Real-World Economics:
by Greg Dember © 11-29-1999
Draft 1 (rushed out in time for WTO meeting, expect revision and expansion)
Comments: dember@drizzle.com
Table Of Contents
Introduction
We are all to some extent entranced by a theory of economics that emphasizes the personal acquisition of symbolic credit more than producing things and providing services that are useful to ourselves and other people. I want to challenge the validity of what I call "Market Economics" and suggest a replacement, "Real-World Economics", that I believe can underlie practical, everyday choices that are better for us as individuals and for our world.
My motivation for developing these ideas is a desire to increase personal control over the quality of my own life, and to be able to make choices that support others who are engaging in sustainable business practices. While it is important for all of us to be informed about (and even try to influence) the policy decisions that are being made by our governments, I believe that most individuals can make the biggest difference by bringing consciousness into how they live their everyday lives. The economic philosophy that I promote is one which I hope will at the very least bring benefits to the lives of those who follow it, and most optimistically, if adopted by a large segment of society, bring back sanity and sustainability to our world.
What's So Wrong With The World, Anyway?
In spite of an abundance of new ideas, technologies and cultural trends that improve the lives of many in the world today, all of us, "rich" and "poor" alike are affected by the following:
These are problems that exist in the United States, currently the "richest" nation in the world. These are problems that exist for most people who live in the United States, not just the poorest or least fortunate.
Many of the least fortunate in the world and even the U.S. must also deal with (for example):
My hope is that by making choices based on Real-World Economics rather than Market Economics, individuals can better their own lives and play a part in improving conditions in the world.
Are You Working the System, or is the System Working You?
Many folks feel that "the system" is wrong or unfair. Yet they still make choices that support it, even in their efforts to undo it, or to get what they feel they deserve out of it. After reading this essay, I hope you will reconsider the value of the following acts:
The Theory of Real-World Economics
In this section I will discuss some of the basic concepts of Real-World Economics. The next section will propose practical guidelines for implementing the theory.
Good Stuff vs. Market Tools
I believe that most people spend too much time doing useless things they don't necessarily enjoy, with results that are of no real value to themselves or other people. In Real-World Economics I use the term "Good Stuff" to describe things that actually do have real, direct value for people or society.
Examples of Good Stuff:
Food, clothing, shelter, health, art, fun, natural beauty, spiritual enrichment, and knowledge about our world.
I believe that we waste so much of our time because our society and the individuals who comprise it are entranced by the principles of Market Economics. Market Economics values what I call "Market Tools."
Examples of Market Tools:
Money, labor, tools for controlling money and labor, loans, debts, savings, competitive advantage, market share, and tricks for increasing one's "portion of the pie".
It is important to recognize that Market Tools can be beneficial to the common good: they often help people trade Good Stuff among themselves. However, as individuals and as a society, our failure to realize the difference between Market Tools and Good Stuff leaves us devoting too much life energy to activities that do not directly add value to the world, but only determine how the pie will be cut. Understanding the difference between Good Stuff and Market Tools is at the heart of Real-World Economics and its approach to making practical, everyday choices.
When Is Bigger Better, and When is Bigger Badder?
One of the basic assumptions of Market Economics, based on its failure to differentiate Good Stuff from Market Tools, is "the economy of scale", the idea that a larger mass of people and resources can get things done more efficiently than a smaller group, and thus bring more benefit to society. We all probably have personal experience in the power of teamwork, how a group can often produce better results, with less effort, than the combined results of what the same individuals could produce on their own. On the other hand, we also often see how the output of very large groups of people, such as large businesses, can be unsatisfactory. Results such as:
It seems natural that up to a certain size, consolidation and teamwork would yield better products and more efficiency, but beyond that size, distance between producer and consumer would yield lower quality. In terms of making Good Stuff, one might say " bigger is better until it gets too big, then bigger is badder". But why do the big bad companies do so well, financially? It's because increased size continues to bring increased access to Market Tools, in spite of reductions in effectiveness at producing high quality products.
For instance, a small team working on a farm together can produce more food than the combined output of each person working their own land separately. They are able to deliver quality products to local customers, and by sharing equipment costs and expertise, put in less work than they would need to if they all worked independently. This is good. As the size of the operation grows larger, however, in order to find a market for their produce, they need to focus more and more on long-distance distribution, and meanwhile the quality of the produce goes down, because varieties that travel well must be emphasized instead of varieties that are nutritious and good-tasting. Meanwhile, long-distance transportation requires consumption of natural resources and pollution of the environment. So beyond a certain optimum size, the Real Productivity of the farm declines, and yet its ability to compete as a business continues to grow, because it has greater access to Market Tools such as advertising, loans, special deals with wholesalers and packagers, etc.
The result is that the largest operations end up out-competing the small or mid-size ones who remain at the optimum level for efficiently producing quality Good Stuff. Because we currently do not distinguish between Good Stuff and Market Tools, we assume that the businesses that succeed must be good at what they do, but what it is that they are good at is Marketing, not (in the case of our example) growing high quality food efficiently, with a low impact on the environment.
Optimal Consolidation
My term for the size of a business operation that is just big enough to take advantage of the benefits of team work, but not so big that it becomes disconnected from the needs of it's customers, is Optimal Consolidation. At this size, any competitive advantage a business has over others in the same field can be truly credited to the quality and affordability of its products.
Once a company has grown beyond the size of Optimal Consolidation, its increased profitability is due to its utilization of Market Tools, and in spite of a reduced effectiveness at producing Good Stuff. In the "Practical Guidelines" section, I will show how to distinguish Optimally Sized businesses from those that have grown too large.
Advertising = Coercion = Psychological Abuse
One of the most important Market Tools used in business and politics is advertising. People often justify advertising by claiming that it serves to inform the public. In actuality, advertising has nothing to do with information. It is a purposeful effort to control people's feelings and behavior through verbal, visual, or musical imagery. When information is included in advertising, it is a very minor part of the package, and may even be false. Advertising bypasses the rational, conscious mind and goes directly to the "unconscious" level of feelings and associations. It has been shown that whether or not somebody believes in an advertisements overt message has no impact on the advertisements ability to influence that person's purchasing behavior.
Advertising is a form of Coercion, just like pointing a gun at someone. It is the exertion of an outside agenda onto an individual's consciousness. One form of verbal advertising is the Direct Command "Do All Your Holiday Shopping at Murphy's!" This linguistic form is generally not considered acceptable in everyday conversation between two adults. Normally we reserve command language for parent-child interactions, or urgent life-threatening situations: "Duck! Cover your head!" The direct command, when used to sell a product or a political agenda is taking advantage of primal authority/obedience circuits in the unconscious. In a pre-industrial society it might have been thought of as casting a spell on a person.
The culture of advertising is so prevalent that even political progressives use the command form without consideration: "Stop the War Now!" "Eat The Rich!". In my opinion, they are doing more harm then good, regardless of the worthiness of their cause. They are, by their model, saying it is normal and acceptable to put out signs and posters telling people what to do, and thereby supporting the culture of advertising.
Real-World Economics distinguishes between Advertising and Announcement. An announcement is a simple sharing of information and is potentially useful to the receiver; it can be considered Good Stuff. Advertising is an effort to control behavior and at best can be considered a Market Tool, at worst might be thought of as a form of psychological abuse.
The Real Value of Work
In our culture, work is generally considered "a virtue in itself". People who work hard all day are considered good people, and deserving of the benefits that come their way as a result of their efforts. Similarly, someone who has work is considered fortunate compared to someone else who doesn't have a job. Real-World Economics, with its distinction between Good Stuff and Market Tools, suggests that we re-examine the nature and results of our work and whether it makes a contribution of Real Value to society. Work, as an activity in itself is not inherently good unless it is actually pleasurable for the person doing it, or it produces Good Stuff. Within this analysis there is no reason to admire a person who spends long hours all day at work that largely involves transferring wealth or Market Tools from one place to another --- such a person is simply grabbing a portion of the pie. Of course, everybody needs a portion of "pie" to live, but when seen through the lens of Real-World Economics, many in our society who earn their living through "respectable" jobs are making no more real contribution than someone collecting a welfare check. As a matter of fact, the person collecting a welfare check may be making more of a contribution, because while not working at a "paid" job, the welfare recipient may have time to care for children, create art, or support the community in other ways.
The same analysis reveals that when the government reports low unemployment levels, this does not necessarily mean things are going well. Ideally it would mean that a very large portion of the population is happily occupied with productive work making Good Stuff, but it could also mean that people are simply busy working hard to help a few individuals collect a larger portion of the pie. When government statistics show that unemployment is low, but at the same time the real wealth gap between rich and poor is rising, and median standard of living is going down, my guess is that a lot more work is going on, but the benefits are not going to the people doing the work. In other words low unemployment does not always mean an increase in general prosperity -- it often means an increase in general slavery.
Applying Real-World Economics In Your Life
Although the analysis of Real-World Economics has obvious implications for governmental policy, my main purpose here is to provide a framework to help individuals with everyday, personal economic decisions. My hope is that following the principles of Real-World Economics can help people improve their own lives and also support businesses that contribute in a positive way to a sustainable economy.
How to Identify Businesses that are Optimally Sized
ASK TO MEET THE OWNER -- One advantage of an optimally sized business is that the owner is available for feedback from customers and neighbors. This means you can trust that someone will take responsibility if you do not get your needs met. If the owner has so many locations that she is rarely on site to deal with customers, that is a sign that the operation may be too big. If the business is a corporation owned by many anonymous shareholders, than it is almost certainly too big.
If you cannot meet the owner, but there is a manager who will talk with you, find out what you can about the manager's relationship with the business and the community. Does he live in the community? Is he committed to staying with this company for a while? How much decision-making power does he have? When the person who makes decisions at a business lives in the community he or she is more likely to care about the impact the business has on the community.
If you are dealing with a specialty mail-order business that is located in another region, find out if the owner can speak with you on the phone to answer technical questions. If the owner is so involved with the financial aspects of the business that he cannot talk to customers about his products, then the operation is probably beyond optimal size.
If the business feels too impersonal for you to feel comfortable seeking out the owner or manager and getting acquainted, that is a sign that it is too big.
WHEN POSSIBLE SHOP NEAR HOME
Very large warehouse stores that serve large regions can often offer lower prices because of their access to Market Tools such as special wholesaling deals and more efficient use of shelf space and inventory practices. But the price of saving a few pennies or dollars is that you have to travel, burn fuel, and waste your precious time. Unless you happen to live near a large warehouse outlet, then the stores that are closer to home are more likely to be locally owned, which means that they are more likely to be connected to the needs and concerns of your community. So, for those extra pennies or dollars you may have to spend at the smaller store, you get more Good Stuff.
JUST SAY NO TO ADVERTISING
Purchase products that do not depend on advertising to generate interest. A product that is successful by word-of-mouth is probably a higher quality product. Most advertising these days is not informational but rather coercive, using sophisticated psychological techniques to persuade you to do something you would otherwise not do. Having a large advertising budget is a likely sign that a company has gone beyond the size of optimal consolidation. Instead of using resources to produce more or better Good Stuff, they are using resources to increase their share of the market.
PAY MORE FOR PRODUCTS THAT WILL LAST
Systems of mass production often allow businesses to charge lower prices for their goods, but the quality and longevity is often compromised. Optimally-sized producers, on the other hand, tend to offer products that are more expensive, but of higher quality. Products made by optimally sized companies may cost you more initially, but in the long run you will spend less since you won't need to replace them as soon, if ever. This is a much better "deal" than the bargains you get from the large, Market-hungry producers.
Choosing Work That Has Real Value
The more of the following questions you can say "yes" to, the more likely your work has real value, according to the theory of Real-World Economics.
Promoting Your Business or Cause with Information not Coercion
If you have a business or a political/social cause you need to promote, an alternative to advertising is announcement. I use this term to describe promotion that supplies information rather than manipulative imagery. In addition to being more ethical than advertising, Announcement also has several advantages to the one using it. People attracted by Announcement are more likely to actually appreciate the product or message if they choose it, and ultimately remain more loyal. Announcement is generally less expensive than advertising, and does not require constant escalation in response to competitors, like advertising does. Finally, organizing and presenting information about your product or cause can be educational and/or clarifying for you as well as your audience.
Making Realistic Changes
It is not my intention here to be dogmatic or overly simplistic. As I've stated earlier, Market Tools can often be of benefit to society at large, when they help with trading or the distribution of things to the people who need them. There are useful products, such as computers, that are best developed and manufactured by very large corporations that do not match the ideal of optimal consolidation described here. Not everybody is able to immediately change their work or radically transform their lifestyle in order to follow the guidelines prescribed here. Radical change, in fact, is not always the most effective kind -- sometimes there is hidden wisdom in the status quo.
However, I do believe that the essential message of Real-World Economics is important. Our society currently overvalues personal acquisition measured by money, and undervalues personal productivity, observable in the direct results of what we do and choose. My hope is that people can use the guidelines offered here to help make the changes that are possible for them. Sometimes small changes make big changes possible in ways you'd never have imagined.