html

(7.5) see, e.g., http://www.radicalcartography.net/?dependency

(8) see, e.g., http://en.wikipedia.org/wiki/United_Fruit_Company (”The United Fruit Company was frequently accused of bribing government officials in exchange for preferential treatment, exploiting its workers, contributing little by way of taxes to the countries in which it operated, and working ruthlessly to consolidate monopolies.”)

(9) see http://www.concurringopinions.com/archives/2008/10/the_manicures_d.html

in a fascinating posting Umair Haque of Bubblegeneration, and now the Havas Media Lab, points at some directions for overcoming this recession. They center on what he calls ‘authentic value’ meaningful, long term. and genuinely productive economic activities:
‘How should boardrooms respond to the macro crisis? Is it just a case of recession-as-usual: budget-paring, personnel-slashing, and portfolio-trimming?
Not a chance. The tactics of recession-as-usual are neither necessary nor sufficient for firms to weather the global economic superstorm - because it’s no ordinary squall, but a once-in-a-lifetime gale ripping up the very foundations of the global economic order. Rather, the macro crisis requires decision makers to confront fundamental transformation on three levels.
The first and simplest level is a change in global patterns of savings, investment, and consumption. For too long, the poor have financed the rich. China and other emerging markets have lent to the US so Americans could buy Hummers, McMansions, and Frappuccinos. But this never made sense — it was deeply unsustainable; the macroeconomic equivalent of a giant planetary fossil fuel engine. The days of export-led growth — and it’s flipside, force-fed consumption — are numbered.
Strategists in the boardroom face a new global macroeconomic picture. Overconsumption in developed countries must slow sharply, and capital must be redirected to long-run investment, especially in public goods. Conversely, emerging markets must shift from financing consumption in developed countries, and begin investing in the basic institutions of a vital microeconomic environment and power long-run growth.
On a second, and deeper level, strategists must rediscover the lost art of authentic value creation. Authentic, long-run value isn’t created through arbitrage or gamesmanship — what we too often confuse strategy for. Games of off-balance sheet accounting, currency hedging, capital structuring, so-called labour arbitrage — where corporations simply shift to the lowest-cost, or most poorly regulated, sources of manpower — don’t create value. They just shift it around. Corporations who play this game of economic musical chairs are in for a rude awakening - because the music just stopped. And so they must rediscover the simple fact that value creation flows from making economic activities not just profitable in the short- run — but meaningful over the long-run.’ read more here

We’re proud to announce a new website for the Ethical Economy book project. At www.ethicaleconomy.com, you can download a final version of the first chapter that introduces and summarizes the argument (the second chapter, The Ethical Economy is Already Here, on how capitalism is no longer ‘capitalist’ but something else, will be available int he end of November). There is also a wiki where you can contribute and comment and a blog.

Abstract:

This book suggests that we are facing an epochal economic and social shift, perhaps of an importance unsurpassed since the bourgeois revolution that gave birth to the capitalist economy that we have today. The next economy will be an ethical economy where value is no longer based on labour as in the capitalist economy (nor on land as in the feudal economy that preceded it), but on the ability to construct ethically significant social relations. This is no utopia: the ethical economy is already here, in brand management, in advanced forms of knowledge work, on financial markets, and in the expanding range of autonomous forms of social production- ranging from P2P software, via fan communities to alternative forms of agriculture and food distribution- that have evolved around new information and communication technologies. And its impact is set to grow with the further diffusion and evolution of those technologies. This book offers a first coherent theory of the ethical economy, examining its origins, its present dynamics and its future potential. It draws out the implications of this epochal shift for business, politics and society.

Large excerpt republished from Chuck Collins in On the Commons:

“In the fight over the bailout, the rhetoric of Main St. vs. Wall Street is politically important in contrasting the real economy with the speculative casino economy. But we should also embrace all financial markets as part of the commons that sustains healthy communities.

Government and the nonprofit sector have an important role in ensuring that the financial markets are not turned into a speculative casino. Government oversight is how we protect this commons —and it is obvious that the speculators won the upper hand for the last decades. We should reclaim our financial market commons.”

(an excerpt from the Ethical Economy book, sneak preview at www.ethicaleconomy.com)

These might seem like three terms picked at random. However I would like to suggest that beyond its direct, contingent causes, the current financial crisis is a symptom of the emergence of a new economic system, where value is increasingly based on ethical factors, or on ‘life conduct’. I call this an ethical economy: and I will try to explain why, and how it relates to the current crisis.

The last ‘Great Crisis’ that lends itself to (imperfect) comparison with today’s events was the Crisis of 1929 followed by the Great Depression of the 1930s. The Great Crisis was triggered by an over-valuation of industrial stock which had accelerated during the post-War boom of the ‘roaring twenties’. Industrial profits, private savings (and borrowed money) were pumped into stock markets where stock prices were inflated. Like today this exuberance produced a situation where nobody really knew what the stocks were actually worth. Instead their value were related to the overall tendency of the stock market to keep rising. So the basic mechanisms behind the bubble and crash (like in all bubble crash and cycles) was the absence of a measure of the real value of stock, and its replacement by a self-referential measure that related the value of stock to the presumed future dynamics of the stock market itself.

The post-War, Keynesian solution, which served to guarantee a relatively smooth financial development up until the oil crisis of 1973, and the following neo-liberal deregulation, was premised on the establishment and institutionalization of such a measure. This happened through the Fordist compromise between capital and labour, which institutionalized the productivity of industrial labour as the established measure of all economic values, including the value of stock. This establishment of an institutionalized measure happened through a democratization of the standards of value. Up until the 1930s, the people had no insight in the ways in which economic value standards were set. Instead such standards were set by a small minority of market operators who followed what we would today call a ’swarm logic’. With the Fordist compromise, popular representatives (principally the labour movement) came to have a say in determining what standards of values should prevail. This way these standards also acquired a wider democratic base, which made them enduring and robust as they now corresponded to what was a shared view of what constitutes ‘real value’.

Today, the dynamics leading up to the financial crisis are very much the same. We have seen an exploding share of immeasurable values that are capitalized on on financial markets (so called ‘intangibles’) and a generalized insecurity of the ‘real values’ of the assets that back the various kinds of securities that circulate. As a consequence, the credit and real estate boom that preceded the crisis was premised on a self-referential pricing mechanism: The value of a house was thought to be determined by the continuous upward movement of the housing market. Like in 1929, there is no democratic influence on how the standards of value for these kinds of assets are determined, and hence no way of guaranteeing that they correspond to a shared view of what constitutes ‘real value’.

But the today the assets are different form those of the 1920s. The most important assets in todays financial crack - mortgage-backed securities, credit card debt and many intangibles, like brand values are essentially securitizations of what we could call ‘life conduct’. The value of a mortgage or of  credit card debt depends on the life conduct of the borrower. The value of a brand depends on the life conduct of consumers (this is actually what is measured in brand valuation schemes) and of the ethical conduct of the company that owns the brand; the value of a real estate market depends on the life conduct of  the inhabitants of a neighborhood or a city- after all this is what ‘creative city’ policies are all about. And to a large extent the productivity of a knowledge intensive company is about the life-conduct of its employees. So in many ways current financial markets build on the direct securitization of life-conduct, of ethically coherent forms of life. Swiss-Italian economist Christian Marazzi pointed this out long ago. Looking at the New York financial crisis of 1929, for many the origin of the neoliberal era, he showed how the privatization of city debt (through city bonds sold to the middle classes) gave a direct economic importance to the life-conduct of the poor. This, he argues, was the origin of the neoliberal era with its combination of freedom of private property and discipline for the propertyless.

So the present crisis was preceded by a boom that built essentially on the securitization of life conduct, where the ethics of everyday life became a direct foundation of value. Like in the 1920s, however, the crisis resulted form a lack of rational measurements of the value of such forms of life conduct. What kinds of lessons can we draw form this?

Many voices on the left (and on the right) speak of a severe restriction of the power and freedom of financial markets. This is probably not a good idea. There are many reasons that suggest that a financial distribution of value is in fact a functional response to a situation in which the production of wealth is thoroughly socialized and operates through the putting to work of social capital and what Marx called General Intellect, rather then through the direct deployment of labour time and private capital. In this sense financial markets serve to distribute a global surplus, which is essentially produced in common. What we need is a democratization of the standards of value. We need established, generally accepted standards for how to value forms of life conduct to underpin a rational valuation of the securities that they support. How can this be done? A centralized authority build around the state, like in the Fordist compromise is simply not possible. Furthermore, standards of life conduct are multifaceted, so that a rational measurement requires a multitude of points of view. This seems like a task for the collective intelligence of the networked multitude! My suggestion would be to use social media platforms that combine the functions of networking and rating. (These are already emerging, networking sites like Facebook are enormously popular; according to the PEW Internet and American life project in September 2007, 32 per cent of the US internet population had rated a person or product online) If E bay is able to give a rational and generally accepted value to the life conduct of its users (is the seller trustworthy or not?), then something similar could perhaps work for financial securities? Consumers, workers and other stake-holders involved in the globalized production of a branded commodity continuously rate the social impact of the brand. Their ratings are aggregated into an quantitative index that serves as an input for financial operators. When I go to the bank and ask for a mortgage I present a quantitative ethical index that summarizes what people in my networks think of my trustworthiness and general life conduct. That index affects the interest rate I would have to pay on my loan, and consequently the risk and price of the security that the bank subsequently derives from the mortgage An ethical economy? An Orwellian nightmare?