Don't forget what the economy is for: response to Mills

Logo-There is an alternative

In response to John Mills, the New Economics Foundation's head of social policy argues that it's vital that economists like John Mills don't ignore that the economy is woven into society and dependent upon the planet.

Anna Coote
21 April 2014

Childcare - a part of the core economy (Wikimedia)

It's certainly true, as John Mills points out, that the UK’s economy has pursued short-term gains over the last three decades, mainly accruing to the financial sector based in the City of London. Mills rightly contends that human beings can change market rules for the better. Longer-term planning and rebalancing economic activity and reward from the South-East to other parts of the country are useful strategies. However, like most conventional economists, he assumes that if a country’s economy is performing well, then all good things will follow. The main task is to work out how to improve performance, usually in terms of Gross Domestic Product or (as Mills recommends) Gross National Product.

He barely mentions the impact of economic activity on the natural environment, except to acknowledge that growth can be a bit greener, perhaps. Nor does he take account of how economic activity arises from, and is intricately interwoven with, everyday life and social relationships. In short, he misses the point about what the ‘economy’ is for and what it entails.

So here are 10 suggestions for building a truly sustainable alternative, where ‘sustainable’ means, to borrow from Brundtland, development that ‘meets the needs of the present without compromising the ability of future generations to meet their own needs’.

1.Start from the premise that the economy is there to serve the interests of people and the planet, not the other way around. All economists should read the reports of the Inter-governmental Panel on Climate Change. Any kind of economic planning or modelling should be centrally informed by those findings.

2.Understand that economic ‘growth’ is not inherently virtuous or desirable, nor is more of it necessarily better. Tim Jackson has argued persuasively that more growth in the rich world will make it more difficult or even impossible to achieve internationally agreed carbon reduction targets. If the aim is to avoid catastrophic climate change, then it is more important to aim for prosperity with little or no growth. As Professor Sir Nicholas Stern told the British Academy recently, ‘Prosperity is a very broad concept. It is way beyond material income, consumption or wealth. It is how we live, how we manage uncertainty and anxiety, how we interact with each other, and our sense of community and identity.’

3.If the economy is to be ‘rebalanced’ in favour of more production, what kinds of production will be consistent with prosperity? What things will be produced? How much energy will be needed and what kind of energy will it be? What natural resources will be used? What levels of greenhouse gas emissions? The same questions apply to any infrastructure developed to support production. ‘Greening the economy’ is not just a nice phrase. It is a serious proposition with major implications for the type and scale of all production planned from now on. Beyond the short-term, ‘green growth’ in the rich world is a contradiction in terms.

4.Never forget that goods exported from the UK have significant environmental and social impacts for the importing countries and consumers. These impacts must be fully anticipated, with production geared to minimising harm and maximising benefits to importing societies, as well as to staying within planetary boundaries. In the same spirit, the UK must take responsibility for the ecological footprint of goods imported from abroad – as well as the social tariff born by the producers. Rich countries like the UK, whose lifestyles have depended on exploiting the human and ecological resources of poor countries, must be held to account for the effects of their consumption as well as their production. This is a more important job for economic planners than adjusting the exchange rate.

5.Patterns of consumption in the rich world not only affect quality of life in less developed countries. They also have a profound effect on the life chances of future generations. It is time to take a long hard look at what is consumed in the UK, how much is consumed and what is really necessary, as opposed to habitual, desirable or aspirational. That goes for travel and housing (with all the associated trappings) as well as other goods (or ‘bads’). A sustainable economy seeks to satisfy needs, not wants. People in the rich world, especially higher income groups, buy and consume far more than is needed for a good life. And in the crazy logic of conventional economics, today’s pathological patterns of consumption are actively encouraged – to drive and justify increased productivity and growth.

6. Instead of just ramping up manufacturing and export-led growth, the aim should be to ensure that every individual is able to flourish – to have the means to be healthy and autonomous, to enjoy secure relationships, to fulfil their potential and contribute to society. This shakes up assumptions about paid employment. Flourishing need not depend on working longer and harder in order to earn more and buy more. It can depend instead on working long enough to earn enough to live sustainably. It follows that more people can work shorter hours, which in turn can help to create more jobs for the unemployed. As the New Economics Foundation (NEF) has argued elsewhere, let ‘part-time’ (say, 30 hours a week) become the new ‘full-time’ and redistribute paid and unpaid time more fairly across the population, especially between women and men.

7.If people have to work long hours in order to make ends meet, that’s a problem of low pay, not an argument against shorter working hours. The aim should be for everyone in paid employment to earn at least the equivalent of today’s Living Wage for a 30-hour week: that’s £9.41 an hour instead of £7.45. Employers would find this much more affordable if they narrowed the ratio between high- and low-paid staff. Companies should be obliged to publish pay ratios and justify ratios above 1:20. Inequalities in income and wealth have widened dramatically over the last decade and ratios of more than 500:1 are now commonplace. Narrowing inequalities should be a primary goal of economic planning, not an afterthought.

8.Human flourishing is a precondition of prosperity. It depends on unpaid as much as (or more than) paid activity. At NEF, we call this the ‘core economy’: caring for children and elderly relatives, looking after the household, preparing and cooking food, spending time with friends and family, reflecting and learning, exchanging knowledge and skills, making things, taking exercise, helping one’s neighbours, creating and inventing, being politically engaged. These activities, far more than production and consumption, make society tick. Without them, the market economy would grind to a halt. In the main, they are neither costly nor energy intensive. Economists must learn to recognise and value the core economy. This does not mean just putting a price on it, but understanding its importance and working out how best to support it.

9.Supporting the core economy – and hence the market economy – involves pooling resources, sharing risks and acting collectively to provide services and benefits that are available to everyone according to need, not ability to pay. These are the principles that underpin the National Health Service, state-funded education and what’s left of the welfare state. They provide security and access to life’s necessities, so that no-one is unfairly disadvantaged by background or circumstances beyond their control. It also involves recognising that people have assets that are valuable (such as time, energy, wisdom, experience, love and care) which can be supported and developed, to enable everyone to realise their capabilities. It involves fostering feelings of solidarity – sympathy and responsibility and mutual support, not just for one’s immediate networks, but also for others who are ‘strangers’ and for future generations. This kind of support will provide the building blocks for prosperity, far more effectively than the neoliberal cult of individualism, choice and competition.

10.Conventional economists are fond of dismissing their critics as naive dreamers who need to take a ‘reality check’. But wake up, please. This is the real world: threatened by a dangerous combination of widening social inequalities, accelerating climate change and the rampant depletion of finite natural resources. The markets will not fix these problems without concerted human intervention – aiming not for growth but for sustainable social justice.

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