Creative vs Extractive Economies

In a recent extraordinary essay, the historian blogger Aurélien analyzed the types of activities that make up our economy, and how the pursuit of each type of activity dictates our political priorities.

As the chart above illustrates, there are four classes of economic activities. In boom times, creative and productive activities prevail, the economy is strong, and political regulations, laws and incentives are oriented towards the encouragement of sustainable, value-creating activities.

But when the resources that drive the economy (especially energy) become costly or scarce, and the economy falters or stagnates, economic activity shifts toward unsustainable extractive, rentier and predatory activities, most of which are actually useless, unnecessary, and even value-destroying.

Historically, Aurélien argues, pre-industrial economies were extractive. People mined, cut down trees, hunted and gathered crops, or planted small gardens. This was fine as long as the population remained small enough that the resources extracted had time to self-renew. But as the human population grew, these resources were increasingly depleted. The first victims of this were the large mammals across the world, rendered extinct through overhunting. Now, we are facing shortages of affordable resources of all kinds.

Beginning with the Enclosure Movement in the 18th century, global economies shifted towards value-destroying activities. This began with the dismembering of usury laws, the rise of banks, and the shift of the upper caste from industrialists to rentiers, renting properties to farmers and home-owners, and charging interest on loans, instead of doing anything productive.

Simultaneously, with the availability of currencies to transact new kinds of activities, predatory economic activities soared. Military confiscations and pirates have existed as long as militaries have, of course, but now human societies also had to deal with gangsters extorting payments and tolls, theft of cash, and the requirement to pay bribes to get things done. And the top caste, ever seeking ways to acquire more wealth without having to earn it, established an entire new “professional-managerial” class, exploiting the increasing complexity and unmanageability of the economy by creating do-nothing jobs for themselves and their children — as ‘managers’, lawyers, consultants, auditors, specialized ‘trainers’, lobbyists, and marketers.

None of this activity actually produces anything of value, and most of it merely adds unnecessarily to the cost of products and services, but the top caste were able to persuade legislators that these activities merited the highest professional salaries, and that these activities should actually be included in GDP, rather than subtracted from it.

At one time, just as one example, the music “industry” was about making and playing music, and the proceeds went mostly to the musicians. But then the “industry” was taken over by an oligopoly that intermediated between the musicians and the public, and extracted, in the form of fees, royalties, and markups, almost all of the proceeds, leaving most musicians impoverished. And now, as Aurélien laments, there is more money to be made as an IP lawyer suing musicians for copyright violations, than there is in the creation of music itself.

That’s where we find ourselves today.

Aurélien suggests that the mindset that allows this “arises when society loses faith in the future and in our ability to construct it”.

We have entered a period where politics in the widest sense has become nothing but extractive, and consists essentially of seeking opportunities for personal, professional and financial benefit from the conflict, stagnation and decline of current societies. For we live in a society where, for the first time in several centuries, it seems impossible to seriously imagine a better world for all, or even most.

Once the economy became so perverted towards non-productive activity, it was inevitable that our political system would become likewise perverted to reward such non-productive activity. Aurélien explains:

If you are a Minister in charge of an important function of government, it makes sense for you to starve this function of resources, rather than improving it. Why? Because the worse the system performs, the greater will be the demand by those with money for alternatives. Once a postal service loses a monopoly on certain deliveries for example, an entire field of extraction opens up for lawyers, financiers, advertising agencies, logistic consultants and others to promote the development of private-sector alternatives. Likewise, the more you can inculcate the feeling among the general population that things are getting worse, and services will inevitably decline, the more they will accept this state of affairs, and feel there is no alternative to paying more for worse service.

So: Step 1: Shift the economy, and how it is measured, so you and your top caste colleagues get paid exorbitantly for doing nothing of value. Step 2: Use your wealth and power to bully governments to change government policies and laws to reward extractive, rentier and predatory economic activities above all others, and then to deregulate and cut taxes on profits from such activities. Step 3: Propagandize the public to believe this is “progress” and “the free market at work” and to relentlessly lower their expectations of what both corporations and governments can and should do for them.

Brilliant, no? So what is the poor public servant (included ‘elected’ officials) to do in the face of this hijacking of the economy and polity to serve the interests of the tiny top caste, and to destroy the planet in the process? Aurélien offers some clues:

This is the fundamental logic of extractive politics. Find a problem that is insoluble but sounds bad, and that is often poorly defined and not well understood. Set yourself vague objectives that are impossible to measure, and which in any case depend on people other than you doing the actual work…

Extractive politics works by mobilising money and effort in deliberately Quixotic combats against dragons that cannot be properly defined, much less effectively combated. Indeed, it’s better that the problem should be as vaguely defined as possible, since that gives you the greatest margin of manoeuvre…

Rather, you [can] claim to be fighting dragons such as “racism” or “sexism”, which have the advantage of being entirely subjective phenomena (essentially how people feel about things) with no objective content at all. Since the enemy can never be defined, the battle can never be won, and since the battle can never be won, further funding is always required, days of action must be organised, and an entire vocabulary is incidentally available to destroy your political opponents with charges that cannot be disproved because they are not required to contain any objective facts. From the point of government and institutional funders, this is also a way of looking good, without associating yourself with an initiative that might go wrong. It also usefully draws attention away from much more mundane but much more serious problems that you have neither the capacity nor the will to solve… If you can’t actually solve the problem, you can at least profit from it.

Even if that problem is the looming economic and ecological collapse that this malfeasance has helped produce.

In his conclusion, Aurélien laments:

It doesn’t have to be like that, and indeed it wasn’t, always. There was a time when groups of individuals and states built things, renovated things, organised things, made life better, wiped out diseases, ended poverty, massively reduced child mortality, cleaned up the environment and created and maintained full employment, just to name the most obvious features of the world I grew up in: maybe you did too. And all of this was regarded as normal. But in those days, both government and the governed had Great Expectations. Companies competed to be the first, the best or the dominant, not the most profitable. Innovation was not just about financial shenanigans.

You probably won’t be surprised to hear that I don’t share what I view as Aurélien’s nostalgic view of our past, as much as I appreciate his analysis up to that point. Nor do I share his belief that “we could do [things that would genuinely make lives better] if those who rule us wanted to, or even if sufficiently large groups of people wanted do.”

The shift of our economy, and the resultant cynical shift in our politics, from value-creating to extractive and useless, value-destroying activities was born, I think, from a sense of desperation to believe that ‘progress’ is still desirable and possible if only we keep working hard at it, doing our best.

My analysis is much more mundane than Aurélien’s — I think we have become disconnected from our sense of belonging to the earth and being an integral part of it, and have lost our way. We can’t bear to accept that it is all falling apart, despite all our best efforts, and that the sixth great extinction of life that we have precipitated has probably been inevitable since we evolved large brains that made us too smart for our own good, invented arrowheads, and killed off all the large mammals that ones dominated the planet, a hundred thousand years ago.

We are doing our best, the only thing we can possibly do, and have done so since we first emerged on this lovely, little blue planet. It’s tragic that it has led to this. But it’s been a good show, a lovely ride, and life is still wondrous and astonishing. Idealists and scoundrels all, we should acknowledge that, and tell our children, and make peace with it.