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The Seven-Point Protocol for a Lean Economy

In the future, what will our local economies look like? How will they function if there is little, to no, state or national support?

The late David Fleming envisioned a post-capitalistic society that we could call “deep local” — in which all needs are met at the local level — from income to social capital and culture. Neither right, nor left, Fleming asks us to give up our ideological purity around economic notions and look deeper to how can come together and envision a lean economy. It may be our only hope.

He spells out this scenario in Lean Logic, the product of more than thirty years’ work and a testament to the creative brilliance of one of Britain’s most important intellectuals. A dictionary unlike any other, it leads readers through Fleming’s stimulating exploration of fields as diverse as culture, history, science, art, logic, ethics, myth, economics, and anthropology, being made up of four hundred and four engaging essay-entries covering topics such as Boredom, Community, Debt, Growth, Harmless Lunatics, Land, Lean Thinking, Nanotechnology, Play, Religion, Spirit, Trust, and Utopia.

The threads running through every entry, such as this one on The Lean Economy, are Fleming’s deft and original analysis of how our present market-based economy is destroying the very foundations—ecological, economic, and cultural— on which it depends, and his core focus: a compelling, grounded vision for a cohesive society that might weather the consequences. A society that provides a satisfying, culturally-rich context for lives well lived, in an economy not reliant on the impossible promise of eternal economic growth. A society worth living in. Worth fighting for. Worth contributing to.

In the following excerpted entry, Fleming lays out a seven-point protocol for how a lean economy would not only work, but thrive.

For more information about Lean Logic and the complementary paperback Surviving the Future, read this Q&A with the project’s editor Shawn Chamberlin.  You can also read an excerpt on the Three Principles to Survive the Future.


The Lean Economy: the fabric of the life of society; an economy held together by richly-developed social capital and culture, and organised around the rediscovery of community. It is a fusion of society and economics, based on presence and cooperation in a slack social order, building from small groups and household production, through the neighbourhood and community in its many forms, to the nation. It sustains solutions.

All the lean responses discussed in this book are set in the context of a key assumption: local communities will not have access to government funding for any of their needs; they will not have an income that enables them to buy in the goods and services they need from outside the locality. Inevitably, there is uncertainty about the extent to which local lean economies will be forced to rely on their own resources—with the range between deep local, where they cannot get supplies even of tools and metals, and local lite, where most, or almost all, routine needs (e.g., food) are produced locally, but the equipment needed to do this can be bought in. Surviving the Future’s position on this spectrum is towards the deep local extreme, though some opportunities that would arise under less extreme assumptions are noted.

Writing of Thomas Hobbes’ famous system—the political economy of Leviathan—Michael Oakeshott notes,

If it requires great energy of mind to create a system, it requires even greater not to become the slave of the creation.

. . . that is, it becomes necessary to think consistently through the logic while recognising that it might turn out quite differently.

The Lean Economy is not a forecast; it is a scenario.

A Protocol for Lean Economies

The conventional protocol

The conventional economist’s ideal of perfect competition can be summarised in seven conditions. In order for it to exist, there must be . . .

  1. no local intervention (such as government regulation to set standards)—and no discrimination except on grounds of price against another producer;
  2. standardised products—so that all products compete on price rather than on differences in specification;
  3. a large number of sellers and buyers, and all of roughly the same size—so that none of them can influence prices;
  4. free entry and exit—sellers and buyers can come and go as they wish;
  5. profit maximisation—sellers do not have any agenda other than making money; buyers are irresistibly drawn to the best deal;
  6. perfect mobility of the factors of production—so that labour, capital and land are distributed according to price: they are free from other entanglements and strings; and
  7. perfect knowledge—so that buyers can perfectly evaluate the quality of all products on the market.

Under these conditions, prices are set and resources are used with smooth efficiency, unsullied by human error, by economic boundaries or by principles and agreements of any kind other than those of comparative advantage and competition. This does the theoretically useful job of opening the way to the greatest possible efficiency. The economy is taut; there is “Pareto Efficiency”: it would not be possible to make better use of its resources and assets: any gain made in one place would be at the cost of loss in another.4

Economists do not claim that this ideal of perfect competition ever happens in real life, nor that the rigorously-defined equilibrium enabled by it can exist. As a leading authority in the matter, Frank Hahn, remarks, “The economy cannot be in this state.” Nor do they even believe that, in practice, the existence of perfect competition is really desirable. For a start, it would rule out the existence of large companies; differences between brands of the same product would have to be banned, as would natural monopolies such as railway and electricity networks, however competitively they were structured.

Nonetheless, perfect competition is the idealised baseline against which distortions, disequilibria, rigidities and the market failures which are suspected of causing unemployment are identified and defined. Competition itself is a defining property of the market economy; it needs no justification—and just in case it did, it would be necessary only to point to the fact that producers who are not competitive have to raise their game or cease to exist.

An alternative seven point protocol

The Lean Economy, by contrast, will violate all seven conditions listed above. The impediments to perfect competition will be greater than ever, and this will be intentional. There will be slack. The ideal conditions of the post-market economy—those of intelligent imperfect competition—are summarised here:

  1. Local Intervention:
    intervention to protect the local economy, and to build trust

Protection. Protection is the act of caring for something which you value, or for which you are responsible—it is a deep behaviour which, in some senses, is shared by all living things. It is widely supposed to be a good thing, except in the case of economies, which are required to dance to the single tune of perpetual competition. True, natural selection is a condition of all living things, too. But species with less intelligence than ours use both. It is time we caught up.

On such matters, market economics is far from neutral. It takes the view that the competitive market is the only sound basis for economy, politics and culture, and it advocates its case with evangelical conviction: if there is a society somewhere which is not based on the market, it needs to be saved.

All the seven points of this Protocol for Lean Economies are implicitly or explicitly about the task of protecting the right of such economies to proceed on a different basis.

In a taut, competitive, growing market, it is true that protectionism is not a good idea. It reinforces inefficiencies and reduces the incentives for improvements in quality, economies of scale and reductions in price. It discourages the development of technical advances and specialist skills, and it freezes flows of trade and capital, setting up conditions for national and global unemployment.

But, of course, there are circumstances in which free, unprotected trade is not what an economy needs, and we are coming to a time when they can be discussed without inviting derision. One of them occurs where an undeveloped, thus-far uncompetitive economy needs time to get its industries established before exposing them to international competition. In the early years, a developing region with an industry which is still too new to have developed competitive levels of efficiency is unlikely to survive without some advantage, such as a weak currency or tariff protection.

Another case where unprotected trade is not what is needed is when we need to move away from the commitment to growth, i.e., to the rubbing out of diversity and local self-reliance, to resource depletion, pollution, the loss of social capital and resilience—and eventual collapse. It is too late to consider protection against these things; the damage has already been done. But protection of what is left of indigenous food production and steps towards reduced dependence on fossil fuels would be rational. As E. F. Schumacher writes, protection here is not about “keeping alive activities which lack essential viability: it is concerned with creating a new viability”.

The Lean Economy, whose sharing out of work makes it inefficient by design, would quickly be destroyed unless protected from the competitive rigours suited to profoundly different conditions. It will be inherently uncompetitive in two main ways. First, full-time work as standard practice will be obsolete, and much of the work that is done will take the form of participation in the informal economy, where members provide for each other and cooperate on terms which do not involve money. Secondly, its range of technologies will include labour-intensive production methods which would be priced out of existence in a competitive market.

Labour intensification for its own sake is not advocated. It would make more sense to get the job done quickly and to spend any spare time smelling the roses. But the benefits of labour-intensive methods apply widely, and they include reduced energy-dependence, simple equipment, suitability for the small, local scale, greater eco-efficiency, better food and improved soil, and a higher quality of craftsmanship.

In summary, the Lean Economy will be slack, producing less per working man and woman than it could produce it if were able, like the industrial economy had been, to keep the majority of the working population at work full-time and with competitive efficiency.

Sustainable slack will be an immense achievement, more significant in its way than the Industrial Revolution’s invention of unsustainable work. But that brings us back to the key problem. Slack economies are vulnerable to taut economies—a version of Gresham’s Law, which says that bad money drives out good money. And slack economies, once destroyed, do not become taut economies. They become broken economies. They will need protection.12

 

Trust. Money will have much reduced significance in a local lean economy. Prices don’t work well in a slack economy, because (if everything were priced) slack would mean high prices, and there is always the temptation to give in to buyers’ pressure to reduce the price, especially if the buyer is outside the community.13 In the Lean Economy—a culture of cooperation and reciprocity—exchange involving money is not the rule, but the backup. The significance of such a change is hard to overstate. The market economy’s money exchange is impersonal: until they get into the bigger, longer-term transactions, such as rents or employment, the two sides of a money transaction don’t have to trust each other, and even then there are ways of dealing with the situation if things go wrong.

In contrast with this, the informal economy of the neighbourhood would break down immediately in the absence of trust. It is the ‘core economy’ consisting of all the things we do for each other in families—cooking, bringing up children, playing, discussing citizenship, building character and emotional literacy; all the things we do as citizens—serving as school governors, organising societies and sports clubs, voting; all the things we do as friends—offering lifts, providing accommodation, counselling grief . . . the things which, taken together, add up to our social capital, greatly diminished though it is today. The Lean Economy will depend on the informal economy, and it in turn will depend on sustainable trust—the confidence that an obligation, explicit or implied, will be honoured.

The central collaborative task of the local Lean Economy and of the politics beyond it will be to build that trust. And yet, trust cannot be made; it is a slowly-growing outcome of getting other things right first—like lichen, that grows on a wall if you leave it undisturbed for long enough. It requires permanence, with people being in the same place for a long time. Deep trust, able to survive stresses, to support substantial cooperation, and to sustain intense deliberation, requires the foundation of a common culture and identity.

The task of supporting that culture is itself a form of sustained intervention in the way in which people interact with each other. In other words, the community will protect its culture as the foundation for trust, which in turn will be the key enabling property of its economy.14

  1. Product Diversity:
    no product is quite what it seems

A local shop provides a subtle mix of services—gossip, help for old people, surveillance of the street, accessibility—along with the groceries. These extras have to be paid for in higher prices (see “Loyalty” sidebar). It is not only the disadvantage of being unable to buy in bulk that makes the corner shop supposedly inefficient and expensive; it is the labour-intensive presence of the shopkeeper and all the intangible services he supplies: they are a public good from which you benefit whether you buy from him or not.

The problem is that customers, though aware of these things as local facts of life, appreciate what they are getting only when they are no longer getting it, and the local retailer is able to sustain them only because he is a mini-monopolist in his area; his freedom to charge a higher price to cover the cost of the extras would wane or cease if a super-cheap superstore opened up which could not provide them.15 Those subtle enlargements—strings attached to the goods provided by the local shopkeeper—are seen through the spectacles of neoclassical economics as impediments to the ideal of perfect competition; such “diffusion of goodwill and mutual consideration” (writes the sociologist Ronald Dore) is feared as “creeping malevolence, [an] abuse of monopoly power”.16 However, in the local Lean Economy, the attachment of such strings to products and services will be seen as desirable; that is to say, there is no standardisation: the product’s identity acquires just the sort of blurred borderlines that perfect competition cannot abide.

Economics’ word for the other things you get, whether you want them or not, along with the economic output that you pay for, is “externalities”—that is, goods and bads that are external to the price system. Carbon emissions are an undesired externality; the friendliness of the local deli who will keep your keys for your daughter when you are out is a desired one. Much of environmental economics is about finding ways of “internalising externalities”—giving prices to externalities—so that better prices, which represent the reality more accurately, lead to better decisions. But even if externalities are priced, it is still the market that makes the decisions, as buyers search for the low prices which suit them.18

Lean economics, in contrast with this, deals with externalities directly. There is full awareness that products and services come encumbered with strings, and they may be exactly what the community wants—such as the advantage of richly-encumbered enterprise keeping local traders and the local economy solvent. In local lean economies, consumers know that there is more to be said about the product than what it says on the tin.

  1. A Small Number Of Sellers And Buyers:
    with a lot of influence over the local market

The divided self of the market economy shows in the fact that the laws of competition apply only to production, and not to consumption. While producers are under pressure to be efficient (to maximise output from a given input), consumers are under corresponding pressure to be inefficient (to maximise their input [consumption] for a given output [well-being]), so as to soak up the ever-growing production which the economy needs as a condition of its stability.

In its essence, the Lean Economy will take the form of a radical transformation away from this division of purpose between producers and consumers (each of us is, after all, both). The divide between supply and demand loses its focus and to a large extent breaks down. Here we have a human ecology that does not consume: it chooses; it behaves; it lives.

And yet, there will also be craftsmanship and specialisation, and a market will be needed to link them up. But the local Lean Economy’s markets will be small markets, with small numbers of sellers and buyers. Just a few of them could influence prices or some other aspect of supply and demand. Many trading relationships will be specifically organised as reciprocal arrangements between (say) a producer and a small group of households; terms will be agreed on a case-by-case basis with little reference to prices elsewhere. For instance, local people (in their role as producers) may take a position on reduced working time, or on carefully-maintained community self-sufficiency, while (in their role as consumers) accepting the costs of this, as well as the necessity for it. All this is in contrast with the “price-taking” idealised in the model of perfect competition, where nobody has any influence on prices.

In the large and impersonal market, the only economic behaviour that makes sense is an abstract pursuit of wealth (chrematistics [Greek: chremata money], to use Aristotle’s word for this). In the short-range, local economy, by contrast, the intention is to promote the interests of the household and community in practical ways (in line with the roots of our word “economy”: oikonomia [Greek: oîkos house + nómos managing]). Any money you make out of it is at most secondary: money is not the point of the exercise, and much of what you do—everything you do for your family, for instance—is for no money at all. For oikonomia, price is often irrelevant. Economics in this core sense is beyond the reach of the parsimonious summaries of mathematics; it depends on judgment.19

  1. Barriers To Entry And Exit:
    a helping hand for loyalty

There are two types of relationship between customers and suppliers. First, there is “exit”—to get out at the first sign of bother. This is how the market economy is meant to work. Secondly, there is “voice”—to argue for change, to influence matters by getting involved rather than by walking away, to stay loyal. Such loyalty is a vital asset in the Lean Economy.20

And it is given a powerful helping hand by barriers to exit—where conditions exist which make it hard to get out. One barrier which has shown itself to be effective in many cases in the market economy is geographical remoteness.21 The decline and fall of the small-island economy of Inishbofin, off the west coast of Ireland, illustrates this. With local economic self-sufficiency in virtually all their needs, the islanders maintained a millennium or two of resilience until the coming of the market economy. Inishbofin’s low-tech fishing boats were no match for the trawlers; its farmers, who needed to sell at least some of their output in mainland Ireland in order to buy the goods they needed, were no match for industrial agriculture. And as the islanders, as consumers, became aware of the market’s products and prices, they had, as producers, less and less to offer. They resisted for a time, since the island’s remoteness provided a big incentive to rely on what it could produce for itself, but when the lower prices, the wider range of goods, and the convenience of the market in mainland Ireland was made more accessible by a massive EU-funded pier, that was the end.22

Not that it could have been avoided. The people of Inishbofin could not conceivably have access to modern consumer goods and services from their own resources except with the help of imports and subsistence payments—and without those, the islanders could reasonably be expected simply to leave. Life on the island formerly was hard, beyond the expectations of our own time. And yet, unemployment and dole-dependency is hard too. When the subsistence payments can no longer cover the costs of living, or when they stop altogether, life on the island will be harder still.

Decisions which have profound long-term consequences are often made on the strength of short-term opportunities which, with hindsight, people would not have chosen. And barriers to entry and exit—such as the inconvenience of living on an island without a modern pier, or of living in a remote area without a modern road—mean that the temptation to take the actions which will destroy the local economy does not arise. This matters, because when that chance of giving in to temptation comes along, it is grasped with both hands.

The momentum of small, seemingly harmless choices is powerful and virtually unstoppable, and the final result has to be accepted without a murmur. Alfred Kahn called it “the tyranny of small decisions”, where people make decisions on the basis of the easy options now, without
making the connection with the consequences to which those innocent choices will eventually lead. Massive, long-term consequences, such as the tearing-down of the trade barriers which have protected a local economy for centuries, come along as unforeseen implications of little decisions about how you and the dog want to spend the afternoon.23

In a society used to cheap travel, and to the idea that destruction—when it comes to boundaries and the rhetoric about ‘tearing-down barriers’—is a good thing, the idea of closed access at first invites unease; there is a sense both of being locked-in, and of unfairly locking-out. But in fact it works the other way. Almost wherever you go in the market economy, you find yourself in the same place—in the globalised market with its shared banality, its fullness; at the end of every lane is a busy road and a housing estate like the one at the beginning of it.

You cannot get out of a globalised world, because there is no out. Closed access does not mean closed-in, it means the protection of distinctiveness: when you are out, you are somewhere else, in a different in. Travel now finds its purpose, taking you to a place which is not in essentials identical to the one you have left, but to one that is interesting and finds you interesting, that wants to hear your song, that dances to a different tune. “Barriers to entry and exit” (aka sustainable protectionism) are restrictive of freedom, but only in that they prevent people from walking into the trap of the small decisions by which they would destroy what they value.26

One good barrier to exit from the locality is that members should want to stay inside it (see “Italian Games” sidebar). The Lean Economy will have barriers to entry and exit thrust upon it: localities will be hard-pressed to provide for their people, especially in the early years, and would quickly fail if overwhelmed by numbers. If you are already in a functioning lean economy, you are likely to need and want to stay there.27

“Loyalty”, writes the economist Albert Hirschman, “can be compared to such barriers as protective tariffs.”28 There you have it. Loyalty means having the good sense to hang on despite short-term disadvantage, not taking too much notice of price signals—a deliberate inverse of perfect competition.29 It implies an economy where price does not have the final say; “protection” recovers its proper sense of stewardship.

Local lean economies will depend on it.30

  1. Multiple Aims:
    beyond profit maximisation

There has for a long time been the presumption that, as representatives of the shareholders, managements have no right to pursue objectives other than that of maximising profit. And yet, that simplification is well out of date, since other obligations—to the “triple bottom line” (economics, environment and social justice), for instance—are already recognised. The idea that a producer in the Lean Economy should work in the interests of the locality and its complex needs is therefore an evolution of current management principles rather than a contradiction; many businesses are already providing local services, productively encumbered with complex local aims—community supported agriculture is one example.

In the Lean Economy, the distinction between producer and consumer will be weak; as the household and neighbourhoods build their competence, the two functions will merge. Profit in this context has little meaning.

  1. Barriers To Mobility:
    of the factors of production

The three factors of production in economics are labour, capital and land. They will all be scarce:

There will be plenty of people around, but labour that brings the skills and the trust that local lean economies will need will be prized, and efforts will be made to keep it in the community. At the same time, communities will not be able to assimilate new arrivals which would raise their numbers beyond what they can sustain: the first principle of an enduring commons is closed access. That does not mean a closed-minded lack of hospitality and trusting encounter: relationships bridging between communities and forming a network of learning and mutual support will be fundamental to the evolution of the Lean Economy. What it does mean is that the community recognises that a feasible and effective commons requires control of boundaries, restricting access and scale to numbers that the resource can support, with participants that accept the obligations that this requires.31

 

The size, growth and technical powers of the market economy have insulated us for a time from having to think about the limits to the various kinds of capital that we depend on. There therefore seems to be no need to think about the cost of protecting them. Maybe we can all be free riders, benefiting from assets which we have done nothing to produce or protect: we can affirm a liberal right to be a free rider. It is an attractive, inclusive philosophy. It would be immoral to disagree with it—until, that is, it comes face-to-face with the laws of physics.

There are six forms of capital in Lean Economics (allowing for some slight fuzzy boundaries):32

  • Natural capital: the living ecology which nature provides, includ-ing soil fertility, water, fish, material resources. . . . The whole of the ecosystem and its climate; the essential conditions for a living Earth.33
  • Human capital: people and their capabilities, qualities and knowledge: health, intelligence, education, character, skills, beauty. . . . Human capital has an important potential for growth, both through reproduction and hard work. And that work can itself multiply by making tools and technologies which, if enough natural capital is available, can then in turn produce more tools and technologies—an amplifying (aka positive) feedback.34
  • Social capital: the typical textbook definition is “the set of institutions and customs which organise economic activity”.35 But the textbook’s authors are thinking of the market economy as the well-behaved process by which society is sustained. For Surviving the Future, by contrast, what matters is community itself. Social capital is the social life and living essence of a community; the relationships, humour and good faith; the common culture and ceremony; the play and conversation. And it is the organ grinder—the market economy is the monkey.36
  • Scientific/cultural capital: the information and culture available to be grasped and/or applied. It is only capital to a society that can understand and/or use it.37
  • Material capital: buildings, roads, equipment, computers and their networks, etc. But, again, for something to qualify as capital, the conditions must exist in which it is useful. For example, energy-famine could cause oil-fuelled equipment to cease to qualify as capital. Cars could become simply rather curious-shaped objects.38
  • Financial capital: there is a case for omitting financial capital, because its value depends on, and is a representation of, the existence of the other five forms. It is included because to some extent its existence is independent: a financial crash can occur for reasons notionally unconnected with the other five. The connections, however, would be revealed as the crisis rippled through to the point of greatly reducing, or destroying, other forms of capital. So it is useful to have it in the list, despite the double-counting.39

One of these forms (scientific/cultural) has the property that it can travel to another place without leaving the place it started from (like love, you can give it and still have it; or commas, whose supply knows no limit), and it will be important to the network of local lean economies that they should, with ease, share ideas, information and culture. Apart from that, capital in the Lean Economy is subtractable (if you give some away, you have less of it), and it will tend to be immobile.

The idea that capital should be mobile is not recent but it became routine, rather than the exception, following the influence of the economist David Ricardo (1772–1823), who made the case for “comparative advantage”—that is, for the production of each kind of good and service to be concentrated in the places where it can be done most efficiently and cheaply. According to this principle, the efficient nation will make things for its own use only if there is nothing else (either for home consumption or export) that it could produce more efficiently.40

Such dislocated economics is a natural feature of large-scale civic societies. Located economics is a central principle of the Lean Economy. Capital, in its various forms, recovering from the breathless globe-trotting recommended by Ricardo, will come home and underpin resilient communities.

 

Land, in economics, stands for the whole set of miracles and services which comprise the planet. As John Stuart Mill summarised, labour can do no more than move things around: “the properties of matter, the laws of nature, do the rest”. However, this vast, but vulnerable, endowment has been taken for granted, summarised as “land”, and reduced to a residual which (in the models and equations) can be left to look after itself. And, as “land”, of course, it can be owned and inserted into a business plan somewhere, so that, in this sense, land in economics is mobile.41

In the Lean Economy, land will stay in one place.

  1. Imperfect Knowledge:
    making a virtue out of ignorance

Perfect competition requires perfect information about all the products on the market and how they are sold; the local Lean Economy, by contrast, will be largely ignorant of the goods that other consumers can buy in other places. Passive consumer-awareness of out-of-season strawberries will be replaced by intense knowledge of the range of goods, food and skills that the place they live in can supply. And at a time of substantial uncertainty, knowledge will be rare, relative to inference. Knowledge, in a sense, is the final product, packaged and ready for use, and lean economies would be stuck without some of that. But economies and lives, alike, will depend (as the Duke of Wellington described it) on working out “what you don’t know by what you do; . . . guessing what [is] at the other side of the hill”. The first steps towards self-reliance will be to explore and infer at a time when certain knowledge is scarce, and when the idea that you can “perfectly evaluate the quality of all products in the market” is a relic from another age.42

And there is something to be said for not knowing how big an almost-impossibly-big project is going to be. If you knew, you probably wouldn’t start.


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