From a non economist…

By november 16, 2015 Algemeen

Confronted with mounting social, economic, and ecological crises, growing numbers of people have begun to realize that traditional strategies and reformist approaches no longer work. Addressing the problems of the twenty-first century requires going beyond business as usual. It requires ‘changing the system.’ But what does this mean?’

We are facing a systemic crisis, not simply political and economic difficulties. The economy is stagnating. The political system is stalemated. Com­munities are in decay. The lives of many people are com­promised by economic and social pain. Violence is en­demic among individuals, communities, and (within) nations. Civil liberties are eroding, income and wealth dispari­ties have become severe. Near-record numbers of citizens remain incarcerated. Underemployment, in­equality, and ecological despoliation deepen day by day. The planet itself is threatened by exceedance of biophysical limits. A generation of young people expects to be worse off than their parents. The very idea of building a coop­erative community of caring responsibility has faded from common understanding.

Traditional strategies to achieve equitable and sus­tainable social, economic, and ecological outcomes simply no longer work. The current mainstream model of the global economy is based on a number of assumptions about the way the world works, what the economy is, and what the economy is for. These assumptions arose in an earlier period, when the world was relatively empty of humans and their artifacts. Built capital was the limiting factor, while natural capital was abundant. It made sense not to worry too much about environmental ‘externalities, since they could be assumed to be relatively small and ultimately solvable. It also made sense to focus on the growth of the market economy, as measured by gross domestic product (GDP), as a primary means to improve human welfare. And it made sense to think of the economy as only marketed goods and services and to think of the goal as increasing the amount of these that were produced and consumed. The central focus of macroeconomic policies is typically to maximize economic growth; lesser goals include price stabilization and full employment. If society instead adopts the central economic goal of sustainable human well-being, macroeconomic policy will change radically. The goals will be to create an economy that offers meaningful employment to all and that balances investments across the four types of capital to maximize well-being. Such an approach would lead to fundamentally different macroeconomic policies and rules. A key leverage point is the current monetary system, which is inherently unsustainable. Most of the money supply is a result of what is known as fractional reserve banking.

A second key lever for macroeconomic reform is tax policy. Conventional economists generally look at taxes as a necessary but significant drag on economic growth. However, taxes are an effective tool for internalizing negative externalities into market prices and for improving income distribution. A shift in the burden of taxation from value added (economic “goods,” such as income earned by labor and capital) to throughput flow (ecological decline, such as resource extraction and pollution) is critical for shifting toward sustainability. Such a reform would internalize external costs, thus increasing efficiency.

Now, however, we live in a radically different world—one that is relatively full of humans and their built capital infrastructure. Once society has accepted the worldview that the economic system is sustained and contained by our finite global ecosystem, it becomes obvious that we must respect ecological limits. This requires that we understand precisely what these limits entail and where economic activity currently stands in relation to them.

Systemic social inequality can likewise undermine the capacity to flourish. It expresses itself in many forms besides income inequality, such as life expectancy, poverty, malnourishment, and infant mortality. Inequality can also drive other social problems (such as overconsumption), increase anxiety, undermine social capital, and expose lower-income households to higher morbidity and lower life satisfaction.’ Fair limits’ to the range of inequality need to be determined—that is, a minimum and a maximum income. Studies have shown that most adults would be willing to give up personal gain in return for reducing inequality they see as unfair. Redistributive mechanisms and policies could include revising income tax structures, improving access to high-quality education, introducing anti-discrimination legislation, implementing anti-crime measures and improving the local environment in deprived areas, and addressing the impact of immigration on urban and rural poverty. New forms of cooperative ownership or public ownership, can also help lower internal pay ratios.

The dominance of markets and property rights in allocating resources also can impair communities’ capacity to flourish. Private property rights are established when resources can be made excludable—that is, when one person or group can use a resource while denying access to others. But many resources essential to human welfare are ‘non-excludable,’ meaning that it is difficult or impossible to exclude others from access to them.

Education will make the difference in determining which individuals and societies profit and which ones will fall behind. Educating programs must provide people with opportunities that are better than the jobs being replaced in the 3th and 4th industrial revolution. Migrant-sending countries will depend on education and technology transfer to improve productivity, create jobs at home, and give aspiring emigrants the skills base they need to find jobs abroad to create a virtuous cycle of brain circulation.

In most countries, migration policies are set as if in stone; they are very difficult to change. With the approaching labor market changes, the time is now to create more flexible migration policies that are more responsive to labor markets. It’s also important to bring as many developing countries as possible into formal economies where they will contribute to the transition of the global economy.

If societies and economies fail to adapt to the major disruption ahead, we will see new waves of forced migrants and resistance to them. This will create moral dilemmas and impose heavy economic costs. Forced migration freezes the human capital embodied in refugees, while imposing costs of maintaining temporary housing and food for people who are stuck in limbo.

Flourishing communities will be supported and maintained by the social capital built by a strong democracy. A strong democracy is most easily understood at the level of community governance, where all citizens are free (and expected) to participate in all political decisions affecting the community. Broad participation requires the removal of distorting influences like special interest lobbying and funding of political campaigns.

The brief sketch presented here of a sustainable and desirable ecological economy, along with some of the policies required to achieve it, begs the important question of whether these policies taken together are consistent and whether they are sufficient to achieve the goals articulated. Can we have a global economy that is not growing in material terms but that is sustainable and provides a high quality of life for most, if not all, people? What do you think?