THE ECONOMIC SYSTEM; A RADICAL CRITIQUE. (Part 1 of 4.)

Ted Trainer. 5.11.06)

1. GROWTH

This economy must have growth.

The most serious fault built into our economy is not to do with its reliance on market forces, nor indeed the fact that it is a capitalist economy. It is the commitment to growth, i.e., to having the volume of production and consumption increase steadily all the time. 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 is taken to mean that living standards are rising.

When conventional economists talk about growth as increasing wealth they gloss over the fact that much of the increased output is luxurious and wasteful production for richer people. For example most housing produced is far more expensive than is necessary and much of it is outrageously luxurious, while cheap housing for the many low income people is not produced at all. There is little merit in increasing the production of wealth that mostly benefits people on reasonable or high incomes. As has been explained, it is an economy in which there is rapidly increasing income and wealth for richer people while the needs of most people on earth are ignored and their resources and labour are used to further enrich the rich. There is also much evidence that the quality of life deteriorates as the economy grows. What is the point of increasing the wealth produced if this makes little or no difference to those in most need, and if the more wealth/GDP there is the worse the quality of life becomes?! (See below.)

However there is a far more important criticism of the commitment to growth. This is the “limits to growth” analysis regarding sustainability.

The Limits to Growth Analysis of our global situation.

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. Following is brief reference to some of the evidence and argument supporting the limits analysis. (For a detailed account, The Limits to growth.)

· If we add together all the potentially recoverable resources (not just known reserves) of the fossil fuels plus uranium (via burner reactors) and ask how long would they last if all the 9 billion people expected to be living on earth by 2070 were each to have the present rich world per capita energy consumption, the answer is only about 17 years. (Trainer, 1995a, 1998b.)

· It takes 7 – 8 ha of productive land to provide one person in a rich country 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. We are using about ten times our fair share.

· It is very likely that petroleum supply will peak between 2005 and 2020, and will have fallen by about 50% by 2035, meaning that there would then be only 1/15 of the supply needed to give all people living then our present rich world per capita consumption of petroleum. (See The Petroleum Situation.) A major and insoluble liquid fuel crisis would seem to be inevitable within 20 years.

· If we are to stop the carbon concentration in the atmosphere rising above 400 ppm, probably a level too high for safety, we must cut carbon release to around 1 billion tonnes p.a. If we shared that amount of fossil fuel among 9 billion we would all get .11 tonne, and this would mean a global per capita consumption of fossil fuels around 2% of the present Australian average.

Most people assume that technical advance, especially the development of renewable resources, will enable us to shift from fossil fuels and continue to have affluent lifestyles and economic growth. There are very strong reasons for concluding that this is a serious mistake, and that at best renewables might only provide a small fraction of the per capita liquid fuel presently consumed in rich countries. (See Renewable Energy Can’t Save Consumer Society.)

These and other lines of argument show that there is no possibility of all people rising to the levels of production and consumption we have in rich countries. 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 any reduction in business turnover or sales.

Now add the absurdity of the commitment to growth. We are already producing and consuming far too much yet 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. 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.

The absurdly impossible implications of the growth commitment are easily shown. 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.

However most people in our society including most politicians and economic leaders steadfastly refuse to even think about these limits arguments. Of course nothing is more important to those who own capital than that there should be constant increase in the GDP, a measure which simply reflects the volume of sales or business activity. It is most important to them that our society’s top priority should be to keep production and consumption and therefore the business turnover of their factories all as high as possible and increasing every year.

No line of criticism of this economy has more radical implications for change and for the form a satisfactory society must take than this limits analysis. It means that a sustainable society must have far lower ”living standards”, mostly highly self-sufficient local economies, little trade or transport, high levels of local self-government and participation, and no growth at all (See The Alternative Society; The Simpler Way.)

It is a “growth and trickle down” rationale.

The justification conventional economists give for an economy in which those with most capital and consumers are free to do whatever will most enrich themselves, is that “...in time the benefits of growth will trickle down to all”. In effect they say, “Don’t worry about the fact that the rich get most of the increased wealth, or that the new factories mostly produce luxuries, because more ordinary people will get jobs in those factories, and then they will spend their new wages on generating demand for more goods, which will create more jobs…and in time the increased wealth will trickle down to enrich all.”

Although at times there can be significant trickle down, in general only a very small proportion of the increased “wealth” ever trickles down. This has been most depressingly clear in the Third World where despite a great deal of “development” in recent decades, the conditions the poorest people live in have not improved much and there is evidence that the poorest millions are getting poorer. (For instance, UN, 1996.) Compare what trickles down to a person in Bangladesh paid 15c an hour making shirts to export, with the benefit they would get if they were all devoting their time and energy to producing necessities in their own local cooperative firms and farms.

Look at the bad distribution of income in the world in 1950, when rich world per capita income was 20 times that of the poorest one-fifth of people, and then note how much worse it is now, when the ratio is over 80 to 1. Even if there was significant trickle down it is not acceptable that millions in great need are expected to wait many decades before their living standards become tolerable, while those who were rich in the first place see their incomes race to far higher levels.

It is often claimed that conventional development has lifted many Chinese out of poverty, without any consideration of the many outside Chine who have been pushed further into poverty because the markets they once had have been taken by China, transfering their jobs to poor Chinese.

The amount and rate of trickle down in the global economy is not clear but the situation is highly unsatisfactory. Almost no progress is being made on the reduction of hunger, and most African countries have become poorer in recent decades.

Even in the richest countries the amount of trickle down is quite problematic. Average incomes have increased greatly, but so have costs. One generation ago an ordinary Australian family could live adequately and build a house on one income, but they can’t now. Large numbers can never afford a house. In the US over the two decades to about 1995 the wage taken home by 80% of the workforce actually fell by about 20%, and the average work time per year increased by about 30 days -- despite large increases in the GDP. In that period the rich have taken almost all the gains. (See Inequality.)

The volume of wasteful and unnecessary production is enormous (but essential).

Our economy involves an enormous 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 than is necessary (e.g., cars, houses, clothes), items not made to last, or made to be used and 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 other production or by social breakdown, e.g., paint needed to protect things corroded by air pollution.

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. In other words at present people probably work three times too hard!

However in this economy we must waste! Without waste the economy would collapse. We must go on producing vast quantities of unnecessary stuff, and we must produce even more next year than this year. 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. The economy would plunge into depression.

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. 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 computers, so that anyone could look up what models to choose from if they want to buy something, and some effort might be made within "news" services to announce new products. Much advertising is wasteful competition between corporations to take sales from others, in a zero-sum game; e.g., tourism and soft drink sales.

Growth here often causes loss there.

Economists and politicians are always boasting about the increase in investment, business and GDP that will come from some new development, such as a new shopping mall. But remember that in this economy more successful firms are always driving many others into bankruptcy. The shops in the new mall will eliminate many little firms, and all the investment that went into them will be wasted. Add the legal and social costs of their termination. An estimate of the net increase in social welfare would subtract these costs from whatever increase in wealth the new mall brought about. However the GDP represents the addition of both the benefit and the cost components in this cost figure! It adds up all expenditure, including that which we are forced to pay out to cope with losses of productive capacity (many little shops) and of welfare payments to people who lost their jobs.

A great deal of investment goes into fierce zero-sum competition between suppliers trying to take more of the existing market than their rivals. This is clear with respect to soft drink sales, and tourism. When a town spends heavily on advertising and attracts more tourists, the economists and politicians think there has been economic benefit. All that has happened is that people who would have visited another place come to this one instead, meaning that the increased spending in the town is now not taking placed where it would have. Obviously the more fierce such competition is the worse the net national benefit is, because the more resources and time and energy that are being wasted on trying to take business away from others.

Again the growth in China and India is admired, without recognising that much of it is only the transfer of business to those cheap labour areas from others where people have no lost their jobs.

Growth creates or intensifies all global problems.

All the alarming global problems are a direct consequence of the pursuit of affluence and growth (although there are other causal factors as well.)

· The environment problem is caused by the fact that too much producing and consuming is going on. We are taking too many resources from nature and dumping too much waste back into it.

· Rapid extinction of species is occurring.

· This is because habitats are being destroyed.

· One species is taking about 40% of he biological

growth that occurs on land…humans.

· If 9+ billion people live as people in Australia do

now, humans would be taking 5 times as many resources as we do now…

…how much habitat left for nature then?

· The Third World poverty problem is primarily due to the fact that the rich countries are taking most of the resources available, many from the Third World, and imposing systems which gear Third World productive capacity to the supermarkets of the rich countries. The third world can never develop to be as affluent as the rich countries are now.

· Resources are scarce now. There are nowhere enough minerals, fish, land, timber or energy to give all people rich world living standards”. Yet our top priority is to raise our “living standards” all the time and without limit. If all compete fiercely for this goal the only possible outcome will be more and more intense struggles for dwindling resources.

· This means there will inevitably be more armed conflict in the world. Consider the rise of China and India, fiercely determined to get more oil etc., which the US must strenuously resist if it is to retain the rich world grip on resources.

The environment problem; Cannot be solved in this economy.

The environment problem is basically due to the fact that there is far too much producing and consuming going on. For instance the rich world per capita footprint is over 7 ha per person, which is almost 10 times the amount of productive land that will be available per capita in the world after 2050. We are taking resources from the environment and dumping wastes back in at rates that cannot be sustained. For example to provide for one American takes the equivalent of 12 tonnes of coal p. a. and requires around 13 ha of productive land, and 80 tonnes of raw material have to be processed for him every year. It is totally impossible for these rates to be kept up for long, or to be extended to all the world’s people. (See above on other elements in The Limits to Growth analysis of our unsustainable situation.)

Remember that if we add the commitment to growth to the presently unsustainable levels, aggregate demands on the environment will multiply many times within coming decades. It is totally implausible that technical advance or tighter environmental law etc. could enable the present rich world “living standard” to continue while these resource and ecological impacts can be reduced to sustainable levels. Thus most of what is being said under the heading of “sustainable economics” and “sustainable development” is nonsense. It is only about continuing to produce as much as possible while looking for somewhat less damaging ways of doing it, and it fails to grasp the head-on contradiction between "Environmentally Sustainable Development" and the pursuit of affluence and growth.

Unfortunately just about all governments and indeed all environmental agencies and campaigns refuse to even think about these points. They focus only on saving threatened bits of the environment, or urging people to shift to somewhat less wasteful or polluting ways. This can have no significant effect on the global problem. If you live in as green a way as possible while still being part of a consumer-capitalist society your footprint will be only a little less than the average. You will still have to buy goods from transnational corporations and travel and use sewers and packaging, and still have to work in a growth economy. But as the limits analysis above makes clear, we are far beyond sustainable levels of resource use and ecological impact, perhaps by a factor of 10, and there is no possibility of solving the environment problem without dramatic reduction in the total volume of producing and consuming going on. Yet we have an economy which must increase production and consumption all the time. Almost no green agencies or parties will face up to this. Almost none say that the growth economy must be abandoned, let alone make it their top policy principle.

"The American way of life is not negotiable."

President George W. Bush.

As the economy grows the quality of life falls!

The final absurdity is that growth is not raising the quality of life in rich countries. Genuine Progress Indicators are now being developed to measure many factors relevant to the quality of life, including happiness, the costs of growth and ecological damage. These studies show that in the rich countries increasing the GDP does not increase the quality of life, and indeed that this has probably been falling in recent years. (Eckersley, 1997, Layard, 2005.) In the US one of these indices shows a 40% fall in the 20 years after 1970. (Daly and Cobb, 1989.)

In terms of public wealth we are now clearly getting poorer. The quality of hospital care, university education, aged care and welfare provision is being depleted as governments squeeze spending and sell public assets to private corporations.

This economy more or less trashes the lives of large numbers of people. Many at the bottom such as the homeless, disabled and Aborigines are identified now as the “excluded” classes. Above them are large numbers of “working poor”, people who live under the poverty line or just above even though working full time. Even the middle classes are now overworked and stressed. Depression is about the most common illness. (Yes they typically make their own situation worse by over-consuming, e.g., buying houses that are too elaborate.) As a result there is a huge social cost, from anxiety and worry to drugs and suicide, violence and mental illness. All this is a direct result of the fact that this is an economy that allows those who are richest to take far more than their fair share, and does not allow us to organise available productive resources so that all can contribute to providing well for all, in comfort and security.