Ethical Economy

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The Ethical Economy

Concept to identify the emerging new phase of the economy, developed by by Nicolai Peitersen and Adam Arvidsson [1].

Also the title of their new book.


Contents

The Book

Book: The Ethical Economy. Rebuilding Value After the Crisis. By Adam Arvidsson and Nicolai Peitersen. Columbia University Press, 2013

URL = http://cup.columbia.edu/book/978-0-231-15264-8/

For earlier drafts, see: The Ethical Economy Book Project

Description

1. Zoe Romano:

“Ethical Economy (Columbia University Press), written by Adam Arvidsson in collaboration with Nicolai Peitersen, introduces to ethical economics and interprets the begin of a new, radically different economic system in which production is mainly collaborative and social, and in which the value is based on the quality of social interactions and relationships rather than on the quantity of productive time. The book however is not only made of theories. The authors’ approach, which makes everything much more interesting, is based on the need to make this paradigm to work, real projects like for example the development of a software that allows the declaration and the transparent rating of their own values, and their use in a community of reference. “ (http://openwear.org/blog/?p=1535)


2.

"A shifting global economy now offers the opportunity for a more ethical system to take root, one that rectifies the crisis spots of our current downturn while balancing the injustices of extreme poverty and wealth. Adam Arvidsson and Nicolai Peitersen, a scholar and an entrepreneur, outline the shape such an economy would take, identifying its origins in innovations already occurring in our production, valuation, and distribution systems

Much in the way nineteenth-century entrepreneurs, philosophers, bankers, artisans, and social organizers planned a course for modern capitalism that was more economically efficient and ethically desirable, today we have a prime chance to construct new instruments, institutions, and infrastructure to reverse the trajectory of a fast-deteriorating economic regime. Considering a multitude of emerging phenomena, Arvidsson and Peitersen show wealth creation can be the result of a new kind of social production no longer only characterized by the pursuit of private interests, materialist consumerism, and individual financial gain.

In particular, Arvidsson and Peitersen argue that financial markets could become a central arena in which a diversity of ethical concerns could be integrated into tangible economic valuations. In fact, they suggest such a common standard has already emerged and that this process is linked to the spread of social media that makes it possible to capture the general sentiment of value to most people. They suggest building on these developments to initiate a radical democratization of financial markets and the value decisions they generate." ([2]


Contents

  1. Chapter 1. Value Crisis p.15
  2. Chapter 2. Intangibles p. 36
  3. Chapter 3. Publics p. 65
  4. Chapter 4. Value p. 99
  5. Chapter 5. Measure p. 129
  6. Conclusion p. 154


The Argument

The first chapter, Value Crisis, "will argue further for why we need such a thing as an ethical economy. It suggests that industrial society was endowed with a what we call a ‘value regime’, a common understanding both of how to measure economic values and of what the most important overall societal values were. This value regime was institutionalized in wide range of devices, from accounting to commercial law via welfare systems. As such it functioned as a common ground on which conflict and consensus around value, both economic and ethical, could be played out. We go on to suggest that in the post-War years, in a process that has accelerated in the last three decades, this value regime has been shattered, as a combination of the finanicalization of value and the socialization of production has rendered it obsolete. This leads to what we call a value crisis, which manifests itself in two ways. First, there is no common way to measure and determine the evaluation of economic assets. This is particularly true for the intangible assets that are ever more important as components of financial valuations. Second there is no common language by means of which value conflicts can be settled, or even articulated. This means that ethics degenerates into relativism and virtue becomes a matter of private conduct. Ethics as a way of making value decisions at the societal level becomes impossible.

Chapter 2, Intangibles, looks at the roots of this value crisis as it plays out at the economic level. It starts with an analysis of the processes of networking of production that, empowered by the diffusion of networked digital technologies, has accompanied the shift away from an industrial mode of production. We show how the 'old' factory paradigm has given way to socialized networks of productive collaboration that ever more rely on common resources. The concept of intangible assets represent an attempt to come to terms with these new processes of wealth creation. And even tough there is at present no common established standard for measuring the value of intangible assets, the managerial use of this term indicates that ‘from the point of view of production’ intangible assets build on excellence in the use of common resources. We then go on to analyse how the socialization of production has contributed to driving the financialization of the economy and suggest that a more rational and transparent link between productive excellence and the financial valuation of intangible assets might constitute a stepping stone for a new value regime.


The remaining chapters are dedicated to laying the groundwork for such a new value regime.


Chapter 3, Publics provides a first definition of this new way of organizing wealth creation. We argue that although publics are no new phenomenon, they have been substantially empowered by the spread of information and communication technologies, as these technologies facilitate both the actual creation of useful things, and the practice of association whereby individuals can come together to do so. We provide a brief history of the emergence and growing importance of productive publics as a way of organizing wealth creation- from the amateur counter cultural economies of the 1970s, to today's managerial attempts to constitute corporations as collaborative publics. We conclude by suggesting that the popularity of publics as ways of organizing economic wealth creation is deeply tied to the transformations in the relations of production that have marked the industrial economy since the first impact of information and communication technologies in the 1970s, and the subsequent becoming common or 'abundant' of the skills and capital necessary to engage in material production.


Chapter 4 Value analyses how value is created and circulates in productive publics. Contrary to both contemporary theories of collaborative production as a ‘gift economy’, and to attempts to reduce new kinds of wealth creation to the dynamics of industrial labour, we argue that publics are endowed with highly compelling reputation economies. A person’s reputation is set by other members of a public on the basis of her excellence in the use of common resources – either her excellent work, in the form of technical brilliance in adding on to the common product, or her excellent action in contributing to the social coherence of the public and the strength of its values. In turn reputation functions as a kind of capital- we call it ethical capital- that can be realized in a variety of ways: either as social capital that enhances a person’s ability to lead and motivate others; as personal enjoyment or as conventions that underpin monetary evaluations of that persons skills (as in personal brands). The same thing goes for organizations for which ethical capital is a valuable resource in cultivating flexibility, nurturing a culture of innovation or building an attractive brand. This theory of value is able to explain individual participation in productive publics in terms that render it compatible with established models of economic rationality, and it provides us worth mechanism whereby the valuation of intangibles can be connected to a rational substance: the ethical capital that organizations accumulate by their excellence and virtue.


Chapter 5, Measure suggests that even though such reputation economies are growing in importance we do not yet have a common standard whereby a transparent measure of the relative values of excellence in one public can be compared to that of excellence in another. We go on to suggest that present developments of social media and of data mining technologies are pointing towards the emergence of such a new standards, what we call General Sentiment, whereby different values can be evaluated and compared. In contrast to the general equivalent of labour time around which the Fordist order was built, General Sentiment is a bottom up, peer based measurement, and it is dynamic as it consists in aggregation of the affective investments that a multitude of actors would have in a particular asset at a particular point in time.


Furthermore general sentiment would enable us to connect the minute ethical decisions that actors make routinely as they participate in publics, to the processes where the economic value of assets are set. As the abstract level, this definition of value as General Sentiment could constitute the foundation for the institutional architecture of an ethical economy (much like the institutions of industrial capitalism were based on the idea that value derived from labor time). But this abstract possibility is not enough. In the second part of the chapter we call for a politics of standards whereby- building on this new abstract measure- the formation of value can be made public and open up to processes of deliberation in a wide variety of ways. In the concluding Chapter we suggest that the present financialziation of the economy should be read as a sign of the decline of the industrial model of development, and we propose that the ensuing crisis can only be solved by the institutionalization of a new value regime that can guide development in a new direction. We then go on to elaborate of a number of implications of the institutionalization of such an ethical economy, in terms of the democratization and rationalization of finance, the strengthening of publics and their ability to have stronger impact on individual economic action and the implications of a functioning reputation economy. To conclude we discuss what kind of ethics can be understood to stand at the basis of this new value regime, and what kind of value it creates."

Interview

By Zoe Romano:


“Zoe Romano: How do you see ethical phenomena like the signal of the emergence of a new way of production (what you call ‘Ethical Economy’) in addition to the emergence of a market niche, term often used and abused to clean up the image of a company? Are we really facing a substanstial change?


Adam Arvidsson: The reason why these phenomena do not represent only a market niche is because they are the companies and brands rational response to a deeper structural change. This deep transformation is made of two main elements. On one hand there is the rise of what we call ‘the productive publics’ and on the other hand the growing of the economy reputation.

In the book we show how the “productive publics” are becoming increasingly important for the organization of both the immaterial and the material. The ‘productive publics’ identify collaborative networks of strangers who interact in a highly mediatic way (which often doesn’t need the use of informatic networks or social media) and who coordinate their interactions through sharing a common set of values. By coordinating production in such way, the productive publics are different from markets and bureaucracies, not only because they allow to consider as good reasons a wider range of issues, but also because they tend to be highly independent in conferring a value to the productive contribution of their members. In the book, we suggest that the productive publics are becoming increasingly influential in the information economy, not only in alternative circuits, like Free Software, but also within the corporate economy itself, especially around the immaterial assets that in some sectors reach two thirds of the market value. As a result, there is recent growing emphasis on ethics and social responsibility in corporations which can be understood as an attempt to accommodate the orders of worth promoted by the productive publics. The other transformation is a consequence of the first one. Companies and brands, as well as knowledge workers, are evaluated by other members of the publics to which they belong, based on specific values to which that particular public is devoted. This evaluation leads to a reputation value that can be quantified through direct ratings, e.g. the number of re-tweets, the number of ‘likes’ and any other kind of feeling expression.

The brand and company’s reputation in the publics determines its ability to attract talent and push it to overcome its duty; engaging non-salaried people (ie the productive publics) in co-developing products and services; and to establish a convention of value among consumers that distinguishes the company and its products from its competitors. This is the main driver behind the growing importance of the reputation, which brings corporate investments towards CSR and ethical consumerism.

So, yes, CSR, ethical consumerism, corporate values and so on are an illusion, but this illusion has been placed there to manage a trend that is much more important: the socialization not only of wealth production (as it happens in productive publics) but also the ability to determine the value of that wealth through the economy of reputation. It is this double tendency that we try to capture the core of this book.


Zoe Romano: Accepting that we are in front of a new mode of production and creation of value, what are the new exploitation tools? Is ethical exploitation some kind of self-exploitation?

Adam Arvidsson: Exploitation is a universal phenomena. We need to find out how it takes place and how wide it is. We believe that ethical economy harbors the possibility of a new way to reconnect economy to society and thus to democratize the economy, especially for what concerns the value of attribution and distribution issues. Even if unable to eliminate explotation itself, this model could potentially lower the exploitation level of the system if we compare it to the present neoliberal model. New forms of exploitation are less related to the marxist idea of ‘theft of labor time’ and more connected to the ability of common resources wealth appropriation, resources that derive form heavily socialized productive networks. An ethical economy based on reputation might become a way to determine, in a more democratic way, who can legitimately claim those resources and in which amount…


Zoe Romano: In the introduction of your book you write: “In a universalist ethical system the value of one’s virtue depends on its ability to contribute to the realization of universal principles of moral conduct. In a system of networked ethics, the value of one’s virtue depends on the positive difference made by people who live close to each network.” In this way reputation becomes a useful measure of the productive power that can be translated into non-monetary gratification but it also works as capital used to mobilize resources and start new projects. On the one hand we are assisting at an abundance of social production while at the same time we face a new kind of shortage: the ability to make sustainable social relations that are able to start a cooperative production. Insufficient is the ability to create something together, a koinonia, in a situation of diversity and complexity. Can you list some practical example of these kind of situations and explain what are the power games at stake?

Adam Arvidsson: Within management thought, this has been debated for a long time. There is a general recognition that the true key to value is the ability to create shortage like in a ‘culture that lean toward innovation’ or a brand that offers a unique experience and so on. The fact that the value shifts from things to the ability to enable people to create cohesion among things is not new. The same principle is applied to the alternative of productive publics, like the Free Software communities. What really makes these productive moments to work is not the technical abilities per se but the ability to create an experience of affective proximity, that motivates people to make a contribution and that is able to identify and attract skilled individuals.

What are the power dynamics at stake? Well of course, we live in a mediatic system that is dominated by extremely wealthy actors, so the ability to create ethic capital comes from their market power. However, we think that a new media system is coming, in which power is or could be distributed more equally and in which the evaluation of that capital happens in ways that allow wider deliberative processes. Yet, this is still a possibility and not a necessity, a lot depends on how media are regulated. For example, will Facebook be able to make data mining on its 500 millions of users? Should it be possible to exclude other actors from the access of such datas? Facebook datas, for example, would be an excellent resource to create a system able to obtain a peer-based evaluation of corporate social impact. It is important to start facing these political issues that concern, for example, the way to rethink the access to datas.


Zoe Romano: What is the difference between Reputation and Self Branding?

Adam Arvidsson: Self Branding is a form of reputation management, which usually does not cause any problem. Problems rather lie on the way the public sphere is structured and in which these processes are put into practice. In a situation in which the determination of the value is based on peer-based processes, starting from what we call general sentiment, self branding implies a virtuous conduct. When this mechanism is limited, self branding can become much easily manipulative.” (http://openwear.org/blog/?p=1535)


Excerpts


About the authors

"Adam Arvidsson teaches sociology at the University of Milano, Italy, and lectures on creative industries at the Copenhagen Business School. He has written on brands, the information economy, and cities and creativity. His most recent book is Brands: Meaning and Value in Media Culture. He is based in Milan.

Nicolai Peitersen has founded and cofounded a number of companies and organizations, including a cross-disciplinary think tank and, most recently, a new international platform for socioeconomic development, the Hanwang Forum in China. He has written on creativity, ethics, and the economy, both at the think-tank and during his earlier career at the Central Bank of Denmark and the investment bank JP Morgan in London. He is based in Beijing."


Review

Hazel Henderson:

"The Ethical Economy introduces two major intellectuals mapping the transition from early industrial manufacturing and its economics based on objects (things you can drop on your foot) to today's information economies where intellectual property, intangibles, brands and reputation are the new source of value. Authors Adam Arvidsson and Nicolai Peitersen join Don Tapscott, Yoichi Benkler, Michel Bauwens and others in mapping this new economic terrain where information offers non-rival "win-win" opportunities for abundance through sharing and cooperation (if you give me information, you still retain it as well).

Following Yoichi Benkler's The Wealth of Networks, Don Tapscott and Anthony Williams' Wikinomics, Chris Anderson's Makers and Michel Bauwens' peer-to-peer sharing models (P2P Foundation), Arvidsson and Peitersen, both seasoned professionals in business and finance, delve deeper into the implications of this tectonic shift beyond the cover story in The Economist and recent books including Rachel Botsman and Roo Rogers' Collaborative Consumption and Lorna Gold's The Sharing Economy to examine the role of technology, the internet, social media, the maker revolution, prosumers, crowdsourcing and "productive publics" and the socialization of value creation. This is deeply researched, heady stuff enfolding insights from behavioral science, brand management, ethical investing and the growing importance of reputational risks and benefits. Mainstream economics and financial models are left behind in their material focus on competitive rival goods and assumptions of scarcity." (http://seekingalpha.com/article/1338691-book-review-the-ethical-economy-by-adam-arvidsson-and-nicolai-peitersen)

Concept

Summary of Key Thesis

"That a generalized, technology-enhanced capacity for manifold cooperation has become the main productive force means that there is no longer any contradiction between ethics and economics. On the contrary, the ethical ability to open up to and share with others has become the most fundamental quality of a successful economic agent." (http://summitforthefuture.blogspot.com/2006/04/ethical-economy.html)


General Description

From: http://summitforthefuture.blogspot.com/2006/04/ethical-economy.html

"The ethical problematic is intimately linked to the issue of cooperation. It is because people cooperate and create things together that they are ethical beings. Traditionally ethics and economics have been kept apart. Economics have been understood as the realm of objective needs and rational calculus, while the 'softer' ethical problem of how we matter to each other was thought of as something that arose only when one left the workplace and engaged in other forms social intercourse. Now however, things like ethical consumerism, or corporate ethics indicate that this boundary is no longer as rigid as before.

Now the introduction of ethics into mainstream economic thought is precisely a response to the new economic centrality of cooperation. Of course cooperation has always been the secret productive force of capitalism. Both Adam Smith and Karl Marx stressed how the efficiency of industrial production rested mainly on its ability to create new and more efficient forms of co-operation, like the division of labour in manufacture, and latter the assembly line and the complex production and distribution systems that developed around it. Marx was particularly foresighted in this respect. In an obscure passage from Grundrisse (a collection of sketches and notebooks that he never intended to publish himself) he argues that as large-scale industry develops and becomes more complex, the main productive force will be cooperation itself. He called this General Intellect, by which he referred to a ort of social intelligence, a collection of competences, know hows and skills that arose organically out of the complex forms of cooperation and social interaction that the large factory made possible. Machines were an important part of this General Intellect, but they did not exhaust the concept. Firstly, Marx argued that machines (or technology) was the result of this social intelligence, they were a materialization of knowledge and skills that had already developed through previous forms of cooperation. Secondly, he argued that the most important contribution of machines and technology was that they permitted more complex forms of cooperation, and thus further unleashed the key cooperative, or ethical productive force.

Marx wrote this in the 19th century. When he though of General Intellect he thought of the transmission-belts of huge steam-driven factories. But today's Information and Communication Technologies has generalized this enhanced capacity for cooperation across the whole social body. The General Intellect of the factory has become a mass intellectuality that empowers the cooperative potential of social relations generally. This is the fundamental element of the new economy. The production of knowledge, of experiences, of creativity of all the immaterial goods that Globaliseringsrådet hope will keep Denmark wealthy is in every case premised on the ability to activate and utilize the productive potential of social cooperation. It is the cooperation of the many, of the networked multitude, its ability to produce an ethical surplus, social relations, experiences, knowledge and styles, that supplies the raw material for the new, ethical economy. We would go as far as to say that the main economic contribution of information economy has been that it has enabled these new forms of productive cooperation, this new ethical economy.

That a generalized, technology-enhanced capacity for manifold cooperation has become the main productive force means that there is no longer any contradiction between ethics and economics. On the contrary, the ethical ability to open up to and share with others has become the most fundamental quality of a successful economic agent. This also means that the old models for institutionalizing ethics and economics, representative democracy and private property are becoming obsolete. Politics is no longer a separate practice, best handled by expert politicians. On the contrary the basic political practice of constructing a common social world, an ethical surplus has become a fundamental aspect of economic production. A brand community is like a social movement, open source is a political program, and a self-managed slum or a cooperative micro-credit system is also a project for a different political order. Private property, particularly as applied to immaterial goods like knowledge and innovations goes against the whole logic of maximizing sharing and cooperation that stands behind the new economy. This means that a successful policy for the new economy cannot just be a matter of surface alterations to an outdated neo-liberal model. The whole institutional order of society needs to be thought through again. It must be geared towards maximizing the cooperative abilities, the ethical productivity of the many". (http://summitforthefuture.blogspot.com/2006/04/ethical-economy.html)


The Principles of the Ethical Economy

From: http://summitforthefuture.blogspot.com/2006/04/ethical-economy.html


"We use the term 'ethical economy' not because we think that present productive conditions are necessarily nicer or more socially conscious, but because the economy of technologically enhanced networks of cooperation puts the ethical dimension of human existence directly to work. This in the sense that the ethics of the particular encounter is a determining factor behind its economic productivity. Value, the value of an actor or a service becomes primarily based on his, her or its ability to matter in an ethical sense, to give something back, to expand the ethical surplus that is produced in the encounter. We suggest that the three general principles put forth by Peitersen and Skibsted can be useful to think about the ethical productivity of actors and encounters.

Proximity: Actors are best suited to matter to those things or people to which they feel closeness. This means that actors should be empowered and given maximum freedom to determine their own horizons of action. It also means that the management and evaluation of a productive activity should occur as close as possible to where it matters, ideally by the actors that are present in its proximity-horizon.

Maximization: The productive potential of each actor should be maximized by choosing the actions that generate the greatest additional value to his or her proximity-horizon. On a macro level, this means improving sharing instead of competition and encouraging self-organization instead of discipline.

Expansion: An economic agent is more productive the wider his or her horizon of proximity. Thus, it is of economic importance for the agent to continuously expand its feeling of closeness: to get involved with more people and situations. Actors should be encouraged to learn from and coach each other, policy should encourage the highest degrees of tolerance and respect. Not primarily because these are nice humanistic values, but because, as Richard Florida has so convincingly demonstrated, they are key economic resources." (http://summitforthefuture.blogspot.com/2006/04/ethical-economy.html)


The role of brands in the ethical economy

Commentary from the book Brands. Meaning and Value in Media Culture. Adam Arvidsson. Taylor and Francis, 2006

Key thesis: "In brand management the communicative construction of an ethical surplus in the form of a common social world is put to work so that it generates surplus value." (http://blog.actics.com/?p=30)


"In a way this book deals with ‘the other side’ of the ethical economy. Using the brand as a paradigmatic example it shows how the logic of informational capitalism is about appropriating and extracting value from social communication. Value is no longer primarily based on command over material production, but on the ability to control immaterial production: the production of a common social world through communication and interaction. The Italian economist Maurizio Lazzarato calls this the production of an ‘ethical surplus’- a term I like. He also says that the characteristic thing about informational capital is that ‘surplus value becomes premised on the ability to extract an ethical surplus’. The brand is the perfect mechanism to achieve just that.

If you think of it, a brand is a strange kind of object. It is not simply a symbol of a product (that was true up until the 1950s, more or less), nor is it simply an extension of a product, an immaterial extra as in the life-style of Camel cigarettes or the ethical engagement of Body Shop cosmetics. Rather, contemporary brands tend to be more independent of products. A brand like Nike or Mercedes now encompasses a wide range of different products (cars, but also bikes, sunglasses and sportswear). The brand stands for a particular affective relation to a product or an activity. They key to the value of the Nike brand is that jogging or simply wearing a shoe feels different if the logo is there. The more this particular affective pattern is repeated across different activities and social situations, the more valuable the Nike brand (presently at $ 9.26 billion). So the brand is something as weird as a ‘propertied affective pattern’. It is a sort of medium that mediates our relations to things, activities and (often) each other in a particular way. The key to successful brand management is thus to make the brand enter into a different forms of communication and interaction and mediated these so that they tend to reproduce the particular affective pattern (the feel, mood or experience) that stands at the heart of the brand, in such ways that it adds to brand value. In brand management the communicative construction of an ethical surplus in the form of a common social world is put to work so that it generates surplus value.

But at the same time this ethical productivity has been greatly empowered by new information and communications technologies and by the breakdown of old traditions and rigid social roles. It is the potential of this empowered and socialized productivity that I would like to work on in the future." (http://blog.actics.com/?p=30)


More Information

The blog of Actics, on aligning ethics and action, at http://blog.actics.com/

The book Brands. Meaning and Value in Media Culture. Adam Arvidsson. Taylor and Francis, 2006