This blog is very long, around 4000 words, and looks at various forms of exploitation and how we might design a better system. It is as much a personal exploration of the field as anything.
Hardening of attitudes to welfare abuse
There is growing resentment right across the political spectrum against those taking welfare who won’t do enough to try to look after themselves but expect handouts, while others are having to work hard to make ends meet. And at the same time, resentment against the rich who use loopholes in the law to find technically legal but morally dubious tax avoidance schemes. What these have in common is that they exploit others. I want in this blog to look at a variety of ways in which people exploit others, some that we are so used to we don’t even notice any more. And of course this is important in helping to determine what may happen in the future.
If you have any knowledge of economics, please go away now, I don’t want to offend you by teaching basic economics, especially if I get it wrong. Otherwise, please explore with me.
The few have always exploited the many
We recently had a short break visiting the Cotswolds (a chocolate-box picture area of England). We saw a huge Roman villa, fantastic mosaics in the Roman museum in Cirencester, and a couple of stately homes. Then we went to Portugal where we saw the very ornate but tasteless Palace of Penna. It made me realise just how much better off we are today, when thanks to technology development, even a modest income buys vastly superior functionality and comfort than even royalty used to have to put up with.
I used to enjoy seeing such things, but the last few years I have found them increasingly disturbing. I still find them interesting to look at, but now they make me angry, as monuments to the ability of the few to exploit the efforts of the many for their own gain. So while admiring the landscape architecture of Lancelot (Capability) Brown, and the Roman mosaics, I felt sorry for the many people who had little or no choice but to do all the work for relatively little reward. Especially so with buildings like the Palace of Penna where an obviously enormous amount of hard work has been spent on something that ended up hideously ugly. Even if the artists and workmen were paid a good wage, their abilities could probably still have been put to much more constructive use.
But we don’t want equality of poverty
I strongly believe that we overvalue capital compared to knowledge, talent and effort, resulting in too high a proportion of wealth going to capital owners. Capitalism sometimes saps too many of the rewards of effort away from those who earn them. However, few people would argue for a system where everyone is poorer just so that we can have equality, as happened in communism, and as would be the result if some current socialists got their ways. The system should be fair to everyone, but if we are to prosper as a society, it also needs to incentivise the production of wealth.
Exploitation of society by the lazy and greedy
That of course brings us to the abuse at the other end, with some people who are perfectly able to work drawing state benefits instead (or indeed as well as wages from work) and thereby putting unjust extra load on the welfare system. This of course acts as a major drain on hard working people too and reduces the rewards of effort. Those who work hard may thus see their money disappearing at both ends, possibly taken by exploitative employers and certainly taken by the state to give to others. Exploitation is still exploitation whether it is by the privileged or the lazy. We all want the welfare system, because another powerful force in human nature is to care for others, and we instinctively want to help those who can’t help themselves. But that doesn’t mean we want to be taken advantage of.
Rewarding effort is essential for a healthy economy
As a general principle, extra effort or skill or risk or investment should reap extra reward. If there is too little incentive to do put in more work or investment, human nature dictates that most people won’t do it. The same goes for leading others or building companies and employing others. If you don’t get extra reward from enabling or leading other people to create more, you probably won’t bother doing that either. Very many communes have started up with idealism and failed for this reason.
In both of these cases, a few nice people will do more, even without financial incentive, simply because it makes them feel good to work hard or help others, but most won’t, or will start doing so and quickly give up when appreciation runs dry or they become frustrated by the laziness of others.
While effort and investment and skill and leadership must all be rewarded to make a healthy economy, it is a natural and fair consequence of rewarding these that some people will become richer than others, and if they help many other people also to do more, they may become quite a lot richer than others.
‘To each according to their effort’ is a fundamentally better approach than ‘from each according to their ability and to each according to their need’ as preached by communists – it is simply more in tune with human nature. It makes more people do more, so we all prosper. Trying to level the playing field by redistributing wealth too much deters effort and ultimately makes everyone worse off. A reasonable gap between rich and poor is both necessary and fair.
But we shouldn’t let people demand too much of the rewards
However, an extreme gap indicates that there is exploitation, that some people are keeping rather too much of the reward from the efforts of others. As always, we need to find the right balance. Greed does seem to be one of the powerful forces in human nature, and if opportunity exists for someone to take more for themselves at the expense of others, some will. I don’t believe we should try to change human nature, but I do believe we should try to defend the weak against exploitation by the greedy. Some studies have shown a correlation between social inequality and social problems of crime, poor education and so on. That doesn’t prove causality of course, but it does seem reasonable to infer causality in any case here.
I wrote in April
highlighting the situation in large companies such as Barclays where top managers seem to run the company as if it were their own, allocating huge rewards for themselves at the expense of both customers and shareholders’ interests. Such abuse of position is widespread across the economy, but is very much in the spotlight now, and it will inevitably be reined back over time in spite of fierce resistance from the beneficiaries. The power of public pressure via shame should not be underestimated, even though some seem conspicuously immune to it. Where the abusers still decide to abuse, power will come either by shareholders disposing of abusers, or regulators giving shareholders better power to over-rule where there is abuse, as is already starting to happen, or by direct pay caps for public sector chiefs. The situation at the moment gives too much power to managers and shareholders need to given back the rights to control their own companies more fully.
Reducing market friction
There are many opportunities to exploit others, and always some who will try to take the fullest advantage. We won’t ever make everyone nice, but at least we can make exploitation more difficult. Part of the problem is social structure and governance of course, but part is also market imperfection. While social structure only changes slowly, and government is doomed to suffer the underlying problems associated with democracy, we can almost certainly do something about the market using better technology. So let’s look at the market for areas to tweak.
Strength of position
Kings or slave owners may have been able to force subjects to work, but a modern employer theoretically has to offer competitive terms and conditions to get someone to work, and people are theoretically free to sell their efforts, or not. Then the theory becomes more complex and the playing field starts to tilt. People have to live, and they have to support their dependants. Not everyone is born with the intellectual gifts or social privileges that enable them to be entrepreneurs or high-earning professionals who can pick and choose their work and set their own prices. And if someone can’t sell their efforts directly to a customer, they may have to accept whatever terms and conditions are available from a local employer or trader.
Location location location makes traders powerful
In fact, most people have to look and see what jobs there are locally and have to apply for one of them because they need the money, and can’t travel far, so are in a very poor bargaining position. By contrast, capital providers and leaders and entrepreneurs and traders have always been in an excellent position to exploit this. In a town with high unemployment, or low wages, or indeed, throughout a poor country, potential employees will settle for the local wage rate for that kind of work, but that may differ hugely from the rate for similar work elsewhere.
The laws of supply and demand apply, but the locations of supply and demand need not be the same, and where they aren’t, traders are the ones who benefit, not those doing the work. Traders have existed and prospered for millennia and have often become very wealthy by exploiting the difference in labour costs and produce prices around the world.
Manufacturers can play the same geography game
Now with increasing globalisation, those with good logistics available to them can use these differences in manufacturing too, using cheap labour in one place to produce goods that can be sold for high prices in other places. Is it only the margins and the balance of bargaining power that determines whether this exploitation is fair or not, or is it also the availability of access to markets? What is a fair margin? How much of the profit should we allow traders or manufacturers to keep? If not enough, and markets are not free and lubricated enough, potential producers may stay idle and be even poorer because they can’t sell their efforts. If too much, someone else is getting rich at their expense.
Making access to free global markets easier and better will help
We need to create a system where people on both sides are empowered to ensure a fair deal. At the moment, it is tilted very heavily in favour of the trader, selling the produce of cheap labour in expensive markets. When someone has no choice but to take what’s going, they are weak and vulnerable. If they can sell into a bigger market, they are stronger.
If everyone everywhere can see your produce and can get it delivered, then prices will tend to become fairer. There is still need for distributors, and they will still need paid, but they are just suppliers of a service in a competitive market too, and with free choice of customer and supplier at every stage, all parties can negotiate to get a deal they are all content with, where no-one is at an a priori disadvantage. It may still work out cheaper to buy from a great distance, but at least each party has agreed acceptable terms on a relatively level playing field. The web has already gone some way to improving market visibility but it is still difficult for many people to access the web with reasonable speed and security, and many more don’t understand how to do things like making websites, especially ones that have commerce functions.
If we can make better free access to markets, then unfair exploitation should become less of a problem, because it will be easier for people to sell their effort direct to an end customer, but it will have to become a lot easier to display your goods on the web for all to see without undue risk. Making the web easier to use, and automating as much as possible of the security and administration should help a lot. This is happening quite quickly, but it needs time.
Import levies can reduce the incentive to exploit low wage workers
Levies can be added to imported goods so that someone can’t use cheap labour in one area to compete with the equivalent product made in the other. This is well tried and operates frequently where manufacturers pressure their governments to protect them from overseas competition that they see as unfair. However, it is usually aimed at protecting the richer employees from cheap competition rather than trying to increase wages for those being exploited in low wage economies. So it is far from ideal. Better a tool that allows pressure to increase the proportion of proceeds that go to the workers.
Peer pressure via transparency of margins
Another is to provide transparency in price attribution. If customers can see how much of the purchase price is going to each of the agents involved in its production and distribution chain, then pressure increases to pay a decent wage to the workers who actually make it, and less to those who merely sell it. Just like greed and caring, shame is another powerful emotion in the suite of human nature, and people will generally be more honest and fair if they know others can see what they are doing.
However, I do not expect this would work very well in practice, since most customers don’t care enough to get ethically involved in every purchase, and the further away and more socially distant the workers are, the less customers care. And if the person needing shamed is thousands of miles away, the peer pressure is non-existent. Yet again, location is important.
Transparency to the workforce
In our economy, and across the developed world, typically about half of the profits of someone’s ‘job’ go to the person doing it and the other half goes to the owners of the company employing them. Transparency helps customers decide on supplier, but also helps employees to decide whether to work for a particular employer. They should of course be made fully aware of how they will be rewarded but also how much of their efforts will reward others. In a good company, the chiefs may be able to generate greater rewards for both staff and shareholders (and themselves), but as long as the details are all available, a free and informed choice can be made.
The community can generate its own businesses
In a well automated web environment, some company types would no longer be needed. Companies are often top down designs, with departments and employee structures that are populated by staff. The reverse is increasingly feasible, with groups of freelancers and small businesses using the web to find each other, and working loosely together as virtual companies to address the same markets the traditional company once did. But instead of giving half of the profits to a company owner, they reap the full rewards and share it between them. The administrative functions once done by the company are largely off-the-shelf and cheap. The few essential professional functions that the company provided can also be found as independents in the same marketplace. Virtual companies are the 21st century co-operative. The employees own the company and keep all the profits. Not surprisingly, many people have already left big companies to set up on their own as freelancers and small businesses.
Unfortunately, this model can’t work everywhere. Sometimes, a large factory is needed, or large capital investment. This favours the rich and powerful, and of course large companies, but there is again a new model that will start to come into play.
Investors don’t have to be wealthy individuals or big companies. They can also be communities. In a period where banks have become extremely unpopular, community banking will become very appealing once it is demonstrated to work. Building societies will make a comeback, but even they are more organised than is strictly necessary in a mature web age. Linking people in a community with some savings to others who need to borrow it to make a business will become easier as social and business networking develops the trust based communities needed to make this feasible. Trust is essential, but it is often based on social knowledge, and recommendations can be shared. Abusers could be filtered out, and in any case, their potential existence creates a sub market for risk assessors and insurance specialists, who may have left companies to go freelance too. Communities may provide their own finance for companies that provide goods and services for the local community. This is a natural development of the routine output of today’s social entrepreneurs. Community based company creation, nurturing, staffing and running is a very viable local model that could work very well for many areas of manufacturing, services, food production and community work. Some of this is already embryonic on the net today, but it could grow nicely as the web continues to mature.
Whether this could grow to the size needed to make a car factory or a chip fabrication plant or a major pharmaceutical R&D lab is doubtful, but even these models are being challenged – future cars may not need the same sorts of production, a lot of biotech is suited to garden sheds, and local 3D printing can address a lot of production needs, even some electronic ones. So the number of industries completely immune to this trend is probably quite small. Most will be affected a bit or greatly. Companies that are deeply woven into communities may dominate the future commercial landscape. And as that happens, both the willingness and the capability to exploit others reduces.
If we move towards this kind of system, companies will be more responsive to our needs, while providing a stronger base on which to build other enterprises. Integrated into community banking, it is hard to see why we would need today’s banks in such a world. We could dispense with a huge drain on our finances. Banks contribute no extra to the overall economy (taken globally) and syphon off considerable fees. Without them, people could keep more of what they earn and growth would accelerate.
Exploitation via celebrity?
With the football thankfully over now, many would agree that perhaps we don’t get very good value for money from our footballers. They get astronomically large pay for poor performance. Individually, few of them seem to be intellectual giants, but the industry as a whole has grown enormously. By creating a monopoly of well supported clubs, they have established a position where they can extract huge fees for tickets, merchandising and TV coverage. The ordinary person has to pay heavily to watch a match, while the few people putting on the show get enormous rewards. Is this exploitation?
It is certainly shrewd business dealing by football, but mainly, the TV companies seem to be stupid. If they declined to pay huge fees to air the matches, the most likely outcome is that fees would tumble to a very nominal level quickly, after which the football associations would have to start paying the TV channels for air time to sell the game coverage direct to fans, or else distribute coverage via the net. They would have no choice. TV companies could easily end up being paid to show matches. And when viewers each have to pay explicitly to watch rather than have the fees hidden in a TV license or satellite subscription, the takings would drop and the wages given to footballers would inevitably follow. But not far enough.
However, they would still be paid very well, probably still grossly overpaid. We may still moan at them, but they are simply benefiting from scale of market, not exploiting. If you can sell unique entertainment or indeed any other valuable service, to a large number of people, you can generate a lot of income. If you don’t need many staff, they can be paid very well. Individual celebrities have emerged from every area of entertainment who get huge incomes simply because they can generate small amounts of cash from very large numbers of people. If many individuals vale the product highly, as in top level boxing for example, stars can be massively rewarded.
It is hard to label this as exploitation though. It is simply taking advantage of scale. If I can sell something at a sensible price and make a decent income from a small number of customers, someone better who can sell an even better product at the same price to a much larger number of people will be paid far much more. In this case, the customer gets a better product for the same outlay, so is hardly being exploited, but the superior provider will get rich. If we forced them to sell better products cheaper than someone else’s inferior one, simply to reduce their income, we would destroy the incentive to be good. No-one benefits from that.
Entertainment isn’t unique here. The same goes for writing a good game or a piece or app, or inventing Facebook. In fact, the basis of the information economy, which includes entertainment, is very different from the industrial one. Information products can be reproduced, essentially without cost without losing their value. There are lots of products that can be sold to lots of people for low prices, that do no harm to anyone, add quality to lives and still make providers very wealthy. Let’s hope we can find some more.
So even without exploitation, we will still have the super-rich. Fine.
There will always be relatively poor and super rich people. But I think that is OK. What we should try to ensure is that people don’t get rich by abusing or exploiting others. If they can still get rich, great! Then at least it is fair, and they should enjoy their wealth, within the law, provided that the law prevents them from using it to abuse or exploit others. Let’s stop worrying about punishing wealth per se, and focus instead on how it has been obtained, and on eliminating abuses.
But there is a natural limit to how much you can use
As the global population climbs, and people get wealthier everywhere, the number of super rich will grow, even if we eliminate unfairness and exploitation totally. But if we take huge amounts of money out of the system and put it in someone’s bank account, they will not be able to dispose of it all. In most cases, without great determination and extravagance indeed, the actual practical loading that an individual can make on the system is quite limited. They can only eat so much, occupy so much land, use up so much natural resource, have so many lovers. The rest of the world’s resources, of whatever kind, are still available to everyone else.
So their reward is naturally capped, they simply don’t have the time or energy to use up any more. Any money they put in investments or cash is just a figure on a spreadsheet, and a license to use the power it comes with. But while power is important in other ways, (and I might write on that some time), it is not directly an economic drain – it doesn’t affect how much is left for the rest of us. Above a certain amount that varies with individual imagination, taste and personality, extra wealth doesn’t give anything except power. It effectively disappears, and supply and demand and prices balance for the rest accordingly.
Power takes us full circle
When we have spent all we can, and just get extra power from the extra income, it is time to start asking other kinds of questions. Some would challenge the right of the super rich to use their wealth to do things that others might think should be decided by the whole population. Should they be able to tackle Aids in Africa, run their own space programs, or build influential media empires? Well, we can make laws to prevent abuses and exploitation. Given that, without destroying the principle of ‘To each according to their effort’, I don’t yet see how or even why we should try to stop them.
Was the Roman villa we visited built by well rewarded workers?Probably not. Could something equivalent be built by a rich person who has done no harm to anyone, or even brought universal good. Yes. It isn’t what or how much that matter, but how.
Exploration over. In future, I will have to read up on the owners of stately homes before I get angry at them.