Waste is another concept that has very different implications for individuals than for the whole economy, and confusing the two gives rise to serious misjudgements. Everyone knows what waste is for an individual or a family, and is usually expressed in terms of money. Even this is slightly misleading because what we mean is that things were bought that were unwise, and better things could have been bought with the money. In this respect it is use value rather than money that has been wasted - the use value of the things we should have bought that is in excess of the use value of the things we did buy. We also use the term when we discard something that we later realise could have been used, here it is wealth that is wasted.
For the economy money is never wasted because it merely passes from hand to hand. Even if notes or coins are lost the economy can easily replace them, though the individual who lost them can't do so. Wealth that is discarded when it could have been used represents a waste for the economy just as it does for an individual.
Probably the worst form of waste for the economy is having people idle who could be creating good wealth - people who want to work but can't find jobs. The wealth that they could create is wasted and can never be recovered. This is spare capacity.
This waste is rarely recognised because it is never seen and therefore isn't missed. If it is recognised as waste it is thought of as being equivalent to having people create wealth and then discarding it without it ever being used or enjoyed, but in fact it is much worse than that. Imagine that people are given work by creating follies - things that are not intended to have any use other than as a means of creating jobs for otherwise idle hands. Now recall what was said in chapter 7: 'The nature of surplus wealth doesn't matter, for the economy to flourish all that is required is that surplus wealth is traded.' Here someone is willing to trade their surplus wealth for the follies (i.e. wealth that they created in return for money, which they then pass on to the workers for creating the follies), and therefore the fact that they have no use doesn't matter. But when the workers are paid, they are able to spend their money on things they need or want, and the recipients of that money in turn spend it, and so on in accordance with the income multiplier described in chapter 16. Therefore much more wealth is created than the (largely worthless) wealth represented by the follies.
It might be argued that instead of creating follies the unemployed might as well just be given money without working (which they are in the current form of the welfare state). This maintains spending but has many harmful effects in the longer term:
i. it fails to maintain and build skills;
ii. it fails to serve the self-respect need to earn one's keep;
iii. it causes the unemployed to lose the respect of others;
iv. the foregoing effects lead to stress, depression, family breakdown and other forms of physical and mental deterioration; and
v. it builds a dependency culture where people become unable to work.
Therefore government-sponsored and socially useful work should be available to all who are otherwise unemployed. These points are taken up in chapter 100 section 100.2.
It might also be argued that the person paying the workers might as well spend the money themselves directly. This would again maintain spending but would leave the unemployed without support. In the past, public-spirited people have employed workers to build follies purely for humanitarian reasons.[93]
If follies have such a positive effect on the unemployed and the economy then consider how much more positive is producing things that are useful.
Unemployment is normally regarded as a problem that just afflicts the unemployed themselves, but it is a problem that afflicts the whole economy because of its great wastefulness.
There are also very many people 'employed' in work that brings in much more money than the wealth they create is worth. These are wealth extractors, those who work for businesses that overcharge for their products and services and get away with it. Banking and financial trading are probably the worst offenders but there are many more. The effort and time that all these people devote to their work is wasted in the sense that they could instead be doing useful things. This topic is discussed in detail in Part 2.
Consider also so called 'zombie' industries where the government maintains loss-making enterprises in order to keep people employed. These again serve very useful economic and social purposes provided that there is no profitable industry available with spare capacity for the workers to transfer to; otherwise they prevent the more useful wealth being created that transfer would bring. Again these are very much better for the economy than unemployment, if that is the alternative.
Similar arguments apply for new enterprises that turn out to be failures. In these circumstances blame for 'wasting money' is heaped with abundance on the heads of those responsible, especially in the case of state enterprises, but this is almost always very unfair. All new enterprises carry risks, risks are inherent in the nature of enterprise, and failure is merely the other side of the coin to success. The blame game is dangerous because it discourages enterprise and we need enterprise because society only moves forward on its successes, and successes are much fewer in societies that aren't prepared to be generous to those who fail. At worst a failure is equivalent to a folly, and as already seen follies are by no means wasteful. Failures are very seldom that bad however because many lessons are learned in the process and spin-off products arise from innovations and techniques developed during the project. Failures make subsequent success more likely. It is for these reasons that we need forgiving insolvency laws for private failures and a forgiving attitude towards state failures. Private failures are considered wasteful for the private investors, but they aren't wasteful for the economy as a whole because money was spent and earned, and re-spent and so on, so there was no waste. Similarly for state failures, they waste nothing for the economy; all they do is dash the hopes that were embodied in expectations of success.
We must avoid allowing fear of failure to discourage private or public enterprise.
Some of the above arguments might be considered to favour a throwaway society. Goods that are unreliable or don't last long have to be repaired or replaced at regular intervals, which creates jobs and keeps the economy functioning. Such things - to the extent that they are less reliable than they could be or don't last as long as they could last - are similar in some respects to the follies mentioned above in that although they have a use that use is more limited than it could be. They do indeed keep the economy functioning, but how much better to have reliable and long-lasting things and use the wealth-creating capacity that is released to make even more useful things - society is all the richer for it.
Fashion also creates waste. Things that are still useful are discarded purely because they have gone out of fashion. People's natural tendency to want the latest things has been exploited very successfully by the advertising industry, which persuades us that if we don't have the latest clothes, products and technology then we are inferior to those who do: we're less smart, less attractive, less fragrant and less 'cool'; we won't find an attractive partner; we'll have fewer friends, be shunned by society, be laughed at, be pitied; and on and on. It's all to sell us products that we don't need, to spread discontentment as widely and as deeply as possible, to persuade us to discard wealth. Thank goodness there are charity shops, recycling centres and online auction sites where all this useful but unwanted material can be used by others. What they do is lessen the waste that would otherwise occur. Advertising itself is largely wasteful, insofar as it persuades rather than informs, because it diverts valuable talents into activities that promote the sale of indulgent wants by techniques involving partial truths, exaggeration, distortion, and playing on consumers' emotions - usually the baser emotions. It is all geared up to generating a throwaway society, and it works well. The insidious nature of advertising is considered further in relation to particular economic sectors, and especially in relation to wealth extraction in the Introduction to Part 2. Many products have built-in obsolescence by being difficult or impossible to repair, having batteries that can't be changed, having weak or brittle moving parts that are easily broken - especially toys, having limited life components, and so on. All these features are designed to benefit individual companies, but for the whole economy they represent deliberate waste.
A particularly insidious form of waste for the economy is asset stripping. This often happens when a company that is trading successfully and creating wealth, though perhaps not as efficiently as it might, sees its share price decline, so that its capital value falls below its asset value. In these circumstances it is vulnerable to a hostile takeover by the managers of predatory asset-stripping companies, not to run the companies to make them more productive and profitable, but to run up debts in the company's name, sack workers and sell off assets, all for a quick profit for the takeover company but leaving lasting damage for the workforce and for wealth creation in its wake. This is described well by Andrew Sayer in his book 'Why We Can't Afford the Rich' (Sayer 2015 Chapter 12):
Adding insult to injury was the rise of 'the leveraged buyout', a practice so monstrous in its parasitism that it's a wonder it's legal. Here the would-be buyer borrows vast sums, usually by issuing junk bonds (with tax deduction on the debt), to buy out a company - and then loads it up with debt to pay for the buyout. In some cases, this has reduced corporation tax payments to zero - a direct subsidy to parasitic rentiers. The bought-out company then has to cut costs and often the workforce - in order to fund the junk bonds. This was a prime cause of the 'downsizing' of companies in the 1980s and 1990s. So there was a direct link between the rise in unearned income going to the tiny minority who could afford to buy such bonds and the loss of earned incomes of those workers who were displaced following leveraged buyouts. [His italics]
A political system like ours that follows the neoliberal doctrine of universal free markets - where private enterprise and the free market is relied upon to decide what is produced and in what quantities for as many things as possible - is bound to generate waste. Not waste in the sense that it produces unwanted things, but waste in the sense that it produces unnecessary things that individuals want in preference to things that society and humanity as a whole need such as measures to eradicate poverty and save us from the horrors of climate change.
Let me make it clear that I am not against private enterprise and private profit, though some of my remarks might give that impression. Far from it, these production methods provide the best means of producing very many things, but not all things. They are particularly effective when genuine competition is available by easy entry of new suppliers. What I am against is the neoliberal doctrine that the production of all things (or as many things as is humanly possible) should be decided by the market and hence by what individuals that can afford them want. Individuals generally don't want and won't pay for things that society and humanity needs, so governments on behalf of society must take responsibility for ensuring that those needs are met. I am a pragmatist. I believe in doing what works, and I am convinced that what works best is a mixed economy where social and humanitarian needs take precedence over individual indulgent wants, where governments on behalf of society and humanity channel resources into the production of those needs, and where private enterprise takes care of the rest - in a manner that is fair to everyone.
Waste for the economy is:
· not employing employable people - spare capacity is waste;
· discouraging private or public enterprise;
· creating products with built-in obsolescence;
· not using or destroying usable wealth;
· asset stripping;
· using resources to create less wealth than is embodied in those resources (see chapter 1);
· satisfying indulgent wants when there are individual and social needs (see chapter 7);
· creating far too much destructive wealth (see chapter 7);
· extracting wealth and employing people to extract wealth (see Part 2); and
· creating wealth by harming individuals, society or the environment (see chapter 30).