We live in an age of extremes. While a small percentage of
the world’s population enjoys most of its wealth, the vast majority live in
poverty. Clearly, there are enough resources to go around; the problem is one
of distribution. Douglas Dowd underlines this fact by pointing out “the
contrasts between the possible and the actual” (2000):
“As the
twentieth century ended…for the first time in history, existing resources and
technology taken together had made it possible for all 6 billion of the
earth’s inhabitants – now or within a generation – to be at least adequately
fed, housed clothed, educated, and their health cared for” (2000).
Like poverty, environmental degradation is nothing new to history, but
today’s rates, on a global level, are unprecedented. As with poverty, these
extremes are spurred on by an economic system based on exploitation. Yet,
mainstream economists continually deny this. Dowd points out that, "[a]s
this is written, capitalism…and its economic theory stride arm in arm on
parade, celebrating their joint triumph, aloof and oblivious to these facts”
(2000). It seems a worthy undertaking, then, to examine some of the flaws of
mainstream economics and to suggest alternatives. There are many possible
starting points for this type of analysis, but I will focus on three
conceptual weaknesses that contribute to an exploitative global economic
system.
Mainstream economics is fundamentally flawed in its measurement of: (1) the
value of labour, (2) the cost of natural resources and (3) the health of the
economy as assessed by Gross Domestic Product (GDP). Obviously, solving the
world’s problems is not simply a matter of juggling economic concepts, but
the adoption of a more holistic approach to economics would certainly help to
alleviate some of the extreme environmental destruction and inequity we now
face.
Overworked and Undervalued
Capitalism’s use of cheap labour has a long and sordid
history, dating back to a time when industries such as cotton and sugar were
built on the backs of slavery. In our era, it is comforting to believe that
slavery has been eradicated in all but the most marginal of economies.
However, today untold amounts of workers throughout the world are effectively
forced, through a lack of other options, to toil under inhumane conditions
for subsistence wages.
Predictably, the most undervalued labour takes place in the “developing
world”. Much of this labour is used to produce goods for an extremely low
cost to be sold at a massive markup to consumers in
richer countries. In Mexico, factories that produce such goods are known as maquiladoras.
The maquiladoraindustry “represented Mexico’s second
largest source of foreign exchange after oil, earning the country $3 billion
in 1989” (Goldsmith 1996). However, as the industry grew, workers saw the
value of their labour shrink even more: “wage levels in maquilas– as in Mexico as a whole – fell relentlessly as the numbers
employed in them rose” (Ransom 2001). This phenomenon is part of a process
that Jeremy Brecher and Tim Costello call “the race
to the bottom” (1998).
The race to the bottom refers to the downward leveling
of wages on a global scale. The continual integration of the global economy
creates competition among countries to offer the lowest production costs. For
many countries, their comparative advantage takes the form of devalued
labour. However, when a country’s comparative advantage is cheap labour, the
main beneficiaries are those who control the means of production, not the
workers themselves. Furthermore, as other countries compete by offering even
cheaper labour, wages continue in a downward spiral.
While mainstream economists tout the advantages of the free market, many
workers find themselves at the losing end of a system that does not recognize
the true value of their labour. There are various responses to this,
including the suggestion that “a demand for a minimum wage that is 60% of the
national average income for the economy would be a good short-term starting
point” (Albert 2000). While this would
certainly be a more accurate assessment of the value of labour, it is likely
that capital flight and the loss of jobs would be the result of implementing
such a policy in a given country.
The above example indicates the need to enforce labour standards on a global
level. Brecher and Costello stress the role of
unions in this process. They point out that “the International Labour
Organization…has developed a code [that] would forbid many of the worst U.S.
labour abuses” (1998). They maintain that “[a]t the top of labour’s political
agenda should be the inclusion of labour rights in U.S. trade policy and all
economic institutions” (1998).
Another way to press for the recognition of the true value of labour is
through consumer awareness. There has been much work done in this area and
considerable advances have been made. One example is fair trade, in which
consumers pay a little extra knowing that “fair trade’s higher price goes
straight to impoverished countries in the South” (Ransom 2001). While fair
trade networks control only a marginal share of a handful of markets, the
growth of the movement over the past few years represents tremendous
potential. It may be that most consumers are willing to recognize the true
value of labour – if they are given the option.
Paying the Price Environmentally
Mainstream economics also fails to accurately assess the true costs of natural
resources. Along with cheap labour, capitalist economies have traditionally
based their development upon the exploitation of the environment. Mainstream
economic theory facilitates this process by viewing resources as gifts of
nature rather than factoring in the environmental costs. The current
critical, global level of environmental degradation indicates that it is no
longer feasible to continue with this line of reasoning.
For mainstream economists, growth is synonymous with a healthy economy. But
growth that comes at the expense of the environment has a definite limit.
Herman Daly points out that:
“In its physical dimension, the economy is an open subsystem of the earth’s
ecosystem, which is finite, non-growing, and materially closed. As the economic
subsystem grows, it incorporates an even greater proportion of the total
ecosystem into itself and must reach a limit at 100 percent, if not before.
Therefore its growth is unsustainable” (1996).
Robert Goodland concurs, maintaining that “growth has reached its limit”
(1996). He argues that “[t]he imperative, therefore, is to keep the size of
the global economy sustainable within the capacity of the ecosystem” (1996).
The challenge for economists, then, is to adequately assess the costs of
natural resources that have thus far been considered free.
Janet Abramovitz suggests that “[o]ne way to estimate the economic value of an ostensibly
free service like that of a forested watershed is to estimate what it would
cost society if that service had to be replaced” (1998). It is an undeniably
difficult task to estimate nature’s economic worth, but there has been a
substantial amount of research done in this area. Abramovitz
points to a study by the University of Maryland’s Institute for Ecological
Economics. The researchers found that “the current economic value of the
world’s ecosystem services is in the neighborhood
of $33 trillion per year, exceeding that of the global GNP of $25 trillion”
(1998). The task at hand is to incorporate this type of knowledge into
mainstream economics.
Alan TheinDurning
recommends including ecological costs in the prices of goods and services. He
believes that “only prices are powerful enough to fundamentally redirect
consumption and production patterns”, and he suggests a process of “partially
replacing existing taxes with taxes on pollution, depletion, and disruption
of nature”(1998). This policy would also be supported by “a strong framework
of laws and regulations” (1998).
Incorporating ecological costs into the prices of goods and services is a
complex matter, but it must be done. The fact that these costs are ignored to
a great degree constitutes a gaping hole in mainstream economics and
encourages the continued destruction of the environment. Factoring the true
costs of natural resources into prices would provide incentives to find
environmentally sustainable alternatives. The fact is we will pay and are
paying the costs of exploiting the earth’s resources, because when the
environment suffers, we suffer.
Measuring Success
It takes a certain willful type
of ignorance to suggest that an economy is healthy while we face such
unprecedented levels of poverty and environmental destruction. Yet many
mainstream economists tell us that the global economy, despite its flaws, is
coming along just fabulously. Of course, assessing just how well the economy
is doing depends to a great degree on where you fit into it. The fact that
the pundits of the global economy are generally to be found somewhere in the
upper echelons undoubtedly colours their opinions. Another aspect to the
incongruence between what is said and what is, is the fact that mainstream
economists have a fundamentally flawed method of assessing the health of the
economy.
The commonly accepted indicator of the health of the economy is the Gross
Domestic Product (GDP). A country’s economy is assumed to be doing well if
the GDP rises. This is misleading, however, because the GDP is “a balance
sheet with no cost side of the ledger; it does not differentiate between
costs and benefits, between productive and destructive activities, or between
sustainable and unsustainable ones” (Cobb 1996). Thus, the GDP will actually
assess an environmental disaster in positive terms. For example, an oil spill
will boost the GDP because repairing the tanker and cleaning up the spill
requires that money change hands. However, GDP does not account for the cost
to the ecosystem or even the social costs that an oil spill may have on
industries such as tourism. Nor does the GDP indicate distribution of wealth.
In a truly healthy economy, wealth would be spread evenly throughout society.
Clearly this is not the case, and measuring the health of an economy in terms
of GDP only perpetuates the situation.
Halstead and Cobb suggest an alternative to the GDP. They call it the
“GenuineProgress Indicator (GPI)”
(1996). The GPI takes into account those factors missing from the GDP
including “resource
depletion…pollution…long-term environmental damage…[and] income distribution” (1996) (italics
theirs). They believe that “economic change is not likely to come until the
nation produces an honest set of books that enables people to see the
consequences of policies more clearly than they do now” (1996). Replacing GDP
with a more accurate measurement such as the GPI would be a step towards
placing value on sectors of the economy that are currently ignored.
Conclusion
Many people today know what mainstream economists ignore. We understand that
human society is reaching a critical stage in its evolution. The current
levels of poverty and environmental destruction, astounding as they are, are
but warnings of what is to come. While optimistic capitalists may place blind
faith in technology to remedy environmental problems or free trade to spread
the wealth around, the economic system does not provide incentives to achieve
these said goals. On the contrary, it rewards those who exploit the world’s
labour and natural resources and punishes those who do not. Mainstream
economists can not continue to ignore this fact.
Douglas Dowd calls “the behavior of today’s
mainstream economists as, quite simply, shameful” (2000). He contends that
“[f]ar from adding to our understanding they have
detracted from it; they have transformed economics into ideology supporting
and strengthening business” (2000). Dowd poses a challenge to mainstream
economists. He suggests that they ask of themselves in regard to the economy,
“What must we do to improve its functioning for people, the society, and the
environment?” (2000). A step in the right direction would be to take a more
holistic approach to economics. Part of this process would involve creating
new mechanisms to assess the value of labour, the cost of natural resources
and the health of the economy. While a holistic economic theory would not be
able to repair our most pressing problems overnight, it would provide a
desperately needed framework for change.
Works Cited
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Lester Brown and Ed Ayers. New York: W.W. Norton and Co, 1998.
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Forward: Program for a
Participatory Economy. San Francisco: AK Press,
2000.
Brecher, Jeremy.
Costello, Tim. Global Village or Global Pillage. 2nd ed.
Cambridge: South End Press, 1998.
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Dowd, Douglas. Capitalism and
Its Economics: A Critical History. London: Pluto Press, 2000.
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Changing World View” in The World Watch Reader on Global
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