Affluence is a relative term in societal contexts because in each society standards there are rich and poor. But there are few in the world, as many from North as from South, who are rich by any standard. Similarly, despite raised standard of living, there are under-privileged people in both the developed and developing nations, people who lack jobs, health security, education, food and home. And there are a large number of people under famine, malnutrition, water and sanitation stress and vulnerable to diseases and death. When world economy collapses and industrial output plummets down the curve, it is the most vulnerable section of humanity that receives the mortal blow first. But for now, the Limits to Growth are felt by the affluent societies of the developed world more than the developing world.
‘For the first time in the history of America, America’s debt rating has been downgraded. Wall Street’s past three sessions tanked over 1,200 points, the biggest nosedive since November 2008. Billions, if not trillions, of dollars in 401k plans and investment accounts have disappeared, maybe forever. Voter polls say that 83% of Americans have had enough of polarized politics. Yet, our Contentious Politicians refuse to let up. After all, 270 members of Congress have signed a no-tax “Taxpayer Protection Pledge” sponsored by the ATR – Americans for Tax Reform – led by Grover Norquist. And the ATR holds the lawmakers to their pledges, right or wrong, Constitutional or not. Compromise, a central core of effective Republican government, has tanked like the stock market. Thus, the American Debt Crisis is far from resolved. In the meantime, the European Debt Crisis continues to search for a solution, interrupted by blazing riots in London, triggered, it is said, by jobless, hopeless young men,’ writes Dick Jackobs in Global Naturalist. We do not have USA as one economic super power to look up to as a problem solver anymore. Its growth has dwindled down to almost nothing and you have Occupy Wall Street movement to vouch for the distrust the common people of America have for the financial institutions, supposedly its growth engines.
Europe is no better. The New Economic Foundation , a British Think Tank says, ‘The financial crisis exposed deep flaws in the approach to economics that has dominated policy-making for a generation. It turns out that letting markets rip does not always lead to the best outcomes for societies. Government intervention, far from being inherently inefficient, turned out to be essential to prevent system-wide collapse. A return to blind faith in markets to deliver a future of endless, rapid growth is impossible to imagine now.’ I imagine no one will consider Africa as any indicator of growth and that leaves Asia with India and China – the countries chugging along with substantial GDP growth. However, the measure of such growth do not take into consideration loss of ecological resources in trillions of dollars so these growths are merely indicative of income surges and relative raising of life standards – they are not true indicators of development. The NEF report indicates that in the period to 2050 the cumulative cost associated with climate change will range from £1.6 and £2.6 trillion, while the cost of addressing social problems related to inequality will reach £4.5 trillion.
The peak oil, climate change, ecosystem pressure and worldwide recession are dots one needs to connect to see the tip of a Malthusian ice-berg. That’s business-as-usual for you.
In 1944, in a war ravaged Europe, an Austro-Hungarian political economist, Karl Polanyi, wrote a book named The Great Transformation. In a way, this I think is the first warning and critique of the perils of a Market Society where markets are the paramount institution for the exchange of goods through price mechanisms. Polanyi argues that there are three general types of economic systems that existed before the rise of a society based on a free market economy:
- Redistributive: Trade and production is focused to a central entity such as a tribal leader or feudal lord and then redistributed to members of their society.
- Reciprocity: The exchange of goods is based on reciprocal exchanges between social entities. On a macro level this would include the production of goods to gift to other groups.
- House holding: Economies where production is centered around individual household production. Family units produce food, textile goods, and tools for their own consumption.
These three forms were not mutually exclusive nor were they mutually exclusive of markets for the exchange of goods. The main distinction is that these three forms of economic organization were based around the social aspects of the society they operated in and were explicitly tied to those social relationships. Polanyi argued that these economic forms depended on the social principles of Centricity and Symmetry and Autarky (Self-Sufficiency). Markets existed as an auxiliary avenue for the exchange of goods that were otherwise not obtainable. They relied on the social Principles of Centricity and Symmetry.
Polanyi’s stress on attaching market driven economy and its immediate fruits of development with the long term social goods (in 1944 there was not much awareness about ecosystem services) was largely ignored since such economic models helped Europe overcome the war debts rather quickly. But the warning was there.
As Meadows et al were writing The Limits to Growth, a portion of the project’s commissioner the Club of Rome and intellectuals such as Nicholas Georgescu-Roegen, Jean Baudrillard, André Gorz, Edward Goldsmith and Ivan Illich, whose ideas reflect those of earlier thinkers, such as the economist E. J. Mishan, the industrial historian Tom Rolt, and the radical socialist Tony Turner, offered a radical responsive concept of degrowth in a 1970 paper. Degrowth thinkers and activists advocated for the downscaling of production and consumption—the contraction of economies—as overconsumption lies at the root of long term environmental issues and social inequalities. Key to the concept of degrowth is that reducing consumption does not require individual martyring and a decrease in well-being. Rather, ‘degrowthists’ aim to maximize happiness and well-being through non-consumptive means—sharing work, consuming less, while devoting more time to art, music, family, culture and community. The contemporary degrowth movement can trace its roots back to the anti-industrialist trends of the 19th century, developed in Great Britain by John Ruskin, William Morris and the Arts and Crafts Movement (1819–1900), in the United States by Henry David Thoreau (1817–1862), and in Russia by Leo Tolstoy (1828–1911).
Two interesting aspects of the degrowth movements are:
- At the individual level, it is proposed that, degrowth is achieved by voluntary simplicity, which is a simple and self sufficient life-style mostly inspired by M.K.Gandhi.
- Degrowth opposes sustainable development because, while sustainable development aims to address environmental concerns, it does so with the goal of promoting economic growth which has failed to improve the lives of people and inevitably leads to environmental degradation.
Degrowth stands in sharp contrast to current forms of productivist capitalism that consider the accumulation of capital and commodities a desirable end. It denies growth as measured through GDP conventionally and a modern proponent of degrowth, Serge Latouche, a professor of economics at the Paris-Sud 11 University, has noted that:
If you try to measure the reduction in the rate of growth by taking into account damages caused to the environment and its consequences on our natural and cultural patrimony, you will generally obtain a result of zero or even negative growth. In 1991, the United States spent 115 billion dollars, or 2.1% of the GDP on the protection of the environment. The Clean Air Act increased this cost by 45 or 55 million dollars per year. [...] The World Resources Institute tried to measure the rate of the growth taking into account the punishment exerted on the natural capital of the world, with an eye towards sustainable development. For Indonesia, it found that the rate of growth between 1971 and 1984 would be reduced from 7.1 to 4% annually, and that was by taking only three variables into consideration: deforestation, the reduction in the reserves of oil and natural gas, and soil erosion.
The problem seems to be the inherent inability of the neo-classical economics in the Capitalist models of Market Economy to account for the long term ecological costs on present economic activities. While ‘Degrowthists’ forsake such models altogether, Natural Capitalism seeks to account for such costs. Paul Hawken, Amory Lovins and Hunter Lovins in their 1999 book named Natural Capitalism: Creating the Next Industrial Revolution” said, (the traditional ‘Industrial’ Capitalism) “does not fully conform to its own accounting principles. It liquidates its capital and calls it income. It neglects to assign any value to the largest stocks of capital it employs- the natural resources and living systems, as well as the social and cultural systems that are the basis of human capital.” They also asked fundamental questions like: What would our economy look like if it fully valued all forms of capital? What if our economy were organized not around the abstractions of neoclassical economics and accountancy but around the biological realities of nature? What if Generally Accepted Accounting Practice booked natural and human capital not as a free amenity in inexhaustible supply but as a finite and integrally valuable factor of production? What if in the absence of a rigorous way to practice such accounting, companies started to act as if such principles were in force? I wrote two blogs related to these issues which you can refer here and here.
The New Economics Foundation proposes the great transition in their working paper (free downloadable pdf here) where they propose a self regulating market (regulation via price-mechanism) that makes the social ‘bads’ too pricey to afford and social ‘goods’ universally affordable. The trasition is proposed to be working in 7 steps:
- The Great Revaluing – a paradigm shift towards a social value based decision making in both private and public sectors devising markets that depict true environmental costs and benefits of goods and services. Prices in such markets are truly proportional to the values of commodities in terms natural capital appropriation and price-mechanism controlling human behavior of spending and saving, ultimately restoring earth’s regenerative capacity to catch up with consumption.
- The Great Redistribution – a redistribution of both income and wealth creating value as resources are moved from those who do not need them to those who do. It proposes creation of Citizens’ Endowments for all people on reaching the age of 21 to enable them to invest in their future, as well as Community Endowments to provide commonly owned assets to invest in our local neighborhoods. Both would be funded by a proposed increase in inheritance tax on all estates. Also proposed is a redistribution of ownership to create a form of ‘economic democracy’, where company shares are progressively transferred to employees in a resurgence of mutual and co-operative ownership forms.
- The Great Rebalancing – a positive case for markets, but only once markets have been set up in such a way that prices reflect true social and environmental costs and benefits, and when those markets operate within scientifically defined limits, the market sphere being more tightly drawn and rebalanced alongside the public sphere and the ‘core economy’ – people’s ability to care, teach, learn, empathize, protest and the social networks these capacities create.
- The Great Localization – an expanded concept of ‘subsidiarity’ – the idea that decisions are best taken at as local a scale as possible. This is enshrined in the principle, if not always the practice, of the European Union with regard to political participation and decision-making, which needs to be made more genuinely participatory and democratic but also more meaningful. By this we mean moving real power away from the centre to devolved democratic bodies and giving local people a real say in how this power is exercised.
- The Great Reskilling – greater local production will require us to relearn many skills that have been forgotten. From agriculture to manufacturing to the provision of local finance, returning to appropriate scale means equipping ourselves with the means to do so. Becoming less passive in terms of consumption and production we would start to regain our autonomy, which would extend to culture and arts, where we describe the beginning of a life-enhancing renaissance. This is not just the case for the economy and for the arts however; local decision-making based on active participation will be most effective when people are well informed about what makes their local economy tick and what makes public services able to achieve the best outcomes. Achieving consensus requires as full an understanding of these issues as possible.
- The Great Economic Irrigation - a shift from taxing ‘goods’ such as work, to taxing environmental and social ‘bads’ such as pollution, consumption and short-term speculation. It is proposed that new variable consumption taxes should be replacing income tax for the majority of the population, reflecting the social and environmental costs of goods. For private finance NEF distinguishes between national and local, arguing that large-scale projects such as building a green energy and transport infrastructure should be funded through national level environmental and ‘land’ taxes and the creation of public money where appropriate. This would be channeled through a national ‘Green Investment Bank’. For private credit we suggest linking the ability of banks to create credit with the ability of borrowers to build social and environmental value, creating a ‘race to the top’ and reducing damaging credit bubbles.
- The Great Interdependence – assumes a particular Global Deal, which addresses global inequalities from both a development and an environmental perspective. It is proposed that all developed countries pool money and a breather period for the developed countries to pull down emissions and developing countries utilizing the money to transform to cleaner forms of energy thereby converging on a global average.
In essence the great transition proposed by NEF foresees natural capital being valued, environmental costs factored in the prices of commodities, localization of consumption, community participation in decision making and a value based appreciation of life standards instead of accumulated wealth. It does not leave space for modern MNCs to grow.
I see a deep paradigm shift in how we see growth and prosperity in all these solutions. I do not imagine such reversal to be initiated from institutions or Governmental policies of nations but rather they seem to results of social reforms. Though radical, voluntary simplicity plays an important role for such solution to work. Moreover, the NEF model is very difficult to conceive to be working in isolation in national territories; rather it seems to me in its core it proposes a global village, a collection of self sufficient communities worldwide in perfect cohesion with each other. This indicates the lessening of importance of geopolitical borders with nation level politics and emergence of a new world order with environmental concerns as its reigning ‘ethos’.
May be my ideas were not that crazy after all.
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