28 January 2010

The Human Firm

The fanfare of publicity surrounding the announcement that the UK had experienced - hold your breath! - 0.1% of growth during the last three months of 2009 was embarrassingly inappropriate in several ways. First, and most obvious, was the awkwardness of statisticians behaving like media tarts. The explanation can only be their fear of facing the Osborne axe if the Tories get elected.

Second was the celebration over such a paltry increase - and in the quarter when all economists and statisticians know that the bulk of retail activity takes place every year. This time the Christmas effect will have been exaggerated because of what used to be January sales taking place before Christmas. The data are seasonally adjusted to attempt to eliminate these effects, but given the unpredictability of both business and consumers in these extremely unusual times, 0.1% growth is really no news at all. The dismal 'growth' trend in the figure from ONS illustrates this.

The most intelligent commentators extrapolated from this 0.1% to tell us how much smaller our economy is now than it would have been if we had followed 'a normal growth path': around 6%. I wonder how many people will think about that and realise what it teaches us about the rapid nature of expansion when we are following 'the normal growth path'. Growth on growth, exponentially in this manner, is what is driving us to the planetary abyss. As the authors of Limits to Growth identified, humans have a problem grasping the abstract reality of exponential growth. To help explain they included this story in their report:

'French children are told a story in which they imagine having a pond with water lily leaves floating on the surface. The lily population doubles in size every day and if left unchecked will smother the pond in 30 days, killing all the other living things in the water. Day after day the plant seems small and so it is decided to leave it to grow until it half-covers the pond, before cutting it back. They are then asked, on what day that will occur. This is revealed to be the 29th day, and then there will be just one day to save the pond.'

So we can learn lessons about the weakness of statistics and the crisis of economic growth, but I think I have detected a more encouraging sign: that people are not behaving like rational economic men. The statistics on which economic planning is based are monetary figures, so they include all the pointless shuffling around of money that a financial economy indulges in. If you are interesting in the real economy of stuff, then the second figure is more illuminating: manufacturing industry in the UK has fallen off a cliff.

And yet unemployment has not risen anything like as rapidly as predicted. In economic theory, a recession results in firms automatically reducing output and cutting prices and wages. They do this in a competitive process and without regard to the human costs. Yet in this recession we have seen firms negotiating with workers to share the available work and the income that is available to be paid out in wages.

Is this merely an adaptation of capitalism, where we willingly cut our own wages? I would prefer to interpret it as humanity rather than flexibility in the workplace. Since the steady-state economy implies a level of economic activity considerably lower than that which prevailed before the recession, this bargaining over the value of production is something that should be facilitated and extended.

23 January 2010

The Tripartite Hegemony

It is clear that the problems facing the world economy have their origin in the financial system and that the curbs on bank powers proposed by Obama, significant as they are in a country where financial interests are so powerful, are insufficient and misdirected. What we need is not a behaviour management programme but a democratised system that serves the interests of all the world's people. Since the problems of the post-war period have resulted from too much US power - especially in global finance - it is unlikely that a solution is going to emerge from the President of the United States.

This is made heart-warmingly clear in a lucid and congent book that I have been enjoying recently: Unholy Trinity: The IMF, World Bank and WTO by Richard Peet. Like others I have been waffling on about the need for a new Bretton Woods without feeling entirely confident about the workings of the system that has proved itself to be so wrong. Professor Peet has been spending his time cutting through the verbiage and obfuscation of the financiers and has now presented his understanding in this excellent book.

From the travails of the 1930s that led to the conviction that politicians must take control of finance, through the weary Bretton Woods negotiations and the even wearier surrender by the war-ravaged European to US domination, Peet maps out the path we trod to arrive at a system where capital is supreme as never before - in spite of its clearly demonstrated incompetence and destructiveness. For those with a taste for abstract concepts like securitization and who thirst to fully understand the workings of a special drawing right, I can promise that you too will be satisfied by the thorough research and clarity of writing. Peet has no interest in demonstrating how smart he has been to work all of this out: his intention is to help us all to follow his lead so that our proposals for change will be better informed and more powerful as a result.

As with many books that arise from the left, this one is weak on prescriptions. But perhaps that itself is appropriate. We are clear about the need for the reclaiming of power over capital for the world's citizens, and the need for a new international negotiation to establish a world economic framework based on the twin principles of sustainability and equity. Beyond this we surely need the humility to listen to those of the world's people who are not responsible for the spectacular mess the smart guys in the west have gotten us into.

6 January 2010

We've got the contraction, what about the convergence?

The most promising plan that the world can sign up to in order to reduce CO2 limits is Contraction and Convergence. It is appealing because it is simple and fair: under the plan every person on the earth has the right to emit an equal quantity of carbon dioxide. This sidelines the discussion about whether the US or China is the worst sinner, since in these terms the US loses out every time. No wonder that the proposal - nor anything similar - was not on the table at Copenhagen.

'Contraction' and 'convergence' are not attractive words and it is hard to imagine people marching the streets shouting 'What do we want?' 'Contraction and convergence', 'When do we want it?' 'Now!'. But what the plan neatly does is to link the need to limit economic activity to the need to share its proceeds fairly. Part of the reason governments are addicted to growth is that it allows them to sideline issues about distribution. Now that the world has run up against planetary limits, the link between the greed of a few and the need of the many is going to be harder to avoid.

But surely the same applies in our own country. The origin of the UK's economic collapse was clearly in the debt-ridden financial system and the government bailout, but for many green-minded economists, a shrinking economy could be a step towards living more in balance with what the earth can provide. Our proposals would require a reduction in consumption levels from those of the debt-fuelled binge of recent years.

The other side of our argument is that the smaller quantity of stuff would have to be shared fairly, so we cannot have sustainability without equity and we should not have a contraction of our national economy without a convergence in our levels of wealth. This is a proposal we could make in our own workplaces: if jobs are threatened and pay cuts loom, we should propose that the shortage of cash is addressed by reducing the wage differentials.

Recent evidence has shown clearly that inequality is the root cause of many of the social evils of 21st century life. It is also a driver of environmental destruction. The recession gives us the chance to argue for a better, fairer sharing of the earth's resources. Contraction and convergence is just as relevant domestically as it is globally.

4 January 2010

Hope Dawns in Disagreement

Regular readers of this blog will know that a recurring whinge relates to the strict orthodoxy of economics - as taught in universities and advised to governments - and the hegemony which it exercises across the globe in these early years of the 21st century. But first the Queen questions what economists are up to, and now from the pink pages of orthodoxy themselves, comes evidence of the paradigm beginning to crack. When FT journalists bewail the lack of uniformity amongst orthodox economists then times are becoming interesting indeed.

Krugman's questioning of free trade - a concept that traditionally stands alongside economic growth as one of the twin pillars supporting the edifice of the neoclassical catechism - is clear proof that the economists are ruffled. While capitalism is endowed with what my Marxist-Lentilist friend refers to as a Protean ability to adapt, the process is not a painless one. And while it is taking place is the moment of the system's greatest weakness.

Alongside Krugman the article cites Robert Barro, whose work on growth convergence argues that countries and regions within those countries will naturally tend towards similar rates of growth in the medium term. Evidence has failed to support this theory, but that has not held back the eminent economist's career. He is now accusing those economists who support major public spending to prevent a Depression of turning to magic. Once this criticism comes out of the armoury, no economist will be safe. From white-coated scientists to snake-oil witch-doctors, they will lose their sacred status at a stroke. Or am I just attempting to dream new year hopes into reality?

Clive Crook, for that, dear readers, is his name, is most upset by the fact that the politics that has always lain behind the neoclassical hegemony is being revealed as the profession comes under pressure for having allowed massive financial and environmental crises to occur. The consequent cracks allow space for the barbarians to rush in to challenge the citadel.

1 January 2010

Earthly Gifts

Part of the job of an environmentally focused economist must be to keep a clear awareness of how valuable the planet is to us, but what does that value mean and how, if at all, can it be measured? To attempt to bridge the gulf between ecology and economics the concept of 'eco-system services' is growing in popularity. Here is how one excellent critique introduces the concept:

'What are ‘Ecosystem Services’? At first hearing, they sound like a firm of consultants who help you repair your ailing ecosystem. In fact it’s the other way round, the sevice is provided by people with ecosystems to people who no longer have one, and who need one. For example if your forest, or your peat bog is absorbing carbon, it is providing a service to other people who are producing excessive CO2 and need something, somewhere to absorb it. Other ecosystem services include climate regulation, maintenance of biodiversity, water conservation and supply, and the preservation of aesthetic, cultural and spiritual values. The emerging view is that the people receiving these ecosystem services should start to pay for them.'(Sullivan, 2008).

Ecosystem services formed a major focus of the recent study known as the Millennium Ecosystem Assessment (MA), which reported that ‘60 to 70% of our world’s ecosystem services are deteriorating, with dramatic consequences for those who are most dependent on their steady provision, such as subsistence farmers.’ There is an explicit admission that the concept of ecosystem services has been designed to increase the attractiveness of talk of environmental protection to the corporate sector: ‘The attractiveness of the “ecosystem services” concept is also largely due to its capacity to provide a unifying language between the economic, business and environmental communities; as beneficiaries of valuable services are identified, previously uninvolved actors are recognizing that they have a stake in conserving the environment’ (UNEP, n.d.: 2).

However, it may be an important cost if the planet’s intrinsic spiritual value is lost in the process of ‘costing the earth’. There are also difficulties in terms of establishing ownership rights over the areas of the world where ecosystems remain intact, largely due to low levels of industrialisation. Since the people living in these areas have less economic clout they may not be well placed to protect their rights over their land and their lifestyle which, paradoxically, is precisely what has preserved the ecosystem. As environmental pressures increase, subsistence farmers in the world’s poorer nations are threatened with displacement and loss of livelihood as their land is traded to provide carbon sinks and other ‘ecosystem services’ for the peoples of the richer world.

I also wonder what it does to us and our relationship with the planet when we think of it as providing us with services. What becomes of the awe and reverence that are more appropriate reactions? How is this attitude of expecting service different from that of exploiting resources which has surely caused our environmental problems?

Reducing this deeply spiritual relationship to one that can be counted - and even compensated - in monetary terms is to denigrate and belittle it. How could we think of paying our mother for breastfeeding, or even for making us a Sunday lunch. Imagine wiping the napkin across your mouth and then reaching for your wallet. Just as you mother does not offer you services which can be bought and sold, neither does the planet.

Ecosystem services is a dangerous concept and a piece of discourse we should consciously eschew. From a green perspective the earth is an abundant and generous provider. What we receive is always free, always given without expectation of reciprocity. So I would suggest that we deliberately counter this pernicious term with that of 'earthly gifts', which helps to reinforce a sentiment of gratitude and respect.