Chapter 3 from The Transiotion to a Sustainable and Just W orld, Envirobook, 2010, T. Trainer.
THE ECONOMY; A MAJOR SOURCE OF THE PROBLEMS.
The alarming range of global problems facing us is due primarily to the economic system we have. This chapter discusses the major faults in the global economy, and the changes needed. The core argument is that these cannot be fixed. The structures built into this economy inevitably generate these problems and if we were to eliminate the causes of the problems we would have a radically different economic system. The next chapter deals with the kind of alternatives economy we must try to build.
The most glaring fault built into our economy is the commitment to growth, i.e., to constantly increasing the volume of production and consumption with no limit in view. The taken-for-granted assumption is that economic growth is the key to improving everything, because it means that the “wealth” produced increases all the time, and this means that “living standards” are rising.
Not much needs to be said about this issue after Chapter 2 showed we have gone way past the limits to growth. Our present volumes of global production, consumption, resource use and environmental impact are far beyond sustainable levels, and beyond those that could be extended to all the world’s people. Remember the footprint situation. It takes 8 ha of productive land to provide one person in Australia with their food, water, settlement area and energy but the amount of such land available in the world per capita is only 1.2 ha, and by the time population stabilises at 9+ billion it will be .8 ha. Each person in a rich country is already using about ten times as many biological resources as is possible for all.
This and other lines of argument referred to in Chapter 2 show that we should be reducing resource use and environmental impact to a small fraction of their present levels. This cannot be done in the present economy, because such an economy cannot tolerate protracted reduction in business turnover or sales. In fact unless growth of around 3% p.a. is maintained problems such as unemployment become serious.
So although we are already producing and consuming far too much our economy is obsessed with constant and endless increases! Most people do not understand how much greater the levels of output will become if we continue with economic growth. To repeat, if an economy grows at 3% p.a. then in 70 years time its total output will be 8 times as great every year as at the start. Economists and politicians want at least 3% p. a. growth. If a) we in rich countries do have 3% p. a. growth to 2070, and b) if the world’s population is 9 billion by then as is expected, and c) by then all people have risen to the “living standard” we would have in Australia, then the total volume of world economic output would be 60 times as great as it is today! Yet the present levels of production and consumption are unsustainable.
Clearly these “limits to growth” arguments force us to accept some extremely radical conclusions. This economy is grossly unsustainable. It has far overshot sustainable levels of production and consumption. We must not only shift to a zero growth or steady-state economy, we must dramatically reduce production, consumption, “living standards” and the GDP to a small fraction of their present levels. Yet most people, including most politicians and economic leaders steadfastly refuse to even think about these limits arguments and plunge on, taking the increase in incomes, production, consumption and GDP as their supreme goals. The absurdity of the growth commitment has been the focus of a small number of concerned academics and activists for decades but we have failed to get the issue onto the agenda of public discussion. This willful ideological blindness indicates how unlikely we are to solve the overall sustainability problem.
The volume of wasteful and unnecessary production is enormous -- but essential.
This economy involves a huge amount of production that is unnecessary and wasteful. Consider for example, items we do not need much or at all (e.g., cosmetics, sports cars), things that are more elaborate and expensive than is necessary (e.g., cars, houses, clothes), items not made to last, or made to be thrown away, all the packaging that could be avoided, the effort that goes into advertising, the wasteful competition between firms trying to take sales from each other, and the “defensive expenditure” now required to fix problems caused by over-production or by social breakdown. Advocates of The Simpler Way argue that if we lived more simply in highly self-sufficient local economies we might cut our per capita resource consumption by 90% and we might only need to go to work one or 1 or 2 days a week.
However this economy must maintain or increase the amount of waste. Without waste the economy would collapse. If we decided to stop producing even a few of the things we do not need there would be a jump in unemployment and bankruptcies would skyrocket. The economy would plunge into depression. It is not possible to reform this economy so that it just produces as much as we need.
Advertising and marketing.
Little needs to be said here about the fact that most of the $550 billion p.a. now spent on "marketing" is an appalling waste of resources that could be applied to useful purposes or left in the ground. Most advertising is wasteful competition between corporations to take sales from each other in a zero-sum game, most obviously in tourism, car and soft drink sales. In a sane society no effort would be made to persuade anyone to purchase anything. Some few resources could be put into making available good information on products available, via the internet, so that anyone who needs to buy a new item could look up the models that are available. Arrangements might be made within "news" services to announce new products.
Why do we still have to work so hard?
Over the past three decades the real average GDP per capita in rich countries has more than doubled meaning that we could have 1970s “living standards” on an average work week of about 17 hours. Yet hours of work are increasing, overtime is increasingly unpaid, work conditions are deteriorating and jobs are more insecure than ever. How can this be? Why is it that despite such an enormous increase in output and average wealth, everyone is having to work harder, try harder to find something to sell, worry more about their future, and to endure less security? Clearly the wealth produced is much greater than it was previously, so why don’t we have more of it, or more time to take things easier? How come that no matter how much wealth the economy produces, people still have to struggle harder to produce and sell something?
The answer is, mainly because the super rich are taking the wealth. Yes part of the answer is that people have chosen to spend much more (e.g., on more expensive houses), i.e., to take the increased ”wealth” as more possessions rather than as more leisure. But most of the answer is that we have an economy that enables the rich to take most of any increase in wealth while it forces the rest to strive ever harder to earn a sufficient income. Just consider the basic trends in inequality. For instance, over 30 years the average income of the American super rich 1% increased 157%, while the average for at least 40 million fell. (See below.)
Conclusions on growth.
It should be glaringly obviousness that holding economic growth as a goal is absurd and suicidal, yet few realise this and all governments hold growth as their supreme goal. This is a source of profound despair. The global “footprint” of a rich person is already about 10 times as great as will be possible for all yet the entire world is fiercely and unquestioningly determined to increase production and consumption, without limit. The core theme of this book should again be obvious. A growth economy cannot be fixed – it must be totally scrapped. It is not possible to solve our most urgent problems while we have an economy that must increase production and consumption all the time and without limit.
The alternative; A zero-growth economy and a tiny GDP per capita
Given that the core global problem is far too much producing and consuming going on we must develop an economy in which not only is there never any increase in GDP but in the short term we must cut it to a small fraction of its present level.
Consider the essential features of a sane economy. It would enable all to contribute to the production of the goods and services that are necessary and just sufficient to give all a good quality of life, with as little work, resource use, waste and environmental impact as possible, and needless to say, without any unemployment. Every element in this statement contradicts the nature of our present economy.
These goals could be achieved with a small fraction of the work, investment, trade, production and consumption and resource use of the present economy, and without any problems of inadequate hospitals or shortage of housing etc., if we simply organised some of our existing productive capacity to the task. If we did so, then there would be a vast amount of work, resource use, jobs and products that we no longer needed, so we could avoid these and devote the time saved to things like arts or sitting in the sun. It is madness that we now work 40+ hours a week when 15 might do, so the point is to develop an economy that makes that possible.
The implications of this first principle for a sane economy are mind-boggling. If we must cut the amount of producing and consuming going on dramatically that means most firms will have to be phased out, most capital will not be needed, and therefore most capital markets will become redundant. If there can be no economic growth then there can be no interest paid on loans. That means almost the whole of the finance industry must be scrapped. It also means that procedures for old age cannot involve superannuation investments and other arrangements will have to be made. You don’t like the look of this…don’t want to work out such radically different alternatives? Then you had better prove that unlimited growth in production and consumption on a finite planet is possible.
Fault 2: PRODUCTION IS FOR PROFIT
With modern productive technology we could easily meet all basic needs, yet several billion people suffer severe poverty and deprivation. Even in the richest countries there is huge unmet need. Thousands of people go without basic housing. We need more and better hospitals. Millions of Australians live under or just above the poverty line, going without things most people regard as necessary. Why are these needs not met when they could so easily be met?
The answer is, because it is not an economy in which we ask what needs producing and then organise our productive capacity to meet those needs. It is an economy in which,
Š most of the productive machinery (capital) is owned by a very few people,
Š who decide what to produce by asking what will make most money for themselves,
Š and they can always make most money producing relatively luxurious or more expensive things to sell to people who have higher incomes than they could by producing the cheapest possible necessities for the most needy people, or by producing what is best for society and the environment.
What drives this economy is the determination to accumulate capital, i.e., the intention of those with capital to invest in whatever will make most profit, in order to have even more capital next year to again invest where it will make as much money as possible, in a never-ending spiral. In other words, a fundamental fault in our economy is that it is a system of production for profit and such a system ignores need. If you give people with capital the freedom to produce only what is most profitable to themselves you will inevitably end up neglecting the needs of many poorer people and of the environment. This is simply because the poor can’t pay much for products so the factory owners mostly produce for and sell to people with more money. Again such a system cannot attend primarily to need. It cannot be fixed. There is a head-on contradiction between producing what is most profitable and what is most needed.
Fault 3: THE FREE MARKET IS THE ALLOCATION MECHANISM.
There are only two basic ways to determine what should be produced and how it should be distributed. Either you decide via rational discussion of needs and rights, or you leave it all to the market. Yes the former option can involve you in difficult problems of planning but the latter option will inevitably result in intolerable problems to do with equity, justice, rights, the environment and future generations.
In the present economy individuals have much freedom to produce, purchase and work as they wish. This seems desirable and there is no doubt that it is an immensely powerful productive mechanism. However the problem is that there is too much freedom for the strongest and richest to buy and do and take and develop what they like.
It is easy to show that most of the waste, human suffering and ecological destruction in the world is due to the working of market forces. In a market system what is produced and who gets it at what price is determined by who is prepared to pay most. The result is that in a market system scarce things always go to those who can pay more. Those who own resources will sell them for the highest price they can get, and richer people can pay higher prices. Poor people have little or no “effective demand”. Need or justice is totally irrelevant and will not influence the outcome. In a market system it does not matter how desperately something is needed, it will go to whoever can pay most for it.
This is why one-third of the world’s grain production, more than 600 million tonnes is fed every year to animals in rich countries, while around 850 million people are hungry. It is why the rich countries take three-quarters of the world’s resource output and consume resources at a per capita rate that is fifteen to twenty times that of the poorest half of the world’s people. Richer people take most of the valuable resources because they can pay more for them.
Even worse is the fact that market forces ensure that the wrong things are developed. For example in the Third World where there is an urgent need for development of farms and factories to produce for the majority of people who are poor, very little development of this kind occurs while almost all the investment goes into developing farms and factories to export goods to rich countries. Why? Simply because these are the purposes that will yield most return on investment. Investors will never maximise their profits developing industries to produce what is most needed, because the most urgent needs are felt by poor people and it is always much more profitable to produce what relatively rich people want.
This is the main mechanism that has developed the world into the forms and structures that serve the interests of the rich countries and especially their corporate elites. Most of the productive capacity in the Third World now produces things that benefit only the transnational corporations, the few richer people in the Third World, and people who buy coffee in rich world supermarkets -- because producing to satisfy their demand is the most profitable aim for those with capital to invest.
“But the market makes the most efficient allocations.”
Conventional economists claim that the market makes the most “efficient” allocations of resources and investment. This is absurdly wrong. It is only true if we define “efficient” in terms of the monetary return on investment. If on the other hand we are concerned with using resources and capital to meet needs most effectively, or to do what is morally right, or to develop what is sensible or best for the environment, then market forces are not only appallingly inefficient, they will almost always result in precisely the wrong outcome! Resource producers never sell vital resources to those in most need. Foreign investors never develop industries to supply what most poor people need. Market forces never result in just outcomes or those most likely to preserve the environment.
Conventional economists, and most people, think the market system is working well, but this is because it has had such desirable consequences…for most people in rich countries. What they overlook is the fact that they are rich. They are among the few in the world who win and take wealth when markets determine production, distribution and development. The market system does work well – for them. They have “effective demand”, i.e., the money to buy things. There are three large groups who have no power to bid in the market and therefore will get nothing from it – the poor majority of people on the planet, all future generations, and all other species. Before you claim that the market works well ask those groups how well it works for them.
“The freedom of enterprise”
Conventional economists claim as a merit of this economy the fact that it gives people a great deal of freedom to buy and sell and invest as they wish. But the foregoing examples show that in our economy there is far too much freedom of enterprise, freedom of purchasers and of investors, and freedom for market forces to determine what happens. Corporations and richer people have far too much freedom to do and to get what they want. Third World plantation owners are free to plant coffee for export rather than food for local people. Transnational corporations are free to invest in luxury production and to avoid investing in what most needs producing. Richer people are free to take most of the scarce resources and goods on sale by being able to pay more for them.
It is of course desirable in principle to ensure that people have considerable freedom to do what they want, but obviously in a good society there must be many restrictions placed on individual freedom. There are many things that it makes sense for us not to allow each other to do if we want an orderly, sensible, just and sustainable society. For example it is not a good idea to allow people the freedom to drive on whatever side of the road they wish. This would reduce the freedom from danger that we all want. When those who own most of the Third World land have the freedom to produce what they like this undermines the freedom of most people to have sufficient food.
The basic question should always be, “What arrangements will maximise the overall social benefit?” In general these arrangements will restrict some freedoms, especially those of the few who are most rich and powerful and therefore most able to take much more than their fair share and thus to deprive others. Yet conventional economists proceed as if the fewer restrictions on economic activity the better, and we are in an era of globalisation when the giant corporations and banks are trying to reduce the remaining capacity governments have to regulate their activities. When they call for more “freedom of trade” and investment they mean they want more freedom for corporations to go where they like and do what they like without regulation, and thereby more freedom to take all the resources and markets available.
Thus the dominant “neo-liberal” assumption that a society functions best when all are free and encouraged to maximise their own individual advantage in competition with all others, is patently ridiculous. This is a recipe for vicious grabbing, winner-take-all, increasing inequality, the deprivation of the poor and the eventual destruction of society and its ecosystems. You cannot have a good society unless you make sure that the strongest few don’t take everything and unless you make sure that what is done is what is best for others, for society as a whole and for the environment. This often means individuals and corporations must not be allowed to do whatever will maximise their own benefit.
These have been arguments against the acceptability of a free enterprise or capitalist economy. It does not follow that the alternative has to be a “communist” or “socialist” economy in which all productive property is owned by a state which totally controls the economy. The next chapter will show that the economy of The Simpler Way is quite different. In a satisfactory economy there might still be considerable scope for markets, private firms and freedom of enterprise, but there would have to be social control (exercised in mostly small local economies through open and participatory processes) whereby all people share equally in making the decisions. These decisions will include allowing many domains to function without much or any regulation.
“Move over pal – Find something else to sell”.
One of the worst faults in this economy is the fact that everyone strives to take over as much of the productive activity as they can, without any limit. People with little firms try to grow, to get more sales, taking markets from competitors if they can. Gigantic corporations put huge numbers of firms out of business all the time, by selling more cheaply and taking the sales and customers the others used to have. These displaced people then have to search hard for something else to sell. (Most people only have their labour to sell.) In recent years much of the foreign investment in the Third World has not set up any new operations, it has just taken over existing firms. As a result there is constant high pressure on all to find something to produce and sell, even though the total amount of work done and stuff produced and sold are far greater than would be necessary to provide well for all.
The conventional economist says this situation motivates everyone to work hard, innovate and produce goods that are cheaper for us to buy. It is true that the most energetic and efficient producer can offer goods more cheaply than the little people he drives out of business, but that should not be the only consideration determining what happens. What about the social consequences? What about the possibility that it is not as important to have cheaper goods as it is to have all people happily in jobs or running little businesses, or to have a more equal society, or to head off the long term loss of social cohesion we are witnessing? What about the possibility of avoiding all that hard work, stress, anxiety and unnecessary competition? And what about the possibility that this system pushes us all to produce far more than is ecologically sustainable?
All that production, wealth and the income which many little people used to enjoy has been taken by the owners of the successful firms of course. Once, many little shopkeepers in the town shared the sales opportunities and the income that could be made there – but then the big supermarket chain came in and took those markets and sales from them. Now the business, income, purposeful activity and satisfaction that was shared between many all go to a very few. This mechanism is one of the main forces at work constantly making incomes more unequal, because the few are most able to win in the struggle to take sales, so they then take over more and more of the business to be done and the money to be earned. The rest are then forced to scramble to find something else to start selling. This is very difficult, so it is no surprise that many turn to illegal ways of getting an income, or that many individuals and corporations do morally questionable things to get more sales. However if we simply shared the producing among all the people who want work and incomes, all could have a satisfactory livelihood without this constant pressure to increase the volume produced, and without fuelling growth of GDP and inequality.
In a sane economy we would make sure that there were strict limits on how much one person could take. (Some tribes do this.) We would have rules which stopped the few who are most smart, competent, powerful, rich or energetic from taking much more than they need, and thereby taking scarce things others need and forcing many others to get by on less than their fair share. We would work out ways of somehow sharing the work and goods, to make sure all were provided for. Especially important, we would make sure that all people had a livelihood, a way of earning a reasonable income and getting satisfaction and self-respect from being able to work and contribute.
“But society benefits when all are free to maximise their self interest. Adam Smith said so. If someone develops a much better way of doing something, that will benefit society. Shouldn’t he be free to market it and get the reward?” In a good society we would grapple with problems like this, working out how best to provide for all, encourage and reward innovation while not allowing such processes to leave anyone without a livelihood. In a very good society the innovator would be happy to give his new idea to society without expecting to become very rich from it, i.e., in a situation where wealth was not idolised and he knew he and all others could always live well without having to struggle to be one of the few winners.
Of course people in a capitalist society would reject the suggestion that there should be such social control over both the economy, and how rich some individuals could become. Both the few who benefit most by the system and people in general would fiercely insist on a system in which a few are free to get very rich taking more than they need, in which they all try to be one of the winners, and they all cheer the winner who becomes a tycoon, with no concern for the many who lose their livelihoods in the process and the many who can’t keep up.
Endless, mindless, un-winable competition.
This economy forces us all into constantly competing against each other for scarce jobs, markets and export sales opportunities. It makes corporations waste huge amounts competing against each other for the same limited sales opportunities, e.g., through soft drink advertising. Even though we already do far more working and producing than would be necessary in a sane economy, everyone has to struggle all the time to be more productive, efficient and competitive, with no point in sight where we can ease up because we have developed a sufficiently productive economy.
Why do people go on working frantically at things that are not important or desirable, such as making weapons, digging up gold, selling cigarettes, advertising junk food, pushing drugs, running gambling casinos…? Why would anyone do these things…if they could gain a sufficient income doing something worthwhile? But in this economy that is very difficult and for many impossible. In a sensible economy we would a) think out what needs doing, b) share out the necessary work, and c) share out what we produced. If we got all this done by Wednesday afternoon we would just shut the factories until the following Monday.
Similarly, nations are increasingly dependent on competing against each other to export, mostly into markets that are already glutted. Huge efforts are made to find things to export, and to beat others to markets. A country’s entire economic situation can collapse if it does not constantly strive to produce and export more cheaply than everyone else. Meanwhile the rich countries can buy commodities at the low prices set by the fierce competition between poor nations trying to win export markets for their limited range of crops or minerals.
It is absurd to organise the world and the fate of all people in terms of competing to sell. Not all can win in a competition. Only the strongest win and then take more than their fair share while many miss out altogether. In a sane world nations would produce mostly to meet their own needs, at a relaxed pace, and would export only a few things in order to be able to import the few necessities they could not produce.
As neo-liberal doctrine has become more dominant since the 1970s it has increasingly been taken for granted that governments should not run enterprises because these are more efficiently run by private firms, i.e., left to market forces. Consequently there has been a huge transfer of operations such as railways and power supply from governments to private corporations.
The assumption that private firms run things more “efficiently” than governments is a myth. The evidence from studies of firms that have been privatised does not clearly show that they then perform better, nor that the total social benefit has increased. It seems clear that some kinds of enterprises are best left to private firms but governments can run many things quite well. (See Hodge, 2000.)
More importantly, “efficiency” is not the only factor that matters. Governments should retain control of many industries in order to achieve social goals, such as making sure all have access to satisfactory services like water supply, health care and pharmaceutical goods, keeping prices down by competing with private firms, and locating factories in needy areas. If governments give up their operation of enterprises they reduce their capacity to influence the development of society. In the Third World neo-liberal doctrine, especially imposed through the Structural Adjustment Packages, forces governments to give up much of their power to make development decisions, by insisting that governments should not own firms and that development should be left to private corporations. This means governments can’t make sure national resources are devoted to developing what will meet national needs. As a result, when Bolivian water supply was privatised the profit-maximising corporations cut supply to poor areas.
Governments can retain, or set up, firms in areas where jobs are needed or where the services are needed, whereas corporations will dump those areas as soon as they can make more profit somewhere else. One of the big Australian banks recently closed its branch in a country town, because it was only making 17% profit! The fact that the town might need a bank was of course of no concern, whereas if the government had owned that bank it could have been kept open at no cost to society. Note how this reveals the absurdity of conventional economic theory which asserts that allowing profit maximisation to determine everything results in what is best for society. A similar illustration comes from drug R and D where the problems affecting most people on earth are ignored while drug companies focus on new hair-restorers and cough syrups to market in rich countries. Malaria is one of the most deadly diseases in the Third World, but drug companies hardly devote any research to anti-malarial drugs, because in rich countries hardly anyone suffers from it. Only about 1% of new drugs developed are relevant to the major Third World illnesses.
Unemployment is a central element in a market economy, because labour is treated as just another commodity that can be bought and sold in a market. Unemployment reveals some of the economy’s worst irrationalities and injustices.
In this economy it would only be possible to solve the unemployment problem if there was a huge increase in the amount consumed and therefore in the amount produced and in the jobs required for that. But we do not need anywhere near as much produced as there is now, and present levels of production and consumption are beyond sustainable in view of the resource and ecological limits of the planet. If we only produced as much as was sensible, with modern technology the unemployment rate might be well over 80%! In a satisfactory economy we would organise to share the rather small amount of necessary work among all who wanted work.
In this economy labour is treated as just another “factor of production”, like bricks or land, to be used in production according to what will maximise the return on investment. But labour should not be treated as just another commodity. Labour is people. It is alright to leave a brick idle or to scrap it. It is not alright to leave a person unemployed and without a reasonable income. It is not alright to let market forces determine whether a person is dumped into unemployment. The fault here is in excluding from economic decisions all but money costs and benefits when such costs should be given much less attention than considerations of justice, morality and the welfare of people and ecosystems. The misery of unemployment, the damage it causes to morale and self-concept, are serious costs, which economists and people with capital completely ignore. In a satisfactory economy we would keep people in jobs even though this was less efficient or more costly in monetary terms (although we would help them move to other activities if that made more sense.)
It is easy to organise an economy without there being any unemployment. There is none in the economy of the Kibbutz settlements, or in tribal societies, communes or monasteries. In those economies people simply arrange to share the work that needs doing among the people who want work. Only backward, brutally callous and uncivilised societies allow unemployment. Right now we could easily have a system whereby the government employed all who could not get jobs in normal firms to work on producing things they need and on important national needs, such as environmental protection. They could be paid partly by the present unemployment benefits but also from increased taxes on the rest of us if necessary. In a good society we would be quite happy to pay more tax if this was necessary to eliminate unemployment.
It is also worth pointing out here that the real unemployment rate is usually about twice the officially stated rate. If you want full time work but were only able to find one hour’s work in the week that the survey was taken, they put you down as employed! Studies of the numbers who want work but have given up looking etc. find that by any acceptable definition unemployment is typically twice as high as the government says. Consider how many social needs could be met if the workforce was usually 10 - 15% larger, and if these people could work on socially desirable projects.
Unemployment also shows how it is an economy that suits the owners of capital much more than it suits workers. It is great for the people who own factories to be able to hire workers when that’s profitable and dump them into misery and deprivation when they wish. Also note the powerful ideological forces at work here. Unemployment is very bad for people. It has bad effects on health and families. But it is not seen as such a bad thing that we should get rid of it.
During the Great Depression millions of people suffered idleness and poverty for a decade, yet the "leaders" of society would not take any steps to organise these people into cooperatives where they could put their labour and skills into producing for themselves many of the basic things they need. They could very easily have been helped to develop gardens and small cooperatives to build houses, furniture etc., and provide entertainment and services for each other, at almost no dollar cost to the state. This was not done simply because it would have been contrary to capitalist ideology; it would have been seen as "socialism". Conventional economists would have said it was voodoo economics. It would have been very much against the interests of the rich for the working class to have found that it could provide for itself in these ways which contradict the market, “private enterprise” and the assumed need for capital.
At one point the NSW Premier Lang refused to pay interest on the public debt to British banks, arguing that the money should be used instead to benefit the people in great deprivation. This provoked a serious conflict. Even the Australian Federal government fought against him. During the Irish Potato famine conventional economists argued against assistance to the starving peasants because this would interfere with the normal working of the economy…at a time when Ireland was exporting food. These are powerful illustrations of the toll in human misery caused by the domination of conventional economic doctrine…which, surprise surprise, typically recommends what suits the owners of capital.
It suits the owners of capital if labour is treated as a commodity to be bought and sold in a labour market, like bricks, and just left idle if no one wants to buy any of it. But many important things should not be treated as a commodity that can be bought and sold, including children, friendship, the judgments of courts, loyalty, national defence, good health care, prison sentences, fire protection, clean air, safe water, public parklands… Again the power of capitalist ideology is apparent. Almost everyone, including unemployed workers, accept without question that whether or not people can have a livelihood and an income and thereby escape the misery of unemployment should depend on wether employers can make more money giving people more jobs. The fault here is not greedy, nasty employers, it is an economic system that treats labour as a commodity to be traded in a market, and it is the failure of people in general to see that such a system is unacceptable.
The market mechanism built into the foundations of this economy has a powerful tendency to create and increase inequality. The market heaps goods, income, wealth and opportunities on those who are richer in the first place, and if much effort is not made the poor majority will be deprived and dumped. Fifty years ago reducing inequality was an important goal of governments but in recent decades the surge of neo-liberalism has pushed it off the agenda, and we are seeing rapid polarisation. Consider the following statistics.
These appalling figures are an inevitable consequence of an economy which allows a few to own resources and productive capacity and to put them into whatever purposes are most likely to increase their own wealth, and to take the wealth others once had (e.g., the firms, forests, fisheries) by beating them in the competition for sales. In the neo-liberal era of the past 35 years governments have greatly increased the freedom for the rich to take more wealth and to drive welfare and labour conditions down.
Wilkinson and Pickett (2009) have shown that inequality does not just affect those excluded, it damages the whole of society and reduces the welfare of even richer people. They found that the more inequality a society has the worse just about all indicators of welfare and quality of life are, such as rates of crime, illness and stress. The struggle to get poisons society. It focuses attention on self-interest and detracts from the socially constructive contributions that enrich us all.
Most people think that great inequality in wealth is quite acceptable because there is “equality of opportunity”, i.e., all have the opportunity to get ahead, to do well at school, start a business, and become rich. There is an important distinction between equality of opportunity and equality of outcomes in society. You could have a society in which a very few were very rich and most were very poor, but all had an equal chance of getting into the rich group. We would not be content just to have given every one an equal chance to become rich or impoverished. In a good society we would not want there to be serious inequality of outcomes and we would not want anyone to be deprived of basic necessities. Again this can’t be achieved unless steps are taken contrary to market forces to prevent serious inequality from emerging. Reflect on the power of the ideological forces at work here, ensuring that there is little or no discontent with the obscene wealth this economy heaps on a very few and the deprivation it inflicts on very many. Few seems to think the situation is appallingly unjust, wasteful, destructive of human life, and offensive in the extreme.
The solution to the global problem of accelerating inequality is not redistribution of income. Unfortunately most concerned people think it is. This is “slap on a patch”, “end of pipe” reformist thinking at its worst. “Accept the system that generates the obscenity, just get the strongest and richest to allow a little more of their wealth to be transferred to the losers.” A good society provides well for all its members and does not generate serious inequality. It has arrangements and rules which ensure that all have at least a sufficient share of the work and income and amenity available. This contradicts the basic principles of consumer-capitalist society which enshrines the right of the rich and strong to take as much as they can. You can’t fix such a society so that it does not have serious pro blems like unemployment and savage inequality.
We are many decades past the point in time when we could have produced all that would be needed to give everyone a good life, with the security of knowing that it can’t be lost. But in consumer-capitalist society we are all highly insecure and vulnerable. You could lose your job, or have an accident, or go bankrupt. Will you be cared for when you are old? It is a mark of a primitive and barbaric society that such concerns exist. Tribal people do not have these worries. They are far more secure than we are. That’s why there is a thriving insurance industry. Tribal people don’t need one. If a house blows away everyone comes over tomorrow to rebuild it.
Consider the insecurity of your retirement prospects when they depend on the fate of the global stock market, which can eliminate your superannuation nest egg over night. Insecurity is an inevitable consequence of the boom and slump character of the economy. During the boom phase there is no restraint as firms rush to make as much money as possible, then over-reach and the house of cards collapses with devastating consequences on millions who lose jobs, houses, businesses, and lives. None of this is possible in the economy of The Simpler Way, because we all hold the power to continue producing the things we need, even though the global economy might self-destruct.
Immediately after a crash, when everyone is wailing about lost jobs, incomes, firms, houses and economic activity the society possesses exactly the same amount of productive capacity, as many fields and factories as it had just before the crash. But no one seems to see the absurdity of a situation which will then keep all that productive capacity idle for years. Why not just organise to put the idle workers to work in the idle factories? The answer is because that’s not acceptable, indeed not even thinkable in capitalist society. It could not be done unless society could somehow decide rationally to plan it and deliberately do it, but this contradicts the principle of leaving things to market forces. Productive enterprisers must only be set up if and when someone with capital thinks that will make good profits. Again it is glaringly obvious that a) such a system cannot be fixed, b) the dominant free market ideology is so powerful that the absurdity of the situation is not recognised.
Globalisation “…is inevitable and good.”
Globalisation has been primarily a response to the most fundamental problem a capitalist economy faces, which is where to find profitable investment outlets for all the capital that is constantly accumulating. In the twenty year boom after World War II this was not difficult, because of the pent up demand and the need for reconstruction. But by the early 1970s it was becoming increasingly difficult to invest profitably.
Globalisation is essentially about corporations and banks wanting to get rid of the barriers hindering their access to more investment opportunities. It involves removing the arrangements which protected local firms, forests, labour, resources and markets for use by local people and preventing foreign corporations from taking them. The corporations are therefore increasingly able to enter markets previously out of their reach, to move to where the wages and conditions are lowest, to drive local producers out of business by undercutting their prices and thereby taking their trade, to take over local firms, to divert previously protected local land and resources into producing for export via transnational corporations. The three major strands in globalisation are deregulating (reducing government control of the economy), “freeing” trade and investment (allowing more to be determined by market forces), and privatising (selling government run businesses to private corporations.)
The problem of where to invest the ever-accumulating surplus has also fuelled the orgy of speculation, that is, gambling that has created futures markets, derivatives and hedge funds, and has resulted in the series of recent crashes -- the 1987 share market bust, the Savings and Loans crash, the Asian melt down, the dot-com bust and the 2008 sub-prime initiated global financial crisis. It is a mistake to see these speculative frenzies as due to the greed of the financial managers, brokers, screen jockeys and CEOs. That’s there abundantly, but it is not the basic cause. The problem derives from an economic system in which that surplus capital constantly accumulates generating a problem of where on earth to invest it all profitably, and therefore generating a need to speculate in ever more risky ventures.
In the extremely narrow and warped terms that conventional economic theory uses globalisation achieves miracles. That is, it results in leaps in investment, trade, business turnover, profit, technical change and GDP as capital can get into more fields. But as is usually the case with conventional economics, this is highly misleading, and it distracts attention from the effects that matter most. These include the savagely destructive impacts on economies, societies and ecosystems, on the welfare of most of the world’s people, and especially the lethal effects on the world’s poorest and most needy billion.
A satisfactory government must be able to protect and assist its own people, even though this might mean interfering with the wishes of investors and restricting what they can do. But under the new rules governments have given away their power to block or control what corporations want to do. Typically governments are legally prevented (e.g., by the trade agreements they have had to sign to be able to export to rich countries) from protecting their people against many of the things the corporations want to do. Some governments have actually been fined hundreds of millions of dollars for trying to restrict what corporations are doing, e.g., trying to ban a corporation’s ecologically undesirable products from sale. Any such attempt will be judged by the World Trade Organisation as “interfering with the freedom of trade”. It will even be difficult to stop a corporation from coming in and processing your forests or minerals or water resources to sell overseas, if you want to preserve these…because that would be to “interfere with the freedom of trade”.
Thus what happens in a country increasingly depends on what it suits the transnational corporations to do there. Small and economically weak countries must compete against all others to earn export income. If the corporations can buy commodities more cheaply somewhere else then the country can’t export and therefore can’t pay for imports of necessities. If it does not suit corporations to do anything in your country then you can have no development. If your government then decides to develop needed industries itself Moodys will immediately drop your credit rating and the World Bank will tell you your loans will be terminated. The only kind of development permitted is that which allows market forces to determine what happens, i.e., that which is a delight for the corporations and the shoppers in rich world supermarkets who purchase their exports. The corporations therefore have an open world in which to do business with little or no restraint or obligation, along with the power to go into any country and produce or develop or buy what they want, and to buy from many economically weak countries desperately competing against each other to sell on any terms.
Another important consequence of this more open and unregulated global economy is that governments have little control over financial flows. Vast amounts of investment capital can now suddenly rush into a country, or out, chasing speculative opportunities, causing very destructive booms and crashes. About 97% of the transfers of money around the world are not to pay for products, trade or investment. They are just to speculate or gamble, on currency rate changes. Thus in the 1997 - 1998 Asian meltdown millions of people who had jobs and could feed themselves one day were plunged into poverty the next day because financial markets suddenly decided to sell a country’s currency or withdraw investments. In some cases food prices suddenly multiplied by four. Had appropriate development been taking place these disruptions could not have occurred. People would have previously developed the capacity to provide for themselves in their villages and regions irrespective of what happened within the predatory global market system. Neo-liberal doctrine upholds this freedom for banks and corporations to destroy whole economies in the pursuit of maximum profit.
The world is increasingly governed by a few supra-national agencies such as the World Bank, the World Trade Organisation and the International Monetary Fund. For example the rules of the WTO enable three unidentified bureaucrats meeting in secret to judge on trade disputes and punish governments that “interfere with the freedom of trade”. They can stop a national government from imposing a ban on imports produced in environmentally damaging ways or containing toxic chemicals. In the famous tuna case, one country was not able to ban the importation of tuna caught in drift nets which kill dolphins, on the grounds that this would be to interfere with the freedom of trade. The new rules of world trade have been extremely favourable to the corporations while contradicting the interests of most of the world’s people. Their goal now is to extend the kinds of freedoms they have achieved in the trade area to cover foreign investment, the provision of services by governments, and the purchasing of governments; i.e., to drive back or eliminate government control in these areas and open up more lucrative business opportunities for corporations and banks.
The extreme class division; Rule by and for the corporate super rich.
At the top of this society are a tiny number of super-rich who own and run the big corporations and banks, and who in effect run the world in their own interests. They have the resources to wage campaigns, fund the think tanks, bankroll the politicians before elections, pay for court cases and “educational” campaigns. They own the media. They organise the forums such as at Davos where they decide how the world will proceed, and how to maintain acceptance of neo-liberal doctrine. (For an understanding of how they go about their work, and the vast sums they spend on it, see Carey, 1995, Herman and Chomsky,1988, and Beder, 1997.)
In the last 30 years they have pushed the neo-liberal globalisation process through, achieving the most massive and stunning grab for wealth the world has ever seen. Under the guise of “freeing markets”, they have remade the rules of the global economic game to secure their access to far more markets and resources than they previously had. Their triumph has been astounding. Governments have eagerly jumped to do what the corporate and banking elites wanted. Governments have voluntarily given up many of their functions and therefore are less able to control the development of their nations. Development increasingly becomes development of only whatever will maximise the profits of corporations.
Meanwhile even in the richest countries the welfare of most people has probably declined, judged by measures of stress, insecurity, public institutions and quality of life. Even measures of income clearly shown in the US that the situation of maybe 80% of people has not improved in decades.
Naomi Klein’s The Shock Doctrine (2007) documents in detail the way this ruthless dive to get hold of more lucrative resources and investment opportunities now feeds on natural and social disasters. Immediately after the Asian tsunami when large regions were devastated governments rushed through new planning edicts and by the time the bamboozled survivors tried to work out where their huts used to be they found that whole areas had been rezoned for tourist resorts and plantations. When a state fails and there is chaos, by the time the dust clears the IMF and World Bank has been in and helped “to get the economy going again” with loans and advice – on condition that it be restructured in ways which transfer factories, land, forests and fisheries to corporations and local entrepreneurs.
Hence among the many cases is the tragedy of Mandella’s South Africa, eventually liberated from apartheid but immediately trapped by the IMF and the World Bank. The ANC had fought a long and bitter civil war with policies of nationalising the corporations, redistributing land to the poor, taxing the rich, basing economic development on redistribution of wealth to the poor. Within days of coming to power the ANC was politely told by the international corporations and banks that they could not do any of that. If they tried the corporations would close their factories and re-invest in other countries, and no one would invest in South Africa, so the country could produce no exports or pay off its debt. Thus they were locked into conditions which prevented significant action on urgent social problems and which kept the economy geared to the interests of the corporate rich. Now those problems are about as bad as they ever were. Unemployment has remained over 40% for decades while the resources continue to flow out. (Leahy, 2009.) The abundant anti-globalisation literature documents the way the same steel trap condemns the Third World to inappropriate development.
Thus the last 30 years, the neo-liberal globalisation era, should be seen as a war for wealth and power – which the corporate super rich won. Again if you doubt it take a glance at the trends in global income and wealth inequality. Never has the rich few increased their wealth so greatly or so quickly. In 2008 there were 700 billionaires in the world. In 2009 there were 1100. (A.B.C., 2010.) Of course many in the upper middle classes have been among the big winners too, benefiting from the crumbs they get for serving the elite, providing the professional and managerial services.
None of this can be reversed. It can’t be fixed. You can’t re-regulate the system. You can introduce a bit of regulating, but not much. Let’s go back to basics. As Marx made clear long ago, capitalism is about the constant drive to accumulate capital, to invest in order to make more money, to invest … in an endless spiral. This is the fundamental “problem of surplus”, detailed in Baran and Sweezy’s Monopoly Capital (1966). They explain the chronic need to find enough outlets in which to invest the ever-accumulating surplus. The building of the railways, the coming of the automobile, and the expansion of the “defence” industry solved the problems at different times in recent history. However, by 1970 the pressure had built again and to intolerable proportions – hence globalisation. They had to push down the barriers, the regulation, the boundaries blocking them from getting into all the business being done by state owned enterprises and into all the fields previously blocked to them. If you now try to regulate seriously, preventing the corporations from taking the land and forests and fisheries and allow poor people to have more of them, you will be cutting down significantly on the opportunities for profitable investment the neo-liberal push opened up. The system can’t tolerate that. Move significantly in that direction and you will bring on a depression. A satisfactory society would need only a small fraction of the production, consumption, factories and capital investment this economy has, so what would happen to all that unnecessary capital? You can‘t fix such a system; you have to replace it.
Why have our governments let it happen?
There is now a large literature detailing these criticisms regarding neo-liberalism and globalisation. Unfortunately most people who are dismayed about the situation see it as having failed or as being irrational, because it is not solving our problems. This is a major mistake. It is to assume that the World Bank and the IMF are run by bunglers who can’t see that their Structural Adjustment Packages and the privatisations, deregulation and enforcement of market solutions do not work. This is quite wrong; these policies do not fail, they work like a dream. But they were not intended to work for the poor, or for you.
The people who work for the World Bank are highly intelligent and highly paid and have access to immense research capacities. Do you think they do not understand that globalisation and the neo-liberal agenda have brought economic and social destruction to many countries over three decades while enriching the corporate rich, and have inflicted increased death rates on the poor nations, when these consequences are heavily documented in a large critical literature, indeed in their own publications?
The situation has to be understood in terms of the limitless greed, ruthless power and brazen thuggery of the rich. They want more of the world’s wealth, they want to get into more of the forests and mines and soils of the Third World, they want to be able to invest and buy and sell without interference from government, and they do not want their use of Third World resources to be determined by anything other than market forces, i.e., by any set of rules other than one which allows them to get the resources. The best that can be said for the World Bank and IMF officials and the corporate elites is that they have a blind faith in market forces, believing that despite the problems this is the best, the only way, and that in time the wealth it generates will trickle down.
Why do governments go along, doing everything possible to facilitate globalisation, thereby serving the corporations and banks while betraying their own people? The main reason is because governments have no choice. They must cut corporate taxes (meaning less money to spend on hospitals), entice corporations to come in and invest, have their country judged by the credit rating agencies as a good location for foreign investment, reduce costs of production for exporters…or their country will not be competitive in the global market place. No government now can “defy the global capital markets”. All must do what the corporations and banks want, or be trashed i.e., abandoned by investors and unable to compete in trade. One consequence is that the big transnational corporations pay little or no tax because governments compete against each other to lower taxes on corporations in an effort to get them to come in and invest.
So the massively unjust global economy must be seen not as a result of unfortunate and unintended mistakes, but as the result of a deliberate and stunningly successful drive by the corporate rich to establish new rules which increase their freedom to accumulate wealth at the expense of everyone else. Governments pass the rules, all probably believing the virtues of globalisation and free markets, but even if they didn’t global capital market forces give them no choice.
But in fact the economy is highly regulated … in the interests of the corporations.
The central point in the foregoing criticism of the market system is that to the extent to which market forces are allowed to operate then inequality, injustice, social and ecological damage will result, because most scarce things will always go to richer people. This explains much about the global situation but we have to add the fact that in many important areas outcomes are not left to market forces. Decisions to regulate the economy are taken but they are decisions which suit the interests of the corporate sector. This has been especially glaring in the US under G. W. Bush where astounding tax benefits have been given to the very rich, massive contracts awarded without competition to favoured corporations (for example in Iraq), vindictive labour and welfare laws put through, and the vast arms sector receives ever increasing contracts. Similarly in Australia the 2006 labour legislation greatly benefited business at the expense of workers, while the screws were tightened on “welfare”, etc.
Nowhere is this regulatory action more glaring and damaging than at the level of the World Trade Organisation, IMF and World Bank. Globalisation can be seen in terms of new rules regulating the way trade, debt, foreign Investment etc. must be handled, but they are rules which suit the corporate sector. For example indebted countries must leave everything to the “free market”…while rich countries are able to go on massively subsidising their agricultural exports.
So two apparently contradictory things are happening. The neo-liberal ideology insists on free market policies, and eliminating government assistance and intervention, regulation etc., in those areas where the corporate rich benefit from such policies, but at the same time governments often pass laws which settle big economic issues by regulation quite outside the market sphere, again usually in the interests of the rich world.
Markets are never entirely free. There always have to be lots of rules governing aspects of their operation and governments set these. In the neo-liberal era the rules set have been a delight to the corporations and banks.
What role will be left for market forces?
It is not that market forces must be suddenly and totally scrapped. In the long term future we will surely have learnt to run societies well without markets. Automated stems will arrange the production of the items needed and sensible collective decisions will adjust the list available. This will be made easier by the absence of growth, the reduced scale of production and consumption and the fact that humans will have had the sense to focus on better things than consuming and maximising their wealth. In addition most production will occur within the local sphere where there will be well-established routines for depositing surpluses at community centres, swapping, barter, giving and taking free goods from the commons. This will leave relatively little to come from large and more distant factories. (Chapter 4 takes up these issues.)
However in the next few decades there could still be a significant though dwindling role for market forces. The transition process envisaged here involves the gradual development of non-market economic arrangements beside and underneath those of the normal economy, which might remain in place for a long time. Market forces might also play a role in transforming the economy in accord with set limits, quotas and standards which are left to private firms to achieve.
The morality of the market is unacceptable.
The main reason for moving away from any use of market forces in the long run is to do with their unacceptable social and moral implications. Even if we were able to prevent market forces from generating unjust outcomes, the fundamental motivation within markets is not desirable. Markets require and reinforce attitudes, values and practices which are not just undesirable but which are socially destructive.
In markets prices are always set as high as possible, which means that the driving principle is to maximise; i.e., it is greed. Price is not set by reference to the cost of production, or the capacity of the seller to make a sufficient income, or by what people can pay, etc. Markets are always about suppliers trying to get as rich as possible, and buyers trying to pay as little as possible. That’s selfish. It’s not about mutual concern or justice or welfare. The seller does not ask himself what is enough; he asks what is the most he can get. In Medieval and ancient economies there was often the idea of a "just price", but we have no such idea now.
The conventional economist thinks that if supply falls price "naturally" rises. This is not so. If you are running out of weet-bix at home the price does not rise. You decide who should have what's left in terms of what's best for everyone. Price only rises in situations where sellers find they are able to make you pay more and therefore choose to raise their prices even when they have no need to. That's not nice.
In addition the situation is predatory. You must be careful because the other person is likely to cheat you. If someone is forced to sell you pounce on a "bargain". People see no moral problem in taking advantage of someone who is forced to sell cheap, as in a fire sale. That’s the opposite of friendly, helpful or caring.
These are not the ways people will behave in the satisfactory society we will have some day. They create an undesirable social climate where the focus is on self interest, competition, suspicion, adversarial relations and beating others. All this is usually mild, but it is not a desirable atmosphere. The attitudes and behaviours required in a market situation contradict the best human attributes, which are to cooperate, help, nurture, be friendly and give. Most lamentable is the way that the acceptance of the market system as normal legitimises the unfriendly attitudes and behaviours and absolves us of responsibility for outcomes. It is taken for granted that lit is OK to ruin a competitor or take more than your fair share by competing in the market. As Bookchin says, ”…our economy is grossly immoral…the economists have demoralized us and turned us into moral cretins. “ (Bookchin, 1987, p. 79.)
The ideal foundation for an economy is giving and gifting. Most of the economies humans have ever developed have had this foundation. Anthropologists such as Sahlins, Maus and Hyde describe the enormously subtle and complex systems many tribal societies have whereby things are produced and exchanged by being given to others. The rules and processes are at times unintelligible to us. The first yams might have to be given to one’s uncle’s wife’s mother’s cousin. In the Western Pacific the Kula Ring involves the slow movement of ornaments around many thousands of miles of ocean islands. Hyde (1983) explains how the gifts must keep moving and must not be considered as property or saleable, or consumed. If food is received other food items must be passed on. The movement of the gift increases its value. Giving valuable gifts makes you richer. Giving and receiving impose heavy burdens, in keeping track of the many debts and obligations, and in having to meet them. In the Potlach systems even destruction of wealth increases (social) wealth. Typically debts are not carefully tallied and what is given and what is received over time are not expected to balance precisely. It might be an insult to give back something of equal value; that’s just trading. It is not a matter of the reciprocity involved in barter. To give back something of equal value might be an insult; that’s just trading. If I give my friend a gift worth $5 and she gives me a gift worth $5 this is not a zero-sum transaction. A lot more than $5 in value passed between us, and we both become richer in the process. Folklore is full of stories reinforcing these kinds of rules; the daughter who keeps the mother’s gift might die or turn into stone. Note the remnants of gift obligation in some of our ceremonies, the wedding, birthday and Christmas gifts. The crucial importance of giving and mutual dependence for social bonding, solidarity and security is evident.
When one encounters these inscrutably complex systems of rules, obligations, and meanings, often inextricably woven into religious belief systems, one is stunned by the insignificance of the merely economic sphere defined in dollar terms. The lives, behaviour and thinking of “primitive” peoples are typically so crammed with meaning that the business of merely getting sufficient food and shelter seems to be of trivial significance. Yet this getting is almost all that people in consumer society concern ourselves with, and we do it in terms of an impoverished calculus centred merely on self-interested monetary gain.
Giving and receiving gifts binds. The individual experiences strong feelings of appreciation, indebtedness and obligation to respond. Social bonds are formed and strengthened. The process develops familiarity, friendliness, conviviality, mutual appreciation and assistance, interdependence, and a powerful concern for social expectations, rules and structures. At its best giving becomes an end in itself, motivated by desire to see the recipient pleased or flourishing, and there is no expectation of recompense. Selling or trading for money not only has none of these effects, it involves, requires, precisely the opposite kinds of attitudes and behaviours. Obviously our goal ought to be to construct economies embodying as much gifting as possible, and as little selling in markets as possible.
In The Simpler Way we will experience conditions which both require and reinforce nice behaviour, i.e., behaviour intended to help others and to advance the public good. We will realise that our own welfare depends on not how fiercely we compete to win or get as an individual, but on whether we all give for the common good, for instance coming to working bees conscientiously, sharing ideas and taking surpluses to the community centre. We will realise that the richness of our lives derives from public sources, such as the quality of the commons, the concerts and the landscape, not from our personal bank balances. The incentives will be positive and will prompt cooperation. We will enjoy helping and giving, because people around us will benefit and smile and help us in return.
The smallness of scale will greatly increase the extent to which our new economies can embody gift exchange. Home garden surpluses will be given away. We will all give time to working bees and concerts. We will all have several days a week to drop in and help out at the joinery or library. We will interact with and know well many people in our small community, increasing the scope for friendly giving and receiving.
Economics should be thought of as pertaining to all the considerations relevant to production, exchange, distribution, consumption and development. Perhaps the most vicious fault in conventional economic theory is that it excludes from consideration every important factor other than monetary profit and loss. The moral quality of decisions, whether they are just, how they affect welfare or social cohesion or the environment are totally ignored. However in the new economies the main economic decisions will be made by assemblies which will clearly understand that all these considerations will be taken into account. More importantly, we will all recognise the immense importance of the social bonding and conviviality associated with giving so we will try to maximise its role in the economy.
The economic historian Polanyi is well known for his impressive discussion of the socially destructive nature of market forces. (Dalton, 1968.) He points out that previous to the rise of our present society no other ever allowed the market to have a very significant role, and that we have made a serious mistake in doing so. Markets involve nothing but self-interest and if unbridled this will drive out and destroy the factors that constitute society. A society is constituted by the forces that transcend self interest. At best these forces and procedures must restrain and limit the scope for self-interest, or the powerful will take everything and consume everything including the environment. Polanyi insists therefore that the market must be “embedded” in society, and that we have an urgent need to re-embed it.
In the next chapter lit will be argued that this is not the ultimate solution. In the context of history the market has been remarkably effective in driving technical/productice “progress”, and it will be neither necessary nor practically sensible to try to eliminate it in the next few transition decades. The Simpler Way transition strategy is about slowly phasing it down while developing an alternative beside it.
But contrary to Polanyi, the ultimate ideal situation will not be one in which a sphere which is intrinsically and inevitably morally and socially undesirable is embedded within an otherwise good society. The long term goal must be a society which is thoroughly characterised by convivial, inclusive and nurturing relations. It is no good if most of the time we treat each other in friendly ways, but from time to time go into a market situation where we try to maximise our own advantage at the disadvantage of others.
The uncertain issue this leaves is just how fast can we and should we try to move away from market relations in the decades of transition ahead. In the next chapter it is suggested that this will not be such a difficult issue if we constantly think about those needs that can mostly be met through “gifting“ processes. The swapping of surpluses and the contributions to working bees are examples and these will (have to) become major elements in the new economies we will soon start to build. It could be thatwe can gradually increase the role for these processes.
MONEY CREATION AND BANKING
Another major fault in the present economy is to do with the nature of money. In a normal, growing economy the amount of money in use or circulation, has to increase all the time. If we had in the Australian economy only as much money as we had in 1800 there would not now be enough to enable all the purchasing people want to engage in. So the amount of money in circulation has to increase constantly (only in a growth economy). Where does it come from, and how does it get into circulation? .
In the present economy it is done when the investment banks lend more money to corporations seeking to set up new ventures. But where do those banks get the money from to lend? If you don’t know what the answer is you will not believe it when I tell you. The banks literally create the new money, out of nothing, just by writing numbers in the borrower’s account. If they lent money they already had then it would be logically impossible for the stock of money in circulation to increase wouldn’t it? What the banks do is in effect just create money and lend it to the borrowers. (Only a small proportion of the money in circulation is in the form of notes and coin; most is in the form of numbers in cheque accounts.)
Now there is nothing wrong about the creation of money from nothing. That has to be done. But the process whereby it is done in our economy is outrageous, farcical, and incredible. It defies understanding why the process is tolerated, although the main reason is that few people know what’s going on.
The most astounding part is that after the banks have created the money they are allowed to own it and to lend it and get interest on the loans. This is just the same as getting a printing shop to print our bus tickets and then allowing it to own the bus rides the tickets represent, that is, to sell the tickets for bus rides and keep the money received.
Very few people understand that this is the process used almost everywhere, but there are many monetary reform groups around the world working to draw attention to the practice and to get it stopped.
The most ludicrous aspect is that when our governments need to borrow money, which they do all the time, in great quantity, they go to those private banks and borrow money from them, and have to pay it back with interest. As a result many billions of dollars of public wealth is continually drained into the coffers of the private banks and then into the pockets of their shareholders…when the entire process is absurdly wrong and avoidable and could and should be eliminated. In the 1990s Australian tax payers were paying about $18 billion every year to the private banks as interest on the money borrowed by their governments, from the private banks…who got the money to lend just by in effect printing it; i.e., writing the numbers into the relevant accounts. Could there be a more incredible, unnecessary, morally outrageous and ridiculous process? And on such a scale. Governments struggle to find sufficient revenue and many important needs go unfunded, and here we have a process whereby billions of dollars are not just wasted unnecessarily and avoidably all the time, but given to the people who are rich.
One serious consequence of the system is that all new money entering the economy is debt that must be repaid with interest. Now consider the logic of a system in which a certain quantity of money enters circulation this year but more than that has to be paid back to the banks at the end of the year. This is not possible unless even more money is lent during the year. Thus the amount of debt increases all the time. And note that if at a point in time everyone paid off their debts or borrowings from the banks, there would be hardly any money left in circulation, because almost all of it has been borrowed from the banks in the first place.
How should new money be got into circulation?
The way most monetary reformers advocate is for the government to create all new money and “spend” it into circulation, by for instance paying for the construction of new roads. At first sight this seems to involve some kind of injustice, or con trick. The government gets the roads for nothing, just for adding numbers to the contractors’ accounts. But another way of looking at the process is that in the long run, as the new money moves from contractors to the suppliers they buy from, and eventually to the ordinary people in society when those contractors buy things and pay wages, the whole society comes to hold those bits of paper, and thus shares the cost of the roads they now have. All the government has done is get the process to occur by creating the money and putting it into circulation.
There are many impressive examples of this in the monetary reform literature, cases where entire economies were lifted out of depression by a government creating money which enabled economic activity to commence and thrive. A much-discussed case was the town of Worgle in Germany. Another was the building of public markets in Guernsey which triggered economic recovery. During the American civil war Lincoln desperately needed money to pay for the war effort. The banks were quite happy to lend it to him, but at interest rates that would have bankrupted the government. So Lincoln printed his own money. Possibly the most remarkable case was the way Hitler jumped Germany out of misery and into a thriving and immensely powerful economy in a few years, basically by printing the money that enabled large numbers of unemployed workers to be put to work.
The great merit of governments creating the money and spending it into circulation is that the money does not have to be paid back, and no interest needs to be paid to the government which issued it. The government just facilitates the building of the new roads etc., built by society and paid for by society. The most important point about the process is that it enables productive resources that were available but not being used, to be brought into production. Obviously you can’t build much with money in the form of bits of paper, they rot in the weather, and even less with electrons in bank accounts. The money should be thought of as just a device used in the process of connecting available productive capacity to needs it could be meeting. If the needs are there but there are no bricks nor workers available then it doesn’t matter how much money the government prints to pay contractors, nothing will or can be built.
In the present system capital is scarce. There are many socially desirable ventures that can’t be undertaken because people can’t afford to go to banks for capital at the interest rates the banks are charging. Money is treated as a commodity for hire. If you want to hire $100 so you can use it for a year you can only get it if you are willing and able to pay perhaps $10 for the hire. Consequently many projects that would be very socially valuable but can’t make that kind of profit can’t be undertaken. Thus it is hugely in the interests of the banks that money is kept scarce, because then its price, the interest rate on hiring it, is kept high.
These approaches, spending and giving government-printed money into circulation, have the great merit of avoiding dealing with banks and thus avoid having to repay plus interest. But they have a serious limitation. They stimulate the normal economy, to do more of what it normally does, but that does not and cannot solve problems like poverty and unemployment. When the government pays for the new roads with newly created money, that money will mostly go to the people who build roads. Most of it will end up in the bank accounts of the executives and shareholders of the firms winning the contracts, and only a very small proportion of it will go to workers who were unemployed but got jobs building the new roads. The result will be a slightly bigger economy of the same form as before, that is a form in which many are unemployed and many are poor, and an economy in which there is still huge unmet need and many unused resources. This is not satisfactory. We need to think carefully about how the introduction of our own new currency can help us do what most needs doing, things like get rid of unemployment, make the town robust, cut its import dependence and increase its power to control its own fate.
At present there are many desirable ventures that could be set up in towns and suburbs which would do wonders for the quality of life of the people who live there, but they cannot be undertaken because people cannot get the capital, the money to set them up. It is not that the productive capacity is not there. The town often has plenty of land, skills and labour sitting idle. It always has many unemployed, bored, depressed and wasted people with needs which those productive resources could be meeting. But the people can’t set up to produce anything because they can’t afford to hire the money from the banks, at the interest rates the banks demand. This is the absurd log jam we can break simply by creating our own money. The next chapter outlines a very simple and effective way to do this.
Eventually no money creation at all!
ln the longer term future the whole confusing business of money creation will have ceased to exist, simply because it will be a zero growth economy. In a stable economy we will only need a stable amount of money to enable only that stable amount of buying and selling going on.
WE SHOULD BE VERY ANGRY.
We should be extremely angry about conventional economic theory and practice. This economy produces and legitimises many actions and situations that are dreadfully bad. It is largely responsible for most of the chaos, deprivation, illness, waste, misery and environmental damage in the world, especially for the gross injustice generating the poverty of two to three billion people in the Third World. Remember the resources that could eliminate these problems are there but they are not applied to the problems because this economy prevents that. The economy is therefore also responsible for much of the armed conflict in the world, because much of it is caused by the injustice this economy inflicts. The deaths of tens of millions every year are directly due to the fact that this economy lavishes scarce resources on a few while taking resources from the poor majority and gearing their productive capacity to the benefit of the rich. Economic theory leads most people to think this situation is an unfortunate but inevitable side effect of the only kind of economy there can be.
Especially important is the fact that the limits to growth analysis of our global situation discussed above shows that this economic system has all countries on a path that is grossly ecologically unsustainable. Rich world rates of resource consumption are far higher than all could ever rise to, yet in this economic system the supreme goal in all countries is to raise “living standards” and the GDP all the time.
Even if this economy were not causing injustice and ecological damage it would still be causing social problems and damaging the quality of life. It is dumping increasing numbers into stress, insecurity, poverty and deprivation. It has hooked most people in rich countries on the consumer treadmill (e.g., they have to pay at least ten times too much for a house.) It makes you work far too hard, and it condemns you to a much more difficult, insecure, stressful and spiritually impoverished life experience than is necessary. Most if not all of our social, economic and ecological problems are getting worse, at an accelerating pace. Meanwhile the economy delivers obscene volumes of wealth to the super rich and the upper middle classes, and increases their power to ensure that governments rule in their interests.
The basic cause of all these effects is an economy in which abundant productive capacity is not geared to meeting need. The economy has structures and mechanisms built into it which inevitably produce these effects. It is for a growth system. It is a system in which market forces determine outcomes. It is a system in which what is most profitable is what is done. It is a system in which the fierce and ceaseless drive to accumulate wealth can only lead to the takeover that is globalisation. Such a system cannot do anything but generate unsustainable resource demand and ecological impact, enrich the rich, increase the political power of the few who run the corporations and media and banks. The genie cannot now be put back in the bottle. Any effort to force the monster to stop clearing more forest, using coal, taking over more Third World land, and vastly exceeding a sustainable footprint, would have to impose dramatic reduction in the amount of production, sales, business activity, investment, trade and GDP. This is not tolerable to the owners of capital or to those who shop at supermarkets, and it is not possible in an economy that is in trouble if growth falls to 2% p.a. Such an economy cannot be fixed, it must be replaced.
People should be extremely angry at the system which has these effects but in fact there is little anger. There certainly is a great deal of discontent with the personal life experience individuals are enduring, with the stress, the overtime, the difficulty in paying the bills or finding work, and the insecurity, but these are not linked to any demand to get rid of the economy that causes them. For instance the immensely destructive Global Financial Crisis of 2008-9 was universally attributed to greedy bankers and hardly any realised that it was an inevitable consequence of a boom-bust economy cursed by an ever increasing problem of surplus. (Magdoff and Yates, 2009, argue this account.)
Thus our task is again evident. We will get nowhere until there is rejection of the dominant ideology reinforcing mindless acquiescence with an economic system which even seriously disadvantages most people in the richest countries. The core transition problem is what can we do here and now to make that awakening more likely?