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Systems in Crisis - We Need a New Social Contract

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Nothing in the course of the August riots sum up the situation like the impromptu interview recorded on a London street by a frustrated BBC reporter. Speaking with a group of young people on bikes, bandanas covering their faces, the reporter struggles to control his anger. 'Why are you doing this to your own community?' he asks. 'I don't know mate,' comes the muffled reply. 'It's just society, innit?'

Conservatives blame the decline in moral values. Liberals blame inequality. One side sets up straw-men and the other side tilts at windmills. The causes of these riots won't be addressed if people only project their own issues onto them and see them as an opportunity to gain coverage, pander to supporters or marginalise opponents. In a way, commentators and politicians become fear-entrepreneurs just as much as the rioters do, never letting a good crisis go to waste, and addressing only their pet issues when the real questions become too difficult to answer. How did it suddenly become naive to believe that we can both teach people about right and wrong, and address the causes of apathy, discontent and violence in society at the same time?

What we see is irrational incentives taken to their (il)logical conclusion. In the face of a massive Eurozone crisis, 'sensible' investors flee to the 'safety' of gold leaving vulnerable stocks prey to speculators - the hedge fund managers and complex financial instrument-wielders who make their money by destroying capital, rather than by creating it. Anti-capitalists who pay themselves a billion pounds a year. Investors dump dollars when the US Government is down-graded, and then sheepishly buy them back again when they realise that nothing has really changed and America is still the safe bet it has been for the past century.

Earlier this year, David Cameron expanded on the intellectual rationale behind the Big Society by co-opting the work of E F Schumacher, a body of economic and social thought that was formative in the establishment of the environmental movement and best known by the title of Schumacher's book 'Small is Beautiful'. It effectively promoted the coalition's efforts to tie the return of economic and social control to communities with the promotion of sustainable living. This analysis seemed to many systems-thinkers to be both either a small move in the right direction or an intellectual stab-in-the-dark, or both.

Systems Thinking, what E F Schumacher called heterodox economics, is counter-intuitive in a market-sense but rational on the human level. Rather than constructing a world that is solely the sum of its parts, where the only forces that matter are those that provide an incentive to do one thing and a disincentive to do another, a systems approach emphasises that complexity is good and that understanding uncertainty is a powerful tool in organising society.

Much of the analysis of the British riots is premised on trying to understand how a system of incentives and disincentives could break down so quickly. It seems just as logical to ask the opposite: why did we ever assume the equilibrium being promoted was one of peace, order and rationality? We assumed, and keep assuming, that financial markets promote stability, and that a commensurate response across the system of many rational actions will absorb the losses of a few bad apples.

In the last few years of 'market failure' some financial institutions - such as Goldman Sachs - have got enormously richer as other less street-wise institutions have gone to the wall. Is it just a coincidence that a market based on the assumption that everybody plays the same game only seems to be presently benefiting those who are explicitly following a different set of rules? Those who don't seek to grow the pie for everybody, but rather bet on increasing their share as the pie shrinks.

Another point people seem to have missed when talking about the riots is that of social insurance. 'Social insurance' is not a complex financial instrument to underwrite communities against rioting and looting, nor a clever idea to strengthen neighbourhood cohesion as part of the Big Society, or Mending Broken Britain, or the like. Such ideas only focus on the structure, and never on the agency. Instead, social insurance is the consensual agreement that you put into society what you take out of it. It is tempting to talk about the 'feral bankers' at the top exactly mirroring the anti-social 'feral youth' at the bottom - as Peter Oborne does in a excellent Telegraph article - but this assumes that problems are caused by the outliers, those who are not yet playing the game, rather than those who have looked at the rules of the game, found them wanting, and decided that personal advancement is best achieved by acting irrationally.

Gone is any notion that we insure each other as a society against our individual losses. Those at the top have grown up with good schools and healthcare, been aided by transport, agricultural and industrial systems that deliver goods in plentiful supply and at affordable cost, have been able to participate in an economy that enforces property rights, that encourages (and even funds) innovation, and balances freedom from coercion with rules about protection. But they don't feel that they owe a commensurate return to society. There is a reason that people get rich more often in Britain than they do in Somalia, and it has little to do with the genius of the British race or even to do with luck.

Free schools and healthcare, opportunities for employment and open and ordered markets offer a better way out of poverty for people in Britain than that offered to most people in the world - and it should be obvious to even the most disaffected that smashing up the family grocer in the high street is hardly sticking it to the man. Again, the only explanations we hear from politicians are that this is due to a collapse of moral values on the one hand or the deliberate destruction of the welfare state on the other. Who is promoting the idea that we get out of society what we put into it?

What is needed, perhaps, is a return to the idea of the social contract. Social contract theory is no longer glamorous. The wisdom of crowds and quantum psychology are undoubtedly 'sexier'. But social contract theory not only represents a return to the values that people across the political spectrum seem to be yearning for - community spirit, fair play, social justice, respect for property - but also offer an inherently systemic way of looking at things.

Social contract theory is founded on the work of Thomas Hobbes and John Locke. Hobbes, often thought of as austere and forbidding, actually writes in the form of allegory, or at least as prophetic warning. He argues that absolutism is necessary for order, but order produces things like safety and prosperity, which are much better for everyone than the alternatives. Locke, less provocatively, argues that man is fundamentally rational and responsive to reason, even if he does try other things along the way. The ultimate logic of freedom is to pool certain parts of your liberty for the common good in order to make society work and benefit everybody.

The idea of the social contract - giving up some freedom to the public good in return for protection of person and property - is clearly failing in Britain, and offers a neat response to what the politicians, the thinkers, the police and the media seem to be groping around for. Central to this is a message that any systemist would surely recognise - we need to stop viewing society as a mass of loosely related parts, but as a dynamic and uncertain whole.

If society doesn't exist, if we are all just individual actors, then no thought needs to be given to what sort of contract is being formed between people. The kids who lashed-out incoherently at authority, the rich, the politicians, and at society, were frantic for somebody to step in and stop them. They expect us to behave like scum, the thought went, so let's just live up to expectations. The bankers, who thought that bright minds and clever mathematics could figure out deeply uncertain things like credit-default probabilities, couldn't do the sums on millions of people being given mortgages they couldn't afford to repay. Both of these groups entered a form of anti-social contract with the rest of us, and now it's time to settle the bill.

This malady we are all suffering is not because the Educational Maintenance Allowance was cut, nor is it because of a sudden break-down in family values. Crime levels are at their lowest for thirty years and the Great Recession doesn't seem to have changed this. But where the social contract is neglected, becoming frayed around the edges, or just too unglamorous to compete with 'Broken Britain' or 'The Big Society', fear-entrepreneurs at both the top and the bottom of society see opportunities to sign people up to their anti-social contracts instead.

'Yes to mugs: no to thugs' became the popular Twitter hashtag in response to the riots. Sit down and have a cup of tea instead of all this nonsense. Use the opportunity to read some Hobbes or Locke. Or better still, read some Schumacher.