Individualism has little place in industrial society: John Kay looks to Rousseau

A good article yesterday by John Kay, in the Financial Times no less, suggesting the continuing relevance of Rousseau.  What’s going on today in capitalism is not in its essentials very different from the problems which have been debated since the very beginnings of the industrial revolution and it’s important to re-awaken an historical perspective within our sleeping “post-modern” culture.  Many of us, even on the left, assume that individualism is a natural part of human nature and especially so of American nature.  This is not so, it’s historically derived and as Kay demonstrates, it has little place in industrial society.

Kay notes that “Rousseau was an early and incisive critic of the idea that self-interested behaviour would necessarily work to the benefit of all” and then compares the gang-like means the aristocracy of old used to gain wealth to the liberal economic theory of marginal utility which in industrial capitalism becomes little more than a “justification for the culture of … entitlement from possession”.

I think it’s worth quoting a good bit from this article since it presents quite well the inappropriateness of  individualism in an industrial society where cooperation and teamwork are far more important.

Two broad economic theories describe the allocation of income and wealth. The power theory states, broadly, that people get what they grab: from the forest, the markets, or the shop window. The distribution of income reflects the distribution of power. For most of history, this was plainly true – the landlord took what he could from the tenant, the baron what he could from the landlord, and the king what he could from everyone. The sixth Duke of Muck was rich because the first Duke of Muck had been an especially successful gang leader. The alternative theory is that what people earn reflects their marginal productivity – how much they personally add to the value of goods and services. The marginal productivity theory has many attractions, especially to those who are well paid: if what they receive is a product of their own efforts, their rewards are surely well deserved.

Collaborative organisation was only occasionally necessary in an agricultural society in which there were no asset-backed securities and no electrical goods in the shops. But in a complex modern economy, as in the deer forest, production requires the involvement of many. Adam Smith marvelled at the resulting efficiency in his description of a pin factory. But if, as Smith described, one man wrought the iron and another stretched it, who could say what was the marginal productivity of each? And what was the marginal product of the chief executive of the pin factory, or the person who hedged the foreign exchange exposure on the unfinished pins, whose contributions the Scots savant unaccountably failed to mention?

If the pin factory really did increase the productivity of the factory by a factor of at least 240, as Smith claimed, there was likely to be a surplus when the wage earners had received whatever their marginal product was. And when it came to dividing that surplus, the distribution of authority within that pin factory would be crucial. That distribution would surely favour the CEO. Since the CEO wrote – or at least commissioned – the pin factory’s annual report, the moral and economic argument could be turned on its head. If you were paid a lot, that showed that you contributed a lot. What the recipient earned was, by that fact alone, justified. So the ethic of just reward through effort gave way to the culture of present entitlement from possession.

Kay brings classical thought forward and attacks the façade of fairness that the economics profession gives to what is little more than feudal-like greed and power.  I think the world will be in, or teetering on, crisis as long as we remain within our culture of entitlement from possession.