As we enter the final quarter of 2019 the world economic outlook remains sluggish. Increasingly, another financial crash looks likely. This should not come as a surprise. It is entirely predictable.
Since the crash of 2008, we have ignored the possibilities for fiscal reform of any kind, carrying on business-as-usual like nothing needs to change. Yet conditions are far worse now than they were in 2008. And while our knowledge is greater, wisdom still eludes us. Institutional and individual greed is as rampant as before. Yet none of the fundamentals of the global economy have been modified in any way, shape or form.
The principal driver of the industrial economy — an unrelenting cycle of desire and consumption, stimulated by a quest for growth with energy generated from coal, oil, and gas — shows few signs of abating. We are addicted to materialism, yearning for more and more stuff in the hope it will make us happy. Governments fixate on delivering a surplus even as their economies stagnate. But personal anxieties only seem to deepen.
Meanwhile, early impacts from global heating, together with government dithering, have yet to be factored into our consumer-driven society.
Official responses have been typically orthodox and tardy. Current interest rates are trending to zero. Debt levels are going through the roof. Bond yields have inverted. Monetary policy is increasingly political. Cash is hoarded in preference to being invested. Real unemployment levels remain high. US-China tensions are damaging international trade, sanctions are ramping up tensions in the Middle East, and we still have the uncertain joys of Brexit to look forward to. What could possibly go wrong?
Neoliberal orthodoxy suggests we simply ride out the current cycle, there being no other recourse. This is how a modern economy works, so we had better get used to it. But with economic populism and protectionism on the rise, it is surely time to re-evaluate this framework — particularly in terms of how it might be tuned to narrow the gap between the ultra-wealthy and the poor, so as to meet the needs of the human family more effectively.
It is also time to broaden our comprehension beyond the field of economics. In so doing we should aim to situate the global economy as one critical element in a much larger socio-political structure, whose role is to both define and validate a higher moral purpose.
But wait. This is an obstacle in itself. The utopian imagination seems to be trapped, along with capitalism and industrialism, in a one-way future consisting only of growth. The rise of libertarianism too, and the dogma of private ownership (accompanied by the erosion of public ownership) plays into the hands of an impending catastrophe. And capitalism is at the heart of this crisis.
If we are bold enough to evaluate the global economy from a social design perspective, tracing the evolutionary path of economics over the past century or so, we arrive at an alarming conclusion. The two most fundamental pillars of capitalism are culpable for most of the economic volatility we are encountering today. This is likely to get worse if appropriate remedies are not taken soon. Remove these constraints, however, and it becomes hypothetically possible to avoid many of today’s most irksome social problems. But it also means facing up to two embarrassing truths:
1. The Illusion of Unlimited Growth
The promise of endless economic growth is a fantasy. Moreover, this particular fantasy is increasingly incompatible with the need to tackle the various emergencies facing our civilization — particularly the collapse of our most life-critical ecosystems, and the ingrained graft and corruption to be found in almost every country today.
Regrettably, the proposition that growth can be decoupled from material consumption is also absurd. We know from recent research that once a certain point is reached, the benefits of economic growth start to level off in terms of mortality, nutrition, education, health, and even happiness. But if growth no longer offers the benefits it once did and is actually becoming a blight on society instead, viable alternatives should be found and tested.
The first step, it seems to me, would be to ensure that growth is tailored to local conditions rather than being blindly accepted as a universal objective.
Given that energy from resources is used to manufacture the goods and services we all use, one key measure should probably be energy consumption. The state of Singapore, for example, uses around 271 gigajoules of energy per capita annually. Australians consume around 234 gigajoules. In truth, far less growth is desirable in those two countries than in Nigeria, for example, where consumption is around 30 gigajoules, or Bangladesh at around 9 gigajoules. Yet governments of all persuasions constantly crave higher and higher levels of GDP. This is sheer folly.
The progressively malignant effects of growth-based societal development have created a clear need to look at some different options. These would have to replace the persistent accumulation of money, and the pursuit of growth at any cost, which is at the core of today’s neoliberal philosophy.
One possibility, often canvassed, is a post-growth world-system that puts health, vitality, and well-being — including everything required to sustain these — at the centre of human activity. Only when public outrage forces governments to balance parochial sufficiency with the needs of humanity as a whole will that kind of bold strategy be embraced. This problem is usually ignored or treated as an inevitable consequence of the way we choose to exist and interact.
The notion that continuous unfettered growth is unnecessary is a tough nut to crack. Requiring almost a spiritual conversion to accommodate such heresy, most orthodox economists dismiss such an idea as being either irresponsible or impossible.
If changing our beliefs about growth is fraught, acknowledging the validity of my second truth is perhaps even harder.
2. The Evil of Avoidable Inequality
Boosted by technological innovation and private sector investment, laissez-faire capitalism brought untold wealth to many nations, dragging social progress in its wake. It has since led to inequality on a massive scale. In spite of that, we still cling to the aspiration of becoming wealthier tomorrow than we were yesterday.
The origins of inequality can be traced back to private ownership which began to take root and flourish in Europe during the late 15th century and rapidly spread around the world. Land previously publicly owned began to be divided up into privately owned assets. This generated a system of economic stratification that benefitted owners over operatives.
It is inconceivable that the way we organize and manage the global economy is based on merit. There is no evidence to suggest those who possess wealth are more ingenious, smarter, or deserving than the rest of us. In any scheme designed to separate those who own the means of production, from those employed purely for their labour, inequality is almost guaranteed. As a result, the wealth generated in our society is increasingly and unfairly concentrated among a privileged few — a majority of these in the most developed nations.
This concentration means the 26 richest billionaires own as many assets as the 3.8 billion people who make up the poorest half of the human population. The personal fortune of Jeff Bezos, the owner of Amazon and the world’s richest man, at around $112 billion is equivalent to the entire health budget for Ethiopia — a country of 105 million people. Meanwhile, tax systems that put a high burden on the poor mean public services are underfunded, stretching the gap between rich and poor while fueling public anger.
Inequality of income and wealth is not good for anyone. Even Henry Ford understood that the consolidation of wealth and capital in so few hands was both economically inefficient and socially disruptive.
There is no doubt that growing inequality is one of the biggest potential challenges the world is facing. Solutions ultimately depend on the contraction of economies in the developed world, downscaling both production and consumption globally. We also need to consider putting a cap on the accumulation of individual wealth and regulating corporate pay and rewards, while optimising happiness, health and well-being through various non-consumptive means.
There is sufficient slack in all developed economies to pursue such a path. Consuming less, while devoting more time to art, music, family, nature, culture, and community, doesn’t seem too bad a deal to me if it means reducing the stress on systems never intended to cope with the demands of 7.676 billion people.
Unsurprisingly people are angry about inequality and unfairness when they see an ever-larger slice of the cake going to the rich, while the poor are expected to survive an age of austerity in the best way they can. Opening our minds to reinventing the global economy from first principles, will not please everyone of course. As Mahatma Gandhi said: Earth provides enough to satisfy every man’s need, but not every man’s greed.