by Roger Bourke White Jr., copyright July 2015
As a community grows in prosperity and moves from Agricultural Age into post-Agricultural Age ways of wealth making, it faces a serious social challenge: How to distribute this new wealth it is making.
The serious temptation is to divorce wealth distributing from wealth making. This divorcing can be done for many reasons ranging from noble to crass. But this is serious because the more the divorce happens the slower further wealth creation happens -- the society stays poor.
Even worse, a community with a big split between wealth creating and distributing gets strongly tempted to live beyond its means. This happens because the political leaders are tempted by borrowing in one form or another, which is followed by over borrowing, until a day of reckoning comes, and with that a crash.
In this essay I call this over borrowing "getting on the Slippery Slope".
Even worse than that, when the crash happens serious "Blame Them" thinking ensues and the root cause of the crash is not recognized by many community members -- denial is another term. This means that recovery and progress to more prosperity become very slow and difficult -- instead of "living and learning" it becomes easier to keep living the "good old days" of pre-boom, or even return to Agricultural Age living conditions, than to continue advancing into Industrial Age prosperity. All-in-all, a fine mess the community has gotten into!
This essay is about these hazards.
This essay was inspired by watching the Greek Bailout Crisis of 2015 unfold, in particular the reaction to the referendum vote of early July in which the Greeks voted against the austerity the Eurozone members were calling for to continue their bailout of Greece.
This 6 Jul 15 WSJ article, Greek Political Contagion Parties of the left across Europe are looking to Syriza as an anti-reform model., talks about how happy the various anti-austerity parties were around Europe when the results were announced.
From the article, "And sure enough, parties of the left across Europe are emerging as the Syriza Party’s most vociferous allies. Consider Spain, where the Syriza-like Podemos (“We Can”) party supported a “no” vote and in a statement last week praised Mr. Tsipras for reacting to the “ultimatum and blackmail” of Greece’s creditors “in an exemplary manner.”
Podemos added that “today in Europe there are two opposing camps: austerity and democracy, the government of the people or the government of markets and non-elected powers. We are with democracy. We are with the Greek people.”"
This additional article, A Grecian Formula for Courting Disaster Greece’s position is now much worse. Voters seem not to have realized how much pain Europe’s help averted. by Jeremy Bulow and Kenneth Rogoff, points out how delusional the anti-austerity types are being.
From the article, "Following their charismatic prime minister and a pied piper parade of left-leaning economic pundits, the Greek people have voted resoundingly to “reject creditor demands for more austerity.” That’s nice, but who exactly is going to pay for less austerity?"
What these anti-austerity groups don't seem to be taking into account is that the Greeks have been living an unsustainable lifestyle since they joined the Eurozone in 2000. They did so by the government borrowing steadily to sustain it.
The important question is: Why have the Greeks chosen to live this unsustainable lifestyle? Why is this kind of lifestyle so popular, and, as demonstrated by the popular support they got around Europe after the July referendum, why is it so popular in many other areas of Europe, and the world, as well?
Greece is not alone in traveling this road. Venezuela is in its Day of Reckoning stage with government money running out and lots of Blame Them sentiment spreading through the country's communities that can't keep basics goods on store shelves. In Russia oil wealth has gone into sustaining Putinism, aggressive nationalism, and kleptocrats, not into diversifying the economy so in the future wealth can grow faster and come from thriving diversified industries, not just oil. And in the US many city governments have found themselves on this slippery slope -- the most spectacular to date being Detroit -- and the state government of Illinois seems to be doing its own sliding into default.
Why is this Slippery Slope lifestyle of populism-plus-growing-debt so attractive to so many people of both emerging and declining communities around the world?
The Slippery Slope shows up so often because of an interaction between three factors that play strong roles in emerging communities: widespread ignorance within the community itself, the aspirations of social justice crusaders outside the community to "help the poor", and the emergence of many new ways of gaming the system as the community's prosperity grows.
The biggest cause of Slippery Slope attractiveness is ignorance.
The people of this newly emerging community have been poor, dirt poor, for uncounted generations. This means the grandparents, parents and children have grown up steeped in Agricultural Age thinking. This is the thinking that says the world is composed of mostly farmers, farmers wives and children of farmers. And these farmers are people who must respect the artisans, warriors, priests and nobility who run everything but the farms. These other kinds of people are rare, but they have great knowledge of things that go on beyond farms, and they can cause the farmers much grief. For both reasons the farmers show these others great respect.
As a community starts to transition into a post-Agricultural Age lifestyle -- becomes an emerging community -- it starts to get more prosperous and things change -- change in startling new ways to those who have been living there for generations. Agricultural Age communities deal with a lot of change in the physical world around them -- things such as good and bad weather, fires, floods and famines -- but the social order doesn't change. It is the social order changes that are new and startling.
The most startling change is that the artisan and merchant classes grow in numbers, variety, wealth and influence. As industrializing happens there are lots of new kinds of things to be made, there are lots of new ways of making things. There are lots of new ways to sell what is made. And most important, and there are lots of new ways to organized people to make and sell these new goods and services. This means a new class of people emerges and grows in numbers and wealth -- the middle class. (Note that this middle class is actually many classes, accountants are not the same as factory managers.)
This social change means that one of the big challenges an emerging community faces is for farmers' children to decide, "What am I going to be when I grow up?" The children don't know, the parents don't know, the grandparents don't know... no one in the family knows! This is both confusing and scary, and even more so because family ties are so important in emerging societies.
And what this means is that trust becomes even more important in the decision-making process. And trust is the meat-and-potatoes of an image-oriented politician. (Keep in mind that politicians are part of this now-being-created middle class.)
As the community muddles through these society-changing issues, lots of mistakes can be made, and are made. This is part of the learning process. The Slippery Slope-style mistakes happen because this ignorance mixes nicely with the aspirations of another breed of this newly emerging middle class -- the social justice crusaders.
As the farmers' kids of the community are making their choices of what to do, they are influenced by social justice crusaders of various flavors.
Social justice crusaders are people who are trying to "help the poor". This is a form of instinctive thinking -- from the heart thinking -- which means it can be satisfied in many ways. The crusaders can give to charities, organize protest movements, or go to where the poor physically are and intervene directly in some fashion, such as build a school or become a teacher.
Many of these crusaders, and much of the money they contribute, come from outside the community. They are people who have learned their social justice aspirations in developed, already prosperous, communities, and now they want to help the poor anywhere and everywhere they can.
This is a noble intention, but one that is easily distracted and corrupted. Because it is so deeply from the heart in nature the social justice warriors are often oblivious to the real good, or real harm, done by their crusading -- monitoring for good returns in the real-world sense is not something they want to keep high on their radar, they just want to help the poor. This is why charity scams are so easy to perpetrate.
In the Slippery Slope context the damage they cause is raising the poor people's aspirations without also cautioning them to respect harsh reality. The social justice warriors are training them to dream big, but not training them to make sure their dreams are possible within the confines of harsh reality.
This causes a disconnect, and the person who takes advantage of that disconnect is the charismatic populist politician who promises the world, and then delivers it for a while... using borrowed money. This leads to, "He made it happen once... Sure! He can do it again!"-thinking, and the leader gets even more ambitious.
This is how social justice warriors add to this Slippery Slope problem.
And the third element in this mix is the seduction of gaming the system, covered next.
System gaming is when a person takes advantage of a loophole in some routine for personal gain. This can be done in many ways, and as a result one of the more time consuming parts of implementing any regulation or law system is looking out for people who have discovered ways to abuse the system. Those who do it are gaming the system.
In business circles a well known example of this is padding an expense account -- buying extra things while on a business trip and charging the company for them as a business cost.
An illegal form of this is corruption in its many forms. A legal form is adding more employees to an organization just so those people have a paying job. These padding employees aren't building the productivity of the organization they are part of, they are mostly there to collect a paycheck. An over borrowing form of system gaming is an organization giving employees a pension plan that has not been paid for yet. (This can be outright over borrowing or it can be juggling the books over borrowing.)
All of these, plus many more, are ways of gaming the system. They are ways of extracting wealth without contributing to making more wealth to replace what is being extracted.
And as has been pointed out, this system gaming problem gets worse when money is borrowed to finance it.
In declining communities -- those which have boomed, and become industrial, but now their industry is no longer in demand -- the problem is "the lost magic" -- the community is not booming anymore and the people of the community would like to bring the magic back. The problem they face is they don't know how to do it. This is similar to the ignorance the emerging communities face, and just as scary.
The benefit of being on a Slippery Slope is raising community enthusiasm. The leader who takes this step is raising community aspirations. He or she is generating a lot of enthusiasm and is crafting a Next Big Thing vision (my term) for the community. In the short term this unifies the community and builds enfranchisement. These are both good things to have happen.
And sometimes it works out long term, but not always. When it doesn't work it is because of ignorance -- a vision is being built, but no one in the community actually knows how to make it happen. This leads to a lot of waste and confusion. If that waste and confusion is "experimenting" and a good solution is found that then increases the community's productivity, the vision is a success and the leader becomes admired as a great leader.
The social justice types contribute by applauding these efforts to help the poor, but they are usually just as ignorant of good ways to accomplish the vision as the locals are. They help raise aspirations, but they don't help accomplish them.
The system gamers are already in the community, and they are ready, willing, and able to take advantage of the mix of ignorance and enthusiasm to carve out and exploit their loopholes. What will restrain them is understanding -- the more the community understands what is going on, the quicker it can spot the loopholes and close them.
All-in-all, this vision being offered is a heady mix. This is the benefit of the Slippery Slope. This is why it is attractive.
The big problem with the Slippery Slope is the big cost. This is money, time, and attention that could be making the community more profitable, more educated, more wealthy. Instead, little comes of it.
This cost gets even worse when two things happen:
o Little return comes from the envisioned project and what does come comes late and after the project runs way over its projected cost. One of the chronic cases of this is hosting an Olympics.
o Lots of money is borrowed to the finance this project, and then must be paid back. If the payback can't happen, a big crisis follows.
The alternative to the Slippery Slope is to stay focused on wealth creation. This means being diligent about keeping the community climate favorable to wealth creating. Some of the virtues that help do this are:
o Keeping things simple and fair: Don't add rules and regulations just so there are more jobs for regulators and enforcers. But do be vigilant about keeping the wealth creating playing fields level and transparent. Don't let system gamers or corrupters have their day by allowing murky backroom deals to be acceptable.
o Keeping tolerant: When an idea that created a current boom stops working -- its time has come and gone -- new ideas are needed to create the next boom. The community needs to be tolerant of those who are ambitious and trying new things. If the community isn't, the ambitious will move away. (This Brain Drain is why a complacent community becomes ignorant again.) This also means tolerating disruptive change to the community -- new roads, new buildings, new kinds of activities taking place, new people engaging in these new activities. NIMBY thinking is hard on progress.
o Let enough wealth stay in the hands of wealth creators that they can do more wealth creating: Coming up with good boom ideas is not easy, and turning them into real, tangible successes is a rare talent. Let those people who turn out to be good at it be handsomely rewarded, and encourage them to do it again. Another way to say this is, "Reward business makers, not sports stadium makers."
It turns out that in 2016 Venezuela is getting bitten harder by the Slippery Slope than Greece. This 6 Feb 16 Economist article, The endgame in Venezuela The country is on the brink of a social explosion that only a negotiated transition can prevent, is describing a grand Slippery Slope crisis that has been developing there since 1999 when Hugo Chavez was elected. This crisis now includes a whole lot of "Blame Them" as well.
The Slippery Slope is a chronic powerful temptation. It initiates when a charismatic populist leader campaigns based on a grand vision, wins and is put in charge, and then goes about implementing this community exciting vision. Unless this leader is truly exceptional, the harsh reality of implementing this grand vision is beyond what community members are capable of. At some point this is realized by much of the community. This is a disappointing, discouraging moment, and brings out some Blame Them thinking, which is yet more distraction. Some time later it becomes time to try the next vision.
The loss gets deeper if money is borrowed to implement the vision. In addition to the disappointment with the project not producing the happy ending results everyone wanted, money has to be paid back as well. The more that gets borrowed, the worse that problem gets.
The crash can be as small as a sour taste in the community's mouth, or it can be much bigger. It can wreck the community's government, bring violence to the streets, and bring on social revolutions.
In spite of these hazards the Slippery Slope remains popular.
--The End--