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?
2 thoughts on “What is wrong with our economic system?”
I’ve actually thought and read quite a bit about this, so here are some thoughts:
– human beings are interconnected, change over the life-span and are part of a bigger social and ecological system (literally, not just that they happen to live in it, or even just that they need it to survive, but they are actually physically part of it)
– human beings have two key tendencies – to want what they can get for themselves (or those they see as extensions of themselves), and to look after each other and share. While both are important, the second is more important to our survival, but is deeply under-valued (largely because of patriarchal systems that have dominated our epistemology for thousands of years)
Concepts and measures:
– understand the economy as work (what we have to do to survive and live in the way we want to live)
– measure all work (paid and unpaid) recognising that the function of money is to act as a substitute for goods and services that are exchanged, and that it is inadequate and indeed misleading as a measure of value
-apply an evaluative frame (this is the hard bit) that can help us work out what is ‘creative/productive’ work and what is ‘causing/fixing problems’ work (eg producing healthy food is creative/productive work, marketing tobacco and treating tobacco related illness are causing/fixing problems work – which is not to say that “fixing” problems should not be valued, it will always be needed, but we need to work out how much of our time and energy is going into that and how much of it could be avoided).
Obviously this last point about the evaluative frame is a simplification of very complex issues, but that’s the area I think we need to work on – the other points are pretty straightforward (although that won’t stop people with vested interests from contesting them, of course).
There is work going on in this area, I haven’t looked at in detail for a while, but one reference that I found useful when I last looked at it was:
Costanza, R., M. Hart, et al. (2009). Beyond GDP: The Need for New Measures of Progress.The Pardee Papers. Boston, Boston University The Frederick S Pardee Centre for the Study of the Longer-Range Future.
The ABS also had a project on measures of wellbeing, not sure what has happened to that.
Thanks Val: Some of what you have said fits in with other concepts that I have played with from time to time.
Moral consideration: This is about the extent to which people (and other things) are given “moral consideration” and the extent of this consideration. For example, the “moral consideration” my wife and I give to with each other is much stronger than what we give to an unnamed person living on the other side of the world. My wife and I would feel morally obliged to share food with each other no matter how little food we had – less so to others that less closely related, more distant etc.) Moral progress is about strengthening the moral consideration we give to others and widening circle of people and things we consider worthy of our moral consideration.
One of the things i find disturbing about about our governments is the way they have tried to reduce our circle of moral consideration by vilifying those they want to exclude. Think “illegal immigrants” and Manus Island. Think all that talk about “avoiding work” and their plan to allow under thirties to go 6 months without income and….
You are right. What we measure is crucial. If we use crude measures like GDP producing and selling cigarettes ads to the GDP in terms of both the sales and the extra money spent on public health. I liked your separation of
I also think it is important to include unpaid work in any sensible measure of the economy.
One of the reasons I keep going on about worksharing is that, without worksharing doing something about getting rid of the “causing” work is going to push up unemployment levels to politically toxic levels.
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