We all have heard the negative aspects of capitalism. It
increases our consumption and makes our decisions profit-oriented, neglecting
the negative impact it has on the environment and our own health. But does the
possibility exist, that we can tweak our individual relationship to money
within capitalistic societies so that we gain more freedom than ever before in
history?
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| Money can buy free time. |
I would argue it is possible and all it requires is a shift
in our mindset around what we hope get from the gains in productivity of the
industries. Karl Marx was already of the opinion, that we would be able to
reduce the average working time to 15 hours per week in the year 2030. In
developed countries we are far from reaching that level of time spent working.
Average working time is still hovering around 40 hours per week for most
countries. Not even counting the unpaid overtime that many people are putting
in.
Why is that the case? In my last post I have presented to
basic reasons, explaining this development. And I encourage you to read it. It
is not very long.
But now onto the possible alternative: It has been written
about under different names. The most widespread names are financial
independence and financial freedom. Those are two different degrees of the same
concept. Without going into detail about how to approach those goals, I want to
elaborate here the underlying economic structures and mental shifts required
for these concepts to work.
If you want to read more about how I approach financial
freedom, I have written about it in this article.
The underlying economic structure of Financial Freedom
With financial freedom you have enough investments, usually
in stocks, bonds and equity, to support your needs from the returns which you
are receiving. What sounds logical on a mathematical basis actually requires a
certain way of production to make this concept work for a large number of people.
To explain this, let’s look at the typical person striving
for financial freedom. He or she might be a young person starting out in his
first job. He decides to save a large part of his income. He reduces his
consumption of unnecessary products. He is going to take the low-cost vacation,
maybe camping, bicycle touring or hiking. The challenges actually making him
stronger, healthier and happier. He will skip buying the newest electronic
gadgets and should he have a car it will be a practical one and not the one you
drive in the hopes of increasing your social status. In that process of
building up his investments he is already reducing the environmental impacts of
overconsumption.
After several years of high savings rates he hopes to retire
from the typical forms of work and his 9-5. In order for this to work on a
global basis we need highly efficient production systems, durable products and
reduced consumption. For many people early retirement and financial freedom is
only possible when they spend considerably less than what they would otherwise
have spent.
The requirement of reduced consumption is largely an individual
decision. Even though it is made harder by advertising and our consumer-culture,
it is still under your conscious will-power to make sound financial decisions.
Clearly seeing which purchases will make you happier and which will not.
Setting up habits, like putting everything on a wish-list for 30 days before
purchasing and clearly evaluating your need for that item during that time, will
make this a rewarding way to life. Contrary to the consumer-lifestyle, the
lifestyle of achieving a maximum savings-rate can be actually be truly
rewarding. You will discover many truth about your own motivations in the
process. All the while preparing yourself mentally for the life of reduced
consumption which is needed in order for early retirement to work for most
people.
The other two requirements are a little bit more difficult
to fulfill. Because in today’s economy, these are not so much decisions on an
individual level. Let’s start with investigating the requirement for durable
products. By choosing to buy only high quality and lasting products you can
partly influence this point. But on a large scale, consumer products tend to be
designed to fail after a certain period in order to increase profits. And often
times it is hard to judge which products have a long life-time and which fail
quickly. This needs to change. For the environment and our goal of reduced
working time. To achieve it we need to approach the change from two sides. As a
consumer we need to inform ourselves about the lifetime of products and
purchase the more durable product which actually gives us more value for our
money. And as producers we need to find ways to build healthy businesses that
are able to make a profit with high quality and long lasting products. Maybe
shifting to a more service oriented approach, where the product is shared
between customers and maintained by the company who offers the
(rental-)service. This is just an example and there are many ways in which we
can profit from durable products.
But the trickiest part is to truly increase our
productivity. Automatization has already come a long way, but we have also
produced ever more complex machines, requiring a lot of work to manufacture.
And instead of using the outputs of those machines to buy more free time for
ourselves we have found numerous new ways to increase our consumption. We
decided (probably unconsciously driven by advertisements) to use the gains in
productivity to consume ever more complex products and services. For example it
is now quite common to fly around the world for vacations. But few people ask
themselves the question if they will really have a better time at those faraway
places than during a vacation at closer places or even just enjoying free time
in their home-towns. Because we do not
have more free time we increased the intensity with which we consume. Flying
around the world is probably the fastest way to burn through savings.
Many people would say that travelling is worth it. I tend to
disagree in the sense that airplane-travelling is less engaging and less
eventful than the slower forms of travel that true financial freedom allows
for. For example by train, in a camping-van, by bicycle or by foot. That way
you can more truly experience the culture of a country. But what you need for
those forms of travel is time. And you can only gain that by spending less.
Gains in productivity are an inherent aspect of a
capitalistic economy. Companies will be forced to strive for higher efficiency.
So we do not need to worry too much about whether or not we will build
efficient production systems. The most important question will be about the
products that we produce with those systems. In part this can be guided by our
consumer demand. But a large portion is dictated by political decisions. The
way we shape our cities for example, largely dictates our need for
transportation and cars. We have built large cities, mainly geared towards
cars, that it is difficult to commute by bicycle or by foot. Those political
decisions reach far into other aspects of our lives as well. So much that our
daily decisions are heavily influenced. But I would argue that with a deep
understanding of the forces at work, you can resist them and make the most
appropriate choices towards the goal of financial freedom.
The mental shift to Financial Freedom
The most important shift that needs to happen for increased
freedom has to happen in our mental space. We need to be able to cope with a
reality were we do not need to work as much anymore as we do. Can we fill our
lives and give purpose to our actions on our own terms? Can we construct a
basis around which our lives should evolve that is not predicted by an employers
or higher corporate goal?
I think humans are quite capable of this. We just have not
learned to live in that mode. Our whole lives have been directed and shaped by
work. Education and our whole upbringing is largely geared towards work and
derives much of it’s purpose out of the underlying thinking that it is required
to perform necessary forms of work. Can we motivate ourselves to learn and grow
our understanding of the world without this as our main motivation in life?
This is a question that everyone needs to answer for himself in part, but also
our educational systems will adjust to an environment where the end-goal is not
so much focused on work in the sense of generating a monetary profit.
Why personal financial freedom is better than basic income
When you strive for financial freedom or early retirement
you still have to put in a considerable amount of work. But everyone is free to
choose how they would like to approach more free time. You have the possibility
to work hard for a few years and then be done with working for an income. Or
you could choose to work less per week, but continue working. Taking regular
long breaks from work (sabbaticals) are another way to approach this concept of
more freedom.
And the savings-phase clearly dictates how long everyone has
to work in order to finance his personal level of consumption. Many factors are
involved in the calculation of how much investments one needs, but it largely
depends on the level of consumption, desired level of security and risk taken
in the investment process.
A basic income would leave a lot of room for failure.
Questions about people’s work ethic and level of happiness without work are to
be answered. While people who strive for financial freedom most likely have a
clear picture of what they want to do with their time when working less.
The basic income also does not take into account the
different lifestyle people have and how much money each person would like to
have. And adjustments to the economic output would need to be made.
In the dividend-based model of financial freedom this is
automatically regulated on an individual basis. If the economy does not do so
well, people will receive less. Therefore many will increase their earnings
through paid work on a short-term basis and thus economic output might increase
as well.
Conclusion
This scenario is a uniquely positive side of capitalism. It
offers a degree of freedom that is not possible in any other system. On an
individual level the choices can be made entirely independent of location and
time-restrictions. More time will be available for work outside of the
corporate environment. The focus will naturally shift to high quality, durable
products and less consumption overall. The requirement in order for this to
happen is, that we value our life and our time more than money or consumption.
