This post follows on from Pope Francis on the world economy. The post looks at some of the features of our current economic system that contribute to the sort of problems that the Pope was talking about.The transition from the “obligation economy” of small hunter gatherer groups to the current world economic/financial system was driven by a desire to facilitate increased economic activity involving larger and larger groups of people. If you like, it is about facilitating the interaction between a person (or group) who wants a good or service and a person who is willing to provide the good or service. For example, the development of trade made it possible for people who were under no obligation to each other to exchange goods and services. The development of money allowed a cattle herder to sell a cow for money that could be used to buy a variety of goods that were too small to trade directly for a cow, etc. (NOTE: Unless otherwise stated I have used “economic system” as shorthand for “economic/financial systems” I have also used words like “people” when something more clumsy like “people/groups/organizations/countries” is meant.)
Facilitation is not the only function of economic systems. They also provides a non-violent, but not necessarily fair, system for deciding who gets to use scarce resources.
Failings of the current economic system include:
- Its obsession with money means that we get, for example, situations where people starve because they can’t afford food – Even though food they need can be got to them. Our economic system may be OK for scarce resources but not OK for distributing essentials that are plentiful to those in need.
- In a similar vein we can think of many cases where there are people want a product, idle factory capacity that could produce this product and under-employed people who would be willing and able to work in these factories to produce the desired product. This is a clear failure of the economic system to facilitate this interchange. The problem is that the artificial rules of our current system block the interchange.
- The system’s obsession with market forces often produces outcomes that many of us consider as “unfair”, particularly to the poorer parts of our society. For example, unrestrained market forces are not a good way to set fair wages.
- The system is unstable and needs the intervention of governments or central banks to maintain a semblance of stability. Even worse, we have got to a point where the RBA thinks that unemployment has to be something like 5% to avoid what the RBA thinks is an unacceptable level of inflation.
- The system doesn’t provide an effective system for sharing the available work. It tends to deal with a shortage of work by pushing some people on to the dole while there is little change to the hours worked by the rest. As a consequence:
- The pain from a slowing of the economy is not fairly shared.
- The political need to maintain employment can end up producing growth for growth’s sake even when what is being done to create this growth is of doubtful value or downright damaging. (Let’s create jobs by building a new coal fired power station.)
- There is pressure on people to work longer and longer hours to improve their job security – even when what the employee would prefer is shorter hours in return for a drop in pay.
- The growth of free market globalization means that democratic governments have less power to control their economies and what goes on within their borders.
What should we be doing to create a better and more people friendly economy?