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View Full Version : A new economic logic is emerging



Tribe
17th July 2014, 16:10
Developments in finance, energy and technology are shifting us from centralised, growth-at-all-costs economics, towards a more democratic, collaborative, interactive and ecological model, based on asking what kind of society we actually want, argues Sam Friggens





Thomas Piketty is in fashion, it seems. Not only did the French economist’s recent 700-page tome, Capital in the 21st Century, shoot to the top of bestsellers lists, but he has been described in the media both as a “rock-star economist” and “bigger than Marx.”

His contribution has been to document the tendency for inequality to grow over the last 200 years, and to describe the mechanism by which this occurs – namely that returns on capital (which the poor can’t access) are greater than overall levels economic growth. As Oxfam have observed, the gap between the rich and poor is now such that a group of individuals who could sit together on a double-decker bus owns as much wealth as half the world’s population.

This alone should be enough to make us ask some tough questions about whether our economy is really working in our best interests, but that’s only half the story. We know that our economic model is pushing up against environmental limits too; threatening the planetary life support systems that make economic activity possible in the first place.

But is an alternative economic model, one capable of delivering prosperity and remaining within social and environmental limits, really possible? And if so, what might it look like in practice?

Spaceship economy

A core principal of any alternative model must be to operate within the carrying capacity of the Earth’s biosphere. Cowboy economics might have served when populations were smaller but in the 21st century it no longer holds that our pollution will be naturally absorbed and our search for resources always satisfied. A successful economy is ultimately dependent on a stable climate and functioning ozone layer, and economic activity cannot push against the tolerances of these systems indefinitely.

Economist Kenneth Boulding described his alternative model as the ‘spaceship economy’, otherwise known as a steady state economy. Instead of expanding indefinitely, this economy would be acutely aware of the limits within which it operates. Resource use and energy inputs would be minimal and limited to levels that can be naturally replenished. ‘Waste’ would be reused in its entirety or limited to that which can be absorbed. In the same way that modern space stations operate as self-sufficient closed-loop systems, so would the global economy in order for 7 billion humans to prosper in a viable long-term way.

The tricky question of growth

In this context the inevitable question arises of whether unlimited growth is possible. After all, every pound of GDP relates to economic activity that requires energy and resources to be used, and when GDP grows, so do the negative impacts.

When economists engage with the idea of a finite planet (many don’t, including Piketty), continuous growth is thought possible if it is ‘decoupled’ from environmental impact – i.e. we do more for less. However according to Professor Tim Jackson in his book Prosperity Without Growth, this is a myth. While we have seen some relative decoupling over time, for example less CO2 is now emitted per £ of global GDP compared to 30 years ago, such improvements have been overwhelmed by overall levels of growth.

This perspective is a challenging one given the benefits growth has brought over the last 200 years. According to economist Rob Dietz however, kicking the habit may not be as unappealing as it first appears. Since 1950, he says, income has tripled in the UK and US, yet people are no happier. While it’s true poor countries need growth, it’s far from certain that the rich world does too.

An alternative vision

Whatever the ultimate outcome of this debate, an economy operating within environmental and social limits would certainly look very different from the one we have today.

Jackson has offered his vision. Less would be produced, consumed and owned. More would be repaired, maintained and shared. Service-based jobs would increase, but people would work less and have more time for non-consumption based activities. Investment would focus on ecological assets: low-carbon energy technologies, natural ecosystems, and local infrastructure such as centres of education, public spaces and transport. Communities would grow in importance as arenas for democracy and interaction, and as agents for mobilising change. We would measure what matters, not by GDP but employment, happiness, and natural capital.

Clearly there is a huge gap between our current reality and the ideals Jackson describes. Yet at the same time new developments every day remind us that economies never stay the same, and that the economy of the future is already emerging.

A new economy is emerging

Take our energy system, where the large vertically integrated utilities that dominate our energy market are giving way to new forms of generation and supply. Greg Barker’s “big 60,000” is more than a soundbite. The disruptive power of renewables lies in their capacity to be deployed by communities at decentralised scales; each new project undermining the need for the centralised fossil fuel infrastructure of old, while redistributing profits that would have otherwise gone into the hands of the utilities.

Or take the world of finance. In 2007 we saw the result of the growth-at-all-costs model in our banking sector as institutions deemed “too big to fail” pushed the world to the edge of financial meltdown. Seven years on, a new, more democratic, more resilient approach to finance is unfolding and growing, one in which innovations like crowdfunding and new forms of exchange like time-banking are bypassing the bankrupt vertical structures of the 20th century to directly harness the communities and horizontal networks of the 21st century.

Such mechanisms are not only delivering the ecological assets that Jackson has rightly argued we so badly need, but are also opening up new ways for regular people to benefit from the higher returns on capital that Piketty has shown to be the long-term norm. Democratising finance promises to be a path both to reigning back inequality and building an economy capable of operating within environmental and social limits.

21st century economic logic

Underpinning these trends is a fundamentally different way of thinking about our economy compared to the past. The old circular logic, entrenched over the last 200 years, has dictated that bigger is always better, that growth is an end in itself; that the purpose of the economy is to reproduce itself. But now a new logic is emerging, one that asks what kind of society we want, and then works out what kind of economy will get us there.

None of this suggests transition will be easy. Hierarchy, size and cowboy-style expansion are embedded in the way our economy functions and in the mindsets of those with the most to lose. But we are seeing glimpses that an alternative economy is possible.

Source http://positivenews.org.uk/2014/economics_innovation/15753/economic-logic-emerging/

jimmer
17th July 2014, 18:29
whenever I read or hear about economic engineering or social 'finites' or 'limits' it makes me wary.
the human spirit is potentially too grand to be finite.
that's for cloistered academics to fret and for us to reject.

as for the globe reaching a limit of absorbing pollutants, remember the BP oil spill disaster?
generations of a ruined ocean!
sea life permanently destroyed!
eco-structure forever altered!

today, they can't find the predicted catastrophic remnants of that event.
the experts are scratching their collective heads.
the ocean has absorbed it. (http://www.nola.com/environment/index.ssf/2014/04/bp_oil_spill_scientists_strugg.html)

excellent thread, tribe.
rife for further debates.