Our Finer Future – Creating an Economy in Service to Life



STEWART WALLISCHAPTER FOR BOOKRevised March 2015A New Economic System Based on Core Human Values: How to make it happenIntroductionA transformation is needed urgently to move us towards an economic system that remains within the planet’s limits and has as its goal the equitable satisfaction of human needs (as opposed to wants) and the maximisation of both human well-being and that of all living things. In this chapter, I show that the barriers to this transformation are not technical, but human, and that a focus on policy and practice change alone is insufficient. We have to start by being clear about the values we want to live by and from these derive the design principles of a new economic system. Transformational change then requires the creation of a simple and powerful new story or narrative about how we want to live as well as the creation of a movement for change that will shift values and generate the necessary political will. I set out how such a new story and movement can be created and draw lessons from the systemic changes achieved in western economies in the twentieth century by the Keynesians and the Neo-liberals. Unsustainable, Unfair, Unstable and Unfulfilling Our current dominant economic system, based as it is upon western market capitalism, has undoubtedly brought great benefits to huge numbers of people across the world. However, we have now entered a period of major crisis where our current system is no longer fit for purpose. The economic crash of 2008/2009 is still seen by some people as a temporary blip – a very painful one, of course, but for all that, a short-term blip. Nothing could be further from the truth. The economic system that we currently have is unsustainable, unfair, unstable and deeply unfulfilling for many. Let me explain.Firstly, unsustainable: For the two hundred thousand years that humans have inhabited this planet, we have lived within the planet’s ability to regenerate itself…until forty years ago. Around 1970, humankind began to live beyond this capacity. We now use the equivalent of 1.5 planets to provide the resources we use and to absorb our waste. In these forty short years, we have exceeded the planet’s capacity by 50%. On our current path, by 2050 we will require three planets worth of resources to sustain humankind – a 300% overshoot on our planet’s ability to sustain us.The stresses on our planet’s system are already becoming apparent. Climate change is a reality and extreme weather events are becoming more frequent. Even on very optimistic de-carbonisation scenarios, most scientists believe that we only have a fifty-fifty chance of limiting global warming to 2° above pre-industrial levels by 2050, and our current path means we are on track for a 4° rise above such levels. Two degrees is potentially perilous – four degrees would most likely trigger a whole range of catastrophic events around the planet which would particularly affect the poorest people and do untold harm to other species. Already, the number of non-human vertebrates has halved over the last forty years. The UN Millennium Ecosystems Report of 2005 indicated that fifteen out of twenty-five crucial ecosystems that provide our planet’s life support systems are either in decline or are in serious decline. These include our atmosphere’s carrying capacity as well as fresh water, pollination systems, coral reefs and topsoil. We are entering a new geological era – the Anthropocene – so called because now, humans are radically effecting how the planet operates. This future is deeply unsustainable and technological change, while necessary, is clearly not going to be sufficient. This unsustainable situation is compounded by the unfairness of the current system. Inequality is growing rapidly within many countries around the world and there are insufficient good jobs for the young people entering the workforce. At the time of this writing, for example, the youth unemployment in Spain is over 50%. Some 50 million new jobs are needed in the Middle East/North Africa alone, in the next ten years which will require a year-on-year GDP growth rate of 10% in the current economic structure; but these countries currently have either negative GDP growth rates or 1% growth per annum, at the most. The most startling statistic of all is from Oxfam’s report in January 2014, Even It Up: Time to End Extreme Inequality, which indicated that the richest eighty-five people in the world (this number would fit on a London bus) have as much wealth as the poorest 3.5 billion on the planet – the poorest half of humanity. In the UK, the ratio of the 100 largest companies’ CEO pay compared to the average employee’s pay has risen from sixty-nine times, in 1999, to 145 times in 2009. Such levels of inequality are unsustainable on a societal level as well as being the cause for many other human ills. A book called The Spirit Level, by Richard Wilkinson and Kate Pickett, demonstrated the correlation between inequality and a range of social ills, including alcoholism, teenage pregnancy and drug use. A very recent book by French academic Thomas Picketty called Capital in the 21st Century, indicates why large levels of inequality are not only socially harmful but affect the functioning of the whole economy. In the current economic model, using a car analogy, if we put our foot on the economic accelerator we can create more jobs, but we drive even faster through critical ecological boundaries and cause irreparable harm to our planet and ourselves. If we put our foot on the brake and lower our consumption and slow economic growth, we fail to create enough jobs for everyone. In the current system, neither the accelerator nor the brake is working. The only solution is a different economic system.The unfairness and unsustainability of the current system are further compounded by the growing levels of instability. We have seen the growing frequency of financial crises around the world. These include currency issues, chronic fiscal imbalances, as characterised by the Eurozone, and major banking crises. A sub-prime mortgage crisis in the USA in 2008 rippled through the entire financial system and nearly stopped cash machines throughout Europe. We have built a system that is highly interlinked and built for efficiency rather than resilience. Natural systems are a mixture of both efficiency and resilience and our economic systems need to have the same balance. As a result of building for efficiency only, we have developed systems that are not resilient and, as a consequence, are not efficient. Recently, the IMF has warned that there are still major risks to the banking system despite the measures that have recently been taken to improve capital requirements. Finally one would hope that, at the very least, the harm we have caused the planet would have had a trade-off in human happiness. This is certainly not the case. In many of the richer countries around the world, the correlation between more growth and better lives seems to have completely broken down. In the UK, for example, during the period between 1973 and 2003 GDP doubled, but human life satisfaction flat-lined. Over the same period in the USA, life satisfaction actually declined. ‘More’ and ‘Better’ have departed company. This is clearly not the case if one is poor, where more income would mean (all other things considered) better well-being. However, where people get past a relatively modest level of income, this relationship becomes far more tenuous. What is clear is that in the richest countries the current economic system is not generating better well-being (where well-being is defined as people functioning well and having positive feelings, both, day-to-day and longer term).In summary, we are running faster and faster and doing untold harm to our planet; creating worsening inequality; failing to create enough good jobs; facing considerable instability; and we are not even making ourselves any happier. Clearly, we need a different system.There is an alternativeIs it possible, then, to transform our economic system into a different model? The answer is an unequivocal YES.We could keep the benefits of a market system in terms of creativity and enterprise, but harness it to a different set of values, institutions, measurement systems, and incentives. A radically different system would have to have, as its main goal, the maximisation of well-being of all living species. It would have to focus on meeting human needs for all rather than the infinite wants of a few. It would also have to operate within planetary limits, which would require a radical change in incentives – for instance to focus taxes on things that are harmful rather than things like labour and value-added. All of this is feasible. The economy is a human system and can be changed by humans. So, the obvious question is: Why isn’t this happening?Barriers to changeThere are four main barriers to change. Firstly, there is the concentration of economic power and the reluctance of those with power to relinquish it. Secondly, economics is treated as an exact science rather than an inexact social science. Thirdly are the myths and half-truths that surround economics. And fourthly there are the prominent values promulgated in society and the affects that they have on people’s wants and choices When people gain economic or political power, they are reluctant to give up that power. There are democratic political systems that are designed to ensure successful transformation of political power from one group to another when there is a popular will for that to happen. But, in economic terms, as people become more wealthy and have more economic power, the markets do not act to equalise or share it – the truth about markets is that unless action is taken to mitigate that power, if one player goes into a market with far more power than the others, even more economic power is gained. In The Wealth of Nations and The Theory of Moral Sentiments, Adam Smith showed that the common good was only served when two key conditions were in play: firstly, that no buyers or sellers had enough power to affect the market outcomes, and secondly, that all players were acting as moral actors. In most markets, neither of these conditions exists. Furthermore, as can be seen in the American economic system, concentrations of economic power can have a significant effect on political outcomes. It is now impossible to become President of the United States, or even a Senator, unless one has a personal fortune. These problems are exacerbated by the fact that economics is now treated as a science where outcomes are predicted mathematically. Just some of the reasons why this is not the case are: the fact that most economists don’t recognise that the economy is a subset of the eco-system; economic theory is not based on explicit values, it mixes means and ends (GDP is a means and not an end); it is not focused on meeting human needs (physical and psychological); the theory is insufficiently focused on economic inequality, and there is a lack of an explicit power analysis. In addition, neoclassical economics is based on a number of dangerously simplistic assumptions that distort reality. These include: that humans are rational utility maximising actors; that markets tend toward equilibrium and market failures are exceptional; and that sufficient money is always provided when there is demand. I could go on, but I believe that neo-classical and neo-liberal economics, in many ways, are practically, intellectually and morally bankrupt.These factors are further compounded by the fact that economics is littered with myths and half-truths. This is not a particular failure of economics as a discipline. It is, rather, a failure of how politicians and many other economic actors interpret economics and use ‘half-baked’ theories of economics in their political decision-making. As Keynes, one of the most famous economists, stated, “Practical men who believe themselves exempt from any intellectual influences are usually the slaves of some defunct economist.” Amongst the myths and half-truths are: we can have infinite growth in a finite world; markets are fair; prices tell the truth; salaries reflect value; and more income equals more happiness. These contribute significantly to the malfunctioning of the current economic system.Since World War Two, we have seen a massive increase in advertising. This has been accompanied by the growth of all types of media and, more recently, by the ever-increasing digital world. Much of this tends to model the values of celebrity, success, notoriety and riches. The work by psychologists such as Tim Kasser (American psychologist and book author known for his work on materialism and well-being), which has more recently been incorporated into the work of Tom Crompton and others in The Common Cause, shows that humans hold a variety of different values. Some are called extrinsic values, such as fame, power, success and wealth; some are called intrinsic values, such as community, spirituality, friendship, love and health. We all have all of these values. What is interesting, though, is how certain sets of values and principles are triggered by external stimuli or by group behaviour. Hence, the extrinsic values are heavily triggered by what people see, hear and read in the media and via social media. Studies further show that people who regularly have those extrinsic values triggered tend to be less environmentally conscious, less pro-social, and even live shorter lives than those whose intrinsic values are triggered more regularly. So, the messages that trigger our values and principles are vitally important. They determine how the mass of any population are likely to behave and what they are likely to ask for through their political voice. Focusing on Core ValuesI am part of the World Economic Forum’s Global Agenda Council on Values. Over the past few years, we have spent time answering the question, ‘Are there some common core human values or are all values relative to culture and determined by different political and economic systems?’ We have come to the conclusion that there are some common human values and these are values that are widely recognised by most faiths and many of the most enlightened civilisations over human history. They are very simple. At the level of the individual, the core value is human dignity. This is not just about a full set of rights and having our needs met, where those needs are both physical and psychological. This is also about our responsibilities. Dignity comes from both how we are treated and how we treat others. At the level of our systems and institutions, the key value is promoting the common good. All of our institutions, markets and political systems need to be designed explicitly to promote the common good. At the planetary and inter-generational level, there is the core value of stewardship – stewardship of the planet and stewardship of resources for all creatures and future generations.These values can sound very simple; like ‘motherhood and apple pie’! However, if we used them to build an economic system, that system would look radically different than the economic system we have today. How to change the systemBefore I go into what a new economic system might look like, it is critical that we understand how previous economic transformations have taken place in western economies and how the type of economic transformation now needed, can happen. In advanced western economies of the twentieth century, there have been two major economic transformations. In the 1940s, 1950s and 1960s there was a transformation to Keynesianism, with its emphasis on the management of markets and the provision of social safety nets and social security. In the late 1970s, early 1980s, 1990s and 2000, there was a shift to neo-liberalism with its focus on individualism and markets. According to this, the answer to the common good was the freeing of markets and getting governments off the backs of their peoples.What is fascinating in each of these cases is how they came about: the discrediting of the existing story or narrative; the creation of a compelling new story or narrative; the weakening of existing power bases; and the construction of new power bases. In the Keynesian case, its introduction was hastened by the Great Depression and the Second World War. In the case of the neo-liberals, there was a very clear strategy to bring about change by these four means. In 1947, a group of intellectuals and academics, led by Friedrich Hayek (Austrian, later British, economist and philosopher best known for his defence of classical liberalism), met in the small Swiss town of Mont Pèlerin (to form the Mont Pèlerin Society) to set out how they were going to change the economic system. Amongst this group were Milton Friedman (who later created the University of Chicago’s School of Economics) and Antony Fischer. Antony Fischer told Hayek that he was going to return to the UK to become a prominent conservative Member of Parliament and, hopefully, in a few years after that, be in a position of government. The story goes that Hayek told Fischer not to be so stupid; he should go and create a think tank. Fischer did, in fact, return to the UK and established the Institute of Economic Affairs – one of the most powerful, right-wing think tanks in the world.The neo-liberals set out not to change policies and practice, but to create new institutions and to alter the story. They set up think tanks such as Heritage, Cato and the Institute of Economic Affairs. They ‘captured’ some of most important economic departments of the world and became prominent on editorial Boards of key economic publications. They created conditions for a new power base which much later translated into Margaret Thatcher and Ronald Reagan coming into power in the late 1970s and putting into force the neo-liberal economic theory. It took thirty years to do this.However, if the population was not convinced that change was needed, the creation of new power structures and institutions, alone, would not be enough. In this, the neo-liberals were brilliant (and still are). They created and disseminated a simple message that rested on four principles: small government, free markets, freedom of the individual, and strong defence.Many of the think tanks and supporters of the right political spectrum in many different counties would still, today, come up with those same four principles. In other words, the neo-liberals constructed a compelling, positive new story based on the view that government was too big; that markets would serve everyone if allowed to be more free; and that freedom of the individual was vital and a right. Therefore the power of trade unions and similar groups were stopping economic progress as well as obstructing the potential for individuals to become wealthy. This was an incredibly powerful credo and did have elements of truth (there was, at that time, excessive power by some of the trade unions). What is fascinating, however, is how it has become all-encompassing. The idea is continually repeated: economic growth, the freeing of markets, the encouragement in all walks of life of competition – this has been set into our thinking, our minds, our subconscious and it is important that the new story that needs to be told finds a positive way of countering this mindset.The New Story and the movement for a new economySo, what would a compelling New Story look like? A story that gives hope to people – that allows the values and principles discussed earlier to really come to the fore. This is something that is still being worked on by my organisation in the UK, the New Economics Foundation (NEF) and others. It is not that we don’t know what changes are needed; but it is important to know what form of narrative is going to resonate most with people, how can we tell a positive and compelling story about how we might live. We do know that the story needs to be positive; that it needs to be based on those core values (human dignity, common good and stewardship); that is needs to appeal to a sense that an economic system can be created which has values of love and compassion and of cooperation, as well as necessary elements of competition. A discussion around the values we want to live by is an important priority.In 2009, the World Economic Forum conducted a survey of 140,000 people working in businesses across the world. Three-quarters of those surveyed indicated that they felt the economic crisis was not just a crisis of economics but also a crisis of values. A different sample indicated that they wished they could exercise the same values in the economy as they exercised in their home. This gives us a clue – we need a new economic system based around the same values that we use with family and children, values that First Nation(s) peoples have always used in relation to the natural environment, where they focus on how the environment in which they live can be preserved, sustained and strengthened for the benefit of not just the next generation but for the seventh generation. It is clear that we need a new set of principles for the new economy. At the preliminary stage of discussions with other groups, NEF has posited six core principles, which we believe must underlie any New Story, any new economic system. These must be universal, must apply everywhere, and must be fundamental determinants of the type of change we want to move towards. They are:Strong, democratic economic governance – there needs to be democratic control by governments and other key stakeholders of economic power and of the functioning of markets.Diversified ownership – this requires a move from shareholder ownership to a variety of diversified ownership models and a diversity of scale and form of economic enterprises; it also requires major redistribution of income, wealth and time.Strong, non-market economy – this recognises that the market economy rests on both the non-marketised economy (the public sector) and the core economy (non-financial transactions such as caring, child rearing, and other such activities that take place outside of the formal economic system); these must be strengthened and supported.Harness the creativity of all people – this requires focus on cooperation as well as competition; it must be clear where competition is relevant and where cooperation is relevant.Regeneration of natural systems – it is no longer sufficient to simply sustain our natural systems; we urgently need to regenerate them.Long term decision-making and investment – there must be a focus on prevention rather than simply dealing with symptoms, long-term thinking for the seventh generation, and new investment models.These six principles could form the basis of the new economic system. The goal of that system would be the meeting of human needs and the maximisation of well-being of all living species. These would be measured as the key determinants of progress, alongside measurement of regeneration of natural systems. The economy then becomes a means for achieving these ends rather than being an end in itself. GDP is a useful ‘speedometer’ to indicate whether the economy is going faster or slower, but there is no use going faster if one is going in the wrong direction! These measures assist in indicating if we are going in the right or the wrong direction.If we are going to proceed in the right direction, we need to see a radical transformation in the models of business based on these principles. Built into the DNA of business would, therefore, be the creation of good jobs and the strengthening of the environment, and taxes would shift from labour and value-added to wastes and non-renewables. Once organisations grew past a certain size, power would be shared amongst the critical equity holders who would include not just investors but also those employed within the organisations. All organisations past a certain size would have a specific charter setting out their societal purpose and would be measured on whether or not they were achieving that purpose. Their charter would not be renewed if they failed to do so. This would be a radical reform of the engine of the economic system.There would need to be major shifts in our financial systems, with much greater emphasis on the creation of money for socially useful purposes and much greater diversity of form and size of financial institutions, as well as ownership of such institutions. Democratic governance and markets would mean that no one actor would be permitted to become too powerful in any market, whether local, national or international; and no one actor would be allowed to become too powerful in the running of any large organisation. There would also be clarity on which areas were more effectively run in a market system, with competition built into this system; and which areas would be more effectively run, cooperatively, outside of a market system.Distribution of income, wealth, time and land would be critical and would bring more people into the economic system. In addition, many activities that could be, and would be, carried out in a more local and de-centralised way. For example, energy production and food production are areas that could and would more often be carried out at a local level. Other industries would be required to remain at a national or international level. A strong industrial policy would help achieve such changes. A focus on well-being would mean the design of not just jobs, but of good jobs that gave people meaning, and all policies would be focused around how they maximise well-being. Policies would need to increase people’s contact with each other, facilitate life-long learning and encourage people to give of their time, resources and love. This would also include policies at a wider level that would reduce inequality, reduce debt levels and reduce environmental harm. Most critical would be the obligation to meet the needs and guarantee the rights for all. Our economies would run mostly on renewable resources and, therefore, the idea of a circular economy would become important. Such an economy would be focused on re-using, repairing and restoring – not on consuming and discarding. Finally, we would need to live within our planet’s limits. This would not need to be a ‘hair shirt’ operation; it could mean that we have far better lives than we do at the moment. All of the above are feasible, but they require an economy based on the values and principles set out in this chapter. This is what a New Story can bring about.The new economic movementEven with the construction of a compelling new story, change will not happen unless enough people who are leaders in society and different walks of life demand it. This is why the construction of a new economy movement will be critical. Politicians, by nature of the electoral cycle, tend to be followers and are concerned by whether or not they can persuade enough voters at their next election. Therefore, unless I am being too pessimistic, an emphasis on trying, in the short-term, to get politicians to lead on systemic change is unlikely to be successful. What is needed now is for those people (from all walks of life) who see the need for a new economic system to come together to form a new power base, a new group pressing for change, and this diverse group could assist in creating and disseminating a New Story.At the moment, those people who see the need for a new economic system are still playing their own instruments, to different scores and in different orchestras. As a result, politicians only hear a discordant noise. We want people to play their own instruments, but to a number of common scores in one orchestra. This will not be easy; it requires hard work to change governance build leadership, develop institutions, bring people together, and to construct a common story. But in the spirit of love and compassion and given the urgency of what we face – it is entirely possible. This is our task; this is the most critical thing for all of us to do. ................
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