Undertanding stocks and flows: The bathtub metaphor

I’m currently studying for a master's degree in Business Strategy and the Environment at Birkbeck College in London University, and have been very struck by how basic concepts of environmental science are relatively poorly understood – even by our lecturers. A god example is the question of ‘stocks and flows’, which is fundamental to understanding carbon emissions. Nigel Lawson also illustrated his ignorance of this relationship in his recent sceptical tract, so here is a useful metaphor. I did not invent it (in fact it’s a basic model for all sorts of ‘stock and flow’ processes), but here goes.

Imagine that you are lying in the bath. You are up to your nose in water and more is still pouring in through the taps. But don’t worry – your nose is level with the overflow pipe, and as much water is flowing out again as the taps are letting in. But only just – the overflow can handle what is coming in right now but no more. So you are, for the moment, perfectly safe.

But what if the taps are opened just a little more? Leaving aside the very little room for manoeuvre further ‘adaptation’ of your bathtub ‘environment’ allows you, the fact is, an increase in inflow will not be met by an increase in outflow. No matter how small the increase is, you are now in great danger, to the point where you must eventually drown.

Notice that this result does not depend on how much extra water flows in – even the smallest increment will get you in the end. It does not matter how much water was in the bath already or how large or small the maximum inflow and outflow are. As soon as the former starts to exceed the latter, by no matter how little, you will drown.

Likewise for humanity’s collective carbon emissions. Regardless of how much more carbon is emitted from other sources, if the environment is adapted to reabsorb only pre-industrial levels of emissions, then adding more will quickly (in nature’s geological timescale) start to swamp the system. The sizes of both nature's emissions and our own are irrelevant: even if the rest of nature emitted a hundred times as much carbon as humanity as a whole, the natural environment would still be drowning in carbon as soon as we started to increase the flow beyond what nature's carbon 'overflow pipe' is able to remove again.

The same would happen with increased natural eruptions of carbon from natural sources, of course, and we would still have to deal with the consequences. In fact there is good evidence that massive natural changes in carbon levels have profoundly affected the survival of many species. But most such natural intrusions into the natural carbon cycle are erratic and average out over time to quite small net changes.

Industry in by no means such a slight or incidental factor. Indeed, everything we know about our actions to date point to industry being the single most important factor in the emergence of quality complete new era – what Paul Crutzen has called the Anthropocene.

This era will certainly prove to be the most fatal in a quarter of a billion years for most species on this planet. And right at the centre of its effects will be the ‘bathtub’ effect of stocks and flows.

Stop Climate Change March, London, 5 December 2009

I went on the Stop Climate Change March last Saturday. Depending on who you believe, so did somewhere between 20,000 and 60,000 other people.

Some interesting events straightaway. As we stand about in from Grosvenor Square, waiting for the off, I reminisce wistfully about the good old days of anti-Vietnam protests. Hoping he will share my nostalgia, I ask a middle-aged policeman whether we might not be allowed to sack the American Embassy. To my pleasant surprise, I am not arrested or (as far as I am aware) photographed. He replies simply, ‘Is it worth it?’ I am tempted to explain in some detail exactly what part the government and people of the United States currently play in our climate problems, but life is too short and the demonstration has started to roll down towards Piccadilly.

Almost immediately, we pass the Canadian High Commission and huge choruses of boos erupt – a mark of our enthusiasm for the Alberta tar sand projects. Yes, as George Monbiot noted the other day in The Guardian, the Canadians are finally the bad guys. Unimaginable in real life, of course, but then the Canadians no longer inhabit real life. Instead, their government has been hijacked by oil interests, while the great majority of real Canadians reject tar sands development as indignantly as they would slaughtering kittens. (I would say 'baby seals', but that would be a bit ironic with the Canadians.)

We pass by some of the most salubrious of London’s many salubrious properties, not to mention showrooms full of the fanciest of cars. I wonder what the average carbon footprint is around here. A bit more than the average American or Canadian, I suspect, and wonder exactly why popular protests do not focus on individuals and classes with environmentally obscene lifestyles as well as our cousins across the sea.

On down Piccadilly, skirting Trafalgar Square, and into Whitehall. As we pass Downing Street, I ask a policeman to ask Gordon Brown, our beloved Prime Minster, to come out, as his employers are here and want a word with him. The policeman is polite and at least a little amused, but feels unable to take my request forward. Apparently a delegation of representatives of the 100 or so organisations participating in the march got into No.10 to see Gordon, and no doubt reassuring platitudes were exchanged by all sides.

Which is a pity. Normally I have little confidence in our political class – not least because they still seem to be under the impression that climate change can be dealt with by the usual political wrangling. Nature, alas, does not negotiate, is unbeguiled by even the slickest of slogans and remains unimpressed by style and voter preferences. Yet I have the impression that climate change is just the sort of issue our beleaguered premier might be able to do something with, what with his apparently quite sincere (if recently wholly misplaced) moral enthusiasms.

Or maybe I should not be so easily fooled: for all his recent rhetoric, pretending to be a leader when you know full well no one is following you looks forthright and upstanding but risks little. It’s convenient for an unpopular politician facing the polls to be able to occupy the moral high ground (scarcely a position I expect the Tories to be able to occupy any time soon). I just hope he takes the problem seriously enough that millions will not have to move to a more literal high ground while he and his friends play games with the future of billions.

Prompted by a policeman remarking that if he weren’t on duty he’d join the march himself, I ask a couple of police officers whether they would join in if they weren’t on duty. Both reply that they’d be at home, looking after their children. I haven’t the presence of mind to suggest that that’s exactly what the march is all about, and I would like to know how they would have replied.

Do marches work? No. Or at least, no one could believe that they have much impact on their own, given how little was accomplished by at least twenty times as many people protesting about the war in Iraq. Will Blair ever be put on trial? No, of course not. But if he is, how many of the current crop would be up there with him? And what does that tell us about the likelihood that they will do anything substantial about climate change?

At 3 pm exactly we have the Great Blue Wave. Soon we are in Parliament Square. And straight past Parliament itself! Hang on, what’s the point of marching from one end of London to the other and then doing nothing? No great visible, audible protest? Why on earth not? Is it perhaps that the organisers couldn't get permission? Yes, that’s right, we need permission to express our opinion to our lords and masters about the way they are neglecting the planet. Which is, I suppose, as conclusive proof as you could want that they are indeed our lords and masters. And we go along with it, of course. Because, no doubt, we are British and middle class and jolly polite.

What do we want?
Modest and reasonable improvement!
When do we want it?
In due course!

Oh well. At least it’s quite interesting, having a ring side seat at the end of the world. I wonder what the average Roman senator felt like in about 450 AD?

Staring down the pipeline

A telltale sign of our various governments’ inability to grasp what the environmental problem actually is is the enthusiasm with which they embrace the possibility of a business-led solution. That it is specifically business-led view of the world is indicated by the specifics. For example, it is perfectly clear that a huge campaign of insulation would be a powerful, low-tech method of substantially reducing our collective carbon footprint at minimal cost and with a huge impact on key economic problem such as issues as employment.

But although this is an economic solution, it isn’t a business solution, so it won’t do. Well, not for central government anyway. Local government (such as Kirklees) is busy insulating, distributing energy-efficient light bulbs, updating boilers and otherwise making millions of one-off improvements in the countries’ carbon consumption. But that’s the problem: from business’s point of view, one-off is only one step better than ‘no step’. What business needs is a continuing stream of buyers who will need to come back over and over again.

But pandering to a growth-obsessed economy – which is to say, a capitalist economy – is precisely how we got into this mess in the first place: by creating an economic system that not only busily generated an endless pipeline of new demand (through marketing, built-in obsolescence, consumerism, and so on) but also is unable to survive if that pipeline is ever turned off. The current finance-driven crisis is only a taste of what would happen if demand for industrial products as a whole collapsed, or even stood still. That really would be a global crisis, and no amount of Asian savings would get us out of it, not least because the manufacturing-based Asian economies would be as badly affected as everyone else.

So the business necessity for an endless pipeline explains why it is that central governments (who, unlike local government, have both the power and the obligation to drive the capitalist economy as a whole) all but ignores one-off, ‘passive’ measures such as insulation. The scale of the effort that would need to be mounted is vast, but being a single shot, is not what business needs. So business programmes and journals, having finally got over their initial queasiness about green ventures, are looking at alternative energy, nuclear power, and so on – because they mean continuing streams of high-value sales that can be safely predicted to go on mounting and mounting for decades to come!

How much more ironic could it get? The solution to an environmental problem caused by uncontrolled growth is to give the people who got us here a whole new area into which to grow! Clever us. Likewise for the obsession with toys like electric cars: what purpose do they serve from an environmental point of view, given that the electricity they will run on will reduce the electricity available for genuinely social purposes such as heat and light. It isn’t very likely at the moment that we will be able to safely generate enough clean energy for those purposes in time to deflect our environmental problems, but we are talking about electric cars anyway. The odd allusion aside, we are not talking about public transport, reducing travelling for work and the many opportunities they would offer to clean up our planet ant, but rather methods for keeping an inherently unsustainable economic system in its present image. And why? Because that is what business needs. And what society needs? What the environmental needs? Who cares.

Of course, we need alternative energy and many other things for which the only solution is mass production by industrial methods. But what we don’t need is another turn of the very wheel that got us where we are today. There will be no solution to our environmental problems until we take a good clear look at the economic system we are relying on to deliver it.

The Limits to Growth

Just about the most convincing – and scary - book I ever read about the environment was The Limits to Growth. I would guess that everyone has heard of this book but my impression is that relatively few people have ever read it, or the two follow-up volumes. I read it when it first came out – almost four decades ago – and then again a few months back.

The book was written by a group of MIT researchers - Donella and Dennis Meadows, Jorgen Randers and William Behrens – and published in 1972 by the Club of Rome. The timing is interesting, as the first edition of The Limits to Growth is roughly contemporary with a number of other foundation texts in the overall environmental movement. 1971 saw the publication of Paul Ehrlich’s Population Bomb, which gave the growing concern with population growth a kick start. Then in 1972 Barbara Ward and the well-known anthropologists René Dubos published Only One Earth – a sort of semi-official UN report that attracted a lot of attention. And then in 1974, M. King Hubbard gave what was perhaps his most important summary of the position on oil and energy production, namely his testimony to Congress on the peaking of US oil production.

The reason I found The Limits to Growth so compelling – even more than Only One Earth or Silent Spring - was the simplicity and centrality of the question it posed and the directness of the method its authors used to answer it. Instead of endless facts and figures and yet another multi-faceted discussion of our environmental predicament, they simply asked what would happen if humanity at large continued with a small number of key trends:

• World population.
• Industrialization.
• Pollution.
• Food production.
• Resource depletion.

Their method was equally straightforward – so much so that, had I felt very doubtful about its validity when I first heard about it. They started with a very generalised model of these factors - the ‘World3’ model developed by Professor Jay Forrester (also from MIT). This is described in Forrester’s World Dynamics (published the previous year), which used a ‘system dynamics’ approach. This was really a very simple model - basically a suite of functional interactions (circular, interlocking, sometimes time-delayed relationships, etc.) between what the modellers regarded as the key social and natural phenomena. World3 was based on large, long-term factors, which it defined in self-consciously simple and gross terms, without much detail. It made little attempt to explain why these interactions were as they were.

When tracking what happened when the trends they were interested in unfolded, the Limits to Growth team were not looking for trouble. They made strongly optimistic assumptions when in doubt, and took into account most of the qualifications critics usually offer about predictions of environmental doom and gloom – resource substitution, the power of innovation, and so on. On the other hand, they did assume that all these factors tend towards compound growth - which is to say, that they grow by a constant percentage, and constantly accelerate, not by a constant amount, which would lead only to regular increments of the same size. They also interact with one another, which has the effect of overshoots and disruptions in one undermining the others.

A typical outcome of the model went like this:

1. Population cannot grow without food.
2. Food production can only be increased by growth of capital.
3. Creating more capital requires extracting and processing more resources.
4. Discarded waste from resource extraction, refining and usage become pollution.
5. Pollution interferes with the growth of both population and food.
6. So the system tends towards eventual collapse of both population and food production.

It’s crucial to understand that this collapse happens not only because a specific input is damaged or reduced (which might be ameliorated by resource substitution, innovation, etc.) but because the system undermines itself. That is, the initial success of the system destroys the conditions for its continuing success. This is, I think, why it makes relatively little difference to assume that we will eventually find far more resources than are currently expected, or that we can continue to have cheap energy.

The authors made multiple runs of the model based on different assumptions. Although, like most futurologists, they avoided claiming to be making strict predictions, the consistency of the outcomes is quite frightening enough.

The book analyses quite a few scenarios (though only a fraction of those actually run, apparently). The starting point was ‘business as usual’, which led to the following outcomes:

1. Massive industrial growth depletes resources.
2. Resource prices then rise and stocks are depleted.
3. So more capital used for obtaining resources, leaving less for growth.
4. Eventually investment cannot keep up with depreciation.
5. With that, the industrial base collapses, taking with it the service and agricultural systems, the tax base for government, and so on.
6. However, population keeps rising, so the death rate is driven upward by lack of food and health services.

Radical collapse comes ‘well before the year 2100’.

As I say, the authors presented other scenarios in which:

• Nuclear power is cheap and safe.
• We manage to discover vastly increased resources.
• Innovation and technology allow much reduced pollution.
• Agricultural yields are greatly improved.

And so on. By and large, these optimistic assumptions mean that the eventual collapse is delayed by a decade or two – never more.

Here’s another typical example: the Green Revolution. This has indisputably increased food production, but at a price. The specialised seeds require a great deal of fertiliser and water. The former accelerates fossil fuel use and depletion, while the latter extracts more water than natural systems can sustain. In addition, the need for extensive capital also leads to peasant farmers being evicted from the land by their landlords, and hundreds of thousands of landless peasants end up in Mumbai, Kolkata, Sao Paulo or Mexico City, where they have no resources and no relevant skills from what they might earn a living. This increases pressure on urban systems and causes fertile land to be built over by slums.

The increase in capital requirements – tractors, petrol, fertiliser, shipping etc. – needed to operate the Green Revolution hugely depletes resources, including oil and natural gas. What is worse, the intensive treatment of the soil under a monoculture régime means that it becomes less able to support any other sort of agriculture, so the system becomes even more locked into an inherently unsustainable ‘solution’, and by this remarkable ‘advance’ we have managed to convert what one would have thought was an inherently renewable resource – fertile soil – into a non-renewable resource. Aren’t we clever? Meanwhile, the planet’s carbon footprint is made that little bit bigger, global warming is given that small extra shove upwards, and the glaciers that feed the irrigation systems that feed the crops melt that little bit faster. More jam today, but not only less jam tomorrow but also a lot less ability to manage having less jam tomorrow.

More generally, the consistent result reported by The Limits to Growth was overshoot and collapse. If the present trends in world population, industrialization, pollution, food production, and resource depletion continue, the limits to growth will be reached by 2070. The alternative scenarios only delay collapse: all end by 2100. The most probable direct outcome will be sudden, uncontrollable falls in population and industry – in other words, the ‘hundreds of millions’ of deaths predicted by the Stern Report. Only The Limits to Growth predicted it all three and a half decades earlier.

The authors conclusions about the ‘business as usual’ scenario are stark:

The unspoken assumption behind all of the model runs we have presented in this chapter is that population and capital growth should be allowed to continue until they reach some ‘natural’ limit. This assumption also appears to be a basic part of the human value system currently operational in the real world. Given that first assumption, that population and capital growth should not be deliberately limited but should be left to ‘seek their own levels’, we have not been able to find a set of policies that avoids the collapse mode of behavior.

As so often, the reactions to the original publication illuminating not only for the welcome offered to this absolutely vital book but also by the disdain expressed by those who could see no further than the status quo. It was described as ‘the most fascinating and the most disturbing book’, and it was said that ‘if this doesn't blow everybody's mind who can read without moving his lips, then the earth is kaput’. But it was also described as ‘a piece of irresponsible nonsense’ and ‘an empty and misleading work’.

The authors reviewed their findings in updates published in 1992 and 2004. These books are worth reading in their own right, as they both go far beyond updating the original methods and finding. Their original conclusions, they find, were sound. They needed some qualifications, but by comparison with the critics who greeted the original publication with such scorn and the deniers by whom they are still surrounded, they seem to have been pretty much spot-on.

Nor is this merely their own opinion. In 2008 Graham Turner published a comprehensive re-evaluation of the data, and concluded that:

The analysis shows that 30 years of historical data compares favorably with key features of a business-as-usual scenario…, which results in the collapse of the global system midway through the 21^st century.

In other words, we have done nothing significant to deflect our fate.

So are there no scenarios that lead to a happy ending? Maybe - it depends on what makes you happy. If you want interminable consumerism, then no, there aren’t. If you ever wanted a ringside seat at the end of the world, consumerism represents the front row. But if you are willing to settle for mere sufficiency, to imagine that there might actually be an ‘enough’, then yes, a somewhat reduced standard of living – something like the 1940s or 1950s, it is said – is available for all. Not bad, given the alternative, and hardly desperate poverty by any standard. It’s not as though we are any happier than we were then, though it might take a bit of getting used to. Nor need it look quite like that slightly dismal era – we start from here, not there, and a great deal can be done with a 1950s carbon footprint, give the science and technology of the 21^st century.

But there is a lot to be done – population control, the end of ‘the American Way of Life’ (which surely represents the biggest threat to the planet since the last ice age), serious support for developing countries, and so on. But it’s hardly worth thinking about – we never have done anything about these things, we show no signs of doing anything about it, and we are led by politicians, media and business people with as much grasp of our situation and as much interest in dealing with it as a bucketful of molluscs.

But not to worry – it will soon be too late to deflect the worst effects of our own actions, so we won’t have to worry about it any more. Just die in our millions. If you have ever wondered what the fall of the Roman Empire looked like, stay tuned.

Read this book.

References

Ehrlich, P. (1971). The Population Bomb. Cutchogue, N.Y.: Buccaneer Books.

Forrester, J.W. (1971) World Dynamics. Cambridge, Mass.: Wright-Allen Press.

Hubbert, M.K. (1974). Testimony to Hearing on the National Energy Conservation Policy Act of 1974, hearings before the Subcommittee on the Environment of the committee on Interior and Insular Affairs House of Representatives. June 6, 1974. Published as The Nature Of Growth by Technocracy.org.

Meadows, D.H., Meadows, D.L., Randers, J. and Behrens III, W.W. (1972). The Limits to Growth. A Report for the Club of Rome’s Project on the Predicament of Mankind. New York: Universe Books.

Meadows, D.H., Meadows, D.L., Randers, and J. (1992). Beyond the Limits: Confronting Global Collapse, Envisioning a Sustainable Future. Earthscan.

Meadows, D.H., Randers, J., and Meadows, D.L. (2004). The Limits to Growth: The 30-year Update. Earthscan.

Turner, G. (2008). A comparison of the Limits of Growth with thirty years of reality. CSIRO Working Paper Series 2008-2009.

Ward, B., and Dubos, R. (1972). Only One Earth. Harmondsworth: Penguin Books.

Negotiating - a numbers game the poor must lose

John Vidal had a very good piece on the pre-Copenhagen talks in the Guardian last Friday. Reading this article reminded me of something I have often read elsewhere - that one of the real reasons why developing countries will always lose out at the climate change talks is that they haven't enough negotiators or expertise - a stupidly simple, practical reason that western governments take ruthless advantage of.

Vidal reports that the whole of Africa - 55 countries - has only 145 negotiators - to cover every area, to be present at all the meetings. 'At least 50 countries have only one or two, but the WWF… has a team of 50'. What is more, 'the G77 has no offices, no permanent staff and no budget to meet in advance of conferences'. Even the language - invariably English - is against many of them. Meanwhile, the UK, USA and Denmark have 142 participants between them, plus innumerable lawyers, interpreters and consultants on tap, all armed with huge budgets, etc. The conferences are organised and run and the agenda and processes are comprehensively dominated by white diplomats from industrial countries. It's quite impossible for developing countries, and the real decisions are made when they are not present, in closed meetings.

But this is exactly the model on which the WTO operates - effective exclusion by lack of representation and expertise, the manipulation of meetings and a constant and quite deliberate war of attrition and divide and conquer against the poor and weak.

And why are they poor and weak in the first place? Because of the last couple of centuries of colonial and post-colonial exploitation.

So well done all you clever western negotiators! Who knows how many people will die because you exercised your talent for bullying and deceit so expertly in the name of the glorious western way of life! And how soon do you plan to start blaming the poor for their plight, or congratulating yourselves on your wonderful humanity? But I forgot -you started on that one the moment you set foot in their countries and heroically took up the White Man's Burden.

Words fail me. (Well, obviously not, Richard...)

Economic myth no.1: Who are the wealth creators?

One of the necessary consequences of governments failing to measure up to the current economic crisis – and as yet there is no evidence whatsoever that they plan to do anything the change or manage the system that put us where we are today – is that the old self-congratulatory myths start to resurface. Perhaps the most important of these myths is the fantasy that it is bankers and investors who are the true wealth creators.

Why does this myth matter? Because it is this myth ensures that the rich are also the powerful, through their unchallenged control the commanding heights of the economy. Because it is the myth that they are doing something unique and almost magical that we must not importune them for taxes or justifications of their prestidigitations, lest these magicians, these golden geese, fly away, casting us into helpless penury. It is also this myth that allows them to escape the sort of scrutiny to which every other strategic area of society is rightly subject, such as the social services, manufacturing, the education and health systems, the military and so on. It is this myth that allowed them to reward themselves with a disproportionate share of society’s wealth. It is even more important than the myth of the market because, above all else, the myth of the wealth creators allows those it mythologises to disempower everyone else.

But in reality is quite preposterous to identify wealth creation with a single sector of society. It is a simple tautology that wealth is created every time anyone takes a resource and turns it into something it solves a human problem (from hunger to vanity), that makes the real world materially more efficient or effective, or otherwise makes the world a better place.

A small part of this wealth is economic. But even if one focuses exclusively on goods and services that can be bought and sold, even there it would be preposterous to claim that wealth is created at the top. Every bolt screwed onto a machine, every machine operated to make a useful product, every product used to perform a valuable service, every service performed – they all add value. Nor is simply a question of the direct production of wealth. Every manager with a discretionary budget has the opportunity to create more wealth or less, depending on how they chose to use it.

One feature of modern economies that especially militates against the idea that wealth is created at the top is the progressive professionalization of roles in the economy. An employee is someone you pay so that you can tell them what to do; but a professional is someone you pay so that they will tell you what to do. This is clear enough with doctors, lawyers and so on, but it is equally true of professional staff. And their role in the organisation is specifically to know how to create wealth in their area better than their superiors. So the more the modern economic organisation is staffed by professionals, the less claim those a the top have to be exclusively the wealth creators. On the contrary, they are increasingly only coordinators of those who create the wealth.

Hence the difficulty of maintaining a hierarchical structure in strongly professional organisations – because it is increasingly difficult to maintain the myth that those a the top know best. This leaves senior executives in the contradictory position of wielding the power to hire and fire, to invest and disinvest and generally control the organisation, yet lacking any realistic claim to unique insight, awareness or pre-eminent skill. Rather like the absolute monarchs who created to modern state in the seventeenth and eighteenth centuries, the business hierarchs of modern world have created a massively powerful system – the modern capitalist business – that has less and less time or place for those who were its progenitors.

So what is it that distinguishes the bankers and the financial sector in general? In these terms, not very much. To the extent that they are merely managing budgets, nothing at all. The leverage and reach they exercise may seem vast, but to claim that this means that they create more wealth than others makes no more sense than saying that only the top person in a human pyramid gives it height. It’s rather like a previous era when it was salespeople who were idolised rather than the analysts, the superstar executives, the ‘quants’ and other financial monsters: they too were disproportionately rewarded for selling things other people actually made. Of course, an exceptional individual can make an exceptional difference, but that is true of wealth creation at every level. And it is not as though the evidence actually support the claim that bankers, let alone the financial sector as a whole, actually do create disproportionate wealth.

So what have they been doing for the last couple of decades that explains their fabulous rewards? Haven’t our economies grown exceptionally quickly? Isn’t that to the credit of the financial sector? In the illusory terms of global figures and monetary values, yes to both. But did anyone but themselves enjoy the wealth? No. When in 2008 the banks finally realised how unsure their financial footing was and started to pull the rug from under one another, it turned out that most of the monetary increase in wealth was an illusion. The bubbles had inflated the money but not increased the material wealth society enjoyed. In fact most people are no better off now than before the financial sector was let off the leash. The geese, it turned out, produced eggs of gilded lead, not true gold.

But even that is not the bottom of the barrel. Even if they had been creating exceptional wealth, those at the top of the tree are also the ones who decided on whose behalf wealth is created. This is not after all a completely neutral activity. You can decide how to divide up the surplus. The choice is quite simple: they can allocate the wealth to the shareholders, to the workers, to society (through taxation and true corporate social responsibility) – or to themselves. As ever, those at the top favoured their shareholders. But not as much, it turned out, as they favoured themselves. Despite the longer hours, the heightened insecurity and lower happiness, the average American is no better off than in the 1970s, and much the same is probably true in Britain too. There were no more goods and services, especially not for ordinary people – which is to say, for the vast majority of the real economic wealth creators. So even if they had created great wealth, don’t hold your breath waiting for your share. What you get is a insecurity and relentless pressure.

Finally, the bankers turned out to have produced something that is now busily reducing the total wealth in society. By dislocating the structure of ownership and credit in the economy as a whole, a great deal of its material wealth, its homes and security and comforts, has been debased from wealth to debt, as people of honest working people who thought they had the money to pay for it suddenly don’t. Through no fault of their own, millions are losing their livelihood. Among the very poorest in developing countries, tens of millions have been shoved into absolute poverty. Many will simply die.

But the mythology of wealth creation has already started to revive itself. And why not? For nothing has really changed, except that we now despise the bankers we once admired, and politicians (who have been offered a truly golden opportunity to become popular heroes without a hint of crass populism) are confirming the electorate’s worst suspicions about them.

Capitalist myth no.1: Who are the wealth creators?

One of the necessary consequences of governments failing to measure up to the current economic crisis – and as yet there is no evidence whatsoever that they plan to do anything the change or manage the system that put us where we are today – is that the old self-congratulatory myths start to resurface. Perhaps the most important of these myths is the fantasy that it is bankers and investors who are the true wealth creators.

Why does this myth matter? Because it is this myth ensures that the rich are also the powerful, through their unchallenged control the commanding heights of the economy. Because it is the myth that they are doing something unique and almost magical that we must not importune them for taxes or justifications of their prestidigitations, lest these magicians, these golden geese, fly away, casting us into helpless penury. It is also this myth that allows them to carry on without the sort of scrutiny to which every other strategic area of society, such as the social services, manufacturing, the education and health systems, the military and so on, is subject. It is this myth that allowed them to reward themselves with a disproportionate share of society’s wealth. It is even more important than the myth of the market because, above all else, the myth of the wealth creators allows those it mythologises to effectively disempower everyone else.

But in reality is quite preposterous to identify wealth creation with a single sector of society. It is a simple tautology that wealth is created every time anyone takes a resource and turns it into something it solves a human problem (from hunger to vanity), that makes the real world materially more efficient or effective, or otherwise makes the world a better place.

A small part of this wealth is economic. But even if one focuses exclusively on goods and services that can be bought and sold, even there it would be preposterous to claim that wealth is created at the top. Every bolt screwed onto a machine, every machine operated to make a useful product, every product used to perform a valuable service, every service performed – they all add value. Nor is simply a question of the direct production of wealth. Every manager with a discretionary budget has the opportunity to create more wealth or less, depending on how they chose to use it.

One feature of modern economies that especially militates against the idea that wealth is created at the top is the progressive professionalization of roles in the economy. An employee is someone you pay to do as you tell them; but a professional is someone you pay to tell you what to do. This is clear enough with doctors, lawyers and so on, but it is equally true of professional staff. And their role in the organisation is specifically to know how to create wealth in their area better than their superiors. So the more the modern economic organisation is staffed by professionals, the less claim those at the top have to be exclusively the wealth creators. On the contrary, they are increasingly only coordinators of the people who really create the wealth.

Hence the difficulty of maintaining a hierarchical structure in strongly professional organisations – because it is increasingly difficult to maintain the myth that those a the top know best. This leaves senior executives in the contradictory position of wielding the power to hire and fire, to invest and disinvest and generally control the organisation, yet lacking any realistic claim to unique insight, awareness or pre-eminent skill. Rather like the absolute monarchs who created to modern state in the seventeenth and eighteenth centuries, the business hierarchs of modern world have created a massively powerful system – the modern capitalist business – that has less and less time or place for those who were its progenitors.

So what is it that distinguishes the bankers and the financial sector in general? In these terms, not very much. To the extent that they are merely managing budgets, nothing at all. The leverage and reach they exercise may seem vast, but to claim that this means that they create more wealth than others makes no more sense than saying that only the top person in a human pyramid gives it height. It’s rather like a previous era when it was salespeople who were idolised rather than the analysts, the superstar executives, the ‘quants’ and other financial monsters: they too were disproportionately rewarded for selling things other people actually made. Of course, an exceptional individual can make an exceptional difference, but that is true of wealth creation at every level. And it is not as though the evidence actually support the claim that bankers, let alone the financial sector as a whole, actually do create disproportionate wealth.

So what have they been doing for the last couple of decades that explains their fabulous rewards? Haven’t our economies grown exceptionally quickly? Isn’t that to the credit of the financial sector? In the illusory terms of global figures and monetary values, yes to both. But did anyone but themselves enjoy the wealth? No. When in 2008 the banks finally realised how unsure their financial footing was and started to pull the rug from under one another, it turned out that most of the monetary increase in wealth was an illusion. The bubbles had inflated the money but not increased the material wealth society enjoyed. In fact most people are no better off now than before the financial sector was let off the leash. The geese, it turned out, produced eggs of gilded lead, not true gold.

But even that is not the bottom of the barrel. Even if they had been creating exceptional wealth, those at the top of the tree are also the ones who decided on whose behalf wealth is created. This is not after all a completely neutral activity. You can decide how to divide up the surplus. The choice is quite simple: they can allocate the wealth to the shareholders, to the workers, to society (through taxation and true corporate social responsibility) – or to themselves. As ever, those at the top favoured their shareholders. But not as much, it turned out, as they favoured themselves. Despite the longer hours, the heightened insecurity and lower happiness, the average American is no better off than in the 1970s, and much the same is probably true in Britain too. There were no more goods and services, especially not for ordinary people – which is to say, for the vast majority of the real economic wealth creators. So even if they had created great wealth, don’t hold your breath waiting for your share. What you get is a insecurity and relentless pressure.

Finally, the bankers turned out to have produced new, fully financialised layer to the economy that is now busily reducing the total wealth in society. By dislocating the structure of ownership and credit in the economy as a whole, a great deal of its material wealth, its homes and security and comforts, has been debased from wealth to debt, as people of honest working people who thought they had the money to pay for it suddenly don’t. Through no fault of their own, millions are losing their livelihood. Among the very poorest in developing countries, tens of millions have been shoved into absolute poverty. Many will simply die.

But the mythology of wealth creation has already started to revive itself. And why not? For nothing has really changed, except that we now despise the bankers we once admired, and politicians (who have been offered a truly golden opportunity to become popular heroes without a hint of crass populism) are confirming the electorate’s worst suspicions about them.