The Imaginary Economy by Mario Fabbri: Summary & Notes

Front cover of The Imaginary Economy by Mario Fabbri.

In short

The Imaginary Economy is a thought-provoking book in which Italian economist Mario Fabbri argues that most of the modern world and workplaces are unproductive from a macro-economic viewpoint. There are different reasons for this that Fabbri discusses throughout the book. One is that the economy is held back not by production restraints, but by consumption restraints (i.e. people not consuming enough, or adopting new products quickly enough). At the same time, food production and factories tend to become more productive through automation and technological innovations, while people still have a drive to work and contribute to society. As a result, too many people want to work, real productive work is becoming scarcer and scarcer, and so many people end up doing unproductive or unnecessary work.

As Fabbri puts it nicely: “[t]he advance of automation in factories increases the number of forms and signatures needed to open an account in banks.”

In a way, you could describe the book as Bullshit Jobs from an economist’s point of view. Definitely an interesting read, even if you don’t necessarily buy into all the arguments.

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Book Summary & Notes

All text between quotation marks is taken directly from the book.

The unproductive economy

“The object of our investigation is the imaginary economy: the growing part of the economic system that claims to be ‘productive’ and is not.”

From the 1840s to today the US economy has grown at a steady 1.9% per year. Even when there were moments of crisis, or recovery afterwards, it shows linearity and stability in the long-term.

This “leads us to suspect that there is some ‘physiological limit’, different and more stringent than mere production capacity, that has put a cap on the growth rate of per capita income. The most logical explanation is that the speed at which American society assimilates new forms of consumption has precise and very stable limits.”

Consumption is part of a habit, a way of life, or a novelty that might, later on, become a habit. For something to become a habit it is usually first adopted by a certain part of the population before it becomes more widespread.

But there are clear limits to the adoption of new things: it implies changing your way of living, your habits, and this has a certain amount of stress or resistance. So there is always a limit to the speed of adoption.

“But the facts are much better explained if we consider the increase in capital, i.e. investment, to be not a cause but an effect of society’s inclination, generated by other factors, to increase production and consumption.”

What are some of those facts? They are most visible in post-war periods during rebuilding. The inhabits of a country will want to go back to the previous standards of living and the economy, technology and production can grow at very strong demand until that previous standard is reached. During this period there is high growth, high investments, low unemployment, and high profits.

So unseen factors mostly drive the economy.

“Economists like to think that the present economic situation contains within it everything necessary for predicting the future economic situation. And this is a serious mistake”

Some objections

When an individual gets rich he or she will consume much more. So from a micro perspective, there are no barriers, but it’s entirely something else to look at a macro perspective – on a society, where this is not possible.

Second objection: economic miracles, how can they grow at high rates?

Fabbri explains that there is a difference between autonomous development (that is: new forms of consumption), vs. imitative development (that is: adoption based on a model economy). The latter can grow much quicker, but after completing this imitative phase, development will slow down again to a rate of about ~2% per year.

Interestingly, while economists are generally unaware of “speed limits” of growth it has been very well known in the marketing community as the product life cycle with different adoption rates.

Henry Ford and the capacity to consume

When machines started to take over production, it became clear to some that the capacity to consume was holding back growth. Henry Ford is the most famous example of this and he reduced the workweek to 5 days in order to leave more room for consumption.

From an interview with Henry Ford: “The short week is bound to come, because without it the country will not be able to absorb its production and stay prosperous. The harder we crowd business for time, the more efficient it becomes. The more well-paid leisure workmen get, the greater become their wants [for consumer goods]. These wants soon become needs. Well-managed companies pay high wages and sell at low prices. Their workers have free time to enjoy life and the financial means to do so.”

When workers income is low, their consumption is necessarily low as well. As a result, on a country level, fewer goods will be sold, and factories will be smaller. This lack of money for workers to consume things is what Fabbri calls the Sismondi effect.

Why do we want to work?

Why do people work? Income is the obvious answer, but it is also because it is morally seen as the right thing to do – to be a useful member of society.

Fabbri looks at a few historical examples that seem to confirm Pareto’s statement that the public opinion of work depends on the “dominant class”. In the 17th century, the dominant class was idle, and work was not something to strive for. Nowadays we say that “work ennobles man”.

“But because productivity has greatly increased, the aspirations of the many people who want to work today can only be realised in the imaginary economy.”

Why would an ever-larger share of people receive a salary for doing “unproductive” work? That is: why would the imaginary economy grow? Complaisance explains this: creating more jobs to help people (maybe a friend, or maybe to help society in general) that are unproductive doesn’t really affect competition. Because “the technically unnecessary costs that enter common use are not relevant to market competition, and may even become necessary for companies.”

“The interplay of the four factors we have just seen – significant inertia of consumption, fast advancement of labour productivity, universal aspiration to ‘worker’ roles and complaisance – is enough to explain the development of what we have called the imaginary economy”

The service sector

“But the fact that it is difficult to describe the function of these workers in simple words, and therefore also to accurately measure their productive contribution, makes the service sector a perfect breeding ground for the imaginary economy: a large sponge that can readily absorb huge masses of unproductive workers.”

“In fact a crucial ingredient in the development of the imaginary economy is that enlarging the staff of a bureaucratic organisation may increase the time it needs to complete tasks, rather than reducing it.”

This is not just true for governmental organisations, but also private ones, especially very large companies. Most tasks should be quite simple to complete, but often require large amounts of energy and time in big firms.

Conformists make great efforts to persuade themselves that their job is productive and rational, but workers who are more critical observers cannot believe this.

“But even where concrete objectives are not attained, often just the idea of doing a job, however elusive its purpose, that offers experience similar to productive work – commitment, problems to solve, deadlines to meet – is enough for many to give meaning to their activity.”

This means that from a micro perspective the worker can be productive (he earns an income after all), but from a macro perspective the job can be unproductive to the economy as a whole.

“The advance of automation in factories increases the number of forms and signatures needed to open an account in banks.

Low visibility and inefficiency

“But, apart from the impossibility of removing them from the macro plane, at the micro level too, inefficiencies are difficult not only to remove but even to identify, as they are primarily hidden by familiarity.”

In small firms, there is often a higher level of efficiency because it’s easier to understand the full scope. But in big firms inefficiency often escape notice because people have limited knowledge about how the organisation works. I.e. they don’t know what lies beyond their horizon of visibility.

To get a sense of inefficiencies hidden in complexity, just look at painful reorganisations: a very high number of white-collar workers and managers are let go, without a significant impact on sales or operations.

Is the imaginary economy harmful?

If such a large share of the population is engaged in unproductive work, isn’t that harmful to society overall? Fabbri argues that it depends. If there is room for production to expand or become more efficient (and thus consumption is constrained), then a higher share of imaginary work can boost the economy. It can also be irrelevant if consumption is limited due to social constraints, rather than productive ones. And finally, the imaginary economy can also harm development if the productive sector becomes too small to support the rest of society.

Why is the imaginary economy hidden?

Fabbri states that becomes we are less engaged with the material reality, and instead are operating in purely human environments (without clear criteria for success) we are not aware of the unproductive nature of the imaginary economy.

“In this collective reality, the human group’s knowledge of the material world is integrated with appropriate fantasies that interlink its many elements, creating a coherent overall picture even if actual knowledge is partial and faulty.”

Most people are conformists and they have trouble seeing the inefficiencies for what they are. To go against common opinion, collective reality and social order is hard.

“It is thanks to dissociation that most of the oddities, inefficiencies and absurdities visible in the compartment of a normal working life, coexist happily with the theories of economists which, in a different compartment, describe the working of the economic system on very different terms.”

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