Our economic system is the basic cause of most of the serious problems evident in the world, especially the damage to the environment, the poverty and deprivation of the Third World and the social breakdown in the richest countries. Following is a brief summary statement of the reasons why we cannot develop a satisfactory and sustainable society unless we eventually change to a very different economic system.

Our economy is extremely productive. It churns out enormous quantities of goods, many of them luxuries. But at the same time there is huge unsatisfied need. In Australia thousands of people want 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 basic. One billion people in the world are extremely poor. Why do these needs go unmet?

The answer is, because it is not an economy in which we ask what needs producing and then organise our productive capacity to meet the need. It is an economy in which the productive machinery is owned by a very few people and they decide what to produce by asking what will make most money for themselves. 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 developing the industries that are best for the society as a whole.

It cannot be overemphasised that the thing which motivates our economy is the drive to accumulate capital, i.e., the determination 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. Sometimes this process generates benefits for all, but the main argument in this document is that an economy based on this principle will in time work less and less well for people in general and will lead us into catastrophic problems.

Thus the core problems in our economy derive from the fact that it is a free enterprise or free market system. Participants are free to produce, purchase and work as they as individuals wish. This sounds ideal, but unless an economy is under considerable social control it will mostly serve the rich and powerful and deprive the poor.

Most of the, waste, human suffering and ecological destruction in the world is due to the working of market forces. It is easy to show this. In a market system what is produced and who gets it at what price is determined by who is prepared to pay most for what. The result is that in a market system scarce things go to those who can pay more. In other words 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". Thus 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 1/3 of the world's grain production, more than 500 million tonnes, is fed every year to animals in rich countries, while around 800 million people are hungry. It is why the rich countries take 3/4 of the world's resource output and consume resources at a per capita rate that is 15-20 times that of the poorest half of the world's people.

Even worse is the fact that market forces ensure that the wrong things are developed. For example in the Third World where there is obviously an urgent need for development of farms and factories to produce things for the majority of people who are very poor, very little development of these occurs while almost all the investment goes into developing farms and factories to export 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.

And a free market system enables the most powerful few to take all the business opportunities, and thus to drive all the others into bankruptcy. The most "efficient" firm can undercut the prices of the others, drive them out of the field, and have all the sales to itself. Yes this minimises selling prices but the net social benefit includes the huge cost of many little people now not having a source of income. In the Third World especially millions of people are being deprived of the sales and income they once had because governments following free market principles are letting giant transnational corporations come in and take that business. Thus the neo-liberal agenda is enabling a few already extremely rich corporations to get even richer by taking the businesses and livlihoods many poor people desperately need.

The market is the mechanism that has developed the world in 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 and people who buy coffee in rich world supermarkets, and the few richer people in the Third World -- because producing to satisfy their demand is the most profitable aim for those with capital to invest.

In other words possibly the most fundamental fault in our economy is that profit ignores need. If you give people with capital the freedom to produce only what is most profitable to them you will inevitably end up with neglect of the needs of many poorer people and of the environment, and with increasingly bad distributions. A few will get richer as time goes but there will be increasing polarisation and an increasing mass of people dumped by the market system. This is glaringly obvious in the world as a whole where 86% of world income now goes to only 20% of people and the poorest 20% are receiving only 1.3% of world income. The situation has rapidly deteriorated in recent years and is very likely to accelerate as globalisation impacts.

Conventional economists claim that the market makes the most efficient allocations of resources and investment. But this is only true if we define "efficient" in terms of measuring the monetary return on investment. If on the other hand we are concerned with using resources and capital to meet needs 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 claim as a merit of this economy the fact that it gives much freedom to people to buy and sell and invest. But the foregoing examples show that in our economy there is far too much freedom of enterprise and freedom for market forces to operate. 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.

In principle it is desirable 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, 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 choose to. 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 the freedom of most people to have sufficient food is undermined.

The basic question should always be, what arrangements will maximise the overall social benefit, and in general these 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. The question should be what rules, what restrictions on freedom are sensible in order to maximise the overall quality of life, the health of our society and ecological sustainability. 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 economies. When they call for more "freedom of trade" they mean they want more freedom for corporations to go anywhere and take all the resources and markets available.

The dominant "neo-classical" or "economic rationalist" 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; that is a recipe for vicious inequality and the destruction of society and its ecosystems. You cannot have a society, let alone a good society, unless considerable emphasis is put on making sure that what is best for others and for society as a whole and for the environment is done. This often means individuals and corporations must not be allowed to do what they would like to do in view of their own interests.

Put simply, the trouble with free competition on a "level polaying field"is that the strongest win and take more than their fair share. If you want a world in which all people and regions have a fair share and can develop what is best for them and in which the environment is protected, then there must be regulation to make sure this is not thwarted by those who are strongest or richest. (However, in a satisfactory economy there could still be a considerable amount of freedom of enterprise; see below.)

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 the state and the state controls the economy. The alternative argued for below is totally different.

The most serious fault built into our economy is not 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 has always been that economic growth is the key to improving everything, because this is to increase "wealth", and "living standards", and to increase jobs and the tax revenue the government can then spend on problems such as the environment.

There are a number of reasons why this blind obsession is a very serious mistake. Firstly, it is not improving things! In the last decade or so it has become quite obvious that increasing the GNP does not increase the quality of life. Genuine Progress Indicators are now being developed to measure many factors relevant to the quality of life, including the costs of growth and ecological damage. These indices show that the quality of life has been level or falling in rich countries in recent years. (Eckersley, 1997.) In the US one of these indices shows a 40% fall since 1970. (Daly and Cobb, 1989.)

If growth is supposed to raise "living standards" for all, how do we explain that in the 1980s when the Australian GNP increased on average by 3.2% p.a. unemployment almost doubled, the foreign debt multiplied by 6, the rural debt multiplied by 10, foreign ownership of the Australian economy increased, inequality and poverty worsened and we saw the emergence of a permanent underclass? In the US over the past 25 years the wage taken home by 80% of the workforce has actually fallen by about 20%, and the average work time per year has increased by about 30 days -- despite large increases in the GNP.

In terms of our public wealth we are now clearly rapidly becoming poorer. State spending on schools, universities, welfare, railways and even hospitals is being severely cut back, again as the economy grows.

Conventional economists talk about growth as increasing "wealth". They gloss over the fact that most of this "wealth" is now 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 very cheap housing for the millions who need it is never produced. There is little merit in increasing the production of "wealth" that only benefits people on reasonable or high incomes.
 

However there is a far more important criticism of the commitment to growth. This is the "limits to growth" analysis of the global situation. (For a detailed statement see Trainer, 1998, and on this website, The Limits to Growth. ) Our present volumes of global production, consumption, resource use and environmental impact are far beyond sustainable levels, let alone any increase in these volumes. Present levels of economic output are far beyond those that could be kept up for any significant length of time, or extended to all the world's people.

Brief reference should be made here to some of the evidence and argument supporting the limits analysis.

• If we add together estimates of 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 10 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.)
  
• If all those people were to have our present rich world "living standards then we would need more than 7 times all the productive land there is on the planet (Wachernagel and Rees, 1996.), and annual resource production would have to be 8 to 10 times as great as it is now.
• It is very likely that petroleum supply will peak between 2005 and 2010, and will have fallen by 50% by 2025, 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. (Campbell, 1997.) A major and insoluble liquid fuel crisis accompanied by large and permanent price increases  would seem to be inevitable within 20 years.
• Thus the cause of the environment problem is simply the fact that there is far to much production and consumption going on. For example if we are to stop the carbon dioxide concentration in the atmosphere rising above twice the pre-industrial level we must cut carbon release to 9 billion tonnes, which means a 1 tonne per capita limit if population is 9 billion. But the present Australian per capita release rate is 16 tonnes, and if land clearing is included it is 27 tonnes!
• 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 1/4 of the liquid fuel Australia currently consumes. (See The Limits to Growth.)

These and other lines of argument leave little doubt that there is no possibility of all people rising to th levels of production and consumption we have in rich countries. We must cut resource use and environmental impact to a small fraction of their present levels. This cannot be done in this economy, because it cannot tolerate any reduction in business turnover or sales.

Now consider 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 4% p.a. then in 70 years time its total output will be 16 times as great every year as at the start. Almost all economists and politicians want at least 4% p. a. growth. (In the 1980s the Australian economy grew at an average of more than 3% p. a. but all our problems became worse. This economy would need at least 4% growth to be "healthy".)

The absurdly impossible implications of the growth commitment are easily shown. If a) we in rich countries do have 4% p. a. growth to 2070, and if b)the world's population is 10 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 120 times what it is today! Yet the present levels of production and consumption are unsustainable.

There are an increasing number of critical economists who are explaining that we must shift to a zero growth or steady-state economy, after a long period of negative growth; i.e., reduction in the total amount of producing and consuming going on. However most people in our society including most politicians and economic leaders steadfastly refuse to attend to 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 and mines and shops as high as possible and increasing every year.

The justification conventional economists give for an economy in which there is indiscriminate growth in output (i.e., there is incresase in production of anything that those with capital choose) is that "...in time the benefits of growth will trickle down to enrich 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 only 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."

It has been clear for a long time that although there can at times be significant trickle down (e.g., in the rich countries through the boom years from 1950 to 1970, the material living standard of most people did increase considerably) in general very little 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 most people live in have not improved much, and in fact the poorest one-third of the world's people are now getting poorer. (UN, 1966.) Now we also know that ordinary people in rich countries are moving in the same direction despite considerable increases in GNP. The richest 10% of people are becoming much richer but most Americans are getting poorer, just about all our social and ecological problems are getting worse and public facilities such as hospitals are becoming poorer.

There are many ways in which our economy involves production that is unnecessary and wasteful, and the total of all these must be staggering. Consider for example, items we do not need much or at all (e.g., cosmetics), things that are more elaborate than is necessary (e.g., cars, houses), 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 is 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 and with materially simpler lifestyles, 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 3 times too hard! (See The Alternative, Society.)

However it is important to recognise that in this economy we must waste! 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. An economy which must produce and use up ever-increasing quantities of goods cannot possibly be expected to solve environmental problems. The large increases in production that have occurred in recent decades have not resulted in us working less time to produce what is needed; instead we are consuming more.

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 to be produced and in the jobs required for that. But we do not need anywhere near as much produced as we have now, and present levels of production and consumption are quite unsustainable 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 70%! In a satisfactory economy we would organise to share the necessary work among all who wanted it. Unemployment reveals some of the worst irrationalities in this economy.

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. The fault here is in excluding from economic decisions all but money costs and benefits.  These should be given much less attention than considerations of justice, morality and the welfare of people and ecosystems. Often we should keep people in jobs even if this would be very inefficient or costly in monetary terms. Organising employment the way we do is obviously in the interests of employers not employees.

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., via soft drink advertising. Even though we already do far more work and producing than would be necessary in a sane economy, we all have 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.

Everyone has to struggle to find something to work at, something to produce and sell. This is difficult because too many people are already out there producing and selling whatever you might think of trying to sell, and the economy can't give places to all who want jobs. People study for years to get better qualifications in the hope that this will guarantee a job. Technical advance has made it possible to produce far more than is needed without having everyone working yet in this economy most of us must look for work producing or selling something or we can't get the things we need. Consequently many of us are constantly struggling, stressed and insecure, worried about whether we can keep our jobs. Usually when someone wins a scarce job someone else misses out.  If on the other hand we had a sensible and cooperative economy we could easily organise to produce everything everyone needs without much work and without anyone having to worry about their security.

Globalisation is increasingly enabling a few of the strongest corporations to take over the sales and markets that many little firms once had, sending them out of business. This is regarded as acceptable in this competitive, winner-take-all economy. This does reduce costs and therefore selling prices in rich world supermarkets, but it means that a few who were very rich in the first place become much richer while taking away the livelihood of millions and damaging their social cohesion.

Similarly nations are increasingly dependent on competing against each other to export, mostly into markets that are already glutted. A country's entire economic situation can collapse if it does not constantly strive to produce and export more cheaply than everyone else. Again those who win the scarce opportunities to export take that income from some other country in a zero-sum game.

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 and 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 a few necessities they could not produce (especially because there will not be sufficient energy to enable much transporting of goods.) But this would not suit the transnational corporations and banks at all; they want as much exporting and importing and lending and investing as possible going on, because this maximises their business opportunities.

The major faults in our economy are most glaringly obvious when we consider Third World development. Conventional economists define development for the Third World essentially as increasing the amount of economic activity or production for sale. "The more investment, production and trade, the more wealth is being generated and thus the higher the living standards will be." The conventional economist wants to bring tribal and peasant people into the modern market system, so they can start buying products and selling their labour and resources, and getting jobs in the cash economy. "Development requires investment and you can't invest without capital, which means that loans and foreign investment are crucial. At first development might do more for the rich than for the poor but in time there will be trickle down benefits for all."

However as has been explained, when development is defined as "getting the economy going" or increasing business turnover and the GDP , the result is almost entirely development of the wrong things, that is, development in the interests of the rich. The industries developed are mostly those that will make most profit for the few with capital to invest, including the local rich and the transnational corporations and banks.

The development produced by conventional economic theory and practice can now be seen as a form of takeover and plunder. (Goldsmith, 1997, Chossudowsky, 1997, Trainer, 1989.) It takes from the majority of people the land and forests they once had and puts these into production benefiting the rich. If you allow development to be led by what will make most money and add most to the GNP then inevitably you will facilitate inappropriate development. We are now seeing rapid acceleration of the processes which are impoverishing most Third World people (the poorest 1/3 are getting poorer, UN.,1996) i.,e., the globalisation process with its emphasis on greater deregulation, freedom for corporations and removing the laws that protect poor people and their ecosystems.

Appropriate development, i.e., development that most serves the interests of people in general and of the environment, is impossible in the present global economy. It could only take place if the profit motive and market forces were prevented from determining development and if growth was not taken as the goal of development and if there was far more regulation and social control over local development and if the rich countries took far less of the world's wealth.

In other words the global economy is massively unjust. It greatly enriches the richest one-fifth and seriously deprives the majority. Living standards in rich countries could not be anywhere near as high as they are if the economy was fair. (For a more detailed account on this website see Third World Development.)

Basic to our economy is the practice of charging interest on money that is lent. Firstly this is a morally challengeable practice. Several hundred years ago it was not permitted because it was seen as highly immoral. If you borrow a surfboard from a friend who doesn't need it you are only expected to give one back. However, if you borrow $100,000 from a bank to build a house you will have to pay back this sum, plus another $100,000 to $200,000 in interest.

Because of the cost of interest we pay a lot more for things than we otherwise would, probably on average 40%. (Kennedy, 1988.) In other words 40% of what you pay the Water Board in your water rates goes to pay the interest on the money it had to borrow for its capital works. There is a cost of this kind is on everything you buy. This siphons large amounts of wealth to the richest few who are the ones with money to lend. Poor people have no savings so get no interest payments. Admittedly most people have some savings and receive some interest, but most savings are in the hands of a very small proportion of people. In the US a mere .5% of people own half the capital. (Brower,1988.)

The total debt in rich countries, let alone poor countries, is now huge and has been rising very rapidly. In the world as a whole debt has been increasing at three times the rate at which the capacity to pay it off has been increasing; i.e., the economic growth rate. (Clairmont, 1996, p. 29.) America's total debt has grown at 5.8% p.a. for 200 years, much faster than total economic output. Total output multiplied 22 times in that period, but total debt multiplied by 187 times. (Hixson, 1992.)

Growing much faster than debt are the interest payments due. For example in the US in the early 1990s the interest that had to be repaid on debt each year was almost equal to 20% of the GDP. (Tanzer,1992.) This means that Americans were working one day a week just to pay the interest on debt...to rich people who do not need to work at all!

Another very objectionable aspect of the present system is that governments borrow huge amounts of money from the private banks and therefore have to pay billions of dollars from our taxes as interest payments on these loans every year, when they could borrow all the money they need from the government's own banks at little or no interest at all! Australian taxpayers pay more than $18 billion p.a, about $1000 per person every year to the private banks in this way, i.e., as interest payments from the government to the private banks from which they have borrowed money.

Similarly, we allow the private banks to create and issue all the new money needed in our society each year (about $25 billion p.a. in Australia.) This new money is simply created out of nothing when banks grant loans. Banks then receive interest on these loans. This is one of the most absurd aspects of our economy. Obviously all money creation should be carried out by public banks. This would mean that if new money were lent into circulation then all interest would go back to the people's bank. Better still, it would mean that governments could put new money into circulation by spending it on new public works.

Inequality is great and rapidly getting worse. Consider the following facts.

• One-fifth of the world's people get 86% of world income, while the poorest one-fifth get only 1.3%.
• In 1991 there were 274 billionaires; by 1996 there were 447. Their assets equal the annual income of the poorest 3 billion people on earth. (Korten, 1999.)
• Almost all of the world's productive capital, i.e., its corporations and banks, are owned by about 2% of the world's people.
• 1% of Americans hold 40% of American wealth. They have doubled their wealth since the 1970s. (Wolff, 1999.) However the wealth of the median American household fell 10% between 1989 and 1997. (Dyer, 1997.)

These phenomena are an inevitable consequence of an economy which allows and encourages the rich few to put society's resources and productive capacity into whatever purposes are most likely to increase their own wealth. We are seeing rapid polarisation, i.e., enrichment of the rich and impoverishment of the poor in the world. The social regulation which once restrained this tendency is being deliberately eliminated. Since the 1970s the rich have triumphed, driving through liberal policies in the rich countries, and re-colonising the Third World via globalisation, the World Trade Organisation and Structural Adjustment Policies.

Social problems are increasing as more as more people are being stressed and dumped by this economy. Our society is becoming more mean and selfish; for example people who can't find work are not only given miserly assistance, they are increasingly penalised and harassed.

What are the causes of this social breakdown? Firstly, because in this society market forces and growth are the supreme concerns governments are dramatically reducing their activity and spending and therefore their welfare programs and assistance to communities, especially to those in most need. Governments want to cut taxes on business, to enable them to prosper, because if taxes are high the corporations will locate somewhere else.

Secondly, it is an economy which does not need all people and it therefore dumps many into unemployment, poverty and homelessness, and these are conditions which can only generate extremely negative and destructive social attitudes.

Even more important is the mentality that comes with the increasing emphasis on market relations. The more emphasis that is put on "getting the economy going" and on market relations, the more damage occurs to social relations; e.g., to community, social cohesion, trust and concern for the public good. In earlier times we produced and received most things outside the cash economy, i.e., within family, church and community. In consumer society we must increasingly relate to each other as isolated individual competitors in a hostile market place. When we have to seek the things we want as individuals in the market place our outlook becomes more competitive and selfish.

When you go into a market to buy you are not encouraged to think about what would be good for the other person or society as a whole. Your attention focuses only on what will maximise your own advantage. Because we live very privately we are given relatively few goods and services freely by friends, neighbours or the local community. We are therefore less likely to feel gratitude and debt and bonds of affection to others in our locality or to our town for what these give us -- because we buy and pay for most of the things we get. The more society is commercialised the more the goods, services and experiences we get become mere commodities. Whereas an exchange of gifts or voluntary help builds bonds between people, the purchase of commodities does not. Living in society is more and more a process of purchasing what we want, as a competitive individual. In tribal society living in society involved much more shared experience, e.g. cooperating in food production or ceremonies or community life, and individuals did not get used to pursuing what they wanted as an isolated competitor in a market.

There are therefore subtle but powerful forces at work in this economy which drive out social concerns, concern for the other and for the good of all. Market relations damage social relations, yet governments and economists are now trying to have more and more decided by market forces.  (For a more detailed discussion see Social Breakdown.

The environment problem is basically due to the fact that there is far too much producing and consuming going on. 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 and more than 12 ha of productive land, and 80 tonnes of raw material have to be processed every year.

Remember that if we add the commitment to growth to the presently unsustainable levels, then aggregate demands on the environment will multiply enormously within the next century. It is totally implausible that technical advance or tighter environmental law etc. can enable the present rich world "living standard" to continue while reducing these resource and ecological impacts to sustainable levels. Thus most of what is being said under the heading of "sustainable economics" and "sustainable development" is nonsense, being only about continuing to produce as much as possible but looking for somewhat less damaging ways of doing it.

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. (See on this website, The Environment Problem.)

Since the 1970s we have accelerated towards the development of a single integrated and open global economy based on the principle of increasing the "freedom of enterprise". Conventional economists are in favour of globalisation because it will lower costs and increase trade, investment and GNP growth. However it will give enormous freedom and power to the transnational corporations and banks and will have increasingly unfavourable effects on the real living conditions of most people on earth in coming years.

Our economy is always confronted by the difficulty of finding profitable investment outlets for all the capital that is constantly accumulating. The amount of capital per person in the USA has been doubling at 20 year intervals. (Daly and Cobb., 1989.) Thus there is constantly increasing pressure to find more and more investment outlets for this ever-accumulating volume of capital. This "problem of surplus" (Baran and Sweezy, 1966.) has become more serious since the 1970s. Globalisation is happening mainly because corporations and banks desperately want to get rid of the barriers which have previously hindered their access to more business opportunities. Globalisation involves removing the government regulation which protected local firms, forests, labour, resources and markets for use by local people and prevented foreign corporations from taking them.

The justification for this thrust is in terms of "maximising the freedom for market forces". This basically means maximising the freedom of the corporations to do more business wherever they like, to buy and sell and invest and trade whatever they want, without restriction or regulation. The rules recently introduced under the World Trade Organisation, and those being brought in under proposals like the Multilateral Agreement on Investment, seek to remove many controls over corporations, such as the power of governments to make the corporations replant forests, follow good health and safety standards, invest in poor regions or reinvest profits in the country. The corporations are therefore increasingly able to move to where the wages and conditions are lowest, to drive local producers out of business by undercutting their prices and therefore to take their trade, to take over local firms, to divert local land and resources from producing for local people and to put these into producing for export.

Under these new "free trade" rules governments have less and less power to block or control what corporations want to do. Some governments have been fined hundreds of millions of dollars for trying to ban a corporations ploducts from sale. Any such attempt might be rejected by the World Trade Organisation as "interfering with the freedom of trade". It will even be diffficult to stop a corporation from coming in and processing our forests or m inerals or water resources to sell them overseas, when you might want to preserve these.

The welfare of most people in any country now does not depend on whether they can produce for themselves the things they need. It depends on whether they attract corporations to invest, and therefore on whether they can beat all other countries to sell exports into the global market at the lowest prices in order to earn enough to import the things they need.

Thus what happens in a country increasingly depends on what it suits the transnational corporations to do there. If corporations don't want to set up factories in the country then there will be few jobs there. 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. In other words in a globalised economy all are dependent on what suits the corporations and banks. It is a system which is delightful for the corporations but which will not provide well for more than a small proportion of the world's people. Many small and remote nations, such as those in the Pacific or in Africa, have no hope of being able to sell anything the corporations want as cheaply as others, or to attract investment. They will simply be ignored and dumped. Only about 2% of foreign investment goes to the least developed countries.

One very important consequence of this more open and unregulated global economy is that governments are less able to control financial flows. Vast sums 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 or trade, they are just to speculate or gamble, e.g., on currency rate changes. Thus in the 1997-8 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 would not have been possible; appropriate development would have built the capacity of people to cooperatively provide for themselves irrespective of what happened in the predatory global market.

The drive is now to establish these "free trade" arrangements in the realms of investment and services. Whereas governments used to provide health, education, water, electicity etc. services and thus could use these to achieve social goals such as assisting low income groups with lower charges, if these services are privatised corporations will raise prices as far as possible, and cut services to the poorest people and regions. When the General Agreement on Trade in Services comes in governments will not be able to retain crucial social policies such as the Australian Pharmaceutical Benefits Scheme which ensures low prices for drugs for needy people.

Globalisation with its increased freedom for business is clearly very much in the interests of the transnational corporations and banks, because it is essentially about increasing their capacity to do profitable business. But globalisation is disastrous for most of the worlds people, including now most people in rich countries. See Globalisation; Collected Documents, section 1.) Resources and development will flow more readily than ever to those few places where it is most profitable to the corporations to locate them, and the rest will be ignored. All regions and most people will be more open to the penetration of the corporations and more vulnerable to market forces. Corporations will take over the markets and land and resources people once had, simply by being able to undercut existing prices or pay more. Governments will compete against each other to attract corporations (because this is the only way they know to get their economies going) by offering more lucrative conditions, in "a race to the bottom".

We are moving quickly to a situation in which the world will be effectively governed by a few supra-national agencies such as the World Bank, the World Trade Organisation and the International Monetary Fund. They are exercising more power than national governments now. For example the rules of the WTO enable three 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. For example the US 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. Clearly the rules of world trade are already extremely favourable to the corporations while contradicting the interests of most people. The intent now is to establish these freedoms in the realms of investment and services. Some people fear that it is already too late to prevent a slide into an era of global fascism in which agencies like the World Bank and the World Trade Organisation will rule for a tiny rich elite and most people will be impoverished and repressed. (Finn, 1998.) Many have stressed the devastation globalisation has already caused among the world's poor majority.(E.g., Chossudowsky, 1997.)

Has this account ignored the benefits of globalisation? There will be more and cheaper products -- for the richest one-fifth of the world's people. There will be few if any more jobs, because corporations do not employ many people, and tend to downsize whenever they can. There will be increased GDP in some countries, but most of their people will get little or no benefit and many will become poorer. The evidence is that in general Third World countries forced into globalisation by World Bank Structural Adjustment Packages do not have improved growth, export performance, debt situations, or foreign investment. See Globalisation. Collected Documents, section 8.)

Some people argue that there is no possibility of resisting globalisation so we should work hard to derive whatever benefits we can, and to be among the winners in the fierce competition. The Simpler Way completely rejects this orientation. The only acceptable long term strategy is to work for the day when  the corporations and banks do not control the world and we are secure within local economies that enable us to produce for ourselves most of the things we need. (See on this website The Alternative, Sustainable Society.)

It is a serious mistake to assume that "economic rationalism" or "neo-liberalism" has failed or is irrational, because it is not solving our problems.  What is going on is a  very successful drive by the corporations and  banks and their few  highly paid lawyers and managers to grab even more of the world's wealth and resources.  Since 1970 they have been stunningly successful in increasing their wealth and pushing the working class and Third World people back.  Globalisation is about changing the rules to enable greater freeeom of trade and investment which means that the corporations will have greater  access to resources, markets and labour.  The regulation which should control corporate activities to make sure that what is best for people and the envioronment is what is done is being eliminated because it is construed as interference with the freedom of trade.  But when all are "free" to compete without regulation all the winnings go to the biggest and richest players.  Thus inequality in the world is  grotesque and rapidly increasing; the rich are increasing their incomes and wealth at the expense of everyone else,  social cohesion and the environment.

In other words globalisation and the neo-liberal agenda are delivering the world to the corporate rich.  The Structural Adjustment Packages inflicted on poor nations reduce the amount of their resources going to the ordinary people while enabling foreign corporations to use more of them, for example more land for plantations.  The rules of trade and investment  being brought in give corporations more power to do what they want, including come in and buy up resources and then sell them overseas to the highest bidder, even though local people might desperately need those resources. (Canadians are currently worried that they will not be able to prevent their water resources being taken by the US.)

The brazen arrogance of the corporate grab is breathtaking.  For example many of the rules within the World Trade Organisation and the proposed Multilateral Agreement on Investment are outrageously unjust and morally wrong in the extreme.  They clearly allocate rights and benefits to corporations and rich countries while eliminating the rights that poor people obviously ought to have and almost totally ingnoring the "ritghrts" the environment should have.

The massively unjust global economy must be seen not as a result of unfortunate and unintended lmistakes, but as the result of a deliberate drive by the corporate rich for greater wealth and power. Consider the gigantic h ypocrisies in the system that are never questioned, for instance the fact that Third World countries are forced to scrap subsidies and assistance which impedes the acces of corporations while the rich countgries subsidise their agricultural exporters hundreds of billions of dollares every year, the fact that capital is free to move anywhere in the world that it likes but there is never any possibility that the labour of poor Third World people should have the right to move into rich countries, or the fact that Stgructural Adjustment Packages are imnposed on poor countries but there is never any question of imnposing one on the most indebted of all countries, the USA.

Thus globalisation must be understood t as a staggeringly triumphantly successful drive by the corporate rich to restructure the way the global economy works, in order to increase their wealth at the expense of everyone else.
 

To a large extent the highly undesirable outcomes of our economic system are due to the dominance of conventional economic theory, which seriously misleads and distorts our thinking. Following are some of the most important faults.

        1. Conventional economics is basically only about increasing the amount of production for sale; i.e., increasing the volume of business turnover or output or GDP. In other words it only attends to things produced and sold for money. This leaves out a great deal of important economic phenomena. For instance possibly one-third of all the work and production that takes place is not performed for money. People make breakfast and sweep up without payment in money. They give many things to each other freely, including advice, company, help and entertainment.

In these large non-monetary sectors of the real economy the laws which hold within the merely cash sector are more or less irrelevant or invalid. Whether or not your children get toast at breakfast, or you help a friend with problems, does not depend on dollar costs and benefits. Many things are priceless and in many cases it is meaningless to try to talk about dollar costs or to base decisions on them. Conventional economic theory is totally incapable of dealing with these many economic phenomena.

        2. Most importantly, in many cases values other than money are the ones that should most determine what is produced and who gets it. Often something should be produced or not produced, or made available to specific people, because that is just, or morally right or socially desirable, or the ecologically right thing to do. Many of the most disturbing problems in the world are due to the fact that the market, i.e., considerations of mere cash value and profit, is allowed to determine what is produced or developed or who gets things, when these decisions should be made mainly in terms of what is just, morally right or ecologically sustainable. (As Polanyi said, the economy should be "embedded" in society; Dalton, 1968.)

When only money costs are taken into account many other important costs are completely ignored, such as the noise of an airport, the boredom of factory work, the ruined landscape, impacts on community and social cohesion, and the emotional costs of unemployment. Conventional economic theory defines these, especially environmental costs, as "externalities", i.,e., not really as economic considerations at all.

        3. The supremely important measure of economic progress is taken to be the Gross Domestic Product, i.e., the dollar value of all the production taking place. However this figure adds together the value of production that increases our welfare and the value of expenditure we have to make on things that reduce it, and take the total is taken to be a measure of our welfare. For instance if we have a social system that generates several billion dollar road accident costs each year, then obviously the amount we have to spend on this problem represents the size of the reduction that accidents make in our welfare. Yet conventional economists add all expenditures in to the GDP and pretend that the total represents our income and welfare.

        4. Another major fault in the GDP is that it only measures throughput , i.e., expenditure or income, and therefore gives no indication of stocks of wealth or changes in these. The GDP of a country which makes a lot of money in one year selling off its forests might give the impression that it has become richer, but if we were to take into account its loss of ecological wealth we might find that despite the cash income it has become poorer.

        5. No aspect of conventional economic theory has more disastrous consequences than the focus on the market and the assumption that the best way to conduct economic affairs is via free markets. The market mechanism does some things well and might have an important place in a satisfactory society, but as has been explained market forces are far more responsible than any other factor for the misery in this world. Globalisation is being legitimised in terms of the sanctity of market forces, when in fact it is causing a holocaust of impoverishment and corporate plunder. To argue for freedom for market forces is to argue for greater freedom for the rich and their corporations to do and take whatever they like. We cannot have a satisfactory society without far more social control and regulation than we have now (not necessarily by the state.)

The theory also assumes that markets are self-regulating.  If things are not working well the conventional economist will say its because the market is not free enough to work its miracles.  This is quite mistaken.  If left without regulation economic arrangements will serve the rich and destroy social cohesion and the environment.  There must be a great deal of regulation, i.e., "interference" with market forces, if the poor are to get a fair deal or if the environment is not going to be sold off for profit.  We do not expect machinery like cars, sewer systems or a tennis clubs to run smoothly without regulation.  A good economy is social machinery that will need a great deal of guidance and regulation.

        6. Some of the essential definitions built into conventional economics are viciously misleading. This is most obvious regarding "living standards", "productive", and "efficient". When conventional economists talks about the most "productive" and "efficient" investments all they mean are those that will maximise the return to the investor. But as has been explained, almost always this will be the most profitable investment and not the one that is likely to do the most needed things. Thus conventional economists will say it is a much more efficient use of capital to build one luxury mansion than fifty humble cottages for very poor people, or to grow luxury crops for export than food for hungry poor people.

Similarly we are all in favour of improving "living standards", but all the conventional economist means by this is increasing the GDP per capita, a definition which is delightful for those with capital to invest. "Living standards" should be defined in terms of overall quality of life...which is actually falling as the GDP increases.
 
 

• It deals only with the monetary value of productionor sale, enablng many costs such as the boredom of work, noise, pollution and the stress of unemployment to be ignored by the producer (i.e., paid by someone other than capitalists), and therefore enabling moral, social and ecological considerations to be ignored.
• It takes as the supreme goal of economics increasing sales as much as possible, for ever. It assumes that economic growth means more wealth and therefore more welfare and higher living standards.
• It upholds a very few owning a society's productive capacity, i.e., its factories, mines etc.
• It allows those with capital to decide what is to be produced, and to do this in terms of what will maximise their profits.
• It legitimises the market as the supremely effective and efficient way of allocating things. This gives those who are rich and powerful the freedom to produce and to take what they want.
• It calls for increasing the freedom for capital to operate without regulation.
• It encourages governments to transfer profitable public enterprises to private corporations.
• It defines labour and the environment as mere commodities that can be bought and sold without concern for their welfare.
• It defines "productive" and "efficient" only in terms of what will maximise profit.
• It defines "development", "living standards" and "progress" not in terms of the quality of life but in terms of raising the volume of business turnover.

These are not characteristics of economics in general; there are many economies that do not operate on these principles. These are only the characteristics of a capitalist economy, i.e., only an economy in which what is done is what will maximise the returns on the investment of capital. This economic theory cannot deal at all with what happens in an Aboriginal economy, or in a household economy or on a commune. It is not an economic theory that enables us to discuss the most important questions, especially, what economic arrangements would be best for people, for society and for the environment. But conventional economic theory and practice give the impression that no other form of economy than a market or capitalist economy is desirable or even conceivable.

We would not arrive at the above list if we defined economics in terms of the arrangements for production, distribution, exchange and development which can be observed, or which are conceivable, or which are most desirable.

Thousands of students studying economics think they are learning about what happens in the economic realm of human behaviour and experience, but in fact they are only learning about an economy based on private capital and markets, and they are learning that no other kind of economic system exists or is worth thinking about. There is no better example of a "discourse" that grotesquely distorts thinking.

We should be extremely angry about conventional economic theory and practice.  It produces and legitimises many practices and situations that are dreadfully bad.  It is responsible for most of the chaos, deprivation, poverty, 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.  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.

This economic system has put virtually all countries on a path that is totally ecologically unsustainable.  Even in the richest countries 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 10-20 times too much for a house.)  It makes you work far too hard, and it condemns you to a much more difficult,  insecure and stressful life experience than is necessary.  Virtually all our social, economic and ecological problems are getting worse, at an accelerating pace.  The basic cause is an economy in which productive capacity is not  geared to need.

As was explained above, the neo-liberal agenda and globalisation are essentially about the very rich few who own and control capital, and their highly paid managers and technocrats, reorganising the rules governing economic behaviour to greatly increase their capacity to take even more of the world’s wealth and resources.  To move to have trade and investment conducted in accord with free market principles and without "interference" from regulation is to ensure that corporations and banks have greater opportunity  to take what they want take (by paying more or producing more cheaply), to develop what they want (such as plantations where land should be growing food for local people), and to do so on conditions that most suit them (e.g. , with low or zero tax obligations.)

The rules associated with the free market way are, in general highly unjust and immoral.  The neo-liberal agenda is about an arrogant and outrageous grab by the corporate rich for even greater  access to and control over the world’s wealth

Again it is a mistake to think of this economy as irrational or as failing to work well.   It is in fact  a  very rational and effective system...but it is not designed to work for the benefit of people in general or for your benefit!  This economy works beautifully ...  for the few who own most capital and for the few technocrats and lawyers who serve them.  Probably less than 10% of the world’s people benefit significantly from the way this economy functions while it deprives most people and is destroying the planet.  (See The Neo-liberal agenda; what is really going on.)  But most people are not angry.  This is partly because conventional economic theory has legitimised this economic system; i.e., taught everyone that freedom for markets and those with capital, competition and growth are the right principles for organising an economy.

The form that a satisfactory economy must take is detailed elsewhere but an indication of it can be given here briefly. (See , The Alternative, Sustainable Society; The Simpler Way.)

-- The alternative approach to economics begins the question how can we best organise our resources and our capacity to produce in order to provide those relatively simple things we all need for a high quality of life, cooperatively developing the most convenient, just , ecologically sustainable and pleasant arrangements. It focuses us on working out how best to provide well for all with as little work, resource use, consumption and environmental impact as possible. It enables us to put top priority on moral criteria such as what will maximise the happiness of people, and to focus on questions like what will minimise boring work, how can we share work around, what arrangements will ensure no one lives in poverty, what will ensure that public goods like excellent museums and orchestras flourish, how can we build a beautiful and noble society we can be proud of? We could quickly and easily get to the stage where we had developed enough, i.e., where we could provide all with a high quality of life on a small fraction of the work and resource use we have now, without poverty, unemployment, stress, insecurity and social wreckage, and without any need to incrase investment or output further.

-- The alternative approach would go directly to appropriate development. It is not an indiscriminate, trickle down approach. Instead of allowing productive capacity to go into producing mostly things that are not very important while assuming that the important things will get done eventually, appropriate development makes sure that the most important things are tackled first.

-- There must be much social control and regulation. We cannot have a satisfactory economy unless we make sure that what is produced is what should be produced, that those in need have their needs met, that the environment is cared for and that the right things are developed. A free enterprise or capitalist economy will not do these things. They will only be done if people think about what is best for society and somehow make sure that the necessary steps are taken to ensure that it happens. Thus the economy must be "re-embedded" in society; i.e., subject to control by moral, social, justice, and ecological considerations.

Few if any of us would want this social control to be exercised by big, authoritarian centralised state bureaucracies, but that is not the only way. A sustainable society in a world of very limited resources will have to be made up of many small and highly self-sufficient community economies (below), and this would enable the social monitoring and control to be in the hands of the many local citizens' assemblies and therefore very open and democratic. Secondly much of the economy might be left to private enterprise (e.g., small family businesses, and to market forces), so long as society could set the limits and intervene if undesirable things began to happen.

-- There must be no economic growth. Only a steady state economy can be ecologically sustainable. Indeed for a long time we would have to constantly reduce the volume of producing and consuming taking place, until it is just sufficient to give a good quality of life to all. In a satisfactory and sustainable economy there would be far less producing, consuming, resource use, investment, trade and work going on than there is now. Much of the reduction would be achieved by reorganising the way we do things; e.g., when we produce most food in and around our settlements we will not need to produce so many trucks.

-- The basic structure must be the small, highly self-sufficient, local economy. Most of the things we need must be produced in and very close to the towns and suburbs we live in, using mostly local resources. There must be relatively little trade between nations or regions, firstly to reduce energy use and secondly to increase independence and security from the global economy and to build thriving local communities. Each small region, town or suburb would have its own bank, business incubator, voluntary taxes and insurance schemes, work coordination committees and development committees.

-- Living standards cannot be affluent. In view of the limits to growth analysis a sustainable society cannot possibly be a consumer society. We must live in materially simple ways. This certainly does not mean hardship or deprivation. It means being content with what is sufficient for a high quality of life, deriving life satisfactions from other things than consuming, e.g., from community activities, arts and crafts and personal development. Many satisfactions can come from living more simply, communally and self-sufficiently.

-- Much of the economic activity would take place in the non-monetary sector, which would include household production, community working bees, cooperatives, giving away of surpluses, committees and town meetings, and the many free goods all people could take from the local commons (e.g., public orchards and woodlots).

--The basic economic structures must be mostly cooperative, not competitive.

-- There would be no interest paid on loans. (If there is interest then there is a growth economy, and unrepayable debt.) All money would be created and issued, not by private banks but by public banks, mostly at the local level. ( See Interest, money and debt.)

-- In a satisfactory economy there would be no poverty or unemployment. These would be easily eliminated if we wanted to do it. (There would not have to be a very high level of equality; wages incomes and wealth could differ considerably.)

-- There could be much automation and many modern high-tech factories to produce many of the things we need. However, many items would come from craft production, because this is enjoyable and factory work is not. Little heavy industry would be needed. Much light industry would be decentralised. Few large enterprises would be needed (e.g., one national steel works). These would probably best be publicly owned. There would be little or no need for transnational corporations and there would be far less international trade than there is now. The finance sector of the economy would not be very important.

-- Economic affairs would cease to be very important. We would easily organise the production of the goods all need for a high quality of life, in materially simple ways and at a relaxed pace, and then spend most of our time engaging in activities such as arts and crafts, gardening, domestic and community activity, cultural activities, learning, playing, and enjoying live. We would not have to waste most of our lives trapped in a frenzy of producing and consuming and competing. Much production would be enjoyed because it would take place in craft form, households and gardens.

Obviously these changes could not be made without profound changes in values, away from affluence, competition and individualism. They might therefore be seen as highly unlikely. However a "global alternative society movement", including the ecovillage movement, has developed in which many small groups around the world are attempting to build societies with sustainable structures and values. (The significance of the global eco-village mnovement.).)

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See also Collected Documents; ECONOMICS

Also relevant/overlapping, entries on Third World Development;

Third World Development; The Critical Perspective (Short.)

Third World Development (Long)

Colected Documents; THIRD WORLD

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