Whereas many people discuss a "circular" economy or a village" economy, I prefer to see both as the foundation of a new "helix economy;"where macro and micro markets peacefully coexist serving different needs. This week at The Socratic Review, we will explore the In-depth Perspective of Helix economies.
In the opening of the musical, "Fiddler on the Roof", Tevye, a milkman in the tsarist Russian village of Anatevka, takes the audience on a tour of his tiny village and its various personalities. Each character, even the beggar, serves as an integral part of the whole.
The poignancy of this musical is two-fold: on the one side, it is a nostalgic, if not quite picturesque, recollection of a world that was rapidly fading. On another, based on when the show was first produced in 1964, it's a cautionary tale of the modern world then unfolding, where tradition was under rapid-fire daily to change and look beyond "small-town" thinking and values.
The assault on"small town" thinking and values (especially in the United States) is a perennial cultural phenomenon that underscores everything from Manifest Destiny to the Space Race. Onward, upward, and outward has been, especially since the close of the First World War, the preferred mantra of modernity. In business schools, economies of scale is almost taught as a gospel.
In the Twenty-first century however, we may be seeing the point where economies of scale reach their limits both economically and ethically. Take for example the current pandemic. On the one hand, international supply-lines and the interrelationship of markets were a source of consumer comfort; on the other, the very liberality of international interrelationships made containing the epidemic even more difficult. This is not unique to us and our times. I might point out, the Black Death of bubonic plague was most likely carried to Europe by trade caravans out of Asia.
It's also no secret that in the long history of globalization, conquest and subjugation have always been tied to cheap labor; a trend that shows no sign of abating anytime soon by market considerations alone. Whether it was warfare to gain agricultural land and the slave labor to work it, or conquest of land rich in material resources to supply industry, the flow of inexpensive labor to first extract the raw materials, and later, to manufacture the finished goods, was always incumbent upon capital following the most affordable labor, a trend that continues to our present day.
If this sounds like a defense of Marxism, please let me assure you, it is not. Before we even touch on this subject, it behooves us to break the concept of labor down into two distinct branches: wage labor and entrepreneurial labor. The Marxist ideal obviously focuses on wage labor, which is to say, labor paid for by capital and or income derived as a result of invested capital to a wage employee. By the very nature of markets, it is almost impossible to have wage labor create capital. This is because wages will always be derivative of price, because they are always a component of cost. Add to this calculus the fact that the wage employee is also a consumer.
As an example. X works 40 hours per week making Y at $10.00 per hour; thus his contribution to the overall cost of Y is $400.00 per week PLUS whatever the local taxes et cetera, add to the Cost of the Employee. Y is something that most households use every day, and X is no exception, he buys Y for $Z every week. When X gets a raise to $15.00 per hour, his contribution to cost increases to $600 per week resulting in a rise of the price of Y by 33% or to ($Z)133%. So in reality, since X buys Y every week, his raise is diminished by the increased cost of Y to his household.
Globalization seeks to bypass this conundrum, since it removes wage labor from the equation of wage workers being the consumers of their own finished goods. Marxism seeks to bypass this conundrum in another way; ostensibly by eliminating wage workers by egalitarian reform of the workplace and workplace ownership through the redistribution of property ownership. In either case, the situation will result in the same end; a wide mediocrity of consumers interrelated in a hierarchical market scheme incumbent on ever cheaper labor to fuel ever cheaper consumer goods to supply an ever growing middle class. This is what I would refer to as a hierarchical economy.
In looking at the other branch of labor, what we decided to call, entrepreneurial labor, we find the more elusive route to labor creating capital; at least initially. When a person creates a product or service from their own labor, the resulting profit (if retained) becomes potential capital. If we go back to Tevye and his village, Tevye's profit from selling milk gets used primarily to cover operating expenses. However, whatever profits he retains after that, is set aside to buy another cow, or better milking equipment. Likewise the income derived by selling a no longer productive cow to Lazar Wolf the butcher, becomes a sale of asset that should provide capital for expansion or improvement.
This close-knit cycle of an enclosed economy based on what I will call a "Rotarianesque" cell of entrepreneurs, for lack of a better term, was once the centerpiece of Western society based on small, privately owned businesses. Whereas both Tevye and Lazar may have a young assistant or apprentice who might work for a time on wages while earning money to get established, or to learn a trade, the idea of being a wage employee as being aspirational to a life-time career is a fairly modern idea, and one that has not proven to be desirable or sustainable in the long-run. This is because, in promoting a hierarchical, wage employee based economy, no matter how the employees perceive themselves with relationship to management, this system will always require higher paid people to buy goods, and lower paid people to produce them; not to mention the indispensability of liberal credit and the sustained debt that goes with it.
The problem that has arisen since after the World Wars in particular is neither economic nor governmental as much as it is societal. Consumers have willing chosen homogeneity and perceived convenience over the previous circular economy, the result of which is an inflationary spiral, greater debt, and less security for individuals when inevitable corrections and disruptions to the marketplace occur. This consumer behavior has been reinforced and underscored by the governmental/industrial employment culture where the acquisition of a "good job" with "good benefits" and "security" is deemed a better career choice for young people than self-employment and entrepreneurship, even though this reduces human employment to just another raw material as the term "human resources" implies.
So, how does a society find a balance? Among the more Libertarian minded, various cooperatives and small business associations have led the way in promoting small, local businesses over national and regional chains, but this in itself is not nearly enough to affect significant change, and it is also better suited for small manufactures like shoes and clothes, and for services, such as food distribution, than it is for big-ticket item manufacturing. The American consumer needs to make a change as well, by promoting a demand for retailers to supply, in larger, more regional enterprises, where the economies of scale are reasonable, but collateral benefits are greater; and likewise by supporting big-ticket manufacturers within our Rotarianesque loop, or at least ones that support our Rotarianesque loop.
As an example of the first concept, the United States produced about 217.5 billion pounds of milk for human consumption in 2019. Likewise, Americans consumed 43.7 gallons of bottled water per capita in 2019. When I was a kid, milk was delivered to the home in glass bottles, and placed in thermal boxes like the one pictured here. The empties were also placed in the box, picked up by the local milkman, and delivered back to the dairy where they were cleaned, sterilized and reused. This process was used for countless things, from diapers to cookies.
As an aside, according to the Clean Air Council, people in the United States throw-away around 49,000,000 diapers per day, making disposable diapers the third-largest source of household garbage in the country. By just eliminating milk bottles, juice bottles, soda bottles, plastic can holders (and the aluminum cans they hold) let alone disposable diapers, Americans would decrease landfill use and roadside litter dramatically, even before the added benefit of employing people locally to fill, deliver, collect, wash, sterilize and refill these same bottles has an effect. This type of regional business would fit in as the second turn of the helix, the first being the small local service and manufacturing shops; the third turn of the helix, would be the major big-ticket manufacturers that operates on the national or international scale.
If this bottom-up, ascending circular approach to economy seems vaguely familiar, its because it was the prevalent economic system in place before the 1930s. Although the 1950s saw a brief return, the 1960s and 1970s all but destroyed it. I recall an essay by the great Dave Barry published by the Miami Herald in the 1980s addressing this demise of small businesses and town centers, and laying the blame squarely on the retailers who had "windows decorated in crepe-paper, faded to the color of oatmeal" and one cannot entirely discount that observation, nor even be sentimental about it; but local government can have a tremendous influence on this challenge via zoning restrictions and impact fees, that can help re-assure consumers that quality and quantity of choices are available. That used to be the job of the city fathers, to seek out and encourage new businesses that augmented and served the community. This can all come back again.
But more to the point, parents would do well to instill a Rotarianesque ethic within their children. I have to admit, when I see an infant in brand-name trainers most likely assembled in a Chinese sweatshop, I really wonder if athletic performance was the parents' primary motivation, or was it something more sinister like say, status-baiting? Likewise designer jumpers, polo and tee shirts, and tiny brand-named jeans. Parents would do well to buy more second-hand children's clothes, and state governments would do well to exempt such stores from collecting sales tax on second-hand purchases. Personally, I have avoided buying new clothes for over a decade now, and have been quite happy with that decision. An ethic de-stigmatizing thrift and encouraging value, could go along way in the trying decades ahead; and they will be trying.
In my opinion, as the Twenty-first century moves towards the Twenty-second, a return to small pedestrian friendly cities surrounded by agricultural land and interconnected by fast-labor free electronic rail, will go a long way toward livability and sustainability. Americans do not need to abandon their suburban dreams, they just need to rethink them, and try to structure them within areas where food-stuffs can be produced more regionally and surpluses exported more efficiently. Likewise power generation and distribution, internet infrastructure, and water and sewage supply and repurposing. This is a question of local governments not federal mandates. If the local people demand change in their own communities, like-minded citizens will join them, and the effect will move upwards in the helix described.
This week in The Socratic Review Daily Edition we will be exploring this subject in our In-depth Perspectives feature, with seven related pieces from differing points-of-view. If you missed last week's Perspective series on The Economics of Space, you can catch-up at The Socratic Review Perspective Reports for February 2021, 18 - 24 FEB 2021.
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