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Brexit, Pounds, Adam Smith

February 9, 2017

 

Being PM of UK is probably one of the most challenging jobs in the world as being questioned and provoked by MPs at the hearing of the supreme court, in front of the British people is a daily routine. Theresa May’s Brexit plans have been challenged again over their apparent lack of details, by supreme court judges considering whether MPs will get to vote on triggering Article 50. Meanwhile sterling continues to weaken to a fresh 31-year low against the dollar.

 

I was holding a £20 bank note waiting in the queue for a soy latte at a Costa somewhere in the central London. As far as I see, the slide in pounds since the Brexit vote has been a benefit for the British economy in terms of retails sales apparently helped by an influx of big-spending overseas tourists from the likes of the US, China. ( Most of the shoppers I saw in and out of the Luxury stores on the New Bonds Street were Chinese.)

 

According to Bloomberg, Brexit is about to make CEOs of some of Britain’s biggest public companies a whole lot richer ( the likes of Rio Tinto Plc, Smiths Group Plc, and WPP Plc generate most sales abroad and earn a fortune when they convert these revenues back into the weakened pound. Sterling’s fall also made U.K. stocks more affordable for overseas investors. )

 

Then I happened to notice, at the back of Queen Elizabeth’s portrait is Adam Smith's portrait on the £20 note. I was a little bit surprised as I assumed to see Winston Churchill’s portrait instead.( Winston Churchill’s portrait is printed on the £5 note ) Hence, it triggered my curiosity to know Adam Smith further beyond his fame of the founding father of the modern economics.

Adam Smith is our guide to perhaps the most pressing dilemma of our time: How to make the capital economy more humane and more meaningful. He was the greatest thinker in the history — in part because of his concerns went far beyond the economic. He wanted to understand the money system because his underlying ambition is to make nations and people happier. 

Smith remains an invaluable guide to 4 ideas.

 

1. SPECIALISATION

When one consider the modern world of work, two facts stand out: modern economies produce unprecedented amounts of wealth and many people found work rather boring and (a key complaint): meaningless. The two phenomena are in fact intimately related, as Adam Smith was the first one to understand through his theory of Specialization. 

He observed that in modern business tasks are formerly done by one person in a single day could far more profitably be split into many tasks carried out by multiple people of whole careers. 

Smith hailed this as a momentous development: he predicted that national economy would be hugely richer, the more specialized their workforces became. 

One sign of the world is so rich, Smith could tell us, is that every time we met a stranger at a party, we are unlikely to understand what they do. The mania of the incomprehensible job titles - - Logistics Supply Manager, Financial Analyst, Chief Information Officer, Creative Director prove the economic logic of Smith’s insight. 

But there is one special problem with specialization — Meaning. When businesses are small and their processes contained, a sense of helping others is readily available. But when everything is industrialized, one ends up with a tiny cog in a gigantic machine, whose overall logic is too liable to be absent from the minds of people lower down in the organization. 

A company with 100,000 employees distributed across four continents, making things that take five years from conception to delivery, will struggle to maintain any sense of purpose and cohesion. So Smith discerned that bosses of the specialized corporations of modernity, therefore, have an extra responsibility to their workers: to remind the of the purpose, role and ultimate dignity of their labor.

 

2. CONSUMER CAPITALISM

Smith’s age saw the development of what we’d now call consumer capitalism.

Manufacturers began turning out luxury goods for a broadening middle class. Some commentators were appalled. The philosopher Jean-Jacque Rousseau wished to ban “luxury” from his native Geneva. He was a particular fan of ancient Sparta and argued that his city should copy its austere, material lifestyle. Disagreeing violently, Smith pointed out to the Swiss philosopher that luxury consumerism, in fact, had a very serious role to play in a good society — it generated the surplus wealth that allowed societies to look after weakest members. Consumer societies, despite their frivolity, didn’t let young children and the old starve, for they could afford hospitals and poor relief. So Smith defended consumer capitalism on the basis that it did more good for the poor than societies devoted to high ideals. That said, Smith, he'd out some fascinating hopes for the future of capitalism. He didn’t want it to stay stuck at the frivolous level forever. He observed that humans have much “higher” needs that currently lie outside of capitalist enterprise: among these, our need for education, for self-awareness, for beautiful cities and for rewarding social lives.

The hope for the future is that we’ll learn to generate sizable profits from helping people in truly important, ambitious ways. Properly developed, capitalism shouldn’t just service our basic material needs when exciting us to buy frivolous things. It should make money from goods and services that deliver true fulfillment. 

 

3. HOW TO TREAT THE WEALTH

Then as now, the great question was how to get the rich to behave well towards the rest of society. The Christian answer to his was: make them feel guilty.

Meanwhile, the radical, left-wing answer was then and is now: raise taxes. ( Hillary’s tax plan to squeeze the ultra-rich as Donald Trump )

But Smith disagreed with both approaches: the hearts of the rich were likely to remain cold and high taxes would simply lead the rich to flee the country. He proposed that, contrary to what one might expect, it isn’t money the richer really care about. It is honor and respect. The rich accumulate money not because they are materially greedy, but primarily in order to be liked and approved of ( Donald Trump’s ambition to be a likable president and make America great again. ). So rather than taxing the rich, governments should understand the vanity at the heart of the rich and their motivations. They should, therefore, give the rich plenty of honor and status — in return for doing all the good things that these narcissists wouldn’t normally bother with, like funding schools and hospitals and paying their workers well. 

 

4. EDUCATE CONSUMERS

As Smith put it, “The greatest secret of education is to direct vanity to proper objects.”

Big corporations feel very evil to us now, the natural targets of blame for low-paying jobs, environmental abuse, and sickening ingredients. But Adam Smith knew there was an unexpected and more important, element responsible for these ills: our taste. It’s not companies that primary degrade the world. It sour appetites, which they merely serve. 

As a result, the reform of capitalism hinges on an odd-sounding, but critical task: the education of the consumer. We need to be taught to want better quality things and pay a proper price for them, one that reflects the true burden on workers and the environment. A good capitalist society doesn’t just offer customers choice, it also teaches people to exercise this choice in judicious ways. Capitalism can, Smith suggests, be saved by elevating the quality of consumer demand. The economic state of the world can seem at once so wrong and yet so complicated. We end up collapsing into despair and passivity. Adam Smith is on the hand to lend us confidence and hope. His work is full ideas about how human values can be reconciled with the needs of businesses. 

He deserves our ongoing attention because he was interested in an issue that has become a leading priority of our own times: how to create an economy that is at once profitable and civilized. 

Of course, he deserves his portrait on the £20 Note (Adam Smith).

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