The Economics of Enough: How to Run the Economy as if the Future Matters, Diane Coyle, Princeton University Press 2011 Review by Philip Whiteley, October 2011 Sometimes, it seems as if there are two parallel universes within formal economics and high politics. There are the puzzling metaphorical soundbites that form the lexicon of the most influential politicians and their thinktanks and economic advisers – nudge, fiscal stimulus, crowding out, the tipping point – and there are the erudite descriptions of actual economic and social reality as described by the more investigative writers such as Simon Johnson, former chief economist at the IMF, and Simon Caulkin, former management columnist at The Observer. Into the latter category I can add Diane Coyle. The Economics of Enough is a clear, challenging and impressively broad description of the momentous challenges facing societies, especially western economies, including some perfectly practical suggestions for reform. It is customary at this point in a review to comment that the book ‘ought to be required reading for policymakers’ – but this immediately prompts the thought: why isn’t it? In a sane world, The Economics of Enough would not just be required reading; much of the content would be cut and paste from the text to the speeches and policies of those in power and the think tanks that inform them. Coyle herself hints at the reason: some of the implications for policy choice are just too painful. Perhaps another, equally unsatisfactory, reason lies in the psychology of the powers that are on and behind the throne in capitals such as London and Washington: the economics of ‘enough’ just isn’t going to set the pulses racing of the wee bairns that draft the policies and the major speeches. In such febrile environments, a ‘solution’ is always sought, whereas The Economics of Enough calls for understanding. But what if the point to learn is counterintuitive? What if addressing the unpopular necessity of some of the choices facing us, and acknowledging the longterm and our legacy, might make politicians a touch more popular? They would instantly appear more realistic and honest. Winston Churchill described the toughness of the challenge as well as the rewards of victory. Take these observations, from the concluding chapter of The Economics of Enough: ‘Alongside the potential impact of climate change, we face a debt crisis, a result of untenable social security arrangements in ageing societies as well as the impact of bailing out the banks that caused the financial crisis; a strong sense of unfairness caused by inequality and the failure of certain groups to benefit much or at all from greater prosperity; and the depletion of social capital against a background of declining trust in authority and institutions.’
The principal challenges we face are set out in a single sentence; a long one, to be sure, but in clear language that is free of jargon. It is close to being indisputable as well as refreshingly direct. What prevents David Cameron or Ed Miliband from including such a comprehensive and honest description of contemporary society in their party conference speeches? Political correspondents and satirists would be instantly disarmed by such frankness. As well as the factors mentioned, another explanation may lie in vested interests, and this book contains some useful insights here, especially on the role of the banks, many of whose leaders have ‘focused their energy on threatening dire consequences if politicians should have the temerity to legislate to constrain [their] unfettered activities … which almost destroyed the economy and will scar the public finances for a generation’. If even one bank is ‘too big to fail’, it means that this industry has usurped political power. On the dysfunctional, parasitic elements within financial services, Coyle is scathing, and I enjoyed the clinical dissection of the bonus culture, and how it has also infected the upper echelons of the public sector. She exposes the sham nature of the ‘performancerelated’ bonus, supported by the pseudoscience of remuneration consultancies. This is a fair comment in this context, although a little too sweeping of such consultancies as a whole, as I shall describe. Coyle has the unblinking gaze that we need for such troubled times. She looks beyond the familiar and superficial terms of political debate: the shorttermist bickering over the rate of deficit reduction, whose heatedness is out of proportion to the shallowness of the issues being addressed, and takes a broader look at longerterm trends and the tough decisions required. The focus is on the west, with particular reference to the economies of the UK and US, where she has most experience. It makes for uncomfortable reading for right and left alike; the former because of the appalling malfunctions of deregulated financial institutions; the latter because of unaffordable welfare commitments, especially pensions. While she would be seen as a writer of the centreleft, the implications of her analysis are as challenging for labour parties and trade unions as for the right. She is unsparing in her criticism of the practice of European social democrat governments to borrow from future generations for today’s spending. Prevention of such undemocratic practices – the individuals being taxed have not voted for the measures because they are not old enough yet – form a fundamental part of her 10point plan for reform. She rightly calls for the implied liability of unfunded pension commitments and offbalance sheet debt to be made more transparent. The entire infrastructure of economics and politics is in need of an historic overhaul: measurement of economic success by GDP growth; the limited ‘leftright’ spectrum of politics that hides the working of vested interests; the inability of existing institutions to make decisions for the longterm. Sometimes, markets fail. Sometimes, governments fail. They often fail in similar ways. They are human, social institutions, about which we often know frighteningly little. Moreover, the market needs a functioning state to operate, and the state needs a productive market for its funding.
The broader message of The Economics of Enough is that many societies, and especially in Britain, there has to be a wholesale move from an economy that prioritises speculation, debt and spending towards saving, sustainability and longterm stewardship. This is a profound cultural and behavioural shift that will take years. Yet she takes issue too with what I term the ‘hairshirt environmentalists’ who put forward a model of zero growth and rejection of consumerism. The evidence that such voluntary poverty promotes communal harmony and greater human happiness simply does not exist; it is often promoted by those who have never experienced the horrors of real poverty. There is ambivalence, paradoxically, on the left, she notes, ‘about poor people having the money to spend on the things we already have’. We do need economic growth; but it needs to be sustainable, and its measurement must be more eclectic than the hopelessly inadequate measure of quarterly changes in Gross Domestic Product. Her grasp of history is immense, as she shows that the democratizing of institutions in the 18th, 19th and early 20th Centuries was not inevitable, but was the culmination of deliberate choices by individuals with the vision to conceive of a radically better way of organising societies; the shift from Mediaeval to democratic governance was a conscious act of will, not a happy accident. The West now needs a similarly fundamental set of reforms: institutions capable of longerterm decisionmaking in a world of ecological fragility, high welfare expectations, pressure on resources, and huge trading imbalances and sovereign debt. There are valuable sections on the intangible nature of much of the modern economy, and its ‘weightless’ features. One of the many problems with measurement by GDP is that such a term was based on an industrial economy with a more clearly measurable physical ‘output’ such as cars or radios, compared with a contemporary economy where much money is exchanged for services such as education, advice or nursing care. She points also to some profound changes in the business model that technology has brought about in the era of the download. An online entertainments provider has, curiously, begun to resemble a public service like a park: the investment in producing the infrastructure is considerable, but the cost of admitting an extra user is negligible. ‘The zero marginal cost of conveying the song or movie to another user makes it harder to charge anything, but that in turn is undermining the provision of the service.’ My one criticism of The Economics of Enough concerns the terms of reference for some of the sections on measurement, especially the ghastly term ‘social capital’. The term ‘capital’ derives from accountancy, and is of limited use in understanding organisations and economies. Diane Coyle comments that it is difficult to define and measure trust. My view would be that the difficulty arises from the accountancybased terms of reference of economics, rather than with any inherent conceptual or practical difficulty. At an organisational level, for example, you can measure trust – through employee engagement scores – with more accuracy than you can measure pensions liabilities. The notion that qualitative measures are abstract and financial measures more tangible is not consistently true. If we perform a simple Copernican shift and recognise that economies consist of people, not money, then the role of trust becomes blindingly obvious, and automatically one of central concern. She is right to emphasise measurement; but the fullest
understanding of a social context requires narrative too – just as a court case must include examination of motive and relationships, as well as forensic science. At an organisational level, there has been some progress in measuring the role of human skills and performance, defined as ‘intangible’ in formal accountancy and economics. This is not covered in The Economics of Enough. The field of study is rather different from trying to gauge the intangible ‘output’ of a servicesbased economy on the product side, but it may provide some clues. Haig Nalbantian’s team at Mercer in New York have produced the most impressive pioneering work. The key insight is to recognise that, while many of the services in the modern economy are intangible, the people producing them are not. You can plot and analyse correlations between certain pay or training policies and organisational performance to inform changes to policy, building a model of the ‘Internal Labor Market’. Allied to qualitative inquiry, such statistical analysis builds up a much fuller organisational description than the historic financial accounts. It treats people properly as an asset, rather than just a cost. This approach is not obviously scalable up to the economy at a national level, but it is possible to conceive of a modified approach that helps policy makers understand the educational investments and forms of governance that assist successful regional business clusters. At least one of the major remuneration consultancies, which are understandably criticised here for their role in ratcheting up executive pay, has produced some valuable insights into understanding ‘intangibles’, especially in contexts where the term is a misnomer. Sadly, Haig’s work has not become the norm. The business management world, like economics and politics, is only lukewarm towards well researched, evidencebased approaches that point to superior forms of governance. Those who wield real power seem to be infected with impatience and a limited attention span. Perhaps someone should write a book about this. Diane Coyle, however, refuses to be pessimistic, and there may be some longterm, indirect influence of her writing, even if the immediate impact is less than I would hope. In the real political world, describing what is wrong and what to do about it may not be ‘enough’; though it is an excellent start. As I say, The Economics of Enough ought to be required reading. Its courage, breadth of vision, honesty and freedom from sectarian allegiance means that, sadly, it will probably not be, at least not immediately. By Philip Whiteley, 24 October 2011. http://radicalshift.net and firstname.lastname@example.org
Review of the 2011 book by Diane Coyle