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www.paecon.net Student Essays on Post-Autistic Economics from post-autistic economics review : issue no. 19, April 2, 2003 Toward a Holistic Economics Jared Ferrie (student at Simon Fraser University, Canada) Introduction 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 maquiladora industry “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 Thein Durning 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 “Genuine Progress 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 Abramovitz, Janet N. “Nature’s ‘Free’ Services” in The World Watch Reader on Global Environmental Issues. Eds: Lester Brown and Ed Ayers. New York: W.W. Norton and Co, 1998. Albert, Michael. Moving Forward: Program for a Participatory Economy. San Francisco: AK Press, 2000. Brecher, Jeremy. Costello, Tim. Global Village or Global Pillage. 2^nd ed. Cambridge: South End Press, 1998. Daly, Herman. “Sustainable Growth? No Thank You” in The Case Against the Global Economy. Eds: Edward Goldsmith and Jerry Mander. New York: Sierra Club, 1996. Dowd, Douglas. Capitalism and Its Economics: A Critical History. London: Pluto Press, 2000. Durning, Alan Thein. “The Changing World View” in The World Watch Reader on Global Environmental Issues. Eds: Lester Brown and Ed Ayers. New York: W.W. Norton and Co, 1998. Goldsmith, Alexander. “Seeds of Exploitation: Free Trade Zones in the Global Economy”. in The Case Against the Global Economy. Eds: Edward Goldsmith and Jerry Mander. New York: Sierra Club, 1996. Goodland, Robert. “Growth Has Reached Its Limit” in The Case Against the Global Economy. Eds: Edward Goldsmith and Jerry Mander. New York: Sierra Club, 1996. Halstead, Ted. Cobb, Clifford. ”The Need for New Measurements of Progress” in The Case Against the Global Economy. Eds: Edward Goldsmith and Jerry Mander. New York: Sierra Club, 1996. Ransom, David. The No-Nonsense Guide to Fair Trade. Toronto: New Internationalist, 2001. Sietz, John L. Global Issues: An Introduction. 2^nd ed. Malden: Blackwell, 2002. ______________________________ SUGGESTED CITATION: Jared Ferrie, “Toward a Holistic Economics“, post-autistic economics review, issue no. 2 April 2003, article 5, http://www.btinternet.com/~pae_news/review/issue19.htm