The Faith Column

1 comment from readers

servicesocialist
28 August 2007 at 20:46

Can you please use this comment, not the previously posted one whch I would like eliminated. It contains some infelicities that I have corrected in this version.

Zain,

This is a long comment. I hope you get to the end and can manage a reply.

Socialism is based on four beliefs:

* That all humans are equal

* That co-operation is better than conflict (and that competition is only useful when it reinforces social collaboration)

* That given the right conditions, most people will make the right choices most of the time.

* That action to remedy a wrong is always justifiable.

It is the noblest of all political ideologies. Contrast it with liberalism (classical or neo). On the four topics, the liberal response is as follows:

* equality: Liberals see this as irrelevant since the key is the individual. Equality of opportunity is a permissible objective, but it is so vague it provides no satisfactory answer to the challenge of what you do about inequality in inherited wealth, social status and physical and mental capacities. Socialists argue equality of outcomes matter too.

* On co-operation. Liberals are a little sceptical about this. The best form of co-operation is through voluntary individual action, not by co-ercion or even by active persuasion. Liberals love the market. It's the apotheosis of voluntary individual action and it appears to produce a result without anyone having to organise it.

* Third, on human behaviour. Liberals are often positively misanthropic. They view people as fundamentally flawed and that they will tend to manipulate organisations to their own end. That's why liberals love legislation and (minimal) constitutions. It maximises voluntary individual choice and appears to deliver a fair outcome. But we all know that inherited or earned wealth and status and inequalities in mental and physical capacities will always weigh the balance in the courts in favour of the wealthy, powerful and healthy. Law often leads to very unequal outcomes.

* Finally, positive action. Liberals are not sure about this. If a person starves in Chad, is this not ultimately the functioning of the market that invariably delivers a better result, in the end? Charity, another expression of voluntary individual action, is lovely, but oh dear, what happens when an organisation gets its hands on it? There's a chance the charity won't reach the recipient. Hence liberals prefer to avoid charity bureaucracies so the victims can get the money undiluted. This, or course, makes giving much more difficult and potentially impossible.

In total, the four factors that inspire Socialists draw from liberals the following, unsatisfactory results: sceptism about the ability to make a difference, doubts about organised human action as a matter of principle, doubts that positive action will make a difference anyway since people are often so awful and a tendency to believe that it's sometimes best to leave unchanged that which is well arranged.

Radical liberals often turn into Libertarians who in turn become fascist individualists: "I should be allowed to do what I want whenever I want to and the only purpose of government is to make sure other people do not prevent me doing it."

I'm not sure what other political philosophy there is to rival the marvellous humane principles of Socialism.

So the big question is why -- after more than a century of Socialist campaigning, education and attempts at Socialist government -- is the most noble of all political ideologies (that also corresponds so closely to what people implicitly believe to be the best way for society and the individual to operate) so risible and irrelevant that no one on a blog supposedly for Socialists run by a left-wing magazine has so far managed to comment on your comment?

At the very least, this should be the source of quiet contemplation by anyone calling themselves (however briefly) a Socialist.

I stopped campaigning for Socialism about 1982 and stopped talking about the topic for 25 years. In that time, I veered into neo-liberalism and then political apathy which I explained as libertarianism. I read and travelled. Got married, had a son, ran a business, wrote a book. Had fun. And generally avoided talking or thinking about politics until this year.

It was only when I was asking people how I might price services provided by a business consultancy I am setting up that the whole topic reared its head again. I found this healthy. Politics is about practical life, not about ivory towers. It's about real people in the real world.

Fundamentally, I realised that there was no definitive way of pricing a service (an intangible). Tangibles, in contrast, are straightforward. One way is to look at the costs of production (value added) and add a target profit margin. Option two: look at the price others producing the same product and charge what they do or a bit more or less.

Well that works for cars and underpants. But, unfortunately, not for services. First, because services don't take a tangible form, you can't work out the cost of production since you can't price the material inputs. For example, I offer excellent advice to a customer. How much should I charge? What has the cost been to generate this excellent advice? Sometimes, the advice pops into my head in seconds, effortlessly. This suggests I should ask for almost nothing. Usually, it draws on a lifetime's experience. Perhaps my primary school costs should go in? What about the costs borne by my parents? Oh dear. Value added doesn't work for pricing a service.

So let's look at the market. So I did and I found other people providing consultancy services were basing their prices on nothing either. Lawyers charge by the hour, consultants by the day. There was no sound intellectual basis for what they did apart from the ability to get away with it. Not much of a principle, really.

So I turned to the text books. No help here either. Economists understand two price systems: cost--plus or marginal pricing, which is based on the idea that people want something less the more they have of it. But no one thinks you can get too much excellent advice. And since there is no production function to explain the cost of producing services, there could be no supply curve. So the whole supply and demand approach was useless too.

I realised that each individual transaction I had with my customers was unique: it was non-commodifiable and therefore non-tradeable. It only worked between me and that customer at that moment. And I realised as well that I often asked my customer what he/she thought of my service. This helped improve what I did. Boy this is complicated I thought.

So I turned to Marx. Again, no help at all. Marx only looked at tangibles, which he called commodities. Because these are tangible, he could work out what went into them and found out that prices were set at the cost of the inputs (capital and labour) plus a profit.

Marx said all value was created by labour and that ultimately the total of all commodities times their prices would equal the total value produced in an economy and the difference between this figure and what the workers got was surplus value, produced by exploitation.

But that was useless in understanding my interaction with my customers. We worked together and the final result was really a shared effort. I don't think they exploited me or I exploited them.

Marxist economists anyway consider services to be a derivative of the value produced by the productive sector (manufacturing and farming). Theory said I was in fact living off someone else's "productive" labour. Up to a point I thought, but I felt my good advice was useful and so did my customer. Chinese workers slaving in sweatshops did not deserve all the credit.

Then it came to me. Value in fact is the result of human interaction, and only that. And the reason why people interacting positively produce more value than they do individually is because positive human interaction encourages people to think more and do more than if they were left to their own devices. Bit like a successful football team really. Or a happy relationship. These work because the people involved give more than they take. That means there is surplus value to be shared out

So the chain of thinking is this: how was value created in a service economy? By human interaction. Consequently, value in a society as a whole is due to social interaction.

But where do tangibles come in (commodities as Marx called them)? Was value created there too? No. Commodities (products) and all tangibles are in reality the processes or the means by which people are enabled to produce value, which only comes about through human interaction. There is no inherent value in a car. It helps me create value by getting me to my customers, family and friends quicker and more easily than walking. Computers have no inherent value. They facilitate efficient working and human interaction, which leads to the creation of value. Think about cups, shoes and everything tangible. They are processes, with no worth unless people use them as part of a social interaction.

Put simply, an economy is a combination of two factors: processes and relationships. The reason why living standards have gone up in advanced economies is because technology has increased the efficiency and reduced the cost of processes and freed up human beings to spend more time creating value by interacting constructively with each other. That is why the living standards in hi-tech service economies are growing so rapidly.

If this is true, then the policy prescription that follows is that governments should facilitate the adoption of technologies that reduce the costs of process and allow human beings more time to create value (which can of course include spending more time at home with the kids). You attack poverty by giving poor people the processes that allow them to create healthy societies. If that demands subsidies (of water, homes, electricity), then so be it. Everyone will be better off, and not just ultimately but quickly.

The market matters for processes, since they are commodifiable and tradeable. I can buy a computer, or a phone, or a suit or a car or. The reason why you need a market in tangibles is that it is one of the best ways of driving process costs down, thereby making them more available to poor people (though it is not the only one, particularly if there are economies of scale involved that lead to natural monopolies)

Socialists should stop worrying about the market and liberals should stop worshipping it. It is simply a process. It's like the plumbing system of a house. It brings in fresh water and disposes of waste. Let's make it more efficient, safer, cheaper. Don't abolish it. Don't block it and for goodness sake don't turn it into a religion.

The same goes for public ownership. If it helps reduce the costs of processes and facilitates human interaction, then it adds to the real value produced in an economy. If private ownership of processes does it better, then that's fine too. But don't privatise because market theory says it's more efficient. Invariably, privatised services costs more than publicly provided ones because there's profit being paid to passive investors (check out the US healthcare system).

I think I'm on to something. Perhaps it's a new way of thinking to revive Socialism.

But let's not stop there. Let's go back to first principles. What went wrong with 20th century Socialism? There's no better place to start than the Communist Manifesto written in January 1948 by Karl Marx, then aged 29 and living in exile in Brussels. Funny old thing, the manifesto, since there was no Communist Party at the time.

But I digress. The manifesto was written in German. In its original form, its first substantial sentence said the following:

Die Geschichte aller bisherigen Gesellschaft ist die Geschichte von Klassenkämpfen.

This is a beautifully symmetrical 10-word sentence as you would expect from a lover of poetry and a newspaper editor. It is also probably the most powerful political statement ever written since it says that everything that has happened in society (Gesellschaft has an even broader meaning than that) is essentially, if not exclusively, due to class struggle (Kampf is also a category rather than a word. It relates very closely to the Arabic word Jihad which can mean war, struggle, conflict etc).

Marx produced thousands of other sentences, but never -- in the remaining 35 years of his life -- resiled from that one.

I believe everything he subsequently attempted (from Critique to Capital III) was really designed to defend the amazing 10 words he wrote before he was 30. Which is one of the reasons why his later work is so difficult to follow. He was attempting to defend an indefensible generalisation.

It can be attacked from many directions. But just apply a simple question. Does class struggle animate everything everyone does? Do people wake up and wage class struggle with their cornflakes? No they don't. They kiss their partners and say hello to their work colleagues. Most of the time I try to get on with people. Because by doing so I help create value that can be shared. It's instinctive, it's constructive and it's rewarding.

There is Kampf. It's a fact of life. But human history is mainly about a struggle with the natural environment. Once we manage to produce enough food to eat, to control the diseases that prematurely kill, to build homes that are warm in winter and cool in the heat, to make constructive human interaction possible regardless of distance and to control tides and floods, then the struggle can end and co-operation can start.

It is at that point that socialism becomes not just possible but, perhaps, inevitable because high-tech service economies require increasing human interaction to function and the joint stock company (the real culprit, not capitalism) then becomes redundant as the only capital needed for value production is human, the indispensable maker and destroyer of relationships.

In fact, Marx was so nearly right. Look at the following revised sixth sentence of the Communist Manifesto:

Die Geschichte aller bisherigen Gesellschaft ist die Geschichte von Mensche Zusammenarbeit.

"The history of all previous society is the history of human co-operation."

How much simpler would the last century have been for Socialists (and for economists) if Marx had written that instead?

Now you might wonder why I am blathering on at such length to you. Have I nothing better to do? Well there is the practical question of pricing a service. Then there is the intellectual issue about how value is created. Finally, there is the potential for laying the foundations for Socialist action that might actually work in practice.

I have been trying to get an answer to my point about value creation. I have read Meghnad Desai's masterful Marx's Revenge three times. It saves me having to have another go at Capital and the other works. He's read them all several times and is a brilliant economist. But there is nothing in the book about the political implications of the rise of a service economy. The final sentence of his wonderful book asks "Is there Socialism after Capitalism?"

What he is saying is that Socialism can't work until Capitalism exhausts all its potential, which it hasn't done yet. So the prescription is that we should all sit back and wait. This is a neo-Liberal position since it implies there's no point taking positive action to remedy an ill now because it won't work until the circumstances are right, which is some time in the distant future.

This is an inadequate response . It offends the fourth Socialist principle: action to remedy a wrong is always justifiable.

So I turn to the eager minds of the young. Can you read this and share it with your colleagues, preferably with a clever economist or two who's right up with the latest economic and political thinking?

And can you get back to me with something about the service economy issues I raise?

I think I'm right, but am prepared to accept I'm wrong.