Why the rich become poor
Without the culturally preformed, spontaneous social orders of trust, loyalty and reciprocity, a nation or region cannot achieve and maintain sustainable wealth. Strong cultures, strong spontaneous social orders, and strong levels of socal trust tend to produce higher economic performance and generate wealth, not the other way around.
By Frank van Empel, PhD
You can’t control or master something big and complicated like ‘the economy’, ‘society’ or ‘environment’. Nobody can. Even dictators don’t have the force to control reality. What has been labelled the ‘economy’, ‘society’ or ‘environment’ is the outcome of trillions of individual, human decisions per minute worldwide. No central planning agency or government has an overview of what’s going on downstairs, let alone in the cellar of society. Beliefs begin when the facts run out. Governments are run by missionaries, men on a mission; companies by visionaries. They try to convince ordinary citizens and employees, but they only reach their brothers in arms. Politicians consequently are not so self-confident anymore, as they seemed to be in the seventies and eighties of the last century. Civil servants plough through society without a concrete strategy or plan. The economy wanders from crisis to crisis. Greed apparently is not enough anymore to clear markets. Today, even captains of industry want a purpose in their own lives and that of their companies and by doing that change the rules of the game, but not their attitude. They keep on trying to get results by managing in the old fashion: from the top down, not registering that in the meantime the world has turned upside down. They have lost control. No human being, not one institution, can impose its will upon an individual anymore.
So, from the top down you cannot change society. Not by decree, not by terror, not by policies. Policies and public attitudes usually diverse sharply. That doesn’t make sense and adds to the complexity of systems and the chaos among policymakers. People just don’t do what they say they are going to do as part of a collective whole. As part of a whole they usually are represented by someone else who takes the decisions in their names, as if they are numbers. As a free citizen however they make up their minds with every decision, within the context of that moment. For this reason a more personal approach is better than a collective one. Individual considerations, suggestions, opinions and decisions have more convincing power, because individuals usually approach reality not from a general, abstract point, but from their selves, their biased, inner worlds. ‘The real social revolution of the last thirty years, one we are still living through,’ the English management guru Charles Handy already wrote in 1997, ‘is the switch from a life that is largely organized for us, once we have opted into it, to a world in which we are all forced to be in charge of our own destiny.’[1] [1]
How this biased inner world comes into being? Our brains interpret the input from our sensory organs – the outer world – in a most peculiar, subjective way. If this personal worldview is successful at explaining events, we tend to attribute to it, and to the elements and concepts that constitute it. By communicating with others we continually check if our worldview is up to date or needs revision. Because all individuals act more or less in the same way, some kind of common view develops from the bottom up to the top – the boardrooms – and to all levels in between, in all directions. This historical process of public opinion formation contributes to a voluntary, spontaneous social order that cannot be engineered, but its self-production can be nurtured, supported and cultivated. Without the culturally preformed, spontaneous social orders of trust, loyalty and reciprocity, a nation or region cannot achieve and maintain sustainable wealth.[2] [2]
Western societies developed during turbulent ages from a bunch of autocratic, centralized and hierarchically organized octopuses to an army of democratic, decentralized and loosely operating ants. Upon this long-term development another trend is in the making: societies slowly become characterized by a move from a material to a spiritual approach. Western business for instance search links to higher spirits like visions, missions and core values, packed in a carefully designed beauty case, which is called a ‘brand’. The brand may add more value to a company or to the image of a person, than production. Especially when it comes from within. Today business development has more to do with psychology than with economics. And so does politics.
Politics is all about power, representation, laws and rules that are imposed on citizens and consumers by the state, the political organization of society. Its methods, the laws and their enforcement, don’t fit easily into the broader societal trend of participation and sharing.
Nor the economy, nor society, however, can do without rules, written or not. Together the political vehicle ‘state’, the (market)economy and civil society form the cornerstones of a conceptual triangle. There is a lot of tension between the angular points and sides of the ‘conceptual triangle’ that connects the fields of economy, politics and civil society.[3] [3]
In theory the three power fields tend to equilibrium, some kind of ceasefire. In practice however you only notice disequilibrium, tension, chaos and stress, to some degree regulated and controlled by institutions, that act like bumpers and transformers. If one of the perspectives gets too much attention, this will lead to less quality of life, if not system crises. Interventions by the nation state (a political construct) for instance, may damage the free market mechanism of the economy or the mediating structures in society. Too much market leads to a society where the right of the strongest causes all kinds of inequalities. Too heavy civil society may go in the direction of (group)conformism, where there is no place for individual freedoms.
The way all these things are organized, may add some value to the physical assets, the natural resources and the human capital of a region or country. We call this added value ‘social capital’. Social capital is a spontaneous social order, which defines people’s ability to work to common goals and objectives in groups and organizations, to form new associations and cooperative networks, and dismantle the old institutes. Social capital is the backbone of the Joint Effort Society. It is not an abstraction, but yes, it is spiritual. The social infrastructure is a mixture of things like cultural and educational institutions, family-based kinship systems and shared experiences of history, habits, values, beliefs and aspirations.
The International Comparison Program (ICP)[4] [4], with data from the World Bank, OECD and Eurostat for the year 2005, published by the World Bank, shows that nations with weak cultural and civic traditions will generally be poorer, saddled with ‘strong’ governments (dictatorships), relying crucially on their natural resources (natural capital) and man-made capital (infrastructure, buildings, etc). Strong cultures, strong spontaneous social orders, and strong levels of social trust tend to produce higher economic performance and generate wealth, not the other way around. ‘A strong civic community,’ Professor of Management Systems in New York Milan Zeleny wrote, ‘is characterized by a preponderance of horizontal organizations, self-reliance, self-organization and self-management.’[5] [5]
Data are collected by countries and interpreted by all kinds of institutions like the World Bank. The wealthiest and highest income countries turn out to have, on average, only 16% of their total wealth in produced (physical) assets and 17% in natural capital, but some 67% in human resources and social capital. The richest country, Luxembourg, has 83% of its total wealth lodged in human resources and social capital, 16% in physical assets (infrastructures, technologies, buildings, means of transportation) and only 2% in natural capital (land, water, air, raw materials, biomass, organisms). Accumulated wealth in the rich countries is due to human and social capital investments. Human resources refer to continuous investments in people’s skills, knowledge, education, health & nutrition, abilities, motivation and effort. These numbers are published by Milan Zeleny in Human Systems Management (HSM). Unfortunately, Prof. Dr. Zeleny has forgotten to name the sources for his fascinating figures & calculations, but the lost track points in the direction of the 2005 International Comparison Program.
The poorest countries in this comparison are raw material exporters, having 20% of their wealth in produced assets, but 44% in natural capital and only 36% in human and social capital. Compare that for example with the Netherlands, which scores 80% in human + social capital, only 2% consist of raw materials and 18% is hardware (machines, buildings, roads, etc). Conclusion: if poor countries want to pull themselves out of the swamp they’ll have to invest in knowledge and skills of people and in the upgrading of their social capital. The US are a special case. Just 59% of the wealth ($421.000 per capita, 2005) is lodged in human and social capital, 16% in hardware and 25% in natural capital. The US have the profile of a poor country. Developing America’s human capital is by far the most important factor in maintaining its global competitiveness. Instead of investments however we see rich countries cut down on their expenses for education, healthcare, childcare, care for elderly people and social security. The consequence: contraction in the poor as well as in the rich countries and regions. The rich are destroying their carefully built up social capital. Instead of choosing the road to destruction, they better deconstruct the not functioning organization of public and private life and construct something new: a Joint Effort Society, worldwide.[6] [6]
Image: Joost Sicking, oil on canvas, detail, appr. 1975
Ecolutie, 22 November 2014
[1] [7] Charles Handy, The Hungry Spirit, Random House, 1997, p.67.
[2] Milan Zeleny, Human Systems Management, World Scientific Publishing Co, 2005, p. 11.
[3] [8] Nol Reverda, Regionalisation and globalisation, Eburon, Delft, 2004, p.10 + 11.
[4] [9] The ICP is a worldwide statistical initiative—the largest in geographical scope, in implementation time frame, and in institutional partnership. It estimates purchasing power parities (PPPs) for use as currency converters to compare the size and price levels of economies around the world. The previous round of the program, for reference year 2005, covered 146 economies. The 2011 ICP round (World Bank, 2014) covered 199 economies from eight regions.
[5] [10] Milan Zeleny, p.9.
[6] [11] Frank van Empel & Caro Sicking, JES! Towards a Joint Effort Society, Studio nonfiXe, Vught, the Netherlands, 2013.