Friday, Jul 31, 2015, 10:10 am
The New Economics of Plenitude
The history of economic discourse teaches us how volatile the conversation can be. The first six months after the economic collapse of 2008 provided another lesson in changeability. Fifty trillion dollars in wealth had just disappeared, literally overnight, and the orthodox model of rational and “free” markets was facing its most serious crisis of credibility since the 1930s. The system had failed, and spectacularly so. Within six months of the crash, only 53 percent of U.S. adults would agree that “capitalism is a better system” than socialism. But as conditions stabilized, the status quo re-asserted itself quickly, and the window of change slammed shut.
Our ability to make political and economic gains through the opening created by the Occupy movement, as well as future openings, will depend on articulating an alternative to the business-as-usual economy.
In the global North, capitalism has become grossly dysfunctional. Income and wealth are concentrated not just at the top but at the very, very top; finance runs amok; employment has collapsed; and particularly in the United States elites are abandoning the national economy. Without a major shift in either policy or practice, by continuing with business as usual, the United States is likely facing years of stagnation, high unemployment, worsening inequality and rising poverty.
The engine of recovery for the past three decades, the consumer, is no longer capable or willing to play her accustomed role. Consumers are articulating a shift from status-oriented purchases to re-engaging with the difference between needs and wants. People are saving more, spending less, and saying that the American way of life is not sustainable, either financially or ecologically.
The standard progressive response has been Keynesian. While Keynesianism is unpopular among elites, it is mainly opposition to government deficits that fuels its adversaries. The powerful critique of Keynesianism from the left is that it is wrong to advocate indiscriminate outlays. Yet that’s effectively what we’re doing through military spending, which is not only wasteful but also deeply destructive.
We have multiple urgent human and ecological needs and we are wasting resources on activities that fail to enhance human and planetary well-being. While Keynesianism is certainly better than neo-liberalism, it’s a far cry from the new economics, because it fails to address the unequal distribution of property. Concentrated property not only produces unfair distributions of income but also yields captured government. We need both a democratic political system and a democratic economy. The fact that we have neither is at the core of our contemporary dysfunction.
We cannot afford indiscriminate growth, for humans now face enormous costs of ecological restoration. We must reverse the dangerous, indeed terrifying path of climate destabilization, ecosystem degradation, and biodiversity collapse on which we now find ourselves. Reversing our present course is made harder by the rise of population from 7 to 9 billion, with most of that increase in the global South. One hopes these additional 2 billion people will consume energy, food, and manufactured goods at higher rates than their national counterparts. With more than half the global population living on $2.50 a day or less, the solutions put forward by new economics must be compatible with considerable increases in the ecological space afforded to low-income populations of the global South. Yet, on a planetary level we are already overusing ecological resources.
The economic downturn makes it more difficult to enact environmental legislation or adopt new technologies. Progress on a climate agreement has been ominously stalled; however, we cannot afford to wait for people to feel rich again. That is unlikely to happen in either the United States or Western Europe. We require a trifecta that simultaneously addresses three challenges: a dramatic reduction in planetary eco- and carbon footprints, a solution to the economic problems of the global North, and an increase in the standards of living in the global South.
The most important connection between these three problems is that the conventional solution to the latter two exacerbates the first, namely the ecological overshoot that has led to climate destabilization. Unemployment and poverty are typically addressed by raising the rate of growth of the economy, but growth is at the core of ecological degradation.
When faced with a multitude of problems that are typically solved in contradictory ways, staying within the current system will fail because this system is structured so that each of these is a trade-off of the other. Therefore, it is essential to construct new economic relationships, new policies, and new cultures. What would those new ways be?
There is an alternative path for the global North that will reduce unemployment and ecological footprints without raising the rate of output growth. This path will also enhance well-being and the quality of daily life. It is not primarily a technological solution, although green and clean technologies are indispensible components.
We need to shift the conversation about technology to one that takes into account labor markets, consumer patterns, and growth. Achieving sustainability requires new patterns of time use, which in turn alters the macroeconomic path of the economy. A trajectory of reductions in working hours both slows the untenable expansion of the economy and facilitates a transition from activities that destroy planetary and personal well-being to those that enhance it. I reject the mainstream assumption of a trade-off between protecting the environment and generating well-being for people. By contrast, I argue for a new way of living that is rich in those elements that will yield true well-being: time affluence, higher levels of self-providing, and social capital.
What is the “new economics”?
Mainstream economists are optimists who deny the severity of both ecological degradation and our current economic dysfunction. Their view is that markets and technology will be sufficient to solve the ecological problem, address unemployment in the global North and address poverty in the global South. They believe that natural-resource productivity will grow, perhaps dramatically, thereby leading to dematerialization (a reduction in the amount of materials flow for every dollar of GNP), decarbonization (a reduction in the amount of energy use associated with every dollar of economic output), and increased wealth.
This idea has also been popular in the design and engineering sectors of the sustainability community, with approaches such as Factor 4, Factor 10, zero waste, etc. Sociologists who take this view call themselves ecological modernizers, given their belief in a business-led, profit-driven greening that they see as the foundation for the next major growth phase of capitalism. They all argue that if we do it right, the growth process is what will lead us to an ecological solution. Along the way, more jobs will be created because as we grow, jobs trickle down.
Dematerialization, decarbonization, and the delinking of ecological degradation from output growth in GDP have not been achieved except on a small scale. The most successful region to date has been Western Europe. However, once we account for trade flows and the outsourcing of carbon use through importing carbon-intensive goods from China, the record is modest. Dematerialization has not been achieved.
In North America, between 1980 and the mid 2000s total material flows increased by 70 percent, as a result of expanding fossil-fuel consumption and construction materials associated with the housing boom. Given the enormous wealth of our region and our ability to install new technologies, this is unacceptable. Globally, emissions are still accelerating and materials use continues to rise. That’s a disappointing development for people who believe that dematerialization is the answer.
By contrast, Marxists have been too pessimistic. They believe that the imperative of growth and the ability of corporations to capture the state to prevent significant environmental regulation make environmental protection almost impossible.. However, the successes of some small European countries, industries and companies in moving to clean energy show that extensive, increased growth in materials and natural resources is not a necessary condition for successful business activity.
According to a second pessimistic paradigm based on neuropsychology, humans are hard-wired to avoid responding to risks such as climate change: we can’t cope with abstract formulations; we bracket out risk; we can focus on only one problem at a time. This is an unfortunate distraction that is at odds with the great variation in responses to ecological threats across countries, times and cultures. The British, German, Australian and Californian landmark climate-change legislation all suggest that humans’s ability to respond to climate change is affected more by political economy than inherent limitations in our thinking. One hardly need invoke brain science to explain opposition to climate legislation in the United States being driven by the political influence of the fossil-fuel energy sector.
In contrast to both the optimists and the pessimists, the new-economy position is that motivated humans can take on these challenges.
Prevailing economic conditions are aiding this transition. People are relatively cash poor in comparison to the boom years, and also relatively time rich because unemployment and underemployment are so high. This leads to the growth of all the practices I mentioned, which tend to be more time consuming than the buy-everything-new-at-the-mall model of goods procurement. This movement shares a commitment to local, small-scale, low-impact production and consumption, to expanded motivation for economic activity beyond making money, to enhancing social capital and community and to a rejection of the dominant consumer culture.
An economic model for a post-growth society
Here are two key components of how the new economy could function. The first involves a withdrawal of labor from the formal economy and a resulting decline in average annual hours of work per employee. The second is an expansion of the local economy, including both a Do-It-Yourself production sector and growth in small-scale entrepreneurial activity.
Before the economic downturn, the United States had been on a trajectory of rising work hours, with average annual work time per employee increasing 204 hours between 1973 and 2006. Longer work schedules propelled growth in GDP but also in carbon emissions and ecological degradation. Overwork created stress, impaired family life, undermined community, and reduced political as well as civic engagement.
Work time is relevant to the new economy because many people have only marginal attachment to the formal labor market: downshifters, homesteaders, small-business people, early retirees or late entrants into the labor force. They are altering patterns of time use to reduce their dependence on formal jobs. The magnitude of the unemployment challenge is such that labor market equilibrium cannot be restored solely by growth in GDP. Growth has become a far less efficient generator of domestic jobs because of outsourcing, because of a strong propensity to import and because of labor-displacing technical change.
There’s a good deal of such rebalancing going on in the economy. The potential is enormous, and it creates a tremendous challenge from the point of view of employment. If productivity growth is increasing rapidly, how can full employment be maintained? It can’t be done by growth alone.
The current jobs crisis is more structural than one might imagine, and it’s why only regulating banks or fixing the financial sector will not re-establish the unemployment levels of the early 2000s. The United States needs to create roughly 8.3 million jobs in order to return to the pre-downturn labor situation, a challenge that even an optimistic 4 percent growth rate will not meet. By contrast, re-structuring of the labor market through work sharing, hiring on four-day work weeks, instituting voluntary programs to trade income for time, job sharing and early retirement can re-balance the labor market, yielding shorter average hours per employee. The alternative is to keep people in the labor market for more years, a counterproductive idea in a time of mass unemployment.
Shorter working hours reduce the ecological impact of the economy because time-rich households shift to lower impact forms of transport and consumption. My research with the late Gene Rosa and Kyle Knight shows that countries with longer working hours have larger ecological and carbon footprints. Countries with shorter average hours of work have smaller ecological footprints.
With these policies, there is no involuntary reduction in incomes. Consider the proposal to hire on a four-day workweek, starting at lower salaries than on a five-day workweek. If we build in the principle of using productivity growth to fund reductions in work time, workers will experience stable incomes with rising leisure time. People are far less attached to income they haven’t yet gotten than to income they already have, so policies that give time off rather than more income will be more popular.
With shorter hours, people can use the time freed up from formal jobs to meet needs through self-providing, which allows them to become more self-reliant, build skills and exercise creativity. Following the philosopher Frithjof Bergmann, this is “high tech self-providing."
In the United States high tech self-providing (which used to be how many people lived) has recently become popular: growing food, raising livestock and poultry, beekeeping, small-scale energy generation, eco-friendly home construction, and the manufacture of clothing, arts, crafts, etc. What are the economics of this type of small-scale household activity?
We have reached the point at which further specialization does not make sense and that diversification of activities and income streams is the wiser way to go for many households.. The labor market has become a more uncertain place. That’s why diversification makes sense in a time such as the one we are living through. There’s also a high likelihood of catastrophic events that can wreak havoc on highly centralized, single-purpose systems or lifestyles. Climate and economic instability make full reliance on the market increasingly risky. Being able to meet one’s needs, even in the event of market collapse and climate catastrophes, is a smart strategy, and even smarter on a community level.
If self-providing meant going back to the technologies and ways of doing things from the nineteenth century, mainstream economists would be right. But self-providing now avails itself of new labor-and-resource-saving technologies. Frithjof Bergman, who,moved into a cabin and lived as self-reliantly as he could endured a horrible, cold winter. He left before the two years were over, and the lesson he learned is that self-providing is great but only in ways that minimize the human labor of drudgery.
This is where technology fits in. Newly available technology, knowledge, and web-based innovations are enhancing the productivity of labor at a household and community level. These innovations include living wall gardens, micro-generators, and permaculture. This is the second stage of a revolution that began in the realms of information, software, and culture. A vibrant peer-production model has developed high-value products such as Wikipedia, Linux, Firefox, through this informal, extra-market process. None of these were developed in the market for profit. Self-production in music, video, advertising, and writing has exploded. People are learning new skills, they’re enjoying the opportunity to be creative, and they’re producing real value to be used and shared by others.
This model is interesting because it is built on collaboration and cooperation. Production does not rely mainly on self-interest: People are not motivated to contribute to Wikipedia solely to make money, but to feel useful, to build their reputation, to be creative and to be connected with others. This new production paradigm is outcompeting private initiatives in the world of software and information. It has rapidly spread across the world of information and software, and financial self-interest as a primary motivator of production will ultimately be seen as anachronistic and destructive.
The high tech self-providing path extends the model to the production side, the. so called “open-source hardware” movement. The new self-providing human labor has high productivity because it is knowledge intensive, employing high levels of know-how, mainly in computers and understanding of ecological systems. Back to Bergman’s critique, self-providing does not rely on the low-productivity labor of splitting wood but rather on the high-productivity labor of using smart machines to create houses or bicycles, using of permaculture principles in food provisioning and small-scale energy generation.
The model of retrieving labor time from the market and putting it to work at the household and community levels to self-provide makes sense because the economics of scale have changed. The rise of information technology has transformed micro-enterprise into a smart twenty-first century institutional form. Small companies are where the dynamism and employment growth are located. There are new possibilities at the household and local levels for engaging in high-productivity economic activity—namely, a synthesis of the pre-modern household form and modern technology. Peasants did not work for others; they had diverse skills, activities, and income streams; and they actively managed risk through that diversity. Because they were poor, people don’t like the association, but it’s historically accurate. Today we have a kind of postindustrial peasant model of a small enterprise economy.
Self-providing activities generally have low footprints and contribute to reducing ecological impact. High tech self-providing is a transitional strategy for an exit from the highly destructive capitalist firms that now dominate the economy. This is a complex process with a difficult politics but it is a necessary transition that can lead us to the new economy and put in place the conditions that will allow us to solve the three challenges with which I began: restore the Earth, provide work and livelihood, and give ecological space to the nations of the global South.
Far from being mainly a paper blueprint, this transition is a living, breathing, expanding, successful movement of people who are forging a new economy from the ground up, modeling key features of what the new economy can, and I believe will, be.
This article was edited from a speech delivered by Juliet Schor in the Thirty-First Annual E. F. Schumacher Lectures, in November 2011, NYC.
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