Read Collision Course: Endless Growth on a Finite Planet Online
Authors: Kerryn Higgs
Tags: #Environmental Economics, #Econometrics, #Environmental Science, #Environmental Policy
Collision Course: Endless Growth on a Finite Planet (15 page)
I am very proud to have made a documentary about consumption that does not contain the usual footage of factory smokestacks, landfill tips and bulging supermarket trolleys. Instead, it features many happy human faces and all their wonderful stuff! It’s a study of a love affair as much as anything else.
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In the same vein, during the Q&A after a talk given by the Australian economist Clive Hamilton at the 2006 Byron Bay Writers’ Festival, one woman spoke up about her partner’s priorities: rather than entertain questions about any impact his possessions might be having on the environment, she said, he was determined to “go down with his gadgets.”
The capitalist system, dependent on a logic of never-ending growth from its earliest inception, confronted the plenty it created in its home states, especially the United States, as a threat to its very existence. It would not do if people were content because they felt they had enough. Over the course of the twentieth century, capitalism preserved its momentum by molding the ordinary person into a consumer with an unquenchable thirst for its “wonderful stuff.”
The postwar growth bonanza, buttressed by consumer incitement, lasted nearly thirty years before faltering amid the oil shocks of the 1970s. It was this crisis that galvanized business to seek new strategies to restore growth and protect its interests. The next chapter introduces
neoliberalism
, or free market fundamentalism, which emerged as the chosen path through that crisis. Under the new doctrine, profit share and wage share became more and more polarized almost everywhere, allowing corporate profits to improve even when the rate of growth remained slower than before. After a postwar average of approximately 5 percent—doubling the economy every fourteen years—world growth averaged approximately 3 percent from 1980 to 2008.
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Considered barely adequate by the IMF, growth at 3 percent still doubles the scale of the economy every twenty-four years. Even if growth was more modest than hoped, the deregulation and privatization that were presumed to promote that growth were now extensively established, and these changes were to have enormous effects on the political and ideological opportunities for the critique of growth, the protection of nature, and creating just outcomes, especially for peoples outside the first world.
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The Rise of Free Market Fundamentalism
Like all fundamentalist faiths, Chicago School economics is, for its true believers, a closed loop. The startling premise is that the free market is a perfect scientific system, one in which individuals, acting on their own self-interested desires, create the maximum benefits for all. It follows ineluctably that if something is wrong … high inflation or soaring unemployment—it has to be because the market is not truly free.… The Chicago solution is always the same: a stricter and more complete application of the fundamentals.
—Naomi Klein, 2007
The emergence of neoliberal economics has radically increased the share of wealth that business is able to capture and drastically altered the ideological climate in favor of business. It has become the philosophical framework that dominates policy thinking almost everywhere, curbing democratic intervention from elected governments and limiting the space for critics of growth—indeed, for critics of any aspect of environmental degradation. The market has increasingly been accepted as the primary institution needed to take care of all aspects of public activity.
Neoliberalism and Its Values
Modern economics is usually seen as originating with Adam Smith’s
The Wealth of Nations
, published in 1776, at the very beginning of industrial capitalism. This first phase is known as
classical economics,
though its theorists called it
political economy
.
1
Economics developed as a set of ideas entirely within the context of the great economic expansion of industrial capitalism. Smith’s book was prescient: it preceded the wholesale adoption of coal-fueled steam power and the rise of factory production in the nineteenth century, as well as the extraordinary economic growth that accompanied these innovations. The term
economics
was not adopted until the late nineteenth century, when economists introduced the idea that value arises from the rational choices of completely informed individuals, who thus maximize their advantage (or
utility,
as it was termed)—a mechanism thought to match supply with demand and thus yield equilibrium. This suite of economic theories is known as
neoclassical economics
and has formed the basis of the economic mainstream ever since.
The neoliberal thinking of the late twentieth century can be seen as a variant of neoclassical economics; it rests squarely on several central tenets of that theory: individualism; a claim to scientific rigor; the faith that untrammeled markets, by harmonizing the desires of all individuals, will provide an optimal allocation of material things, leading to prosperity for all; and the idea that markets are a “natural,” transhistorical arena rather than a human construct.
Freedom, Individualism, and the Right to Property
Individualism lies at the root of all the various versions of laissez-faire economics, beginning with Adam Smith’s individual profit-seeker, who benefits everyone without trying:
He intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.… By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it.
2
Whether or not it is unfair, as some suggest,
3
to characterize Smith as the original free marketeer, his “invisible hand”—mentioned only once in
Wealth of Nations
—became enshrined in neoclassical economics as one of its great underlying truths: all it takes to advance the welfare of everyone is to pursue one’s own self-interest. Thus, individual self-interest miraculously produces the best possible world, and individual greed is vindicated as a desirable social behavior. One of the most basic ethical messages of all human religions is relegated to irrelevance. Though obviously a highly contestable proposition, the concept that individual self-interest leads to general welfare supported nineteenth-century laissez-faire economics right through to the Great Depression, and resurfaced with renewed ideological vigor during the 1970s, when Ayn Rand’s romanticized version of capitalism enjoyed mounting popularity.
4
Margaret Thatcher’s 1987 contention that “There is no such thing as society,”
5
referring to individuals’ obligation to look after themselves rather than to expect help from government, was emblematic of the emphasis.
While the self-interest of atomized individuals is the driver that is thought to underpin the market and produce prosperity, neoliberal economists also contend that the economic freedoms of these individuals (such as secure property rights and freedom of contract) are the underlying prerequisites for all human freedom. According to Milton Friedman, “Economic freedom is a necessary condition for political and civil freedom.… Property rights … are themselves the most basic of human rights and an essential foundation for other human rights.”
6
The Austrian-born economist Friedrich von Hayek argued, in a similar vein, that “the system of private property is the most important guarantee of freedom, not only for those who own property, but scarcely less for those who do not.”
7
Indeed, it has been argued that the inversion of the relationship between politics and economics is what distinguishes neoliberalism from its antecedents. The road to political liberty now ran through the free market rather than vice versa.
8
Freedom is not always understood in this way. When, in the wake of World War II, the UN General Assembly adopted the Declaration of Human Rights, it identified “freedom of speech and belief and freedom from fear and want” as the four fundamental freedoms of human beings. Articles 22 to 25 of the Declaration affirmed the right to work; the right to fair pay; the right to an adequate standard of living, including food, clothing, housing, and medical care; and assistance in the event of lack of livelihood.
9
Hayek, on the other hand, opposed the idea of freedom from want as a core freedom; he saw it as “only another name for the old demand for an equal distribution of wealth,” one of the hallmarks of socialism.
10
Making security of property title the bedrock of ideas about freedom clearly advantages those who hold most of the property, a very small minority of the world’s people; its enforcement has ossified many elements dating back to the colonial division of spoils. Optimal allocation, which is thought to be secured by a free market, never addresses prior theft or necessary restitution and simply assumes that payment of the highest price yields the most productive use.
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Yet what it really reflects is allocation to the person or persons who have the financial edge and the ability to pay. This has no necessary relationship to productive or optimal uses of anything.
Economics Becomes a Science
The neoclassical economists who emerged in the late nineteenth century set out to translate economic ideas into mathematical laws and establish economics as a science just like physics. Léon Walras and William Stanley Jevons, both trained in physics, were responsible for the “thickets of algebra” that have marched across the pages of economics texts since that time. They imagined that human economic systems could be captured in mathematical propositions in parallel with mid-nineteenth- century physics, divorced from the complexity of their history and the agency of the human beings who developed them over centuries. The operation of markets was conceived to be governed by what were virtually analogues of the laws of nature (as understood at the time),
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existing in a kind of social void, as universal phenomena. Yet the analogy doesn’t hold. While mid-nineteenth-century physics deals with reversible processes, economics describes processes that involve irreversible transformations to which the arrow of time applies.
Much of the mystification that has surrounded neoclassical economics is related to this quest for scientific status and the credibility it conferred—supposedly elevating economics above the other social sciences. Underlying it all is the claim that economics is merely descriptive of reality and thus value-free in the same sense as physics is thought to be—a straightforward theory of the workings of the real world. Whether any system of knowledge can legitimately be seen this way is a separate question and one I will not address here. Economics clearly is not akin to physics as it was understood in the mid-nineteenth century, any more than is history or sociology or any discipline that deals with the products of human intervention.
Another flaw in neoclassical economics is its failure to include nonmonetary economic contributions, including the services provided in households in all economies, mainly by women, and the subsistence work that dominates rural life throughout the world. Although the rural population is declining as a percentage of all people, about half the world’s population still lives outside cities. Any production not reflected in monetary flows is simply left out of neoclassical economics,
13
even though household members, mainly unpaid, produce a third or more of all goods and services in developed world economies and a far larger fraction in less-developed regions.
14
Thus, the wealth quantified by neoclassical economics is little more than half of overall economic activity but is theorized as if it were the whole. Neoclassical economics is also ill-equipped to describe the mixed economies of the postwar system, where governments have funded large fractions of GDP. In the Australian economist Hugh Stretton’s analysis, neoclassical economists “selected a few relationships from complicated real life, and modelled those few only. They focussed on sales and exchanges: on markets,”
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a perfect theoretical basis for the market fundamentalism that dominates current economics.
Optimal Allocation and the Cult of “Efficiency”
Closely related to the endorsement of individual material gratification as the core business of human economic activity is the cult of “efficiency,” which revolves around obtaining the biggest profit for the least outlay: getting the most for the least input, maximizing quantities, and minimizing costs. Although mainstream economists do not argue that business
should
attempt to shed the costs of its negative externalities, this is often the outcome in practice. In theory, externalities such as pollution or loss of amenity for citizens can be dealt with via taxes, trading schemes, or compensation, but all affect profit, and corporations prefer to avoid or minimize the bill (box 6.1).
Box 6.1
Externalities
In economic theory, externalities may be either positive or negative. Here, I deal with negative side-effects such as pollution. Some externalities are unaccounted for, even though they are reasonably quantifiable in money terms; others are unsuitable for monetary quantification. Business resists both categories: when the effect
could
be charged (for example, carbon taxes on CO
2
emissions), business resists to protect profit. When the value is difficult or impossible to reduce to dollars (as when an entire village will cease to exist if open-cut coal mining is allowed), business argues for monetary compensation.
The Indian physicist and environmental campaigner Vandana Shiva described how the quarrying of limestone for cement in northern India in the early 1980s destroyed her native Doon Valley. Originally a region with abundant rainfall, its deep limestone cavities provided a natural reservoir, recharged by rainfall in the Mussoorie Hills. The value of all this was ignored before quarrying began, even though the cost of an artificial structure of comparable depth was later estimated at $500 million. Shiva saw the valley’s last perennial stream run dry in 1982.
a
Failure to include the costs of the destruction of a region’s water supply in the accounting enables a very large inflation of the profit margin for the miner and cement manufacturer. In this worldview, the destruction of the water resource is a sad but inevitable consequence of “progress,” and its real value overlooked.
Such unaccounted costs can include not only the loss of nature and the services it provides to humans but also the costs of cleaning up or coping with pollution, and the lost livelihoods and cultures of displaced people—an estimated 40 million due to big dams in India alone, and tens of millions more in China. “Compensation” has not always been offered and, even when it was, has usually been woefully inadequate (see box 9.1).
Poisoned livelihoods include those of the people who live along the rivers polluted by the Ok Tedi gold mine in Papua New Guinea or the people of Lago Agrio in the Ecuadorian Amazon, where groundwater has been contaminated by toxic waste from Texaco’s drilling operations. The returns of cotton irrigators in Central Asia were not reduced by the immense social and ecological costs borne downstream by the Aral Sea and its people, whose fishing ports ended up thirty or forty miles from the shore of a saline, shrinking sea where fish no longer survived. The Canadian government’s social welfare bill on behalf of thousands of cod fishermen is another such externality, unreflected in the price of the fish before they disappeared. So is the progressive evacuation of islanders—from Tuvalu, Kiribati, Bougainville’s Carteret Islands, India’s Sundarbans, and the Bangladeshi delta—as sea levels rise because of greenhouse warming. The immense penalty imposed on islanders who lose their entire islands and everything on them has yet to be included in the costs of the aluminum we use in the first world, or the electricity we squander.
Where externalities are excluded, goods can be sold artificially cheaply, which encourages consumption and suits business. In Australia, the price of bread does not reflect the fact that every tonne of wheat embodies 1,000 tonnes of water and 45 tonnes of topsoil. In addition, the price of a nonrenewable resource, such as oil, does not reflect its status as nonrenewable—its
actual
scarcity—or the real costs of its externalities. Neither does it reflect the fact that the price is also artificially lowered by the massive subsidies showered on the oil and gas industry by governments around the world.
Perhaps the most pressing externality in the second decade of the twenty-first century is the emission of carbon dioxide and methane from a great range of human economic activities. Not only has the market failed to dampen these down—global emissions grow at an increasing rate every year—but the corporations controlling the world economy resist the process (see part III). Global warming was reckoned by the economist Nicholas Stern, who wrote the UK report on the costs of a response, to be the “greatest and widest-ranging market failure ever seen”
b
—where the market reflects neither true environmental nor true economic costs.
Notes
a
Shiva 2002, 2, 5–6, citing a report by India’s Ministry of Environment.
b
Stern 2007, executive summary, i.
